<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 1998 .
________________________
[ ] TRANSITION REPORT UNDER 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 small business issuer as specified in its charter)
WASHINGTON 91-1043157
---------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
15300 WOODINVILLE REDMOND ROAD N.E., WOODINVILLE, WA 98072
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(425) 482-3400
--------------
(Issuer's telephone number)
_____________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
___ ___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
AT MAY 11, 1998, 7,358,476 SHARES OF $.01 PAR VALUE COMMON STOCK OF THE ISSUER
WERE OUTSTANDING.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
Yes No X
___ ___
Page 1 of 15 pages.
Exhibit Index appears at Page 14.
<PAGE>
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARVER CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents........................... $ 95,000 $ 228,000
Marketable securities............................... 5,000
Accounts receivable, trade, net..................... 1,114,000 1,876,000
Inventories......................................... 4,258,000 4,758,000
Prepaid expenses.................................... 276,000 221,000
----------- ------------
Total current assets.............................. 5,743,000 7,088,000
Property and equipment,
less accumulated depreciation...................... 755,000 805,000
Other assets........................................ 103,000 106,000
----------- ------------
Total Assets.......................................... $6,601,000 $7,999,000
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Note payable........................................ $ 1,144,000 $ 2,094,000
Accounts payable.................................... 1,687,000 1,134,000
Accrued liabilities
Commissions and advertising....................... 24,000 77,000
Payroll and related taxes......................... 164,000 350,000
Warranty.......................................... 125,000 135,000
Other............................................. 290,000 158,000
----------- ------------
Total current liabilities......................... 3,434,000 3,948,000
----------- ------------
Shareholders' equity
Preferred shares, par value $.01 per share
2,000,000 shares authorized, 1,411,764 shares
issued and outstanding............................. 14,000 14,000
Common shares, par value $.01 per share
20,000,000 shares authorized, 4,288,476 shares
issued and outstanding............................. 44,000 40,000
Additional paid-in capital......................... 19,460,000 19,371,000
Accumulated deficit................................. (16,351,000) (15,374,000)
----------- ------------
Total shareholder's equity........................ 3,167,000 4,051,000
----------- ------------
Total liabilities and shareholders' equity............ $6,601,000 $ 7,999,000
=========== ============
</TABLE>
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS)
<PAGE>
CARVER CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1997
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<S> <C> <C>
Net sales...................................... $1,937,000 $ 2,101,000
Cost of sales.................................. 1,665,000 1,920,000
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Gross profit................................. 272,000 181,000
Operating expense
Selling...................................... 368,000 604,000
General & administrative..................... 548,000 487,000
Engineering, research & development.......... 245,000 235,000
---------- -----------
1,161,000 1,326,000
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Loss from operations........................... (889,000) (1,145,000)
Other income (expense)
Interest expense............................. (36,000) (40,000)
Interest income.............................. -- 2,000
Other........................................ 8,000 102,000
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Net loss....................................... $ (917,000) $(1,081,000)
========== ===========
Loss per common share.......................... $(0.22) $(0.29)
========== ===========
</TABLE>
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS)
<PAGE>
CARVER CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
--------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss........................................................... $(917,000) $(1,081,000)
Adjustments to reconcile net loss to cash flows from (used by)
operating activities:
Depreciation and amortization.................................... 91,000 180,000
Common shares issued for services................................ 34,000
Changes in:
Accounts receivable............................................ 762,000 276,000
Inventories.................................................... 500,000 116,000
Prepaid expenses............................................... (76,000) (140,000)
Accounts payable and accrued liabilities....................... 436,000 (128,000)
Other assets................................................... 2,000
--------- -----------
Net cash provided from (used by) operating activities.............. 832,000 (777,000)
--------- -----------
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment, net.................. (15,000) (123,000)
Proceeds from note receivable...................................... 104,000
--------- -----------
Net cash used by investing activities.............................. (15,000) (19,000)
--------- -----------
FINANCING ACTIVITIES:
Increase (Decrease) in notes payable............................... (950,000) 767,000
Issuance of common shares.......................................... 1,000
-----------
Net cash provided by financing activities.......................... (950,000) 768,000
--------- -----------
Increase (decrease) of cash and cash equivalents................... (133,000) (28,000)
CASH AND CASH EQUIVALENTS:
Beginning of period................................................ 228,000 65,000
--------- -----------
End of period...................................................... $ 95,000 $ 37,000
========= ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid...................................................... $ 35,000 $ 37,000
NON CASH FINANCING:
Dividend on preferred shares....................................... $ 60,000 $ 60,000
</TABLE>
(SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS)
<PAGE>
CARVER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
NOTE 1 - SUMMARY OF FINANCIAL STATEMENT PREPARATION
The financial statements as of March 31, 1997 and March 31, 1998 are unaudited
but, in the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the changes in
financial condition and results of operations for the interim periods reported.
The results of operations for any interim period are not necessarily indicative
of the results that may be expected for the entire year. These financial
statements should be read with reference to "Management's Discussion and
Analysis or Plan of Operation" contained herein, and in conjunction with both
the annual audited financial statements and the accompanying notes in the
Company's form 10-KSB for the year ended December 31, 1997 and the Auditor's
Report, which discloses substantial doubt about the Company's ability to
continue as a going concern.
NOTE 2 - INCOME TAXES
For tax reporting purposes, the Company has approximately $20,800,000 of net
operating losses which may be utilized to offset future taxable income. These
loss carryforwards expire between the years 2004 and 2012. Under FAS109 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.
