- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
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 001-15469
THERMOVIEW INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 61-1325129
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
5611 Fern Valley Road 40228
Louisville, Kentucky (Zip Code)
Address of principal executive offices)
(Registrant's telephone number, including area code, 502-968-2020)
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 whether the Registrant is an accelerated filer (as
defined by Rule 12b.2 of the Exchange Act). Yes [ ] No [X]
As of July 31, 2003, 8,628,716 shares of the Registrant's common stock,
$.001 par value, were issued and outstanding.
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THERMOVIEW INDUSTRIES, INC.
TABLE OF CONTENTS
Part I Financial Information
Item 1. Financial Statements..............................................1
Condensed Consolidated Balance Sheets.................................1
Condensed Consolidated Statements of Operations.......................2
Condensed Consolidated Statements of Cash Flows.......................3
Notes to Condensed Consolidated Financial Statements..................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......17
Item 4. Controls and Procedures..........................................17
Part II Other Information
Item 1. Legal Proceedings................................................19
Item 2. Changes in Securities and Use of Proceeds........................20
Item 3. Defaults Upon Senior Securities..................................20
Item 4. Submission of Matters to a Vote of Security Holders..............20
Item 5. Other Information................................................20
Item 6. Exhibits and Reports on Form 8-K.................................20
- -----
Item 1. Financial Statements
ThermoView Industries, Inc.
Condensed Consolidated Balance Sheets
December 31, June 30, 2003
--------------------- ---------------------
Assets 2002 (Unaudited)
--------------------- ---------------------
Current assets:
Cash and equivalents $ 2,179,887 $ 64,769
Receivables:
Trade 3,340,577 3,529,634
Other 346,272 354,761
Costs in excess of billings on
uncompleted contracts 589,458 577,186
Inventories 2,104,966 2,034,538
Prepaid expenses and other current
assets 485,316 743,645
--------------------- ---------------------
Total current assets 9,046,476 7,304,533
Property and equipment, net 2,679,852 2,840,661
Other assets:
Goodwill, net 28,358,742 28,358,742
Other assets 408,094 490,833
--------------------- ---------------------
28,766,836 28,849,575
--------------------- ---------------------
Total assets $ 40,493,164 $ 38,994,769
===================== =====================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,698,212 $ 3,971,916
Accrued expenses 2,663,889 2,691,898
Billings in excess of costs on
uncompleted contracts 654,338 610,451
Income taxes payable 93,950 71,700
Current portion of long-term debt 324,368 265,947
--------------------- ---------------------
Total current liabilities 7,434,757 7,611,912
Long-term debt 17,012,156 16,360,883
Other long-term liabilities 135,494 193,594
Mandatorily redeemable preferred stock:
Series C, $.001 par value, 25,000
shares authorized; none issued - -
Series D, $.001 par value (aggregate
redemption amount and liquidation
preference of $5,547,875 at December
31, 2002 and $4,882,921 at June 30,
2003); 1,500,000 shares authorized;
956,900 shares issued and outstanding
at December 31, 2002 and at June 30,
2003 5,547,875 4,882,921
Series E, $.001 par value (aggregate
redemption amount and liquidation
preference of $2,275,932 at December
31, 2002 and $2,413,380 at June 30,
2003); 500,000 shares authorized;
336,600 shares issued and outstanding
at December 31, 2002 and at June
30, 2003 2,275,932 2,413,380
Stockholders' equity:
Preferred stock, 2,975,000 shares authorized:
Series A, $.001 par value; none issued - -
Series B, $.001 par value; none issued - -
Common stock, $.001 par value; 25,000,000
shares authorized; 8,628,716 shares issued
and outstanding at December 31, 2002 and at
June 30, 2003 8,628 8,628
Paid-in capital 63,799,703 64,531,209
Accumulated deficit (55,721,381) (57,007,758)
--------------------- ---------------------
Total stockholders' equity 8,086,950 7,532,079
--------------------- ---------------------
Total liabilities and stockholders'
equity $ 40,493,164 $ 38,994,769
===================== =====================
See accompanying notes.
1
ThermoView Industries, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
For the three months ended For the six months ended
June 30, June 30,
------------------------ -------------------------
2002 2003 2002 2003
---- ---- ---- ----
Revenues $23,822,546 $18,112,855 $44,479,808 $34,305,868
Cost of revenues earned 11,658,576 9,244,077 21,981,255 17,700,298
----------- ----------- ----------- ------------
Gross profit 12,163,970 8,868,778 22,498,553 16,605,570
----------- ----------- ----------- ------------
Selling, general and
administrative expenses 10,479,852 8,487,674 20,626,896 16,883,855
Unusual credit-gain on
conversion of debt to
warrants - (796,000) (796,000)
Depreciation expense 253,747 199,642 527,129 413,743
Amortization expense 33,890 5,065 8,537 10,129
----------- ----------- ----------- ------------
Income from operations 1,396,481 972,397 1,275,991 93,843
Equity in earnings (loss)
of joint venture 19,096 (20,017) 32,280 (46,224)
Interest expense (657,146) (706,366) (1,320,446) (1,338,496)
Interest income 13,059 6,965 28,738 16,729
----------- ----------- ----------- ------------
Income (loss) before
income taxes 771,490 252,979 16,563 (1,274,148)
Income tax expense (benefit) (746) 12,653 (7,166) 12,229
----------- ----------- ----------- ------------
Income (loss) before
cumulative effect of an
accounting change 772,236 240,326 23,729 (1,286,377)
Cumulative effect of an
accounting change--charge
for impairment of goodwill - - (30,000,000) -
----------- ----------- ----------- ------------
Net income (loss) 772,236 240,326 (29,976,271) (1,286,377)
Less non-cash Series D and
E preferred stock
dividends (193,486) (240,997) (384,854) (472,494)
Plus benefit of Series D
preferred stock redemption - 796,000 - 796,000
----------- ----------- ----------- ------------
(193,486) 555,003 (384,854) 323,506
----------- ----------- ----------- ------------
Net income (loss)
attributable to common
stockholders $ 578,750 $ 795,329 $(30,361,125) $ (962,871)
=========== =========== =========== ============
Basic income (loss) per common share:
Income (loss) attributable
to common stockholders $ 0.06 $ 0.09 $ (0.04) $ (0.10)
Cumulative effect of an
accounting change - - (3.35) -
----------- ----------- ----------- ------------
Net income (loss)
attributable to common
stockholders $ 0.06 $ 0.09 $ (3.39) $ (0.10)
=========== =========== =========== ============
Diluted income (loss) per common share:
Income (loss) attributable
to common stockholders $ 0.06 $ 0.08 $ (0.04) $ (0.10)
Cumulative effect of an
accounting change - - (3.35) -
----------- ----------- ----------- ------------
Net income (loss)
attributable to common
stockholders $ 0.06 $ 0.08 $ (3.39) $ (0.10)
=========== =========== =========== ============
See accompanying notes.
2
ThermoView Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the six months ended
June 30,
--------------------------
2002 2003
------------ ------------
Operating activities
Net loss $(29,976,271) $(1,286,377)
Adjustments to reconcile net loss to net cash
provided by (used in) operations:
Cumulative effect of an accounting change-
charge related to impairment of goodwill 30,000,000 -
Depreciation and amortization 595,666 423,872
Accretion of debt discount 395,357 376,320
Unusual credit-gain on conversion of debt
to warrants - (796,000)
Equity in income (loss) of joint venture (32,280) 46,224
Other (190,000) 100,000
Changes in operating assets and liabilities 131,475 (179,499)
------------- ------------
Net cash provided by (used in) operating activities 923,947 (1,315,460)
Investing activities
Payments for purchase of property and equipment (367,911) (418,154)
Other (17,107) (137,650)
------------- ------------
Net cash used in investing activities (385,018) (555,804)
Financing activities
Increase in long-term debt 86,247 -
Payments of long-term debt (236,779) (243,854)
------------- ------------
Net cash used in financing activities (150,532) (243,854)
------------- ------------
Net increase (decrease) in cash and equivalents 388,397 (2,115,118)
Cash and equivalents at beginning of period 2,387,583 2,179,887
------------- ------------
Cash and equivalents at end of period $ 2,775,980 $ 64,769
============= ============
See accompanying notes.
3
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
ThermoView Industries, Inc. ("ThermoView" or "the Company"), have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions in Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals), considered necessary for
a fair presentation have been included. ThermoView's business is subject to
seasonal variations. The demand for replacement windows and related home
improvement products is generally lower during the winter months due to
inclement weather. Demand for replacement windows is generally higher in the
second and third quarters. Operating results for the six-month period ended June
30, 2003, are not necessarily indicative of the results that may be expected for
the year ended December 31, 2003.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2002.
2. Operating Losses, Negative Cash Flow and Possible Impairment of Goodwill
Revenues for the first six months of 2003 were $34.3 million, compared to
revenues of $44.5 million for the first six months of 2002. During the first six
months of 2003, the Company incurred a net loss to common shareholders of
$2,555,000, excluding $1,592,000 of unusual gains from restructuring debt and
preferred stock. Also, net cash used by operating activities for the first six
months of 2003 was $1,315,000.
Following is the net income (loss) per quarter for the first six months of
2002 and 2003 (excluding the $30 million charge for impairment of goodwill in
2002 and excluding the $1,592,000 of unusual gains from restructuring debt and
preferred stock in 2003):
2002 2003
---- ----
First Quarter $(940,000) $(1,758,000)
Second Quarter 579,000 (797,000)
If the third quarter is not a "turn-around" quarter with operating income
and cash flow in the range of the third quarters of 2001 and 2002, the Company
could encounter the following:
a) An inability to meet the new EBITDA, fixed charge coverage ratios, and
current ratios required by restructured debt agreements (these covenants
are to be measured for the first time on September 30, 2003).
b) An escalating cash flow problem as the Company enters its slower season
towards the beginning of 2004.
4
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(UNAUDITED)
2. Operating Losses, Negative Cash Flow and Possible Impairment of Goodwill
(Continued)
The Company has adopted September 30 as the annual valuation date for
goodwill. Management considered whether goodwill needed to be evaluated for
impairment as of June 30 this year, and decided to not perform a valuation
because management believes that the poor operating performance of the first six
months of 2003 does not constitute a change in business climate which would
require reconsideration prior to September 30, 2003. It is possible that the
annual valuation of goodwill at September 30, 2003 could indicate that goodwill
is impaired.
