<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1998
REGISTRATION NO. 333-47669
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BLUE RHINO CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 5984 56-1870472
(STATE OR OTHER (PRIMARY (I.R.S.
JURISDICTION OF STANDARD EMPLOYER
INCORPORATION OR INDUSTRIAL IDENTIFICATION
ORGANIZATION) CLASSIFICATION NUMBER)
CODE NUMBER)
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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BILLY D. PRIM
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
104 CAMBRIDGE PLAZA DRIVE
WINSTON-SALEM, NORTH CAROLINA 27104
TELEPHONE (336) 659-6900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
SUSAN M. HERMANN LARRY A. BARDEN
PEDERSEN & HOUPT, P.C. SIDLEY & AUSTIN
161 N. CLARK STREET, SUITE 3100 ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60601 CHICAGO, ILLINOIS 60603
TELEPHONE (312) 641-6888 TELEPHONE (312) 853-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If the Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAW OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 22, 1998
PROSPECTUS
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2,700,000 SHARES
logo TK
COMMON STOCK
All of the 2,700,000 shares of Common Stock offered hereby are being sold by
the Company.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $12.00 and $14.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company will use approximately $10.3 million of the
proceeds of this offering to repay principal and accrued interest on loans to
the Company made or guaranteed by certain of its affiliates. See "Use of
Proceeds" and "Certain Transactions." The Common Stock has been approved for
quotation on the Nasdaq National Market under the symbol RINO.
--------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<S> <C> <C> <C>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
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Per Share........................ $ $ $
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Total (3)........................ $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company, estimated at $750,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 405,000 additional shares of Common Stock solely to cover over-
allotments, if any. If all such shares are purchased, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters subject to
prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1998 at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
NATIONSBANC MONTGOMERY SECURITIES LLC
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
, 1998
<PAGE>
[ON THIS PAGE WILL APPEAR (1) A PHOTOGRAPH OF A BLUE RHINO GRILL CYLINDER AND
(2) A GRAPH OF THE BLUE RHINO BUSINESS MODEL INCLUDING THE FLOW OF
TRANSACTIONS AMONG CONSUMERS, RETAILERS, DISTRIBUTORS AND BLUE RHINO]
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors and will
make available copies of quarterly reports for the first three quarters of
each fiscal year containing unaudited financial information.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
The Blue Rhino(R) name, rhino logo, RhinoTUFF(R) and Tri-Safe(TM) are
registered trademarks of the Company. This prospectus also includes trademarks
of companies other than the Company.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus.
THE COMPANY
Blue Rhino is a leading provider of grill cylinder exchange in the United
States with cylinder exchange displays at over 6,600 retail locations in 41
states. Cylinder exchange provides consumers with a convenient means to
exchange empty grill cylinders for clean, safer, precision-filled cylinders.
Blue Rhino cylinder exchange is offered at many of the major home
center/hardware, mass merchant, grocery and convenience stores such as Home
Depot, Lowe's, Sears Hardware, Wal Mart, Kroger and SuperAmerica. Blue Rhino
partners retailers and independent distributors to provide consumers a
nationally branded product as an alternative to traditional grill cylinder
refill. The Company is focused on promoting its Blue Rhino brand through
retailers and leveraging its network of 51 independent propane distributors.
Because the distributors make the necessary investments in distribution
infrastructure, Blue Rhino can dedicate its efforts and capital to brand
development, value-added marketing, customer service and management information
systems ("MIS"). During the twelve months ended January 31, 1998 the Company's
sales increased approximately 78% from the prior year's comparable period to
approximately $18.0 million as a result of the growth of sales at existing
locations and the addition of over 3,000 new retail locations.
Outdoor barbecuing is increasingly one of the most popular outdoor activities
in the United States driven by consumer trends to healthier food preparation
and the desire to spend more time outside at family and social gatherings. The
popularity of propane grills has increased significantly in recent years with
Barbecue Industry Association ("BIA") statistics indicating that propane grill
sales now exceed the combined sales of charcoal, natural gas and electric
grills. According to a 1997 survey conducted on behalf of the BIA,
approximately 38.5 million United States households own a propane grill, with
the average propane grill owner using 1.8 cylinders of propane per year. Based
on this study's estimate of 69.0 million cylinder transactions per year, the
Company believes the annual retail market for grill cylinder refills is
approximately $1.0 billion.
Blue Rhino is creating a new paradigm for the grill cylinder exchange market
which provides benefits to consumers, retailers and distributors. Blue Rhino
offers consumers a new, convenient, branded product alternative to grill
cylinder refilling. Blue Rhino provides retailers with a high margin, turn-key
branded service which has the potential to increase customer traffic and
utilization of exterior retail space. Blue Rhino's cylinder exchange program
provides independent distributors with a counter-seasonal complement to their
traditional propane business as well as access to major retail accounts,
sophisticated MIS and marketing support.
Blue Rhino's business strategy is to capitalize on its leading position in
this growing market by: (i) promoting the Blue Rhino brand, driving consumer
awareness and building consumer and retailer loyalty, (ii) expanding
relationships and increasing sales with retailers by opening new locations and
generating additional sales within existing retail accounts, (iii) leveraging
its national distributor network by aggressively increasing each distributor's
market penetration and the Company's overall profitability, (iv) pursuing
strategic acquisitions of smaller regional cylinder exchange businesses with
established retail accounts and (v) expanding on its national sales and
distribution capabilities by introducing new Blue Rhino products to the
backyard living category.
Blue Rhino was incorporated in North Carolina on March 24, 1994 and
reincorporated in Delaware on December 16, 1994. The Company has two wholly
owned subsidiaries, Rhino Services, L.L.C., a Delaware limited liability
company, ("Rhino Services") and CPD Associates, Inc., a North Carolina
corporation ("CPD"). Rhino Services offers centralized purchasing services to
the Company's distributors. CPD was formed to hold the Company's intangible
assets. Upon the completion of this offering, the Company's executive officers,
directors and entities affiliated with them will beneficially own, in the
aggregate, approximately 47.9% of the Company's outstanding Common Stock
(approximately 45.4% if the Underwriters' over-allotment option is exercised in
full). The Company maintains its executive offices at 104 Cambridge Plaza
Drive, Winston-Salem, North Carolina 27104. The Company's telephone number is
(336) 659-6900. The Company's web site is www.bluerhino.com which is not and
shall not be deemed to be a part of this Prospectus.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by 2,700,000 shares
the Company............
Common Stock to be
outstanding after the
offering............... 7,208,297 shares(1)
Use of proceeds......... To repay certain indebtedness and for other general
corporate purposes, including working capital and
possible future acquisitions.
Dividend policy......... The Company currently intends to retain its earnings for
future growth and, therefore, does not anticipate paying
any cash dividends in the foreseeable future. See "Divi-
dend Policy."
Risk factors............ An investment in the Common Stock offered hereby involves
a high degree of risk. See "Risk Factors."
Proposed Nasdaq National RINO
Market symbol..........
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA AND SELECTED OPERATING DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
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JULY 31, JULY 28, JULY 31, JANUARY 31, JANUARY 31,
1995 1996 1997 1997 1998
-------- -------- -------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales.................. $ 2,728 $ 8,216 $14,211 $ 4,509 $ 8,314
Gross profit............... (795) 316 2,567 503 1,943
Loss from operations (2)... (4,398) (6,130) (4,105) (2,043) (1,737)
Net loss (2)............... $(4,660) $(7,431) $(5,584) $(2,781) $(2,564)
Loss available to common
stockholders (3).......... $(5,055) $(8,067) $(6,271) $(3,120) $(2,932)
Basic and diluted loss per
share (2)................. $ (0.23) $ (0.37) $ (0.28) $ (0.14) $ (0.12)
Shares used in calculation
of net loss per share (4). 21,658 21,526 22,276 21,526 23,526
Pro forma basic and diluted
loss per share (5)........ $ (1.49) $ (0.65)
======= =======
Pro forma shares used in
calculation of net loss
per share (5)............. 4,328 4,508
SELECTED OPERATING DATA:
Retail locations (at period
end)...................... 1,608 2,981 4,400 3,116 6,600
Cylinder transactions
(000's)................... 306 769 1,239 387 715
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, 1998
----------------------
AS
ACTUAL ADJUSTED (6)
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(UNAUDITED)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 1,207 $11,067
Working capital.................................... 296 12,374
Total assets....................................... 11,995 21,955
Notes payable to bank.............................. 1,468 --
Long-term obligations, less current portion........ 19,357 992
Total stockholders' (deficit) equity............... (21,420) 20,527
</TABLE>
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(1) Based on the number of shares outstanding as of January 31, 1998, after
giving effect to the Recapitalization (as described in Note 2 to
"Capitalization"). Excludes (a) an aggregate of 982,607 shares of Common
Stock reserved for issuance under the Company's stock option plans, of
which 182,607 shares are subject to outstanding and vested options as of
the date hereof at a weighted average exercise price of $6.03 per share,
(b) 81,915 shares reserved for issuance pending the exercise of the
warrants issued to certain stockholders in January 1998 with an exercise
price equal to the price at which the shares offered hereby are sold
(assumed to be $13.00 per share) (the "1998 Warrants") and (c)
approximately 16,923 shares of Common Stock to be issued upon the
conversion of approximately $220,000 of dividends accruing on the Company's
outstanding shares of Series A Convertible Participating Preferred Stock
("Preferred Stock") between January 31, 1998 and the estimated consummation
of the offering. See "Capitalization," "Management--1994 Stock Incentive
Plan," "--1998 Stock Incentive Plan," "--Director Option Plan" and "--
Distributor Option Plan" and Note 20 of Notes to Financial Statements.
(2) Includes nonrecurring charges for fiscal 1996 and 1997 of $1,363 and
$1,084, respectively, and for the first six months of fiscal years 1997 and
1998 of $188 and $408, respectively. See Note 12 of Notes to Consolidated
Financial Statements.
(3) Includes net loss less Preferred Stock dividends of $395, $636, $687 and
$339 and $368 for fiscal years ended 1995, 1996, 1997 and the six months
ended January 31, 1997 and 1998, respectively.
(4) Based on the number of shares outstanding as of January 31, 1998, including
shares issuable upon the exercise of all outstanding stock options and
stock warrants as of such date.
(5) Based on the number of shares outstanding, including shares issuable upon
the exercise of all outstanding stock warrants, the conversion of Preferred
Stock and Preferred Stock dividends to Common Stock, the 1 for 13.22513
reverse stock split with respect to the Common Stock and, for January 31,
1998, the issuance of shares to Bison Propane Bottle Exchange, L.L.C. as
partial consideration for accounts and other assets acquired by the Company
in January 1998, all of which will be effected immediately prior to the
consummation of this offering.
(6) As adjusted to give effect to the Recapitalization (as described in Note 2
to "Capitalization") and to reflect the issuance and sale of 2,700,000
shares of Common Stock by the Company hereby at an assumed initial public
offering price of $13.00 per share and the application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
------------------
4
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, including
in particular, the ability of the Company to place Blue Rhino cylinder exchange
at additional retail locations. When used in this Prospectus, the words
"anticipates," "believes," "estimates," "expects" and similar expressions as
they relate to the Company or its management are intended to identify such
forward-looking statements. Such statements are subject to various risks and
uncertainties. Actual results could differ materially from those expressed in
such forward-looking statements due to a number of factors, including those
identified under "Risk Factors" and elsewhere in this Prospectus.
------------
All references to the "Company" and "Blue Rhino" mean Blue Rhino Corporation
and its subsidiaries, Rhino Services and CPD, unless the context indicates
otherwise. Except as otherwise noted, all information in this Prospectus
assumes no exercise of the Underwriters' over-allotment option and a
recapitalization to be effected immediately prior to the consummation of this
offering pursuant to which (i) all outstanding Preferred Stock will be
converted into Common Stock on a one share for one share basis, (ii) all
accrued dividends on the Preferred Stock will be converted into Common Stock
(iii) all outstanding warrants (except for the 1998 Warrants) will be converted
into Common Stock in a cashless exercise, (iv) the vesting of all outstanding
options, (v) the issuance of shares with respect to the Bison Acquisition (as
defined herein) and (vi) a 1 for 13.22513 reverse common stock split (the
"Recapitalization").
5
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully in addition to the
other information in this Prospectus before purchasing the shares of Common
Stock offered hereby.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. The Company
commenced operations in May 1994 and has not earned a profit in any period to
date. As of January 31, 1998, the Company had an accumulated deficit of
approximately $20.6 million. The Company had a net loss of approximately $5.6
million for fiscal 1997, and $2.6 million for the first six months of fiscal
1998. The Company also anticipates net losses in the quarter ending April 30,
1998. There can be no assurance that the Company will be able to operate
profitably in the future. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNCERTAINTY OF CONTINUED GROWTH; ABILITY TO MANAGE GROWTH. Over the past
several years the Company has experienced significant growth in its business
activities, including an increase in the number of retail locations offering
Blue Rhino cylinder exchange and the development of an independent distributor
network. As of July 31, 1995, the Company had 1,608 retail exchange locations,
substantially all of which were in the south/southeast region of the United
States and no independent distributor network. As of January 31, 1998, the
Company had 51 independent distributors servicing approximately 6,600 retail
locations in 41 states. The Company's future growth will depend in large part
on the Company's ability to continue to expand its number of retail locations
and increase sales within existing locations. This growth has required and
will continue to require skilled management of the Company and its retailer
and distributor relationships by the Company's executive officers, none of
whom have prior experience managing a public company. The Company remains
subject to the risks and uncertainties inherent in the growth of a business in
its industry, including finding productive new retail locations, displaying to
consumers the benefits of cylinder exchange, maintaining relationships with
competent distributors, refining and maintaining a management infrastructure
sufficient to support growth and securing access to capital to fund growth.
The Company's failure to effectively manage any such growth, including its
ability to accurately forecast the pace of retail location and sales growth,
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
SEASONAL AND QUARTERLY FLUCTUATIONS. The Company's business is subject to
seasonal fluctuations, especially in colder regions of the United States,
which have caused, and are expected to continue to cause, significant
fluctuations in its quarterly results of operations. The Company anticipates
that it will derive the majority of its operating revenues from the spring and
summer seasons when consumers are more likely to grill out, which coincide
with the Company's third and fourth fiscal quarters (quarters ending in April
and July, respectively). Sustained periods of poor weather, particularly in
the spring and summer seasons, can negatively impact sales and gross margin.
