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FORM 10-K
---------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission file number 0-14482
CARVER CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-1043157
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYERIDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
20121--48TH AVENUE WEST, LYNNWOOD, WA 98036
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(206) 775-1202
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing price for the registrant's Common Stock, as
reported by the National Association of Securities Dealers' Automated
Quotation National Market System on March 27, 1997 was $6,763,288.
Number of shares of Common Stock of the Registrant outstanding as of March
27, 1997: 3,742,403 shares.
Items 10, 11, 12 and 13 of Part II are incorporated by reference to the
Company's definitive proxy statement for its 1997 Annual Meeting of
shareholders which involves the election of directors and which will be filed
with the Commission within 120 days after the close of the fiscal year.
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TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS....................................................... 3
ITEM 2. PROPERTIES..................................................... 11
ITEM 3. LEGAL PROCEEDINGS.............................................. 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 11
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON SHARES AND RELATED SHAREHOLDER
MATTERS........................................................ 12
ITEM 6. SELECTED FINANCIAL DATA........................................ 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................... 12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 18
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE........................................... 32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY................ 32
ITEM 11. EXECUTIVE COMPENSATION......................................... 32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. 32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K............................................................ 32
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PART I
ITEM 1. BUSINESS
INTRODUCTION
FORWARD-LOOKING STATEMENTS
Statements in this report covering future performance, developments, expecta-
tions or events, including the discussion of the Company's strategy, product
development and introduction plans and various statements concerning the
Company's expectations for its growth and for the consumer electronics indus-
try and generation of additional working capital, constitute forward-looking
statements which are subject to a number of known or unknown risks, uncertain-
ties and other factors which might cause actual results to differ materially
from stated expectations. These risks and uncertainties include product devel-
opment or production difficulties or delays due to supply constraints, techni-
cal problems or other factors; technological changes; the effect of global,
national and regional economic conditions; changes in consumer preferences;
the impact of competitive products and pricing; changes in demand; increases
in component prices or other costs; inventory risks due to shifts in market
demand, product obsolescence or other factors; and a number of other risks in-
cluding those risks and uncertainties described under the caption "Risk Fac-
tors" in Part I of this report and those identified by the Company from time
to time in other filings with the Commission, press releases and other commu-
nications. Although the Company believes that all forward-looking statements
are reasonable, there can be no assurance that actual results, achievements,
performance or developments will not differ materially from those expressed or
implied by such forward-looking statements.
DESCRIPTION OF BUSINESS
Carver Corporation ("Carver" or the "Company") designs, develops, manufac-
tures and markets high-fidelity audio/video components targeted to the mid-to
high-end home entertainment audio/video systems market.
Carver products are positioned in the middle and upper price range of most
audio components. The Company offers technically innovative audio/video prod-
ucts for the home entertainment market that deliver affordable "audiophile"
quality. It targets its distribution channels toward knowledgeable consumers
who insist on high quality products which offer superior features and perfor-
mance.
During 1996, the Company's strategy was to update its products, to broaden
its market presence and return its operations to profitability. The Company
re-engineered every key product category with the introduction of new multi
and two channel amplifiers, pre-amplifier/tuners and a receiver. The Company
also took several steps to restructure its retail network.
The Company was incorporated in the State of Washington in 1978, and its ini-
tial public offering occurred in May 1985. Its Common Stock is traded on the
Nasdaq National Market under the symbol CAVR. The Company is located at 20121-
48th Avenue West, Lynnwood, Washington 98046. Its telephone number is (206)
775-1202.
INDUSTRY OVERVIEW
Carver estimates, based on market industry surveys, the U.S. consumer (in-
home use) high-fidelity audio market (electronics of all types including por-
table and mobile audio) to be currently in excess of $3.6 billion per year at
the factory selling price.
Home audio/video systems vary widely in design, quality and price from inex-
pensive systems having relatively low-quality sound reproduction to expensive
systems designed for the high-fidelity sound enthusiasts who demand that their
systems duplicate, as closely as possible, the sound of a live performance.
System prices range from under $100 to well over $100,000. Carver considers
itself positioned between the middle segment and the extreme high-end compa-
nies. It estimates the total size of the market for separate audio components
to be around $2 billion annually. A Carver system, including loudspeakers,
ranges in price from approximately $3,200 to approximately $7,300.
RECENT DEVELOPMENTS
PRIVATE PLACEMENT OF SECURITIES
In the second and third quarters of 1996, the Company sold 1,411,764 shares
of Series A Cumulative Convertible Preferred Stock (the "Preferred Stock") and
issued five-year warrants (the "Warrants") to acquire up to 300,000 shares of
the Company's Common Stock pursuant to a Stock Purchase Agreement (the "Agree-
ment") with Renwick Capital Management, Inc. and certain Renwick affiliates
("Renwick"). The Shares of Preferred Stock and Warrants are convertible into
1,711,764 shares of Common Stock, or approximately 46% of the current shares
outstanding. See Item 7 of Part II below.
The price of the Preferred Stock was $2.125 per share and each share of Pre-
ferred Stock is convertible at any time at the option of the holder into one
share of Common Stock. The Company received gross proceeds of $3,000,000 from
the sale of the Preferred Stock.
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The holders of the Preferred Stock are entitled to one vote for each share of
Common Stock into which the Preferred Stock is convertible and to elect two
representatives to the Company's Board of Directors. By virtue of the number
of votes to be controlled by Renwick and its affiliates, their right to elect
two of the Company's five directors and the fact that various actions may not
be taken by the Company without the approval of the holders of at least a ma-
jority of the Preferred Stock, such holders may be deemed to have acquired
control of the Company.
The exercise price of the Warrants is $1.50 per share of Common Stock, if ex-
ercised from the date of the initial closing through the date two years from
the date of the initial closing, $1.75 for the next year, $2.00 for the next
year, and $2.125 for the final year, subject to certain potential antidilution
adjustments.
Renwick is a New York-based investment banking firm founded in 1994 which
specializes in the identification of undervalued growth companies exhibiting
the potential for an operational turn-around. Renwick actively supports its
principal investments through involvement in the industry and Wall Street pro-
fessionals familiar with turn-around situations.
SALE OF COMPANY'S MANUFACTURING FACILITY
The Company has entered into an agreement to sell its existing headquarters
and manufacturing facility in Lynnwood, Washington for approximately
$3,000,000 in cash, which would yield net proceeds of approximately
$2,800,000. The closing of this transaction in the second quarter of 1997 is
subject to satisfaction of a contingency related to an environmental audit,
which is expected to be completed by April 1, 1997.
PROPERTY CAUSALITY LOSS
On December 30, 1996, a Pacific Northwest snow storm temporarily interrupted
the Company's normal business operations and caused a roof section at its man-
ufacturing and corporate headquarters to collapse. The Company is insured for
losses caused by an interruption to its business and damage to its property,
and as a result no material losses are anticipated.
CUSTOMS AUDIT
Late in 1994, the United States Customs Service completed an audit of the
Company's import operations. The Customs Service found that the Company had
made late duty payments totaling $99,000 on tooling between 1989 to 1993. On
March 9, 1995, the Customs Service issued to the Company a prepenalty notice
indicating that it would assess a penalty up to approximately $400,000. The
Company has provided documentation to the Customs Service, and the Company
paid the Customs Service $50,000 in 1995 as an offer in compromise of the pen-
alty which was accepted by the Customs Service in May 1996 as full settlement.
PERSONNEL
Debra L. Griffith was elected Vice President of Finance and Chief Financial
Officer in July 1996. Mark A. Nygren was elected Vice President of Operations
in January 1997. See "Executive Officers of the Registrant" in this item.
Raj K. Bhatia and James R. McCullough, principals of Renwick, were elected
directors of the Company in June 1996 in connection with the Renwick
financings. See "Private Placement of Securities". Robert W. Carver resigned
as a director of the Company in August 1996, and Robert A. Fulton resigned as
a director of the Company in January 1997.
PRODUCTS
In 1996, five Carver products were named a Recommended Component by
Stereophile Magazine, one of the industry's most influential and prestigious
publications. This rating is based predominately on performance, with consid-
eration given to products offering exceptional value for their suggested re-
tail price. The Carver products earning Recommended Component rating were the
TFM-35x amplifier, AV-806x amplifier, Lightstar Reference amplifier, Lightstar
Direct preamplifier and the HTR-880 A/V receiver.
In 1996, two Carver products received "Product of the Year" awards from
AudioVideo International's Hi-Fi Grand Prix: the CT-23 preamp/tuner and TFM-
6cb amplifier. AudioVideo International is an influential trade publication in
both domestic and international markets. In addition, two more Carver prod-
ucts, the TFM-35x amplifier and CT-28v preamp/tuner, received "Special Recog-
nition" awards in their respective categories from AudioVideo International.
HOME AUDIO/VIDEO PRODUCTS
In recent years, Carver has concentrated its efforts on the growing market
for audio/video or home theater separates. The Company markets a home
audio/video component line of 18 products which include 5 two channel power
amplifiers, 2 multi-channel amplifiers, 4 preamplifier/tuners, 1 receiver,
2 preamplifiers and one model each of a tuner, CD changer, cassette deck and
loudspeakers. Manufacturer's U.S. Suggested Retail Price on the Company's
products ranged from $399-$2500.
An audio entertainment system typically includes a signal source such as a CD
player, cassette deck or radio tuner which outputs to a preamplifier that con-
trols the volume level, tone, and source switching. Specialized amplification
circuits in the preamplifier
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convert input signal to a compatible format and feed it to the amplifier which
increases the signal strength to a level strong enough to drive loudspeakers.
An audio/video receiver accomplishes most of these functions in one box, but
the consumer is typically compromising performance to achieve compactness. Al-
though Carver offers a receiver it believes its strength lies in its separate
components which allow the consumer the flexibility to customize power and
features to suit their home acoustics and listening preferences. Separate com-
ponents also provide superior audio performance, improved reliability and more
upgrade options. The Company believes consumers select separates primarily by
power, accuracy or sonic superiority, features and price.
Until November 1995, Carver offered multiple lines of professional power am-
plifiers that covered a wide range of professional applications. The Company
discontinued sales of professional products in November 1995 in connection
with the sale of its professional product line to Phoenix Gold International,
Inc.
CARVER TECHNOLOGIES
Historically, the Company has identified certain fundamental limitations of
the stereophonic sound reproduction process and then developed innovative
electronic circuits or other technologies which address these limitations. In
recent years, the Company has developed technologies which it believes en-
hances the listener's enjoyment of audio/video or home theater components and
systems. The Company holds fifteen patents with respect to certain of the
technologies described below and licenses an additional technology. See "Pat-
ents and Trademarks." The Company's technologies include:
LIGHTSTAR(R) POWER AMPLIFIER TECHNOLOGY. The Company believes its Lightstar
Technology represents the most advanced power amplifier technology on the mar-
ket today. This technology offers performance advantages over current ampli-
fier designs in terms of current capability, the capability to drive any loud-
speaker load independent from voltage fluctuations from the AC power line and
effortless sound quality. The Company holds patents on its Lightstar technolo-
gy. The patents expire beginning in 2014.
MAGNETIC FIELD POWER AMPLIFIER(TM) TECHNOLOGY. Carver Magnetic Field amplifi-
ers are capable of delivering both high voltage and high current simultane-
ously into modern speaker designs which can swing as low as two ohms in cer-
tain frequency ranges. The patents relating to Magnetic Field Power Amplifier
technology are licensed by the Company from Robert W. and Diana R. Carver.
TRANSFER FUNCTION MODIFICATION TECHNOLOGY. The t-modification process allows
the Company to duplicate many of the sonic characteristics of very costly tube
amplifiers in solid state designs at a fraction of the cost.
CINEMA HOLOGRAPHY(R) AND SONIC HOLOGRAPHY(R). Using principles analogous to
those employed in producing visual holograms with intersecting laser beams,
the Company's Cinema and Sonic Holography technologies produce the illusion
that the musical program is being performed by instruments arrayed on a three-
dimensional stage. Cinema Holography also creates a much wider sound stage and
side images that are focused in specific positions. The Company holds two U.S.
patents relating to Sonic Holography which will expire beginning in 1999.
ASYMMETRICAL CHARGE-COUPLED FM DETECTION TECHNOLOGY. Carver's patented Asym-
metrical Charge-Coupled FM Detector (ACCD) circuit substantially reduces in-
terference caused by multipath distortion and noise present in weak stereo ra-
dio broadcast signals. Thus, high quality stereo reproduction can be achieved
from FM signals which would produce unacceptably poor sound quality on other
equipment. The two patents for the Asymmetrical Charge-Coupled FM Detection
Technology will expire beginning in 2000.
PLANAR SPEAKER TECHNOLOGY. The Company's Flat Panel Speaker technology was
developed to address many of the problems encountered in conventional speaker
designs and ribbon array speakers. This dipole ribbon technology employs inno-
vative materials, panel geometry and driver positioning to achieve a sharply
focused, yet large three-dimensional sound effect. The Company's patent ex-
pires in 2010.
POWER STEERING(TM). Some of the most startling effects in a motion picture
are those that allow a sound to move from left to right or, even more impres-
sively, from left front to right rear such as a jet flying across a room.
These effects are made to happen by "steering" the levels of a given sound to
the various channels to achieve the desired image position at any given point
in time. Most power amplifiers have a clipping level on each channel that
doesn't vary significantly because only one or all channels are being driven
at the same time. This means that while one channel is driven to full power
the other channels are idling. Much of the capability of the power supply is
being wasted, just sitting dormant, while the dominant channel is taking just
one channel's worth of power. The Company's Power Steering Technology allows
the power amplifier to deliver its full rated power into all channels driven
simultaneously, and, as the directional cues in the program cause the signal
to be "steered" to a specific channel, focus a greater portion of the power
supply to the channel demanding the greatest output. This ability to provide
significant power gains into the most demanding channel on a continuous basis
or to all five chan-
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nels dynamically results in greater authority, clarity and spaciousness that
is not available in conventional power amplifiers.
MAGNIFIED CURRENT AMPLIFICATION(TM) TECHNOLOGY. Using principles learned from
its Lightstar Technology, the Company has developed a multi-state hybrid power
amplifier design which can deliver more than twice the current of conventional
amplifier designs using the same power transistors. The Company's Magnified
Current Amplification Technology utilizes the full current capability of out-
put power transistors which maximizes both the voltage and current capability
available for loudspeaker load.
INFINITE DECORRELATION(TM). The Company's Infinite Decorrelation technology
was developed to maximize the surround space and directional cues from sur-
round sound channels for home theater applications. This technology eliminates
the lack of rear left or right separation for sounds that are placed behind
the listener in home theater applications and produces a much more realistic
and lifelike sound.
TOTAL DIRECT COUPLING(TM). As transistor power amplifiers incorporated de-
signs which eliminated output transformers, they required the use of stabiliz-
ing inductors which created colorations in the reproduction of the upper har-
monics of most instruments. The Company's Total Direct Coupling (TDC) Technol-
ogy allows the output circuits of power amplifiers to be directly connected to
a loudspeaker without the use of stabilizing inductor network and the associ-
ated sonic disadvantages. TDC allows the Company's amplifiers to be stable
into a variety of speaker loads.
BIDAC(TM). The Company's BiDAC Technology is utilized in the Company's digi-
tal to analog convertor which uses bitestream conversion for low-level pas-
sages (ones that typically contain the mid and high frequencies) and continu-
ous calibration multibit for the high-level passages (that typically contain
the high level low frequencies).
PATENTS AND TRADEMARKS
The Company holds fifteen domestic patents issued between 1980 and 1997 on
several of its technologies which are incorporated into a number of its prod-
ucts. See "Carver Technologies" above. Patents with respect to Sonic
Holography(R), ACCD and Flat Panel Speaker Technology have been issued by var-
ious countries.
Robert W. and Diana R. Carver personally own domestic and foreign patents on
the Magnetic Field Power Amplifier technology. The Company has a non-exclusive
license to use the technology which requires the Company to pay Robert W. and
Diana R. Carver royalties on sales of products incorporating such technology.
While the Company believes that the patent rights owned and licensed by the
Company are important and cover and protect adequately the Company's proprie-
tary rights in the patented technologies, there can be no assurance that any
current or future patents will prove valid. Moreover, the Company believes
that its growth, competitive position and future success are more dependent
upon technical expertise and marketing skills than on the ownership of patent
rights.
"Carver," "Cinema Holography," "Sonic Holography," and "Lightstar," are reg-
istered trademarks of the Company. Trademark registrations pending are "Great
American Sound," "GAS," "Ampzilla" and "Power Steering." The Company claims
common law rights to the following trademarks: "Digital Time Lens," "Magnetic
Field Amplifier," "Soft EQ," "KLW Audio," the "Amazing Loudspeaker," "Amazing
Loudspeakers" and "TAL".
SALES AND MARKETING
The Company markets its audio/video products in the United States primarily
through retail outlets, ranging from audio/video specialty stores to national
retailers of brand-name consumer electronics, serviced by 16 independent manu-
facturers' representative companies and the Company's sales and marketing
staff. The Company's dealers typically stock a broad variety of audio/video
equipment and may also carry automobile audio systems, televisions, video cas-
sette recorders and other consumer-oriented electronic products. The Company
seeks dealers who emphasize high quality audio systems and who are knowledge-
able about the characteristics of audio/video products. The Company's sales
and marketing department emphasizes dealer education programs and product lit-
erature to enable individual sales people to understand and explain to consum-
ers the superior price/performance features offered by the Company's products.
In order to maintain a high quality distribution system that is competitive
with those of other brands, the Company sells products only to dealers who
have signed dealer agreements reflecting the Company's distribution policies.
Purchasers of high quality audio equipment tend to rely on audio specialty
publications, the recommendations of their friends and acquaintances who are
audio enthusiasts and recommendations of and demonstrations by knowledgeable
sales people. Accordingly, the Company believes that the favorable reviews of
the Company's products that have been featured in such publications as Stereo
Review, Audio, Stereophile, Stereophile Guide to Home Theater, Audio/Video In-
teriors, Audio Adventure, Home Theater, and The $ensible Sound in addition to
the Company's general reputation for producing superior products are impor-
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tant keys of its sales and marketing program. Domestic sales of consumer audio
products accounted for approximately 57%, 51%, and 83% of the Company's sales
in 1994, 1995 and 1996, respectively. Total Company sales of consumer audio
products were 71%, 60%, and 91%, respectively, for the same years.
Prior to mid-November 1995, the Company designed, manufactured, marketed and
sold a line of professional audio products. Worldwide sales of professional
audio products accounted for approximately 25% of the Company's sales in 1994
and 1995 and approximately 3% in 1996. From mid-November 1995 through December
31, 1996, the Company manufactured and sold certain professional sound prod-
ucts solely to the purchaser of its professional products line pursuant to a
Manufacturing Agreement entered into by the Company at the time of the sale.
The Company has fulfilled its obligations under this Agreement and expects to
make incidental sales of discontinued professional products in 1997.
OEM PRODUCT
Original Equipment Manufacturer (OEM) production accounted for approximately
1%, 8% and 1% of sales in 1994, 1995 and 1996, respectively. Most of the prod-
ucts which the Company sold as an OEM prior to 1996 were professional audio
products, and the underlying contracts for such OEM sales were included in the
sale of Carver's professional product line.
INTERNATIONAL SALES
The Company has a network of 49 distributors who provide retail sales cover-
age in over 50 countries. Foreign sales accounted for approximately 27%, 28%,
and 9% of the Company's sales in 1994, 1995 and 1996, respectively. Management
intended to allocate more resources in global marketing in 1996 in an effort
to increase its international revenues. Cash constraints in 1995 and 1996 pre-
vented the Company from allocating additional resources to the development of
products for its international markets and from marketing its existing prod-
ucts. The Company intends to introduce 12 new products for its international
markets in 1997. See "Risk Factors--Risks of International Business."
COMPETITION
The consumer electronics industry is intensely competitive. Many large and
small manufacturers offer audio systems which vary widely in price and quality
and which are distributed through a variety of distribution channels, includ-
ing audio specialty stores, discount stores, department stores and mail order
firms. The Company has chosen to concentrate its efforts on the segments of
the market served principally by audio specialty stores and a major national
consumer electronics retailer, Circuit City. See "Risk Factors--Concentration
of Accounts." In recognition of current market trends which show that consum-
ers are purchasing more electronics via direct mail, Carver products can now
be purchased through upscale direct marketing companies such as Cambridge
SoundWorks and Crutchfield.
In the home audio market, the Company competes mainly with Adcom, Parasound,
Marantz and Harman Kardon. Most of the Company's competitors have substan-
tially greater financial and technical resources than the Company. The Company
believes that its competitive position in the consumer audio components market
is enhanced by unique Carver technologies and features which have given the
Company strong price/performance, as well as brand recognition advantages. See
"Risk Factors--Competition."
PRODUCT RETURNS
From time to time the Company has accepted returns of unsold products from
its dealers. Historically, the financial impact associated with the return of
unsold products has been insignificant.
BACKLOG
The Company's policy is to maintain sufficient finished goods inventory to
fill orders within three business days after they are received. However, dur-
ing most of 1995 and the first seven months of 1996, the Company operated un-
der very tight cash constraints, and it's backlog rose somewhat higher than
normal due to the Company's deferral of the purchase of sourced product. Also,
the Company's backlog of orders may rise following major product introductions
as dealers place orders for the new products in excess of the number produced
in initial production runs or if an offshore supplier fails to make on-time
deliveries of product. During the second half of 1996, two of the Company's
overseas vendors were unable to deliver three new models on time. See "Risk
Factors--Dependence on Outside Manufacturers." Because of the Company's policy
of filling an order promptly after receipt, the Company does not view the
level of backlog to be an important index of future performance. The Company's
backlog of orders at January 31, 1997 was approximately $618,000, compared to
approximately $2,575,000 on January 31, 1996.
ENGINEERING, RESEARCH AND DEVELOPMENT
The Company recognizes that its future is dependent on its ability to intro-
duce products which incorporate technological innovation and advanced fea-
tures. See "Risk Factors--Technological and Product Obsolescence."
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The modular amplifier design that the engineering group developed in 1996 has
been successfully introduced in five new amplifiers that have set new stan-
dards for the Company in performance, assembly, efficiency and reliability.
Three of the new amplifiers are multi-channel amplifiers which incorporate the
Company's Power Steering(TM) technology.
The engineering group has designed a two-channel amplifier, the A-220, which
will be manufactured by the Company and replace an existing two-channel ampli-
fier currently sourced offshore, representing a continuation of the Company's
strategy to return production to the United States.
The engineering group is also developing a modular digital processor design
which will be used in a new line of "Dolby Digital(R)" surround sound pre-
amplifiers/tuner and processors scheduled for introduction beginning in April
1997. The completion of these new designs marks the Company's continuing ef-
fort to bring the majority of development and production back to the United
States, not only in power amplification, but also in "small signal" components
that have for the last several years been developed for the Company by over-
seas suppliers.
The Company has developed three new home theater speaker systems that are
scheduled to be offered for sale mid-1997, including a LucasFilm THX(R) certi-
fied system. In addition, the Company plans to introduce at least one new ver-
sion of its ribbon loudspeaker product later this year that will feature an
improved design. The Company also plans to introduce new models of ribbon
speakers that will complete the ribbon line for high-end home theater applica-
tions.
Carver expects to release approximately 20 new and replacement products dur-
ing 1997. There can be no assurances that product development or introduction
plans will be accomplished on schedule or that the new products will be well
received by the market. See "Risk Factors--Dependence on Outside Manufac-
tures," "Economic Conditions" and "Competition."
The Company employs eight full-time technical personnel in its research, de-
velopment, engineering and product development organization. The Company also
employs temporary technical personnel to augment its product development team
as activity levels require. The Company's expenditures for engineering, re-
search and development in 1994, 1995 and 1996 were $1,164,000, $808,000 and
$711,000, respectively.
MANUFACTURING
During 1996, approximately 54% of the Company's sales were of products manu-
factured by third parties to the Company's specifications. The Company pres-
ently sources these products from five different suppliers located in the Far
East. The Company determines whether a product will be manufactured by the
Company or a third party principally on the basis of two factors: 1) the loca-
tion of the sources of parts and subassemblies, and 2) the cost relative to
expected volume of products to be manufactured. During 1995 and the first two
quarters of 1996, the Company was forced, due to cash restraints, to defer
purchases of sourced product and delay payment of certain of its vendors.
These actions resulted in interruptions in the availability of products manu-
factured by the suppliers. Availability of these products is also dependent on
the suppliers' continued cooperation and responsiveness to the Company's
needs. Should the Company be required to supplement or replace a supplier, the
Company believes that there are a number of alternate sources, although the
transition to a new supplier would probably involve added costs and delays.
The Company entered into a relationship with another supplier from whom the
Company expected to source at least two of its new products scheduled for in-
troduction in mid-1996. Availability of these key new products was delayed to
second quarter 1997 due to the continued inability of the supplier to manufac-
ture and ship the products on schedule. See "Risk Factors--Dependence on Out-
side Manufactures," and "Risks of International Business."
Carver's goal is to manufacture as many of its products in the United States
as practical. The Company is currently in discussions with other potential OEM
customers. However, there can be no assurances that these discussions will be
completed favorably or that any OEM business will result from these discus-
sions.
Carver is vigorously pursuing "Total Quality Management" (TQM), and "Continu-
ous Quality Improvement" (CQI) techniques in an effort to increase quality,
lower costs and add profitability. Carver will concentrate on value-added op-
erations where in-house manufacturing skills and process control are most
important.
Consistent with its commitment to quality, the Company maintains strict test-
ing procedures. All products, whether manufactured in the United States or by
OEM suppliers, are tested at their respective manufacturing facilities prior
to shipment. The Company retests products manufactured by OEM suppliers on a
statistical sample basis at its Lynnwood facility to monitor quality control.
A program to establish strategic partnerships with certain vendors has been
implemented to ensure timely delivery of quality raw materials, cost effective
pricing and creative value engineering between Carver and vendor engineering
departments.
The Company offers a three-year limited warranty on amplifiers, and loud-
speakers; a two-year limited warranty on preamplifiers, integrated amplifiers,
preamplifier/tuners, receivers and tuners; and a one-
8
<PAGE>
year limited warranty on tape decks, compact disc players and changers.
HUMAN RESOURCES
On March 1, 1997, the Company had 84 full-time employees, of whom 51 were en-
gaged in production and customer service, 8 in research, development,
engineering and product development, 11 in general and administrative func-
tions and 14 in sales and marketing. None of the Company's employees is cov-
ered by a collective bargaining agreement. The Company believes its relations
with its employees are good.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Corporation who are not directors are listed in
the following table. A description of their occupations for the past five
years also appears below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James Croft.................... 44 Vice President of Research and Development
Debra L. Griffith.............. 38 Vice President of Finance and Administration
Mark A. Nygren................. 34 Vice President of Operations
John P. World.................. 50 Executive Vice President and General Manager
</TABLE>
Mr. Croft joined the Company in October 1992 as its Director of Product Re-
search and Marketing Development. He became Vice President of Marketing and
Product Development in March 1993 and Vice President Research and Development
in February 1995. From 1990 through October 1992, Mr. Croft was employed by
Dahlquist, Inc., a loudspeaker manufacturer, most recently as its Vice Presi-
dent of Research and Development. Mr. Croft is a Vice President of Definitive
Audio, Inc., a Seattle audio specialty retailer which he co-founded in 1975
and managed until 1985.
Ms. Griffith joined the Company in July 1996 as its Vice President of Fi-
nance. She became Vice President of Finance and Administration in January
1997. From 1983 to July 1996, Ms Griffith was employed by Teltone Corporation,
a telecommunications manufacturer, most recently as its Vice President of Fi-
nance and Administration. Ms. Griffith has been a Certified Public Accountant
since 1980, and she received her Bachelor of Arts in Business Administration
with honors in 1980 from the University of Washington.
Mr. Nygren joined the Company in February 1995 as its Director of Manufactur-
ing. Mr. Nygren became Director of Operations in February 1996 and Vice Presi-
dent of Operations in January 1997. From 1990 through February 1995, Mr. Ny-
gren was employed by Crane/Eldec Corporation, a manufacturer of power supplies
and other equipment for civilian and military aerospace customers, most re-
cently as its Manufacturing Manager. Mr. Nygren received his Master of Busi-
ness Administration degree in 1990 from Harvard Graduate School and Bachelor
of Arts magna cum laude in 1985 from Whitman College.
Mr. World joined the Company in February 1987 as General Counsel. Mr. World
is currently responsible for the internal operations of the Company. Mr. World
also provides management support for the Company's international sales activi-
ties. Since joining the Company in 1987, Mr. World has at various times been
responsible for the administration, credit, human resource, legal, order en-
try, day care and facilities departments. Mr. World received his Juris Doctor
in 1975 from the University of Puget Sound and his Bachelor of Arts degree in
Political Science in 1972 from the University of Washington.
RISK FACTORS
In addition to the other information contained or incorporated by reference
herein, the following factors should be considered carefully in evaluating the
Company and its business. Prospective investors in the Company are cautioned
that an investment in the Company involves a very high degree of risk. The
Company's ability to halt the deterioration of its results of operations and
financial condition and successfully implement its operating strategy is sub-
ject to a number of material risks and uncertainties. The contingencies and
other risks discussed below could affect the Company in ways not presently an-
ticipated by its management and thereby impair its ability to maintain or im-
prove its performance. A careful review and understanding of each of the risk
factors set forth below, as well as the other information contained in this
report, is essential for an investor seeking to make an informed investment
decision with respect to the Company.
DEPENDENCE ON OUTSIDE MANUFACTURERS
The Company is dependent upon outside manufacturers for production of several
of its products which represented approximately 54% of its sales in 1996. The
Company expects sales of products manufactured by suppliers to continue to ac-
count for over 50% of its revenue in 1997. In 1996, the Company was unable to
fill orders for three key products due to production delays experienced by the
off-shore suppliers of these products. These delays had a material adverse ef-
fect on sales in 1996. Any delay in obtaining products in the future would
likely have a similar impact. Unavaila-
9
<PAGE>
bility of product due to production delay or for any other reason could have
an adverse impact on the Company's relationship with its key dealers, such as
Circuit City. In addition, products procured from offshore suppliers require
significant advance payment for tooling and non recurring engineering ex-
penses. Due to the significant nature of this investment, it is impractical to
have multiple suppliers for a single product. As a result, any delay in ob-
taining products may result in lost revenues to the Company until such time as
a transition to an alternate supplier can be completed. The Company believes
that there are a number of possible alternate suppliers who could manufacture
the Company's sourced product should it be necessary to replace an existing
supplier. However, production delays in 1996 demonstrate that the transition
to a new supplier can involve delays which occasion the loss or delay of sales
and added expenses.
POSSIBLE NEED FOR ADDITIONAL FINANCING
At March 21, 1997, the Company's immediately available sources of working
capital consisted of cash of approximately $50,000 and available borrowings of
approximately $2,600,000 under the Company's revolving working capital line of
credit.