NOTE 3 - COMMITMENTS
As of May 8, 1998, the Company has open purchase orders for finished goods of
approximately $1,948,000 of inventory expected to be received in 1998 from
various vendors, a portion of which may be cancelable.
NOTE 4 - PRIVATE PLACEMENT OF SECURITIES
On May 5, 1998, the Company closed a transaction with Renwick Special Situations
Fund L.P. ("RSSF"), by which the Company sold 3 million shares of its
unregistered Common Stock to RSSF for $375,000, or $0.125 per share. The 3
million shares represent 39% of the outstanding shares of the Company's Common
Stock. Messrs. Raj A. Bhatia and James R. McCullough, both directors of the
Company, are the Co-Presidents, sole directors and only shareholders of Renwick
Capital Management, Inc. ("Renwick") and the sole general partners of Renwick
Alpha Fund, L.P. ("RAF") and RSSF. Prior to this sale, RAF beneficially owned
directly 185,211 shares of Common Stock and 470,588 shares of Preferred Stock
and RSSF beneficially owned directly 2,497 shares of Common Stock and 941,176
shares of Preferred Stock. The shares of Preferred Stock are convertible into
shares of Common Stock at any time at the option of the holder on a one for one
basis, subject to potential antidilution adjustment. In addition, Renwick holds
currently exercisable warrants to purchase 250,000 shares of Common Stock. As a
result of this transaction, RSSF owns directly 3,002,497 shares, or 41%, of the
Common Stock. The subscription agreement entered into by the Company and RSSF
provides for demand registration rights with regard to these shares. During the
period of time ending one year from the date of closing, the costs of
registering the stock will be the sole expense of RSSF. Thereafter, such costs
will be the sole expense of the Company. As a condition to closing, RSSF and RAF
each waived its rights to cause the Company to adjust, or to benefit from an
adjustment to the Conversion Ratio adjustment rights which were granted them by
the Company in June 1997, and Renwick waived its exercise price adjustment
rights with respect to its warrants.
NOTE 5 - NONCOMPLIANCE WITH CERTAIN NASDAQ REQUIREMENTS
The Company currently does not meet Nasdaq's minimum public float and bid price
continued listing requirements, of $5,000,000 and $1.00 per share, respectively.
The Company has until May 28, 1998 to satisfy these requirements. The inability
of the Company to comply with these listing requirements likely will result in
the delisting of the Company's common stock from Nasdaq. Delisting of the
Company's common stock would likely have an adverse effect on the liquidity,
trading price and ability to obtain
<PAGE>
quotations on a timely basis for the common stock. If the Company's common stock
should cease to be listed on Nasdaq, it may continue to be quoted on the OTC
Bulletin Board.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD-LOOKING STATEMENTS
Statements in this report covering future performance, developments,
expectations 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 industry
and generation of additional working capital, constitute forward-looking
statements which are subject to a number of known or unknown risks,
uncertainties and other factors that might cause actual results to differ
materially from those expressed or implied by such statements. These risks and
uncertainties include the ability of the Company to obtain additional working
capital sufficient to meet its working capital requirements, production
difficulties or delays due to supply constraints, technical problems, payment
delays or other factors; technological changes; the effect of global, national
and regional economic conditions; reliability of offshore OEM suppliers; changes
in the Company's channels of distribution; 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 including
those risks and uncertainties described under the caption "Risk Factors" in this
report and those identified by the Company from time to time in other filings
with the Commission, press releases and other communications. All forward-
looking statements contained in this report reflect the Company's expectations
at the time of this report, and the Company disclaims any responsibility to
revise or update any such forward-looking statement except as may be required by
law.
RECENT DEVELOPMENTS
TERMINATION OF DISTRIBUTION AGREEMENT WITH CIRCUIT CITY
In early May, the Company and Circuit City agreed to terminate their
distribution agreement for mutual business reasons. Circuit City plans to sell
through its existing inventory of Carver products by September 1998. Prior to
this termination, sales to Circuit City (except those attributable to new Cinema
Loudspeaker system stocking orders) were declining. In 1997, Circuit City
accounted for 40% of the Company's revenue, and in the first quarter of 1998,
that percentage declined to 28%. Furthermore, due to Circuit City's buying
power, the Company realized a smaller margin on sales to Circuit City than that
realized by the Company on sales to most other customers. While the Company
believes that the termination of its relationship with Circuit City may
negatively effect sales of Carver products by other Carver dealers and may
result in decreased sales of existing products to those dealers in the short
term, the Company also believes that its introduction of new products later this
summer, its implementation of a direct sales plan and increased dealer support,
will generate sales that may offset the loss of revenue associated with the
termination of the distribution agreement with Circuit City. There can be no
assurance that such sales will increase in the amount necessary to offset such
loss of revenue or that the margins associated with such sales will increase.
APPOINTMENT OF INDEPENDENT DIRECTORS
In March 1998, Benjamin Ben-Attar was appointed to the Company's Board of
Directors. Mr. Ben-Attar has worked for several years in corporate finance as
an associate with BNY Capital Markets, Inc., a subsidiary of The Bank of New
York. In that position, he focuses on middle market mergers and acquisitions,
private placements and leveraged finance, and has experience in the structuring
of senior credit facilities
In April 1998, Clifford J. Schorer, Jr. was appointed to the Company's Board of
Directors. For the past twenty five years, Mr. Schorer has been engaged in
creating and developing various entrepreneurial businesses. He is a Professor
in the Columbia University Executive Education Department and an Adjunct
Professor at the Columbia University Graduate School of Business. As a
consultant, Mr. Schorer works with a diverse group of clients including Lucent
Technologies, Con Edison, AT&T, Brooklyn Union Gas, Glaxo Welcome
Pharmaceutical, Spectrum Management, Isolyzer and others.