The Company's timing and rate of establishing new retail locations and
expenses incurred in anticipation of increased sales also have caused, and may
continue to cause, quarterly fluctuations in the Company's results of
operations. Accordingly, the results of operations in any quarter will not
necessarily be indicative of the results that may be achieved for a full
fiscal year or any future quarter. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Selected Quarterly Results
of Operations."
CONCENTRATION OF CUSTOMER ACCOUNTS. The Company depends upon its
relationships with a limited number of major retailers for a significant
portion of its sales. Home Depot, Lowe's and Wal Mart each represented in
excess of 10% of the Company's sales for fiscal 1997 and the first six months
of fiscal 1998. These retailers, as a group, represented approximately 58% of
the Company's sales for fiscal 1997 and 49% for the first six months of fiscal
1998 with Home Depot representing 29% and 30%, respectively, of the Company's
sales for these periods. As a result, the Company's success depends, in part,
upon the business success and growth of such retailers and such retailers'
willingness to offer Blue Rhino cylinder exchange. There can be no assurance
that the Company will be able to maintain relationships with these retailers
or significantly increase the number of their stores at which Blue Rhino
cylinder exchange is offered. Failure to
6
<PAGE>
maintain relationships with or increase penetration with any of these
retailers or any significant downturn in the business or financial condition
of any such retailer could have a material adverse effect on the Company's
business, financial condition and results of operations.
LACK OF CONTRACTUAL RELATIONSHIPS WITH RETAILERS. None of the Company's
retail accounts is contractually bound to offer Blue Rhino cylinder exchange.
In the absence of contracts, there can be no assurance that retailers will
continue to provide Blue Rhino cylinder exchange or that they will not offer a
competitor's cylinder exchange program. Continued relations with a retailer
depend upon various factors, including customer service, consumer demand,
competition and cost. Termination of the Company's business relations with any
retailer representing a significant number of the Company's locations or the
unwillingness of any such retailer to expand its relationship with the Company
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "--Volatile Product; Potential
Product Liability."
DEPENDENCE ON CONSUMER ACCEPTANCE OF A NEW RETAILING CONCEPT. The
availability of cylinder exchange at major retailers is a relatively new
retailing concept and there can be no assurance that this concept will be
widely accepted by consumers or retailers. According to a 1997 survey (the
"1997 BIA Study") conducted on behalf of the Barbecue Industry Association
("BIA"), traditional grill cylinder refilling, rather than cylinder exchange,
currently accounts for approximately 79% of consumer propane sales. The
Company's success will depend in large part on whether consumers begin to
select cylinder exchange over traditional refilling methods and whether
retailers begin to and continue to offer cylinder exchange.
DEPENDENCE ON DISTRIBUTOR RELATIONSHIPS. The Company relies exclusively on
independent distributors to deliver its products to retailers. The Company's
success will depend, in part, on its ability to successfully maintain existing
distributor relationships and on the ability of the distributors to set up and
adequately service Blue Rhino's retail accounts. There can be no assurance
that the Company will be successful in maintaining such relationships or that
such relationships will ultimately result in the sales anticipated by the
Company. While the Company establishes performance goals with its
distributors, it exercises only limited influence over the resources that any
particular distributor devotes to cylinder exchange. The Company could suffer
a loss of consumer or retailer goodwill if its distributors do not adhere to
the Company's quality control and service guidelines or fail to ensure an
adequate and timely supply of cylinders. If any distributor were to
discontinue servicing one or more retailers or terminate its distributor
agreement with the Company, the Company's business in that distributor's
territory would be adversely affected until the Company retained and developed
a replacement distributor. In addition, failure of a distributor to adequately
service locations of national retailers also may result in the loss of
affiliated locations served by other distributors. In the event the Company is
not successful in attracting, developing and maintaining successful
distributors, the Company's business, financial condition and results of
operations could be materially adversely affected. See "Business--Distributor
Network."
CONCENTRATION OF ACCOUNTS WITH CERTAIN DISTRIBUTORS. Approximately 66% of
the Company's retail locations are serviced by five of the Company's 51
distributors. Sales by these key distributors resulted in approximately 54.5%
and 52.3% of the Company's revenues for fiscal 1997 and the first six months
of fiscal 1998, respectively. Platinum Propane Holding, L.L.C. and its
subsidiaries (collectively, "Platinum Propane") accounted for approximately
37% and 34% and Ceramic Industries, Inc. accounted for approximately 7.5% and
10.0% of the Company's revenues, for fiscal 1997 and the first six months of
fiscal 1998, respectively. The other three key distributors for the fiscal
year ended July 31, 1997 and the six months ended January 31, 1998, were North
Star Exchange, Inc., Aero Oil Company and Liberty Fuels. A disruption in
service by one or more of these key distributors would adversely affect the
Company's results of operations. The inability of one or more of these key
distributors to adequately service designated retail accounts also could have
a material adverse effect on the Company's business, financial condition and
results of operations.
7
<PAGE>
ENFORCEMENT OF REMEDIES AGAINST DISTRIBUTORS OWNED BY AFFILIATES. Billy D.
Prim and Andrew J. Filipowski, the Chairman and Chief Executive Officer and
the Vice Chairman of the Company, respectively, indirectly own approximately
40% of Platinum Propane, the Company's largest distributor measured by
locations served and sales revenues generated. In addition, Messrs. Filipowski
and Prim own in the aggregate approximately 45% of each of Caribou Cylinder
Exchange, L.L.C. ("Caribou Propane") and Javilina Cylinder Exchange, L.L.C.
("Javilina Propane"), two of the Company's distributors. In the event any of
Platinum Propane, Caribou Propane or Javilina Propane fail to meet performance
goals, the cross-ownership of these distributors and Blue Rhino could reduce
the Company's incentive to terminate distribution agreements or take other
actions against any of them. See "Business--Distributor Network--Dedicated
Distributors" and "Certain Transactions."
VARYING LOCAL PERMITTING PROCESSES. The storage and sale of propane
cylinders is subject to local permitting of each retailer location depending
on local ordinance. Such ordinances have had and can be expected to have an
increasing influence on the acceptance of cylinder exchange by retailers,
distribution methods, cylinder packaging and storage. The ability and timing
of obtaining necessary permits varies from jurisdiction to jurisdiction and
delays in obtaining permits have from time to time delayed installation of new
retail locations. In addition, some jurisdictions have refused to issue the
necessary permits and thereby prevented a limited number of installations.
There can be no assurance that certain jurisdictions in which the Company
operates will not impose additional restrictions on the Company's ability to
market and the distributors' ability to maintain the cylinder exchange
program. Revisions to these regulations or the failure of the Company or its
distributors to adhere to terms of current and future regulations could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Governmental Regulation."
COMPETITION. The grill cylinder refilling industry is highly fragmented and
intensely competitive. The Company competes primarily on the basis of quality
of product, service, perceived safety and price. The 1997 BIA Study results
indicated that approximately 79% of the retail demand for grill cylinders was
provided by traditional propane refilling stations rather than exchange. The
Company's primary competition comes from the approximately 20,000 bulk
refilling stations owned and operated by propane dealers, as well as certain
rental outlets, recreational vehicle centers and hardware stores. Major
propane providers such as AmeriGas Propane Partners, L.P. and Suburban Propane
Partners, L.P. offer cylinder exchange in limited locations and could expand
their cylinder exchange business nationally. These major propane providers
have greater resources than the Company and may be able to undertake more
extensive marketing campaigns and adopt more aggressive pricing policies than
the Company. The Company also competes with numerous regional cylinder
exchange programs which typically have operated in one or two states. There
can be no assurance that these competitors will not expand their cylinder
exchange programs nationwide. Furthermore, there can be no assurance that the
Company will be able to compete effectively with current or future competitors
or that the competitive pressures faced by the Company will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
ABILITY TO GROW THROUGH ACQUISITION OF ACCOUNTS. A component of the
Company's growth strategy is the acquisition of retail accounts from competing
local and regional exchange providers. The Company's ability to expand
successfully through acquisitions of retail accounts depends on many factors,
including the successful identification of quality retail accounts, the
ability of the Company's distributors to adequately service such acquired
accounts and the ability of the Company and the distributor to convert the
acquired retail accounts to Blue Rhino cylinder exchange. In addition, there
can be no assurance that acquired retail accounts will achieve anticipated
sales. The Company anticipates competition for acquisitions from regional and
national propane distributors in selected areas. Within the past twelve months
the Company has acquired the rights to provide cylinder exchange at
approximately 1,800 retail locations through five acquisitions (the
"Acquisitions"), including 750 locations from Bison Propane Bottle Exchange,
L.L.C. (the "Bison Acquisition") and intends to make select acquisitions in
the future. The failure of the Company to execute its acquisition strategy
successfully could have a material adverse effect on the Company's business,
financial
8
<PAGE>
condition and results of operations. See "Business--Business Strategy--Pursue
Strategic Account Acquisitions."
VOLATILE PRODUCT; POTENTIAL PRODUCT LIABILITY. Propane is a gas which, if
exposed to flame or high pressure, may ignite or explode, potentially causing
significant property damage and/or bodily harm. No assurance can be given that
accidents will not occur during the refurbishing, refilling, transport,
storage, exchange, use or disposal of Blue Rhino cylinders. The Company
believes that, because the Blue Rhino name and rhino logo are prominently
displayed on all the Company's cylinders and cylinder displays, the Company
could be subjected to claims for damage under various legal theories,
including negligence and strict liability. In any such event, the Company
could incur substantial expense, receive adverse publicity and/or suffer a
loss of sales. A grill cylinder-related accident involving personal injury,
particularly if occurring at a retail location, could result in product
liability actions against the Company or its distributors and could affect the
willingness of retailers to offer cylinder exchange. Adverse publicity
relating to any such incident could also affect the Company's reputation and
the perceived benefits of cylinder exchange. Furthermore, there can be no
assurance that insurance will provide sufficient coverage in any particular
case or that the Company or its distributors will be able to continue to
obtain insurance coverage at acceptable levels and cost in the future.
PRODUCT RECALLS AND PRIOR ACCIDENTS. Prior to May 1996, the Company operated
a propane refilling facility in Booneville, North Carolina. In July 1995, the
Company experienced an explosion at this facility when a filled cylinder fell
from a conveyor belt, began to leak and subsequently ignited. This explosion
resulted in significant structural damage to the plant. In September 1997, one
of the Company's distributors had a fire at its cylinder refurbishing facility
when a cylinder was left unattended on a sleeve application machine and caught
fire. In August 1997, Rotorix, Inc., the distributor of Ceodux cylinder
valves, issued a recall of Ceodux valves placed on Worthington cylinders after
July 16, 1997. The Company instructed distributors to inventory the cylinders
at their plants and retail locations and remove any cylinders with the
recalled valves. There can be no assurance that damage or injury will not
occur as a result of faulty valves or that future product failures or
accidents will not occur. Future accidents or faulty products which result in
injuries or death could have a material adverse effect on the Company's
business, financial condition and results of operations.
GEOGRAPHIC CONCENTRATION. As of January 31, 1998, approximately 38% of the
Company's retail locations were in, and 57% of its revenues were derived from
the south/southeast region of the United States. Should this region, or a
substantial portion of it, experience weather or other conditions which reduce
consumers' inclination to grill or use the Company's cylinder exchange
program, such geographic concentration may have an adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE UPON A SINGLE PRODUCT; POTENTIAL ADVERSE EFFECT OF CHANGE IN
CONSUMER LIFESTYLE TRENDS OR BUYING PATTERNS. The Company's sole line of
business is the marketing and implementation of its cylinder exchange program.
According to the 1997 BIA Study, approximately 21% of consumers exchange their
grill cylinders while approximately 79% of consumers refill their grill
cylinders. There can be no assurance that cylinder exchange programs can
capture increased market share from refills. In addition, should electric
grills, quicker lighting charcoal or more fuel-efficient propane grills be
developed and gain popularity at the expense of currently available propane
grills, lifestyle trends or consumer preferences change or cylinder exchange
fail to be accepted by consumers, the Company would experience a material
adverse effect on its business, financial condition and results of operations.
REGULATION OF PROPANE. The transportation, handling, storage and sale of
propane is subject to regulation by authorities on a federal, state and local
level in order to protect consumers, employees, property and the environment.
The handling of propane in most regions of the United States is governed by
guidelines published by the National Fire Protection Association ("NFPA") in
Pamphlets 54 and 58. The NFPA has also recently revised guidelines concerning
the type of valve used on grill cylinders; all cylinders produced or
9
<PAGE>
recertified after September 30, 1998 must be fitted with an overfill
prevention device valve ("OPD Valve"). Failure of the Company's distributors
to comply with these regulations could subject the Company to potential
governmental action for violation of such regulations which could result in
fines, penalties and/or injunctions. See "Business--Governmental Regulation."
DEPENDENCE ON KEY PERSONNEL. The Company believes that its success will
depend to a significant extent upon the services of Billy D. Prim, the
Company's founder, President and Chief Executive Officer, as well as its
ability to attract and retain highly qualified personnel in the future. The
Company faces competition for such personnel from other companies and
organizations and there can be no assurance that the Company will be
successful in hiring or retaining qualified personnel. The Company does not
have a written employment agreement with Mr. Prim or any other employee and
such employees could leave the Company with little or no prior notice. The
Company's loss of Mr. Prim's services or the Company's inability to hire or
retain key personnel in the future could have a material adverse effect on the
Company's business, financial condition and results of operations.
DEPENDENCE ON VENDORS. The Company uses a number of third party vendors to
provide it with staffing and services in strategic areas. In particular, the
Company's staff of five management information systems ("MIS") professionals
relies heavily on the support of Information Management System Services
("IMSS"), a division of R. J. Reynolds Tobacco Company, as well as five other
information systems vendors. Customer service support is handled entirely
outside the Company by Ruppman Marketing Technologies, Inc. Any disruptions in
these relationships could affect the Company's ability to service its accounts
and could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Retailer Relationships--
Customer Service" and "--Management Information Systems."