The Company believes that its headquarters facility is larger than required
for its current operations and therefore represents an underutilized asset. As
a result, the Company has entered into an agreement to sell its existing head-
quarters and manufacturing facility in Lynnwood, Washington for approximately
$3,000,000 in cash, which would yield net proceeds of approximately
$2,800,000. The closing of this transaction in the second quarter of 1997 is
subject to satisfaction of a contingency related to an environmental audit,
which is expected to be completed by April 1, 1997. There can be no assurance
that closing of the sale of the Company's current headquarters facility will
occur. If this sale does not occur, the Company may be required to obtain ad-
ditional equity or debt financing. There can be no assurance that any such re-
financing or asset sales would be available when needed on terms that the Com-
pany finds acceptable. Any additional equity or debt financing may involve
substantial dilution to the interests of the Company's shareholders.
The exact amount and timing of the Company's working capital requirements
will be determined by numerous factors, including the level of and gross mar-
gin on future sales, payment terms achieved by the Company, timing of capital
expenditures and the occurrence of unanticipated expenses. However, the Com-
pany believes that its line of credit and anticipated cash flows from the sale
of the headquarters facility will satisfy the Company's projected working cap-
ital and capital expenditure requirements for at least the next 12 months.
RECENT AND CONTINUED OPERATING LOSSES
During the last four completed fiscal years, the Company has incurred aggre-
gate net losses of approximately $14,641,000 or $3.97 per share. There can be
no assurance that it will generate profits in future periods. The Company's
future operating results will be dependent upon a number of factors, particu-
larly those associated with the change-over of its product lines, the perfor-
mance of its suppliers, increased sales and margins, the control of overhead
costs, the ability of the Company to successfully identify and respond to
emerging trends in the consumer electronics industry, the level of competition
and general economic conditions. See "Business--Sales and Marketing" and "Man-
agement's Discussion and Analysis of Financial Conditions and Results of Oper-
ations."
CONCENTRATION OF ACCOUNTS; DEPENDENCE UPON RELATIONSHIP WITH CIRCUIT CITY
Late in 1995, the Company entered into a distribution arrangement with Cir-
cuit City, one of the largest retailers of consumer electronics in the United
States. Circuit City accounted for 33% of the Company's receivables as of
March 27, 1997. Due to anticipated pattern of purchases by Circuit City, the
Company anticipates that accounts receivable from this customer will continue
to be approximately the same percentage of the Company's total trade accounts
receivables. Sales to Circuit City were 41% of the Company's revenue in 1996.
While 1997 sales to this customer are expect to be similar, the Company's
experience with Circuit City is limited. Circuit City may not be able to suc-
cessfully market and sell the Company's products on an ongoing basis. Factors
which could effect the volume of sales by Circuit City include factors which
generally influence retail sales of electronic products. Dependence on a sin-
gle customer for a significant percentage of sales involves a number of risks,
including the risk that the Company's inventory of finished goods could in-
crease sharply if Circuit City orders smaller quantities than those antici-
pated by the Company, or discontinue doing business with the Company. The
agreement between the Company and Circuit City may be terminated by either
party for any reason upon 30 days advance written notice without penalty. In
the event of an unexpected termination of this agreement, the Company many not
be able to change its operations quickly enough to respond to a significantly
lower level of sales. Also, due to the significant buying power of Circuit
City, pricing of product sold to Circuit City yields a smaller margin than
that realized by the Company on sales to most other customers.
10
<PAGE>
ECONOMIC CONDITIONS
The success of the Company's operations depends to a significant extent upon
a number of factors relating to discretionary consumer spending. These factors
include economic conditions such as unemployment levels, business conditions,
interest rates and taxation. The Company's business is also sensitive to con-
sumer spending patterns and consumer preferences. There can be no assurances
that consumer spending and consumer preferences will not be adversely affected
by general social trends and economic conditions, thereby impacting the
Company's revenues, sales and product types. If the demand for consumer elec-
tronics, in particular mid- to high-end audio entertainment systems, were to
decline, the Company's business, financial condition and operating results
could be adversely affected.
COMPETITION
The consumer electronics industry is highly competitive. The Company's prod-
ucts compete directly against other mid- to high-end audio entertainment sys-
tems and indirectly against other functionally similar products which vary
widely in price and quality and which are distributed through a variety of
distribution channels, including audio specialty stores, discount stores, de-
partment stores and mail order firms. The Company competes against a number of
companies, many of which have substantially greater resources than the Compa-
ny. Such competition could have a material adverse effect on the Company's
business, financial condition and operating results. The Company believes that
success in the consumer electronics industry depends, in part, on providing
consumers with unique technologies and features, and on brand name recogni-
tion. There can be no assurance that the Company will be able to continue to
develop such products, or that, if and when introduced, such products will be
accepted by its customers. See "Business--Competition."
TECHNOLOGICAL AND PRODUCT OBSOLESCENCE
The consumer electronics industry has been characterized in recent years by
significant technological changes, frequent new product introductions and
declining end-user prices. Current competitors or new market entrants could
introduce new or enhanced products with features and/or prices which render
the Company's products obsolete or less marketable. The ability of the Company
to compete successfully will depend in large measure on its ability to main-
tain a technically competent research and development staff and to adapt to
technological changes and advances in the industry. There can be no assurance
that the Company will be able to keep pace with the technological or other
competitive demands of the marketplace.
RISKS OF INTERNATIONAL BUSINESS
The Company's business is subject to the risks generally associated with do-
ing business internationally, such as fluctuations in exchange rates, foreign
governmental regulation and changes in economic conditions. These factors,
among others, could influence both the Company's ability to sell its products
in the international market and its ability to procure products or components
from sources outside of the United States. In addition, the Company's business
is subject to the risks associated with the imposition of legislation and reg-
ulations relating to imports, including quotas, duties or taxes and other
charges, restrictions or retaliatory actions on imports to the United States
and other countries in which the Company's products are manufactured or sold.
The Company cannot predict whether the foregoing legislation and regulation
will be imposed by the United States or other countries, nor can it predict
what effect such imposition would have on its business or results of opera-
tions.
ITEM 2. PROPERTIES
The Company owns its 74,000 square foot headquarters and manufacturing facil-
ities located in Lynnwood, Washington, a suburb of Seattle. The Company be-
lieves that its facilities are adequate but too large for its current opera-
tions. The Company has entered into an agreement to sell its existing head-
quarters and manufacturing facility in Lynnwood, Washington for approximately
$3,000,000 in cash, which would yield net proceeds of approximately
$2,800,000. The closing of this transaction in the second quarter of 1997 is
subject to satisfaction of a contingency related to an environmental audit,
which is expected to be completed by April 1, 1997.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth quarter
of the Company's fiscal year.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS'
MATTERS
DIVIDEND POLICY
It has been Company policy to retain all earnings to fund operations.
STOCK MARKET ACTIVITY
The common stock of Carver Corporation has traded over the counter on the
Nasdaq National Market under the sumbol CAVR since its initial public offering
on May 9, 1985. The following table sets forth high and low sales prices by
quarter as reported by the Nasdaq National market in 1996 and 1995:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
1996 1995
- ----------------------------------------------------------
QUARTER HIGH LOW HIGH LOW
- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
FIRST $2 1/2 $1 1/4 $3 3/8 $2 1/4
SECOND 3 3/8 2 1/8 2 7/8 1
THIRD 3 1/2 2 1/8 2 1/2 1 5/8
FOURTH 3 1/2 2 2 1/8 1
</TABLE>
The approximate number of shareholders of record as of March 27, 1997 was 490.
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR SELECTED FINANCIAL DATA
(Dollars in Thousands Except Per Share Data)
<TABLE>
<CAPTION>
FISCAL YEARS
INCOME STATEMENT DATA 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $14,519 $18,428 $22,171 $26,274 $25,596
Gross profit 2,915 3,390 4,676 4,469 6,924
Loss from operations (3,030) (2,857) (2,536) (2,994) (1,153)
Loss before in come tax and
discontinued operations (3,203) (3,157) (2,873) (3,564) (1,328)
Net loss $(3,203) $(3,157) $(2,873) $(5,408) $(1,328)
Loss per share* $ (.86) $ (.86) $ (.78) $ (1.47) $ (.36)
<CAPTION>
BALANCE DATA 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $ 4,573 $ 4,931 $ 7,589 $ 9,943 $14,012
Total assets 9,224 10,674 16,628 18,897 22,914
Long-term debt - - 899 716 735
Shareholders' equity $ 7,158 $ 7,389 $10,537 $13,408 $18,808
</TABLE>
* Earnings per share are calculated on the basis of 3,671,000 shares in 1992,
3,676,000 shares in 1993, 3,678,000 shares in 1994, 3,680,000 in 1995, and
3,706,000 in 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Statements in this report covering future performance, developments, expecta-
tions or events, including the discussion of the Company's strategy, product
development and introduction plans and various statements concerning the
Company's expectations for its growth and for the consumer electronics indus-
try, constitute forward-looking statements which are subject to a number of
known and unknown risks, uncertainties and other factors which might cause ac-
tual results to differ materially from stated expectations. These risks and
uncertainties include product development or production difficulties or delays
due to supply constraints; technical problems or other factors; technological
changes; the effect of global, national and regional economic conditions;
changes in consumer preferences; the impact of competitive products and pric-
ing; changes in demand; increases in component prices or other costs; inven-
tory risks due to shifts in market demand, product obsolescence or other fac-
tors; and a number of other risks including those risks and uncertainties de-
scribed under the caption "Risk Factors" in Part I of this report and those
identified by the Company from time to time in other filings with the Commis-
sion, press releases and other communications. Although the Company believes
that all forward-looking statements are reasonable, there can be no assurance
that actual results, achievements, performance or developments will not differ
materially from those expressed or implied by such forward-looking statements.
INTRODUCTION
The market for high-fidelity audio/video equipment is somewhat seasonal with
moderately higher sales generally occurring in the last five months of the
year. Demand for audio products also exhibits some cyclicality, reflecting the
general state of the economy and consumer expectations. The Company's sales in
the first six months of 1996 were $7,396,000 compared to $7,123,000 in the
last six months of the year. The introduction of new products may affect this
seasonality and year-to-year comparisons. The decline in sales in the second
half of 1996 is attributable primarily to inventory shortages due to late de-
livery of three new products from two off shore suppliers.
The portion of the Company's business involving products which the Company
elects to have manufactured by its suppliers may be influenced by factors
affecting imports, such as changes in the dollar exchange rate as well as
United States and the vendor countries' policies relating to tariffs, trade
restrictions and taxation. See "Effects of Inflation and Changes in Foreign
Currency Exchange Rates."
RESULTS OF OPERATIONS
1996 COMPARED WITH 1995
Net sales for 1996 were $14,519,000, a decrease of 21% from net sales of
$18,428,000 for 1995. This decrease is attributable largely to the November
1995 sale of the Company's professional product line and certain related OEM
accounts to Phoenix Gold International, Inc. In 1995 net sales included sales
of professional products of $4,225,000 and OEM sales of $1,499,000 which in
total represented 31% of 1995 net sales. Contracts which represented 95% of
the Company's 1995 OEM sales were included in the assets sold with the profes-
sional products line.
Domestic sales of the Company's consumer products increased to $11,989,000 or
21% compared to sales of $9,399,000 in 1995. Of the domestic sales, approxi-
mately $5,953,000 or 50% were sales made by the Company to Circuit City.
Consumer sales outside of the United States decreased approximately 52% from
$2,655,000 to $1,279,000 in 1996. The Company believes this is attributable in
large part to limited availability of product to sell to its international
distributors. Approximately 54% of the Company's sales in 1996 were attribut-
able to products which the Company sources offshore compared to 47% for the
same period of the prior year.
The Company's sales of consumer products, although higher in 1996 than in the
prior year, were negatively affected by a severe shortfall in working capital
during most of 1995 and in the first half of 1996. In addition, one of the
Company's offshore vendors failed to deliver two new products (CT-24, a two-
channel preamplifier/tuner, and MV-5, a five-disc compact disc changer) on the
scheduled delivery dates due to production problems. A second vendor has failed
to deliver a third new product (a multi-channel, AC-3 ready, THX(R) certified
preamplifier/tuner), which was originally scheduled to be available in
12
<PAGE>
October 1996. As a result, the Company has been out of two channel pre-
amplifier/tuners and compact disc players since August and October 1996, re-
spectively. In addition, these products often generate additional sales of
other products manufactured by the Company (e.g., amplifiers and loudspeak-
ers). The Company believes these factors had a significant negative impact on
the Company's sales during 1996. These new product introduction delays have
continued into the first quarter of 1997. As a result, the Company is fore-
casting continued losses in the first and second quarter of 1997. (See "Li-
quidity and Capital Resources" below.)
On December 30, 1996, a Pacific Northwest snow storm temporarily interrupted
the Company's normal business operations and caused a roof section at its man-
ufacturing and corporate headquarters to collapse. The Company is insured for
losses caused by an interruption to its business and damage to its property,
and as a result no material losses are anticipated.
The Company's gross margin increased from 18% in 1995 to 20% in 1996. Sales
during 1996 included $432,000 of sales of professional products to the
purchaser of the Company's professional product line pursuant to an agreement
entered into at the time of the sale of the line. These sales were at the
Company's cost and, therefore, yielded no margin. In addition, approximately
$5,953,000 in sales to Circuit City in 1996 were at a lower margin than the
Company realizes on its sales to other domestic customers. Despite these fac-
tors, the Company experienced improvements in gross margin as it increased its
domestic production. Margins are expected to continue to improve as the Com-
pany introduces new products from offshore suppliers located outside of Japan.
However, there can be no assurance that foreign exchange rates, cost increases
or other factors will not negatively impact margins. (See "Liquidity and Capi-
tal Resources" below.)
Operating expense decreased in 1996 in comparison to the prior year by 5%,
primarily due to the elimination of expenses attributable to the Company's
professional products line. This reduction affected selling and research and
development. These reductions were partially offset by increased research and
development investment on new consumer products, use of consultants as well as
increased field sales support and media advertising. Research and development
expenses were increased due to the development of loudspeakers for home the-
ater application and to pursue the safety and electrical approvals necessary
to sell the Company's products in the European Common Market countries. The
Company recognizes that the need to invest in the development of new
technologies is vital to assure its future success. The Company experienced a
loss on the sale of professional products line due primarily to the write-down
of the remaining holdback amount on the purchase price from Phoenix Gold In-
ternational Inc., of $200,000, as well as $225,000 in inventories and $156,000
in trade accounts receivable.
Average borrowings were down in 1996 from the same period of 1995 because of
the infusion of capital associated with the Renwick private placement (See
"Liquidity and Capital Resources") and therefore interest expense decreased
approximately $133,000 when compared to 1995.
Net losses for 1996 were $3,203,000 (22% of net sales) or $0.86 per common
share. This compares to net losses of $3,157,000 (17% of net sales) or $0.86
per share in 1995.
The Company has approximately $16,697,000 of net operating losses which may
be utilized to reduce taxable income in future years. These loss carryforwards
will expire between the years 2004 and 2011. Management is of the opinion that
it is not appropriate to record a benefit for net operating loss carryforwards
at this time. If operating results improve, management will re-assess its po-
sition in this matter.
1995 COMPARED WITH 1994
Net sales in 1995 were $18,428,000 which were down 16.9% from 1994 sales of
$22,171,000. The sales decline represented a $2,927,000 decrease in domestic
consumer sales and a $823,000 decrease in domestic sales of professional prod-
ucts. Sales of mobile products were $489,000 less in 1995 compared to 1994 and
sales to military exchange systems were down $626,000. OEM sales increased in
1995 by $1,275,000 over 1994 sales; however, contracts which represented 95%
of 1995 OEM sales were included in the assets sold to Phoenix Gold Interna-
tional, Inc. in the professional audio products transaction. Sales of profes-
sional products in 1995 were down when compared to 1994 due, in large part, to
the closing of the sale of the professional products in mid-November 1995.
Sales of professional products were down in 1995 from 1994 levels also due to
the Company's decision to reduce its sales and marketing presence in the mar-
ket at the same time that Carver's competitors in the professional market were
engaged in aggressive price cutting. Military exchange sales were down
primarily due to a decision, in the first half of 1995 by the exchange system
to discontinue the product category in the Army Air Force Exchange System.
The decline in consumer domestic sales was due in part to the Company's
strategy of reducing the number of products in its product line, especially
those products at the low end of the price range and with low margins. Howev-
er, the single largest factor in the
13
<PAGE>
decline of 1995 sales over 1994 was the severe cash restraints under which the
Company was forced to operate for most of 1995. Due to its cash constraints
the Company was unable to purchase enough of the products which it sources
offshore to fill orders throughout the second half of 1995.
Export sales were flat from 1994 to 1995. Early in 1995, the Company in-
creased its international marketing efforts. However, when the Company's cash
position tightened and, as part of its efforts to reduce expenses, it sharply
reduced expenditures for the Company's international sales and marketing. 1995
export sales were also negatively effected by the lack of availability of
product.
The Company's gross margin declined from 21% in 1994 to 18% in 1995. The 1995
gross margin was adversely impacted by a year end inventory and tooling write-
off of $311,000. Other major factors which adversely affected the gross margin
in 1995 were inventory write downs and severance paid. In addition, increased
material costs on product sourced from Japan due to the weakness of the U.S.
dollar versus the Japanese Yen in the first half of 1995 further decreased the
margin. In 1995, 47% of sales were of product that was sourced from offshore
suppliers compared to 60% in 1994.
Operating expense decreased in 1995 in comparison to the prior year by 13% as
a result of cost containment efforts while the Company operated under cash
constraints. In addition, operating expenses associated with the mobile prod-
ucts as well as military exchange sales were reduced.
Engineering, research and development expense decreased from 5% of sales in
1994 to 4% in 1995. While cash constraints reduced the Company's efforts to
research and develop new technologies, in 1995 the Company developed its
"Power Steering"(TM) technology and made further improvements in its patented
Lightstar(R) and Sonic Holography(R) technologies.
In mid-November 1995, Carver sold its professional product line to Phoenix
Gold International, Inc. ("Phoenix Gold"). The transaction included all of the
tangible and intangible assets used by the Company in the manufacture and sale
of its professional products including one patent. In addition, the transac-
tion included the right of Phoenix Gold to use the name "Carver Professional"
for five years and the agreement of the Company not to compete with Phoenix
Gold during the five-year period. Sales of professional products and equipment
contributed approximately 33% and 30% of the Company's revenues in 1995 and
1994, respectively. The Company sold the professional product line in an ef-
fort to focus on its consumer business, reduce staff and overhead and improve
its liquidity and balance sheet. The total proceeds from the transaction were
approximately $2,100,000. Of this amount, payment of $350,000 was deferred un-
til November 1996, and $209,000 was paid directly to Robert W. and Diana R.
Carver as payment of the remaining installment payments due pursuant to the
settlement of litigation between the Company and Mr. and Mrs. Carver in Decem-
ber 1994. The gain on the sale of the professional products line was
$1,208,000. As part of the transaction, the Company signed a one-year supply
and manufacturing agreement with Phoenix Gold to continue to manufacture cer-
tain products for and to sell certain raw materials used in the professional
products to Phoenix Gold.
The Company recorded a restructuring charge of $1,319,000 in December 1995
which included a $287,000 tooling write down, a $740,000 inventory write down
and $223,000 in severance costs. As of December 31, 1995, $143,000 of the sev-
erance costs was accrued relating to personnel reductions that were completed
in 1996. The restructuring charge is a result of the change in the Company's
operations due to the sale of the professional products line, the discontinua-
tion of the current mobile product line, and the early discontinuation of cer-
tain consumer product models.
Losses from operations for the year ended December 31, 1995 were $2,857,000
compared to losses of $2,536,000 from operations for the year ended December
31, 1994. In addition to the gain on the sale of the professional products
line and the restructuring charges, net losses for 1995 include $311,000 in
write offs of tooling and inventory and a $150,000 increase at year end in the
reserve for doubtful accounts. The operating results for the year ended Decem-
ber 31, 1994 include an aggregate of $391,000 payable relating to settlement
of and attorneys' fees incurred in litigation between the Company and Robert
W. and Diana R. Carver and $50,000 accrued and subsequently paid in 1995 to
the U.S. Customs Service in an offer and compromise of a penalty imposed by
U.S. Customs (See Note 15 to Consolidated Financial Statements).
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital on December 31, 1996 was $4,573,000 which in-
cluded cash and short-term investments aggregating approximately $70,000. This
compares with working capital of $4,931,000 and cash and short-term invest-
ments of $266,000 at December 31, 1995. At March 27, 1997, the Company's imme-
diate capital resources consisted of approximately $50,000 in cash (and cash
equivalents) and the credit facility described below. The Company's inventory
increased $249,000 from December 31, 1995 to December 31, 1996 due to the
build up of
14
<PAGE>
initial quantities of amplifiers manufactured in the U.S. The sales of these
units were delayed due to the lack of availability of the associated
preamp/tuner from an offshore supplier. Accounts receivable decreased $677,000
from the end of 1995 due to lower revenues and a tightening of credit policies
and terms.
The Company has an agreement with a financial institution which provides for
working capital advances up to $6,000,000. A maximum of $1,000,000 of this
line may be used to secure letters of credit. Funds available under this
agreement are restricted, however, to a portion of eligible accounts receiv-
able and inventories. The lender has agreed to make advances to the Company
over the amount otherwise available under the formulas described above. The
terms of the accommodation allow the Company to borrow up to an additional
$1,500,000. The Company granted its lender a deed of trust on the Company's
Lynnwood, Washington facility as additional security. The overadvance limit
will be reduced by $17,858 per month beginning March 1, 1997 and continuing
each month until the earlier of March 1, 2002 or such time as the real estate
has been sold. Advances are collateralized by substantially all assets of the
Company and bear interest at the prime lending rate plus 2%. The outstanding
balance on the line of credit was $1,110,000 and $1,216,000 at December 31,
1996 and 1995, respectively and approximately $2,600,000 was available to be
borrowed at March 27, 1997. The agreement expires on July 31, 1998. Maximum
and average amounts outstanding during the year ended December 31, 1996 were
$2,154,000 and $1,329,000, respectively. The weighted average interest rate at
December 31, 1996 was 10.25% and the weighted average interest rate during the
year, computed monthly, was 10.29%.
Late in the second quarter and during the third quarter of 1996 the Company
sold 1,411,764 shares of Series A Cumulative Convertible Preferred Stock (the
"Preferred Stock") and issued five year warrants (the "Warrants") to acquire
up to 300,000 shares of the Company's Common Stock pursuant to a Stock Pur-
chase Agreement (the "Agreement") with Renwick Capital Management, Inc. and
certain Renwick affiliates ("Renwick"). The Shares of Preferred Stock and War-
rants are convertible into or exercisable for 1,711,764 shares of Common
Stock, or approximately 46% of the current shares outstanding.
The price of the Preferred Stock was $2.125 per share and each share of Pre-
ferred Stock is convertible at any time at the option of the holder into one
share of Common Stock, subject to certain potential antidilution adjustments
to be triggered by the issuance of additional shares of Common Stock at less
than the lesser of the then current market price or $2.125. The Preferred
Stock is entitled to an 8% compounding annual dividend payable quarterly. In
the first year, such dividend will be and has been paid with shares of autho-
rized but unissued Common Stock. In years two and three (the Preferred Stock
will automatically be converted into Common Stock on the third anniversary of
issuance, thereby terminating the accruing dividend), the Company has the op-
tion of paying the dividend either in cash or with shares of Common Stock. If
paid with Common Stock, the number of shares will be based on the greater of
$2.125 per share or the average of the closing bid prices for the Common Stock
for the 30 days prior to the dividend payment date. The number of shares of
Common Stock which might be issued over the life of the dividend cannot be de-
termined at this time as such number will vary with the market price of the
Common Stock.
The holders of the Preferred Stock are entitled to one vote for each share of
Common Stock into which the Preferred Stock is convertible. In addition, the
holders of the Preferred Stock are entitled to elect two representatives to
the Company's Board of Directors. The Company's Board of Directors was in-
creased by two positions, and Raj K. Bhatia and James R. McCullough have been
appointed to the Board of Directors to represent holders of the Preferred
Stock. Messrs. Bhatia and McCullough are partners of Renwick. By virtue of the
number of votes to be controlled by Renwick and its affiliates, their right to
elect two of the Company's directors and the fact that various actions may not
be taken by the Company without the approval of the holders of at least a ma-
jority of the Preferred Stock, such holders may be deemed to have acquired
control of the Company. Certain actions by the Company, such as a merger or
liquidation of the Company, the sale of substantially all of its assets, pay-
ment of dividends, amendment of the Company's articles of incorporation, the
issuance of additional securities or the incurrence of certain indebtedness
will require the approval of at least a majority of the Preferred Stock. The
Agreement also provides that the investors will have preemptive rights to
subscribe for additional shares issued by the Company and rights to have the
Company register shares of Common Stock issued upon conversion of the Pre-
ferred Stock or exercise of the Warrants.
The exercise price of the Warrants is $1.50 per share of Common Stock, if ex-
ercised from the date of the initial closing through the date two years from
the date of the initial closing, $1.75 for the next year, $2.00 for the next
year and $2.125 for the final year, again subject to certain potential
antidilution adjustments.
Renwick is a New York-based investment banking firm founded in 1994 which
specializes in the identifi-
15
<PAGE>
cation of undervalued growth companies exhibiting the potential for an opera-
tional turn-around. Renwick actively supports its principal investments
through the involvement of the industry and Wall Street professionals familiar
with turn-around situations.
In January 1990, the Company purchased a 16,000 square foot office building
adjacent to its facility in Lynnwood, Washington. The purchase price for this
building was $1,260,000 including the assumption of a $793,000 note which was
payable at a rate of $7,790 per month with final payment due April 10, 2010.
In September 1993, the Company sold this office building at a loss, after
closing costs, of $194,000. Terms of the agreement included a down payment of
$112,750 in cash at closing and a promissory note and deed of trust in favor
of the Company in the amount of $1,013,000 at a fixed interest rate of 8 1/2%
per annum payable in equal monthly payments of $8,000 per month for 36 months
with a balloon payment for the remaining interest and principal. The Company
received the balloon payment in 1996 and at that time paid the underlying
mortgage which yielded approximately $300,000 in cash.
In 1996, the Company purchased $384,000 of capital equipment, primarily asso-
ciated with a new computer system which is expected to be implemented in the
second quarter of 1997. In 1997, the Company expects to purchase approximately
$292,000 of capital equipment, a significant amount of which are costs
associated with the computer system conversion effort. Of this amount the Com-
pany has made a firm commitment for $150,000 of these expenditures.
The Company has entered into an agreement to sell its existing headquarters
and manufacturing facility in Lynnwood, Washington for approximately
$3,000,000 in cash, which would yield net proceeds of approximately
$2,800,000. The closing of this transaction in the second quarter of 1997 is
subject to satisfaction of a contingency related to an environmental audit,
which is expected to be completed by April 1, 1997.
The Company believes that its line of credit and anticipated cash flows from
the sale of the headquarters facility will satisfy the Company's projected
working capital and capital expenditure requirements for at least the next 12
months. However, if the sale of the facility does not occur or if the
Company's revenues drop significantly or incurs unanticipated expenses,
existing sources of working capital may not be sufficient and there can be no
assurance that additional financing would be available when needed.
EFFECTS OF INFLATION AND CHANGES IN FOREIGN CURRENCY EXCHANGE RATES
Due to the competitive conditions in the market for consumer electronics,
historically the Company has been limited in its ability to increase prices
for its products in amounts sufficient to offset increased production and op-
erating costs. The Company increased its domestic consumer and worldwide pro-
fessional prices an average of 5% on January 15, 1995 to partially offset the
increase in material and labor costs it had been experiencing as well as the
continued erosion in the strength of the U.S. dollar. Consumer export prices
were increased a like amount in July 1995. While some revenue fall off is an-
ticipated due to these price increases, the Company believes that it is appro-
priate to trade some decline in sales for an improvement in margins. The Com-
pany intends to continue to monitor costs and its market and adjust prices as
necessary. All sales of the Company's products are in U.S. dollars.
The Company purchased the majority of these products at an agreed per unit
price payable in U.S. Dollars. Accordingly, fluctuations in foreign currency
rates had no material impact on the Company's gross margin.
As of December 31, 1996, the Company has committed to the purchase of approx-
imately $2,932,000 of inventory which it expects to receive in 1997. Of this
amount, an immaterial amount is payable in Japanese Yen.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. 19
Consolidated Balance Sheet as of December 31, 1996 and 1995............... 20
Consolidated Statement of Operations, Years Ended December 31, 1996, 1995
and 1994................................................................. 21
Consolidated Statement of Shareholders' Equity, Years Ended December 31,
1996, 1995 and 1994...................................................... 22
Consolidated Statement of Cash Flows, Years Ended December 31, 1996, 1995
and 1994................................................................. 23
Notes to Consolidated Financial Statements................................ 24
Independent Auditors' Report on Supplemental Schedule..................... 30
Supplemental Schedule II--Valuation and Qualifiying Accounts and Reserves
Years Ended December 31,................................................. 31
</TABLE>
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Carver Corporation
We have audited the accompanying consolidated balance sheet of Carver Corpo-
ration and subsidiary as of December 31, 1996 and 1995 and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the years in the three year period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the consolidated financial statements referred to above pres-
ent fairly, in all material respects, the financial position of Carver Corpo-
ration and subsidiary as of December 31, 1996 and 1995, and the results of
their operations and cash flows for each of the years in the three year period
ended December 31, 1996 in conformity with generally accepted accounting prin-
ciples.