<PAGE>
PRIVATE PLACEMENT OF SECURITIES
On May 5, 1998, the Company closed a transaction with Renwick Special Situations
Fund L.P. ("RSSF"), by which the Company sold 3 million shares of its
unregistered Common Stock to RSSF for $375,000, or $0.125 per share. The 3
million shares represent 39% of the outstanding shares of the Company's Common
Stock. Messrs. Raj A. Bhatia and James R. McCullough, both directors of the
Company, are the Co-Presidents, sole directors and only shareholders of Renwick
Capital Management, Inc. ("Renwick") and the sole general partners of Renwick
Alpha Fund, L.P. ("RAF") and RSSF. Prior to this sale, RAF beneficially owned
directly 185,211 shares of Common Stock and 470,588 shares of Preferred Stock
and RSSF beneficially owned directly 2,497 shares of Common Stock and 941,176
shares of Preferred Stock. The shares of Preferred Stock are convertible into
shares of Common Stock at any time at the option of the holder on a one for one
basis, subject to potential antidilution adjustment. In addition, Renwick holds
currently exercisable warrants to purchase 250,000 shares of Common Stock. As a
result of this transaction, RSSF owns directly 3,002,497 shares, or 41%, of the
Common Stock. The subscription agreement entered into by the Company and RSSF
provides for demand registration rights with regard to these shares. During the
period of time ending one year from the date of closing, the costs of
registering the stock will be the sole expense of RSSF. Thereafter, such costs
will be the sole expense of the Company. As a condition to closing, RSSF and RAF
each waived its rights to cause the Company to adjust, or to benefit from an
adjustment to the Conversion Ratio adjustment rights which were granted them by
the Company in June 1997, and Renwick waived its exercise price adjustment
rights with respect to its warrants.
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 1998 were $1,937,000, a decrease of 8%
from net sales of $2,101,000 for the same period of 1997. This decrease is
due in part to softening market conditions for audio equipment in the industry.
Also, recent limitations on product availability may have adversely affected
relationships with distributors and dealers which may also adversely affect
future sales.
Of the domestic sales, approximately $539,000 or 28% were sales made by the
Company to Circuit City, an increase from sales of $458,000 to Circuit City in
the first quarter of 1997. This increase was due to sales of Cinema series
loudspeakers of $229,000, which were introduced in the fourth quarter of 1997.
Other domestic sales decreased 24% in the first quarter. Sales outside of the
United States decreased approximately 14% from $207,000 to $178,000 in the first
quarter of 1998 due to softening conditions in Asian markets. Approximately 48%
of the Company's sales in the first three months of 1998 were attributable to
products which the Company sources compared to 41% for the first quarter of
1997.
Gross profit increased as a percent of net sales to 14% in the first quarter of
1998 from 9% in the first quarter of 1997. Since 1995, the Company has been
operating at significantly less than its production capacity, resulting in an
increase in cost of goods sold. Management believes that gross profit may
improve as direct sales over the Internet and by telephone grow. However, there
can be no assurance that such sales will increase or that cost increases or
other factors will not negatively impact the Company's gross profit. (See
"Liquidity and Capital Resources".)
Operating expenses decreased 12% compared to the first quarter of 1997. These
decreases were due to cost reduction efforts associated with the new business
strategy discussed below.
Net losses for the quarter ended March 31, 1998, were $917,000 (47% of net
sales) or $0.22 per share. This compares to net losses of $1,081,000 (51% of
net sales) or $0.29 per share for the first quarter of 1997.
DEVELOPMENT OF NEW BUSINESS STRATEGY
As the Company's sales have declined and the Company has experienced a severe
shortage in working capital, the Company has determined the need to develop a
new business strategy which will enable it to increase revenues and operate with
lower overhead. This new business model, which is still under development but
which the Company began to implement in the first quarter of 1998, includes the
use of a new direct marketing strategy, a reduction in the number of products
offered by the Company and the elimination of the Company's manufacturing
operations. Under this model, the Company will transition to purchasing all of
its products from OEM suppliers.
<PAGE>
Under the direct marketing strategy and since May 1, 1998, the Company has
offered its products directly to consumers in addition to sales through dealers
and distributors. The Company's products are offered for sale to consumers via
the Internet at a Company Web site (www.carver.com) and through a toll-free
number (1-877-2-Carver).
Based upon the Company's new business plan and the condensed product line that
the Company plans to offer, Carver has determined that it is advantageous to
source its entire product line from selected and qualified strategic vendor
partners. These sourced products will be built to the Company's specifications
and, consistent with its commitment to quality, the Company will continue to
maintain strict testing procedures. The Company retests products manufactured by
its suppliers on a statistical sample basis at its Woodinville facility to
monitor quality control. To help insure availability of its products, the
Company has formed relationships with vendors from whom the Company has obtained
high quality products delivered on a timely basis. As the Company continues to
restructure its operations to implement its direct sales and sourced product
plans, it anticipates that most of its production employees, and several other
employees, will be laid off.
SEASONALITY. The markets for consumer audio equipment are moderately seasonal,
with somewhat higher sales expected to occur in the last six months of the year.
The introduction of new products may affect this seasonality and period-to-
period comparisons. Demand for audio products also exhibits some cyclicality,
reflecting the general state of the economy and consumer expectations.