DEPENDENCE ON MANAGEMENT INFORMATION SYSTEMS; YEAR 2000 COMPLIANCE. The
Company depends on its MIS to process orders, manage inventory and accounts
receivable collections, maintain distributor and customer information, assist
distributors in delivering products on a timely basis and in maintaining cost-
efficient operations. Any disruption in the operation of the Company's MIS,
the loss of employees knowledgeable about such systems or the Company's
failure to continue to effectively modify such systems as its business expands
could have a material adverse effect upon the Company's business, financial
condition and results of operations. See "Business--Management Information
Systems." Certain of the Company's MIS use two digit data fields which
recognize dates using the assumption that the first two digits are "19" (i.e.,
the number 97 is recognized as the year 1997). Therefore, the Company's date
critical functions relating to the year 2000 and beyond, such as sales,
distribution, inventory control and financial systems, may be adversely
affected unless changes are made to these computer systems. The Company
expects that upgrades to its MIS with respect to the year 2000 problem will
require capital expenditures of approximately $35,000. However, no assurance
can be given that these issues can be resolved in a cost-effective or timely
manner or that the Company will not incur significantly greater expense in
resolving these issues.
DEPENDENCE ON TRADEMARKS, PROPRIETARY INFORMATION AND COPYRIGHTS. The
Company considers its trademarks, particularly the Blue Rhino brand name and
rhino logo and the design of its product packaging to be of considerable value
to its business and the establishment of its national branded cylinder
exchange program. The Company relies on a combination of copyright and
trademark laws and other arrangements to protect its proprietary rights. To
enforce its rights under copyright or trademark laws, the Company may be
required to incur substantial expense which could have a material adverse
effect on the Company's business, financial condition and results of
operations. The requirement to change any trademark, service mark or trade
name of the Company would result in the loss of any goodwill associated with
that trademark, service mark or trade name, could entail significant expense
and could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company may apply for copyrights and
additional trademarks in the future. There can be no assurance that future
applications will be granted or that any issued copyrights or trademarks will
provide competitive advantages to the Company or will not be successfully
challenged or circumvented by competitors or other third parties.
10
<PAGE>
UNPREDICTABLE PROPANE SUPPLIES AND COSTS. The Company's distributors
purchase propane from natural gas providers and oil refineries which produce
propane as a by-product of the refining process. The supply and price of
propane fluctuates depending upon underlying natural gas and oil prices and
the ability of suppliers to deliver propane. While the Company's distributors
are responsible for procuring propane, an increase in propane prices could
lead to decreased profit margins for distributors and adversely affect their
ability or desire to service the Company's retail accounts.
DEPENDENCE ON SUPPLIERS. To adequately service the Company's retail
accounts, the Company's distributors need a sufficient supply of cylinders and
valves. To facilitate the supply of cylinders, the Company provides its
distributors the option to enter into supply agreements with Manchester Tank
and Equipment Co., Inc. There can be no assurance that sufficient quantities
of cylinders will be available in the future. In addition, the Company has
loaned $635,000 to Bison Valve, L.L.C. ("Bison Valve"), an entity formed to
develop and produce an OPD Valve with the intention of marketing its valve to
Blue Rhino distributors. There can be no assurance that the OPD Valve produced
by Bison Valve will obtain the necessary regulatory approvals or that Bison
Valve will be able to produce a sufficient number of OPD Valves to fulfill the
needs of the Company's distributors. If the distributors were unable to obtain
sufficient quantities of cylinders, valves or propane, delays or reductions in
cylinder availability could occur which would have a material adverse effect
on the Company's business, financial condition and results of operations.
LAWS GOVERNING SALES OF FRANCHISES OR BUSINESS OPPORTUNITIES. Various state
and federal laws define and govern the sale of franchises and business
opportunities. These laws require, among other things, that sellers of
franchises and business opportunities register such offerings with
governmental authorities and provide prescribed disclosure documents to
potential purchasers. The Company believes that its relationships with
distributors are not subject to such laws. If the Company's activities were
considered to involve the sale of franchises or business opportunities,
distributors could have recourse against the Company, including the ability to
rescind their distribution agreements and recover monetary damages. In
addition, the Company could be subject to potential governmental action for
violation of such laws which could result in fines, penalties, injunctions or
a combination thereof.
CONTROL BY EXISTING STOCKHOLDERS. Upon completion of this offering, current
executive officers, directors and entities affiliated with them will
beneficially own, in the aggregate, approximately 47.9% of the Company's
outstanding Common Stock (approximately 45.4% if the Underwriters' over-
allotment option is exercised in full). As a result, these stockholders will
be able to elect the entire Board of Directors and will retain the voting
power to control all matters requiring stockholder approval, including
approval of significant corporate transactions, provided that they vote
together on such matters. Such a concentration of ownership may have the
effect of delaying or preventing a change in control of the Company, and also
may impede or preclude transactions in which stockholders might otherwise
receive a premium for their shares over then current market prices.
MANAGEMENT'S DISCRETION AS TO USE OF UNALLOCATED NET PROCEEDS; BENEFITS TO
EXISTING STOCKHOLDERS. The Company has designated a specific use for only a
portion of the net proceeds to the Company resulting from the sale of Common
Stock in this offering. The Company expects to use approximately $27.8 million
of such net proceeds to retire outstanding indebtedness and certain lease
obligations, of which approximately $10.3 million is owed to or guaranteed by
certain of its directors and officers, or entities affiliated with them. The
remainder of the proceeds will be used for working capital and other general
corporate purposes and possible future acquisitions. Consequently, the Board
of Directors and management of the Company will have discretion in allocating
a portion of the net proceeds to the Company from this offering. In addition
to the repayment of outstanding indebtedness of which a portion is held by
existing stockholders, existing stockholders will benefit from this offering
as a result of an increase in the market value and liquidity of their
investments in the Company. See "Use of Proceeds," "Principal Stockholders"
and "Certain Transactions."
11
<PAGE>
FUTURE CAPITAL REQUIREMENTS. The Company anticipates that continuing
operations and the expansion of the Company's business will require
substantial expenditures. After application of the net proceeds of this
offering, the Company may need to borrow funds or issue debt or equity
securities to sustain continuing operations and growth if cash flow from
operations is not sufficient. There can be no assurance that the Company will
be able to obtain additional capital resources on terms acceptable to the
Company. Any additional equity financing, if available, may be dilutive to the
Company's stockholders, and any debt financing, if available, may involve
restrictive covenants which limit the Company's operations and/or ability to
issue dividends. The Company's inability to fund its capital requirements
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to this
offering, there has been no public market for the Common Stock, and there can
be no assurance that an active public market for the Common Stock will develop
or, if one develops, that it will be sustained. The initial public offering
price for the shares of Common Stock offered hereby was determined by
negotiation between the Company and the representatives of the Underwriters
(as defined herein) based upon several factors and may not be indicative of
the market price of the Common Stock after this offering. See "Underwriting."
The market price of the Common Stock may be volatile and could be adversely
affected by fluctuations in the Company's operating results, the failure of
the Company's operating results to meet the expectations of research analysts
or investors, changes in research analysts' recommendations regarding the
Company, general market conditions, or other events and factors, some of which
may be beyond the Company's control. In addition, the equity markets have from
time to time experienced extreme price and volume fluctuations that often have
been unrelated or disproportionate to the performance of a particular company.
IMMEDIATE AND SUBSTANTIAL DILUTION. The initial public offering price per
share is substantially higher than the net tangible book value per share of
Common Stock. New investors purchasing Common Stock in this offering
accordingly will incur immediate dilution of $10.32 in the net tangible book
value per share of Common Stock purchased (at an assumed initial public
offering price of $13.00 and after the deduction of underwriting discounts and
commissions and estimated offering expenses payable by the Company). See
"Dilution."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Sales of substantial
amounts of the Common Stock in the public market following this offering
(including shares issued upon the exercise of stock options and warrants) or
the perception that such sales might occur could adversely affect the market
price of the Common Stock and the Company's ability to raise additional equity
capital. Upon completion of the offering, the Company will have 7,225,220
shares of Common Stock outstanding. Of these outstanding shares, the 2,700,000
shares of Common Stock sold in this offering will be freely tradeable without
restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), unless held by an "affiliate" of the Company,
as that term is defined under Rule 144 of the Securities Act, which shares
will be subject to certain resale limitations of Rule 144. Certain
stockholders of the Company, including the executive officers and directors,
who will own in the aggregate 3,581,027 shares of Common Stock after the
offering, have agreed that they will not, without the prior written consent of
Hambrecht & Quist LLC, directly or indirectly sell, offer, contract to sell,
transfer the economic risk of ownership in, make any short sale, pledge or
otherwise dispose of any shares of Common Stock or any securities convertible
or exchangeable for or any other rights to purchase or acquire Common Stock
owned by them during the 180-day period following the date of this Prospectus.
The Company has agreed that it will not, without the prior written consent of
Hambrecht & Quist LLC, directly or indirectly sell, offer, contract to sell,
transfer the economic risk of ownership in, make any short sale, pledge or
otherwise dispose of any shares of Common Stock or any securities convertible
or exchangeable for or any other rights to purchase or acquire Common Stock
during the 180-day period following the date of this Prospectus, except that
the Company may issue shares upon the exercise of options granted prior to the
date hereof, and may grant additional options under its stock option plans,
provided, that, without the prior written consent of Hambrecht & Quist LLC,
such additional options shall not be exercisable during such period. Upon
expiration of such 180-day period, all of the shares of Common Stock subject
to
12
<PAGE>
such agreements will be eligible for sale subject, in certain cases, to
certain volume and other limitations of Rule 144 under the Securities Act
applicable to affiliates of the Company. Following consummation of this
offering, the Company intends to file registration statements under the
Securities Act to register the sale of 182,607 shares of Common Stock reserved
for issuance under the 1994 Stock Incentive Plan (the "1994 Stock Incentive
Plan"), 300,000 shares of Common Stock reserved for issuance under the 1998
Stock Incentive Plan (the "1998 Stock Incentive Plan"), 100,000 shares of
Common Stock reserved for issuance pursuant to the Company's Non-Employee
Director Stock Option Plan (the "Director Option Plan") and 400,000 shares
reserved for issuance under the Distributor Incentive Stock Option Plan (the
"Distributor Option Plan"). Upon expiration of the lock-up agreements referred
to above, holders of approximately 2,757,526 shares of Common Stock will be
entitled to certain registration rights, at the Company's expense, with
respect to such shares. The sale of a substantial number of shares, whether
pursuant to a subsequent public offering, the exercise of registration rights
or otherwise, or the perception that such sales could occur, could adversely
affect the market price of the Common Stock and could materially impair the
Company's future ability to raise capital through an offering of equity
securities. See "Shares Eligible for Future Sale."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,700,000 shares of
Common Stock offered hereby by the Company are estimated to be $31,893,000
($36,789,450 if the Underwriters' over-allotment option is exercised in full)
at an assumed initial public offering price of $13.00 per share after
deducting the underwriting discount and estimated offering expenses. The
Company intends to use approximately $27.8 million of net proceeds from this
offering for repayment of substantially all outstanding indebtedness,
including approximately $10.3 million owed to or guaranteed by the Company's
officers, directors or entities affiliated with them, of which approximately
$3.1 million of indebtedness was incurred to fund the Acquisitions. The
Company expects to use the remaining approximately $4.1 million of net
proceeds for general corporate purposes, including working capital and
possible future acquisitions, although at this time the Company has no
agreements, understandings or commitments with respect to any such
acquisitions. The Company's outstanding indebtedness consists of: (i)
approximately $16.4 million ($15.1 million as of January 31, 1998) of senior
discount notes (the "Senior Discount Notes") due October 11, 2000 which bear
interest at 10.5% per annum, the proceeds of which were used to fund
development of the Company, (ii) approximately $5.5 million ($1.5 million as
of January 31, 1998) outstanding under a $9.0 million bank credit facility
with NationsBank, N.A. (the "Bank Credit Facility") due on November 30, 1998
which bears interest at 9.0% per annum, of which approximately $2.3 million
was used to fund three of the Acquisitions and the remainder of which was used
for working capital of the Company, (iii) approximately $2.5 million ($2.2
million as of January 31, 1998) to purchase cylinder displays which are
financed under a $3.0 million operating lease facility and (iv) approximately
$3.4 million ($3.3 million as of January 31, 1998) outstanding under
subordinated loans from four stockholders of the Company ("1998 Stockholder
Loans"). The 1998 Stockholder Loans bear interest at 10.5% per annum and are
due on the earlier of December 31, 2000 or the consummation of a public
offering of securities by the Company the net proceeds of which are at least
$30.0 million. A portion of the proceeds of the 1998 Stockholder Loans was
used to make a $635,000 convertible loan to Bison Valve and for additional
working capital. Pending such uses, the net proceeds of this offering will be
invested in short term investment grade, interest bearing securities. See
"Risk Factors--Management's Discretion as to Use of Unallocated Net Proceeds;
Benefits to Existing Stockholders," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Business--Business Strategy--Pursue Strategic Account
Acquisitions" and "Certain Transactions."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on shares of its
Common Stock. The Company currently intends to retain its earnings for future
growth and, therefore, does not anticipate paying any cash dividends in the
foreseeable future. The payment of cash dividends in the future will be at the
discretion of the Board of Directors and may be prohibited under any then
existing financing agreements. There can be no assurance that the Company will
pay any dividends in the future.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
January 31, 1998 (i) on an actual basis, (ii) on a pro forma basis after
giving effect to the Recapitalization (as defined in Note 2 below) and (iii)
on a pro forma basis as adjusted to reflect the issuance and sale by the
Company of the shares offered hereby at an assumed initial public offering
price of $13.00 per share and the application of the estimated net proceeds
therefrom. See "Use of Proceeds." This table should be read in conjunction
with the Consolidated Financial Statements and the Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 31, 1998
----------------------------
PRO AS
ACTUAL FORMA ADJUSTED
-------- -------- --------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C>
Short-term obligations........................... $ 2,490 $ 1,740 $ 272
-------- -------- --------
Long-term obligations, less current portion (1).. 19,357 19,357 992
-------- -------- --------
Series A Convertible Participating Preferred
Stock, par value $0.001, 20,796,172 shares
authorized, issued and outstanding (actual)..... 9,304 -- --
-------- -------- --------
Stockholders' deficit:
Common Stock, par value $0.001, 68,000,000
shares authorized; 23,526,456 shares issued
and outstanding (actual); 4,508,297 shares
issued and outstanding (pro forma); and
100,000,000 authorized, 7,208,297 issued and
outstanding (as adjusted) (2)................. 23 5 7
Preferred Stock, par value $0.001, 20,000,000
shares authorized; no shares issued and
outstanding................................... -- --
Additional paid-in capital..................... -- 10,072 41,963
Accumulated deficit............................ (21,443) (21,443) (21,443)
-------- -------- --------
Total stockholders' equity (deficit)......... (21,420) (11,366) 20,527
-------- -------- --------
Total capitalization....................... $ 9,731 $ 9,731 $ 21,791
======== ======== ========
</TABLE>
- ---------------------
(1) See Note 9 of Notes to Consolidated Financial Statements.