3. Income (Loss) per Common Share
Income (loss) per common share is calculated in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." The
Company calculates basic earnings per common share using the weighted average
number of shares outstanding for the period. The weighted average number of
shares outstanding for the six-month periods ended June 30, 2002 and 2003,
includes shares related to a stock purchase warrant that can be exercised for
nominal cash consideration. Outstanding shares for purposes of determining
diluted earnings per common share includes the weighted average number of shares
outstanding for basic earnings per share, plus the diluted effect of any common
share equivalents such as options or warrants in the calculation. As the Company
recorded losses before preferred stock dividends and cumulative effect of an
accounting change for the six-month periods ended June 30, 2002 and 2003, common
share equivalents outstanding would be anti-dilutive. Accordingly, basic and
diluted earnings per share amounts are the same.
Weighted average shares outstanding for the periods in which there were
losses attributable to common stockholders were as follows:
Weighted Average
Period Shares Outstanding
-------------------------------------- ------------------
For the six months ended June 30, 2002 8,946,634
For the six months ended June 30, 2003 9,190,059
A reconciliation of basic to diluted share amounts used in computing the
per share amounts for the three months ended June 30, 2002 and 2003 is as
follows:
Three Months
Ended June 30,
2002 2003
---- ----
Basic - weighted average shares outstanding 9,130,375 9,190,059
Dilutive effect of stock options and warrants 1,006,625 528,613
---------- ----------
Diluted - weighted average shares outstanding and
assumed conversions 10,137,000 9,718,672
========== ==========
5
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(UNAUDITED)
3. Income (Loss) per Common Share (Continued)
A reconciliation of income (loss) before cumulative effect of an accounting
change attributable to common stockholders used in computing the per share
amounts for the three and six months ended June 30, are as follows:
Three Months Six Months
Ended June 30, Ended June 30,
------------- ----------------
2002 2003 2002 2003
---- ---- ---- ----
Income (loss) before
cumulative effect of an
accounting change $ 772,236 $240,326 $ 23,729 $(1,286,377)
Preferred stock dividends,
net of benefit of redemption (193,486) 555,003 (384,854) 323,506
---------- -------- ---------- -----------
Income (loss) before cumulative
effect of an accounting change
attributable to common stockholders $ 578,750 $795,329 $(361,125) $ (962,871)
========== ======== ========== ===========
4. Stock Option Information
Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company has elected to account for its employee stock options under APB No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation cost
has been recognized for employee options except as noted above. Had compensation
cost for employee options been determined based on the fair value at the grant
date consistent with SFAS No. 123, the Company's net income (loss) and income
(loss) per share for the three months and six months ended June 30 would have
been as follows:
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2002 2003 2002 2003
---- ---- ---- ----
Net income (loss):
As reported $ 772,238 $240,326 $(29,976,270) $(1,286,377)
Pro forma 695,293 219,567 (30,142,935) (1,327,941)
Net income (loss) attributable
to common stockholders:
As reported 578,750 795,329 (30,361,125) (962,871)
Pro forma 501,807 774,570 (30,527,789) (1,004,435)
Basic and diluted income
(loss) per common share:
Basic, As reported $ .06 $ .09 $ (3.39) $ (.10)
Diluted, As reported .06 .08 (3.39) (.10)
Basic, Pro forma .06 .09 (3.41) (.11)
Diluted, Pro forma .05 .08 (3.41) (.11)
6
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(UNAUDITED)
4. Stock Option Information (Continued)
The fair value of each option grant to employees was estimated on the date
of grant using the Black Scholes option-pricing model with the following
weighted average assumptions:
2002 2003
------- -------
Interest rate 3.59 2.79
Dividends -- --
Expected volatility 1.62 1.20
Expected life in years 5 5
5. Long-term Debt and Mandatorily Redeemable Preferred Stock
On June 30, 2003, the Company restructured its long-term debt and preferred
stock. GE Equity holds Series A debt, Series C debt and other subordinated debt.
Under the restructuring agreements, GE Equity reduced the interest rate on both
series of debt from 10% to 8% and from 12% to 8% on the subordinated debt.
Additionally, GE Equity converted $1 million of the subordinated debt to 680,000
common stock warrants at 28 cents per share. These warrants are exercisable
through March 22, 2013 and were determined to have a fair value of $204,000.
ThermoView's debt maturities were extended by two years to June 30, 2006, and to
July 31, 2006 for the subordinated debt.
ThermoView's preferred stock holders also converted $1 million worth of
Series D preferred stock to 680,000 common stock warrants at 28 cents per share.
These warrants are exercisable through June 30, 2013 and were determined to have
a fair value of $204,000. Also, the Series D and E preferred stock holders
agreed to reduce the dividend rate on the remainder of the preferred holdings
from 12% to 8%, to defer cash dividends until the Series A and B debt is
retired, and to extend the date for mandatory redemption to August 31, 2006.
The restructured debt agreements require ThermoView to pay $100,000 toward
principal each month commencing July 2004, as well as monthly interest. It also
calls for payments of excess cash toward principal two times per year. Excess
cash is defined as amounts over $1 million at the two measurement dates.
Under terms of the restructured debt agreements, ThermoView must achieve
certain quarterly and/or trailing twelve month EBITDA levels as well as fixed
charge coverage ratios and current asset to current liability ratios. The first
measurement date is September 30, 2003.
The holder of $1.2 million of notes in connection with obligations related
to guarantors of a bank revolving line of credit also agreed to extend the due
date of the notes from June 2004 to September 30, 2006.
6. Segment Information
For the three month periods ended June 30, 2002 and 2003, the Company's
business units had separate management teams and infrastructures that operate
primarily in the vinyl replacement windows, doors and related home improvement
7
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(UNAUDITED)
6. Segment Information (Continued)
products industry in various states in the Midwest and in Southern California.
The business units have been aggregated into two reportable operating segments:
manufacturing and retail.
Manufacturing
The manufacturing segment includes the businesses that manufacture and sell
vinyl replacement windows to the Company's retail segment and to unaffiliated
customers.
Retail
The retail segment includes the businesses that design, sell and install
vinyl replacement windows, doors and related home improvement products to
commercial and retail customers.
Segment information for the three months and six months ended June 30 was
as follows:
For the three months Manu-
ended June 30, 2002 facturing Retail Corporate Consolidated
- -------------------------- ----------- ----------- ----------- ------------
Revenues from external
customers $1,783,383 $21,937,489 $ 101,674 $ 23,822,546
Intersegment revenues 315,628 - - 315,628
Income (loss) from
operations 342,240 1,567,761 (513,520) 1,396,481
Total assets 4,447,014 33,999,403 3,310,649 41,757,065
For the three months Manu-
ended June 30, 2003 facturing Retail Corporate Consolidated
- -------------------------- ----------- ----------- ----------- ------------
Revenues from external
customers $1,521,814 $16,279,342 $ 311,699 $ 18,112,855
Intersegment revenues 298,335 - - 298,335
Unusual credit-gain on
conversion of
debt to warrants - - 796,000 796,000
Income (loss) from
Operations 214,761 399,267 358,369 972,397
Total assets 4,130,163 34,205,205 659,401 38,994,769
For the six months Manu-
ended June 30, 2002 facturing Retail Corporate Consolidated
- -------------------------- ----------- ----------- ----------- ------------
Revenues from external
customers $ 2,815,282 $41,481,974 $ 182,552 $ 44,479,808
Intersegment revenues 474,014 - - 474,014
Income (loss) from
operations 189,628 2,111,402 (1,025,039) 1,275,991
8
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(UNAUDITED)
6. Segment Information (Continued)
For the six months Manu-
ended June 30, 2003 facturing Retail Corporate Consolidated
- -------------------------- ----------- ----------- ----------- ------------
Revenues from external
customers $ 2,331,184 $31,586,105 $ 388,579 $ 34,305,868
Intersegment revenues 386,701 - - 386,701
Unusual credit-gain on
conversion of
debt to warrants - - 796,000 796,000
Income (loss) from
operations (4,085) 349,741 (251,813) 93,843
7. Contingencies and Commitments
On November 19, 2001, Nelson E. Clemmens, former director and president of
ThermoView, filed an action titled Nelson E. Clemmens v. ThermoView Industries,
Inc., Civil Action No. 01-CI-07901 (Jefferson Circuit Court, November 19, 2001)
against ThermoView alleging subrogation and indemnity rights associated with Mr.
Clemmens' loss of guaranty collateral to PNC Bank. These claims are in
connection with the April 2000 amendment to ThermoView's previous bank debt with
PNC Bank, in which Stephen A. Hoffmann, Richard E. Bowlds, Nelson E. Clemmens
and Douglas I. Maxwell, III guaranteed $3,000,000 of our PNC Bank debt. In
January 2001, PNC seized the collateral pledged as security by the guarantors
for the loan guaranty. In March 2001, ThermoView reached settlements with
Messrs. Bowlds and Hoffmann for any claims that they may hold against us
regarding their loss of assets in connection with the guaranty. We did not reach
a settlement with Messrs. Clemmens and Maxwell with regard to guarantees of
$1,000,000. Following the initial discovery phase, Clemmens sought a judicial
determination that ThermoView's March 2001 assignment of the underlying debt
relieved him of a contractual obligation to refrain from asserting a claim of
repayment until the debt was ultimately satisfied. On September 30, 2002, the
Jefferson Circuit Court issued an order of summary judgment stating that
Clemmens could not assert a claim for repayment until the debt was ultimately
satisfied. Clemmens filed a motion with the court to reconsider the September
30, 2002, ruling. On February 26, 2003, the Jefferson Circuit Court reversed the
previous judgment granted to ThermoView and awarded judgment to Clemmens against
ThermoView. ThermoView sought a reconsideration of the February 26, 2003 ruling.