LIQUIDITY AND CAPITAL RESOURCES
At May 11, 1998, the Company's immediate capital resources consisted of
approximately $95,000 in cash and $15,000 available under the current credit
facility. The Company has an agreement with a financial institution that
provides for working capital advances of up to $6,000,000, subject to borrowing
base limitations tied to 70% of eligible accounts receivable and 50% of eligible
inventory. A maximum of $1,000,000 of this line may be used to secure letters
of credit (the "Credit Facility"). Advances are collateralized by
substantially all of the assets of the Company and bear interest at the prime
lending rate plus 2%. The outstanding balance on the line of credit as of May
11, 1998 was $719,000. The Credit Facility expires on July 31, 1998. The
lender has notified the Company that it will not renew the Credit Facility.
There can be no assurance that the Company can obtain a replacement line of
credit when needed on terms that the Company finds acceptable. However, the
Company believes that a new line of credit may be secured, if it can obtain
agreements from its creditors to payment plans and if financing is secured in
the near future.
Accounts payable and accrued liabilities have increased $436,000 during the
quarter ending March 31, 1998. The Company has been unable to make payments to
suppliers in accordance with agreed upon terms and is currently negotiating a
payment schedule. On May 11, 1998, approximately $1,400,000 would be needed to
satisfy the Company's past-due payment obligations.
The Company's inventory decreased $500,000 from December 31, 1997 to March 31,
1998, due to decreased production of amplifiers manufactured in the U.S. and
decreased procurement of loudspeakers and other electronics. Accounts
receivable decreased $762,000 from the end of 1997 due to lower sales in the
first quarter of 1998.
On May 5, 1998, the Company closed a transaction with Renwick Special Situations
Fund L.P. ("RSSF"), by which the Company sold 3 million shares of its
unregistered Common Stock to RSSF for $375,000, or $0.125 per share. The 3
million shares represent 39% of the outstanding shares of the Company's Common
Stock. Messrs. Raj A. Bhatia and James R. McCullough, both directors of the
Company, are the Co-Presidents, sole directors and only shareholders of Renwick
Capital Management, Inc. ("Renwick") and the sole general partners of Renwick
Alpha Fund, L.P. ("RAF") and RSSF. Prior to this sale, RAF beneficially owned
directly 185,211 shares of Common Stock and 470,588 shares of Preferred Stock
and RSSF beneficially owned directly 2,497 shares of Common Stock and 941,176
shares of Preferred Stock. The shares of Preferred Stock are convertible into
shares of Common Stock at any time at the option of the holder on a one for one
basis, subject to potential antidilution adjustment. In addition, Renwick holds
currently exercisable warrants to purchase 250,000 shares of Common Stock. As a
result of this transaction, RSSF owns directly 3,002,497 shares, or 41%, of the
Common Stock. The subscription agreement entered into by the Company and RSSF
provides for demand registration rights with regard to these shares. During the
period of time ending one year from the date of closing, the costs of
registering the stock will be the sole expense of
<PAGE>
RSSF. Thereafter, such costs will be the sole expense of the Company. As a
condition to closing, RSSF and RAF each waived its rights to cause the Company
to adjust, or to benefit from an adjustment to the Conversion Ratio adjustment
rights which were granted them by the Company in June 1997, and Renwick waived
its exercise price adjustment rights with respect to its warrants.
The Company currently does not meet Nasdaq's minimum public float and bid price
continued listing requirements of $5,000,000 and $1.00 per share, respectively.
The Company has until May 28, 1998 to satisfy these requirements. The inability
of the Company to comply with these listing requirements likely will result in
the delisting of the Company's common stock from Nasdaq. Delisting of the
Company's common stock would likely have an adverse effect on the liquidity,
trading price and ability to obtain quotations on a timely basis for the common
stock. If the Company's common stock should cease to be listed on Nasdaq, it
may continue to be quoted on the OTC Bulletin Board.
In the first quarter of 1998, the Company purchased $15,000 of capital
equipment, of which $14,000 represented leasehold improvements which were
incurred in conjunction with the move to a new leased facility. The Company
expects minimal purchases of capital equipment in the near future.
The Company believes that its current sources of operating capital are not
adequate to fund the Company's operations through the end of 1998, however the
Company has identified potential financing sources. Even if the Company is
successful in raising additional financing, unforeseen costs and expenses or
lower than anticipated revenues could accelerate or increase the financing
requirements. There can be no assurance that the Company will be able to secure
a line of credit to replace the Credit Facility currently in place, or that the
Company's efforts to secure financing will be successful. Failure to obtain
sufficient additional capital to satisfy the Company's working capital
requirements would force the Company to further curtail or restructure
operations, sell assets, continue to seek extended payment terms from its
creditors or seek protection under the federal bankruptcy laws.
EFFECTS OF INFLATION AND CHANGES IN FOREIGN CURRENCY EXCHANGE RATES
All sales of the Company's products are in U.S. dollars. Since 1996, the
Company has purchased the majority of its materials 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 in the first three months
of 1998.