(2) Reflects the Recapitalization pursuant to which the Company will effect
(i) a 1 for 13.22513 reverse stock split (the "Reverse Stock Split") with
respect to the Common Stock, (ii) the conversion of all outstanding shares
of Series A Convertible Participating Preferred Stock ("Preferred Stock")
into 1,572,474 shares of Common Stock, (iii) the conversion of the
$2,084,918 accrued dividend on the Preferred Stock (the "Preferred
Dividend") into 160,378 shares of Common Stock, (iv) the cashless exercise
of outstanding warrants, except for the 1998 Warrants, to purchase 938,832
shares of Common Stock and (v) the issuance of 57,692 shares of Common
Stock to Bison Propane Bottle Exchange, L.L.C. as partial consideration
for accounts and other assets acquired by the Company in January 1998 (the
"Bison Acquisition"). Excludes (a) the issuance of 81,915 shares of Common
Stock reserved for issuance upon exercise of the 1998 Warrants at an
exercise price of $13.00 per share, (b) an aggregate of 982,607 shares of
Common Stock reserved for issuance under the 1994 Stock Incentive Plan,
1998 Stock Incentive Plan, Director Option Plan and the Distributor Option
Plan, of which 182,607 shares are subject to outstanding and vested
options as of the date hereof at a weighted average exercise price of
$6.03 per share and (c) approximately 16,923 shares of Common Stock to be
issued upon the conversion of approximately $220,000 of dividends accruing
on the Preferred Stock between January 31, 1998 and the estimated
consummation of the offering. See "Description of Capital Stock," "Certain
Transactions," "Management--1994 Stock Incentive Plan," "--1998 Stock
Incentive Plan," "--Director Option Plan," and "--Distributor Option
Plan."
15
<PAGE>
DILUTION
As of January 31, 1998 the Company had a pro forma negative net tangible
book value of $(12,604,000) or $(2.80) per share of Common Stock. The pro
forma negative net tangible book value per share represents the amount of the
Company's total tangible assets less its total liabilities divided by the
number of shares of Common Stock outstanding, after giving effect to the
Recapitalization. (The negative net tangible book value as of January 31, 1998
prior to giving effect to the Recapitalization was $(22,658,000) or $(0.96)
per share.) The pro forma negative net tangible book value per share does not
include the issue of 81,915 shares of Common Stock reserved for issuance upon
the exercise of the 1998 Warrants at an exercise price of $13.00 per share or
182,607 shares of Common Stock reserved for issuance upon the exercise of
vested options with a weighted average exercise price of $6.03 per share which
were granted under the 1994 Stock Incentive Plan. Without taking into account
any changes in net tangible book value after January 31, 1998, other than to
give effect to the sale by the Company of 2,700,000 shares offered hereby (at
an assumed initial public offering price of $13.00 per share, after deducting
the underwriting discount and estimated offering expenses), the Company's pro
forma net tangible book value at January 31, 1998 would have been $19,289,000,
or $2.68 per share. This represents an immediate dilution in pro forma
negative net tangible book value of $10.32 per share to investors purchasing
shares in this offering and an immediate increase in pro forma net tangible
book value of $5.48 per share to existing stockholders. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $13.00
Pro forma net tangible book value per share before the
offering................................................... $(2.80)
Increase per share attributable to new investors............ 5.48
------
Pro forma net tangible book value per share after the
offering..................................................... 2.68
------
Dilution per share to new investors........................... $10.32
======
</TABLE>
The following table summarizes, on a pro forma basis, as of January 31,
1998, the differences between existing stockholders and the new investors with
respect to the number of shares of Common Stock purchased from the Company,
the total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
-------------------- ------------------ AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ---------- ------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 4,508,297 62.5% $ 9,327 21.0% $ 2.07
New investors........... 2,700,000 37.5 35,100 79.0 13.00
--------- ----- ------- -----
Total................. 7,208,297 100.0% $44,427 100.0%
========= ===== ======= =====
</TABLE>
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial
Statements, including the Notes thereto, appearing elsewhere in this
Prospectus. The selected consolidated financial data for the fiscal years
ended July 31, 1995, July 28, 1996 and July 31, 1997 are derived from the
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus that have been audited by Coopers & Lybrand L.L.P., independent
auditors. The selected financial data for the period from the commencement of
operations on July 1, 1994 through July 31, 1994 are derived from the
financial statements of the Company not included in this Prospectus that have
been audited by The Daniel Professional Group, Inc., independent auditors. The
selected consolidated financial data for the six months ended January 31, 1997
and 1998 are derived from unaudited financial statements which, in the opinion
of management of the Company, reflect all adjustments, including normal
recurring adjustments, that the Company considers necessary for a fair
presentation of the consolidated financial position and results of operations
for these periods. The operating results for the periods presented are not
necessarily indicative of the results to be expected for any other interim
period or any other future fiscal year.
The statement of operations data for the fiscal years ended June 30, 1993
and June 30, 1994 and the balance sheet data as of June 30, 1993 and June 30,
1994, are derived from unaudited financial statements of the Predecessor
Company (defined below) which, in the opinion of management of the Company,
reflect all adjustments, consisting only of normal recurring adjustments, that
the Company considers necessary for a fair presentation of the financial
position and results of operations for such period.
<TABLE>
<CAPTION>
PREDECESSOR SIX MONTHS
COMPANY(1) FISCAL YEAR ENDED ENDED
----------------- ------------------------------------- JANUARY 31,
JUNE 30, JUNE 30, JULY 31, JULY 31, JULY 28, JULY 31, ----------------
1993 1994 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AND (UNAUDITED)
SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales--
distributors.......... $ -- $ -- $ -- $ -- $ 2,386 $13,060 $ 3,501 $ 8,314
Net sales--direct...... 233 393 56 2,728 5,830 1,151 1,008 --
----- ----- ------ ------- ------- ------- ------- -------
Total net sales........ 233 393 56 2,728 8,216 14,211 4,509 8,314
Cost of sales--
distributors.......... -- -- -- -- 1,811 9,873 2,638 6,371
Cost of sales--direct.. 82 126 59 3,523 6,089 1,771 1,368 --
----- ----- ------ ------- ------- ------- ------- -------
Total cost of sales.... 82 126 59 3,523 7,900 11,644 4,006 6,371
----- ----- ------ ------- ------- ------- ------- -------
Gross profit........... 151 267 (3) (795) 316 2,567 503 1,943
Operating expenses
(income):
Sales and marketing.... -- -- 0 532 1,112 1,950 653 1,027
General and
administrative........ 103 228 374 2,787 3,192 3,022 1,398 1,706
Lease expense
(income)--net......... -- -- -- -- (89) (143) (93) 23
Depreciation and
amortization.......... 24 25 3 284 868 873 400 516
Nonrecurring charges
(2)................... -- -- -- -- 1,363 970 188 408
----- ----- ------ ------- ------- ------- ------- -------
Total operating
expenses............ 127 253 377 3,603 6,446 6,672 2,546 3,680
----- ----- ------ ------- ------- ------- ------- -------
Income (loss) from
operations............ 24 14 (380) (4,398) (6,130) (4,105) (2,043) (1,737)
Other expense (income):
Interest expense....... 9 5 -- 287 1,469 1,665 817 929
Other (income)
expense--net.......... (2) (2) -- (25) (168) (186) (79) (102)
===== ===== ====== ======= ======= ======= ======= =======
Net income (loss).... 17 11 $ (380) $(4,660) $(7,431) $(5,584) $(2,781) $(2,564)
----- ----- ------ ------- ------- ------- ------- -------
Loss available to
common stockholders
(3)................. -- -- $ -- $(5,055) $(8,067) $(6,271) $(3,120) $(2,932)
===== ===== ====== ======= ======= ======= ======= =======
Net (loss) per share:
Basic and diluted (4).. -- -- $(0.01) $ (0.23) $ (0.37) $ (0.28) $ (0.14) $ (0.12)
===== ===== ====== ======= ======= ======= ======= =======
Shares used in per
share calculations
Basic and diluted (4).. -- -- 20,060 21,658 21,526 22,276 21,526 23,526
Pro forma basic and
diluted per share (5). -- -- -- -- -- $ (1.49) -- $ (0.65)
Pro forma shares used
in calculation of net
loss per share (5).... -- -- -- -- -- 4,328 -- 4,508
SELECTED OPERATING DATA:
Retail locations (at
period end)........... -- -- 331 1,608 2,981 4,400 3,116 6,600
Cylinder transactions
(000's)............... -- -- 5 306 769 1,239 387 715
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JULY 31, JULY 31, JULY 28, JULY 31, JANUARY 31,
1993 1994 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- -------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents........... $ -- $ -- $150 $ 209 $ 1,126 $ 325 $ 1,207
Working capital........ (82) (81) 109 (3,264) 1,580 737 296
Total assets........... 87 85 631 10,424 11,897 9,974 11,995
Long-term obligations,
less current
maturities............ 20 4 518 1,361 14,174 16,110 19,357
Total stockholders'
(deficit) equity...... 5 16 (179) (5,149) (13,217) (18,488) (21,420)
</TABLE>
- ---------------------
(1) Effective June 30, 1994, the assets of American Cylinder Exchange (the
"Predecessor Company") were contributed to the Company in exchange for 1.3
million shares of Common Stock which were distributed to the Predecessor
Company's shareholders.
(2) See Note 12 of Notes to Consolidated Financial Statements for an
explanation of the nonrecurring charges.
(3) Includes net loss less redeemable preferred stock dividends of $395, $636,
$687, $339 and $368 for fiscal years ended 1995, 1996, 1997 and the six
months ended January 31, 1997 and 1998, respectively.
(4) See Note 15 of Notes to Consolidated Financial Statements for an
explanation of the determination of shares used in computing basic and
diluted net loss per share.
(5) Based on the number of shares outstanding, including shares issuable upon
the exercise of all outstanding stock warrants, the conversion of
Preferred Stock and Preferred Stock dividends to Common Stock, the 1 for
13.22513 reverse stock split with respect to the Common Stock and, for
January 31, 1998, the issuance of shares as partial consideration for
accounts and other assets acquired by the Company in the Bison
Acquisition, all of which will be effected immediately prior to the
consummation of this offering.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Prospectus.
Except for the historical information contained herein, the discussion in this
Prospectus contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they may appear in this Prospectus. The Company's actual results
could differ materially from those discussed herein. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed in "Risk Factors" as well as those discussed elsewhere herein.
Unless otherwise indicated, all references to years in this section of the
Prospectus refer to the Company's fiscal years, which ran as follows: from
August 1, 1994 through July 31, 1995, August 1, 1995 through July 28, 1996 and
July 29, 1996 through July 31, 1997.
OVERVIEW
Blue Rhino was founded in March 1994 and has become the leading provider of
grill cylinder exchange in the United States offering consumers a convenient
means to obtain fuel for their barbecue grills. The Company originally focused
on serving markets in the southeastern United States and has since developed a
network of 51 independent distributors which deliver Blue Rhino grill cylinder
exchange to over 6,600 retail locations in over 41 states as of January 31,
1998. During the twelve months ended January 31, 1998, the Company's sales
increased 78% from the prior year's comparable period to approximately $18.0
million as a result of the growth of sales at existing locations and the
addition of over 3,000 new retail locations.
Since its formation, the Company has focused on creating an infrastructure
to support its nationwide cylinder exchange program. Initially, the Company
developed a vertically integrated operation, purchasing and leasing grill
cylinders, cylinder displays, filling sites, refurbishing equipment and
delivery trucks while at the same time developing a sales, marketing and MIS
infrastructure. In March 1996, the Company began to transition from a
vertically integrated business model to an independent distributor business
model in order to implement its cylinder exchange program in a more capital
efficient manner and to accelerate development of its program. At this time,
the Company began to dispose of distribution assets and began to enter into
exclusive agreements with independent distributors to refurbish and refill
cylinders and service Blue Rhino's retail accounts. As a result, the Company
has significantly accelerated the growth of its nationwide service, pursued
additional retailer relationships and invested in the sales, marketing and MIS
infrastructure to support its growing cylinder exchange program. The Company
expects to focus future capital investments on cylinders, cylinder displays
and continued enhancement of its MIS. The transition to a 100% independent
distributor business model was completed in the third quarter of fiscal 1997.
The Company currently offers three types of grill cylinder transactions: (i)
like for like cylinder exchanges; (ii) cylinders with valve upgrades offering
additional safety features; and (iii) outright cylinder sales. The Company's
net sales from cylinder exchanges, cylinder upgrades and cylinder sales
comprised approximately 82%, 10% and 8%, respectively, of the Company's net
sales for fiscal 1997 and 81%, 9% and 10%, respectively, for the first six
months of fiscal 1998. The Company's suggested retail prices for cylinder
exchanges, cylinder upgrades and cylinder sales are currently $14.99, $24.99
and $39.99, respectively, although the actual prices for these transactions
may vary from retailer to retailer. The Company recognizes net sales at the
time its distributor makes a delivery at a retail location. The Company
invoices its retailers, receives payment and remits a fixed portion of this
payment to its distributors for their services. The Company's net sales growth
depends on increasing sales at existing locations and increasing the number of
new retail locations that it serves. Other factors which influence net sales
include seasonality, consumer awareness, weather conditions, new grill sales,
alternative uses for grill cylinders, promotional activities and advertising.