On May 9, 2003, the Jefferson Circuit Court upheld the previous ruling in favor
of Clemmens, and entered a final appealable judgment which allowed Clemmens to
seek collection against ThermoView for the loss of collateral in the amount of
$500,000 plus interest at the rate of 10% annually beginning January 1, 2001
($125,000 through June 30, 2003). On May 19, 2003, ThermoView appealed the
judgment issued to Clemmens to the Kentucky Court of Appeals. On June 6, 2003,
ThermoView, with the guarantee of GE Capital Equity, posted a supercedeas bond
in the amount of $690,000 with the Jefferson Circuit Court to prevent Clemmens
from enforcing the judgment awarded to him during the pendency of the appeal of
this matter. In order to secure the supercedeas bond, ThermoView entered into an
agreement with GE Capital Equity to deposit funds monthly into a sinking fund to
serve as security for the amount of the supercedeas bond. Pursuant to this
agreement, ThermoView shall make payments of $50,000 monthly for the months of
July through December, 2003 and $30,000 monthly during the months January
through June, 2004 until the balance of the sinking fund is equal to the face
amount of the bond. In addition, under the agreement, ThermoView must make
additional payments to the sinking fund such that the balance of the sinking
9
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003
(UNAUDITED)
7. Contingencies and Commitments (Continued)
fund will be no less than $600,000 by June 30, 2004. In consideration for the
agreement, ThermoView shall pay to GE Capital Equity Investments a fee of 2.5%
of the face amount of the bond upon issuance and shall grant GE Capital Equity a
first priority lien on its assets to secure any amounts drawn on the bond. In
the event that ThermoView prevails upon the appeal and no amounts are drawn upon
the bond, the balance of the sinking fund will be applied to the Series A and B
notes of ThermoView on a pro-rata basis. A prehearing conference of the appeal
is scheduled for August 28, 2003. Maxwell has not asserted a claim for the loss
of his collateral as of the date of filing of this report. Maxwell could assert
claims for the same amount as Clemmens. Management has evaluated the potential
loss associated with Clemmens' litigation and Maxwell's unasserted claim and
believes that the Company has recorded adequate liabilities on its balance sheet
as of June 30, 2003. While ThermoView believes that the ultimate resolution of
this Clemmens' matter on appeal will be favorable to ThermoView, an adverse
final determination of our position regarding this matter could have a material
adverse effect on our cash flow.
The Company is subject to other legal proceedings and claims which have
arisen in the ordinary course of its business and have not been finally
adjudicated. Although there can be no assurance as to the ultimate disposition
of these matters, it is the opinion of the Company's management, based upon the
information available at this time, that the expected outcome of these matters,
individually or in the aggregate, will not have a material adverse effect on the
results of operations and financial condition of the Company.
In March 2000, the Company entered into a license agreement with Research
Frontiers Incorporated (Research Frontiers), a Delaware corporation with
headquarters located in Woodbury, New York, for the non-exclusive rights to
market windows which utilize variable light transmission technology developed by
Research Frontiers. The agreement provides for the payment of a royalty of 5% of
the net selling price of the licensed products as defined in the agreement to
Research Frontiers for products sold by the Company that incorporate such
technology. Additionally, the Company has agreed to pay to Research Frontiers an
annual minimum royalty of $100,000 for 2003. The royalty is payable in cash or
shares of the Company's common stock at the Company's option.
8. Recently Enacted Accounting Standards
Financial Accounting Standard Board (FASB) recently issued two new
accounting standards, Statement 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities, and Statement 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equities,
both of which generally become effective in the quarter beginning July 1, 2003.
Under the new standard for certain liabilities and equity instruments,
mandatorily redeemable instruments such as preferred securities are considered
liabilities.
10
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
This report on Form 10-Q contains statements which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "estimates,"
"will," "should," "plans" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy.
Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties, and that actual results may vary materially from those in the
forward-looking statements as a result of any number of factors, most of which
are beyond the control of management. These factors include operating losses,
continued and increased expenses, non-cash dividends and interest related to our
financings, adverse judgments to ThermoView, and restrictions imposed by our
senior and subordinated debt.
Although we believe that the expectations and assumptions reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements.
The following should be read in conjunction with the response to Part I,
Item 1. of this Report and our audited consolidated financial statements
contained in our Annual Report on Form 10-K for the year ended December 31,
2002. Any capitalized terms used but not defined in this Item have the same
meaning given to them in the Form 10-K.
Overview
We design, manufacture, sell and install custom vinyl replacement windows
for residential and retail commercial customers. We also sell and install
replacement doors, home textured exterior coatings, vinyl siding, patio decks,
patio enclosures, cabinet refacings and kitchen and bathroom remodeling
products, as well as residential roofing.
Business Segments
Our subsidiaries have separate management teams and infrastructures and
operate in two reportable operating segments: retail and manufacturing.
Retail. Our retail segment consists of our subsidiaries that design, sell
and install custom vinyl replacement windows, doors and related home improvement
products to commercial and retail customers. Our retail segment derives its
revenues from the sale and installation of thermal replacement windows, storm
windows and doors, patio decks, patio enclosures, vinyl siding and other home
improvement products. Our retail segment recognizes revenues on the completed
contract method. A contract is considered complete when the home improvement
product has been installed. Gross profit in the retail segment represents
revenues after deducting product and installation labor costs.
Manufacturing. Our manufacturing segment consists of our subsidiary that
manufactures and sells vinyl replacement windows to one of our retail companies
and to unaffiliated customers. Our manufacturing segment recognizes revenues
11
when products are shipped. Gross profit in the manufacturing segment represents
revenues after deducting product costs (primarily glass, vinyl and hardware),
window fabrication labor and other manufacturing expenses.
Historical Results Of Operations
For the three months For the six months
ended June 30, ended June 30,
------------------- --------------------
2002 2003 2002 2003
-------- -------- -------- ---------
(In thousands)
Revenues........................... $ 23,823 $ 18,113 $ 44,480 $ 34,306
Cost of revenues earned............ 11,659 9,244 21,981 17,700
-------- -------- -------- ---------
Gross profit....................... 12,164 8,869 22,499 16,606
Selling, general and administrative
expenses......................... 10,480 8,488 20,627 16,884
Unusual credit-gain on conversion
of debt to warrants.............. - (796) - (796)
Depreciation expense............... 254 200 527 414
Amortization expense............... 34 5 69 10
-------- -------- -------- ---------
Income from operations............. 1,396 972 1,276 94
Equity in earnings (loss) of joint
venture.......................... 19 (20) 32 (46)
Interest expense................... (657) (706) (1,320) (1,338)
Interest income.................... 13 7 29 16
-------- -------- -------- ---------
Income (loss) before income taxes.. 771 253 17 (1,274)
Income tax expense (benefit)....... (1) 13 (7) 12
-------- -------- -------- ---------
Income (loss) before cumulative
effect of an accounting change... 772 240 24 (1,286)
Cumulative effect of an accounting
change--charge for impairment of
goodwill......................... - - (30,000) -
-------- -------- -------- ---------
Net income (loss).................. 772 240 (29,976) (1,286)
Less non-cash Series D and E
preferred stock dividends........ (193) (241) (385) (473)
Plus benefit of Series D preferred
stock redemption................. - 796 - 796
-------- -------- -------- ---------
(193) 555 (385) 323
-------- -------- -------- ---------
Net income (loss) attributable to
common stockholders.............. $ 579 $ 795 $(30,361) $ (963)
======== ======== ======== =========
12
Three Months Ended June 30, 2003 Compared to June 30, 2002
Revenues. Revenues decreased from $23.8 million for the second quarter of
2002 to $18.1 million for the second quarter of 2003. Revenues during the second
quarter of 2003 continued to be negatively impacted by rain in our Southern
California market, the sluggish economy, the events in Iraq and new
telemarketing laws. All of our retail operations and our manufacturing operation
reported less revenues in the second quarter of 2003 compared to 2002.
Gross Profit. Gross profit, which represents revenues less cost of revenues
earned, decreased from $12.2 million in the second quarter of 2002 to $8.9
million in the second quarter of 2003. The reduction in the amount of gross
profit is consistent with the reduced revenue discussed above. As a percentage
of revenues, gross profit decreased from 51.1% in the second quarter of 2002 to
49.0% in the second quarter of 2003. This decrease results primarily because
some costs at our subsidiaries are fixed and these fixed costs are more
significant relative to the lower volumes in the second quarter of 2003 compared
to the second quarter of 2002.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased from $10.5 million in the second quarter of
2002 to $8.5 million in the second quarter of 2003. Selling, general and
administrative expenses as a percentage of revenue increased from 44.0% in the
second quarter of 2002 to 46.9% in the second quarter of 2003. The increase in
selling, general and administrative expenses as a percentage of revenues in the
second quarter of 2003 results primarily from the fixed nature of certain
expenses relative to the lower volumes.
Unusual Credit. The unusual credit in 2003 represents a gain from
converting $1 million of debt to warrants to purchase 680,000 shares of our
common stock exercised at 28 cents per share.
Depreciation Expense. Depreciation expense decreased from $254,000 in the
second quarter of 2002 to $200,000 in the second quarter of 2003, reflecting a
fairly constant amount of property and equipment.
Interest Expense. Interest expense increased from $657,000 in 2002 to
$706,000 in 2003. This increase represents interest recognized in 2003 on
obligations related to guarantors of a bank revolving line of credit offset by
some decrease in interest expense because of debt retirements during 2002.
Income Tax Benefit. Due to operating losses, management concluded that it
is more likely than not that our deferred tax assets will not be realized.
Accordingly, we established a valuation allowance against all deferred tax
assets, and no deferred income taxes have been recorded in 2002 or 2003. Income
tax expense in the second quarter of 2003 relates to state taxes.
Non-Cash Dividends. Non-cash dividends in the second quarter of 2002 and
2003 represent accrued dividends on the Series D and E preferred stock.
Benefit of Series D Preferred Stock Redemption. The benefit in 2003
represents a gain on redemption of $1 million of Series D stock for warrants to
purchase 680,000 shares of our common stock exercised at 28 cents per share.
13
Six Months Ended June 30, 2003 Compared to June 30, 2002
Revenues. Revenues decreased from $44.5 million for the first six months of
2002 to $34.3 million for the first six months of 2003. Revenues during the
first six months of 2003 were negatively impacted by severe winter weather in
our Midwest markets in the first quarter, rain in our Southern California
market, the sluggish economy, the events in Iraq, and new telemarketing laws.
All of our retail operations and our manufacturing operation reported less
revenues in the first six months of 2003 compared to 2002.