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 5, 1998, the Company closed a transaction with Renwick Special Situations
Fund L.P. ("RSSF"), by which the Company sold 3 million shares of its
unregistered Common Stock to RSSF for $375,000, or $0.125 per share. The 3
million shares represent 39% of the outstanding shares of the Company's Common
Stock. Messrs. Raj A. Bhatia and James R. McCullough, both directors of the
Company, are the Co-Presidents, sole directors and only shareholders of Renwick
Capital Management, Inc. ("Renwick") and the sole general partners of Renwick
Alpha Fund, L.P. ("RAF") and RSSF. Prior to this sale, RAF beneficially owned
directly 185,211 shares of Common Stock and 470,588 shares of Preferred Stock
and RSSF beneficially owned directly 2,497 shares of Common Stock and 941,176
shares of Preferred Stock. The shares of Preferred Stock are convertible into
shares of Common Stock at any time at the option of the holder on a one for one
basis, subject to potential antidilution adjustment. In addition, Renwick holds
currently exercisable warrants to purchase 250,000 shares of Common Stock. As a
result of this transaction, RSSF owns directly 3,002,497 shares, or 41%, of the
Common Stock. The subscription agreement entered into by the Company and RSSF
provides for demand registration rights with regard to these shares. During the
period of time ending one year from the date of closing, the costs of
registering the stock will be the sole expense of RSSF. Thereafter, such costs
will be the sole expense of the Company. As a condition to closing, RSSF and RAF
each waived its rights to cause the Company to adjust, or to benefit from an
adjustment to the Conversion Ratio adjustment rights which were granted them by
the Company in June 1997, and Renwick waived its exercise price adjustment
rights with respect to its warrants.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 2.4 Subscription Agreement, dated as of May 5, 1998, by
and between the Company and Renwick Special
Situations Fund, L.P.
Exhibit 4.2 First Amended and Restated Registration Rights
Agreement, dated as of May 5, 1998, by and among
the Company, Renwick Special Situations Fund, L.P.,
Renwick Alpha Fund, L.P., and Renwick Capital
Management, Inc.
Exhibit 4.6 Waiver of Conversion Ratio Adjustment Right, dated
as of May 5, 1998, by and among the Company,
Renwick Special Situations Fund, L.P., Renwick
Alpha Fund, L.P. and Renwick Capital Management,
Inc. Management, Inc.
<PAGE>
Exhibit 11 Computation of Earnings per Share
(b) REPORTS ON FORM 8-K
None.
<PAGE>
SIGNATURES
In accordance the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
CARVER CORPORATION
Dated: May 15, 1998 /s/ Debra L. Griffith
_________________________________________
Debra L. Griffith
Vice President Finance and Administration
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT TITLE PAGE
- --------- --------------------------------------------------------------------- ----
<S> <C> <C>
2.4 Subscription Agreement, dated as of May 5, 1998, by and between
the Company and Renwick Special Situations Fund, L.P. 16
4.2 First Amended and Restated Registration Rights Agreement,
dated as of May 5, 1998, by and among the Company, Renwick Special
Situations Fund, L.P., Renwick Alpha Fund, L.P., and
Renwick Capital Management, Inc. 19
4.6 Waiver of Conversion Ratio Adjustment Right, dated as of May 5, 1998,
by and among the Company, Renwick Special Situations Fund, L.P.,
Renwick Alpha Fund, L.P. and Renwick Capital Management, Inc. 28
11 Computation of Earnings Per Share 29
</TABLE>
<PAGE>
EXHIBIT 2.4
SUBSCRIPTION AGREEMENT
The undersigned, the Renwick Special Situations Fund, L.P. ("Renwick"),
hereby tenders this Subscription Agreement for the purchase of three million
(3,000,000) shares of common stock, par value $0.01, issued by Carver
Corporation, a Washington corporation (the "Company") at a price of $0.125 per
share (the "Shares") upon the terms and conditions set forth below. Payment in
the amount of $365,250 is delivered herewith to the Company, representing the
purchase price of $375,000 less a 5% commission payable to Renwick.
The undersigned is aware that the Shares have not been and will not be
registered under the Securities Act of 1933, as amended (the "Securities Act"),
or any state securities laws, in reliance on exemptions from such registration.
The undersigned understands that reliance by the Company on such exemptions is
predicated in part upon the truth and accuracy of the statements made by the
undersigned in this Subscription Agreement.
Renwick further acknowledges, agrees and represents as follows:
(a) Authorization. Renwick has full power and authority to execute,
deliver and perform this Agreement and to acquire the Shares. This Agreement
constitutes the legal, valid and binding obligation of Renwick, enforceable
against Renwick in accordance with its terms.
(b) Purchase Entirely for Own Account. The Shares to be acquired by
Renwick will be acquired for investment for Renwick's own account, not as a
nominee or agent and not with a view to the distribution of any part thereof.
Renwick has no present intention of selling, granting any participation in, or
otherwise distributing the Shares acquired by Renwick, except in accordance with
Section (c) below. Renwick does not have any contract, undertaking, agreement or
arrangement with any person to sell or transfer, or grant any participation to
such person or to any third person, with respect to any of the Shares to be
acquired by Renwick.
(c) Restricted Securities. Renwick understands that the Shares to be
acquired by Renwick have not been registered under the 1933 Act or the laws of
any state and may not be sold or transferred, or otherwise disposed of, without
registration under the 1933 Act and applicable state securities laws, or an
exemption therefrom, and that in the absence of an effective registration
statement covering the Shares to be acquired by Renwick, such Shares must be
held indefinitely. In the absence of an effective registration statement
covering the Shares to be acquired by Renwick, Renwick will sell, transfer, or
otherwise dispose of the Shares to be acquired by Renwick only in a manner
consistent with its representations and agreements set forth herein.
(d) Formation. Renwick represents that it was not organized for the
purpose of making an investment in the Company.
(e) Financial Condition. Renwick's financial condition is such that it is
able to bear the risk of holding the Shares to be acquired for an indefinite
period of time and can bear the loss of its entire investment in the Shares to
be acquired. Renwick has substantial experience in evaluating and investing in
private placement transactions of securities and companies similar to the
Company so that it is capable of evaluating the merits and risks of its
investment in the Company. Renwick is an "accredited investor" as that term is
defined in Rule 501 promulgated under the 1933 Act.