The Company's cost of sales are comprised of a fixed charge per cylinder
transacted which is paid to distributors based upon the type of transaction
and determined on a contractual basis. Cylinder sales have the
19
<PAGE>
highest cost of sales while cylinder exchanges have the lowest cost of sales.
Selling and marketing expenses are primarily comprised of compensation,
commissions and promotional and travel costs. General and administrative
expenses are primarily comprised of compensation, professional fees, rent,
software development and travel costs. Lease expense (income)--net is
comprised of revenue from cylinder displays and certain plant facilities and
equipment leased to distributors offset by rent expense paid by the Company to
lease the cylinder displays under an operating lease. Depreciation and
amortization consist primarily of depreciation of cylinder displays and to a
lesser extent, depreciation on equipment, buildings, computer hardware and
software and amortization of intangibles. Operating expenses also include non-
recurring charges of approximately $1.4 million, $1.1 million, $188,000 and
$408,000 incurred during fiscal 1996 and 1997 and for the first six months of
fiscal 1997 and 1998, respectively, as the Company transitioned from a
vertically integrated business model to its present independent distributor
business model. The Company does not anticipate incurring any additional
charges in connection with this transition after the quarter ended July 31,
1998.
While the Company believes that it has created the infrastructure necessary
to support a nationwide cylinder exchange program, development of this
infrastructure has resulted in an accumulated deficit of approximately $21.4
million as of January 31, 1998. This has resulted in a net operating loss
carryforward for federal income tax purposes of approximately $20.5 million
which is available to be used to offset future taxable income, if any. In the
event of a change in ownership of the Company, the extent to which the loss-
carryforwards can be used to offset future taxable income may be limited as
provided in the Tax Reform Act of 1996. Based on the Company's history of
operating losses, the Company has recorded a valuation allowance to the full
extent of its net deferred tax assets.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from the Company's statement of operations to
net sales. Due to the Company's recent change in its business model and its
rapid sales growth, any trends reflected by the following table may not be
indicative of future results.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL NET SALES
-------------------------------------------------------
SIX MONTHS
ENDED
FISCAL YEAR ENDED JANUARY 31,
----------------------------------------- -------------
JULY 31, 1995 JULY 28, 1996 JULY 31, 1997 1997 1998
------------- ------------- ------------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
Total net sales......... 100.0% 100.0% 100.0% 100.0% 100.0%
Total cost of sales..... 129.1 96.2 81.9 88.8 76.6
------ ----- ----- ----- -----
Gross margin............ (29.1) 3.8 18.1 11.2 23.4
Operating expenses
(income):
Sales and marketing... 19.5 13.5 13.7 14.5 12.4
General and
administrative....... 102.2 38.9 20.5 31.0 20.5
Lease expense
(income)--net........ -- (1.1) (1.0) (2.1) 0.3
Depreciation and
amortization......... 10.4 10.6 6.1 8.9 6.2
Nonrecurring charges.. -- 16.5 7.6 4.2 4.9
------ ----- ----- ----- -----
Total operating
expenses........... 132.1 78.4 46.9 56.5 44.3
------ ----- ----- ----- -----
Loss from operations.... (161.2) (74.6) (28.8) (45.3) (20.9)
Other expense (income):
Interest expense...... 10.5 17.8 11.7 18.1 11.2
Other income--net..... (0.9) (2.0) (1.3) (1.8) (1.2)
------ ----- ----- ----- -----
Net loss................ (170.8)% (90.4)% (39.2)% (61.6)% (30.9)%
====== ===== ===== ===== =====
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR ENDED JANUARY 31,
----------------------------------------- -------------
JULY 31, 1995 JULY 28, 1996 JULY 31, 1997 1997 1998
------------- ------------- ------------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
As a Percentage of Total
Net Sales
Net sales--
distributors......... -- 29.0% 91.9% 77.6% 100.0%
Net sales--direct..... 100.0% 71.0% 8.1% 22.4% --
Total gross margin...... (29.1)% 3.8% 18.1% 11.2% 23.4%
Gross margin of net
sales--distributors.. -- 24.1% 24.4% 24.7% 23.4%
Gross margin of net
sales--direct........ (29.1)% (4.4)% (53.9)% (35.7)% --
</TABLE>
COMPARISON OF SIX MONTHS ENDED JANUARY 31, 1997 AND 1998
Net sales. Net sales consist of net sales from the Company's previous
vertically integrated distribution operations ("net sales--direct") and net
sales from the Company's current independent distributor network ("net sales--
distributors"). During the third quarter of fiscal 1997, the Company completed
its transition to the independent distributor business model and, as a result,
all of the Company's net sales for the first six months of fiscal 1998 were
and thereafter will be net sales--distributors. Total net sales increased
84.4% from approximately $4.5 million for the first six months of fiscal 1997
to approximately $8.3 million for the first six months of fiscal 1998. Net
sales--distributors increased 137.5% from approximately $3.5 million in the
first six months of fiscal 1997 to approximately $8.3 million in the first six
months of fiscal 1998. The increase in net sales--distributors was due
primarily to the Company's transition from a vertically integrated business
model to an independent distributor business model, as well as to the increase
in the number of retail locations placed in service and the corresponding
increase in the number of cylinder transactions during the period. The
installed base of retail locations increased 106.3% from approximately 3,200
locations at January 31, 1997 to approximately 6,600 locations at January 31,
1998. The number of cylinders transacted increased 84.8% from approximately
387,000 units in the first six months of fiscal 1997 to approximately 715,000
units in the first six months of fiscal 1998.
Gross margin. Gross margin increased from 11.2% in the first six months of
fiscal 1997 to 23.4% in the first six months of fiscal 1998. This increase was
due to the shift in net sales from a vertically integrated business model to
an independent distributor business model. With respect to net sales--
distributors, gross margin decreased from 24.7% in the first six months of
fiscal 1997 to 23.4% in the first six months of fiscal 1998. This decrease was
due to a shift in the mix of cylinders transacted, with cylinder sales
accounting for a larger percentage of total net sales than in previous
quarters.
Sales and marketing expenses. Sales and marketing expenses increased 57.3%
from approximately $653,000 in the first six months of fiscal 1997 to
approximately $1.0 million in the first six months of fiscal 1998 but
decreased as a percentage of total net sales from 14.5% in the first six
months of fiscal 1997 to 12.4% in the first six months of fiscal 1998. The
increase in absolute sales and marketing expense was due primarily to
additional compensation, promotional and advertising expenditures. The
decrease in sales and marketing expenses as a percentage of net sales was due
primarily to the fact that a significant portion of the compensation of the
Company's sales and marketing staff is fixed and, as a result, sales and
marketing expenses increased at a slower rate than net sales.
General and administrative expenses. General and administrative expenses
increased 22.0% from approximately $1.4 million in the first six months of
fiscal 1997 to approximately $1.7 million in the first six months of fiscal
1998 but decreased as a percentage of total net sales from 31.0% in the first
six months of fiscal 1997 to 20.5% in the first six months of fiscal 1998. The
increase in absolute general and administrative expenses was due primarily to
additional compensation costs. The decrease in general and administrative
expense as a percentage of net sales was due primarily to the fact that a
significant portion of compensation is fixed and, as a result, general and
administrative expenses increased at a slower rate than net sales.
21
<PAGE>
Lease expense (income)--net. Gross lease income for the first six months of
fiscal 1997 and 1998 increased from $108 to $244, respectively, while gross
rent expense for the same period increased from $15 to $267. The increase in
lease income and rent expense was due to the implementation of a plant
facilities and equipment lease with a distributor during the second quarter of
fiscal 1997 and the addition of new retail locations resulting in an increase
in the number of cylinder displays under lease.
Depreciation and amortization. Depreciation and amortization increased from
approximately $400,000 in the first six months of fiscal 1997 to approximately
$516,000 in the first six months of fiscal 1998 primarily due to the
acquisition of cylinder display panels and computer equipment.
Nonrecurring charges. Nonrecurring charges increased from approximately
$188,000 in the first six months of fiscal 1997 to approximately $408,000 for
the first six months of fiscal 1998. Nonrecurring charges are associated with
the Company's transition from a vertically integrated business model to an
independent distributor business model and consist primarily of the write-down
of facilities and equipment purchased to support the vertically integrated
business model.
Interest expense. Interest expense increased from approximately $817,000 in
the first six months of fiscal 1997 to approximately $929,000 in the first six
months of fiscal 1998. The increase in interest expense was due to accretion
of interest on Senior Discount Notes, additional borrowings under lines of
credit and, to a lesser extent, borrowings from stockholders.
Other income--net. Other income--net increased from approximately $79,000 in
the first six months of fiscal 1997 to approximately $102,000 in the first six
months of fiscal 1998. Other income--net consists primarily of interest income
from various notes receivable and excess cash balances.
COMPARISON OF YEARS ENDED JULY 28, 1996 AND JULY 31, 1997
Net sales. Total net sales increased 73.0% from approximately $8.2 million
for fiscal year 1996 to approximately $14.2 million for fiscal 1997. Net
sales--distributors increased from approximately $2.4 million for fiscal year
1996 to approximately $13.1 million for fiscal 1997. The increase in net
sales--distributors was due primarily to the Company's transition from a
vertically integrated business model to an independent distributor business
model, as well as an increase in the number of retail locations placed in
service and an increase in the number of cylinder transactions during the
period. The installed base of retail locations increased 46.7% from
approximately 3,000 locations at the end of fiscal 1996 to approximately 4,400
locations at the end of fiscal 1997. The number of cylinders transacted
increased 61.1% from approximately 769,000 units for fiscal 1996 to
approximately 1,239,000 units for fiscal 1997.
Gross margin. Gross margin increased from 3.8% for fiscal 1996 to 18.1% for
fiscal 1997. This increase was due to the shift in net sales from a vertically
integrated business model to an independent distributor business model. With
respect to net sales--distributors, gross margin increased from 24.1% for
fiscal year 1996 to 24.4% for fiscal 1997.
Sales and marketing expenses. Sales and marketing expenses increased 75.4%
from approximately $1.1 million for fiscal 1996 to approximately $2.0 million
for fiscal 1997 and as a percentage of total net sales increased from 13.5%
for fiscal 1996 to 13.7% for fiscal 1997. The increase in absolute sales and
marketing expense was due primarily to additional compensation, promotional
and advertising expenditures.
General and administrative expenses. General and administrative expenses
decreased 8.9% from approximately $3.2 million for fiscal 1996 to
approximately $2.9 million for fiscal 1997, and decreased as a percentage of
total net sales from 38.9% for fiscal 1996 to 20.5% for fiscal 1997. The
decrease in absolute general and administrative expenses was due to the
transition to the independent distributor business model.
22
<PAGE>
Lease expense (income)--net. Lease expense (income)--net increased 60.7%
from $89,000 for fiscal 1996 to approximately $143,000 for fiscal 1997. The
increase in lease expense (income)--net was due to the implementation of
certain plant facilities and equipment leases with distributors during the
fourth quarter of fiscal 1996 and the second quarter of fiscal 1997 and the
addition of new retail locations resulting in an increase in the number of
cylinder displays under lease.
Depreciation and amortization. Depreciation and amortization increased from
approximately $868,000 for fiscal 1996 to approximately $873,000 for fiscal
1997.
Nonrecurring charges. Nonrecurring charges are associated with the
transition to the independent distributor model and decreased from
approximately $1.4 million for fiscal 1996 to approximately $1.1 million for
fiscal 1997.
Interest expense. Interest expense increased from approximately $1.5 million
for fiscal 1996 to approximately $1.7 million for fiscal 1997 due to accretion
of interest on Senior Discount Notes and additional borrowings under the
Company's Bank Credit Facility.
Other income--net. Other income--net increased from approximately $168,000
for fiscal 1996 to approximately $186,000 for fiscal 1997.
COMPARISON OF YEARS ENDED JULY 31, 1995 AND JULY 28, 1996
Net sales. Total net sales increased 201.2% from approximately $2.7 million
for fiscal 1995 to approximately $8.2 million for fiscal 1996 while net
sales--direct increased 113.7% from approximately $2.7 million to
approximately $5.8 million. During fiscal 1996, the Company initiated its
transition from a vertically integrated business model to an independent
distributor business model with the addition of 12 distributors. As a result,
net sales--distributors contributed approximately $2.4 million to total net
sales in fiscal 1996. These increases are due primarily to the increases in
the number of new retail locations placed in service and a corresponding
increase in the number of cylinder transactions during the period.
Gross margin. Gross margin was negative for fiscal 1995 and 3.8% for fiscal
1996. The negative gross margin for fiscal 1995 and subsequent improvement in
fiscal 1996 was related to a limited number of retail locations in the
Company's first years of business.
Sales and marketing expenses. Sales and marketing expenses increased 109.0%
from approximately $532,000 for fiscal 1995 to approximately $1.1 million for
fiscal 1996, but decreased as a percentage of total net sales from 19.5% for
fiscal 1995 to 13.5% for fiscal 1996. The increase in sales and marketing
expense was due primarily to the development of the Blue Rhino brand and its
sales force. The decrease of sales and marketing expenses as a percentage in
net sales was due primarily to the fact that the Company's total sales
increased at a rate higher than selling and marketing expenses.
General and administrative expenses. General and administrative expenses
increased 14.5% from approximately $2.8 million for fiscal 1995 to
approximately $3.2 million for fiscal 1996, but decreased as a percentage of
total net sales from 102.2% for fiscal 1995 to 38.9% for fiscal 1996. The
increase in absolute general and administrative expenses was due to increased
compensation. The decrease in general and administrative expense as a
percentage of net sales was due primarily to the increase in total net sales.
Lease expense (income)--net. Lease expense (income)--net was approximately
$89,000 for fiscal 1996. There was no lease expense (income)--net in fiscal
1995.
Depreciation and amortization. Depreciation and amortization increased from
approximately $284,000 for fiscal 1995 to approximately $868,000 for fiscal
1996, due primarily to investments in facilities related to the Company's
previous vertically integrated business model.
Nonrecurring charges. Nonrecurring charges associated with the Company's
transition from a vertically integrated business model to an independent
distributor business model were approximately $1.4 million in fiscal 1996.