Gross Profit. Gross profit, which represents revenues less cost of revenues
earned, decreased from $22.5 million in the first six months of 2002 to $16.6
million in the first six months of 2003. The reduction in the amount of gross
profit is consistent with the reduced revenue discussed above. As a percentage
of revenues, gross profit decreased from 50.6% in the first six months of 2002
to 48.4% in the first six months of 2003. This decrease results primarily
because some costs at our subsidiaries are fixed and these fixed costs are more
significant relative to the lower volumes in the first six months of 2003
compared to the first six months of 2002.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased from $20.6 million in the first six months of
2002 to $16.9 million in the first six months of 2003. Selling, general and
administrative expenses as a percentage of revenue increased from 46.4% in the
first six months of 2002 to 49.2% in the first six months of 2003. The increase
in selling, general and administrative expenses as a percentage of revenues in
the first six months of 2003 results primarily from the fixed nature of certain
expenses relative to the lower volumes.
Unusual Credit. The unusual credit in 2003 represents a gain from
converting $1 million of debt to 680,000 common stock warrants issued at 28
cents per share.
Depreciation Expense. Depreciation expense decreased from $527,000 in the
first six months of 2002 to $414,000 in the first six months of 2003, reflecting
a fairly constant amount of property and equipment.
Interest Expense. Interest expense was relatively constant for the six
month periods.
Income Tax Benefit. Due to operating losses, management concluded that it
is more likely than not that our deferred tax assets will not be realized.
Accordingly, we established a valuation allowance against all deferred tax
assets, and no deferred income taxes have been recorded in 2002 or 2003. Income
tax expense in the second quarter of 2003 relates to state taxes.
Non-Cash Dividends. Non-cash dividends in the first six months of 2002 and
2003 represent accrued dividends on the Series D and E preferred stock.
Benefit of Series D Preferred Stock Redemption. The benefit in 2003
represents a gain on redemption of $1 million of Series D stock for 680,000
common stock warrants issued at 28 cents per share.
14
Liquidity And Capital Resources
As of June 30, 2003, we had cash and equivalents of $65,000, a working
capital deficit of $307,000, $16.4 million of long-term debt, net of current
maturities, and $7.3 million of mandatorily redeemable preferred stock.
Our operating activities for the six months ended June 30, 2002, provided
$924,000 of cash. Our operating activities for the six months ended June 30,
2003, used $1,315,000 of cash.
The use of $385,000 of cash for investing activities for the six months
ended June 30, 2002 related primarily to the acquisition of property and
equipment. The use of $556,000 of cash for investing activities for the six
months ended June 30, 2003, related primarily to the acquisition of property and
equipment.
We used $151,000 in cash for financing activities in the six months ended
June 30, 2002, primarily for repayment of debt. We used $244,000 of cash for
financing activities in the six months ended June 30, 2003 for repayment of
debt.
Revenues for the first six months of 2003 were $34.3 million, compared to
revenues of $44.5 million of the first six months of 2002. During the first six
months of 2003, the Company incurred a net loss to common shareholders of
$2,555,000, excluding $1,592,000 of unusual gains from restructuring debt and
preferred stock. Also, net cash used by operating activities for the first six
months of 2003 was $1,315,000.
Following is the net income (loss) per quarter for the first six months of
2002 and 2003 (excluding the $30 million charge for impairment of goodwill in
2002 and excluding the $1,592,000 of unusual gains from restructuring debt and
preferred stock in 2003):
2002 2003
---- ----
First Quarter $(940,000) $(1,758,000)
Second Quarter 579,000 (797,000)
Management believes that the decrease in sales of 2003, which was largely
responsible for the operating loss and reduction in cash flow, was primarily due
to severe winter weather in the Midwest markets, severe rain in the southern
California market, a sluggish economy, the events in Iraq, and regulatory
restrictions on telemarketing.
Management is aware of the above external factors. In addition, various
internal factors such as debt/preferred stock restructuring, price increases and
further cost cutting have been accomplished in the first six months of 2003.
Management believes these actions will improve operating performance in the
second six months of 2003.
If the third quarter is not a "turn-around" quarter with more normal
operating income and cash flow in the range of the third quarters of 2001 and
2002, the Company could encounter the following:
a) An inability to meet the new EBITDA, fixed charge coverage ratios, and
current ratios required by restructured debt agreements (these covenants
are to be measured for the first time on September 30, 2003).
15
b) An escalating cash flow problem as the Company enters its slower season
towards the beginning of 2004.
The Company has adopted September 30 as the annual valuation date for
goodwill. Management considered whether goodwill needed to be valued as of June
30 this year, and decided to not perform a valuation because management believes
that the poor operating performance of the first six months of 2003 does not
constitute a change in business climate which would require reconsideration
prior to September 30, 2003. It is possible that the annual valuation of
goodwill at September 30, 2003 could indicate that goodwill is impaired.
Our cash flow could be negatively impacted by an adverse final
determination in the Nelson E. Clemmens' litigation. The adverse judgment could
result in our requirement to pay $500,000 plus 10% interest accrued from January
1, 2001 until paid. We have recorded $500,000 as long-term debt on our balance
sheet, and have accrued interest amounting to $100,000 through June 30, 2003.
Management intends to appeal the latest decision and expects that it will take
over twelve months to complete the appeal process.
On June 30, 2003, the Company restructured its long-term debt and preferred
stock. GE Equity holds Series A debt, Series C debt and other subordinated debt.
Under the restructuring agreements, GE Equity reduced the interest rate on both
series of debt from 10% to 8% and from 12% to 8% on the subordinated debt.
Additionally, GE Equity converted $1 million of the subordinated debt to 680,000
common stock warrants at 28 cents per share. These warrants are exercisable
through March 22, 2013 and were determined to have a fair value of $204,000.
ThermoView's debt maturities were extended by two years to June 30, 2006, and to
July 31, 2006 for the subordinated debt.
ThermoView's preferred stock holders also converted $1 million worth of
Series D preferred stock to 680,000 common stock warrants at 28 cents per share.
These warrants are exercisable through June 30, 2013 and were determined to have
a fair value of $204,000. Also, the Series D and E preferred stock holders
agreed to reduce the dividend rate on the remainder of the preferred holdings
from 12% to 8%, to defer cash dividends until the Series A and B debt is
retired, and to extend the date for mandatory redemption to August 31, 2006.
The restructured debt agreements require ThermoView to pay $100,000 toward
principal each month commencing July 2004, as well as monthly interest. It also
calls for payments of excess cash toward principal two times per year. Excess
cash is defined as amounts over $1 million at the two measurement dates.
Under terms of the restructured debt agreements, ThermoView must achieve
certain quarterly and/or trailing twelve month EBITDA levels as well as fixed
charge coverage ratios and current asset to current liability ratios. The first
measurement date is September 30, 2003.
The holder of $1.2 million of notes in connection with obligations related
to guarantors of a bank revolving line of credit also agreed to extend the due
date of the notes from June 2004 to September 30, 2006.
If we default in the future under our debt arrangements, the lenders can,
among other items, accelerate all amounts owed and increase interest rates on
our debt. An event of default could result in the loss of our subsidiaries
16
because of the pledge of our ownership in all of our subsidiaries to the
lenders. As of December 31, 2002 and June 30, 2003, we are not in default under
any of our debt arrangements.
Subject to more normal revenue production during the third quarter of 2003
in the range of the third quarters of 2001 and 2002, we believe that our cash
flow from operations will allow us to meet our anticipated needs during at least
the next 12 months for:
o debt service requirements;
o working capital requirements;
o planned property and equipment capital expenditures;
o expanding our retail segment;
o offering new technologically improved products to our customers; and
o integrating more thoroughly the advertising and marketing programs of our
regional subsidiaries into a national home-remodeling business.
We also believe in the longer term that cash will be sufficient to meet our
needs. However, we do not expect to continue our acquisition program soon. In
October 2002, we opened a new retail sales office in Phoenix, Arizona, and are
considering two new retail offices in the upper midwest and in a southeastern
state in 2003. Also, we have and are investing in the development of Alter-Lite
light-control windows and a new line of climate resistant, highly durable
Compozit(TM) windows. In addition, we intend to more thoroughly integrate the
advertising and marketing programs of our regional subsidiaries into a national
home-remodeling business over the next two years. These various initiatives we
expect will require cash from $300,000 to $400,000 in the next twelve months.
We do not expect annual capital expenditures for the next three years to
significantly vary from amounts reported for the last three years, which have
been in the range of $500,000 to $900,000 annually.
Pending Litigation
ThermoView does not anticipate any significant adverse effect on our
results of operations through December 2003 because of the Clemmens litigation
described in Part II, Item 1, Legal Proceedings. Although ThermoView believes
that we will prevail upon appeal of the claim, an adverse outcome in this action
could have a material adverse effect on our cash flow.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
In June 2003, we restructured our debt and all of our debt continues to be
fixed rate debt. Interest rate changes would result in gains or losses in the
market value of our fixed-rate debt due to the differences between the current
market interest rates and the rates governing these instruments. With respect to
our fixed-rate debt currently outstanding, a 10% change in interest rates (for
example, from 10% to 11%) would not have resulted in a significant change in the
fair value of our fixed-rate debt.
17
Item 4. Controls and Procedures
As of June 30, 2003, an evaluation was carried out under the supervision
and with the participation of ThermoView's management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934). Based on their
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that ThermoView's disclosure controls and procedures are, to the best
of their knowledge, effective to ensure that information required to be
disclosed by ThermoView in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms. Subsequent to
June 30, 2003, our Chief Executive Officer and Chief Financial Officer have
concluded that there were no significant changes in ThermoView's internal
controls or in other factors that could significantly affect our internal
controls.
18
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
On November 19, 2001, Nelson E. Clemmens, former director and president of
ThermoView, filed an action titled Nelson E. Clemmens v. ThermoView Industries,
Inc., Civil Action No. 01-CI-07901 (Jefferson Circuit Court, November 19, 2001)
against ThermoView alleging subrogation and indemnity rights associated with Mr.