(f) Receipt of Information. Renwick has been furnished access to the
business records of the Company and its Subsidiaries and such additional
information and documents as it has requested and has been afforded an
opportunity to ask questions of, and receive answers from, representatives of
the Company and its Subsidiaries concerning the terms and conditions of this
Agreement, the purchase of the Shares, the business, operations, market
potential, capitalization, financial condition and prospects of the Company and
its Subsidiaries, and all other matters deemed relevant. Renwick confirms that
it has been furnished (i) the Company's Annual Report on Form 10-KSB with
respect to the Company's fiscal year ending December 31, 1997, (ii) the
Company's Quarterly Reports on Form 10-QSB with respect to the Company's fiscal
quarters ending March 31, 1997; June 30, 1997; and September 30, 1997, (iii) a
Current Report of the Company on Form 8-K dated February 6, 1998, and (iv) a
description of the Shares and the use of proceeds from the sale thereof. None of
the foregoing documents contains an untrue statement of material fact or omits
to state a material fact
<PAGE>
necessary to make the statements contained in such documents, in light of the
circumstances in which they are made, not misleading.
(g) Brokerage. There are no claims for brokerage commissions or finder's
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by or on behalf of
Renwick, and Renwick agrees to indemnify and hold the Company and its
Subsidiaries harmless against any damages incurred as a results of any such
claims.
(h) Further Limitations on Disposition. Renwick further agrees not to
make any disposition of all or any portion of the Shares unless and until:
(a) there is in effect a registration statement under the 1933 Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement and all applicable state securities laws; or
(b)(i) Renwick shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition and (ii) Renwick shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such shares
under the 1933 Act and that all requisite action has been or will, on a timely
basis, be taken under any applicable state securities laws in connection with
such disposition.
Notwithstanding the provisions of clauses (a) and (b) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
by Renwick (i) pursuant to Rule 144(k) promulgated under the 1933 Act, (ii)
pursuant to Rule 144A promulgated under the 1933 Act or (iii) a transfer by
Renwick to a partner of Renwick as a distribution to partners and not a sale,
if, in the case of clauses (i) and (ii) above, the transferee agrees in writing
to be subject to the terms hereof to the same extent as if such transferee were
an original investor hereunder.
(i) Legends. It is understood that the certificates evidencing the Shares
may bear substantially the following legend:
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.
This Subscription Agreement shall be enforced, governed and construed in
all respects in accordance with the laws of the State of New York (excluding,
however, all choice of law provisions in New York law) and all parties hereto
consent and agree to exclusive venue in Seattle, Washington. This Subscription
Agreement and the rights, powers and duties set forth herein shall be binding
upon the undersigned, the undersigned's heirs, estate, legal representatives,
successors and assigns and shall inure to the benefit of the Company, its
successors and assigns.
<PAGE>
REPRESENTATIVES OF RENWICK HAVE CAREFULLY READ THE FOREGOING AND UNDERSTAND THAT
IT RELATES TO RESTRICTIONS UPON RENWICK'S ABILITY TO SELL AND/OR TRANSFER THE
SHARES AND THAT THE SIGNIFICANCE TO THE COMPANY OF THE FOREGOING REPRESENTATIONS
IS THAT THEY WILL BE RELIED UPON BY THE COMPANY.
Date: May 5, 1998.
RENWICK SPECIAL SITUATIONS FUND, L.P.
900 Third Avenue, 27th Floor
New York, New York 10022
by: /s/ Raj A. Bhatia
---------------------------------
General Partner
<PAGE>
EXHIBIT 4.2
FIRST AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
AGREEMENT, dated as of the 5th day of May, 1998, among each of the
Investors listed on Schedule A hereto (a "Holder" or the "Holders") and Carver
Corporation, a Washington corporation, having its principal place of business at
15300 Woodinville-Redmond Road N.E., Woodinville, Washington 98036 (the
"Company").
WHEREAS, the Holders have purchased from the Company an aggregate of up to
1,411,764 shares of Series A Cumulative Convertible Preferred Stock of the
Company, $.01 par value (the "Preferred Stock") and received warrants (the
"Warrants") to purchase up to 300,000 shares (the "Warrant Shares") of common
stock, $.01 par value, of the Company ("Common Stock") upon the terms set forth
in the Series A Preferred Stock Purchase Agreement by and among the Company and
the Holders dated June 12, 1996 (the "Purchase Contract");
WHEREAS, simultaneous with the execution and delivery of this Amended
Agreement, one such Holder, Renwick Special Situations Fund, L.P. ("Renwick"),
is purchasing from the Company an aggregate of up to 3,000,000 shares of Common
Stock (the "Subscription Shares") upon the terms set forth in the Subscription
Agreement by and between the Company and Renwick dated May 5, 1998 (the
"Subscription Agreement");
WHEREAS, the Company desires to grant to the Holders the registration
rights set forth herein with respect to (i) the shares of Common Stock to be
issued to the Holders upon the conversion of the Preferred Stock or exercise of
the Warrants; and the Subscription Shares; and
WHEREAS, the Company and the Holders desire to amend and restate the
Registration Rights Agreement by and among them dated June 12, 1996 as set forth
herein.
NOW, THEREFORE, the parties heRETO MUTUALLY AGREE AS FOLLOWS:
1. REGISTRATION RIGHTS.
(a) Registration Under the Securities Act of 1933. None of the
Warrants, the Warrant Shares, the Preferred Stock, the Common Stock to be issued
upon conversion of the shares of Preferred Stock (the "Conversion Shares") or
the Subscription 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, the Conversion Shares, the Subscription
Shares and any shares of Common Stock issued upon any stock split or stock
dividend in respect of such Warrant, Conversion and Subscription Shares;
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 during the ten years following the date of
this Agreement, the Company proposes to prepare and file one or more
registration statements under the Act to register any shares of Common Stock on
a
<PAGE>
registration form that may be used for registration of Registrable Shares (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 to
do so by registered mail ("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 the 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.