There were no nonrecurring charges in fiscal 1995.
23
<PAGE>
Interest expense. Interest expense increased from approximately $287,000 for
fiscal 1995 to approximately $1.5 million for fiscal 1996 due primarily to the
issuance of Senior Discount Notes for approximately $12.6 million with an
aggregate principal amount of approximately $17.2 million.
Other income--net. Other income--net increased from approximately $25,000
for fiscal 1995 to $168,000 for fiscal 1996. This increase was due primarily
to interest income generated from excess cash balances.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The Company has experienced and is expected to continue to experience
significant seasonal fluctuations in net sales and net income. The Company's
net sales generally are highest in the third and fourth quarters, which
include the majority of the grilling season, and historically have been lower
in the first and second quarters which include the winter months. Sustained
periods of poor weather, particularly in the spring and summer seasons, can
negatively impact sales. The Company's rate of establishing new retail
locations and expenses incurred in anticipation of increased sales also cause
quarterly fluctuations in the Company's results of operations. Accordingly,
the results of operations in any quarter will not necessarily be indicative of
the results that may be achieved for a full fiscal year or any future quarter.
See "Risk Factors--Seasonal and Quarterly Fluctuations" and "--Varying Local
Permitting Processes."
The following table sets forth selected unaudited quarterly financial
information and operating data for the last five quarters. This information
has been prepared on the same basis as the Consolidated Financial Statements
and includes, in the opinion of management, all normal and recurring
adjustments that management considers necessary for a fair statement of the
quarterly results for the periods. Given the Company's limited operating
history, seasonal demand for its product and market acceptance of cylinder
exchange by retailers and consumers, there may be significant variation in the
Company's operating results for any quarter. The operating results and data
for any quarter are not necessarily indicative of the results for future
periods.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------
OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1996 1997 1997 1997 1997 1998
----------- ----------- --------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Total net sales......... $ 2,491 $ 2,018 $ 3,000 $ 6,702 $ 4,139 $ 4,175
Total cost of sales..... 2,206 1,800 2,478 5,160 3,154 3,217
------- -------- -------- -------- -------- --------
Gross profit.......... 285 218 522 1,542 985 958
------- -------- -------- -------- -------- --------
Operating expenses
(income)
Sales and marketing... 415 380 489 666 564 463
General and
administrative ...... 547 710 751 900 844 862
Lease expense
(income)--net........ (43) (50) (31) (19) 8 15
Depreciation and
amortization......... 187 212 223 251 245 271
Nonrecurring charges.. 43 145 672 224 281 127
------- -------- -------- -------- -------- --------
Total operating
expenses........... 1,149 1,397 2,104 2,022 1,942 1,738
------- -------- -------- -------- -------- --------
Loss from operations.... (864) (1,179) (1,582) (480) (957) (780)
Other expense (income)
Interest expense...... 394 424 432 415 434 495
Other income--net..... (43) (37) (43) (63) (51) (51)
------- -------- -------- -------- -------- --------
Net loss................ $(1,215) $ (1,566) $ (1,971) $ (832) $ (1,340) $ (1,224)
======= ======== ======== ======== ======== ========
Loss available to common
stockholders........... $(1,384) $ (1,737) $ (2,140) $ (1,010) $ (1,447) $ (1,485)
======= ======== ======== ======== ======== ========
Basic and diluted net
loss per share......... $ (0.06) $ (0.08) $ (0.10) $ (0.04) $ (0.06) $ (0.06)
======= ======== ======== ======== ======== ========
Shares used in
computation of net loss
per share (1).......... 21,526 21,526 22,526 23,526 23,526 23,526
======= ======== ======== ======== ======== ========
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL NET SALES
-------------------------------------------------------------------
QUARTER ENDED
-------------------------------------------------------------------
OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1996 1997 1997 1997 1997 1998
----------- ----------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Total net sales......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Total cost of sales..... 88.6 89.2 82.6 77.0 76.2 77.1
----- ----- ----- ----- ----- -----
Gross margin.......... 11.4 10.8 17.4 23.0 23.8 22.9
Operating expenses
(income)
Sales and marketing... 16.7 18.8 16.3 9.9 13.6 11.1
General and
administrative....... 22.0 35.2 25.0 13.4 20.4 20.6
Lease expense
(income)--net........ (1.7) (2.5) (1.0) (0.3) 0.2 0.4
Depreciation and
amortization......... 7.5 10.5 7.4 3.7 5.9 6.5
Nonrecurring charges.. 1.7 7.2 22.4 3.5 6.8 3.0
----- ----- ----- ----- ----- -----
Total operating
expenses........... 46.1 69.2 70.1 30.2 46.9 41.6
----- ----- ----- ----- ----- -----
Loss from operations.... (34.7) (58.4) (52.7) (7.2) (23.1) (18.7)
Other expense (income)
Interest expense...... 15.8 21.0 14.4 6.1 10.5 11.8
Other income--net..... (1.7) (1.8) (1.4) (0.9) (1.2) (1.2)
----- ----- ----- ----- ----- -----
Net loss................ (48.8)% (77.6)% (65.7)% (12.4)% (32.4)% (29.3)%
===== ===== ===== ===== ===== =====
</TABLE>
- ---------------------
(1) See Note 15 of Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds have been the issuance of stock and
warrants and the incurrence of debt. The Company had working capital of
approximately $296,000 as of January 31, 1998.
Net cash used in operations was approximately $2.1 million and approximately
$694,000 for the first six months of fiscal 1998 and 1997, respectively. Net
cash used in operations was approximately $2.2 million and approximately $5.2
million for fiscal 1997 and 1996, respectively. For all periods net cash used
in operations resulted primarily from net losses from operations.
Net cash used in investing activities was approximately $776,000 for the
first six months of fiscal 1998 and net cash provided by investing activities
was approximately $134,000 for the first six months of fiscal 1997. Net cash
provided by investing activities was approximately $342,000 for fiscal 1997
and net cash used in investing activities was approximately $1.4 million for
fiscal 1996. The primary components of cash used in investing activities
included acquisitions and investments in property and equipment. The primary
components of cash provided from investing included collection on notes
receivable and proceeds from the sale of property and equipment.
Net cash provided by financing activities was approximately $3.7 million for
the first six months of fiscal 1998 and net cash used in financing activities
was approximately $257,000 for the first six months of fiscal 1997. Net cash
provided by financing activities was approximately $1.0 million for fiscal
1997 and approximately $7.5 million for fiscal 1996. The primary components of
cash provided by financing activities included proceeds from the issuance of
Senior Discount Notes, stockholder loans and bank borrowings. The primary
components of cash used in financing activities included payments on various
notes payable, long-term debt and capital lease obligations.
In September 1996, the Company entered into a $3.0 million operating lease
facility with Forsythe/McArthur Associates, Inc. to finance cylinder displays
(the "Cylinder Display Lease Facility"). Under the Cylinder Display Lease
Facility, the Company leases cylinder display racks for a minimum term of 48
25
<PAGE>
months. After the expiration of the minimum term of each lease, the Company
may purchase the cylinder displays and after 36 months, the Company may
terminate any lease based upon specified terms. The Company intends to use a
portion of the proceeds of this offering to purchase all equipment currently
leased under the Cylinder Display Lease Facility and to terminate the
Facility. Approximately $2.2 million of the Facility was outstanding at
January 31, 1998.
In December 1997, the Company entered into a Loan Agreement with
NationsBank, N.A. (the "Bank Credit Facility") which allows for maximum
borrowing of $9.0 million, including a $3.0 million revolving line of credit
with a $1.0 million overadvance provision, a $1.0 million capital expenditure
line of credit and a $4.0 million acquisition line of credit. The amounts
outstanding under the Bank Credit Facility are due on November 30, 1998. The
Bank Credit Facility is collateralized by a lien on substantially all of the
assets of the Company. The Bank Credit Facility requires the Company to meet
certain covenants, including minimum current, net worth and cash flow ratios
and restricts the level of capital expenditures. The Company is in compliance
with these covenants as of the date hereof. Mr. Prim and American Oil and Gas,
Inc., a stockholder of the Company, have jointly and severally guaranteed this
facility up to $6.0 million. The loans under the Bank Credit Facility bear
interest at the prime rate plus 0.5% per annum. As of the consummation of this
offering, the Company expects to have approximately $5.5 million outstanding
under the Bank Credit Facility which will be repaid with a portion of the net
proceeds of this offering. See "Use of Proceeds."
The Company currently leases its offices under a lease from Platinum
Services Corporation, an entity affiliated with the Company by common
ownership and control. Pursuant to the terms of the lease, the Company pays
annual rent of $82,000, plus its allocable share of all taxes, utilities, and
maintenance. Although the lease terminates on December 31, 1998, the Company
expects to renew the lease on substantially similar terms for an additional
three year term.
The Company anticipates that the total capital expenditures for 1998 and
1999 will be approximately $2.4 million and $5.3 million, respectively, and
will relate primarily to investments in cylinders, cylinder displays, computer
hardware and software development. The Company's capital expenditure and
working capital requirements in the foreseeable future will change depending
on the rate of the Company's expansion, the Company's operating results and
any other adjustments in its operating plan as needed in response to
competition, acquisition opportunities or unexpected events. The Company
believes that existing borrowing capacity under lines of credit, together with
the proceeds from the offering and cash provided by operations, will be
sufficient to meet the Company's working capital requirements through fiscal
1999. However, there can be no assurance that the Company will not seek or
require additional capital in the future as a result of expansion or
otherwise.
In December 1994, the Company raised approximately $6.7 million pursuant to
an offering of its Series A Convertible Participating Preferred Stock and
warrants to purchase 318,650 shares of Common Stock at an exercise price of
$0.45 per share. The Company used the proceeds primarily to fund development
of cylinder refurbishing and distribution plants and to establish the
infrastructure for its national cylinder exchange program. See "Certain
Transactions." The Preferred Stock will be converted into Common Stock and the
warrants will be exercised upon consummation of this offering. See
"Description of Capital Stock--Recapitalization."
In October 1995, the Company sold 12,575 units (the "Units") for $1,000 per
Unit, each Unit being comprised of a 10.5% Senior Discount Note due October
11, 2000 with a face value of $1,364.93 and a warrant to purchase
approximately 40 shares of Common Stock at an exercise price of approximately
$4.59 per share. The Senior Discount Notes accrete in value until October 11,
1998 and, thereafter, cash interest will be payable semi-annually. The gross
proceeds of the Unit offering was approximately $12.6 million. See "Certain
Transactions." The Senior Discount Notes will be repaid in full with a portion
of the proceeds of the offering and the warrants will be exercised on a
cashless basis upon consummation of the offering. See "Use of Proceeds" and
"Description of Capital Stock--Recapitalization."
26
<PAGE>
In January 1998, the Company received $3.25 million in loans from four of
its stockholders (the "1998 Stockholder Loans"). The 1998 Stockholder Loans
bear interest at 10.5% per annum and are due on the earlier of December 31,
2000 or the successful completion of a public offering of the Company's Common
Stock with net proceeds of at least $30.0 million. There was $3.25 million
outstanding under the 1998 Stockholder Loans as of January 31, 1998
(approximately $3.4 million as of the consummation of the offering). In
addition, the Company issued warrants to purchase an aggregate 81,915 shares
at an exercise price of $13.00 per share to these stockholders in connection
with the 1998 Stockholder Loans. The 1998 Stockholder Loans will be repaid in
full with a portion of the proceeds of the offering. See "Use of Proceeds."
INFLATION
The Company does not believe that inflation has had a material adverse
effect on net sales or the results of operations. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 130 ("Statement
130") establishes standards for reporting and display of comprehensive income
and its components (revenues, gains, expenses, losses) in a full set of
general purpose financial statements and is effective for fiscal years
beginning after December 15, 1997. Management of the Company does not expect
Statement 130 to have a significant impact, if any, on the Company's
Consolidated Financial Statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"). Statement 131 requires public business enterprises to adopt
its provisions for periods beginning after December 15, 1997, and to report
certain information about operating segments in complete sets of financial
statements of the enterprise and in condensed financial statements of interim
periods issued to shareholders. The Company is evaluating the provisions of
Statement 131, but has not yet determined if additional disclosures will be
required.
YEAR 2000 COMPLIANCE
Certain of the Company's MIS use two digit data fields which recognize dates
using the assumption that the first two digits are "19" (i.e., the number 97
is recognized as the year 1997). Therefore, the Company's date critical
functions relating to the year 2000 and beyond, such as sales, distribution,
inventory control and financial systems, may be adversely affected unless
changes are made to these computer systems. The Company expects that upgrades
to its MIS with respect to the year 2000 problem will require expenditures of
approximately $35,000. However, no assurance can be given that these issues
can be resolved in a cost-effective or timely manner or that the Company will
not incur significantly greater expense in resolving these issues.
27
<PAGE>
BUSINESS
OVERVIEW
Blue Rhino is a leading provider of grill cylinder exchange in the United
States with Blue Rhino branded cylinder exchange displays at over 6,600 retail
locations in 41 states. Cylinder exchange provides consumers with a convenient
means to exchange empty grill cylinders for clean, safer, precision-filled
cylinders. Blue Rhino cylinder exchange is offered at leading home
center/hardware, mass merchant, grocery and convenience stores, including Home
Depot, Lowe's, Sears Hardware, Wal Mart, Kroger and SuperAmerica. Blue Rhino
brand grill cylinders are delivered to retailers through a national network of
51 independent distributors. These independent distributors make the capital
investment in grill cylinders, refilling and refurbishing equipment and
vehicles necessary to operate a cylinder exchange business. This allows the
Company to focus on promoting brand identity, developing additional retail
relationships and supporting its distributor network by providing value-added
marketing, customer service and management information systems ("MIS").
Cylinder exchange is a relatively new retail concept and the Company
believes that consumer awareness of the benefits of cylinder exchange will
increase as the service becomes more widely available. During the twelve
months ended January 31, 1998, Blue Rhino cylinder exchange displays have been
installed at over 3,000 additional retail locations. The Company believes that
there are approximately 225,000 potential grill cylinder exchange locations in
the Company's target markets. The Company's growth strategy includes
increasing consumer awareness of cylinder exchange, further promoting the Blue
Rhino brand, increasing penetration in both new and existing retail accounts
and selectively pursuing strategic acquisitions.