Moss Adams LLP
Seattle, Washington
March 7, 1997
19
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
ASSETS December 31
- ----------------------------------------------------------------------------
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 65,000 $ 261,000
Marketable securities 5,000 5,000
Accounts receivable, trade, net 1,627,000 2,304,000
Inventories 4,176,000 3,927,000
Note receivable and other assets 104,000 1,342,000
Prepaid expenses 662,000 377,000
- ----------------------------------------------------------------------------
Total current assets 6,639,000 8,216,000
- ----------------------------------------------------------------------------
Property and equipment
Land 440,000 440,000
Buildings and improvements 2,452,000 2,452,000
Equipment 2,299,000 2,019,000
- ----------------------------------------------------------------------------
5,191,000 4,911,000
Less accumulated depreciation (2,747,000) (2,620,000)
- ----------------------------------------------------------------------------
2,444,000 2,291,000
- ----------------------------------------------------------------------------
Other assets 141,000 167,000
- ----------------------------------------------------------------------------
Total assets $ 9,224,000 $10,674,000
- ----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable $ 1,110,000 $ 1,216,000
Accounts payable 410,000 842,000
Accrued liabilities
Commissions 127,000 104,000
Payroll and related taxes 264,000 198,000
Warranty 113,000 73,000
Other 42,000 156,000
Current portion of long-term debt - 696,000
- ----------------------------------------------------------------------------
Total current liabilities 2,066,000 3,285,000
- ----------------------------------------------------------------------------
Commitments and contingency (Notes 7 and 14)
Shareholders' equity
Preferred shares, par value $.01 per share,
2,000,000 shares authorized, 1,411,764 shares
issued and outstanding 14,000 -
Common shares, par value $.01 per share,
20,000,000 shares authorized, 3,738,820 shares
issued and outstanding 37,000 37,000
Additional paid-in capital 19,006,000 15,940,000
Accumulated deficit (11,899,000) (8,588,000)
- ----------------------------------------------------------------------------
Total shareholders' equity 7,158,000 7,389,000
- ----------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,224,000 $10,674,000
- ----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
20
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
- ------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $14,519,000 $18,428,000 $22,171,000
Cost of sales 11,604,000 15,038,000 17,495,000
- ------------------------------------------------------------------------------
Gross margin 2,915,000 3,390,000 4,676,000
- ------------------------------------------------------------------------------
Operating expenses
Selling 2,629,000 3,441,000 3,827,000
General and administrative 2,079,000 1,887,000 2,221,000
Engineering, research and development 711,000 808,000 1,164,000
Restructuring Charges - 1,319,000 -
Loss (Gain) on sale of professional
products line 526,000 (1,208,000) -
- ------------------------------------------------------------------------------
Total operating expenses 5,945,000 6,247,000 7,212,000
- ------------------------------------------------------------------------------
Loss from operations (3,030,000) (2,857,000) (2,536,000)
- ------------------------------------------------------------------------------
Other (income) expense
Interest expense 202,000 335,000 365,000
Interest income (50,000) (86,000) (87,000)
(Gain) Loss on disposal of property
and equipment (8,000) 3,000 2,000
Miscellaneous 29,000 48,000 57,000
- ------------------------------------------------------------------------------
Total other (income) expense 173,000 300,000 337,000
- ------------------------------------------------------------------------------
Net loss $(3,203,000) $(3,157,000) $(2,873,000)
- ------------------------------------------------------------------------------
Loss per share $ (0.86) $ (0.86) $ (0.78)
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
21
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Shares Preferred Shares Additional
----------------- ----------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit Total
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1993 3,677,556 $37,000 $15,929,000 $ (2,558,000) $ 13,408,000
Issuance of shares 1,118 2,000 2,000
Net loss (2,873,000) (2,873,000)
- ---------------------------------------------------------------------------------------------------
Balance,
December 31, 1994 3,678,674 37,000 15,931,000 (5,431,000) (10,537,000)
Issuance of shares 7,656 9,000 9,000
Net loss (3,157,000) (3,157,000)
- ---------------------------------------------------------------------------------------------------
Balance,
December 31, 1995 3,686,330 37,000 15,940,000 (8,588,000) 7,389,000
Issuance of shares 14,655 1,411,764 $14,000 2,856,000 2,870,000
Dividend on preferred
shares 37,835 108,000 (108,000) -
Issuance of warrants 102,000 102,000
Net Loss (3,203,000) (3,203,000)
- ---------------------------------------------------------------------------------------------------
BALANCE,
DECEMBER 31, 1996 3,738,820 $37,000 1,411,764 $14,000 $19,006,000 $(11,899,000) $ 7,158,000
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
22
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
- -----------------------------------------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,203,000) $(3,157,000) $(2,873,000)
Adjustments to reconcile net loss to
cash flows (used by) from operating
activities
Depreciation and amortization 474,000 300,000 371,000
Loss (Gain) on sale of professional
products line 526,000 (1,208,000) -
Restructuring Costs - 1,319,000 -
(Gain) Loss on disposal of property
and equipment (8,000) 3,000 2,000
Common shares and warrants issued
for services 64,000 - -
Changes in assets and liabilities
Accounts receivable, trade, net 521,000 1,526,000 1,261,000
Inventories (444,000) 2,555,000 1,053,000
Prepaid expenses (512,000) (31,000) (300,000)
Other assets and deferred charges (3,000) 126,000 87,000
Accounts payable and accrued lia-
bilities (417,000) (1,159,000) 846,000
- -----------------------------------------------------------------------------
(3,002,000) 274,000 447,000
- -----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from repayment of note re-
ceivable 992,000 10,000 10,000
Proceeds from sale of professional
products line 71,000 1,632,000 -
Acquisition of property and equip-
ment (384,000) (44,000) (139,000)
Proceeds from disposal of property
and equipment 21,000 2,000 2,000
- -----------------------------------------------------------------------------
700,000 1,600,000 (127,000)
- -----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common shares 10,000 9,000 2,000
Issuance of preferred shares 2,898,000 - -
Decrease in note payable (106,000) (1,851,000) (226,000)
Repayment of long-term debt (696,000) (20,000) (18,000)
- -----------------------------------------------------------------------------
2,106,000 (1,862,000) (242,000)
- -----------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (196,000) 12,000 78,000
CASH
Beginning of year 261,000 249,000 171,000
- -----------------------------------------------------------------------------
End of year $ 65,000 $ 261,000 $ 249,000
- -----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
23
<PAGE>
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Carver Corporation and its wholly-owned subsidiary, Carver In-
ternational, Ltd., a Foreign Sales Corporation (FSC). Significant intercompany
transactions are eliminated in consolidation.
OPERATIONS - The Company is engaged primarily in the development, manufacture
and distribution of audio/video entertainment systems. Sales are approximately
90% in the United States and 10% in various foreign nations.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION - Revenue is recognized when products are shipped. The
Company warrants its products for a period of one to three years following the
date of sale. Estimated warranty costs are recorded in the period of the sale.
INVENTORIES - Inventories consist of electronic components and audio/video
equipment and are stated at the lower of cost (determined on a first-in,
first-out basis) or market. Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------
1996 1995
- ------------------------------------------------------------
<S> <C> <C>
Raw materials and service spare parts $ 484,000 $ 893,000
Work-in-progress 1,154,000 1,284,000
Finished products 2,538,000 1,750,000
- ------------------------------------------------------------
$4,176,000 $3,927,000
- ------------------------------------------------------------
</TABLE>
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Deprecia-
tion for financial reporting purposes is provided using straight-line methods.
Estimated useful lives range from three to thirty years.
LONG-LIVED ASSETS - The Company adopted Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("FAS 121") during 1996. FAS 121 requires
that long-lived assets and certain identifiable intangibles to be held and
used or disposed of by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. During 1996 the Company determined that no impairment loss
need be recognized for applicable assets of continuing operations.
INTANGIBLES - Patents are amortized over the useful lives which range from
seven to seventeen years.
PREPAID TOOLING - Advance payments for tooling associated with new product
development are amortized over the estimated life of the product which ranges
from one to two years.
STOCK BASED COMPENSATION - Effective January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation ("SFAS No. 123"). The new standard measures compensation
cost using a fair value method, which computes compensation cost as the dif-
ference between the options' fair value and the option price on the grant
date. However, SFAS No. 123 allows companies to continue to measure compensa-
tion cost using the intrinsic value method, which computes compensation cost
as the difference between a company's stock price and the option price at the
grant date. The Company has elected to continue to use the intrinsic value
method.
RESEARCH AND DEVELOPMENT - Costs associated with product research and devel-
opment are charged to operations when incurred and are included in operating
expenses.
ADVERTISING - The Company expenses the costs of advertising as incurred. Ad-
vertising expense in 1996, 1995 and 1994 was $452,000, $777,000, and $868,000,
respectively.
EARNING PER SHARE - Earnings per share are based on earnings for the period,
divided by the weighted average number of shares and common share equivalents
outstanding during each year. The earnings per share calculations exclude com-
mon share equivalents as the effect would be anti-dilutive. The weighted aver-
age number of common shares for purposes of computing earnings per share
amounted to 3,706,000, 3,680,000 and 3,678,000 shares for the years ended De-
cember 31, 1996, 1995 and 1994, respectively.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION - The Company paid $1,000
for income tax in 1994 and paid no income tax in 1995 or 1996. The Company
paid $202,000, $335,000 and $365,000 for interest in 1996, 1995, and 1994, re-
spectively.
Non-cash financing activities during 1996 included the issuance of warrants
valued at $102,000. These warrants included a $60,000 closing fee relating to
obtaining capital. Additionally, the Company issued a dividend on the Pre-
ferred Stock paid in common shares valued at $108,000 and common stock compen-
sation valued at $64,000.
24
<PAGE>
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts receivable are as follows:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------
1996 1995
- --------------------------------------------------------
<S> <C> <C>
Trade Receivables $1,890,000 $2,570,000
Allowance for doubtful accounts (245,000) (233,000)
Allowance for discounts (18,000) (33,000)
- --------------------------------------------------------
$1,627,000 $2,304,000
- --------------------------------------------------------
</TABLE>
NOTE 3 - NOTE RECEIVABLE
In September 1993, the Company received a note for $1,015,000 secured by deed
of trust in connection with the sale of land and building. The note was pay-
able in monthly installments of $8,000 including interest of 8.5%. The note
was paid in full in June 1996.
NOTE 4 - FINANCING & LIQUIDITY
REDEEMABLE PREFERRED STOCK - Late in the second quarter and during the third
quarter of 1996, the Company sold 1,411,764 shares of Series A Cumulative Con-
vertible Preferred Stock ("Preferred Shares") and issued five-year warrants
("Warrants") to acquire up to 300,000 shares of the Company's Common Shares
pursuant to a Stock Purchase Agreement (the "Agreement") with Renwick Capital
Management, Inc. and certain Renwick affiliates ("Renwick"). The Shares of
Preferred Stock and Warrants are convertible into or exercisable for 1,711,764
shares of Common Stock, or approximately 46% of the current shares outstand-
ing.
The price of the Preferred Shares was $2.125 per share and each Preferred
Share is convertible at any time at the option of the holder into one Common
Share, subject to certain potential antidultion adjustments. The Preferred
Shares are entitled to an 8% compounding annual dividend payable quarterly. In
the first year, such dividend has been paid with Common Shares.
The holders of the Preferred Shares are entitled to one vote for each share
of Common Shares into which the Preferred Shares are convertible. In addition,
the holders of the Preferred Shares are entitled to elect two representatives
to the Company's Board of Directors and preference in liquidity. The preferred
shareholders may be deemed to have acquired control of the Company, and ac-
cordingly, certain actions by the Company require the approval of at least a
majority of the preferred shareholders.
The exercise price of the Warrants is $1.50 per share of Common Shares, if
exercised from the date of the initial closing through a date two years from
the date of the initial closing, $1.75 for the next year, $2.00 for the next
year and $2.125 for the final year, all subject to certain potential
antidilution adjustments.
SHORT-TERM BORROWINGS - The Company has an agreement with a financial insti-
tution which provides for working capital advances up to $6,000,000. A maximum
of $1,000,000 of this line may be used to secure letters of credit. Funds
available under this agreement are restricted, however, to 70% of eligible ac-
counts receivable and 50% of inventories. The lender has agreed to make ad-
vances to the Company over the amount otherwise available under the formulas
described above. The terms of the accommodation allow the Company to borrow up
to an additional $1,500,000. The Company granted its lender a deed of trust on
the Company's Lynnwood, Washington facility as additional security for the
overadvance. The overadvance limit will be reduced by $17,858 per month begin-
ning March 1, 1997 and continuing each month until the earlier of March 1,
2002 or such time as the Lynnwood facility has been sold. Advances are collat-
eralized by substantially all assets of the Company and bear interest at the
prime lending rate plus 2%. The outstanding balance on the line of credit was
$1,110,000 and $1,216,000 at December 31, 1996 and 1995, respectively. The
agreement expires on July 31, 1998.
Maximum and average amounts outstanding during the year ended December 31,
1996 were $2,154,000 and $1,329,000, respectively. The weighted average inter-
est rate at December 31, 1996 was 10.25% and the weighted average interest
rate during the year, computed monthly, was 10.29%.
LONG-TERM DEBT - The Company assumed a $790,000 note secured by a deed of
trust in connection with the purchase of land and a building in 1990. The note
was payable in monthly installments of $7,790 at an interest rate of 10.375%.
The land and building were sold during 1993, for cash and a note receivable
(Note 3). The balance was paid in full in 1996 upon collection of the note re-
ceivable.
SALES AND OPERATIONS - The Company believes it has adequate working capital
and liquidity to cover planned operations for the next twelve months. The Com-
pany has entered into an agreement to sell its existing headquarters and manu-
facturing facility in Lynnwood, Washington for approximately $3,000,000 in
cash, which would yield net proceeds of approximately $2,800,000. The closing
of this transaction in the second quarter of 1997 is subject to satisfaction
of a contingency related to an environmental audit, which is expected to be
completed by April 1, 1997. The sale of the facility along with anticipated
cash flows from operations, will enable the Company to meet its 1997 projected
working capital and capital expenditure requirements. The Company has new
products which are expected to produce sales growth and expects sales of prod-
ucts sourced offshore to account for over
25
<PAGE>
50% of its revenue in 1997. Lack of sourced product from the Company's off-
shore vendors would result in revenues significantly less than forecasted in
1997.
NOTE 5 - MAJOR CUSTOMER & EXPORT SALES BY REGION
Operating revenue from a single customer was $5,953,000 in 1996. Foreign rev-
enues are denominated in U.S. dollars. Net export sales by geographic areas
are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
- ------------------------------------------------
1996 1995 1994
- ------------------------------------------------
<S> <C> <C> <C>
Western Europe $ 136,000 $1,608,000 $1,974,000
Canada 233,000 577,000 683,000
Asia 772,000 1,771,000 1,706,000
Other 148,000 1,236,000 1,547,000
- ------------------------------------------------
$1,289,000 $5,192,000 $5,910,000
- ------------------------------------------------
</TABLE>
NOTE 6 - INCOME TAX
A reconciliation of the income tax benefit to the amounts computed by apply-
ing the federal statutory income tax rate to income before income tax is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------------
% OF % of % of
PRE-TAX Pre-Tax Pre-Tax
AMOUNT INCOME Amount Income Amount Income
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income tax benefit at
federal statutory rate $(1,089,000) (34.0)% $(1,073,000) (34.0)% $(977,000) (34.0)%
FSC income - - - (6,000) (.2)
Other 1,000 (99,000) (3.1)% 111,000 3.9
Change in valuation
allowance 1,088,000 34.0 % 1,172,000 37.1 % 872,000 30.3 %
- ----------------------------------------------------------------------------------------
$ - - % $ - - % $ - - %
- ----------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant por-
tions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Net operating loss $ 5,677,000 $ 4,618,000
Other 205,000 178,000
Deferred tax liabilities
Accelerated depreciation (400,000) (398,000)
Other (1,000) (5,000)
- ---------------------------------------------------------
Total computed deferred taxes 5,481,000 4,393,000
Less valuation allowance (5,481,000) (4,393,000)
- ---------------------------------------------------------
Net deferred taxes $ - $ -
- ---------------------------------------------------------
</TABLE>
For tax reporting purposes, the Company has approximately $16,697,000 of net
operating losses which may be utilized to offset future taxable income. These
loss carryforwards expire between the years 2004 and 2011. Under FAS 109, the
Company is required to recognize the future benefit of its net operating loss
carryforwards. The Company has recorded a valuation allowance of 100% of the
computed deferred tax assets.
26
<PAGE>
NOTE 7 - COMMITMENTS
PURCHASE COMMITMENTS - As of December 31, 1996, the Company has committed to
the purchase of approximately $2,932,000 of inventory and $150,000 of capital
equipment expected to be received in 1997 from various vendors. Of this
amount, the portion denominated in foreign currencies was immaterial.
NOTE 8 - EMPLOYEE BENEFIT & STOCK INCENTIVE PLANS
WARRANTS - At December 31, 1996, warrants to purchase 600,000 common shares
are outstanding at prices ranging from $1.50 per share to $5.75 per share.
These warrants are fully exercisable.
STOCK BONUS PLAN - In 1995, the Company adopted a stock bonus plan for em-
ployees, directors and consultants. The plan allows the Board of Directors to
grant shares of authorized, unissued common shares. In 1996 and 1995, 9,510
and 1,500 shares were granted, respectively.
STOCK PURCHASE PLAN - The Company has a stock purchase plan for the benefit
of its employees. Employees who choose to participate enroll semi-annually and
may make voluntary contributions to a fund. On June 30 and December 31 of each
year, the participant may apply contributed funds toward the purchase of
shares of Company stock at 85% of the prevailing market price or 85% of the
market price on the date of enrollment in the plan. The Company has reserved
100,000 shares for issuance under this plan. The shares issued under this plan
and the proceeds received for the three most recent fiscal years are as fol-
lows:
<TABLE>
<CAPTION>
Shares Proceeds
- ---------------------
<S> <C> <C>
1996 2,554 $4,463
1995 2,663 3,500
1994 1,118 2,000
</TABLE>
PROFIT SHARING PLAN - The Company has a 401(k) profit sharing plan for the
benefit of all full-time employees. Participants may make voluntary contribu-
tions while the Company, at its discretion, may make a matching contribution
at a rate of $.50 for every $1 of participant contribution up to $1,000 per
participant. The Company made no contributions to the Plan in 1996, 1995 or
1994.
STOCK OPTIONS - The Company's 1995 Stock Option Plan provides for grants to
key employees, directors and consultants. There are 660,000 shares authorized
for grants of options under the Plan. The Company also has a 1985 Stock Option
Plan for employees and a 1985 Stock Option Plan for directors. Under all
plans, the Board of Directors determines the option price at the date of
grant. Options granted under all plans generally vest between three and four
and one half years after grant and expire between five and ten years from the
date of grant. At December 31, 1996, 394,985 shares were vested and 118,500
were available for future grants under the plans.
The Company granted options of 50,000 shares on August 6, 1993 and 50,000
shares on August 26, 1994 to key employees as a condition of employment. The
option price is the fair market value of the underlying common stock on the
date of grant. These options were fully vested on the date of grant and have
terms of ten years and lapse at the earlier of three years from the date of
termination of employment or one year from the date of death or disability,
whichever comes first.
27
<PAGE>
The following summary sets forth the activity under the plans in 1996, 1995
and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------
WEIGHTED- Weighted- Weighted-
AVERAGE Average Average
EXERCISE Exercise Exercise
Option Activity SHARES PRICE Shares Price Shares Price
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 488,864 $2.58 521,614 $2.63 331,889 $2.63
Granted 435,000 2.36 209,500 2.50 250,000 2.63
Exercised (2,500) 2.25 0 0
Forfeited (148,258) 2.76 (242,250) 2.61 (60,275) 2.63
- ------------------------------------------------------------------------------------
Outstanding at year-end 773,106 $2.42 488,864 $2.58 521,614 $2.63
- ------------------------------------------------------------------------------------
Options exercisable at
year-end 394,985 $2.48 300,114 $2.64
Weighted-average fair
value of options
granted during the year $1.71 $2.36
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/96 Life Price at 12/31/96 Price
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.50 - $1.80 155,500 9.25 $1.50 51,835 $1.50
1.81 - 2.25 94,000 6.76 2.04 82,375 2.01
2.50 - 2.50 162,750 7.89 2.50 63,750 2.50
2.63 - 2.63 50,000 7.65 2.63 50,000 2.63
2.83 - 2.83 5,000 9.67 2.83 1,667 2.83
2.88 - 2.88 222,000 7.78 2.88 61,502 2.88
3.00 - 3.00 35,000 4.71 3.00 35,000 3.00
3.25 - 3.25 48,856 5.17 3.25 48,856 3.25
- ----------------------------------------------------------------------
$1.50 - $3.25 773,106 7.67 $2.42 394,985 $2.48
</TABLE>
SFAS No. 123 requires proforma disclosure of net income as if the fair value
method were used. If compensation cost for the Company's 1996 and 1995 grants
under stock-based compensation plans were determined under the fair value
method, the Company's net loss, net loss applicable to common share owners and
net loss per common share for 1996 and 1995 would approximate the proforma
amounts below. The fair value of the options granted during 1996 is estimated
at $1.71 on the date of grant using Black-Scholes option-pricing model with
the following assumptions: no dividend yield, volatility of 80%, risk-free in-
terest rate of 6.7%, forfeitures recognized as incurred and an expected life
ranging from 5 to 8 years.
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------
AS REPORTED PROFORMA As Reported Proforma
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss $(3,203) $(3,473) $(3,157) $(3,235)
- -------------------------------------------------------------------------
Net loss applicable to common
share owners $(3,203) $(3,473) $(3,157) $(3,235)
- -------------------------------------------------------------------------
Net loss per common share $ (0.86) $ (0.94) $ (0.86) $ (0.88)
</TABLE>
The effects of applying SFAS 123 in this proforma disclosure are not indica-
tive of future amounts. SFAS 123 does not apply to awards prior to 1995, and
additional awards in future years are anticipated.
28
<PAGE>
NOTE 9--RELATED PARTY TRANSACTIONS
PATENTS AND ROYALTIES - Robert W. and Diana R. Carver, shareholders of Carver
Corporation, hold three patents on the Magnetic Field Amplifier technology
which has been used in certain Carver products. Pursuant to terms of the li-
cense agreement, Carver Corporation pays royalties to Robert W. and Diana R.
Carver for each amplifier sold which incorporates the licensed technology.
Such royalties amounted to $9,000 in 1996, $45,000 in 1995 and $57,000 in
1994.
NOTE 10--QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------
(All amounts in thousands
except per share amounts)
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Revenues $4,348 $ 3,045 $4,336 $ 2,790
Operating loss (376) (809) (68) (1,777)
Loss before income taxes (385) (971) (89) (1,758)
Net loss (385) (971) (89) (1,758)
Net loss per share (.10) (.26) (.02) (.48)
Year Ended December 31, 1995
Revenues $5,230 $ 4,931 $4,494 $ 3,773
Operating loss (542) (1,140) (81) (1,094)
Loss before income taxes (632) (1,303) (151) (1,071)
Net loss (632) (1,303) (151) (1,071)
Net loss per share (.17) (.35) (.04) (.30)
</TABLE>
NOTE 11 - FINANCIAL INSTRUMENTS
CONCENTRATION OF CREDIT RISK - Financial instruments that subject the Company
to concentrations of credit risk are cash and accounts receivable. The Company
places its cash with major financial institutions. The Company performs ongo-
ing credit evaluations of its customers and generally does not require collat-
eral. The Company has not experienced a history of significant credit-related
losses. At December 31, 1996, accounts receivable from one customer was
$530,000.
FAIR VALUES - The following methods and assumptions were used to estimate the
value of each class of financial instruments for which it is practical to es-
timate that value:
The carrying value for the note receivable and note payable and the current
portion of long-term debt approximates the fair value due to the current clas-
sification of the notes and debt.
The estimated fair value of the Company's financial instruments are summa-
rized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE Amount Fair Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Note Receivable - - $ 992,000 $ 992,000
Note Payable $(1,110,000) $(1,110,000) (1,216,000) (1,216,000)
Current portion of long-
term debt - - (696,000) (696,000)
</TABLE>
The carrying value of accounts receivable, accounts payable and accrued
expenses approximates fair value due to the short-term nature of these items.
NOTE 12 - RESTRUCTURING CHARGES
In the fourth quarter of 1995, the Company recorded a restructuring charge of
$1,319,000 for costs associated with downsizing of operations, consolidating
facilities, and the disposal, either through sale or abandonment, of certain
product lines. The charges include severance costs and write-off of intangible
assets and inventories. As of December 31, 1995, $143,000 was accrued relating
to personnel reduction that was completed in 1996.
NOTE 13 - SALE OF PROFESSIONAL PRODUCTS LINE
On November 20, 1995, the Company sold assets relating to its professional
products line for a gain of $1,208,000. The purchase price, net of certain
selling
29
<PAGE>
expenses, was $1,982,000, in which $350,000 was held back to be paid to the
Company one year from the closing date and $209,000 was paid directly to Rob-
ert W. and Diana R. Carver in settlement of a royalty dispute. Of the holdback
amount $200,000 remained unpaid at December 31, 1996.
NOTE 14 - CONTINGENCY
On December 30, 1996 a Pacific Northwest snow storm temporarily interrupted
the Company's normal business operations and caused a roof section at its man-
ufacturing and corporate headquarters to collapse. The Company is insured for
losses caused by an interruption to its business and damage to its property,
and as a result no material losses are anticipated.
NOTE 15 - CLAIM SETTLEMENT
Late in 1994, the United States Customs Service conducted an audit of the
Company's import operations. The Customs Service found that the Company had
made late duty payments totaling $99,000 on tooling paid to its offshore ven-
dors between 1989 to 1993. On March 9, 1995, the Customs Service issued to the
Company a prepenalty notice indicating that it would assess a penalty up to
approximately $400,000. The Company had provided documentation to the Customs
Service which significantly mitigated the penalty. In July 1995, the Company
paid the Customs Service $50,000 as an offer in compromise of the penalty. In
June 1996, the Customs Service notified the Company that it had accepted that
payment as settlement in full of the assessed penalties.
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL SCHEDULE
To the Board of Directors
and Shareholders
Carver Corporation
Under date of March 7, 1997, we reported on the consolidated balance sheet of
Carver Corporation and subsidiary as of December 31, 1996 and 1995 and the re-
lated consolidated statements of operations, shareholders' equity and cash
flows for each of the years in the three year period ended December 31, 1996,
as listed in Item 8 of the Annual Report on Form 10-K for the year 1996. In
connection with our audit of the aforementioned consolidated financial state-
ments, we also audited the related supplemental financial statement schedule.
In our opinion, this financial statement schedule, when considered in rela-
tion to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
Moss Adams LLP
Seattle, Washington
March 7, 1997
30
<PAGE>
CARVER CORPORATION AND SUBSIDIARY
SUPPLEMENTAL SCHEDULE II - VALUATION AND QUALIFIYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
Additions
Balance At Charged To Balance
Beginning Costs and At End
Descriptions of Year Expenses Deductions(1) Of Year
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts-
deducted from accounts
receivable in the balance sheet
1996 $233,000 $231,000 $219,000 $245,000
1995 183,000 447,000 397,000 233,000
1994 190,000 195,000 202,000 183,000
- ------------------------------------------------------------------------------
Allowance for discounts-deducted
from accounts
receivable in the balance sheet
1996 $ 33,000 $197,000 $212,000 $ 18,000
1995 61,000 450,000 478,000 33,000
1994 90,000 580,000 609,000 61,000
- ------------------------------------------------------------------------------
</TABLE>
(/1/) Represents uncollectible accounts written off and discounts taken by cus-
tomers.
31
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Incorporated by reference to the Proposal 1 - Election of Directors, "Nomi-
nees," section of the Company's Proxy Statement with respect to its 1997 An-
nual Meeting of Shareholders to be filed by April 14, 1997.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Directors' Compensation and Executive Com-
pensation sections of the Company's Proxy Statement with respect to its 1997
Annual Meeting of Shareholders to be filed by April 14, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Securities and Principal Holders, Proposal
1 - Elections of Directors, "Nominees," and Executive Compensation, sections
of the Company's Proxy Statement with respect to its 1997 Annual Meeting of
Shareholders to be filed by April 14, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Certain Transactions section of the
Company's Proxy Statement with respect to its 1997 Annual Meeting of Share-
holders to be filed by April 14, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page in
Financial Statements Index This Report
- -------------------------------------------------------------------------------
<S> <C>
Independent Auditors' Report....................................... 19
Consolidated Balance Sheet at December 31, 1996 and 1995........... 20
Consolidated Statement of Operations, Years Ended December 31,
1996, 1995 and 1994............................................... 21
Consolidated Statement of Shareholders' Equity, Years Ended
December 31, 1996, 1995 and 1994.................................. 22
Consolidated Statement of Cash Flows, Years Ended December 31,
1996, 1995 and 1994............................................... 23
Notes to Consolidated Financial Statements......................... 24
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page in
This Report
- -------------------------------------------------------------------------------
<S> <C>
Independent Auditors' Report on Supplemental Schedule.............. 30
Supplemental Schedule II--Valuation and Qualifying Accounts and
Reserves.......................................................... 31
</TABLE>
All other schedules are omitted because they are not applicable or the re-
quired information is shown in the consolidated financial statements or notes
thereto.
(B) REPORTS ON FORM 8-K. None.
(C) EXHIBITS.
Executive Compensation Plans and Arrangements
The following list is a subset of the list of exhibits described below and
contains all compensatory plans, contracts or arrangements in which any direc-
tor or executive officer of the Company is a participant, unless the method of
allocation of benefits thereunder is the same for management and non-manage-
ment participants:
32
<PAGE>
(1) The Company's Amended 1985 Incentive Stock Option Plan. See Exhibit 10.3.
(2) The Company's Amended 1985 Non-Qualified Stock Option Plan. See Exhibit
10.4.
(3) Form of Amended Stock Option Agreement used in connection with options
granted under the Company's Amended 1985 Incentive Stock Option Plan. See Ex-
hibit 10.5.
(4) Employment Agreement dated August 26, 1994 between Stephen M. Williams and
the Company. See Exhibit 10.14.
(5) Stock Option Agreement dated August 26, 1994 between Stephen M. Williams
and the Company. See Exhibit 10.15.
(6) Stock Option Agreement dated August 26, 1994 between Stephen M. Williams
and the Company. See Exhibit 10.16.
(7) Employment Agreement dated January 2, 1996 between Stephen M. Williams and
the Company. See Exhibit 10.26.
(8) The Stephen M. Williams 1996 Bonus Plan dated January 3, 1996 between Ste-
phen M Williams and the Company. See Exhibit 10.27.
(9) Stock Option Agreement dated March 11, 1995 between Stephen M. Williams
and the Company. See Exhibit 10.28.
(10) Stock Option Agreement dated March 24, 1995 between Stephen M. Williams
and the Company. See Exhibit 10.29.
(11) Stock Option Agreement dated January 15, 1996 between Stephen M. Williams
and the Company. See Exhibit 10.30.
(12) Stock Option Agreement dated September 20, 1996 between Stephen M. Wil-
liams and the Company. See Exhibit 10.40.
(13) Stock Option Agreement dated September 20, 1996 between Stephen M. Wil-
liams and the Company. See Exhibit 10.41.
(14) Stock Option Agreement dated September 20, 1996 between John P. World and
the Company. See Exhibit 10.42.
(15) Stock Option Agreement dated September 20, 1996 between John P. World and
the Company. See Exhibit 10.43.
(16) Stock Option Agreement dated January 15, 1996 between John P. World and
the Company. See Exhibit 10.44.
(17) Stock Option Agreement dated March 11, 1995 between John P. World and the
Company. See Exhibit 10.45.
(18) Nonqualified Stock Option Agreement dated February 23, 1993 between John
P. World and the Company. See Exhibit 10.46.
(19) Nonqualified Stock Option Agreement dated March 2, 1992 between John P.
World and the Company. See Exhibit 10.47.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number See Attachment "Exhibits"
- -------------------------------------------------------------------------------
<C> <S>
2.1 Asset Purchase and Sale Agreement dated as of December 23, 1992 among
Carver Corporation, U.S. Sound, Inc., John Lemon and USS Corporation.
(Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K
dated December 23, 1992).
2.2 Asset Purchase Agreement dated November 19, 1993 between Carver
Corporation and Bose Corporation. (Incorporated by reference to
Exhibit 2.2 to the Registrant's Form 10-K for the year ended December
31, 1993.).
2.3 Series A Preferred Stock Purchase Agreement, dated as of June 12,
1996, by and among the Company and each of those persons and entities
whose names are set forth on Exhibit A thereto (the "Investors").
(Incorporated by reference Exhibit 2.3 to the Company's Form 8-K dated
June 12, 1996.).
3.1 The Company's Restated Articles of Incorporation filed July 29, 1988.
(Incorporated by reference to Exhibit 3.1 to the Registrant's Form 10-
K for the year ended December 31, 1989).
3.2* The Company's Eighth Amended and Restated Bylaws dated June 5, 1996.
4.1 Warrant Agreement, dated as of June 12, 1996, by and among the Company
and Renwick Capital Management, Inc. (Incorporated by reference
Exhibit 4.1 to the Company's Form 8-K dated June 12, 1996.).
4.2 Registration Rights Agreement, dated as of June 12, 1996, by and among
the Company and the Investors. (Incorporated by reference Exhibit 4.2
to the Company's Form 8-K dated June 12, 1996.).
4.3 Certificate of Designation, as filed with the Secretary of State of
the State of Washington on June 12, 1996. (Incorporated by reference
Exhibit 4.3 to the Company's Form 8-K dated June 12, 1996.).
4.4 Form of Series A Cumulative Convertible Preferred Stock Certificate.
(Incorporated by reference Exhibit 4.4 to the Company's Form 8-K dated
June 12, 1996.).
4.5 Form of Warrant Certificate evidencing the right to acquire shares of
the Company's Common Stock. (Incorporated by reference Exhibit 4.1 to
the Company's Form 8-K dated June 12, 1996.).
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number See Attachment "Exhibits"
- -------------------------------------------------------------------------------
<C> <S>
10.1 License Agreement dated as of June 1, 1980 between the Company and
Carver Technology Development, Inc. (Incorporated by reference to
Exhibit 10.6 to the Registrant's Registration Statement on Form S-1,
No. 2-96896).
10.2 The Company's Amended 1985 Incentive Stock Option Plan. (Incorporated
by reference to Exhibit 10.3 to the Registrant's Form 10-K for the
year ended December 31, 1992).
10.3 The Company's Amended 1985 Non-Qualified Stock Option Plan.
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Registration Statement on Form S-8, No. 33-31344).
10.4 Form of the Amended Stock Option Agreement used in connection with the
Company's Amended 1985 Incentive Stock Option Plan. (Incorporated by
reference to Exhibit 10.5 to the Registrant's Form 10-K for the year
ended December 31, 1992).
10.5 The Company's Amended 1988 Employee Stock Purchase Plan. (Incorporated
by reference to Exhibit 10.6 to the Registrant's Form 10-K for the
year ended December 31, 1992).
10.6 Employment Agreement dated February 28, 1992, between Thomas C. Graham
and the Company. (Incorporated by reference to Exhibit 10.8 to the
Registrant's Form 10-K for the year ended December 31, 1992).
10.7 Severance Agreement dated as of September 22, 1993 between Thomas C.
Graham and the Company. (Incorporated by reference to Exhibit 10.9 to
the Registrant's Form 10-K for the year ended December 31, 1989).
10.8 Stock Option Agreement dated August 6, 1993 between Robert A. Fulton
and the Company. (Incorporated by reference to Exhibit 10.10 to the
Registrant's Form 10-K for the year ended December 31, 1993.).
10.9 Form of Authorized Dealer Agreement. (Incorporated by reference to
Exhibit 10.10 to the Registrant's Form 10-K for the year ended
December 31, 1989).
10.10 Amended Carver Corporation Stock Appreciation Rights Plan.
(Incorporated by reference to Exhibit 10.11 to the Registrant's Form
10-K for the year ended December 31, 1992).
</TABLE>
<TABLE>
<CAPTION>
Exhibit
Number See Attachment "Exhibits"
- -------------------------------------------------------------------------------
<C> <S>
10.11 Letter Agreement for Accounts Receivable Financing between the Company
and Congress Financial Corporation (Western) dated October 24, 1990,
and related Security Agreements dated December 20, 1990. (Incorporated
by reference to Exhibit 10.23 to the Company's Form 10-K for the year
ended December 31, 1990).
10.12 Ninth Amendment to the Accounts Financing Agreement between Carver
Corporation and Congress Financial Corporation (Western) dated March
31, 1994. (Incorporated by reference to Exhibit 10.15 to the
Registrant's Form 10-K for the year ended December 31, 1994.)
10.13 Stock Option Agreement dated March 10, 1994 between Robert A. Fulton
and the Company. (Incorporated by reference to Exhibit 10.21 to the
Company's Form 10-K for the year ended December 31, 1994.).
10.14 Employment Agreement dated August 26, 1994 between Stephen M. Williams
and the Company. (Incorporated by reference to Exhibit 10.22 to the
Company's Form 10-K for the year ended December 31, 1994.).
10.15 Stock Option Agreement dated August 26, 1994 between Stephen M.
Williams and the Company. (Incorporated by reference to Exhibit 10.23
to the Company's Form 10-K for the year ended December 31, 1994.).
10.16 Stock Option Agreement dated August 26, 1994 between Stephen M.
Williams and the Company. (Incorporated by reference to Exhibit 10.24
to the Company's Form 10-K for the year ended December 31, 1994.).
10.17 Settlement Agreement dated December 8, 1994 between Robert W. and
Diana R. Carver and the Company. (Incorporated by reference to Exhibit
10.25 to the Company's Form 10-K for the year ended December 31,
1994.).
10.18 The Company's 1995 Stock Option Plan. (Incorporated by reference to
Exhibit 10.26 to the Company's Form 10-Q for the quarter ended June
30, 1995.).
10.19 The Company's 1995 Stock Bonus Plan. (Incorporated by reference to
Exhibit 10.27 to the Company's Form 10-Q for the quarter ended June
30, 1995.).
10.20 Asset Purchase Agreement dated November 20, 1995 between Phoenix Gold
International, Inc. and the Company. (Incorporated by reference to
Exhibit 2.1 to the Company's Form 8-K dated December 5, 1995.).
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number See Attachment "Exhibits"
- -------------------------------------------------------------------------------
<C> <S>
10.21 Amendment No. 1 to Asset Purchase Agreement dated November 20, 1995
between Phoenix Gold International, Inc. and the Company.
(Incorporated by reference to Exhibit 2.2 to the Company's Form 8-K
dated December 5, 1995).
10.22 License Agreement dated November 20, 1995 between Phoenix Gold
International, Inc. and the Company. (Incorporated by reference to
Exhibit 2.3 to the Company's Form 8-K dated December 5, 1995.).
10.23 Tenth Amendment to the Accounts Financing Agreement dated November 20,
1995 between Congress Financial Corporation (Western) and the Company.
(Incorporated by reference to Exhibit 10.31 to the Company's Form 10K
for year ended December 31, 1995.).
10.24 Eleventh Amendment to the Accounts Financing Agreement dated January
15, 1996 between Congress Financial Corporation (Western) and the
Company. (Incorporated by reference to Exhibit 10.32 to the Company's
Form 10K for year ended December 31, 1995.).
10.25 Twelfth Amendment to the Accounts Financing Agreement dated February
26, 1996 between Congress Financial Corporation (Western) and the
Company. (Incorporated by reference to Exhibit 10.33 to the Company's
Form 10K for year ended December 31, 1995.).
10.26 Employment Agreement dated January 2, 1996 between Stephen M. Williams
and the Company. (Incorporated by reference to Exhibit 10.34 to the
Company's Form 10K for year ended December 31, 1995.).
10.27 The Stephen M. Williams 1996 Bonus Plan dated January 3, 1996 between
Stephen M. Williams and the Company. (Incorporated by reference to
Exhibit 10.35 to the Company's Form 10K for year ended December 31,
1995.).
10.28 Stock Option Agreement dated March 11, 1995 between Stephen M.
Williams and the Company. (Incorporated by reference to Exhibit 10.36
to the Company's Form 10K for year ended December 31, 1995.).
10.29 Stock Option Agreement dated March 24, 1995 between Stephen M.
Williams and the Company. (Incorporated by reference to Exhibit 10.37
to the Company's Form 10K for year ended December 31, 1995.).
</TABLE>
<TABLE>
<CAPTION>
Exhibit
Number See Attachment "Exhibits"
- -------------------------------------------------------------------------------
<C> <S>
10.30 Stock Option Agreement dated January 15, 1996 between Stephen M.
Williams and the Company. (Incorporated by reference to Exhibit 10.38
to the Company's Form 10K for year ended December 31, 1995.).
10.31 Thirteenth Amendment to the Accounts Financing Agreement dated March
28, 1996 between Congress Financial Corporation (Northwest) and the
Company. (Incorporated by reference to Exhibit 10.39 to the Company's
Form 10Q for the quarter ended March 31, 1996.).
10.32 Fourteenth Amendment to the Accounts Financing Agreement dated April
29, 1996 between Congress Financial Corporation (Western) and the
Company. (Incorporated by reference to Exhibit 10.40 to the Company's
Form 10Q for the quarter ended March 31, 1996.).
10.33 Fifteenth Amendment to the Accounts Financing Agreement dated May 24,
1996 between Congress Financial Corporation (Northwest) and the
Company. (Incorporated by reference to Exhibit 10.41 to the Company's
Form 10Q for the quarter ended June 30, 1996.).
10.34 Agreement for Financial Public Relations Services dated August 22,
1996 between Corporate Relations Group and the Company. (Incorporated
by reference to Exhibit 10.42 to the Company's Form 10Q for the
quarter ended September 30, 1996.).
10.35 Sixteenth Amendment to the Accounts Financing Agreement dated November
11, 1996 between Congress Financial Corporation (Northwest) and the
Company. (Incorporated by reference to Exhibit 10.43 to the Company's
Form 10Q for the quarter ended September 30, 1996.).
10.36* Seventeenth Amendment to the Accounts Financing Agreement dated
January 17, 1997 between Congress Financial Corporation (Northwest)
and the Company.
10.37* First Amendment to Trust Deed, Assignment of Rents, Security Agreement
and Fixture Filing dated January 7, 1997 between Congress Financial
Corporation (Northwest) and the Company.
10.38* Warrant Agreement dated September 30, 1996 between Martin Rutstein and
the Company.
10.39* Registration Rights Agreement dated September 30, 1996 between Martin
Rustein and the Company.
</TABLE>
35
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<TABLE>
<CAPTION>
Exhibit
Number See Attachment "Exhibits"
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<C> <S>
10.40* Stock Option Agreement dated September 20, 1996 between Stephen M.
Williams and the Company.
10.41* Stock Option Agreement dated September 20, 1996 between Stephen M.
Williams and the Company.
10.42* Stock Option Agreement dated September 20, 1996 between John P. World
and the Company.
10.43* Stock Option Agreement dated September 20, 1996 between John P. World
and the Company.
10.44* Stock Option Agreement dated January 15, 1996 between John P. World
and the Company.
10.45* Stock Option Agreement dated March 11, 1995 between John P. World and
the Company.
10.46* Nonqualified Stock Option Agreement dated February 23, 1993 between
John P. World and the Company.
10.47* Nonqualified Stock Option Agreement dated March 2, 1992 between John
P. World and the Company.
</TABLE>
<TABLE>
<CAPTION>
Exhibit
Number See Attachment "Exhibits"
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<C> <S>
11* Computation of Earnings Per Share for years ended December 31, 1996,
1995 and 1994.
21* Subsidiaries of the Registrant.
23.1* Consent of Moss Adams.
28.1 Amendment to Registration Statements Re: Indemnification.
(Incorporated by reference to Exhibit 28.1 to the Company's Form 10-Q
for the quarter ended September 30, 1990).
99.1 Non-Binding Agreement in Principle, dated May 1, 1996 between Renwick
Capital Management and the Company. (Incorporated by reference to
Exhibit 99.1 to the Company's Form 8-K dated May 1, 1996.)
99.2 Letter to Shareholders of Carver Corporation, dated May 22, 1996.
(Incorporated by reference to Exhibit 99.2 to the Company's Form 8-K
dated May 1, 1996.).
</TABLE>
- -------
* Filed herewith
36
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PURSUANT TO THE REQUIREMENT OF SECTION 13 OF THE SECURITIES EXCHANGE COMMIS-
SION ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
CARVER CORPORATION
/s/STEPHEN M. WILLIAMS /s/DEBRA L. GRIFFITH
By:______________________________ By: _____________________________________
Stephen M. Williams, Debra L. Griffith
President and Chief Vice President Finance and
Executive Officer Chief Financial Officer
Date: March 28, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
- -------------------------------------------------------------------------------
Signature Title Date
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/s/RAJ A. BHATIA Director March 28, 1997
------------------------
Raj A. Bhatia
/s/THOMAS C. GRAHAM Director March 28, 1997
------------------------
Thomas C. Graham
/s/JAMES R. MCCULLOUGH Director March 28, 1997
------------------------
James R. McCullough
/s/JOHN F. VYNNE Director March 28, 1997
------------------------
John F. Vynne
/s/STEPHEN M. WILLIAMS Director March 28, 1997
------------------------
Stephen M. Williams
37
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EXHIBIT INDEX
<TABLE>
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IN
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2.1 Asset Purchase and Sale Agreement dated as of December 23, 1992
among Carver Corporation, U.S. Sound, Inc., John Lemon and USS
Corporation. (Incorporated by reference to Exhibit 2.1 to the
Registrant's Form 8-K dated December 23, 1992)
2.2 Asset Purchase Agreement dated November 19, 1993 between Carver
Corporation and Bose Corporation. (Incorporated by reference to
Exhibit 2.2 to the Registrant's Form 10-K for the year ended
December 31, 1993.)
2.3 Series A Preferred Stock Purchase Agreement, dated as of June
12, 1996, by and among the Company and each of those persons
and entities whose names are set forth on Exhibit A thereto
(the "Investors"). (Incorporated by reference Exhibit 2.3 to
the Company's Form 8-K dated June 12, 1996.)
3.1 The Company's Restated Articles of Incorporation filed July 29,
1985. (Incorporated by reference to Exhibit 3.1 to the
Registrant's Form 10-K for the year ended December 31, 1989)
3.2* The Company's Eighth Amended and Restated Bylaws. 56
4.1 Warrant Agreement, dated as of June 12, 1996, by and among the
Company and Renwick Capital Management, Inc. (Incorporated by
reference Exhibit 4.1 to the Company's Form 8-K dated June 12,
1996.).
4.2 Registration Rights Agreement, dated as of June 12, 1996, by
and among the Company and the Investors. (Incorporated by
reference Exhibit 4.2 to the Company's Form 8-K dated June 12,
1996.).
4.3 Certificate of Designation, as filed with the Secretary of
State of the State of Washington on June 12,1996. (Incorporated
by reference Exhibit 4.3 to the Company's Form 8-K dated
June 12, 1996.).
4.4 Form of Series A Cumulative Convertible Preferred Stock
Certificate. (Incorporated by reference Exhibit 4.4 to the
Company's Form 8-K dated June 12, 1996.).
4.5 Form of Warrant Certificate evidencing the right to acquire
shares of the Company's Common Stock. (Incorporated by
reference Exhibit 4.1 to the Company's Form 8-K dated June 12,
1996.).
10.1 License Agreement dated as of June 1, 1980 between the Company
and Carver Technology Development, Inc. (Incorporated by
reference to Exhibit 10.6 to the Registrant's Registration
Statement on Form S-1, No. 2-96896)
10.2 The Company's Amended 1985 Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10.3 to the Registrant's
Form 10-K for the year ended December 31, 1992)
10.3 The Company's Amended 1985 Non-Qualified Stock Option Plan.
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Registration Statement on Form S-8, No. 33-31344)
10.4 Form of the Amended Stock Option Agreement used in connection
with the Company's Amended 1985 Incentive Stock Option Plan.
(Incorporated by reference to Exhibit 10.5 to the Registrant's
Form 10-K for the year ended December 31, 1992)
10.5 The Company's Amended 1988 Employee Stock Purchase Plan.
(Incorporated by reference to Exhibit 10.6 to the Registrant's
Form 10-K for the year ended December 31, 1992)
10.6 Employment Agreement dated February 28, 1992, between Thomas C.
Graham and the Company. (Incorporated by reference to Exhibit
10.8 to the Registrant's Form 10-K for the year ended December
31, 1992)
10.7 Severance Agreement dated as of September 22, 1993 between
Thomas C. Graham and the Company. (Incorporated by reference to
Exhibit 10.9 to the Registrant's Form 10-K for the year ended
December 31, 1993.)
10.8 Stock Option Agreement dated August 6, 1993 between Robert A.
Fulton and the Company. (Incorporated by reference to Exhibit
10.10 to the Registrant's Form 10-K for the year ended December
31, 1993.)
10.9 Form of Authorized Dealer Agreement. (Incorporated by reference
to Exhibit 10.11 to the Company's Form 10-K for the year ended
December 31, 1989)
</TABLE>
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10.10 Amended Carver Corporation Stock Appreciation Rights Plan.
(Incorporated by reference to Exhibit 10.11 to the Registrant's
Form 10-K for the year ended December 31, 1992)
10.11 Letter Agreement for Accounts Receivable Financing between the
Company and Congress Financial Corporation (Western) dated
October 24, 1990, and related Security Agreements dated
December 20, 1990. (Incorporated by reference to Exhibit 10.23
to the Company's Form 10-K for the year ended December 31,
1990)
10.12 Ninth amendment to the Accounts Financing Agreement between
Carver Corporation and Congress Financial Corporation (Western)
dated March 31, 1994. (Incorporated by reference to Exhibit
10.15 to the Company's Form 10-K for the year ended December
31, 1994)
10.13 Stock Option Agreement dated March 10, 1994 between Robert A.
Fulton and the Company. (Incorporated by reference to Exhibit
10.21 to the Company's Form 10-K for the year ended December
31, 1994.).
10.14 Employment Agreement dated August 26, 1994 between Stephen M.
Williams and the Company. (Incorporated by reference to Exhibit
10.22 to the Company's Form 10-K for the year ended December
31, 1994.).
10.15 Stock Option Agreement dated August 26, 1994 between Stephen M.
Williams and the Company. (Incorporated by reference to Exhibit
10.23 to the Company's Form 10-K for the year ended December
31, 1994.).
10.16 Stock Option Agreement dated August 26, 1994 between Stephen M.
Williams and the Company. (Incorporated by reference to Exhibit
10.24 to the Company's Form 10-K for the year ended December
31, 1994.).
10.17 Settlement Agreement dated December 8, 1994 between Robert W.
and Diana R. Carver and the Company. (Incorporated by reference
to Exhibit 10.25 to the Company's Form 10-K for the year ended
December 31, 1994.).
10.18 The Company's 1995 Stock Option Plan. (Incorporated by
reference to Exhibit 10.26 to the Company's Form 10-Q for the
quarter ended June 30, 1995.)
10.19 The Company's 1995 Stock Bonus Plan. (Incorporated by reference
to Exhibit 10.27 to the Company's Form 10-Q for the quarter
ended June 30, 1995.)
10.20 Asset Purchase Agreement dated November 20, 1995 between
Phoenix Gold International, Inc. and the Company. (Incorporated
by reference to Exhibit 2.1 to the Company's Form 8-K dated
December 5, 1995.)
10.21 Amendment No. 1 to Asset Purchase Agreement dated November 20,
1995 between Phoenix Gold International, Inc. and the Company.
(Incorporated by reference to Exhibit 2.2 to the Company's Form
8-K dated December 5, 1995)
10.22 License Agreement dated November 20, 1995 between Phoenix Gold
International, Inc. and the Company. (Incorporated by reference
to Exhibit 2.3 to the Company's Form 8-K dated December 5,
1995.)
10.23 Tenth Amendment to the Accounts Financing Agreement dated
November 20, 1995 between Congress Financial Corporation
(Western) and the Company. (Incorporated by reference to
Exhibit 10.31 to the Company's Form 10K for year ended December
31, 1995.).
10.24 Eleventh Amendment to the Accounts Financing Agreement dated
January 15, 1996 between Congress Financial Corporation
(Western) and the Company. (Incorporated by reference to
Exhibit 10.32 to the Company's Form 10K for year ended December
31, 1995.).
10.25 Twelfth Amendment to the Accounts Financing Agreement dated
February 26, 1996 between Congress Financial Corporation
(Western) and the Company. (Incorporated by reference to
Exhibit 10.33 to the Company's Form 10K for year ended December
31, 1995.).
10.26 Employment Agreement dated January 2, 1996 between Stephen M.
Williams and the Company. (Incorporated by reference to Exhibit
10.34 to the Company's Form 10K for year ended December 31,
1995.).
</TABLE>
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10.27 The Stephen M. Williams 1996 Bonus Plan dated January 3, 1996
between Stephen M. Williams and the Company. (Incorporated by
reference to Exhibit 10.35 to the Company's Form 10K for year
ended December 31, 1995.).
10.28 Stock Option Agreement dated March 11, 1995 between Stephen M.
Williams and the Company. (Incorporated by reference to
Exhibit 10.36 to the Company's Form 10K for year ended
December 31, 1995.).
10.29 Stock Option Agreement dated March 24, 1995 between Stephen M.
Williams and the Company. (Incorporated by reference to
Exhibit 10.37 to the Company's Form 10K for year ended
December 31, 1995.).
10.30 Stock Option Agreement dated January 15, 1996 between Stephen
M. Williams and the Company. (Incorporated by reference to
Exhibit 10.38 to the Company's Form 10K for year ended
December 31, 1995.).
10.31 Thirteenth Amendment to the Accounts Financing Agreement dated
March 28, 1996 Congress Financial Corporation (Northwest) and
the Company. (Incorporated by reference to Exhibit 10.39 to
the Company's Form 10Q for the quarter ended March 31, 1996.).
10.32 Fourteenth Amendment to the Accounts Financing Agreement dated
April 29, 1996 between Congress Financial Corporation
(Western) and the Company. (Incorporated by reference to
Exhibit 10.40 to the Company's Form 10Q for the quarter ended
March 31, 1996.).
10.33 Fifteenth Amendment to the Accounts Financing Agreement dated
May 24, 1996 Congress Financial Corporation (Northwest) and
the Company. (Incorporated by reference to Exhibit 10.41 to
the Company's Form 10Q for the quarter ended June 30, 1996.).
10.34 Agreement for Financial Public Relations Services dated August
22, 1996 between Corporate Relations Group and the Company.
(Incorporated by reference to Exhibit 10.42 to the Company's
Form 10Q for the quarter ended September 30, 1996.).
10.35 Sixteenth Amendment to the Accounts Financing Agreement dated
November 11, 1996 Congress Financial Corporation (Northwest)
and the Company. (Incorporated by reference to Exhibit 10.43
to the Company's Form 10Q for the quarter ended September 30,
1996.).
10.36* Seventeenth Amendment to the Accounts Financing Agreement 74
dated January 17, 1997 between Congress Financial Corporation
(Northwest) and the Company.
10.37* First Amendment to Trust Deed, Assignment of Rents, Security 77
Agreement and Fixture Filing dated January 7, 1997 between
Congress Financial Corporation (Northwest) and the Company.
10.38* Warrant Agreement dated September 30, 1996 between Martin 80
Rutstein and the Company.
10.39* Registration Rights Agreement dated September 30, 1996 between 100
Martin Rustein and the Company.
10.40* Stock Option Agreement dated September 20, 1996 between 107
Stephen M. Williams and the Company.
10.41* Stock Option Agreement dated September 20, 1996 between 110
Stephen M. Williams and the Company.
10.42* Stock Option Agreement dated September 20, 1996 between John 113
P. World and the Company.
10.43* Stock Option Agreement dated September 20, 1996 between John 116
P. World and the Company.
10.44* Stock Option Agreement dated January 15, 1996 between John P. 119
World and the Company.
10.45* Stock Option Agreement dated March 11, 1995 between John P. 122
World and the Company.
10.46* Nonqualified Stock Option Agreement dated February 23, 1993 125
between John P. World and the Company.
10.47* Nonqualified Stock Option Agreement dated March 2, 1992 129
between John P. World and the Company.
</TABLE>
40
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11* Computation of Earnings Per Share for years ended December 31, 132
1995, 1994 and 1993
21* Subsidiaries of the Registrant 133
23.1* Consent of Moss Adams 134
28.1 Amendment to Registration Statements RE: Indemnification.
(Incorporated by reference to Exhibit 28.1 to the Registrant's
Form 10-Q for the quarter ended September 30, 1990)
99.1 Non-Binding Agreement in Principle, dated May 1, 1996 between
Renwick Capital Management and the Company. (Incorporated by
reference to Exhibit 99.1 to the Company's Form 8-K dated May
1, 1996.)
99.2 Letter to Shareholders of Carver Corporation, dated May 22,
1996. (Incorporated by reference to Exhibit 99.2 to the
Company's Form 8-K dated May 1, 1996.).
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</TABLE>
* Filed herewith
41
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EXHIBIT 3.2
EIGHTH AMENDED AND RESTATED
BYLAWS
OF
CARVER CORPORATION
ARTICLE I
Offices
(1) Registered Office and Registered Agent: The registered office of the
corporation shall be located in the State of Washington at such place as may be
fixed from time to time by the Board of Directors upon filing of such notices as
may be required by law, and the registered agent shall have a business office
identical with such registered office.
(2) Other Offices: The corporation may have other offices within or
outside the State of Washington at such place or places as the Board of
Directors may from time to time determine.
ARTICLE II
Shareholders' Meetings
(1) Meeting Place: All meetings of the shareholders shall be held at the
principal place of business of the corporation, or at such other place as shall
be determined from time to time by the Board of Directors, and the place at
which any such meeting shall be held shall be stated in the notice of the
meeting.
(2) Annual Meeting Time: The annual meeting of the shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held in May or June of each year at a
date, time and a place to be determined by the Board of Directors, provided that
notification of such date, time and place shall meet the notice requirements
pursuant to Article II (5) hereunder.
(3) Annual Meeting - Order of Business: At the annual meeting of
shareholders, the order of business shall be as follows:
(a) Calling the meeting to order.
(b) Proof of notice of meeting (or filing waiver).
(c) Reading of minutes of last annual meeting.
(d) Reports of officers.
(e) Reports of committees.
(f) Election of directors.
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(g) Miscellaneous business.
(4) Special Meetings: Special meetings of the shareholders for any
purpose may be called at any time the President, Board of Directors, or the
holders of not less than one-tenth of all shares entitled to vote at the
meeting.
(5) Shareholder Proposals at Annual Meeting: Business may be properly
brought before an annual meeting by a shareholder only upon the shareholder's
timely notice thereof in writing to the Secretary of the corporation. To be
timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not later than ninety (90)
days prior to the date one (1) year from the date of the immediately preceding
annual meeting of shareholders. For purposed of the Section 5, any
adjournment(s) or postponement(s) of the original meeting whereby the meeting
will reconvene within thirty (30) days from the original date shall be deemed
for purposes of notice to be a continuation of the original meeting, and no
business may be brought before any reconvened meeting unless pursuant to a
notice which was timely for the meeting on the date as originally scheduled.
Each such notice shall set forth: (a) the name and address of the shareholder
who intends to make the proposal; (b) a representation that the shareholder is a
holder of record of stock of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to vote for the
proposal; (c) any material interest of such shareholder in such proposal; and
(d) such other information regarding such proposal as would be required to be
disclosed in solicitations of proxies pursuant to the Securities Exchange Act of
1934, as amended.
Notwithstanding the foregoing, nothing in this Section 5 shall be
interpreted or construed to require the inclusion of information about any such
proposal in any proxy statement distributed by, at the discretion of, or on
behalf of the Board of Directors. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that a proposal was not made
in accordance with the foregoing procedures, and if he should so determine, he
shall so declare to the meeting, and any such business not properly brought
before the meeting shall be disregarded.
(6) Notice:
(a) Notice of the time and place of the annual meeting of
shareholders shall be given by delivering personally or by mailing a
written or printed notice of the same, at least ten (10) days, and not
more than sixty (60) days, prior to the meeting to each shareholder of
record entitled to vote at such meeting.
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(b) At least ten (10) days and not more than sixty (60) days prior to
the meeting, written or printed notice of each special meeting of
shareholders, stating the place, day and hour of such meeting, and the
purpose or purposes for which the meeting is called, shall be
delivered personally or mailed to each shareholder of record entitled
to vote at such meeting.
(7) Voting Record: At least ten days before each meeting of
shareholders, a complete record of the shareholders entitled to vote at such
meeting, or any adjournment thereof, shall be made, arranged in alphabetical
order, by voting group, and within each voting group by class or series of
shares, showing the address of and number of shares held by each. The record
must be available for inspection by any shareholder, beginning ten (10) days
prior to the meeting and continuing through the meeting, at the corporation's
principal office or at a place identified in the meeting notice in the city
where the meeting will be held. A shareholder, the shareholder's agent, or the
shareholder's attorney is entitled to inspect the list, during regular business
hours and at the shareholder's expense, during the period it is available for
inspection.
(8) Quorum: Except as otherwise required by law:
(a) A quorum at any annual or special meeting of shareholders shall
consist of shareholders present at such meeting representing, either
in person or by proxy, a majority of the outstanding shares of each
voting group of the corporation entitled to vote at such meeting.
(b) The votes of a majority in interest of those present at any
properly called meeting or adjourned meeting of shareholders at which
a quorum as in this paragraph defined is present, shall be sufficient
to transact business.
(9) Voting of Shares: Except as otherwise provided in these Bylaws or to
the extent that voting rights of the shares of any class or classes are limited
or denies by the Articles of Incorporation, each shareholder, on each matter
submitted to a vote at a meeting of shareholders, shall have one vote for each
share of stock registered in his name in the books of the corporation.
(10) Fixing Record Date: For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or any
adjournment thereof, or entitled to receive payment of any dividend, the Board
of Directors may provide that
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the stock transfer books shall be closed for a stated period not to exceed
seventy (70) days nor less than ten (10) days preceding such meeting.
(11) Proxies: A shareholder may vote either in person or by proxy
executed in writing by the shareholder or his duly authorized attorney-in-fact.
No proxy shall be valid after eleven months from the date of its execution
unless otherwise provided in the proxy.
(12) Action by Shareholders without a Meeting: Any action required or
which may be taken at a meeting of shareholders of the corporation may be taken
without a meeting if a consent in writing setting forth the action so taken
shall be signed by all of the shareholders entitled to vote with respect to the
subject matter thereof. Such consent shall have the same force and effect as a
unanimous vote of shareholders.