(iii) 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.
(d) Demand Registration. At any time during a period of five years
from the date of this Agreement, Holders owning more than 50% of the aggregate
Registrable Securities then outstanding shall have the right (which right is in
addition to the piggyback registration rights provided for under Section 1(c)
hereof), exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission") on no more than two occasions, according to the
expense - sharing arrangements described at Section 2(b) below, a Registration
Statement and such other documents, including a prospectus, as may be necessary
(in the opinion of both counsel for the Company and counsel for such Holders),
in order to comply with the provisions of the Act, so as to permit a public
offering and sale of the Registrable Securities by the Holder provided, however,
that during the one year period ending on the first anniversary of the date
hereof the Company shall not be required to register pursuant to this Section
1(d) the Subscription Shares and any shares of Common Stock issued upon any
stock split or stock dividend in respect thereof unless Holders owning at least
two-thirds of such shares have given written notice to the Company of demand
pursuant to this Section 1(d) in which case, notwithstanding the expense-sharing
arrangements described in Section 2(b), such electing Holders shall bear their
pro rata share of all costs and expenses of such registration, such amount to be
determined based on the percentage which the market value as of the date of
filing of the registration statement of the Subscription Shares so included
bears to the aggregate market value as of the date of filing of the
registration statement of all securities covered by such registration statement;
provided, further, that the Company shall not be required to effect a
Registration pursuant to this Section 1(d) unless at least 500,000 shares of the
Registrable Securities are proposed to be sold in such registration (as adjusted
for any stock split, stock dividend or similar change in the Common Stock). The
Company shall not be required to maintain the effectiveness of any such
registration for greater than six months. The form on which such registration
shall be filed shall be determined by the Company from among the forms then
available to it under the Act for such registration.
(e) In addition to the rights set forth in Section 1(c) above, at any
time prior to the tenth anniversary of the date of this Agreement and subject to
the limitation described in Section 1(b) with respect to the Subscription
Shares,
<PAGE>
one or more Holders holding at least 50% of the Registrable Securities then
outstanding ("Initiating Holders") may make written demand for registration of
Registrable Shares under the Securities Act on Form S-3 (an "S-3 Demand Notice")
on an unlimited number of occasions, provided that the Registrable Shares
requested to be registered in any such Form S-3 registration statement have an
aggregate fair market value at the date of delivery to the Company of the S-3
Demand Notice of at least $250,000 and provided, further, that the Company is
then eligible to use Form S-3 for registration and public sale of the
Registrable Securities.
(f) Notwithstanding the foregoing, the Company may delay filing a
registration statement and may withhold efforts to cause the registration
statement to become or remain effective, if the Company determines in good faith
that such registration might (i) interfere with or affect the negotiation or
completion of any transaction that is being contemplated by the Company at the
time the right to delay is exercised, or (ii) involve initial or continuing
disclosure obligations that might not be in the best interest of the Company's
shareholders. Notwithstanding the foregoing, the Company shall not be entitled
to exercise its right to defer filing or effectiveness of or to update a
registration pursuant to a Demand Registration Request for more than one hundred
eighty (180) consecutive days.
2. COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. The Company
covenants and agrees as follows:
(a) In connection with any registration under Section 1(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 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.
(b) Subject to the proviso in Section 1(d) above, the Company shall
pay all costs, fees and expenses in connection with all Registration Statements
filed pursuant to Sections 1(c), 1(d) and 1(e) hereof including, without
limitation, the Company's legal and accounting fees, printing expenses, and blue
sky fees and expenses; provided, however, that the expenses paid by the Company
in connection with the exercise of rights to registration pursuant to Section
1(e) above shall be limited to those usual and customary expenses associated
with a non-underwritten offering. 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 pursuant
to Section 1(c) hereof.
(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.
<PAGE>
(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 or convert the Preferred Stock
prior to the initial filing of any registration statement or the effectiveness
thereof.
(f) If the Company shall fail to comply with the provisions of this
Agreement, the Company shall, in addition to any other equitable or other relief
available to the holders of Registrable Securities, be liable for any or all
incidental, special and consequential damages sustained by the holders of
Registrable Securities, requesting registration of their Registrable Securities.
(g) Except as set forth in Section 2(j), the Company shall not permit
the inclusion of any securities other than the Registrable Securities to be
included in any Registration Statement filed pursuant to Section 1(d) hereof, or
permit any other registration statement to be or remain effective during the
effectiveness of a Registration Statement filed pursuant to Section l(d) hereof,
without the prior written consent of the holders of a majority of the
Registrable Securities held by Holders who initiated the Demand Registration
Request, which consent shall not be unreasonably withheld.
(h) 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) or 1(d) hereof and requesting the
correspondence and memoranda described in this Section 2(i) and to the managing
underwriter, if any, 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.
(i) 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) The Company will use its reasonable best efforts to cause the
Registration Statement to become effective as promptly as possible and, if any
stop order shall be issued by the Commission in connection therewith, to 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
<PAGE>
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 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) If the Company fails to keep the Registration Statement
continuously effective, for the time period required by Section 1(d) hereof,
then the Company shall, promptly upon the request of the Holders of more than
50% of the then-unsold Registrable Securities, update the Registration Statement
or file a new registration statement covering the Registrable Securities
remaining unsold, subject to the terms and provisions hereof.