Clemmens' loss of guaranty collateral to PNC Bank. These claims are in
connection with the April 2000 amendment to ThermoView's previous bank debt with
PNC Bank, in which Stephen A. Hoffmann, Richard E. Bowlds, Nelson E. Clemmens
and Douglas I. Maxwell, III guaranteed $3,000,000 of our PNC Bank debt. In
January 2001, PNC seized the collateral pledged as security by the guarantors
for the loan guaranty. In March 2001, ThermoView reached settlements with
Messrs. Bowlds and Hoffmann for any claims that they may hold against us
regarding their loss of assets in connection with the guaranty. We did not reach
a settlement with Messrs. Clemmens and Maxwell with regard to guarantees of
$1,000,000. Following the initial discovery phase, Clemmens sought a judicial
determination that ThermoView's March 2001 assignment of the underlying debt
relieved him of a contractual obligation to refrain from asserting a claim of
repayment until the debt was ultimately satisfied. On September 30, 2002, the
Jefferson Circuit Court issued an order of summary judgment stating that
Clemmens could not assert a claim for repayment until the debt was ultimately
satisfied. Clemmens filed a motion with the court to reconsider the September
30, 2002, ruling. On February 26, 2003, the Jefferson Circuit Court reversed the
previous judgment granted to ThermoView and awarded judgment to Clemmens against
ThermoView. ThermoView sought a reconsideration of the February 26, 2003 ruling.
On May 9, 2003, the Jefferson Circuit Court upheld the previous ruling in favor
of Clemmens, and entered a final appealable judgment which allowed Clemmens to
seek collection against ThermoView for the loss of collateral in the amount of
$500,000 plus interest at the rate of 10% annually beginning January 1, 2001
($125,000 through June 30, 2003). On May 19, 2003, ThermoView appealed the
judgment issued to Clemmens to the Kentucky Court of Appeals. On June 6, 2003,
ThermoView, with the guarantee of GE Capital Equity, posted a supercedeas bond
in the amount of $690,000 with the Jefferson Circuit Court to prevent Clemmens
from enforcing the judgment awarded to him during the pendency of the appeal of
this matter. In order to secure the supercedeas bond, ThermoView entered into an
agreement with GE Capital Equity to deposit funds monthly into a sinking fund to
serve as security for the amount of the supercedeas bond. Pursuant to this
agreement, ThermoView shall make payments of $50,000 monthly for the months of
July through December, 2003 and $30,000 monthly during the months January
through June, 2004 until the balance of the sinking fund is equal to the face
amount of the bond. In addition, under the agreement, ThermoView must make
additional payments to the sinking fund such that the balance of the sinking
fund will be no less than $600,000 by June 30, 2004. In consideration for the
agreement, ThermoView paid to GE Capital Equity Investments a fee of 2.5% of the
face amount of the bond upon issuance and granted GE Capital Equity a first
priority lien on its assets to secure any amounts drawn on the bond. In the
event that ThermoView prevails upon the appeal and no amounts are drawn upon the
bond, the balance of the sinking fund will be applied to the Series A and B
notes of ThermoView on a pro-rata basis. A prehearing conference of the appeal
is scheduled for August 28, 2003. Maxwell has not asserted a claim for the loss
19
of his collateral as of the date of filing of this report. Maxwell could assert
claims for the same amount as Clemmens. Management has evaluated the potential
loss associated with Clemmens' litigation and Maxwell's unasserted claim and
believes that ThermoView has recorded adequate liabilities on its balance sheet
as of June 30, 2003. While ThermoView believes that the ultimate resolution of
this Clemmens' matter on appeal will be favorable to ThermoView, an adverse
final determination of our position regarding this matter could have a material
adverse effect on our cash flow.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
a. ThermoView held its annual meeting of stockholders on May 1, 2003, at 10:00
A.M., eastern daylight time, at the Republic Bank Conference Center, 9600
Brownsboro Road, Louisville, Kentucky.
b. At the annual meeting, stockholders elected three individuals as Class I
members of our Board of Directors.
Broker Non
Name For Against Withheld Abstentions Votes
---- --- ------- -------- ----------- -----
Ronald L. Carmicle 5,735,615 0 0 46,815 0
Raymond C. Dauenhauer, Jr. 5,735,615 0 0 46,815 0
Bruce C. Merrick 5,729,817 0 5,798 46,815 0
The following directors remained on the Board of Directors as Class II and
Class III directors immediately after the annual meeting:
Class II Directors Class III Directors
Name Name
- ---- ----
J. Sherman Henderson, III Robert L. Cox
Rodney H. Thomas* Stephen A. Hoffmann
George T. Underhill, III Charles L. Smith
* Mr. Thomas subsequently resigned as a director effective May 26, 2003.
c. Not applicable.
d. Not applicable.
Item 5. Other Information
On August 13, 2003, ThermoView issued a press release reporting financial
results for the second quarter. The press release is filed herewith as Exhibit
99.1.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
See Index to Exhibits.
20
(b) Reports on Form 8-K.
(1) On April 10, 2003, ThermoView filed a Form 8-K under Item 5. Other Events
and Regulation FD Disclosure reporting implementation of an online
financing alternative.
(2) On May 1, 2003, ThermoView filed a Form 8-K under Item 5. Other Events and
Regulation FD Disclosure reporting financial results for the first quarter
and the renewal of directors at our Annual Meeting of Shareholders.
(3) On May 29, 2003, ThermoView filed a Form 8-K under Item 6. Resignations of
Registrant's Directors reporting the resignation of Rodney H. Thomas from
the Board of Directors.
(4) On June 30, 2003, ThermoView filed a Form 8-K under Item 5. Other Events
and Regulation FD Disclosure reporting agreements to restructure with
lenders ThermoView's long-term debt and preferred stock.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ThermoView Industries, Inc.
Date: August 14, 2003 By: /s/ Charles L. Smith
--------------------------------------
Charles L. Smith,
Chief Executive Officer
(principal executive officer)
Date: August 14, 2003 By: /s/ James J. TerBeest
--------------------------------------
James J. TerBeest,
Chief Financial Officer
(principal financial and accounting
officer)
22
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibits
4.4 -- Third Amended Certificate of Designation of Series D Preferred Stock
dated March 28, 2003.
4.5 -- Second Amended Certificate of Designation of Series E Preferred Stock
dated March 28, 2003.
4.6 -- Fourth Amended Certificate of Designation of Series D Preferred Stock
dated May 2, 2003.
4.7 -- Third Amended Certificate of Designation of Series E Preferred Stock
dated May 2, 2003.
4.8 -- Fifth Amended Certificate of Designation of Series E Preferred Stock
dated June 30, 2003.
4.9 -- Fourth Amended Certificate of Designation of Series E Preferred Stock
dated June 30, 2003.
10.114 -- Consent to Amendment of Series D preferred stock dated May 2, 2003 by
and among registrant and preferred shareholders.
10.115 -- Consent to Amendment of Series E preferred stock dated May 2, 2003 by
and among registrant and preferred shareholders.
10.116 -- Amendment to Notes dated May 14, 2003 by and between Stephen A.
Hoffmann and registrant, et al.
10.117 -- Tenth Amendment to Loan Agreement dated as of May 15, 2003 by and
among GE Capital Equity Investment, Inc. and registrant, et al.
10.118 -- Sixth Amendment to Securities Purchase Agreement dated as of May 15,
2003 by and among GE Capital Equity Investment, Inc. and registrant,
et al.
10.119 -- Reimbursement Agreement dated as of May 30, 2003 by and among GE
Capital Equity Investment, Inc. and registrant, et al.
10.120 -- Eleventh Amendment to Loan Agreement dated as of June 30, 2003 by and
among GE Capital Equity Investment, Inc. and registrant, et al.
10.121 -- Seventh Amendment to Securities Purchase Agreement dated as of June
30, 2003 by and among GE Capital Equity Investment Inc. and registrant
et al.
10.122 -- Reimbursement Agreement dated as of June 30, 2003 by and among GE
Capital Equity Investment, Inc. and registrant, et al.
10.123 -- Amendment to Pledge Agreement dated as of June 30, 2003 by and among
GE Capital Equity Investment, Inc. and registrant, et al.
10.124 -- Amendment to Security Agreement dated as of June 30, 2003 by and among
GE Capital Equity Investment, Inc. and registrant, et al.
10.125 -- Consent to Amendment of Series D preferred stock dated June 27, 2003
by and among registrant and preferred shareholders.
10.126 -- Consent to Amendment of Series E preferred stock dated June 27, 2003
by and among registrant and preferred shareholders.
10.127 -- Amended and Restated Series A Promissory Note dated as of June 30,
2003 by and between registrant and its subsidiaries and GE Capital
Equity Investments, Inc.
10.128 -- Amended and Restated Series C Promissory Note dated as of June 30,
2003 by and between registrant and its subsidiaries and GE Capital
Equity Investments, Inc.
10.129 -- Amended and Restated Series B Promissory Note dated as of June 30,
2003 by and between registrant and its subsidiaries and the
individuals identified on Schedule A of the Index to Exhibits.
10.130 -- Common Stock Purchase warrant dated as of March 22, 2001 by and among
registrant and the individuals identified on Schedule A of the Index
to Exhibits.
10.131 -- Second Amendment to Notes dated June 30, 2003 by and between Stephen
A. Hoffmann and registrant, et al.
10.132 -- Amendment dated June 27, 2003 to Lease Agreement dated January 1, 1999
between Thomas Construction, Inc. and 13397 Lakefront Drive, LLC.
31.1 -- Rule 13a-14(a) Certification of Charles L. Smith for the Form 10-Q for
the quarter ended June 30, 2003.
31.2 -- Rule 13a-14(a) Certification of James J.TerBeest for the Form 10-Q for
the quarter ended June 30, 2003.
32.1 -- 18 U.S.C. Section 1350 Certifications of Charles L. Smith and James J.
TerBeest for the Form 10-Q for the quarter ended June 30, 2003.
99.1 -- News Release of ThermoView Industries, Inc. announcing second quarter
financial results dated August 13, 2003.