INDUSTRY BACKGROUND
Barbecue Grill Market. Outdoor barbecuing is increasingly one of the most
popular outdoor activities in the United States driven by consumer trends to
healthier food preparation, as well as the desire to spend more time outside
at family and social gatherings. The popularity of propane grills has
increased significantly in recent years with Barbecue Industry Association
("BIA") statistics indicating that propane grill sales now exceed the combined
sales of charcoal, natural gas and electric grills. According to a 1997 survey
("1997 BIA Study") conducted on behalf of the BIA, consumers enjoy the
convenience of propane grills over charcoal grills as they light easier, heat
up faster and require less preparation and clean up time. Furthermore, the
1997 BIA Study indicates that approximately 68% of propane grill owners use
their grills throughout the year.
According to the 1997 BIA Study, approximately 38.5 million United States
households own a propane grill, with the number of propane grill purchases
growing at a rate of 8% per year from 3.2 million in 1990 to more than 6.0
million in 1997. The 1997 BIA Study also indicates that the average propane
grill owner uses 1.8 cylinders of propane per year, creating an estimated
market for grill cylinder fills of approximately 69.0 million per year. Based
on these estimates, the Company believes the annual retail market for grill
cylinder refills is approximately $1.0 billion. There can be no assurance that
such growth rates will continue or be sustained or that the Company will
benefit from any such growth.
Grill Cylinder Exchange. In recent years, cylinder exchange has emerged as a
convenient alternative to refilling cylinders at traditional propane filling
stations. Cylinder exchange, in which the consumer exchanges an empty grill
cylinder for one which is full, is available at retail locations such as home
center/hardware, mass merchant, grocery and convenience stores. These
retailers typically have longer business hours and are more convenient for
consumers than filling stations. The Company believes that as cylinder
exchange becomes more widely available consumers will embrace it in place of
refilling, which often involves traveling to a remote location and waiting for
a refill. Growing consumer acceptance of cylinder exchange is indicated by BIA
estimates that cylinder exchange increased from less than 10% of grill
cylinder transactions in 1995 to 21% in 1997.
28
<PAGE>
The Company believes that the grill cylinder exchange industry is highly
fragmented with numerous regional distributors typically serving less than 500
locations each. The Company believes this fragmentation results in part from
the relative newness of cylinder exchange and the unique set of challenges
cylinder exchange poses to commercially focused traditional propane
distributors. To build critical mass at the consumer level, propane
distributors must establish and maintain relationships with major retailers,
many of which prefer to stock quality, branded products supplied by reliable,
sophisticated vendors. To service retail cylinder exchange accounts, propane
distributors must make capital investments in cylinder displays, grill
cylinders, refurbishing equipment and vehicles not used in their traditional
propane business. Finally, to properly account for complex exchange, upgrade
and sale transactions, propane distributors must invest in sophisticated
management information and accounting systems tailored to servicing retailers.
THE BLUE RHINO SOLUTION
Blue Rhino is creating a new paradigm for the cylinder exchange market which
provides benefits to consumers, retailers and distributors. Blue Rhino offers
consumers a new, convenient, branded product alternative to grill cylinder
refilling. Blue Rhino provides retailers with a high margin, turn-key branded
service which has the potential to increase customer traffic and utilization
of exterior retail space. In addition, Blue Rhino offers retailers a full
service program, including direct delivery, regular inventory maintenance,
centralized billing, electronic data interchange ("EDI") and detailed
reporting typically unavailable from traditional propane distributors. For
Blue Rhino's independent distributors, this cylinder exchange program provides
a counter-seasonal complement to their traditional propane business as well as
access to major retail accounts, sophisticated MIS and marketing support.
BUSINESS STRATEGY
Blue Rhino's strategy is to continue to build its national brand and
capitalize on its position as the leading grill cylinder exchange provider
through the following initiatives:
Promote the Blue Rhino Brand and Drive Consumer Awareness. The Company's
branding efforts focus on developing and maintaining a brand identity
synonymous with a convenient, clean and safer product. Blue Rhino has created
a distinctive Blue Rhino brand name and rhino logo which are prominently
displayed on cylinder sleeves and displays. The Company also plans to
undertake brand marketing and promotional initiatives, including point of
purchase displays, cross marketing promotions with other barbecue-related
products, print media and cooperative advertising. The Company's recognized
brand also provides a platform to introduce new Blue Rhino products to the
backyard living category.
Deliver Clean, Safer Cylinders at Convenient Locations. The Company believes
that convenience and safety are critical factors in achieving consumer
acceptance of cylinder exchange. Blue Rhino cylinder exchange allows consumers
to exchange empty cylinders for clean, precision-filled, cylinders at a
variety of well known, convenient retail locations. Blue Rhino distributors
refill and resleeve cylinders according to prescribed standards designed to
prevent overfills or refills of unsafe cylinders. Each Blue Rhino cylinder has
a consistent, like-new appearance, which the Company believes enhances retail
sales and consumer loyalty.
Expand Relationships and Increase Sales with Retailers. The Company's
relationships with major retailers such as Home Depot, Lowe's, Sears Hardware,
Wal Mart, Kroger and SuperAmerica, allow it to place cylinders in a large
number of convenient, high traffic locations. The Company believes that its
ability to provide national and regional retailers with a single vendor for
branded grill cylinder exchange supported by value-added customer service,
marketing and MIS gives it a competitive advantage over traditional propane
distributors. The Company believes there are approximately 225,000 potential
grill cylinder exchange locations in its targeted markets of which it
currently services over 6,600. The Company plans to continue to increase the
number of new retail locations by driving sales within existing retail
accounts. In the twelve months ended January 31, 1998, the Company has added
over 3,000 retail locations. Historically, the Company's locations
29
<PAGE>
have experienced substantial sales growth in the first year of operations. As
a result, the Company believes that as these locations mature they will
experience higher sales volumes.
Leverage National Distributor Network. Over the past two years the Company
has established a network of 51 independent distributors serving 41 states.
The Company believes that this distribution network strategically positions it
to cover approximately 90% of the grilling markets in the United States. The
Company plans to leverage this network by aggressively increasing each
distributor's market penetration by adding new retail locations. Additionally,
four of these distributors are dedicated exclusively to developing and
providing Blue Rhino cylinder exchange in certain of the Company's key
geographic markets.
Pursue Strategic Account Acquisitions. The Company believes that in the
highly fragmented and regionally focused cylinder exchange industry,
opportunities exist to expand through selective acquisitions of smaller
cylinder exchange businesses with established retail accounts. The Company has
added over 1,800 retail locations in the past twelve months as a result of the
five Acquisitions for a total purchase price of approximately $3.8 million,
including approximately $3.1 million in cash and $750,000 worth of Common
Stock. Three of these acquisitions, representing approximately 800 accounts
and an aggregate purchase price of $2.3 million in cash, were consummated in
March and April 1998. As of the date hereof, the Company has no agreements,
understandings or commitments with respect to any acquisitions. See "Risk
Factors--Ability to Grow Through Acquisition of Accounts."
BLUE RHINO CYLINDER EXCHANGE PROGRAM
A typical cylinder exchange transaction begins when a Blue Rhino distributor
visits a retail location to replenish the grill cylinder display. The
distributor enters an inventory of the cylinders in the display rack into a
handheld computer which, utilizing an advanced algorithm in the Company's
proprietary Blue Rhino Electronic Accounting System ("BREAS") software,
automatically calculates the number and type of cylinder exchanges, upgrades
and sales for the location and creates a delivery ticket for the retailer.
Distributors electronically transfer their delivery and inventory information
to Blue Rhino routinely. Blue Rhino then prepares a centralized bill for each
retailer which typically is transmitted in a customized electronic format
compatible with their existing systems. Blue Rhino collects invoiced amounts
directly from the retailers and in turn remits a fixed amount per cylinder
transaction to its distributors. The Company negotiates terms of payment with
retailers which are generally 30 days from the date of invoice, as is standard
for consumable retail products. The Company in turn remits payment to its
distributors on the fifteenth of each month for transactions occurring during
the previous month. The following graph illustrates the cylinder exchange
process:
[DIAGRAM OF BLUE RHINO BUSINESS MODEL. INCLUDES FLOW OF TRANSACTIONS AMONG
CONSUMERS, RETAILERS, DISTRIBUTORS AND BLUE RHINO.]
30
<PAGE>
BLUE RHINO BRAND MARKETING
The Company's marketing efforts focus primarily on developing and
maintaining a brand identity synonymous with a convenient, clean and safer
product which enhances consumer loyalty and builds retailer and distributor
relationships. The Company's brand marketing efforts include the following
Company initiatives:
Blue Rhino Cylinder Packaging. Blue Rhino cylinders are covered with a
distinctive and colorful RhinoTUFF cylinder sleeve. The RhinoTUFF cylinder
sleeve contains safety and use information along with a prominent display of
the Blue Rhino name and rhino logo. The RhinoTUFF sleeve also protects the
cylinders from damage during shipping and handling and from exposure to the
elements. The Company believes that this unique branded packaging increases
consumer recognition and loyalty.
Blue Rhino Cylinder Displays. Blue Rhino cylinder displays, which
prominently feature the Blue Rhino name and logo, are typically located near a
retailer's main entrance or in their lawn and garden department providing
"billboard" advertising for the Company's products. The Company believes these
cylinder displays enhance consumer awareness of the Blue Rhino brand and
reinforce the association of Blue Rhino with convenient, clean and safer
grilling.
Promotions. Blue Rhino has selectively placed targeted broadcast and print
media advertising campaigns that focus on raising consumer awareness of the
Blue Rhino name and service. Such advertising may also include certain special
promotions to encourage purchases of spare filled cylinders before the
grilling season. Blue Rhino is actively involved with consumer, trade and
regulatory associations in an effort to promote the growth of cylinder
exchange. Ongoing Blue Rhino promotions include development of the Company's
web site (www.bluerhino.com), co-operative advertising programs, cooking and
safety demonstrations and direct mail initiatives.
RETAILER RELATIONSHIPS
The Company targets the following four categories of retailers:
Retail Category Major Accounts
Home Centers/Hardware Stores Home Depot, Lowe's, Sears Hardware
Mass Merchants Wal Mart, Kmart, Meijer
Grocery Stores Kroger, Food Lion, Winn Dixie
Convenience Stores SuperAmerica, Emro-Speedway, Minit
Mart Foods
Retailer Opportunity. Blue Rhino offers retailers the opportunity to
increase sales and profits with minimal time and financial investment. Blue
Rhino cylinder exchange is available to retailers nationally, providing
retailers with attractive sales margins while utilizing exterior retail space.
In addition, Blue Rhino has the potential to increase retailers' sales of
ancillary products through increased traffic from repeat cylinder exchange
customers and cross-marketing initiatives with other barbecue-related
products.
Account Set-Up. Blue Rhino actively assists distributors and retailers in
obtaining local permits to set up cylinder exchange program and developing a
site plan for cylinder displays. The permitting process is generally completed
within sixty days. Typically, within two weeks of obtaining the necessary
permits or other approvals, the distributor installs the cylinder displays at
the retail location. During the set-up process, Blue Rhino's customer service
and training personnel conduct in-store training and provide safety manuals to
store employees. See "Risk Factors--Varying Local Permitting Processes."
Account Service. Blue Rhino cylinder exchange is a turn-key program in which
the Company and its distributors set up new accounts, train store employees,
deliver the cylinders directly to retail locations, maintain the display racks
and cylinder inventory and provide ongoing marketing and sales support. In
addition, through its nationwide distributor network, the Company can install
and service the Blue Rhino program at almost any domestic location of the
retailer.
31
<PAGE>
Sales Support. The Company's retail sales organization is divided into four
regions and includes seven corporate sales managers supported by a network of
approximately 500 independent sales representatives and grocery brokers. This
sales force is responsible for selling the Blue Rhino program to targeted
retailers and developing value-added relationships with manufacturers of
grills and other barbecue-related products. Blue Rhino's sales managers
analyze sales volume by location and coordinate promotions to maximize sales
opportunities.
Systems Support. Through the use of its BREAS electronic accounting
software, the Company provides accurate, timely customized invoices and can
provide EDI to relieve store managers of processing invoices generated by a
local propane distributor. The Company, through the use of its Online Account
Sales Information System ("OASIS"), also has the capability to provide
retailers with detailed information regarding sales trends at each of its Blue
Rhino locations.
Customer Service. The Company places a high priority on customer service and
as a result has hired a telemarketing service company, Ruppman Marketing
Technologies, Inc. ("Ruppman"), to provide customer and retailer assistance.
Ruppman is an experienced customer service organization providing similar
services for a variety of major consumer product companies, including Saturn,
Motorola Inc. and Sony Corp. By staffing this function through an experienced
outside vendor, the Company believes it provides a vital service to its end-
users while taking advantage of the cost savings associated with a dedicated
third party provider.
Home Depot represented 29% and 30%, respectively, of the Company's sales for
fiscal 1997 and the first six months of fiscal 1998. See "Risk Factors--
Concentration of Customer Accounts."
DISTRIBUTOR NETWORK
In an effort to build a strong national cylinder exchange program, Blue
Rhino has sought to attract experienced, well-capitalized, safety conscious
propane distributors to service its target gas grilling markets nationwide.
The following map shows the location of and the territory served by the
Company's 51 distributors:
[MAP OF U.S. WITH LOCATIONS OF BLUE RHINO DISTRIBUTORS.]
32
<PAGE>
Distributor Opportunity. Propane distributors have traditionally generated a
large part of their sales during cold weather months. Blue Rhino provides
distributors with an attractive counter-seasonal propane business and access
to major retail accounts in a growing market. The Company continually pursues
new relationships and additional locations with existing retail partners to
increase the density of each distributor's territory. The Company also offers
distributors such services as its cylinder display rack leasing program and,
through its Rhino Services, L.L.C. subsidiary, a cooperative propane buying
program and cylinder financing program. Blue Rhino personnel are experienced
in regulatory matters and assist distributors in completing the permitting and
set-up process. The Company intends to establish the Distributor Option Plan
pursuant to which it will reserve 400,000 shares of its Common Stock for
issuance upon the exercise of options granted to distributors.