(13) Waiver of Notice: A shareholder may waive any notice before or after
the day and time of the meeting that is the subject of such notice or, in the
case of a written consent, before or after the action is effective. Such waiver
shall be in writing, signed by the shareholder entitled to notice, and be
delivered to the corporation for inclusion in the minutes or filed with the
corporate records. A shareholder's attendance at a meeting waives objection to
lack of notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting.
(14) Action of Shareholders by Communications Equipment: Shareholders may
participate in a meeting of shareholders by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other at the same time, and participation by such
means shall constitute presence in person at a meeting.
ARTICLE III
Stock
(1) Certificates: Certificates of stock shall be issued in numerical
order, and each shareholder shall be entitled to a certificate signed by the
President or a Vice President, and the Secretary or an Assistant Secretary, and
may be sealed with the seal of the corporation or a facsimile thereof. The
signatures of such officers may be facsimiles if the certificate is manually
signed on behalf of a transfer agent, or registered by a registrar, other then
the corporation itself or an employee of the corporation. If an officer who has
signed or whose facsimile
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signature has been placed upon such certificate ceases to be such officer before
the certificate is issued, it may be issued by the corporation with the same
effect as if the person were an officer on the date of issue.
Each certificate of stock shall state:
(a) That the corporation is organized under the laws of this state;
(b) The name of the person to whom issued;
(c) The number and class of shares and the
designation of the series, if any, which such certificate
represents; and
(2) Transfers:
(a) Transfers of stock shall be made only upon the stock transfer
books of the corporation, kept at the registered office of the
corporation or at its principal place of business, or at the office
of its transfer agent or registrar. The Board of Directors may, by
resolution, open a share register in any state of the United States,
and may employ an agent or agents to keep such register, and to record
transfers of share therein.
(b) Shares of stock shall be transferred by delivery of the
certificates therefor, accompanied either by an assignment in writing
on the back of the certificate or an assignment separate from
certificate, or by a written power of attorney to sell, assign and
transfer the same, signed by the holder of said certificate. No share
of stock shall be transferred on the books of the corporation until
the outstanding certificates therefor have been surrendered to the
corporation.
(3) Registered Owner: Registered shareholders shall be treated by the
corporation as the holders-in-fact of the stock standing in their respective
names and the corporation shall not be bound to recognize any equitable or other
claim to or interest in any share on the part of any other person, whether or
not it shall have express or other notice thereof, except as expressly provided
below or by the laws of the State of Washington. The Board of Directors may
adopt by resolution a procedure whereby a shareholder of the corporation may
certify in writing to the corporation that all or a portion of the shares
registered in the name of such shareholder are held for the account of a
specified
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person or persons. The resolution shall set forth:
(a) The classification of shareholder who may certify;
(b) The purpose of purposes for which the certification may be made;
(c) The form of certification and information to be contained
therein;
(d) If the certification is with respect to a record date or closing
of the stock transfer books, the date within which the certification
must be received by the corporation; and
(e) Such other provisions with respect to the procedure as are
deemed necessary or desirable.
Upon receipt by the corporation of a certification complying with the
procedure, the persons specified in the certification shall be deemed, for the
purpose or purposes set forth in the certification, to be the holders of record
of the number of shares specified in place of the shareholder making the
certification.
(4) Mutilated, Lost or Destroyed Certificates: In case of any mutilation,
loss or destruction of any certificate of stock, another may be issued in its
place on proof of such mutilation, loss or destruction. The Board of Directors
may impose conditions on such issuance and may require the giving of a
satisfactory bond or indemnity to the corporation in such sum as it might
determine or establish such other procedures as it deems necessary.
(5) Fractional Share or Scrip: The corporation may:
(a) issue fractions of a share which shall entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in
any of the assets of the corporation in the event of liquidation;
(b) arrange for the disposition of fractional interests by those
entitled thereto;
(c) pay in cash the fair value of fractions of a share as of the time
when those entitled to receive such shares are determined; or
(d) issue scrip in registered or bearer form which shall entitle the
holder to receive a certificate for a full share upon the surrender of such
scrip aggregating a full share.
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(6) Share of Another Corporation: Shares owned by the corporation in
another corporation, domestic or foreign, may be voted by such officer, agent or
proxy as the Board of Directors may determine or, in the absence of such
determination, by the President of the corporation.
ARTICLE IV
Board of Directors
(1) Number and Powers: The management of all affairs, property and
interest of the corporation shall be vested in a Board of Directors. The Board
of Directors shall consist of seven (7) persons, who shall be elected for a term
of one (1) year, and shall hold office until a successor is elected and
qualified. Directors need not be shareholders of the corporation. In addition to
the powers and authorities by these Bylaws and the Articles of Incorporation
expressly conferred upon it, the Board of Directors may exercise all such powers
of the corporation and do all such lawful acts as are not by statute or by the
Articles of Incorporation or by these Bylaws directed or required to be
exercised or done by the shareholders.
(2) Notice of Shareholder Nominees: Nominations of persons for election to
the Board of Directors shall be made only at a meeting of shareholders and only
(i) by the Board of Directors or a committee appointed by the Board of
Directors, or (ii) by any shareholder entitled to vote in the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 2. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
corporation (i) with respect to an election to be held at an annual meeting of
shareholders, ninety (90) days prior to the date one (1) year from the date of
the immediately preceding annual meeting of shareholders, and (ii) with respect
to an election to be held at a special meeting of shareholders for the election
of directors, the close of business on the tenth (10th) day following the date
on which notice of such meeting is first given to shareholders. For purposes of
this Section 2, any adjournment(s) or postponements(s) of the original meeting
whereby the meeting will reconvene within thirty (30) days from the original
date shall be deemed for purposes of notice to be a continuation of the original
meeting, and no nominations by a shareholder of persons to be elected directors
of the corporation may be made at any such reconvened meeting unless pursuant to
a notice which was timely for the meeting on the date originally scheduled. Each
such notice shall set forth: (a) the name and address of the shareholder who
intends to make the nomination and of the person or persons to be
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nominated; (b) a representation that the shareholder is a holder of record of
stock of the corporation entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice; (c) a description of all arrangements or understandings between
the shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination or nominations are to be
made by the shareholder; (d) such other information regarding each nominee
proposed by such shareholder as would be required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to the Securities Exchange Act of 1934, as amended; and (e)
the consent of each nominee to serve as a director of the corporation if so
elected.
Notwithstanding the foregoing, nothing in this Section 2 shall be
interpreted or construed to require the inclusion of information about any such
nominee in any proxy statement distributed by, at the direction of, or on behalf
of the Board of Directors. The Chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedures, and if he should so determine, he
shall so declare to the meeting and the defective nomination shall be
disregarded.
(3) Change of Number: The number of directors may at any time be
increased or decreased by the shareholders at any annual or special meeting
provided that no decrease shall have the effect of shortening the term of any
incumbent director except as provided in paragraphs (4) and (5) hereunder.
(4) Vacancies: All vacancies in the Board of Directors, whether caused by
resignation, death or otherwise, may be filled by the affirmative vote of a
majority of the remaining directors though less than a quorum of the Board of
Directors. A director elected to fill any vacancy shall hold office for the
unexpired term of his predecessor and until his successor is elected and
qualified. Any directorship to be filled by reason of an increase in the number
of directors may be filled by the Board of Directors for a term of office
continuing only until the next election of directors by the shareholders.
(5) Removal of Directors: At a meeting of shareholders called expressly
for that purpose, the entire Board of Directors, or any member thereof, may be
removed by a vote of the holders of a majority of shares then entitled to vote
at an election of such directors.
(6) Regular Meetings: Regular meetings of the Board of Directors or any
committee may be held without notice at the principal place of business of the
corporation or at such other
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place or places, either within or without the State of Washington, as the Board
of Directors or such committee, as the case may be, may from time to time
designate. The annual meeting of the Board of Directors shall be held without
notice immediately after the adjournment of the annual meeting of shareholders.
(7) Special Meetings:
(a) Special meetings of the Board of Directors may be called at any
time by the President or by any director, to be held at the principal
place of business of the Corporation or at such other place or places
as the Board of Directors or the person or persons calling such
meeting may from time to time designate. Notice of all special
meetings of the Board shall be given to each director by one (1) day's
service of the same by telegram, by letter, by telefax, or personally.
Such notice need not specify the business to be transacted at, nor the
purpose of, the meeting.
(b) Special meetings of any committee may be called at any time by
such person or persons and with such notice as shall be specified for
such committee by the Board of Directors, or in the absence of such
specification, in the manner and with the notice required for special
meetings of the Board of Directors.
(8) Quorum: A majority of the whole Board of Directors shall be necessary
at all meetings to constitute a quorum for the transaction of business.
(9) Waiver of Notice: Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. A waiver of notice must be in
writing, signed by the director or directors entitled to notice, and delivered
to the corporation for inclusion in the minutes or filing with the corporate
records, whether before or after the time stated for the meeting, shall be
equivalent to the giving of notice.
(10) Registering Dissent: A director who is present at a meeting of the
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless his dissent shall be entered in
the minutes of the meeting, or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting, before the
adjournment thereof, or unless he shall forward such dissent by registered mail
to the Secretary of the corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
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(11) Executive and Other Committees: The Board of Directors, by
resolution adopted by a majority of the full Board of Directors, may designate
from among its members an Executive Committee and one or more other standing or
special committees. The Executive Committee shall have and may exercise all the
authority of the Board of Directors, and other standing or special committees
may be invested with such powers, subject to such conditions, as the Board of
Directors shall see fit; provided that notwithstanding the above, no committee
of the Board of Directors shall have the authority to: (a) approve a
distribution except accounting to a general formula or method prescribed by the
Board of Directors; (b) propose to shareholders action that is required by law
to be approved by shareholders; (c) fill vacancies on the Board of Directors or
on any of its committees; (d) amend articles of incorporation; (e) adopt, amend
or repeal bylaws; (f) approve a plan of merger not requiring shareholder
approval; or (g) approve the issuance or sale or contract for sale of shares, or
determine the designation and relative rights, preferences and limitations of a
class or series of shares, except within the limits specifically prescribed by
the Board of Directors. The designation of any such committee and the
delegation of authority thereto shall not relieve the Board of Directors, or any
member thereof, of any responsibility imposed by law.
(12) Remuneration: No stated salary shall be paid directors, as such, for
their service, but by resolution of the Board of Directors, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of such Board; provided, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of standing or special
committees may be allowed like compensation for attending committee meetings.
(13) Action by Directors Without a Meeting: Any action required or which
may be taken at a meeting of the directors, or of a committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so
taken or to be taken, shall be signed by all of the directors, or all of the
members of the committee, as the case may be. Such consent shall have the same
effect as a unanimous vote.
(14) Action of Directors by Communications Equipment: Any action required
or which may be taken at a meeting of directors, or of a committee thereof, may
be taken by means of a conference telephone or similar communications equipment
by means of which all persons participating can hear each other during the
meeting.
ARTICLE V
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Officers
(1) Designations: The officers of the corporation shall be a President,
one or more Vice-Presidents (one or more of whom may be Executive Vice-
Presidents), a Secretary and a Treasurer, and such Assistant Secretaries and
Assistant Treasurers as the Board may designate, who shall be elected for one
year by the directors at their its first meeting after the annual meeting of
shareholders, and who shall hold office until their successors are elected and
qualified. Any two or more offices may be held by the same person.
(2) The President: The President shall preside at all meetings of
shareholders and directors, shall have general supervision of the affairs of the
corporation, and shall perform all such other duties as are incident to his
office or are properly required of him by the Board of Directors.
(3) Vice Presidents: During the absence of disability of the President,
the Executive Vice-Presidents, if any, and the Vice-Presidents in the order
designated by the Board of Directors, shall exercise all the functions of the
President. Each Vice-President shall have such powers and discharge such duties
as may be assigned to him from time to time by the Board of Directors.
(4) Secretary and Assistant Secretaries: The Secretary shall issue
notices for all meetings, except for notices for special meetings of the
shareholders and special meetings of the directors which are called by the
requisite number of shareholders or directors; shall keep minutes of all
meetings, shall have charge of the seal and the corporate books, and shall make
such reports and perform such other duties as are incident to his office, or are
properly required of him by the Board of Directors. The Assistant Secretary, or
Assistant Secretaries in the order designated by the Board of Directors, shall
perform all of the duties of the Secretary during the absence or disability of
the Secretary, and at other times may perform such duties as are directed by the
President or the Board of Directors.
(5) The Treasurer: The Treasurer shall have the custody of all moneys and
securities of the corporation and shall keep regular books of account. He shall
disburse the funds of the corporation in payment of the just demands against the
corporation or as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the Board of Directors from
time to time as may be required of him an account of all his transactions as
Treasurer and of the financial conditions of the corporation. He shall perform
such other duties incident to his office or that are properly required of him by
the Board of Directors. The Assistant Treasurer, or Assistant
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Treasurers in the order designated by the Board of Directors, shall perform all
of the duties of the Treasurer in the absence or disability of the Treasurer,
and at other times may perform such other duties as are directed by the
President or the Board of Directors.
(6) Delegation: In the case of absence or inability to act of any officer
of the corporation and of any person herein authorized to act in his place, the
Board of Directors may from time to time delegate the powers or duties of such
officer to any other officer or any director or other person whom it may select.
(7) Vacancies: Vacancies in any office arising from any cause may be
filled by the Board of Directors at any regular or special meeting of the Board.
(8) Other Officers: Directors may appoint such other officers and agents
as it shall deem necessary or expedient, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
(9) Term - Removal: The officers of the corporation shall hold office
until their successors are appointed and qualified. Any officer or agent elected
or appointed by the Board of Directors may be removed at any time, with or
without cause, by the affirmative vote of a majority of the whole Board of
Directors, but such removal shall be without prejudice to the contract rights,
if any, of the person so removed.
(10) Bonds: The Board of Directors may, be resolution, require any and
all of the officers to give bonds to the corporation, with sufficient surety or
sureties, conditioned for the faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time to
time be required by the Board of Directors.
ARTICLE VI
Distributions and Finance
(1) Distributions: The Board of Directors may authorize a distribution of
money or other property to the corporation's shareholders in the form of a
dividend or a purchase, redemption or other acquisition of the corporation's
shares; provided that no distribution may be made if, after giving it effect,
either:
(a) the corporation would not be able to pay its debts as they become
due in the usual course of business; or
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(b) the corporation's total assets would be less than the sum of its
total liabilities plus the amount which would be needed to satisfy any
shareholder's preferential rights in liquidation if the corporation is
in the process of liquidation at the time of the authorization of the
distribution.
The stock transfer books may be closed for the making of distributions
during such periods of not exceeding seventy (70) days, as from time to time may
be fixed by the Board of Directors. The Board of Directors, however, without
closing the books of the corporation, may authorize distribution to only the
holders of record at the close of business, on any business day not more than
seventy (70) days prior to the date on which distribution is made.
(2) Measure of Effect of Distribution: For purposes of determining
whether a distribution may be authorized by the Board of Directors and paid by
the corporation under Article VI, paragraph (1) of these bylaws, the effect of
distribution is measured, (a) in the case of a distribution by purchase,
redemption or other acquisition if the corporation's shares, as of the earlier
of (i) the date on which the money or other property is transferred to the
shareholders or the date on which the debt is incurred by the corporation; or
(ii) the date on which the shareholder ceases to be a shareholder with respect
to the acquired shares; and (b) in any other case, (i) as of the date on which
the distribution is authorized, if payment occurs within one hundred twenty
(120) days thereafter; or (ii) the date of payment if such date occurs more than
one hundred twenty (120) days after the date of authorization.
(3) Reserves: Before making any distribution, there may be set aside out
of the sum available to the corporation for distribution such sum or sums as
the directors from time to time in their absolute discretion deem expedient as a
reserve fund to meet contingencies, or for equalizing distributions, or for
maintaining any property of the corporation, or for any other purpose. Any sum
in any year which is not distributed in that year shall be deemed to have been
thus set aside until otherwise disposed of by the Board of Directors.
(4) Depositories: The moneys of the corporation shall be deposited in the
name of the corporation in such bank or banks or trust company or trust
companies as the Board of Directors shall designate, and shall be drawn out only
by check in other order for payment of money signed by such persons and in such
manner as may be determined by resolution of the Board of Directors.
ARTICLE VII
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Notices
Except as may otherwise be required by law, any notice to any shareholder
or director may be delivered personally or by mail. If mailed, the notice shall
be deemed to have been delivered when deposited in the United States mail,
addressed to the addressee at his last known address in the records of the
corporation, with postage thereon prepaid.
ARTICLE VIII
Seal
The corporate seal of the corporation shall be in such form and bear such
inscription as may be adopted by resolution of the Board of Directors, or by
usage of the officers on behalf of the corporation.
ARTICLE IX
Indemnification of Officers, Directors,
Employees and Agents
(1) Definitions: As used in this Article:
(a) "Action" means any actual or threatened claim, suit or
proceeding, whether civil, criminal, administrative or investigative.
(b) "Another Enterprise" means a corporation (other than the
Corporation), partnership, joint venture, trust, association, committee,
employee benefit plan or other group or entity.
(c) "Corporation" means Carver Corporation and any predecessor to it
and any constituent corporation (including any constituent of a
constituent) absorbed by the Corporation in a consolidation or merger.
(d) "Director or Officer" means each person who is serving or who has
served as a director or officer of the Corporation or, at the request of
the Corporation, as a director, officer, employee or agent of Another
enterprise.
(e) "Indemnitee" means each person who was, is or is threatened to be
made a party to or is involved (including without limitation, as a witness)
in an Action because the person is or was a Director or Officer of the
Corporation.
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(f) "Loss" means loss, liability, expenses (including attorneys'
fees), judgements, fines, ERISA excise taxes or penalties and amounts to be
paid in settlement, actually and reasonably incurred or suffered by
Indemnitee in connection with an Action.
(2) Right to Indemnification: The Corporation shall indemnify and hold
each Indemnitee harmless against all Loss except for Losses arising out of: (a)
the Indemnitee's acts or omissions finally adjudged to be intentional misconduct
or a knowing violation of law, (b) the Indemnitee's approval of certain
distributions or loans which are finally adjudged to be in violation of RCW
23B.08.310, or (c) any transaction in which it is finally adjudged that the
Indemnitee personally received a benefit in money, property or services to which
the Indemnitee was not legally entitled. Except as provided in Section (4) of
this Article, the Corporation shall not indemnify an Indemnitee in connection
with an Action (or part thereof) initiated by the Indemnitee unless such Action
(or part thereof) was authorized by majority vote of a quorum consisting of
directors not at the time parties to such Action. If, after the effective date
of this Article, the Washington Business Corporation Act is amended to authorize
further indemnification of directors or officers, then Directors and Officers of
this Corporation shall be indemnified to the fullest extent permitted by the
Washington Business Corporation Act, as so amended.
(3) Burden of Proof and Procedure for Payment:
(a) The Indemnitee shall be presumed to be entitled to
indemnification under this Article upon submission of a written claim
(including a claim for expenses incurred in defining any Action in
advance of its final disposition, where the undertaking in (b) below
has been tendered to the corporation), and thereafter the Corporation
shall have the burden of proof to overcome the presumption that the
Indemnitee is so entitled.
(b) The right indemnification conferred in this Article shall include
the right to be paid by the corporation all expenses (including
attorneys' fees) incurred in defending any Action in advance of its
final disposition; provided, however, that the payment of such
expenses in advance of the final disposition of an Action shall be
made upon delivery to the Corporation of an undertaking, by or on
behalf of such Director or Officer, to repay all amounts so advanced
if it shall ultimately be determined that such Director or Officer is
not entitled to be indemnified under this Article or otherwise.
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(4) Right of Indemnitee to Bring Suit: If a claim under this Article is
not paid in full by the corporation within 60 days after a written claim has
been received by the Corporation, except in the case of a claim for expenses
incurred in defending a proceeding in advance of its final disposition, in which
case the applicable period shall be 20 days, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, to the extent successful in whole or in part, the Indemnitee
shall be entitled to be paid also the expense of prosecuting such claim.
Neither the failure of the Corporation (including its Board of Directors, its
shareholders or independent legal counsel) to have made a determination prior to
the commencement of such action that indemnification of or reimbursement or
advancement of expenses to the claimant is proper in the circumstances, nor an
actual determination by the Corporation (including its board of directors, its
shareholders or independent legal counsel) that the Indemnitee is not entitled
to indemnification or to the reimbursement or advancement of expenses, shall be
a defense to the action or create a presumption that the Indemnitee is not so
entitled.
(5) Nonexclusivity of Rights: The right to indemnification and the
payment of expenses incurred in defining an Action in advance of its final
disposition conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter acquire under any stature, provision of
the Articles of Incorporation, Bylaws, agreement, vote of shareholders or
disinterested directors or otherwise.
(6) Insurance, Contracts and Funding: The Corporation may maintain
insurance, at its expense, to protect itself and any Director, Officer, employee
or agent of the Corporation or Another Enterprise against any expense, liability
or loss, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the Washington Business
Corporation Act. The Corporation may, without further shareholder action, enter
into contracts with any Director or Officer of the Corporation in furtherance of
the provisions of this Article, and may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Article.
(7) Indemnification of Employees and Agents of the Corporation: The
Corporation may, by action of its board of directors from time to time, provide
indemnification and pay expenses in advance of the final disposition of an
Action to employees and agents of the Corporation with the same scope and effect
as the provisions of this Article with respect to the indemnification and
advancement of expenses of Directors and
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Officers of the corporation or pursuant to rights granted pursuant to, or
provided by, the Washington Business Corporation Act or otherwise.
(8) Contract Right: Rights of indemnification under this Article shall
continue as to an Indemnitee who has ceased to be a director or Officer and
shall insure to the benefit of his or her heirs, executors and administrators.
The right to indemnification conferred in this Article shall be a contract right
upon which each Director or Officer shall be presumed to have relied on in
determining to serve or to continue to serve as such. Any amendment to or repeal
of this Article shall not adversely affect any right or protection of a Director
or Officer of the Corporation for or with respect to any acts or omissions of
such Director or Officer occurring prior to such amendment or repeal.
(9) Severability: If any provision of this Article or any application
thereof shall be invalid, unenforceable or contrary to applicable law, the
remainder of this Article, or the application of such provisions to persons or
circumstances other than those as to which it is held invalid, unenforceable or
contrary to applicable law, shall not be affected thereby and shall continue in
full force and effect.
ARTICLE X
Books and Records
The corporation shall keep correct and complete books and records of
account and shall keep minutes of the proceedings of its shareholders and Board
of Directors (and committees thereof); and shall keep at its registered office
or principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by each. Any books,
records, and minutes may be in written form within a reasonable time.
ARTICLE XI
Amendments
(1) By Shareholders: These Bylaws may be altered, amended or repealed by
the affirmative vote of a majority of the voting stock issued and outstanding at
any regular or special meeting of the shareholders.
(2) By Directors: The Board of Directors shall have power to make, alter,
amend and repeal by the Bylaws of this
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corporation. However any such Bylaws, or any alteration, amendment or repeal of
the Bylaws, may be changed or repealed by the holders of a majority of the stock
entitled to vote at any shareholders' meeting.
(3) Emergency Bylaws: The Board of Directors may adopt emergency Bylaws,
subject to repeal or change by action of the shareholders, which shall be
operative during any emergency in the conduct of the business of the corporation
resulting from an attack on the United States or any nuclear or atomic disaster.
Amended and restated as of June 5, 1996.
/s/John P. World
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EXHIBIT 10.36
January 17, 1997
Congress Financial Corporation (Northwest)
101 S.W. Main Street, Suite 725
Portland, OR 97204
Re: Seventeenth Amendment to Accounts Financing Agreement
-----------------------------------------------------
Ladies and Gentlemen:
This Seventeenth Amendment to Accounts Financing Agreement (this
"Amendment") is made for the purpose of amending the Accounts Financing
Agreement [Security Agreement] which we entered into on or about December 20,
1990, as it has been previously amended (the "Accounts Financing Agreement").
For valuable consideration, receipt and sufficiency of which are
acknowledged, we agree as follows:
1. Section 2.7 is revised in its entirety as follows:
"2.7 In addition to amounts otherwise available
under the formulas described above, but subject to the Maximum
Credit limit, you will temporarily allow us an overadvance of up
to $1,500,000 (the "Overadvance Limit"). All overadvance
amounts shall bear interest at the rate prescribed in Section 3
hereof. The Overadvance Limit will be automatically reduced by
the sum of $17,858 per month, beginning March 1, 1997 and
continuing on the first day of each month thereafter, and any
overadvance amounts in excess of such reduced Overadvance Limit
must be immediately repaid. The Overadvance limit will be
automatically reduced to zero dollars, and any remaining balance
of the overadvance must be repaid upon the earlier of (i) March
1, 2002, (ii) the sale or disposition of our real property in
Lynnwood, Washington more fully described in Exhibit C hereto
(the "Lynnwood Property"), or (iii) expiration or termination of
the Accounts Financing Agreement.
2. We agree to enter into a modification of the Trust Deed with
respect to the Lynnwood Property to appropriately reflect this Amendment. We
also agree to provide to you, at our expense, additional title insurance in the
sum of $500,000 from an insurer acceptable to you insuring your Trust Deed as a
first lien on the Lynnwood Property.
3. For the accommodation described in this Amendment, we agree to pay
you a fee in the sum of $7,500.
4. To induce you to accept this Amendment, we make the following
representations, warranties, and covenants:
(a) Each and every recital, representation, and warranty
contained in this Amendment, the Accounts Financing Agreement, and the Deed of
Trust is correct as of the date of this Amendment.
<PAGE>
Congress Financial Corporation (Northwest)
January 17, 1997
Page 2
(b) No event has occurred or is continuing which constitutes or,
with the giving of notice, the passage of time, or both, would constitute, an
Event of Default under the Accounts Financing Agreement.
5. We shall pay all expenses, including attorney fees, which you incur
in connection with the preparation and implementation of this Amendment and any
related documents.
6. Except as specifically provided above, the Accounts Financing
Agreement remains fully valid, binding, and enforceable according to its terms.
7. We waive and discharge any and all defenses, claims, counterclaims,
and offsets which we may have against you and which have arisen or accrued up to
the date of this Amendment. We acknowledge that you and your employees, agents
and attorneys have made no representations or promises to us except as
specifically reflected in this Amendment and in the written agreements which
have been previously executed. In this connection, we specifically waive the
provisions of California Civil Code (S) 1542, which provides as follows:
"A general release does not extend to claims
which the creditor does not know or suspect
to exist in his favor at the time of
executing the release, which, if known by
him, must have materially affected his
settlement with the debtor."
Very truly yours,
CARVER CORPORATION
By /s/ Debra L. Griffith
Its Vice President Finance
<PAGE>
Congress Financial Corporation (Northwest)
January 17, 1997
Page
The undersigned guarantor acknowledges that Congress Financial
Corporation (Northwest) ("Congress") has no obligation to provide it with notice
of, or to obtain its consent to, the terms of this Amendment. The undersigned
guarantor nevertheless hereby (i) acknowledges and agrees to the terms and
conditions of this Amendment; (ii) acknowledges that its guaranty remains fully
valid, binding and enforceable; and (iii) waives any and all defenses, claims,
counterclaims and offsets against Congress which may have accrued to date. In
connection with these waivers, the undersigned guarantor specifically waives the
provisions of California Civil Code (S) 1542, which provides as follows:
"A general release does not extend to claims
which the creditor does not know or suspect
to exist in his favor at the time of
executing the release, which, if known by
him, must have materially affected his
settlement with the debtor."
USS CORPORATION, dba US Sound
By /s/ John P. World
Its Secretary
ACCEPTED AND AGREED:
CONGRESS FINANCIAL CORPORATION (NORTHWEST)
By /s/ Drew C. Stawin
Its Vice President
<PAGE>
EXHIBIT 10.37
================================================================================
[space above this line for Recorder]
<TABLE>
<S> <C>
Recording Requested By, and LINE OF CREDIT INSTRUMENT
- ---------------------------
After Recording, Please Return To: This instrument secures indebtedness to be advanced by
- --------------------------------- Beneficiary under an Accounts Financing Agreement (the
"Financing Agreement"). The maximum amount to be advanced
Bruce G. Berning by Beneficiary pursuant to the Financing Agreement is
Tonkon, Torp, Galen, Marmaduke & Booth $6,000,000. The current term of the Financing Agreement
1600 Pioneer Tower expires July 31, 1998, but is subject to renewal thereafter.
888 SW Fifth Avenue
Portland, OR 97204-2099
</TABLE>
FIRST AMENDMENT TO
TRUST DEED, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT, AND FIXTURE FILING
(LINE OF CREDIT INSTRUMENT)
THIS FIRST AMENDMENT TO TRUST DEED, ASSIGNMENT OF RENTS, SECURITY
AGREEMENT, AND FIXTURE FILING (this "Amendment"), dated as of January 7, 1996,
amends the Trust Deed, Assignment of Rents, Security Agreement and Fixture
Filing dated as of January 9, 1996 and recorded in the real property records of
Snohomish County, Washington on March 26, 1996 as instrument number 9603260342
in Volume 3140, Pages 2877 through 2887 and affecting the property described in
Exhibit A (the "Trust Deed"). The Trust Deed was made by CARVER CORPORATION, A
Washington corporation whose address is 20121 48th Avenue West, Lynnwood,
Washington 98036 ("Grantor"), to CHICAGO TITLE INSURANCE COMPANY, having its
address at 19725 40th Avenue West, Suite A, Lynnwood, Washington 98036
("Trustee"), for the benefit of CONGRESS FINANCIAL CORPORATION (NORTHWEST),
having its office at 101 SW Main Street, Suite 725, Portland, Oregon 97204
("Beneficiary"). All capitalized terms that are not defined in this Amendment
have the meanings assigned to those terms in the Trust Deed.
BACKGROUND
Grantor has asked Beneficiary, and Beneficiary has agreed, to enter
into a modification of the Financing Agreement to provide for a temporary
overadvance in an amount not to exceed the sum of $1,500,000, which amount will
be included in the maximum credit of $6,000,000 to be advanced by Beneficiary.
In addition, Grantor and Beneficiary have extended the maturity date of the
Financing Agreement to July 31, 1998.
<PAGE>
AMENDMENT
For valuable consideration, receipt and sufficiency of which are
acknowledged, Grantor and Beneficiary agree as follows:
1. The paragraph which appears in the upper righthand portion of the
first page of the Trust Deed is amended in its entirety to read as follows:
"LINE OF CREDIT INSTRUMENT
"This instrument secures indebtedness to be advanced by Beneficiary
under an Accounts Financing Agreement (the "Financing Agreement").
The maximum amount to be advanced by Beneficiary pursuant to the
Financing Agreement is $6,000,000. The current term of the Financing
Agreement expires July 31, 1998, but is subject to renewal
thereafter."