SCHEDULE A
TO INDEX TO EXHIBITS
Exhibit Number 10.129 Amended and Restated Series B Promissory Note dated as of
June 30, 2003, was executed by the registrant and issued to the individuals in
the amounts specified:
Name Amount
Daniel F. Dooley 17,738.10
Robert L. Cox 177,380.95
DART Investors, LLC 603,095.24
Charles L. Smith 333,476.19
Robert L. Cox, II 106,428.57
Stephen A. Hoffmann 92,238.10
Mitch M. Wexler 70,952.38
Stephen Townzen 35,476.19
Emerging Business Solutions, LLC 35,476.19
Ronald L. Carmicle 24,833.33
Raymond C. Dauenhauer 24,833.33
J. Sherman Henderson, III 24,833.33
Bruce C. Merrick 24,833.33
George T. Underhill, III 24,833.33
SCHEDULE B
TO INDEX TO EXHIBITS
Exhibit Number 10.130 Common Stock Purchase Warrant dated as of June 30, 2003,
was executed by the registrant and issued to the individuals in the amounts
specified:
Name Warrant Shares
Mitchell M. Wexler W-21 70,000
DART Investors, L.P. No.2 W-22 305,000
Charles L. Smith W-23 305,000
GE Capital Equity Investments, Inc. W-24 680,000
24
Exhibit No. 4.4
THIRD AMENDED CERTIFICATE OF DESIGNATION
OF
CUMULATIVE PREFERRED STOCK, SERIES D
OF
THERMOVIEW INDUSTRIES, INC.
-----------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-----------------------------------------------
ThermoView Industries, Inc., a Delaware corporation (the "Company")
certifies that pursuant to the authority contained in Section 4.2 of Article IV
of its Restated Certificate of Incorporation, as amended, and in accordance with
the provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Company, by regularly scheduled meeting
held on April 24, 2003, duly approved and adopted the following amendment to the
Certificate of Designation of 12% Series D Cumulative Preferred Stock (the
"Certificate of Designation") and with the written consent of all existing
holders of the 12% Series D Cumulative Preferred Stock:
A. Section 2 of the Certificate of Designation is hereby replaced in its
entirety with the following:
(2) Dividends.
(a) Holders of shares of Series D Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors of the Company, out
of funds of the Company legally available for payment, subject to the prior and
superior rights of Senior Stock, but pari passu with Parity Stock, and in
preference to Junior Stock, cumulative cash dividends at the rate per annum of
$0.60 per share of Series D Preferred Stock, with the exception of those
dividends which accrue from the period commencing October 1, 2001 and ending
March 31, 2004, which dividends shall be paid by the issuance of an equivalent
amount of Series D Preferred Stock. Provided, however, that in the event that
funds are legally available for payment, and the Company, following distribution
of such cash dividends, shall remain in compliance with sections 4.I.[1] and
4.I.[2] of that certain Eighth Amendment to Loan Agreement dated March 22, 2001,
by and between GE Capital Equity Investments, Inc., et al. and the Company, the
Company shall pay cash dividends from the period commencing January 1, 2003 and
ending March 31, 2004. Dividends on the Series D Preferred Stock will begin to
accrue commencing October 1, 2001 and will be payable quarterly in arrears on
the last calendar day of April, July, October and January of each year,
commencing July 31, 2004, representing dividends due for the quarter ending June
30, 2004 (and in the case of any accumulated and unpaid dividends not paid on
the corresponding dividend payment date, at such additional times and for such
interim periods, if any, as determined by the Board of Directors). Dividends
will be cumulative from such date, whether or not in any dividend period or
periods there shall be funds of the Company legally available for the payment of
such dividends. Each such dividend will be payable to holders of record as they
25
appear on the stock records of the Company at the close of business on such
record dates, not more than 60 days nor less than 10 days preceding the payment
dates thereof, as shall be fixed by the Board of Directors of the Company.
Accrued dividends earn interest to the fullest extent allowed by applicable law.
Dividends payable on the Series D Preferred Stock for any period greater or less
than a full dividend period will be computed on the basis of actual days.
Dividends payable on the Series D Preferred Stock for each full dividend period
will be computed by dividing the annual dividend rate by four.
(b) Except as provided in the next sentence and for payment of dividends on
Series E Preferred Stock, no dividend will be declared or paid on any Parity
Stock unless full cumulative dividends have been declared and paid or are
contemporaneously declared and funds sufficient for payment set aside on the
Series D Preferred Stock for all prior dividend periods. If accrued dividends on
the Series D Preferred Stock for all prior periods have not been paid in full,
then any dividends declared on the Series D Preferred Stock for any dividend
period and on any Parity Stock will be declared ratably in proportion to
accumulated and unpaid dividends on the Series D Preferred Stock and such Parity
Stock.
(c) So long as the shares of the Series D Preferred Stock shall be
outstanding, unless (i) full cumulative dividends shall have been paid or
declared and set apart for payment on all outstanding shares of the Series D
Preferred Stock and any Parity Stock, (ii) sufficient funds have been paid or
set apart for the payment of the dividend for the current dividend period with
respect to the Series D Preferred Stock and any Parity Stock and (iii) the
Company is not in default or in arrears with respect to the mandatory or
optional redemption or mandatory repurchase or other mandatory retirement of, or
with respect to any sinking or other analogous fund for, the Series D Preferred
Stock or any Parity Stock, the Company may not declare any dividends on any
Junior Stock, or make any payment on account of, or set apart money for, the
purchase, redemption or other retirement of, or for a sinking or other analogous
fund for, any shares of Junior Stock or make any distribution in respect
thereof, whether in cash or property or in obligations or stock of the Company,
other than (x) Junior Stock which is neither convertible into, nor exchangeable
or exercisable for, any securities of the Company other than Junior Stock, or
(y) Common Stock acquired in connection with the cashless exercise of options
under employee incentive or benefit plans of the Company or any subsidiary or
any other redemption or purchase or other acquisition of Common Stock made in
the ordinary course of business, which has been approved by the Board of
Directors of the Company, for the purpose of any employee incentive or benefit
plan of the Company. The limitations in this paragraph do not restrict the
Company's ability to take the actions in this paragraph with respect to any
Parity Stock. As used in this subparagraph (c), the term "dividend" with respect
to Junior Stock does not include dividends payable solely in shares of Junior
Stock on Junior Stock, or in options, warrants or rights to holders of Junior
Stock to subscribe for or purchase any Junior Stock.
B. Other than as amended hereby, the Certificate of Designation for the Series
D Preferred Stock remains in full force and effect.
IN WITNESS WHEREOF ThermoView Industries, Inc. has caused this Certificate
to be signed by its President on this 24th day of April 2003.
------------------------------------
Name: Charles L. Smith
Title: President
26
Exhibit 4.5
SECOND AMENDED CERTIFICATE OF DESIGNATION
OF
CUMULATIVE PREFERRED STOCK, SERIES E
OF
THERMOVIEW INDUSTRIES, INC.
-----------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-----------------------------------------------
ThermoView Industries, Inc., a Delaware corporation (the "Company")
certifies that pursuant to the authority contained in Section 4.2 of Article IV
of its Restated Certificate of Incorporation, as amended, and in accordance with
the provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Company, by regularly scheduled meeting
held on April 24, 2003, duly approved and adopted the following amendment to the
Certificate of Designation of 12% Series E Cumulative Preferred Stock (the
"Certificate of Designation") and with the written consent of all existing
holders of the 12% Series E Cumulative Preferred Stock:
A. Section 2 of the Certificate of Designation is hereby replaced in its
entirety with the following:
(2) Dividends.
(a) Holders of shares of Series E Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors of the Company, out
of funds of the Company legally available for payment, subject to the prior and
superior rights of Senior Stock, but pari passu with Parity Stock, and in
preference to Junior Stock, cumulative dividends at the rate per annum of $0.60
per share of Series E Preferred Stock. Dividends on the Series E Preferred Stock
will be payable quarterly in arrears on the last calendar day of April, July,
October and January of each year, commencing July 31, 2004, representing
dividends due for the quarter ending June 30, 2004 (and in the case of any
accumulated and unpaid dividends not paid on the corresponding dividend payment
date, at such additional times and for such interim periods, if any, as
determined by the Board of Directors). Dividends will accrue from the effective
date of the earlier of: 1) the original issuance of the Series E Preferred
Stock, or 2) the original issuance of ThermoView 12% Cumulative Series D
Preferred Stock that is cancelled and replaced with Series E Preferred Stock.
Dividends which accrue from the period beginning from the earlier of either the
date of original issuance of Series E Preferred Stock, or the original issuance
date of ThermoView 12% Cumulative Series D preferred stock that is cancelled and
replaced with Series E preferred Stock, of the Series E Preferred Stock and
ending March 31, 2004 shall be paid by the issuance of an equivalent amount of
Series E Preferred Stock. Provided, however, that in the event that funds are
legally available for payment, and the Company, following distribution of such
cash dividends, shall remain in compliance with sections 4.I.[1] and 4.I.[2] of
that certain Eighth Amendment to Loan Agreement dated March 22, 2001, by and
between GE Capital Equity Investments, Inc., et al. and the Company, the Company
shall pay cash dividends from the period commencing January 1, 2003 and ending
March 31, 2004. Each such dividend will be payable to holders of record as they
appear on the stock records of the Company at the close of business on such
record dates, not more than 60 days nor less than 10 days preceding the payment
dates thereof, as shall be fixed by the Board of Directors of the Company.
Dividends will be cumulative from such date, whether or not in any dividend
27
period or periods there shall be funds of the Company legally available for the
payment of such dividends. Accrued dividends earn interest to the fullest extent
allowed by applicable law. Each such dividend will be payable to holders of
record as they appear on the stock records of the Company at the close of
business on such record dates, not more than 60 days nor less than 10 days
preceding the payment dates thereof, as shall be fixed by the Board of Directors
of the Company. Dividends payable on the Series E Preferred Stock for any period
greater or less than a full dividend period will be computed on the basis of
actual days. Dividends payable on the Series E Preferred Stock for each full
dividend period will be computed by dividing the annual dividend rate by four.
(b) Except as provided in the next sentence, no dividend will be declared
or paid on any Parity Stock unless full cumulative dividends have been declared
and paid or are contemporaneously declared and funds sufficient for payment set
aside on the Series E Preferred Stock for all prior dividend periods. If accrued
dividends on the Series E Preferred Stock for all prior periods have not been
paid in full, then any dividends declared on the Series E Preferred Stock for
any dividend period and on any Parity Stock will be declared ratably in
proportion to accumulated and unpaid dividends on the Series E Preferred Stock
and such Parity Stock.