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, including the Registration Rights
Agreement dated June 12, 1996 among the Company and the Holders.
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 Agreement.
<PAGE>
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
hereunder to a transferee or assignee of at least 50,000 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 New York and for all purposes shall be construed
in accordance with the laws of said State.
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
and Gen. Mgr.
INVESTORS:
RENWICK SPECIAL SITUATIONS FUND, L.P.
900 Third Avenue, 27th Floor
New York, New York 10022
By: /s/ Raj A. Bhatia
_______________________
Name: Raj A. Bhatia
Title: General Partner
RENWICK ALPHA FUND, L.P.
900 Third Avenue, 27th Floor
New York, New York 10022
By: /s/ Raj A. Bhatia
_______________________
Name: Raj A. Bhatia
Title: General Partner
<PAGE>
RENWICK CAPITAL MANAGEMENT, INC.
900 Third Avenue, 27th Floor
New York, New York 10022
By: /s/ James R. McCullough
__________________________
Name: James R. McCullough
Title: Co-President
<PAGE>
EXHIBIT 4.6
WAIVER OF CONVERSION RATIO ADJUSTMENT RIGHT
THIS WAIVER AGREEMENT, dated as of May 5, 1998, is by and among Carver
Corporation, a Washington corporation (the "Company"), Renwick Special
Situations Fund, L.P. and Renwick Alpha Fund, L.P. (together, the "Investors")
and Renwick Capital Management, Inc. ("Renwick"). Capitalized terms used herein
but not otherwise defined shall have the meanings ascribed to such terms in the
Carver Corporation Certificate of Designation of Series A Cumulative Convertible
Preferred Stock Setting Forth the Powers, Preferences, Rights, Qualifications,
Limitations and Restrictions of Such Series of Preferred Stock (the
"Certification of Designation").
WHEREAS, the Company has issued 3,000,000 shares of common stock of the
Company, par value $0.01 per share (the "Common Stock") at a price per share of
$0.125 to one of the Investors, Renwick Special Situations Fund, L.P., in
connection with the Subscription Agreement dated April 10, 1998;
NOW, THEREFORE, in consideration of this issuance and notwithstanding the
Conversion Ratio adjustment rights with respect to the Series A Preferred Stock
set forth in Section 9(g) of the Certificate of Designation, the Investors
hereby waive, for themselves and on behalf of any permitted transferees or
assignees of the Series A Preferred Stock (and any other holder of the Series A
Preferred Stock, as a condition to being a permitted transferee or assignee
thereof, upon such transfer or assignment agrees to waive) any right of any such
holder to cause the Company to adjust, or to benefit from an adjustment to, the
Conversion Ratio as a result of the Company's issuance of 3,000,000 shares of
Common Stock for a consideration per share less than the Adjustment Trigger
Price.
AND, FURTHERMORE, in consideration of this issuance and notwithstanding the
exercise price adjustment rights with respect to the Warrant Shares set forth in
Section 7 of the Warrant Agreement dated as of June 12, 1996 between the Company
and Renwick, Renwick hereby waives, for itself and on behalf of any permitted
transferees or assignees of the Warrant Shares (and any other holder of the
Warrant Shares, as a condition to being a permitted transferee or assignee
thereof, upon such transfer or assignment agrees to waive) any right of any such
holder to cause the Company to adjust, or to benefit from an adjustment to, the
exercise price as a result of the Company's issuance of 3,000,000 shares of
Common Stock for a consideration per share less than the Adjustment Trigger
Price.
INVESTORS COMPANY
RENWICK SPECIAL CARVER CORPORATION
SITUATIONS FUND, L.P.
/s/Raj A. Bhatia /s/John P. World
______________________________ _________________________________
Raj A. Bhatia, General Partner John P. World, Executive Vice
President and General Manager
RENWICK ALPHA FUND, L.P. RENWICK CAPITAL MANAGEMENT, INC.
/s/Raj A. Bhatia /s/James R. McCullough
______________________________ _________________________________
Raj A. Bhatia, General Partner James R. McCullough, Co-President
<PAGE>
EXHIBIT 11
CARVER CORPORATION AND SUBSIDIARY
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
---------- -----------
<S> <C> <C>
PRIMARY EARNINGS PER
SHARE NET LOSS $ (917,000) $(1,081,000)
---------- -----------
Weighted average number
of shares outstanding 4,130,149 3,754,062
Add shares issuable from
the assumed exercise
of options or
conversion of
preferred stock * *
Add shares issuable from
the assumed conversion
of preferred shares * *
---------- -----------
Weighted average number
of shares outstanding,
as adjusted 4,130,149 3,754,062
---------- -----------
LOSS PER COMMON SHARE $ (0.22) $ (0.29)
========== ===========
</TABLE>
* Effect on loss per share is antidilutive
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 95,000
<SECURITIES> 0
<RECEIVABLES> 1,114,000
<ALLOWANCES> 69,000
<INVENTORY> 4,258,000
<CURRENT-ASSETS> 5,743,000
<PP&E> 1,903,000
<DEPRECIATION> 1,148,000
<TOTAL-ASSETS> 6,601,000
<CURRENT-LIABILITIES> 3,434,000
<BONDS> 0
0
14,000
<COMMON> 44,000
<OTHER-SE> 3,109,000
<TOTAL-LIABILITY-AND-EQUITY> 6,601,000
<SALES> 1,937,000
<TOTAL-REVENUES> 1,937,000
<CGS> 1,665,000
<TOTAL-COSTS> 1,665,000
<OTHER-EXPENSES> 1,153,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,000
<INCOME-PRETAX> (917,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (917,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (917,000)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