2. The paragraph on page 1 of the Trust Deed which currently reads as
follows:
"WHEREAS, Beneficiary has agreed to enter into a modification
of the Financing Agreement to provide for a temporary overadvance in
an amount not to exceed $1,000,000 or such lesser amount as is
described in the Eleventh Amendment to Accounts Financing Agreement,
of even date herewith; and"
is hereby amended to read as follows:
"WHEREAS, Beneficiary has agreed pursuant to the Seventeenth
Amendment to the Financing Agreement to provide a temporary
overadvance in an amount not to exceed $1,500,000, which amount is
included in the aggregate $6,000,0000 limit described above; and"
3. Except as specifically provided above, the Trust Deed remains
fully valid, binding and enforceable in accordance with its terms.
GRANTOR: CARVER CORPORATION
By /s/ Debra Griffith
Title Vice President Finance
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<PAGE>
BENEFICIARY: CONGRESS FINANCIAL CORPORATION
(NORTHWEST)
By /s/ Drew C. Stawin
Title Vice President
STATE OF WASHINGTON )
) ss.
County of Snohomish )
On this 20th day of January, 1997, before me personally appeared
Debra L. Griffith, who being duly sworn, stated that he is the V.P. Finance of
CARVER CORPORATION, a Washington corporation, and acknowledged the foregoing
instrument to be the voluntary act and deed of the corporation, executed by
authority of its board of directors.
/s/ John P. World
Notary Public for Washington
My Commission Expires: 4-9-00
STATE OF OREGON )
) ss.
County of Multnomah )
On this 31st day of January, 1997, before me personally appeared Drew
C. Stawin, who being duly sworn, stated that he is the Vice President of
CONGRESS FINANCIAL CORPORATION, an Oregon corporation, and acknowledged the
foregoing instrument to be the voluntary act and deed of the corporation,
executed by authority of its board of directors.
/s/ Jennifer Jean Grable
Notary Public for Oregon
My Commission Expires: 4-3-98
3
<PAGE>
EXHIBIT 10.38
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of September 30, 1996 (the "Effective Date")
between CARVER CORPORATION, a Washington corporation (the "Company"), and MARTIN
RUTSTEIN (hereinafter referred to as the "Holder").
W I T N E S S E T H:
--------------------
WHEREAS, the Company proposes to issue to the Holder the right (the
"Warrants") to purchase up to 120,000 shares (the "Shares") of Common Stock of
the Company, par value $.01 per share (the "Common Stock") at exercise prices
ranging from $1.50 to $2.125 per share in connection with Holder's assistance in
connection with the purchase of equity securities of the Company by certain
affiliates of Renwick Capital Management, Inc.
NOW, THEREFORE, in consideration of the premises, the agreements herein set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Holder is hereby granted the right to purchase, at any
-----
time from the Effective Date until 5:00 P.M., New York time, on the September
30, 2001 (the "Warrant Exercise Term"), up to 120,000 fully-paid and non-
assessable Shares at an initial exercise price (subject to adjustment as
provided in Article 6 hereof) ("Exercise Price") as follows:
(a) $1.50 per share if the Warrants are exercised at any time between
the Effective Date and 5:00 P.M., New York time, on September 30, 1998;
(b) $1.75 per share if the Warrants are exercised on or between
October 1, 1998 and 5:00 P.M., New York time, on September 30, 1999;
(c) $2.00 per share if the Warrants are exercised on or between
October 1, 1999 and 5:00 P.M., New York time, on September 30, 2000; and
(d) $2.125 per share if the Warrants are exercised on or between
October 1, 2000 and 5:00 P.M., New York time, September 30, 2001.
The purchase rights granted hereunder shall terminate at 5:00 New York
time, on the September 30, 2001. Holder acknowledges and agrees that the rights
granted hereby are in full and complete satisfaction of any claim on its part
for
1
<PAGE>
compensation in connection with any services performed by Holder for the
Company.
2. Warrant Certificates. The warrant certificates (the "Warrant
--------------------
Certificates") delivered pursuant to this Agreement shall be in the form set
forth in Exhibit A attached hereto and made a part hereof, with such appropriate
---------
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. Exercise of Warrant. The Warrants are exercisable at the prices set
-------------------
forth in Section 1 hereof, payable in cash, by certified or official bank check
in New York Clearing House Funds payable to the order of the Company, or by wire
transfer of immediately available funds to an account designated by the Company,
subject to adjustment as provided in Article 7 hereof. Upon surrender of the
Warrant Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
Shares purchased, at the Company's principal offices (currently located at 20121
48th Avenue West, Lynnwood, Washington 98036), Holder shall be entitled to
receive a certificate or certificates for the Shares so purchased. The purchase
rights represented by each Warrant Certificate are exercisable at the option of
Holder, in whole or in part (but not as to fractional Shares) in increments of
at least 15,000 shares (or, if the number of shares available for purchase is
less than 15,000, such lesser amount). In the case of the purchase of less than
all the Shares purchasable under any Warrant Certificate, the Company shall
cancel said Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the Shares
purchasable thereunder.
4. Issuance of Certificates. Upon the exercise of the Warrants, the
------------------------
issuance of certificates for the Shares purchased shall be made as promptly as
practicable (and in any event within five business days thereafter) without
charge to Holder including, without limitation, any tax which may be payable in
respect of the issuance thereof, and such certificates shall (subject to the
provisions of Article 5 hereof) be issued in the name of Holder, provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificates in the name other than that of the Holder (which may not occur
except in compliance with Articles 5 and 14 below) and the Company shall not be
required to issue or deliver such certificates unless or until the person or
persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
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<PAGE>
The Warrant Certificates and the certificates representing the Shares shall
be executed on behalf of the Company by the manual or facsimile signature of the
present or any future President or Vice President of the Company attested to by
the manual or facsimile signature of the present or any future Secretary or
Assistant Secretary of the Company. Warrant Certificates shall be dated the date
of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
Upon exercise, in part or in whole, of the Warrants, certificates
representing the Shares shall bear a legend substantially similar to the
following:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES, AND SUCH SECURITIES MAY
NOT BE OFFERED FOR RESALE, SOLD, ASSIGNED OR OTHERWISE HYPOTHECATED FOR
VALUE (INCLUDING BY ANY PLEDGEE) UNLESS (A) THE SECURITIES ARE REGISTERED
UNDER THE SECURITIES ACT AND THE SECURITIES LAWS OF ALL APPLICABLE STATES
OF THE UNITED STATES, OR (B) THE SECURITIES ARE OFFERED AND SOLD IN
COMPLIANCE WITH AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS AND, AT
THE OPTION OF THE COMPANY, THE HOLDER PROVIDES AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY TO SUCH EFFECT.
5. Restriction on Transfer of Warrants. By acceptance of a Warrant
-----------------------------------
Certificate Holder represents and agrees that Holder is acquiring the Warrants
evidenced thereby, and that upon exercise thereof it will acquire the Shares,
with its own funds for its own account and not with a view to any sale,
distribution or transfer thereof in violation of the Securities Act of 1933, as
amended (the "Act") and acknowledges and agrees that the Warrants and the Shares
may not be sold, transferred or otherwise disposed of without registration under
the Act or any applicable exemption from the registration requirements of the
Act. Holder further acknowledges that the Shares will not be issued pursuant to
the exercise of a Warrant unless the exercise of the Warrant and the issuance
and delivery of such Shares shall comply with all relevant provisions of law,
including without limitation, the Act, and other federal and state securities
laws and regulations and the requirements of any stock exchange on which the
Shares may then be listed, as established to the reasonable satisfaction of
Company. The shares are subject to a Registration Rights Agreement of even date
herewith between the Company and the Holder.
6. Price.
------
6.1 Initial and Adjusted Exercise Price. The initial
-----------------------------------
3
<PAGE>
exercise price of each Warrant shall be as set forth in Section 1 hereof. The
adjusted exercise price shall be the price which shall result from time to time
from any and all adjustments of the initial exercise price in accordance with
the provisions of Article 7 hereof.
6.2 Exercise Price. The term "Exercise Price" shall mean the initial
--------------
exercise price or the adjusted exercise price, depending upon the context.
7. Exercise Price Adjustments. The Exercise Price in effect at any time
--------------------------
and the number and kind of securities purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price by a fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such action. Such adjustment shall be made successively whenever any
event listed above shall occur.
(b) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the lesser of the current market price of the Common
Stock (as defined in Subsection (h) below) on the record date mentioned below,
or the Exercise Price on such record date (the lesser of such two being the
"Adjustment Trigger Price") the Exercise Price shall be adjusted so that the
same shall equal the price determined by multiplying the Exercise Price in
effect immediately prior to the date of such issuance by a fraction, the
numerator of which shall be the sum of the number of shares of Common Stock
outstanding on the record date mentioned below and the number of additional
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion price of the
convertible securities so offered) would purchase at
4
<PAGE>
the Adjustment Trigger Price and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding on such record date and the
number of additional shares of Common Stock offered for subscription or purchase
(or into which the convertible securities so offered are convertible). Such
adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such rights or warrants; and
to the extent that shares of Common Stock are not delivered or securities
convertible into Common Stock are not delivered) after the expiration of such
rights or warrants the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into Common Stock) actually
delivered.
(c) In case the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets or subscription rights
or warrants (excluding those referred to in Subsection (b) above), then in each
such case the Exercise Price in effect thereafter shall be determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the total number of shares of Common
Stock outstanding multiplied by the current market price per share of Common
Stock (as defined in Subsection (h) below), less the fair market value (as
determined by the Company's Board of Directors) of said assets or evidences of
indebtedness so distributed or of such rights or warrants, and the denominator
of which shall be the total number of shares of Common Stock outstanding
multiplied by such current market price per share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such distribution. Such adjustment shall be
made successively whenever such a record date is fixed.
(d) In case the Company shall issue shares of its Common Stock
[excluding shares issued (i) in any of the transactions described in Subsection
(a) or (b) above, (ii) any Permitted Issuance (as defined in Subsection (m)
below), (iii) to shareholders of any corporation which merges into the Company
in proportion to their stock holdings of such corporation immediately prior to
such merger, upon such merger, or issued in a bona fide public offering pursuant
to a firm commitment underwriting, but only if no adjustment is required
pursuant to any other specific subsection of this Article (7) (without regard to
Subsection (i) below) with respect to the transaction giving rise to such
rights] for a consideration per share (the "Offering
5
<PAGE>
Price") less than the Adjustment Trigger Price, the Exercise Price shall be
adjusted immediately thereafter so that it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares and the number of shares of Common Stock which the aggregate
consideration received or to be received [determined as provided in Subsection
(g) below] for the issuance of such additional shares would purchase at the
Adjustment Trigger Price and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after the issuance of such
additional shares. Such adjustment shall be made successively whenever such an
issuance is made.
(e) In case the Company shall issue any securities convertible into or
exchangeable for its Common Stock [excluding securities issued in transactions
described in Subsections (b) and (c) above] for a consideration per share of
Common Stock (the "Conversion Price") initially deliverable upon conversion or
exchange of such securities [determined as provided in Subsection (g) below]
less than the Adjustment Trigger Price, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such securities
and the number of shares of Common Stock which the aggregate consideration
received or to be received [determined as provided in Subsection (g) below] for
such securities would purchase at the Adjustment Trigger Price and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to such issuance and the maximum number of shares
of Common Stock of the Company deliverable upon conversion of or in exchange for
such securities at the initial conversion or exchange price or rate. Such
adjustment shall be made successively whenever such an issuance is made.
(f) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to Subsections (a), (b), (c), (d) and (e) above, the number
of Shares purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Shares initially issuable upon exercise of
this Warrant by the Exercise Price in effect on the date of such adjustment and
dividing the product so obtained by the Exercise Price, as adjusted, such
quotient to be rounded up to the next whole number.
(g) For purposes of any computation respecting consideration received
pursuant to Subsections (b), (c), (d) and
6
<PAGE>
(e) above the following shall apply:
(i) in the case of the issuance of shares of Common Stock for
cash, the consideration shall be the amount of such cash, provided that in no
case shall any deduction be made for any commissions, discounts or other
expenses incurred by the Company for any underwriting of the issue or otherwise
in connection therewith.
(ii) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined in good
faith by the Board of Directors of the Company (irrespective of the accounting
treatment thereof), whose determination shall be conclusive; and
(iii) in the case of the issuance of options, warrants or other
securities exercisable for, convertible into or exchangeable for shares of
Common Stock, the aggregate consideration received therefor shall be deemed to
be the consideration received by the Company for the issuance of such securities
plus the additional minimum consideration, if any, to be received by the Company
upon the conversion or exchange thereof [the consideration in each case to be
determined in the same manner as provided in clauses (i) and (ii) of this
Subsection (g)]. If such securities by their terms provide, with the passage of
time or otherwise, for any increase in the consideration payable to the Company,
or a decrease in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, any adjustments made pursuant to this
Article 7, and any subsequent adjustments based thereon, shall upon such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease with respect to such options, warrants, rights and securities not
already exercised, converted or exchanged prior to such increase or decrease
becoming effective, but no further adjustment shall be made for the actual
issuance of Common Stock upon the exercise of any such options, warrants or
rights or the conversion or exchange of such securities in accordance with their
terms. Furthermore, upon the expiration of any such options, warrants or rights,
the termination of any such rights to convert or exchange, the Exercise Price
and number or kind of shares purchasable upon exercise of Warrants shall
forthwith be readjusted to such Exercise Price or number or nature of securities
as would have been obtained had the adjustment which was made upon the issuance
of such options, warrants, rights or securities been made upon the basis of the
issuance of only the number of shares of Common Stock actually issued upon the
exercise of such options, warrants or rights or upon the conversion or exchange
of such securities.
(h) For the purpose of any computation under
7
<PAGE>
Subsections (b), (c), (d) and (e) above, the current market price per share of
Common Stock at any date shall be deemed to be the average of the daily closing
prices for 30 consecutive business days before such date. The closing price for
each day shall be the last reported sale price regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the principal national
securities exchange on which the Common Stock is admitted to trading or listed,
or if not listed or admitted to trading on any such exchange, the average of the
highest reported bid and lowest reported asked prices as reported by NASDAQ, or
other similar organization if NASDAQ is no longer reporting such information, or
if not so available, the fair market price as determined by the Board of
Directors, whose determination shall be conclusive.
(i) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($0.10)
in such price; provided, however, that any adjustments which by reason of this
Subsection (i) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section 7 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Section
7 to the contrary notwithstanding, the Company shall be entitled, but shall not
be required, to make such changes in the Exercise Price, in addition to those
required by this Section 7, as it shall determine, in its sole discretion, to be
advisable in order that any dividend or distribution in shares of Common Stock,
or any subdivision, reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income tax liability to the
holders of Common Stock or securities convertible into Common Stock (including
Warrants).
(j) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly, but no later than 10 days after any event giving rise to
an adjustment, cause a notice setting forth the adjusted Exercise Price,
adjusted number of Shares issuable upon exercise of each Warrant and information
describing the transactions giving rise to such adjustments, to be mailed to the
Holders at their last addresses appearing in the Warrant register, and shall
cause a certified copy thereof to be mailed to its transfer agent, if any. The
Company may retain a firm of independent certified public accountants selected
by the Board of Directors (who may be the regular accountants employed by the
Company) to make any computation required by this Section 7, and a certificate
signed by such firm certifying to the correctness of such computation shall be
conclusive evidence of the correctness of such adjustment. No adjustment of the
Exercise Price or the number or kind of shares purchasable upon
8
<PAGE>
exercise of the Warrants shall made upon the issuance of any shares of Common
Stock which are issued pursuant to the exercise, conversion or exchange of any
option, warrant or convertible or exchangeable security if any adjustment shall
previously have been made upon the issuance of such securities as above
provided.
(k) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Holder of this Warrant thereafter shall
become entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subsections (a) to (i), inclusive above.
(l) Notwithstanding any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially issued
pursuant to this Agreement.
(m) "Permitted Issuance" shall mean (i) shares issued in connection
with an underwritten public offering, (ii) shares issued pursuant to the
Company's employee benefit plans in existence on the Closing Date or as
subsequently adopted with the approval of the shareholders of the Company in the
manner required by any applicable law, (iii) shares of Common Stock in an amount
not greater than ten percent of the Company's then outstanding shares of Common
Stock issued to strategic partners, (iv) Common Stock issued as a stock dividend
to holders of Common Stock or the Company's Series A Cumulative Convertible
Preferred Stock (the "Series A Preferred") or upon any subdivision or
combination of such shares, (v) shares issued upon conversion of Series A
Preferred or as payment of dividends thereon, (vi) securities issued in
connection with the merger or consolidation of the Company or any subsidiary
with any other operating entity, or the exchange of securities for stock of
another operating entity; (vii) the issuance of securities in connection with
the purchase of all or substantially all of the assets of another operating
business entity or a division of another operating business entity; (viii) the
offering or issuance of securities in connection with the purchase of any
tangible or intangible assets for use in the Company's business, including,
without limitation, patents, trade secrets and leasehold interests, the lease of
equipment by the Company, the provision of lease financing to the Company or the
purchase of capital equipment by, the Company; (ix) shares of Common Stock
(initially 250,000 shares) issuable upon exercise of warrants issued to Renwick
Capital Management, Inc.; (x) shares of Common
9
<PAGE>
Stock issued upon exercise of the Warrants; or (xi) shares of Common Stock
issued upon exercise of the rights granted to Corporate Relations Group pursuant
to that certain Agreement for Financial Public Relations Services dated as of
August 22, 1996.
8. Exchange and Replacement of Warrant Certificates. Each Warrant
------------------------------------------------
Certificate is exchangeable without expense, upon the surrender hereof by the
Holder at the principal executive office of the Company, for a new Warrant
Certificate of like tenor and date representing in the aggregate the right to
purchase the same number of securities in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
9. Elimination of Fractions. The Company shall not be required to issue
------------------------
certificates representing fractions of Shares upon the exercise of the Warrants,
nor shall it be required to issue scrip or pay cash in lieu of fractional
interests, it being the intent of the parties that all fractional interests
shall be eliminated by rounding any fraction up to the nearest whole number of
Shares.
10. Right of First Refusal. Holder will not Transfer (as defined below)
----------------------
all or any part of the Shares unless such Holder has made an Offer (also as
defined below) to the Company and such Offer has not been accepted by the
Company in the manner described below. The selling Holder shall first make a
written offer (the "Offer") to the Company to sell the Shares that pertain to
the proposed Transfer (the "Offer Shares"). A statement attached to the Offer
shall set forth (i) the intention to Transfer; (ii) the name and address of the
prospective transferee, if known; (iii) the amount of the Offer Shares; and (iv)
any additional terms and conditions of the Transfer, including the proposed
purchase price for the Offer Shares and any related expenses of disposition
payable by the selling Holder (the "Transaction Expenses"). Within two (2)
business days after its receipt of the Offer, the Company may, at its option,
accept the Offer as to all, but not less than all, of the Offer Shares by
delivering written notice to the selling Holder that the Company is electing to
purchase the Offer Shares. The Company's right to purchase shall be at a price
equal to the proposed purchase price set forth in the Offer net of the
Transaction Expenses. If the Company does not elect to purchase all of the
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<PAGE>
Offer Shares, the selling Holder may transfer the Offer Shares to the
prospective Transferee named in the statement attached to the Offer, such
transfer to be made only in strict accordance with the terms set forth in such
statement, and to be completed within 90 days following the expiration of the
time provided for the election by the Company to purchase the Offer Shares,
after which time any Transfer shall again become subject to all the restrictions
of this Article. No Transfer of any right, title or interest in the Shares shall
be effective, and the Company shall not record or recognize any such Transfer,
until there has been compliance with the provisions of this Article. If no offer
is made as herein required, the Company may nevertheless exercise its rights
hereunder as to the Shares being Transferred and may do so at any time, even
after the Transfer of the Shares. The restrictions on Transfer imposed by this
Article 10 shall expire and be of no further force or affect as of September 30,
2006. For purposes of this Article, "Transfer" shall mean to sell, assign,
transfer, pledge, hypothecate, mortgage, incumber or dispose, during any one
day, of more than two thousand (2,000) of the Shares; provided, however, that
Transfer shall not include a transfer (i) by will or by the applicable laws of
descent and distribution or (ii) for no consideration by way of gift of Shares
to the spouse of a Holder or to his or her lineal descendants, or to a trust
solely for his benefit or for the benefit of his or her spouse or lineal
descendants, provided that the transferees, whether pursuant to (i) or (ii)
above, take Shares subject to the transfer restrictions of this Article 10.
Each certificate evidencing any of the Shares shall bear a legend substantially
as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE RIGHTS OF
FIRST REFUSAL FOR THE BENEFIT OF CARVER CORPORATION PURSUANT TO THE TERMS
OF THAT CERTAIN WARRANT AGREEMENT DATED AS OF SEPTEMBER 30, 1996, AS AT ANY
TIME AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR INCUMBERED EXCEPT IN
ACCORDANCE WITH THE TERMS AND PROVISIONS OF SAID AGREEMENT, A COPY OF WHICH
IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY AND WILL BE
FURNISHED TO THE HOLDER OF THIS CERTIFICATE UPON REQUEST AND WITHOUT
CHARGE."
11. Reservation and Listing of Securities. The Company shall at all times
-------------------------------------
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock as shall be issuable upon the exercise thereof. The
Company covenants and agrees that, upon exercise of the Warrants and payment of
the Exercise Price therefor, all Shares issuable upon such exercise shall be
duly and validly issued, fully paid, non-assessable and not subject to the
preemptive
11
<PAGE>
rights of any shareholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants to be listed on or quoted by NASDAQ.
12. Notices to Warrant Holders. Nothing contained in this Agreement
--------------------------
shall be construed as conferring upon the Holder or Holders the right to vote or
to consent or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter, or as having any
rights whatsoever as a shareholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company (other than under circumstances covered by Subsection 7(a) above); or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefor (other than under circumstances covered by
Subsection 7(a) above); or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; or
(d) reclassification or change of the outstanding shares of Common
Stock (other than a change in par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), consolidation of the
Company with, or merger of the Company into, another corporation (other than a
consolidation or merger in which the Company is the surviving corporation and
which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or a sale or
conveyance to another corporation of the property of the Company as an entirety
is proposed; or
(e) the Company or an affiliate of the Company shall propose to issue
any rights to subscribe for shares of Common Stock or any other securities of
the Company or of such affiliate
12
<PAGE>
to all the shareholders of the Company; then, in any one or more of said events,
the Company shall give written notice to the Holder or Holders of such event at
least fifteen (15) days prior to the date fixed as a record date or the date of
closing the transfer books for the determination of the shareholders entitled to
such dividend, distribution, convertible or exchangeable securities or
subscription rights, options or warrants, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice shall specify such
record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend or distribution, or the issuance of any convertible or exchangeable
securities or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. Notices. Any notice required to be given pursuant to this Agreement
-------
shall be given in writing. Any notice, consent, approval, demand and other
communication in connection with this Agreement shall be deemed to be given if
given in writing (including facsimile, telecopy or similar transmission)
addressed as provided below (or to the addressee at such other address as the
addressee shall have specified by notice actually received by the addressor),
and if either (a) actually delivered in fully legible form to such address
(evidenced in the case of a telecopy by receipt of a telecopy transmission
confirmation) or (b) in the case of a letter, five days shall have elapsed after
the same shall have been deposited in the United States mails (i) with first-
class postage prepaid and registered or certified, with return receipt
requested, or (ii) with express delivery postage prepaid, with receipt required
for delivery.
If to the Company, to it at 20121-48th Avenue West, Lynnwood, Washington
98036.
If to any Investor, to it at R. Martin & Co., 480 Juneberry Road,
Riverwoods, IL 60015.
14. Course of Dealing; Amendments, Waivers and Consents. No course of
---------------------------------------------------
dealing between Holder, on one hand, and the Company, on the other hand, shall
operate as a waiver of Holder's rights under this Agreement or any other
Transaction Document. The Company acknowledges that if Holder, without being
required to do so by this Agreement or any other Transaction Document, gives any
notice of information to, or obtains any consent from, the Company, Holder shall
not by implication have amended, waived or modified any provision of this
Agreement or any other Transaction Document, or created any duty to give any
such notice or information or to obtain such consent on any future occasion. No
delay or omission on the part of Holder in exercising any
13
<PAGE>
right under this Agreement or any other Transaction Document shall operate as a
waiver of such right or any other right hereunder or thereunder. A waiver on any
one occasion shall not be construed as a bar to or waiver of any right or remedy
on any future occasion. No amendment, waiver or consent with respect to this
Agreement shall be binding unless it is in writing and signed by each of the
Company and the Holder. Any amendment or waiver effected in accordance with this
Section 14 shall be binding upon each Holder of any securities purchased under
this Agreement at the time outstanding (including securities into which such
securities are convertible or exercisable) and each future holder of any of such
securities and the Company.
15. Survival of Covenants; Assignability of Rights. The Warrants may
----------------------------------------------
not be sold, assigned, or transferred except in compliance with Section 5 above.
All covenants, agreements, representations and warranties of the Company made in
this Agreement and any other written information delivered or furnished to any
Investor in connection herewith or therewith shall inure to the benefit of each
of the Holder and its respective successors and assigns and each permitted
transferee of any Warrants (whether so expressed or not), but only if such
transferee is (A) an affiliate, partner or stockholder of Holder or transferee
or (B) a transferee or assignee of Warrants to purchase at least 25,000 Shares,
as adjusted for any stock split, stock dividend or other recapitalization,
provided in any event that the Company is given written notice at the time of or
within a reasonable time after said transfer, stating the name and address of
said transferee or assignee and provided, further, that the transferee or
assignee agrees in writing to abide by and assume each and every duty and
obligation of an Investor pursuant to this Agreement.
16. Governing Law. This Agreement and each Warrant Certificate issued
-------------
hereunder shall be deemed to be a contract made under the laws of the State of
Washington and for all purposes shall be construed in accordance with the laws
of said State without regard to the conflicts of laws provisions thereof.
17. Benefits of This Agreement. Nothing in this Agreement shall be
--------------------------
construed to give to any person or corporation other than the Company and the
Holder and any other permitted registered holder or holders of the Warrant
Certificates any legal or equitable right, remedy or claim under this Agreement;
and this Agreement shall be for the sole and exclusive benefit of the Company
and the Holder and any other permitted holder or holders of the Warrant
Certificates.
18. Entire Agreement. This Agreement, the Warrant Certificates and the
----------------
Registration Rights Agreement between the Company and the original Holder set
forth the entire agreement
14
<PAGE>
between the parties with respect to the transactions contemplated hereby and
supersede all prior or contemporaneous agreements, arrangements and
understandings relating to the subject matter hereof, whether written or oral.
19. Counterparts. This Agreement may be executed in any number of
------------
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed, as of the day and year first above written.
CARVER CORPORATION
By: /s/John P. World
Name: John P. World
Title: Executive Vice President
Martin Rutstein
/s/ Martin Rutstein
16
<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER
SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD
EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH LAWS, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144
UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE
DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO
COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH LAW IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT
AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, September 30, 2001
No. W-2 __________
WARRANT CERTIFICATE
This Warrant Certificate certifies that Martin Rutstein or registered
assigns, is the registered holder of Warrants to purchase, at any time from
September ___, 1996 until 5:00 P.M. New York City time on September 30, 2001
("Expiration Date"), up to 70,000 fully-paid and non-assessable share(s) of
common stock, $.01 par value ("Common Stock"), of Carver Corporation, a
Washington corporation (the "Company"), at the exercise prices, subject to
adjustment in certain events (the "Exercise Price"), as set forth in Section 1
of that certain Warrant Agreement dated as of September 30, 1996 between the
Company and Martin Rutstein (the "Warrant Agreement"), upon surrender of this
Warrant Certificate and payment of the Exercise Price at an office or agency of
the Company, but subject to the conditions set forth herein and in the Warrant
Agreement. Payment of the Exercise Price may be made in cash, by certified or
official bank check in New York Clearing House funds payable to the order of the
Company, any combination of cash or check, or by wire transfer of immediately
available funds.
This Warrant may not be exercised after 5:00 P.M., New York City time, on
the Expiration Date, at which time all rights evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by, reference in and made a part of
this instrument and is hereby referred to in a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of
17
<PAGE>
the Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events,
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
No holder of this Warrant Certificate shall be entitled to vote or receive
dividends or be deemed the holder of Common Stock or any other securities of the
Company which may at any time be issuable on the exercise hereof for any
purpose, nor shall anything contained in the Warrant Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, to give or
withhold consent to any corporate action, or to receive dividends or
subscription rights or otherwise, until the Warrant evidenced by this Warrant
Certificate shall have been exercised and the Common Stock issuable upon the
exercise thereof shall have become deliverable as provided in the Warrant
Agreement.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated: September ___, 1996
CARVER CORPORATION
By: ______________________________________
Name:
Title:
3
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase __________ Shares of Common
Stock and herewith tenders in payment for such securities, cash, certified or
official bank check payable in New York Clearing House Funds to the order of
Carver Corporation, any combination of cash or certified or official bank check
in New York Clearing House funds, or by wire transfer of immediately available
funds in the amount of $__________, all in accordance with the terms hereof. The
undersigned requests that a certificate for such securities be registered in the
name of ____________________, whose address is ______________________________,
and that such Certificate be delivered to ____________________, whose address is
______________________________.
Dated: Signature: _______________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
______________________________
______________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ____________________
hereby sells, assigns and transfers unto
__________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint __________, Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature: _______________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate)
______________________________
______________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
EXHIBIT 10.39
REGISTRATION RIGHTS AGREEMENT
-----------------------------
AGREEMENT, dated as of the 30th day of September, 1996, between Martin
Rutstein ("Holder") and Carver Corporation, a Washington corporation, having its
principal place of business at 20121 48th Avenue West, Lynnwood, Washington
98036 (the "Company").
WHEREAS, simultaneously with the execution and delivery of this Agreement, the
Holder and the Company are entering into a Warrant Agreement pursuant to Holder
is receiving warrants (the "Warrants") to purchase up to 120,000 shares (the
"Warrant Shares") of common stock, $.01 par value, of the Company ("Common
Stock"); and
WHEREAS, the Company desires to grant to the Holder the registration rights
set forth herein with respect to the Warrant Shares,
NOW, THEREFORE, the parties hereto mutually agree as follows:
1. REGISTRATION RIGHTS.
-------------------
(a) Registration Under the Securities Act of 1933. None of the Warrants or
---------------------------------------------
the Warrant Shares have been registered for purposes of public
distribution under the Securities Act of 1933, as amended (the "Act").
(b) Registrable Securities. As used herein, the term "Registrable
----------------------
Security" means the Warrant Shares and any shares of Common Stock issued upon
any stock split or stock dividend in respect of such Registrable Securities;
provided, however, that with respect to any particular Registrable Security,
such security shall cease to be a Registrable Security, when as of the date of
determination, (i) it has been effectively registered under the Act and disposed
of pursuant thereto, (ii) registration under the Act is no longer required for
subsequent public distribution of such security, (iii) it has ceased to be
outstanding or (iv) it is no longer beneficially owned by a Holder or a
permitted transferee of the rights of a Holder pursuant to Section 9 of this
Agreement. The term "Registrable Securities" means any and/or all of the
securities falling within the foregoing definition of a "Registrable Security."