(c) So long as the shares of the Series E Preferred Stock shall be
outstanding, unless (i) full cumulative dividends shall have been paid or
declared and set apart for payment on all outstanding shares of the Series E
Preferred Stock and any Parity Stock, (ii) sufficient funds have been paid or
set apart for the payment of the dividend for the current dividend period with
respect to the Series E Preferred Stock and any Parity Stock and (iii) the
Company is not in default or in arrears with respect to the mandatory or
optional redemption or mandatory repurchase or other mandatory retirement of, or
with respect to any sinking or other analogous fund for, the Series E Preferred
Stock or any Parity Stock, the Company may not declare any dividends on any
Junior Stock, or make any payment on account of, or set apart money for, the
purchase, redemption or other retirement of, or for a sinking or other analogous
fund for, any shares of Junior Stock or make any distribution in respect
thereof, whether in cash or property or in obligations or stock of the Company,
other than (x) Junior Stock which is neither convertible into, nor exchangeable
or exercisable for, any securities of the Company other than Junior Stock, or
(y) Common Stock acquired in connection with the cashless exercise of options
under employee incentive or benefit plans of the Company or any subsidiary or
any other redemption or purchase or other acquisition of Common Stock made in
the ordinary course of business, which has been approved by the Board of
Directors of the Company, for the purpose of any employee incentive or benefit
plan of the Company. The limitations in this paragraph do not restrict the
Company's ability to take the actions in this paragraph with respect to any
Parity Stock. As used in this subparagraph (c), the term "dividend" with respect
to Junior Stock does not include dividends payable solely in shares of Junior
Stock on Junior Stock, or in options, warrants or rights to holders of Junior
Stock to subscribe for or purchase any Junior Stock.
28
B. Other than as amended hereby, the Certificate of Designation for the Series
E Preferred Stock remains in full force and effect.
IN WITNESS WHEREOF ThermoView Industries, Inc. has caused this Certificate
to be signed by its President on this 24th day of April 2003.
------------------------------------
Name: Charles L. Smith
Title: President
29
Exhibit 4.6
FOURTH AMENDED CERTIFICATE OF DESIGNATION
OF
CUMULATIVE PREFERRED STOCK, SERIES D
OF
THERMOVIEW INDUSTRIES, INC.
-----------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-----------------------------------------------
ThermoView Industries, Inc., a Delaware corporation (the "Company")
certifies that pursuant to the authority contained in Section 4.2 of Article IV
of its Restated Certificate of Incorporation, as amended, and in accordance with
the provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Company, by regularly scheduled meeting
held on April 24, 2003, duly approved and adopted the following amendment to the
Certificate of Designation of 12% Series D Cumulative Preferred Stock (the
"Certificate of Designation") and with the written consent of all existing
holders of the 12% Series D Cumulative Preferred Stock:
A. Section 2 of the Certificate of Designation is hereby replaced in its
entirety with the following:
(2) Dividends.
(a) Holders of shares of Series D Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors of the Company, out
of funds of the Company legally available for payment, subject to the prior and
superior rights of Senior Stock, but pari passu with Parity Stock, and in
preference to Junior Stock, cumulative cash dividends at the rate per annum of
$0.60 per share of Series D Preferred Stock, with the exception of those
dividends which accrue from the period commencing October 1, 2001 and ending
September 30, 2004, which dividends shall be paid by the issuance of an
equivalent amount of Series D Preferred Stock. Provided, however, that in the
event that funds are legally available for payment, and the Company, following
distribution of such cash dividends, shall remain in compliance with sections
4.I.[1] and 4.I.[2] of that certain Eighth Amendment to Loan Agreement dated
March 22, 2001, by and between GE Capital Equity Investments, Inc., et al. and
the Company, the Company shall pay cash dividends from the period commencing
January 1, 2003 and ending September 30, 2004. Dividends on the Series D
Preferred Stock will begin to accrue commencing October 1, 2001 and will be
payable quarterly in arrears on the last calendar day of April, July, October
and January of each year, commencing January 31, 2005, representing dividends
due for the quarter ending December 31, 2004 (and in the case of any accumulated
and unpaid dividends not paid on the corresponding dividend payment date, at
such additional times and for such interim periods, if any, as determined by the
Board of Directors). Dividends will be cumulative from such date, whether or not
in any dividend period or periods there shall be funds of the Company legally
available for the payment of such dividends. Each such dividend will be payable
30
to holders of record as they appear on the stock records of the Company at the
close of business on such record dates, not more than 60 days nor less than 10
days preceding the payment dates thereof, as shall be fixed by the Board of
Directors of the Company. Accrued dividends earn interest to the fullest extent
allowed by applicable law. Dividends payable on the Series D Preferred Stock for
any period greater or less than a full dividend period will be computed on the
basis of actual days. Dividends payable on the Series D Preferred Stock for each
full dividend period will be computed by dividing the annual dividend rate by
four.
(b) Except as provided in the next sentence and for payment of dividends on
Series E Preferred Stock, no dividend will be declared or paid on any Parity
Stock unless full cumulative dividends have been declared and paid or are
contemporaneously declared and funds sufficient for payment set aside on the
Series D Preferred Stock for all prior dividend periods. If accrued dividends on
the Series D Preferred Stock for all prior periods have not been paid in full,
then any dividends declared on the Series D Preferred Stock for any dividend
period and on any Parity Stock will be declared ratably in proportion to
accumulated and unpaid dividends on the Series D Preferred Stock and such Parity
Stock.
(c) So long as the shares of the Series D Preferred Stock shall be
outstanding, unless (i) full cumulative dividends shall have been paid or
declared and set apart for payment on all outstanding shares of the Series D
Preferred Stock and any Parity Stock, (ii) sufficient funds have been paid or
set apart for the payment of the dividend for the current dividend period with
respect to the Series D Preferred Stock and any Parity Stock and (iii) the
Company is not in default or in arrears with respect to the mandatory or
optional redemption or mandatory repurchase or other mandatory retirement of, or
with respect to any sinking or other analogous fund for, the Series D Preferred
Stock or any Parity Stock, the Company may not declare any dividends on any
Junior Stock, or make any payment on account of, or set apart money for, the
purchase, redemption or other retirement of, or for a sinking or other analogous
fund for, any shares of Junior Stock or make any distribution in respect
thereof, whether in cash or property or in obligations or stock of the Company,
other than (x) Junior Stock which is neither convertible into, nor exchangeable
or exercisable for, any securities of the Company other than Junior Stock, or
(y) Common Stock acquired in connection with the cashless exercise of options
under employee incentive or benefit plans of the Company or any subsidiary or
any other redemption or purchase or other acquisition of Common Stock made in
the ordinary course of business, which has been approved by the Board of
Directors of the Company, for the purpose of any employee incentive or benefit
plan of the Company. The limitations in this paragraph do not restrict the
Company's ability to take the actions in this paragraph with respect to any
Parity Stock. As used in this subparagraph (c), the term "dividend" with respect
to Junior Stock does not include dividends payable solely in shares of Junior
Stock on Junior Stock, or in options, warrants or rights to holders of Junior
Stock to subscribe for or purchase any Junior Stock.
B. Section 3A of the Certificate of Designation is hereby replaced in its
entirety with the following:
(3A.) Mandatory Redemption
(a) The Company will, at the redemption price equal to the sum of $5.00 per
share, redeem from any source of funds legally available, twenty percent (20%)
of all shares of Series D Preferred Stock and Parity Stock, on an annual basis
commencing January 1, 2005, and continuing on an annual basis until such time
31
that all shares have been redeemed pursuant to the Certificate of Designation or
by agreement of the Holders of such shares.
(b) In the event of a redemption on only a portion of the then outstanding
shares of Series D Preferred Stock, the Company will effect the redemption pro
rata according to the number of shares held by each holder of Parity Stock,
(c ) At least ten (10) days and not more than thirty (30) days prior to the
date fixed for any redemption under this subsection of the Series D Preferred
Stock or Parity Stock, written notice (the "Redemption Notice") will be mailed,
postage prepaid, to each holder of record of the Series D Preferred Stock and
Parity Stock at his or her post office address last shown on the records of the
Company. The Redemption Notice will state:
(1) whether all or less than all the outstanding shares of Series D
Preferred Stock and Parity Stock are to be redeemed and the total
number of shares of Series D Preferred Stock and Parity Stock being
redeemed;
(2) the number of shares of Series D Preferred Stock and Parity Stock held
by the holder that the Company intends to redeem;
(3) the Redemption Date and the Redemption Price; and
(4) that the holder is to surrender to the Company, in the manner and at
the place designated, his or her certificate or certificates
representing the shares of Series D Preferred Stock and Parity Stock
to be redeemed.
The Redemption Notice shall be deemed to have been given when deposited in the
United States mail, first-class mail, postage prepaid, whether or not such
notice is actually received. Any failure to mail the notice provided or any
defect in notice or in the mailing of notice will not affect the validity of the
proceedings for the redemption of any shares to be so redeemed.
(d) On or before the date fixed for redemption, each holder of Series D
Preferred Stock and Parity Stock will surrender the certificate or certificates
representing the shares of Series D Preferred Stock and Parity Stock to the
Company, in the manner and at the place designated in the Redemption Notice, and
the Redemption Price for the shares will be payable in cash on the Redemption
Date to the person whose name appears on the certificate or certificates as the
owner, and each surrendered certificate will be cancelled and retired. In the
event that less than all of the shares represented by any certificate are
redeemed, a new certificate will be issued representing the unredeemed shares.
(e) Unless the Company fails to pay in full the Redemption Price, dividends
on the Series D Preferred Stock called for redemption will cease to accumulate
on the Redemption Date, and all rights of the holders of the shares redeemed
will cease to have any further rights with respect to the shares on the
Redemption Date, other than to receive the Redemption Price. Upon the failure to
pay, as described in the immediately preceding sentence, the dividend rate for
such portion of unredeemed Series D Preferred Stock shall increase by two
percent (2%) on an annual basis until such time that the portion of the Series D
Preferred Stock and Parity Stock for which a failure to pay has occurred is
redeemed. In no event shall the applicable dividend rate pursuant to this
provision increase the rate of dividend payable on the outstanding Series D
Preferred Stock and Parity Stock above sixteen percent (16%) per annum.