In the event of any merger, reorganization, consolidation, recapitalization or
other change in corporate structure affecting the Common Stock, such adjustment
shall be made in the definition of "Registrable Security" as is appropriate in
order to prevent any dilution or enlargement of the rights granted pursuant to
this Section 1.
(c) Piggyback Registration. (i) If at any time on or prior to August 12,
----------------------
2002 the Company proposes to prepare and file one or more registration
statements under the Act to register any shares of Common Stock on a
registration form that may be used for registration of Registrable Securities
(in any such case, other than in connection with a merger, acquisition or
pursuant to Form S-8 or successor form) (for purposes of this Section 1,
collectively, the "Registration Statement"), it will give written notice of its
intention
1
<PAGE>
to do so by registered mail or certified ("Notice"), at least twenty
(20) days prior to the filing of each such Registration Statement, to each
Holder. Upon the written request of any Holder (a "Requesting Holder"), made
within twenty (20) days after receipt of the Notice, that the Company include
any of the Requesting Holder's Registrable Securities in the proposed
Registration Statement, the Company shall use its reasonable best efforts to
effect the registration under the Act of the Registrable Securities which it has
been so requested to register ("Piggyback Registration"), at the Company's sole
cost and expense and at no cost or expense to the Requesting Holder; provided,
however, that if, in the written opinion of the Company's managing underwriter,
if any, for such offering, the inclusion of all or a portion of the Registrable
Securities requested to be registered, when added to the securities being
registered by the Company or other selling shareholder(s), will exceed the
maximum amount of the Company's securities which can be marketed (i) at a price
reasonably related to their then current market value, or (ii) without otherwise
materially adversely affecting the entire offering, then the Company may exclude
from such offering all or a portion of the Registrable Securities which it has
been requested to register.
(ii) If securities are proposed to be offered for sale pursuant to
such Registration Statement by other security holders of the Company and the
total number of securities to be offered by the Requesting Holder and such other
selling security holders is required to be reduced pursuant to a request from
the managing underwriter (which request shall be made only for the reasons and
in the manner set forth above) the aggregate number of Registrable Securities to
be offered by the Requesting Holder pursuant to such Registration Statement
shall equal the number which bears the same ratio to the maximum number of
securities that the underwriter believes may be included for all the selling
security holders (including the Requesting Holder) as the original number of
Registrable Securities proposed to be sold by the Requesting Holder bears to the
total original number of securities proposed to be offered by the Requesting
Holder and the other selling security holders.
(iv) Notwithstanding the provisions of this Section 1(c), the Company
shall have the right at any time after it shall have given written notice
pursuant to this Section 1(c) (irrespective of whether any written request for
inclusion of such securities shall have already been made) to elect not to file
any such proposed Registration Statement, or to withdraw the same after the
filing but prior to the effective date thereof.
2. COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. The Company
-----------------------------------------------------
covenants and agrees as follows:
(a) In connection with any registration under Section I(d) hereof,
the Company shall use its best efforts to file the Registration Statement as
expeditiously as possible, but in any event no later than forty-five (45) days
following receipt of any demand therefor, shall use its reasonable best efforts
to have any such Registration Statement declared effective at the earliest
possible time and shall furnish each holder of Registrable Securities such
number of prospectuses as shall reasonably be requested.
2
<PAGE>
(b) The Company shall pay all costs, fees and expenses in connection
with all Registration Statements filed pursuant to this Agreement including,
without limitation, the Company's legal and accounting fees, printing expenses,
and blue sky fees and expenses. However, each Holder shall be solely responsible
for the fees of any counsel retained by him or her in connection with such
registration and any transfer taxes or underwriting discounts or commissions
applicable to the Registrable Securities sold by him or her.
(c) The Company shall indemnify and hold harmless each Holder and
each underwriter, within the meaning of the Act, who may purchase from or sell
for the Holder, any Registrable Securities, from and against any and all losses,
claims, damages and liabilities caused by any untrue statement of a material
fact contained in the Registration Statement, any other registration statement
filed by the Company under the Act, any post-effective amendment to such
registration statements, or any prospectus included therein required to be filed
or furnished by reason of this Agreement or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or alleged untrue statement or omission or alleged omission based upon
information furnished or required to be furnished in writing to the Company by a
Holder or underwriter expressly for use therein; which indemnification shall
include each person, if any, who controls any such underwriter within the
meaning of the Act and each officer, director, employee and agent of such
underwriter. The Holder and any such underwriter and other person, shall be
obligated to indemnify the Company, its directors, each officer signing the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Act, from and against any and all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, any registration
statement or any prospectus required to be filed or furnished by reason of this
Agreement or caused by any omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or alleged untrue statement or omission based upon information
furnished in writing to the Company by the Holder or underwriter or other person
expressly for use therein.
(d) If for any reason the indemnification provided for in the
preceding subparagraph is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, claim, damage,
liability or expense referred to therein, then the indemnifying party, in lieu
of indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by the indemnified party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnified party, and the indemnifying party,
but also the relative fault of the indemnified party and the indemnifying party,
as well as any other relevant equitable considerations.
(e) Nothing contained in this Agreement shall be construed as
requiring the Holder to exercise the Warrants prior to the initial filing of any
registration statement or the effectiveness thereof.
3
<PAGE>
(f) The Company shall deliver promptly to the Holder of Registrable
Securities participating in the offering in which the Holder's shares are being
registered pursuant to Section 1(c) hereof copies of all correspondence between
the Commission and the Company, its counsel or auditors and all memoranda
relating to discussions with the Commission or its staff with respect to the
Registration Statement and permit the Holder and underwriters to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the Registration Statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. Such investigation shall include access
to books, records and properties and opportunities to discuss the business of
the Company with its officers and independent auditors, all to such reasonable
extent and at such reasonable times and as often as the Holder of Registrable
Securities or underwriter shall reasonably request.
(g) Upon the written request therefor by the Holder, the Company
shall include in the Registration Statement covering any of the Registrable
Securities any other shares of Common Stock held by the Holder as of the date of
filing of such Registration Statement, provided that such holder pays the
incremental costs associated with registration of such additional shares.
3. Additional Terms. The following provisions shall be applicable to any
----------------
Registration Statement filed pursuant to Section 1 of this Agreement:
(a) If any stop order shall be issued by the Commission in connection
with registration hereunder, the Company will use its reasonable efforts to
obtain the removal of such order. Following the effective date of the
Registration Statement, the Company shall, upon the request of the Holder,
forthwith supply such reasonable number of copies of the Registration Statement,
preliminary prospectus and prospectus meeting the requirements of the Act, and
other documents necessary or incidental to a public offering, as shall be
reasonably requested by the holder to permit the Holder to make a public
distribution of his or her Registrable Securities. The Company will use its
reasonable efforts to qualify the Registrable Securities for sale in such states
as the Holder of Registrable Securities shall reasonably request, provided that
no such qualification will be required in any jurisdiction where, solely as a
result thereof, the Company, would be subject to service of general process or
to taxation or qualification as a foreign corporation doing business in such
jurisdiction. The obligations of the Company hereunder with respect to the
Holder's Registrable Securities are expressly conditioned on the Holder's
furnishing to the Company such appropriate information concerning the Holder,
the Holder's Registrable Securities and the terms of the Holder's offering of
such Registrable Securities as the Company may reasonably request.
(b) Neither the filing of a Registration Statement by the Company
pursuant to this Agreement nor the making of any request for prospectuses by the
Holder shall impose upon the Holder any obligation to sell his or her
Registrable Securities.
(c) The Holder, upon receipt of notice from the Company that an event
has
4
<PAGE>
occurred which requires a post-effective amendment to the Registration
Statement or a supplement to the prospectus included therein, shall promptly
discontinue the sale of his or her Registrable Securities until the Holder
receives a copy of a supplemented or amended prospectus from the Company, which
the Company shall provide as soon as practicable after such notice.
(d) The Company shall not be required to include any Registrable
Securities in a registration pursuant to this Agreement unless the Holders
accept the terms of the underwriting as agreed upon between the Company and the
underwriters selected by the Company. Furthermore, Holder shall cooperate with
the Company in connection with the preparation of a Registration Statement, and
for so long as the Company is obligated to file and keep effective the
Registration Statement, shall provide to the Company, in writing, for use in the
Registration Statement, all such information regarding Holders and his or its
plan of distribution with respect to the Registrable Securities covered thereby
as the Company from time to time may reasonably request to prepare the
Registration Statement and prospectus covering the Registrable Securities, to
maintain the currency and effectiveness thereof and otherwise to comply with all
applicable requirements of law in connection therewith. Holder covenants that it
will promptly notify the Company in writing of any changes in the information
set forth in a Registration Statement regarding such Holder or his or its plan
of distribution of Registrable Securities covered thereby.
4. Amendment or Waiver. The provisions of this Agreement may be amended
-------------------
at any time and from time to time, and particular provisions of this Agreement
may be waived, with an agreement or consent in writing, executed in one or more
counterparts, signed by the Company and by Holders holding not less than a
majority of the Registrable Securities outstanding and held by holders as of the
date of such amendment or waiver. Any amendment or waiver effected in accordance
with this paragraph shall be binding on the Company and all Holders.
5. Entire Agreement. This Agreement constitutes the entire agreement of
----------------
the parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
6. Execution in Counterparts. This Agreement may be executed in one or
-------------------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
7. Notices. All notices, requests, demands or other communications
-------
required by or otherwise given with respect to this Agreement shall be in
writing and shall be deemed to have been duly given to any party when delivered
personally (by courier service or otherwise), four days after being mailed by
United States first-class mail, postage prepaid and return receipt requested, or
when delivered by facsimile (if a confirming copy is sent by mail as aforesaid),
in each case to the applicable addresses set forth below:
If to the Holder, to his or her address set forth on the signature page of
this
5
<PAGE>
Agreement.
If to the Company, to the address set forth on the first page of this
Agreement.
8. Binding Effect; Benefits. A Holder may assign his or her rights here
------------------------
under to a transferee or assignee of at least 15,000 Registrable Securities, as
adjusted by any stock split, stock dividend or similar change in the Common
Stock, provided in any event that the Company is given written notice at the
time of or within a reasonable time after said transfer, stating the name and
address of said transferee or assignee and provided, further, that the
transferee or assignee agrees in writing to abide by and assume each and every
duty and obligation of a holder pursuant to this Agreement. This Agreement
shall inure to the benefit of, and be binding upon, the parties hereto and their
respective heirs, legal representatives, successors and permitted assigns.
Nothing herein contained, express or implied, is intended to confer upon any
person other than the parties hereto and their respective heirs, legal
representatives, successors and such permitted assigns, any rights or remedies
under or by reason of this Agreement.
9. Headings. The headings contained herein are for the sole purpose of
--------
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
10. Severability. Any provision of this Agreement which is held by a court
------------
of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction.
11. Governing Law. This Agreement shall be deemed to be a contract made
-------------
under the laws of the State of Washington and for all purposes shall be
construed in accordance with the laws of said State without regard to the
conflicts of laws provisions thereof.
6
<PAGE>
IN WITNESS WHEREOF, this Registration Rights Agreement has been executed
and delivered by the parties hereto as of the date first above written.
CARVER CORPORATION
By: /s/ John P. World
Name: John P. World
Title: Executive Vice President
MARTIN RUTSTEIN:
/s/ Martin Rutstein
Martin Rutstein
7
<PAGE>
EXHIBIT 10.40
CARVER CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is entered into between CARVER
CORPORATION, a Washington corporation (the "Corporation"), and Stephen M.
Williams (the "Employee"), on the date set forth below.
WITNESSETH THAT:
WHEREAS, the Corporation has adopted the Carver Corporation 1995 Stock
Option Plan (the "Plan"), effective as of February 15, 1995, pursuant to which
the Board of Directors, or a special committee thereof, is authorized to grant,
in its sole discretion, to key employees of the Corporation options to purchase
shares of the Corporation's common stock (the "Common Stock"), and
WHEREAS, the Compensation Committee of the Board of Directors granted to
Employee an option under the Plan to purchase shares of Common Stock under the
terms hereof.
NOW, THEREFORE, in consideration of the foregoing, the Corporation and the
Employee have executed this Agreement evidencing and confirming the issuance by
the Corporation to the Employee of an option for the purchase of 45,000 shares
of Common Stock (the "Option") in accordance with the following terms and
conditions:
1. The date of grant of the Option represented hereby is September 20,
1996.
2. The exercise price for the Option granted pursuant hereto is $2.875 per
share.
3. This Option shall be exercisable in accordance with the following
vesting schedule: 22,500 shares if the Corporation achieves a net profit for the
fourth quarter of 1996 of $150,000 or more; and 22,500 shares upon the
achievement of the annual objectives for the fiscal year ending December 31,
1997.
4. This Option shall expire, to the extent not previously exercised, on
the earlier of September 19, 2006 or the first to occur of either of the
following events:
(a) The date of the Employee's termination of employment with the Company
for cause as defined in the Plan;
(b) The expiration of ninety (90) days from the date of the Employee's
termination of employment with the Company for any reason whatsoever other than
for cause as defined in the Plan; or
(c) The expiration of one (1) year from the date of death of the Employee,
or cessation of the Employee's employment with the Company by reason of
disability as defined in the Plan.
The unvested portion of this Option shall terminate immediately upon
Employee's termination of employment for any reason whatsoever, including death.
<PAGE>
5. Each exercise of this Option shall be by means of a written notice of
exercise delivered to the Secretary of the Corporation at its principal
executive office in Lynnwood, Washington, specifying the number of shares of
Common Stock to be purchased and accompanied by: payment in cash, by certified
or cashier's check payable to the order of the Corporation of the full exercise
price for the common Stock to be purchased; delivery of previously acquired
shares of Common Stock with a fair market value equal to or greater than the
full exercise price; or delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of loan or sale proceeds to pay the exercise price.
6. Prior to delivery of any common stock purchased on exercise of this
Option, the Corporation shall determine the amount of any United States federal
and state income tax, if any, which is required to be withheld under applicable
law and shall, as a condition of exercise of this Option and delivery of
certificates representing the common stock purchased upon exercise of the
Option, collect from the employee the amount of any such tax to the extent not
previously withheld.
7. Employee shall not have any rights as a shareholder with respect to any
common stock subject to this Option until the date that a stock certificate for
such common stock as to which the Employee has exercised this Option has been
issued to the Employee. Subject to its obligation to withhold set forth in
Section 6 hereof, and to its obligations under federal and state securities laws
set forth in Section 9 below, the Corporation shall issue such stock certificate
as soon as practicable following the exercise of the Option. If any law or
regulation, whether related to securities or otherwise, requires the Corporation
to take any action with respect to any common stock prior to the transfer
thereof, or prohibits, limits or delays the issuance thereof, then the date for
delivery of such Common Stock shall be extended for the period reasonable
necessary to take and conclude such action, or during the period of such
prohibition, limitation or delay.
8. Neither this Option, the execution of this Agreement nor the exercise
of any portion of this Option shall confer upon the Employee any right to, or
guarantee of, continued employment by the Corporation, or in any way limit the
right of the Corporation to terminate employment of Employee at any time,
subject to the terms of any employment agreements between the Corporation and
Employee.
9. By accepting this Option, Employee represents and agrees for himself,
and all persons who acquire rights in this Option in accordance with the Plan
through Employee, that none of the shares of Common Stock purchased upon
exercise of this Option will be distributed in violation of applicable federal
and state laws and regulations, and Employee shall furnish evidence satisfactory
to the Corporation (including a written and signed representation letter and a
consent to be bound by al transfer restrictions imposed by applicable law,
legend condition, or otherwise) to that effect, prior to delivery of the
purchased share of Common Stock.
10. Employee acknowledges that he has read and understands the terms of
this Agreement and the Plan and that:
2
<PAGE>
(a) The issuance of shares of Common Stock pursuant to the exercise of
this Option, and any resale of the shares of common Stock, may only be effected
in compliance with applicable state and federal laws and regulations;
(b) He is not entitled to any rights as a shareholder with respect to any
shares of Common Stock usable thereunder until he becomes a shareholder of
record; and
(c) The share of Common Stock subject hereto may be adjusted in the event
of certain organic changes in the capital structure of the Corporation or for
any other reason permitted by the Plan.
11. This Option may not be transferred, except by will or the laws of
descent and distribution, and during the lifetime of Employee this Option shall
be exercisable only by him.
12. This Option and this Agreement evidencing and confirming the same are
subject to the terms and conditions set forth in the Plan and in any amendments
to the Plan existing now or in the future, which terms and conditions are
incorporated herein by reference. Should any conflict exist between the
provisions of the Plan and those of this Agreement, those of the Plan shall
govern and control. The Employee acknowledges receipt of a copy of the Plan as
presently in effect. This Agreement and the Plan comprise the entire
understanding between the Corporation and Employee with respect to the Option
and shall be construed and enforced under the laws of the State of Washington.
13. The Corporation hereby warrants that a sufficient number of shares of
its common Stock have been reserved and are available to satisfy the
requirements of the Plan.
Dated as of the September 20, 1996.
EMPLOYEE CARVER CORPORATION
_____________________________ By:____________________
/s/ Stephen M. Williams /s/ John P. World
Exec. V. President
3
<PAGE>
EXHIBIT 10.41
CARVER CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is entered into between CARVER
CORPORATION, a Washington corporation (the "Corporation"), and Stephen M.
Williams (the "Employee"), on the date set forth below.
WITNESSETH THAT:
WHEREAS, the Corporation has adopted the Carver Corporation 1995 Stock
Option Plan (the "Plan"), effective as of February 15, 1995, pursuant to which
the Board of Directors, or a special committee thereof, is authorized to grant,
in its sole discretion, to key employees of the Corporation options to purchase
shares of the Corporation's common stock (the "Common Stock"), and
WHEREAS, the Compensation Committee of the Board of Directors granted to
Employee an option under the Plan to purchase shares of Common Stock under the
terms hereof.
NOW, THEREFORE, in consideration of the foregoing, the Corporation and the
Employee have executed this Agreement evidencing and confirming the issuance by
the Corporation to the Employee of an option for the purchase of 45,000 shares
of Common Stock (the "Option") in accordance with the following terms and
conditions:
1. The date of grant of the Option represented hereby is September 20,
1996.
2. The exercise price for the Option granted pursuant hereto is $2.875 per
share.
3. This Option shall be exercisable in accordance with the following
vesting schedule:
<TABLE>
<CAPTION>
Number of Shares of Common
Date Shares Become Stock Which Shall Become
Available for Purchase Available for Purchase
---------------------- ----------------------
<S> <C>
September 20, 1996 15,000
September 20, 1997 15,000
September 20, 1998 15,000
</TABLE>
4. This Option shall expire, to the extent not previously exercised, on
the earlier of September 19, 2006 or the first to occur of either of the
following events:
(a) The date of the Employee's termination of employment with the Company
for cause as defined in the Plan;
(b) The expiration of ninety (90) days from the date of the Employee's
termination of employment with the Company for any reason whatsoever other than
for cause as defined in the Plan; or
<PAGE>
(c) The expiration of one (1) year from the date of death of the Employee,
or cessation of the Employee's employment with the Company by reason of
disability as defined in the Plan.
The unvested portion of this Option shall terminate immediately upon
Employee's termination of employment for any reason whatsoever, including death.
5. Each exercise of this Option shall be by means of a written notice of
exercise delivered to the Secretary of the Corporation at its principal
executive office in Lynnwood, Washington, specifying the number of shares of
Common Stock to be purchased and accompanied by: payment in cash, by certified
or cashier's check payable to the order of the Corporation of the full exercise
price for the common Stock to be purchased; delivery of previously acquired
shares of Common Stock with a fair market value equal to or greater than the
full exercise price; or delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of loan or sale proceeds to pay the exercise price.
6. Prior to delivery of any common stock purchased on exercise of this
Option, the Corporation shall determine the amount of any United States federal
and state income tax, if any, which is required to be withheld under applicable
law and shall, as a condition of exercise of this Option and delivery of
certificates representing the common stock purchased upon exercise of the
Option, collect from the employee the amount of any such tax to the extent not
previously withheld.
7. Employee shall not have any rights as a shareholder with respect to any
common stock subject to this Option until the date that a stock certificate for
such common stock as to which the Employee has exercised this Option has been
issued to the Employee. Subject to its obligation to withhold set forth in
Section 6 hereof, and to its obligations under federal and state securities laws
set forth in Section 9 below, the Corporation shall issue such stock certificate
as soon as practicable following the exercise of the Option. If any law or
regulation, whether related to securities or otherwise, requires the Corporation
to take any action with respect to any common stock prior to the transfer
thereof, or prohibits, limits or delays the issuance thereof, then the date for
delivery of such Common Stock shall be extended for the period reasonable
necessary to take and conclude such action, or during the period of such
prohibition, limitation or delay.
8. Neither this Option, the execution of this Agreement nor the exercise
of any portion of this Option shall confer upon the Employee any right to, or
guarantee of, continued employment by the Corporation, or in any way limit the
right of the Corporation to terminate employment of Employee at any time,
subject to the terms of any employment agreements between the Corporation and
Employee.
9. By accepting this Option, Employee represents and agrees for himself,
and all persons who acquire rights in this Option in accordance with the Plan
through Employee, that none of the shares of Common Stock purchased upon
exercise of this Option will be distributed in violation of applicable federal
and state laws and regulations, and Employee shall furnish evidence satisfactory
to the Corporation (including a written and signed representation letter and a
consent to be bound by al transfer restrictions imposed by applicable law,
legend condition, or otherwise) to that effect, prior to delivery of the
purchased share of Common Stock.
2
<PAGE>
10. Employee acknowledges that he has read and understands the terms of
this Agreement and the Plan and that:
(a) The issuance of shares of Common Stock pursuant to the exercise of
this Option, and any resale of the shares of common Stock, may only be effected
in compliance with applicable state and federal laws and regulations;
(b) He is not entitled to any rights as a shareholder with respect to any
shares of Common Stock usable thereunder until he becomes a shareholder of
record; and
(c) The share of Common Stock subject hereto may be adjusted in the event
of certain organic changes in the capital structure of the Corporation or for
any other reason permitted by the Plan.
11. This Option may not be transferred, except by will or the laws of
descent and distribution, and during the lifetime of Employee this Option shall
be exercisable only by him.
12. This Option and this Agreement evidencing and confirming the same are
subject to the terms and conditions set forth in the Plan and in any amendments
to the Plan existing now or in the future, which terms and conditions are
incorporated herein by reference. Should any conflict exist between the
provisions of the Plan and those of this Agreement, those of the Plan shall
govern and control. The Employee acknowledges receipt of a copy of the Plan as
presently in effect. This Agreement and the Plan comprise the entire
understanding between the Corporation and Employee with respect to the Option
and shall be construed and enforced under the laws of the State of Washington.
13. The Corporation hereby warrants that a sufficient number of shares of
its common Stock have been reserved and are available to satisfy the
requirements of the Plan.
Dated as of the September 20, 1996.
EMPLOYEE CARVER CORPORATION
- ----------------------------- By:------------------------------
/s/ Stephen M. Williams /s/ John P. World
Executive Vice President
3
<PAGE>
EXHIBIT 10.42
CARVER CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is entered into between CARVER
CORPORATION, a Washington corporation (the "Corporation"), and John P. World
(the "Employee"), on the date set forth below.
WITNESSETH THAT:
WHEREAS, the Corporation has adopted the Carver Corporation 1995 Stock
Option Plan (the "Plan"), effective as of February 15, 1995, pursuant to which
the Board of Directors, or a special committee thereof, is authorized to grant,
in its sole discretion, to key employees of the Corporation options to purchase
shares of the Corporation's common stock (the "Common Stock"), and
WHEREAS, the Compensation Committee of the Board of Directors granted to
Employee an option under the Plan to purchase shares of Common Stock under the
terms hereof.
NOW, THEREFORE, in consideration of the foregoing, the Corporation and the
Employee have executed this Agreement evidencing and confirming the issuance by
the Corporation to the Employee of an option for the purchase of 30,000 shares
of Common Stock (the "Option") in accordance with the following terms and
conditions:
1. The date of grant of the Option represented hereby is September 20,
1996.
2. The exercise price for the Option granted pursuant hereto is $2.875 per
share.
3. This Option shall be exercisable in accordance with the following
vesting schedule:
<TABLE>
<CAPTION>
Number of Shares of Common
Date Shares Become Stock Which Shall Become
Available for Purchase Available for Purchase
---------------------- ----------------------
<S> <C>
September 20, 1996 10,000
September 20, 1997 10,000
September 20, 1998 10,000
</TABLE>
4. This Option shall expire, to the extent not previously exercised, on
the earlier of September 19, 2006 or the first to occur of either of the
following events:
(a) The date of the Employee's termination of employment with the Company
for cause as defined in the Plan;
(b) The expiration of ninety (90) days from the date of the Employee's
termination of employment with the Company for any reason whatsoever other than
for cause as defined in the Plan; or
<PAGE>
(c) The expiration of one (1) year from the date of death of the Employee,
or cessation of the Employee's employment with the Company by reason of
disability as defined in the Plan.
The unvested portion of this Option shall terminate immediately upon
Employee's termination of employment for any reason whatsoever, including death.
5. Each exercise of this Option shall be by means of a written notice of
exercise delivered to the Secretary of the Corporation at its principal
executive office in Lynnwood, Washington, specifying the number of shares of
Common Stock to be purchased and accompanied by: payment in cash, by certified
or cashier's check payable to the order of the Corporation of the full exercise
price for the common Stock to be purchased; delivery of previously acquired
shares of Common Stock with a fair market value equal to or greater than the
full exercise price; or delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of loan or sale proceeds to pay the exercise price.
6. Prior to delivery of any common stock purchased on exercise of this
Option, the Corporation shall determine the amount of any United States federal
and state income tax, if any, which is required to be withheld under applicable
law and shall, as a condition of exercise of this Option and delivery of
certificates representing the common stock purchased upon exercise of the
Option, collect from the employee the amount of any such tax to the extent not
previously withheld.
7. Employee shall not have any rights as a shareholder with respect to any
common stock subject to this Option until the date that a stock certificate for
such common stock as to which the Employee has exercised this Option has been
issued to the Employee. Subject to its obligation to withhold set forth in
Section 6 hereof, and to its obligations under federal and state securities laws
set forth in Section 9 below, the Corporation shall issue such stock certificate
as soon as practicable following the exercise of the Option. If any law or
regulation, whether related to securities or otherwise, requires the Corporation
to take any action with respect to any common stock prior to the transfer
thereof, or prohibits, limits or delays the issuance thereof, then the date for
delivery of such Common Stock shall be extended for the period reasonable
necessary to take and conclude such action, or during the period of such
prohibition, limitation or delay.
8. Neither this Option, the execution of this Agreement nor the exercise
of any portion of this Option shall confer upon the Employee any right to, or
guarantee of, continued employment by the Corporation, or in any way limit the
right of the Corporation to terminate employment of Employee at any time,
subject to the terms of any employment agreements between the Corporation and
Employee.
9. By accepting this Option, Employee represents and agrees for himself,
and all persons who acquire rights in this Option in accordance with the Plan
through Employee, that none of the shares of Common Stock purchased upon
exercise of this Option will be distributed in violation of applicable federal
and state laws and regulations, and Employee shall furnish evidence satisfactory
to the Corporation (including a written and signed representation letter and a
consent to be bound by al transfer restrictions imposed by applicable law,
legend condition, or otherwise) to that effect, prior to delivery of the
purchased share of Common Stock.
2
<PAGE>
10. Employee acknowledges that he has read and understands the terms of
this Agreement and the Plan and that:
(a) The issuance of shares of Common Stock pursuant to the exercise of
this Option, and any resale of the shares of common Stock, may only be effected
in compliance with applicable state and federal laws and regulations;
(b) He is not entitled to any rights as a shareholder with respect to any
shares of Common Stock usable thereunder until he becomes a shareholder of
record; and
(c) The share of Common Stock subject hereto may be adjusted in the event
of certain organic changes in the capital structure of the Corporation or for
any other reason permitted by the Plan.
11. This Option may not be transferred, except by will or the laws of
descent and distribution, and during the lifetime of Employee this Option shall
be exercisable only by him.
12. This Option and this Agreement evidencing and confirming the same are
subject to the terms and conditions set forth in the Plan and in any amendments
to the Plan existing now or in the future, which terms and conditions are
incorporated herein by reference. Should any conflict exist between the
provisions of the Plan and those of this Agreement, those of the Plan shall
govern and control. The Employee acknowledges receipt of a copy of the Plan as
presently in effect. This Agreement and the Plan comprise the entire
understanding between the Corporation and Employee with respect to the Option
and shall be construed and enforced under the laws of the State of Washington.
13. The Corporation hereby warrants that a sufficient number of shares of
its common Stock have been reserved and are available to satisfy the
requirements of the Plan.
Dated as of the September 20, 1996.
EMPLOYEE CARVER CORPORATION
- -------------------------- ----------------------------------
/s/John P. World /s/Stephen M. Williams
President & CEO
3
<PAGE>
EXHIBIT 10.43
CARVER CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is entered into between CARVER
CORPORATION, a Washington corporation (the "Corporation"), and John P. World
(the "Employee"), on the date set forth below.
WITNESSETH THAT:
WHEREAS, the Corporation has adopted the Carver Corporation 1995 Stock
Option Plan (the "Plan"), effective as of February 15, 1995, pursuant to which
the Board of Directors, or a special committee thereof, is authorized to grant,
in its sole discretion, to key employees of the Corporation options to purchase
shares of the Corporation's common stock (the "Common Stock"), and
WHEREAS, the Compensation Committee of the Board of Directors granted to
Employee an option under the Plan to purchase shares of Common Stock under the
terms hereof.
NOW, THEREFORE, in consideration of the foregoing, the Corporation and the
Employee have executed this Agreement evidencing and confirming the issuance by
the Corporation to the Employee of an option for the purchase of 30,000 shares
of Common Stock (the "Option") in accordance with the following terms and
conditions:
1. The date of grant of the Option represented hereby is September 20,
1996.
2. The exercise price for the Option granted pursuant hereto is $2.875 per
share.
3. This Option shall be exercisable in accordance with the following
vesting schedule: 15,000 shares if the Corporation achieves a net profit for the
fourth quarter of 1996 of $150,000 or more; and 15,000 shares upon the
achievement of the annual objectives for the fiscal year ending December 31,
1997.
4. This Option shall expire, to the extent not previously exercised, on
the earlier of September 19, 2006 or the first to occur of either of the
following events:
(a) The date of the Employee's termination of employment with the Company
for cause as defined in the Plan;
(b) The expiration of ninety (90) days from the date of the Employee's
termination of employment with the Company for any reason whatsoever other than
for cause as defined in the Plan; or
(c) The expiration of one (1) year from the date of death of the Employee,
or cessation of the Employee's employment with the Company by reason of
disability as defined in the Plan.
The unvested portion of this Option shall terminate immediately upon
Employee's termination of employment for any reason whatsoever, including death.
<PAGE>
5. Each exercise of this Option shall be by means of a written notice of
exercise delivered to the Secretary of the Corporation at its principal
executive office in Lynnwood, Washington, specifying the number of shares of
Common Stock to be purchased and accompanied by: payment in cash, by certified
or cashier's check payable to the order of the Corporation of the full exercise
price for the common Stock to be purchased; delivery of previously acquired
shares of Common Stock with a fair market value equal to or greater than the
full exercise price; or delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of loan or sale proceeds to pay the exercise price.
6. Prior to delivery of any common stock purchased on exercise of this
Option, the Corporation shall determine the amount of any United States federal
and state income tax, if any, which is required to be withheld under applicable
law and shall, as a condition of exercise of this Option and delivery of
certificates representing the common stock purchased upon exercise of the
Option, collect from the employee the amount of any such tax to the extent not
previously withheld.
7. Employee shall not have any rights as a shareholder with respect to any
common stock subject to this Option until the date that a stock certificate for
such common stock as to which the Employee has exercised this Option has been
issued to the Employee. Subject to its obligation to withhold set forth in
Section 6 hereof, and to its obligations under federal and state securities laws
set forth in Section 9 below, the Corporation shall issue such stock certificate
as soon as practicable following the exercise of the Option. If any law or
regulation, whether related to securities or otherwise, requires the Corporation
to take any action with respect to any common stock prior to the transfer
thereof, or prohibits, limits or delays the issuance thereof, then the date for
delivery of such Common Stock shall be extended for the period reasonable
necessary to take and conclude such action, or during the period of such
prohibition, limitation or delay.
8. Neither this Option, the execution of this Agreement nor the exercise
of any portion of this Option shall confer upon the Employee any right to, or
guarantee of, continued employment by the Corporation, or in any way limit the
right of the Corporation to terminate employment of Employee at any time,
subject to the terms of any employment agreements between the Corporation and
Employee.
9. By accepting this Option, Employee represents and agrees for himself,
and all persons who acquire rights in this Option in accordance with the Plan
through Employee, that none of the shares of Common Stock purchased upon
exercise of this Option will be distributed in violation of applicable federal
and state laws and regulations, and Employee shall furnish evidence satisfactory
to the Corporation (including a written and signed representation letter and a
consent to be bound by al transfer restrictions imposed by applicable law,
legend condition, or otherwise) to that effect, prior to delivery of the
purchased share of Common Stock.
10. Employee acknowledges that he has read and understands the terms of
this Agreement and the Plan and that:
2
<PAGE>
(a) The issuance of shares of Common Stock pursuant to the exercise of
this Option, and any resale of the shares of common Stock, may only be effected
in compliance with applicable state and federal laws and regulations;
(b) He is not entitled to any rights as a shareholder with respect to any
shares of Common Stock usable thereunder until he becomes a shareholder of
record; and
(c) The share of Common Stock subject hereto may be adjusted in the event
of certain organic changes in the capital structure of the Corporation or for
any other reason permitted by the Plan.
11. This Option may not be transferred, except by will or the laws of
descent and distribution, and during the lifetime of Employee this Option shall
be exercisable only by him.
12. This Option and this Agreement evidencing and confirming the same are
subject to the terms and conditions set forth in the Plan and in any amendments
to the Plan existing now or in the future, which terms and conditions are
incorporated herein by reference. Should any conflict exist between the
provisions of the Plan and those of this Agreement, those of the Plan shall
govern and control. The Employee acknowledges receipt of a copy of the Plan as
presently in effect. This Agreement and the Plan comprise the entire
understanding between the Corporation and Employee with respect to the Option
and shall be construed and enforced under the laws of the State of Washington.
13. The Corporation hereby warrants that a sufficient number of shares of
its common Stock have been reserved and are available to satisfy the
requirements of the Plan.
Dated as of the September 20, 1996.
EMPLOYEE CARVER CORPORATION
_____________________________ By:______________________
/s/John P. World /s/Stephen M. Williams
President & CEO
3
<PAGE>
EXHIBIT 10.44
CARVER CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is entered into between CARVER
CORPORATION, a Washington corporation (the "Corporation"), and John P. World
(the "Employee"), on the date set forth below.
WITNESSETH THAT:
WHEREAS, the Corporation has adopted the Carver Corporation 1995 Stock
Option Plan (the "Plan"), effective as of February 15, 1995, pursuant to which
the Board of Directors, or a special committee thereof, is authorized to grant,
in its sole discretion, to key employees of the Corporation options to purchase
shares of the Corporation's common stock (the "Common Stock"), and
WHEREAS, the Compensation Committee of the Board of Directors granted to
Employee an option under the Plan to purchase shares of Common Stock under the
terms hereof.
NOW, THEREFORE, in consideration of the foregoing, the Corporation and the
Employee have executed this Agreement evidencing and confirming the issuance by
the Corporation to the Employee of an option for the purchase of 30,000 shares
of Common Stock (the "Option") in accordance with the following terms and
conditions:
1. The date of grant of the Option represented hereby is January 15, 1996.
2. The exercise price for the Option granted pursuant hereto is $1.50 per
share.
3. This Option shall be exercisable in accordance with the following
vesting schedule:
<TABLE>
<CAPTION>
Number of Shares of Common
Date Shares Become Stock Which Shall Become
Available for Purchase Available for Purchase
- ---------------------- ----------------------
<S> <C>
July 15, 1996 10,000
July 15, 1997 10,000
July 15, 1998 10,000
</TABLE>
4. This Option shall expire, to the extent not previously exercised, on
the earlier of January 14, 2006 or the first to occur of either of the
following events:
(a) The date of the Employee's termination of employment with the Company
for cause as defined in the Plan;
(b) The expiration of ninety (90) days from the date of the Employee's
termination of employment with the Company for any reason whatsoever other than
for cause as defined in the Plan; or
<PAGE>
(c) The expiration of one (1) year from the date of death of the Employee,
or cessation of the Employee's employment with the Company by reason of
disability as defined in the Plan.
The unvested portion of this Option shall terminate immediately upon
Employee's termination of employment for any reason whatsoever, including death.
5. Each exercise of this Option shall be by means of a written notice of
exercise delivered to the Secretary of the Corporation at its principal
executive office in Lynnwood, Washington, specifying the number of shares of
Common Stock to be purchased and accompanied by: payment in cash, by certified
or cashier's check payable to the order of the Corporation of the full exercise
price for the common Stock to be purchased; delivery of previously acquired
shares of Common Stock with a fair market value equal to or greater than the
full exercise price; or delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of loan or sale proceeds to pay the exercise price.
6. Prior to delivery of any common stock purchased on exercise of this
Option, the Corporation shall determine the amount of any United States federal
and state income tax, if any, which is required to be withheld under applicable
law and shall, as a condition of exercise of this Option and delivery of
certificates representing the common stock purchased upon exercise of the
Option, collect from the employee the amount of any such tax to the extent not
previously withheld.
7. Employee shall not have any rights as a shareholder with respect to any
common stock subject to this Option until the date that a stock certificate for
such common stock as to which the Employee has exercised this Option has been
issued to the Employee. Subject to its obligation to withhold set forth in
Section 6 hereof, and to its obligations under federal and state securities laws
set forth in Section 9 below, the Corporation shall issue such stock certificate
as soon as practicable following the exercise of the Option. If any law or
regulation, whether related to securities or otherwise, requires the Corporation
to take any action with respect to any common stock prior to the transfer
thereof, or prohibits, limits or delays the issuance thereof, then the date for
delivery of such Common Stock shall be extended for the period reasonable
necessary to take and conclude such action, or during the period of such
prohibition, limitation or delay.
8. Neither this Option, the execution of this Agreement nor the exercise
of any portion of this Option shall confer upon the Employee any right to, or
guarantee of, continued employment by the Corporation, or in any way limit the
right of the Corporation to terminate employment of Employee at any time,
subject to the terms of any employment agreements between the Corporation and
Employee.
9. By accepting this Option, Employee represents and agrees for himself,
and all persons who acquire rights in this Option in accordance with the Plan
through Employee, that none of the shares of Common Stock purchased upon
exercise of this Option will be distributed in violation of applicable federal
and state laws and regulations, and Employee shall furnish evidence satisfactory
to the Corporation (including a written and signed representation letter and a
consent to be bound by al transfer restrictions imposed by applicable law,
legend condition, or otherwise) to that effect, prior to delivery of the
purchased share of Common Stock.
2
<PAGE>
10. Employee acknowledges that he has read and understands the terms of
this Agreement and the Plan and that:
(a) The issuance of shares of Common Stock pursuant to the exercise of
this Option, and any resale of the shares of common Stock, may only be effected
in compliance with applicable state and federal laws and regulations;
(b) He is not entitled to any rights as a shareholder with respect to any
shares of Common Stock usable thereunder until he becomes a shareholder of
record; and
(c) The share of Common Stock subject hereto may be adjusted in the event
of certain organic changes in the capital structure of the Corporation or for
any other reason permitted by the Plan.
11. This Option may not be transferred, except by will or the laws of
descent and distribution, and during the lifetime of Employee this Option shall
be exercisable only by him.
12. This Option and this Agreement evidencing and confirming the same are
subject to the terms and conditions set forth in the Plan and in any amendments
to the Plan existing now or in the future, which terms and conditions are
incorporated herein by reference. Should any conflict exist between the
provisions of the Plan and those of this Agreement, those of the Plan shall
govern and control. The Employee acknowledges receipt of a copy of the Plan as
presently in effect. This Agreement and the Plan comprise the entire
understanding between the Corporation and Employee with respect to the Option
and shall be construed and enforced under the laws of the State of Washington.
13. The Corporation hereby warrants that a sufficient number of shares of
its common Stock have been reserved and are available to satisfy the
requirements of the Plan.
Dated as of the 15/th/ day of January, 1996.
EMPLOYEE CARVER CORPORATION
_____________________________ By:______________________
/s/John P. World /s/Stephen M. Williams
President & CEO
3
<PAGE>
EXHIBIT 10.45
CARVER CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is entered into between CARVER
CORPORATION, a Washington corporation (the "Corporation"), and John P. World
(the "Employee"), on the date set forth below.
WITNESSETH THAT:
WHEREAS, the Corporation has adopted the Carver Corporation 1995 Stock
Option Plan (the "Plan"), effective as of February 15, 1995, pursuant to which
the Board of Directors, or a special committee thereof, is authorized to grant,
in its sole discretion, to key employees of the Corporation options to purchase
shares of the Corporation's common stock (the "Common Stock"), and
WHEREAS, the Compensation Committee of the Board of Directors granted to
Employee an option under the Plan to purchase shares of Common Stock under the
terms hereof.
NOW, THEREFORE, in consideration of the foregoing, the Corporation and the
Employee have executed this Agreement evidencing and confirming the issuance by
the Corporation to the Employee of an option for the purchase of 25,000 shares
of Common Stock (the "Option") in accordance with the following terms and
conditions:
1. The date of grant of the Option represented hereby is March 11, 1995.
2. The exercise price for the Option granted pursuant hereto is $2.50 per
share.
3. This Option shall be exercisable in accordance with the following
vesting schedule:
<TABLE>
<CAPTION>
Number of Shares of Common
Date Shares Become Stock Which Shall Become
Available for Purchase Available for Purchase
---------------------- ----------------------
<S> <C>
March 11, 1996 6,250
March 11, 1997 6,250
March 11, 1998 6,250
March 11, 1999 6,250
</TABLE>
4. This Option shall expire, to the extent not previously exercised, on
the earlier of March 10, 2004 or the first to occur of either of the following
events:
(a) The date of the Employee's termination of employment with the Company
for cause as defined in the Plan;
(b) The expiration of ninety (90) days from the date of the Employee's
termination of employment with the Company for any reason whatsoever other than
for cause as defined in the Plan; or
<PAGE>
(c) The expiration of one (1) year from the date of death of the Employee,
or cessation of the Employee's employment with the Company by reason of
disability as defined in the Plan.
The unvested portion of this Option shall terminate immediately upon
Employee's termination of employment for any reason whatsoever, including death.
5. Each exercise of this Option shall be by means of a written notice of
exercise delivered to the Secretary of the Corporation at its principal
executive office in Lynnwood, Washington, specifying the number of shares of
Common Stock to be purchased and accompanied by: payment in cash, by certified
or cashier's check payable to the order of the Corporation of the full exercise
price for the common Stock to be purchased; delivery of previously acquired
shares of Common Stock with a fair market value equal to or greater than the
full exercise price; or delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of loan or sale proceeds to pay the exercise price.
6. Prior to delivery of any common stock purchased on exercise of this
Option, the Corporation shall determine the amount of any United States federal
and state income tax, if any, which is required to be withheld under applicable
law and shall, as a condition of exercise of this Option and delivery of
certificates representing the common stock purchased upon exercise of the
Option, collect from the employee the amount of any such tax to the extent not
previously withheld.
7. Employee shall not have any rights as a shareholder with respect to any
common stock subject to this Option until the date that a stock certificate for
such common stock as to which the Employee has exercised this Option has been
issued to the Employee. Subject to its obligation to withhold set forth in
Section 6 hereof, and to its obligations under federal and state securities laws
set forth in Section 9 below, the Corporation shall issue such stock certificate
as soon as practicable following the exercise of the Option. If any law or
regulation, whether related to securities or otherwise, requires the Corporation
to take any action with respect to any common stock prior to the transfer
thereof, or prohibits, limits or delays the issuance thereof, then the date for
delivery of such Common Stock shall be extended for the period reasonable
necessary to take and conclude such action, or during the period of such
prohibition, limitation or delay.
8. Neither this Option, the execution of this Agreement nor the exercise
of any portion of this Option shall confer upon the Employee any right to, or
guarantee of, continued employment by the Corporation, or in any way limit the
right of the Corporation to terminate employment of Employee at any time,
subject to the terms of any employment agreements between the Corporation and
Employee.
9. By accepting this Option, Employee represents and agrees for himself,
and all persons who acquire rights in this Option in accordance with the Plan
through Employee, that none of the shares of Common Stock purchased upon
exercise of this Option will be distributed in violation of applicable federal
and state laws and regulations, and Employee shall furnish evidence satisfactory
to the Corporation (including a written and signed representation letter and a
consent to be bound by al transfer restrictions imposed by applicable law,
legend condition, or otherwise) to that effect, prior to delivery of the
purchased share of Common Stock.
2
<PAGE>
10. Employee acknowledges that he has read and understands the terms of
this Agreement and the Plan and that:
(a) The issuance of shares of Common Stock pursuant to the exercise of
this Option, and any resale of the shares of common Stock, may only be effected
in compliance with applicable state and federal laws and regulations;
(b) He is not entitled to any rights as a shareholder with respect to any
shares of Common Stock usable thereunder until he becomes a shareholder of
record; and
(c) The share of Common Stock subject hereto may be adjusted in the event
of certain organic changes in the capital structure of the Corporation or for
any other reason permitted by the Plan.
11. This Option may not be transferred, except by will or the laws of
descent and distribution, and during the lifetime of Employee this Option shall
be exercisable only by him.
12. This Option and this Agreement evidencing and confirming the same are
subject to the terms and conditions set forth in the Plan and in any amendments
to the Plan existing now or in the future, which terms and conditions are
incorporated herein by reference. Should any conflict exist between the
provisions of the Plan and those of this Agreement, those of the Plan shall
govern and control. The Employee acknowledges receipt of a copy of the Plan as
presently in effect. This Agreement and the Plan comprise the entire
understanding between the Corporation and Employee with respect to the Option
and shall be construed and enforced under the laws of the State of Washington.
13. The Corporation hereby warrants that a sufficient number of shares of
its common Stock have been reserved and are available to satisfy the
requirements of the Plan.
Dated as of the 11/th/ day of March, 1995.
EMPLOYEE CARVER CORPORATION
_____________________________ By:____________________
/s/John P. World /s/Robert A. Fulton
President and CEO
3
<PAGE>
EXHIBIT 10.46
CARVER CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is entered into between CARVER
CORPORATION, a Washington corporation (the "Corporation"), and John P. World(the
"Employee"), on the date set forth below. WITNESSETH THAT:
WHEREAS, the Corporation has adopted the Carver Corporation 1985 Incentive
Stock Option Plan (the "Plan"), effective as of January 19, 1985, pursuant to
which the Board of Directors, or a special committee thereof, is authorized to
grant, in its sole discretion, to key employees of the Corporation options to
purchase shares of the Corporation's common stock (the "Common Stock"), and
WHEREAS, the Compensation Committee of the Board of Directors granted to
Employee an option under the Plan to purchase shares of Common Stock under the
terms hereof.
NOW, THEREFORE, in consideration of the foregoing, the Corporation and the
Employee have executed this Agreement evidencing and confirming the issuance by
the Corporation to the Employee of an option for the purchase of 1,000 shares of
Common Stock (the "Option") in accordance with the following terms and
conditions:
1. The date of grant of the Option represented hereby is February 23,
1993.
2. The exercise price for the Option granted pursuant hereto is $2.25 per
share.
3. This Option shall be exercisable in accordance with the following
vesting schedule.
<TABLE>
<CAPTION>
Number of Shares of Common
Date Shares Become Stock Which Shall Become
Available for Purchase Available for Purchase
---------------------- --------------------------
<S> <C>
February 23, 1993 250
February 23, 1994 250
February 23, 1995 250
February 23, 1996 250
</TABLE>
SALE OF ANY SHARE OF STOCK GRANTED PURSUANT TO THIS OPTION WITHIN SIX (6)
MONTHS FROM THE DATE OF GRANT MAY BE A VIOLATION OF RULE 16b OF THE RULES
PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION.
<PAGE>
4. This Option shall expire, to the extent not previously exercised, on
the earlier of (Date that is 10 years minus one day from the Date of Grant) or
the first to occur of either of the following events:
4.1 The expiration of ninety (90) days from the date of the Employee's
termination of employment with the Company for any reason whatsoever other than
death; or
4.2 The expiration of one (1) year from the date of death of the
Employee. The unvested portion of this Option shall terminate immediately upon
Employee's termination of employment for any reason whatsoever, including death.
5. Each exercise of this Option shall be by means of a written notice of
exercise delivered to the Secretary of the Corporation at its principal
executive office in Lynnwood, Washington, specifying the number of shares of
Common Stock to be purchased and accompanied by payment in cash, by certified or
cashier's check payable to the order of the Corporation of the full exercise
price for the Common Stock to be purchased or by delivery of previously acquired
shares of Common Stock with a fair market value equal to or greater than the
full exercise price.
6. Prior to delivery of any common stock purchased on exercise of this
Option, the Corporation shall determine the amount of any United States federal
and state income tax, if any, which is required to be withheld under applicable
law and shall, as a condition of exercise of this Option and delivery of
certificates representing the common stock purchased upon exercise of the
Option, collect from the employee the amount of any such tax to the extent not
previously withheld.
7. Employee shall not have any rights as a shareholder with respect to any
common stock subject to this Option until the date that a stock certificate for
such common stock as to which the Employee has exercised this Option has been
issued to the Employee. Subject to its obligation to withhold set forth in
Section 6 hereof, and to its obligations under federal and state securities laws
set forth in Section 9 below, the Corporation shall issue such stock certificate
as soon as practicable following the exercise of the Option. If any law or
regulation, whether related to securities or otherwise, requires the Corporation
to take any action with respect to any common stock prior to the transfer
thereof, or prohibits, limits or delays the issuance thereof, then the date for
delivery of such Common Stock shall be extended for the period reasonable
necessary to take and conclude such action, or during the period of such
prohibition,
<PAGE>
limitation or delay.
8. Neither this Option, the execution of this Agreement nor the exercise
of any portion of this Option shall confer upon the Employee any right to, or
guarantee of, continued employment by the Corporation, or in any way limit the
right of the Corporation to terminate employment of Employee at any time,
subject to the terms of any employment agreements between the Corporation and
Employee.
9. By accepting this Option, Employee represents and agrees for himself,
and all persons who acquire rights in this Option in accordance with the Plan
through Employee, that none of the shares of Common Stock purchased upon
exercise of this Option will be distributed in violation of applicable federal
and state laws and regulations, and Employee shall furnish evidence satisfactory
to the Corporation (including a written and signed representation letter and a
consent to be bound by all transfer restrictions imposed by applicable law,
legend condition, or otherwise) to that effect, prior to delivery of the
purchased shares of Common Stock.
10. Employee acknowledges that he has read and understands the terms of
this Agreement and the Plan and that:
10.1 The issuance of shares of Common Stock pursuant to the exercise
of this Option, and any resale of the shares of Common Stock, may only be
effected in compliance with applicable state and federal laws and regulations;
10.2 He is not entitled to any rights as a shareholder with respect
to any shares of Common Stock issuable hereunder until he becomes a shareholder
of record; and
10.3 The shares of Common Stock subject hereto may be adjusted in the
event of certain organic changes in the capital structure of the corporation or
for any other reason permitted by the Plan.
11. This Option may not be transferred, except by will or the laws of
descent and distribution, and during the lifetime of Employee this Option shall
be exercisable only by him.
12. This Option and this Agreement evidencing and confirming the same are
subject to the terms and conditions set forth in the Plan and in any amendments
to the Plan existing now or in the future, which terms and conditions are
incorporated herein by reference. Should any conflict exist between the
provisions of the Plan and those of this Agreement, those of the Plan shall
govern and control. The Employee acknowledges receipt of a copy of the Plan as
presently in effect. This Agreement and
<PAGE>
the Plan comprise the entire understanding between the Corporation and Employee
with respect to the Option and shall be construed and enforced under the laws of
the State of Washington.
13. The Corporation hereby warrants that a sufficient number of shares of
its Common Stock have been reserved and are available to satisfy the
requirements of the Plan.
Dated as of the 23rd day of February, 1993.
EMPLOYEE CARVER CORPORATION
_________________________ By:______________________________
/s/John P. World /s/Thomas C. Graham, President
& CEO
<PAGE>
EXHIBIT 10.47
CARVER CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is entered into between CARVER
CORPORATION, a Washington corporation (the "Corporation"), and John P. World(the
"Employee"), on the date set forth below. WITNESSETH THAT:
WHEREAS, the Corporation has adopted the Carver Corporation 1985 Incentive
Stock Option Plan (the "Plan"), effective as of January 19, 1985, pursuant to
which the Board of Directors, or a special committee thereof, is authorized to
grant, in its sole discretion, to key employees of the Corporation options to
purchase shares of the Corporation's common stock (the "Common Stock"), and
WHEREAS, the Compensation Committee of the Board of Directors granted to
Employee an option under the Plan to purchase shares of Common Stock under the
terms hereof.
NOW, THEREFORE, in consideration of the foregoing, the Corporation and the
Employee have executed this Agreement evidencing and confirming the issuance by
the Corporation to the Employee of an option for the purchase of 29,021 shares
of Common Stock (the "Option") in accordance with the following terms and
conditions:
1. The date of grant of the Option represented hereby is March 2, 1992.
2. The exercise price for the Option granted pursuant hereto is $3.25 per
share.
3. This Option shall be exercisable in accordance with the following
vesting schedule.
<TABLE>
<CAPTION>
Number of Shares of Common
Date Shares Become Stock Which Shall Become
Available for Purchase Available for Purchase
---------------------- --------------------------
<S> <C>
March 2, 1992 18,748
May 16, 1992 2,219
June 4, 1992 3,750
October 7, 1992 1,147
May 16, 1993 2,219
June 4, 1993 3,750
</TABLE>
SALE OF ANY SHARE OF STOCK GRANTED PURSUANT TO THIS OPTION WITHIN SIX (6)
MONTHS FROM THE DATE OF GRANT MAY BE A VIOLATION OF RULE 16b OF THE RULES
PROMULGATED BY THE SECURITIES AND EXCHANGE
<PAGE>
COMMISSION.
4. This Option shall expire, to the extent not previously exercised, on
the earlier of March 1,2002 or the first to occur of either of the following
events:
(a) The expiration of ninety (90) days from the date of the Employee's
termination of employment with the Company for any reason whatsoever other than
death; or
(b) The expiration of one (1) year from the date of death of the Employee.
The unvested portion of this Option shall terminate immediately upon Employee's
termination of employment for any reason whatsoever, including death.
5. Each exercise of this Option shall be by means of a written notice of
exercise delivered to the Secretary of the Corporation at its principal
executive office in Lynnwood, Washington, specifying the number of shares of
Common Stock to be purchased and accompanied by payment in cash, by certified or
cashier's check payable to the order of the Corporation of the full exercise
price for the Common Stock to be purchased or by delivery of previously acquired
shares of Common Stock with a fair market value equal to or greater than the
full exercise price.
6. Prior to delivery of any common stock purchased on exercise of this
Option, the Corporation shall determine the amount of any United States federal
and state income tax, if any, which is required to be withheld under applicable
law and shall, as a condition of exercise of this Option and delivery of
certificates representing the common stock purchased upon exercise of the
Option, collect from the employee the amount of any such tax to the extent not
previously withheld.
7. Employee shall not have any rights as a shareholder with respect to
any common stock subject to this Option until the date that a stock certificate
for such common stock as to which the Employee has exercised this Option has
been issued to the Employee. Subject to its obligation to withhold set forth in
Section 6 hereof, and to its obligations under federal and state securities laws
set forth in Section 9 below, the Corporation shall issue such stock certificate
as soon as practicable following the exercise of the Option. If any law or
regulation, whether related to securities or otherwise, requires the Corporation
to take any action with respect to any common stock prior to the transfer
thereof, or prohibits, limits or delays the issuance thereof, then the date for
delivery of such Common Stock shall be extended for the period reasonable
necessary to take and conclude such action, or during the period of such
prohibition, limitation or delay.
<PAGE>
8. Neither this Option, the execution of this Agreement nor the exercise
of any portion of this Option shall confer upon the Employee any right to, or
guarantee of, continued employment by the Corporation, or in any way limit the
right of the Corporation to terminate employment of Employee at any time,
subject to the terms of any employment agreements between the Corporation and
Employee.
9. By accepting this Option, Employee represents and agrees for himself,
and all persons who acquire rights in this Option in accordance with the Plan
through Employee, that none of the shares of Common Stock purchased upon
exercise of this Option will be distributed in violation of applicable federal
and state laws and regulations, and Employee shall furnish evidence satisfactory
to the Corporation (including a written and signed representation letter and a
consent to be bound by all transfer restrictions imposed by applicable law,
legend condition, or otherwise) to that effect, prior to delivery of the
purchased shares of Common Stock.
10. Employee acknowledges that he has read and understands the terms of
this Agreement and the Plan and that:
(a) The issuance of shares of Common Stock pursuant to the exercise of
this Option, and any resale of the shares of Common Stock, may only be effected
in compliance with applicable state and federal laws and regulations;
(b) He is not entitled to any rights as a shareholder with respect to any
shares of Common Stock issuable hereunder until he becomes a shareholder of
record; and
(c) The shares of Common Stock subject hereto may be adjusted in the event
of certain organic changes in the capital structure of the corporation or for
any other reason permitted by the Plan.
11. This Option may not be transferred, except by will or the laws of
descent and distribution, and during the lifetime of Employee this Option shall
be exercisable only by him.
12. This Option and this Agreement evidencing and confirming the same are
subject to the terms and conditions set forth in the Plan and in any amendments
to the Plan existing now or in the future, which terms and conditions are
incorporated herein by reference. Should any conflict exist between the
provisions of the Plan and those of this Agreement, those of the Plan shall
govern and control. The Employee acknowledges receipt of a copy of the Plan as
presently in effect. This Agreement and the Plan comprise the entire
understanding between the Corporation and Employee with respect to the Option
and shall be construed and
<PAGE>
enforced under the laws of the State of Washington.
13. The Corporation hereby warrants that a sufficient number of shares of
its Common Stock have been reserved and are available to satisfy the
requirements of the Plan.
Dated as of the second of March, 1992.
EMPLOYEE CARVER CORPORATION
_________________________ By:______________________________
/s/John P. World /s/Thomas C. Graham, President
& CEO
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Primary
Net loss $(3,203,000) $(3,157,000) ($2,873,000)
=========== =========== ===========
Shares
Weighted average common
shares outstanding 3,706,000 3,680,000 3,678,000
Net common shares issuable
on exercise of certain
stock options - - -
----------- ----------- -----------
Net common shares issuable
upon conversion of
preferred stock - - -
----------- ----------- -----------
Average common and common
share equivalents outstanding,
as adjusted 3,706,000 3,680,000 3,678,000
=========== =========== ===========
Primary loss per common share $( .86) $( .86) $( .78)
=========== =========== ===========
Assuming full dilution
Average common and
common share equivalents
as adjusted 3,706,000 3,680,000 3,678,000
Net additional common shares
issuable on exercise of
certain stock options - - -
----------- ----------- -----------
Net additional common shares
upon conversion of
preferred stock - - -
----------- ----------- -----------
Average common and common
share equivalents outstanding,
as adjusted 3,706,000 3,680,000 3,678,000
=========== =========== ===========
Loss per common share assuming
full dilution $( .86) $( .86) $( .78)
=========== =========== ===========
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Name Jurisdiction of Incorporation
---- -----------------------------
Carver International Ltd. Guam
GREAT AMERICAN SOUND COMPANY Washington, State
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Carver Corporation
We consent to the incorporation by reference into the Registration Statements on
Form S-8 (Registration No. 33-65005, 33-70902, 33-50076, 33-31344, 33-23168, 33-
23167 and 33-04273) of our reports on the financial statements and supplementary
schedules dated March 7, 1997, which appear in the December 31, 1996 annual
report on Form 10-K of Carver Corporation, and to the reference to our firm
under the heading "Experts" in the Prospectus.
/s/ Moss Adams LLP
Seattle, Washington
March 7, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FISCAL YEAR
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 65,000
<SECURITIES> 5,000
<RECEIVABLES> 1,890,000
<ALLOWANCES> 263,000
<INVENTORY> 4,176,000
<CURRENT-ASSETS> 6,639,000
<PP&E> 5,191,000
<DEPRECIATION> 2,747,000
<TOTAL-ASSETS> 9,224,000
<CURRENT-LIABILITIES> 2,066,000
<BONDS> 0
0
14,000
<COMMON> 37,000
<OTHER-SE> 7,107,000
<TOTAL-LIABILITY-AND-EQUITY> 9,224,000
<SALES> 14,519,000
<TOTAL-REVENUES> 14,519,000
<CGS> 11,604,000
<TOTAL-COSTS> 11,604,000
<OTHER-EXPENSES> 5,945,000
<LOSS-PROVISION> 231,000
<INTEREST-EXPENSE> 202,000
<INCOME-PRETAX> (3,203,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,203,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,203,000)
<EPS-PRIMARY> (.86)
<EPS-DILUTED> (.86)
</TABLE>