32
(f) Subject to applicable law and the limitation on purchases when
dividends on the Series D Preferred Stock are in arrears, the Company may, at
any time and from time to time, purchase any shares of the Series D Preferred
Stock by tender or by private agreement.
C. Other than as amended hereby, the Certificate of Designation for the Series
D Preferred Stock remains in full force and effect.
IN WITNESS WHEREOF ThermoView Industries, Inc. has caused this Certificate
to be signed by its President on this 2nd day of May 2003.
------------------------------------
Name: Charles L. Smith
Title: President
33
Exhibit 4.7
THIRD AMENDED CERTIFICATE OF DESIGNATION
OF
CUMULATIVE PREFERRED STOCK, SERIES E
OF
THERMOVIEW INDUSTRIES, INC.
-----------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
-----------------------------------------------
ThermoView Industries, Inc., a Delaware corporation (the "Company")
certifies that pursuant to the authority contained in Section 4.2 of Article IV
of its Restated Certificate of Incorporation, as amended, and in accordance with
the provisions of Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Company, at a regularly scheduled
meeting held on April 24, 2003, duly approved and adopted the following
amendment to the Certificate of Designation of 12% Series E Cumulative Preferred
Stock (the "Certificate of Designation") and with the written consent of all
existing holders of the 12% Series E Cumulative Preferred Stock:
A. Section 2 of the Certificate of Designation is hereby replaced in its
entirety with the following:
(2) Dividends.
(a) Holders of shares of Series E Preferred Stock will be entitled to
receive, when, as and if declared by the Board of Directors of the Company, out
of funds of the Company legally available for payment, subject to the prior and
superior rights of Senior Stock, but pari passu with Parity Stock, and in
preference to Junior Stock, cumulative dividends at the rate per annum of $0.60
per share of Series E Preferred Stock. Dividends on the Series E Preferred Stock
will be payable quarterly in arrears on the last calendar day of April, July,
October and January of each year, commencing January 31, 2005, representing
dividends due for the quarter ending December 31, 2004 (and in the case of any
accumulated and unpaid dividends not paid on the corresponding dividend payment
date, at such additional times and for such interim periods, if any, as
determined by the Board of Directors). Dividends will accrue from the effective
date of the earlier of: 1) the original issuance of the Series E Preferred
Stock, or 2) the original issuance of ThermoView 12% Cumulative Series D
Preferred Stock that is cancelled and replaced with Series E Preferred Stock.
Dividends which accrue from the period beginning from the earlier of either the
date of original issuance of Series E Preferred Stock, or the original issuance
date of ThermoView 12% Cumulative Series D preferred stock that is cancelled and
replaced with Series E preferred Stock, of the Series E Preferred Stock and
ending September 30, 2004 shall be paid by the issuance of an equivalent amount
of Series E Preferred Stock. Provided, however, that in the event that funds are
legally available for payment, and the Company, following distribution of such
cash dividends, shall remain in compliance with sections 4.I.[1] and 4.I.[2] of
that certain Eighth Amendment to Loan Agreement dated March 22, 2001, by and
between GE Capital Equity Investments, Inc., et al. and the Company, the Company
shall pay cash dividends from the period commencing January 1, 2003 and ending
September 30, 2004. Each such dividend will be payable to holders of record as
they appear on the stock records of the Company at the close of business on such
record dates, not more than 60 days nor less than 10 days preceding the payment
34
dates thereof, as shall be fixed by the Board of Directors of the Company.
Dividends will be cumulative from such date, whether or not in any dividend
period or periods there shall be funds of the Company legally available for the
payment of such dividends. Accrued dividends earn interest to the fullest extent
allowed by applicable law. Each such dividend will be payable to holders of
record as they appear on the stock records of the Company at the close of
business on such record dates, not more than 60 days nor less than 10 days
preceding the payment dates thereof, as shall be fixed by the Board of Directors
of the Company. Dividends payable on the Series E Preferred Stock for any period
greater or less than a full dividend period will be computed on the basis of
actual days. Dividends payable on the Series E Preferred Stock for each full
dividend period will be computed by dividing the annual dividend rate by four.
(b) Except as provided in the next sentence, no dividend will be declared
or paid on any Parity Stock unless full cumulative dividends have been declared
and paid or are contemporaneously declared and funds sufficient for payment set
aside on the Series E Preferred Stock for all prior dividend periods. If accrued
dividends on the Series E Preferred Stock for all prior periods have not been
paid in full, then any dividends declared on the Series E Preferred Stock for
any dividend period and on any Parity Stock will be declared ratably in
proportion to accumulated and unpaid dividends on the Series E Preferred Stock
and such Parity Stock.
(c) So long as the shares of the Series E Preferred Stock shall be
outstanding, unless (i) full cumulative dividends shall have been paid or
declared and set apart for payment on all outstanding shares of the Series E
Preferred Stock and any Parity Stock, (ii) sufficient funds have been paid or
set apart for the payment of the dividend for the current dividend period with
respect to the Series E Preferred Stock and any Parity Stock and (iii) the
Company is not in default or in arrears with respect to the mandatory or
optional redemption or mandatory repurchase or other mandatory retirement of, or
with respect to any sinking or other analogous fund for, the Series E Preferred
Stock or any Parity Stock, the Company may not declare any dividends on any
Junior Stock, or make any payment on account of, or set apart money for, the
purchase, redemption or other retirement of, or for a sinking or other analogous
fund for, any shares of Junior Stock or make any distribution in respect
thereof, whether in cash or property or in obligations or stock of the Company,
other than (x) Junior Stock which is neither convertible into, nor exchangeable
or exercisable for, any securities of the Company other than Junior Stock, or
(y) Common Stock acquired in connection with the cashless exercise of options
under employee incentive or benefit plans of the Company or any subsidiary or
any other redemption or purchase or other acquisition of Common Stock made in
the ordinary course of business, which has been approved by the Board of
Directors of the Company, for the purpose of any employee incentive or benefit
plan of the Company. The limitations in this paragraph do not restrict the
Company's ability to take the actions in this paragraph with respect to any
Parity Stock. As used in this subparagraph (c), the term "dividend" with respect
to Junior Stock does not include dividends payable solely in shares of Junior
Stock on Junior Stock, or in options, warrants or rights to holders of Junior
Stock to subscribe for or purchase any Junior Stock.
35
B. Section 3A of the Certificate of Designation is hereby replaced in its
entirety with the following:
(3A.) Mandatory Redemption
(a) The Company will, at the redemption price equal to the sum of $5.00 per
share, redeem from any source of funds legally available, twenty percent (20%)
of all shares of Series E Preferred Stock and Parity Stock, on an annual basis
commencing January 1, 2005, and continuing on an annual basis until such time
that all shares have been redeemed pursuant to the Certificate of Designation or
by agreement of the Holders of such shares.
(b) In the event of a redemption on only a portion of the then outstanding
shares of Series E Preferred Stock, the Company will effect the redemption pro
rata according to the number of shares held by each holder of Parity Stock,
(c ) At least ten (10) days and not more than thirty (30) days prior to the
date fixed for any redemption under this subsection of the Series E Preferred
Stock or Parity Stock, written notice (the "Redemption Notice") will be mailed,
postage prepaid, to each holder of record of the Series E Preferred Stock and
Parity Stock at his or her post office address last shown on the records of the
Company. The Redemption Notice will state:
(1) whether all or less than all the outstanding shares of Series E
Preferred Stock and Parity Stock are to be redeemed and the total
number of shares of Series E Preferred Stock and Parity Stock being
redeemed;
(2) the number of shares of Series E Preferred Stock and Parity Stock held
by the holder that the Company intends to redeem;
(3) the Redemption Date and the Redemption Price; and
(4) that the holder is to surrender to the Company, in the manner and at
the place designated, his or her certificate or certificates
representing the shares of Series E Preferred Stock and Parity Stock
to be redeemed.
The Redemption Notice shall be deemed to have been given when deposited in the
United States mail, first-class mail, postage prepaid, whether or not such
notice is actually received. Any failure to mail the notice provided or any
defect in notice or in the mailing of notice will not affect the validity of the
proceedings for the redemption of any shares to be so redeemed.
(d) On or before the date fixed for redemption, each holder of Series E
Preferred Stock and Parity Stock will surrender the certificate or certificates
representing the shares of Series E Preferred Stock and Parity Stock to the
Company, in the manner and at the place designated in the Redemption Notice, and
the Redemption Price for the shares will be payable in cash on the Redemption
Date to the person whose name appears on the certificate or certificates as the
owner, and each surrendered certificate will be cancelled and retired. In the
event that less than all of the shares represented by any certificate are
redeemed, a new certificate will be issued representing the unredeemed shares.
(f) Unless the Company fails to pay in full the Redemption Price, dividends
on the Series E Preferred Stock called for redemption will cease to accumulate
on the Redemption Date, and all rights of the holders of the shares redeemed
36
will cease to have any further rights with respect to the shares on the
Redemption Date, other than to receive the Redemption Price. Upon the failure to
pay, as described in the immediately preceding sentence, the dividend rate for
such portion of unredeemed Series E Preferred Stock shall increase by two
percent (2%) on an annual basis until such time that the portion of the Series E
Preferred Stock and Parity Stock for which a failure to pay has occurred is
redeemed. In no event shall the applicable dividend rate pursuant to this
provision increase the rate of dividend payable on the outstanding Series E
Preferred Stock and Parity Stock above sixteen percent (16%) per annum.
(f) Subject to applicable law and the limitation on purchases when
dividends on the Series E Preferred Stock are in arrears, the Company may, at
any time and from time to time, purchase any shares of the Series E Preferred
Stock by tender or by private agreement. Other than as amended hereby, the
Certificate of Designation for the Series E Preferred Stock remains in full
force and effect.
C. Other than as amended hereby, the Certificate of Designation for the Series
E Preferred Stock remains in full force and effect.
IN WITNESS WHEREOF ThermoView Industries, Inc. has caused this Certificate to
be signed by its President on this 2nd day of May 2003.
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Name: Charles L. Smith
Title: President
37
Exhibit 4.8
FIFTH AMENDED CERTIFICATE OF DESIGNATION
OF
CUMULATIVE PREFERRED STOCK, SERIES D
OF
THERMOVIEW INDUSTRIES, INC.
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Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
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ThermoView Industries, Inc., a Delaware corpo