Distributor Standards. The Company sets standards for and continually
monitors its distributors to ensure a high level of account service.
Distributors are encouraged to develop an infrastructure sufficient to: (i)
complete customer installations within two weeks of receipt of all necessary
permits and governmental approvals, (ii) resolve stock-outs within 48 hours,
(iii) respond to emergency requests within 30 minutes and (iv) refurbish and,
when necessary, recertify cylinders according to prescribed standards. The
Company helps ensure product quality by regularly checking on distributor
compliance with Blue Rhino refilling, packaging, safety and delivery
standards.
Distributor Selection Process. Blue Rhino has selectively identified and
pursued high quality distributors through direct contacts and industry trade
forums. The Company screens all distributor candidates by reviewing credit
reports and safety records and conducting management reference checks. As a
result of this thorough selection process, Blue Rhino has replaced only one
distributor to date.
Distributor Services. Blue Rhino employs business development managers to
cultivate and manage ongoing distributor relationships, address set-up and
servicing problems and provide distributors with marketing feedback and
industry updates. Blue Rhino also employs safety and training personnel who
provide set-up seminars and safety training. This continuing support allows
distributors to concentrate their efforts on opening and servicing retail
locations.
Dedicated Distributors. In order to establish a presence in and rapidly
develop certain key markets, the Company has entered into distribution
agreements with four distributors dedicated solely to providing Blue Rhino
cylinder exchange. Platinum Propane, the Company's largest distributor by
locations served and sales revenues generated, covers the Company's
south/southeast, Chicago and Los Angeles markets and Ceramic Industries Inc.
serves the Houston and Dallas markets. Two newly formed distributors, Caribou
Propane and Javilina Propane, service the Pacific northwest and Phoenix
markets, respectively. See "Risk Factors--Enforcement of Remedies Against
Distributors Owned by Affiliates."
Distribution Agreements. The Company has entered into distribution
agreements with each of its 51 distributors on substantially similar terms.
Pursuant to these agreements, each distributor must meet prescribed service
standards and maintain designated amounts of liability insurance naming the
Company as an additional insured party. The agreements typically run for a
term of five years and may be terminated by the Company if, among other
things, the distributor does not meet certain required service levels. Each
agreement also includes a two-year non-compete clause in the event an
agreement is terminated.
MANAGEMENT INFORMATION SYSTEMS
The Company has made a substantial investment in MIS which enhances its
ability to serve retailers and helps to differentiate the Company from other
providers of cylinder exchange and cylinder refill services. Blue Rhino's
technology utilizes highly integrated, scalable software applications which
cost-effectively support the Company's growing retail location base. The
Company's systems also allow the Company to use historical data to further
enhance the execution, service and identification of new markets and marketing
opportunities. The primary components of the Company's systems include the
following:
33
<PAGE>
Sales and Marketing Support System. In partnership with Information
Management System Services ("IMSS"), a subsidiary of R.J. Reynolds Tobacco
Company, the Company has developed and implemented a custom relational
database and information repository known as OASIS (Online Account Sales
Information System). This system facilitates the exchange of information
between distributors and the Company and allows the Company to develop a
database to track delivery and transaction statistics.
Distributor Level Technology. Each distributor is electronically linked to
the Company's accounting and database systems which allow drivers to provide
delivery, inventory and invoicing information through handheld computers. This
technology provides retailers with accurate and timely inventory and invoices
and assists the distributor in avoiding location stock-outs.
Financial Systems. The Company uses BREAS, a custom software module which
bridges the handheld computers used by the distributors to the Company's
accounting and financial reporting system. All delivery transaction
information entered into the handheld computers is uploaded routinely into
BREAS where it is validated and transmitted to the Company's accounting system
for invoice processing. Many retailers are invoiced via EDI, eliminating paper
processing of those transactions. The Company pays distributors via electronic
deposits to further minimize administrative costs. The BREAS system will
require upgrades to address the year 2000 problem which the Company estimates
will cost approximately $35,000. The Company has engaged Integrated Solutions
International, L.L.C. to upgrade this system and believes that it will be in
year 2000 compliance within the next six months, however any failure to
complete this upgrade by January 1, 2000 could lead to a significant
disruption in the Company's ability to account for sales and deliveries,
having a material adverse affect on the Company's business, financial
condition and results of operations.
COMPETITION
The grill cylinder refilling industry is highly fragmented and intensely
competitive. The Company competes primarily on the basis of quality of
product, service, perceived safety and price. The 1997 BIA Study results
indicated that approximately 79% of the retail demand for grill cylinders was
provided by traditional propane refilling stations rather than exchange. The
Company's primary competition comes from the approximately 20,000 bulk
refilling stations owned and operated by propane dealers, as well as certain
rental outlets, recreational vehicle centers and hardware stores. Major
propane providers such as AmeriGas Propane Partners, L.P. and Suburban Propane
Partners, L.P. offer cylinder exchange in limited locations and could expand
their cylinder exchange business nationally. These major propane providers
have greater resources than the Company and may be able to undertake more
extensive marketing campaigns and adopt more aggressive pricing policies than
the Company. The Company also competes with numerous regional cylinder
exchange programs which typically have operated in one or two states. There
can be no assurance that these competitors will not expand their cylinder
exchange programs nationwide. Furthermore, there can be no assurance that the
Company will be able to compete effectively with current or future competitors
or that the competitive pressures faced by the Company will not have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors--Competition."
GOVERNMENTAL REGULATION
The storing and dispensing of propane is governed by guidelines published by
the NFPA in Pamphlets 54 and 58. Recent NFPA initiatives include a requirement
that all grill cylinders placed in use or recertified after September 30, 1998
be fitted with an overfill prevention device valve ("OPD Valve") and all grill
cylinders refilled after April 2002 have an OPD Valve. The Company plans to
have an OPD Valve for its cylinder exchange program in April 1998. The
distributor is also governed by local laws and regulations which vary by
municipality and state. Typically, a distributor is required to obtain permits
from a local fire marshal for each location at which propane is sold. The
Company's regional and corporate staffs attempt to assist the distributors in
this process whenever feasible. The Company plays an active role in drafting
model state legislation through the National Propane Gas Association ("NPGA"),
an industry association, which attempts to make state and local legislation
uniform to provide consumers, retailers and distributors with up to date and
appropriate regulations and safety. See "Risk Factors--Regulation of Propane"
and "--Volatile Product; Potential Product Liability."
34
<PAGE>
PROPRIETARY RIGHTS
The Company has invested substantial time, effort and capital in
establishing the Blue Rhino brand name and believes that its trademarks are an
important part of its business strategy. The Company has a trademark for the
use of the Blue Rhino name and logo and the RhinoTUFF name and a trademark
application pending for Tri-Safe name. While the Company may apply for
additional trademarks or copyrights in the future, no assurance can be given
that any trademarks or copyrights will be issued, that any of the Company's
trademarks or patents will be held valid if subsequently challenged or that
others will not claim rights in or ownership of the trademarks or copyrights
and other proprietary rights held by the Company. See "Risk Factors--
Dependence on Trademarks, Proprietary Information and Copyrights."
LITIGATION
In the ordinary course of its business, the Company is involved in certain
pending or threatened legal proceedings from time to time. In the opinion of
management, none of such legal proceedings currently pending or threatened
will have a material effect on the financial position or results of operations
of the Company. See "Risk Factors--Volatile Product; Potential Product
Liability."
EMPLOYEES
As of February 28, 1998, the Company had 51 employees, of whom 15 were
engaged in sales and marketing, 12 in distributor services, 5 in information
systems and 19 in administration and finance. The Company has not experienced
any work stoppages and considers its relations with its employees to be good.
See "Risk Factors--Dependence on Key Personnel."
FACILITIES
The Company's headquarters are located in Winston-Salem, North Carolina in
facilities leased by the Company from Platinum Services Corporation, an entity
affiliated with the Corporation by common ownership and control. Pursuant to
the terms of the lease, the Company pays annual rent of $82,000, plus its
allocable share of all taxes, utilities and maintenance. Although the lease
terminates, on December 31, 1998, the Company expects to renew the lease on
substantially similar terms for an additional three-year term.
35
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Executive officers and directors of the Company, and their ages as of the
date hereof are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Billy D. Prim (1)....... 42 Chairman of the Board, President and Chief Executive Officer
Andrew J. Filipowski 47 Vice Chairman
(1)....................
Mark Castaneda.......... 33 Chief Financial Officer
Kay B. Word............. 45 Chief Information Officer
Richard E. Belmont...... 38 Vice President, Sales and Marketing
Joseph T. Culp.......... 40 Vice President, Partner Development
Steven D. Devick (2).... 46 Director
Craig J. Duchossois 53 Director
(1)(2).................
S. H. Fogleman, III (2). 42 Director
James P. Liautaud (3)... 61 Director
John H. Muehlstein (3).. 43 Director
Robert S. Steel (3)..... 43 Director
</TABLE>
---------------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Billy D. Prim co-founded the Company in March 1994 and has served as its
Chief Executive Officer and Chairman of the Board since its incorporation and
as its President since January 1996. Mr. Prim also serves as President and
Chief Executive Officer and is a 51% stockholder of American Oil and Gas
Company, Inc., a North Carolina based holding company which until April 1995
was also a distributor of propane gas, home heating oil, diesel fuel and
kerosene. Mr. Prim is a director of several privately-held companies,
including Platinum Propane, Caribou Propane and Javilina Propane which act as
distributors for the Company, and Bison Valve, L.L.C. which borrowed $635,000
from the Company pursuant to a convertible loan. Mr. Prim is also a director
of Southern Community Bank & Trust and the NPGA.
Andrew J. Filipowski co-founded the Company in March 1994 and has served as
Vice Chairman of the Board since May 1994. Mr. Filipowski is a co-founder of
Platinum Technology, Inc. and has been its chairman of the board, president
and chief executive officer since its formation in April 1987. Mr. Filipowski
is also a director of Platinum Entertainment, Inc., Eagle River Interactive,
System Software Associates, Inc. and several privately-held companies
including Platinum Propane, Caribou Propane and Javilina Propane which act as
distributors for the Company.
Mark Castaneda has served as Chief Financial Officer since October 1997.
Prior to joining the Company, Mr. Castaneda served as the vice president of
finance and the chief financial officer for All Star Gas Corporation, from
July 1995 until October 1997; served as a director of planning and the
controller of Skelgas Propane, Inc. from May 1991 to July 1995; and as a
certified public accountant with Deloitte & Touche, LLP from June 1986 to May
1991.
Kay B. Word has served as Chief Information Officer since March 1997. Prior
to joining the Company, Ms. Word served as the director of information
resources for R.J. Reynolds Tobacco Company from March 1988 to March 1997.
36
<PAGE>
Richard E. Belmont has served as Vice President of Sales and Marketing since
March 1995. Prior to joining the Company, Mr. Belmont was the product planning
manager and parts and product manager with the Char-Broil Division of W.C.
Bradley Co. from January 1990 to March 1995. Mr. Belmont is currently a
director of the BIA.
Joseph T. Culp has served as Vice President of Partner Development since
November 1995. Prior to joining the Company, Mr. Culp was the general manager
of Skelgas Propane, Inc. from February 1994 to November 1995, and as a
regional manager for Suburban Propane Partners, L.P. from January 1981 to
February 1994.
Steven D. Devick has served as a director since May 1994. Mr. Devick is a
co-founder of Platinum Entertainment, Inc. and has served as its chairman of
the board and chief executive officer since January 1992 and as its president
since January 1996. Mr. Devick is the chief executive officer of DDE, Inc. and
is also a director of Platinum Technology, Inc., as well as serving as an
officer and director of several privately-held companies.
Craig J. Duchossois has served as a director since May 1994. Mr. Duchossois
has been the chief executive officer of Duchossois Industries, Inc., a
privately-held diversified manufacturing and service company since 1995, and
as its President from 1986 to 1995. Mr. Duchossois has also served as a
director of Platinum Entertainment, Inc., and currently serves as a director
of Bissell, Inc. and LaSalle National Bank as well as several privately-held
companies, including Bison Valve, L.L.C.
S.H. Fogleman, III, has served as a director since May 1994. Mr. Fogleman
was the Chief Financial Officer and Vice President, Finance of the Company
from May 1994 to December 1995. Mr. Fogleman has been the chief financial
officer and vice president, finance of Platinum Rotisserie Corporation since
November 1993 and was the chief financial officer/controller of Zack's Famous
Frozen Yogurt, Inc. from July 1990 to November 1993.
James P. Liautaud has served as a director since May 1994. Since 1968, Mr.
Liautaud has been the chairman of the board of Gabriel, Inc., a private
investment company. Mr. Liautaud serves as a director and trustee for the
Entrepreneurship Institute and the University of Illinois Family Business
Council.
John H. Muehlstein has served as a director since September 1995. Since
1986, Mr. Muehlstein has been a partner of the law firm of Pedersen & Houpt,
P.C., legal counsel to the Company. Mr. Muehlstein also serves as a director
of Einstein/Noah Bagel Corp. and several privately-held corporations.
Robert S. Steel has served as a director of the Company since May 1995.
Since 1977, Mr. Steel has been the president and chief executive officer of
K.A. Steel Chemicals, Inc. Mr. Steel is also the general partner and principal
of Vision Capital Partners, L.L.C., a venture capital and investment
partnership. Mr. Steel also serves as the secretary and as a director of
Whittman-Hart Inc., a director of Monterey Pasta Co., and as an officer and
director of several privately-held companies.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Executive Committee, a Compensation Committee
and an Audit Committee. The Executive Committee makes recommendations to the
Board of Directors concerning matters of strategic planning and operational
management of the Company and has the power to address matters on behalf of
the Board of Directors which require attention between meetings of the Board
of Directors. The Compensation Committee makes recommendations to the Board of
Directors concerning salaries and incentive compensation for the Company's
officers and employees, administers the 1994 Stock Incentive Plan ("1994 Stock
Incentive Plan") and will administer the Company's 1998 Stock Incentive Plan
("1998 Stock Incentive Plan"), Distributor Incentive Stock Option Plan
("Distributor Option Plan") and Non-employee Director Stock Option Plan
("Director Option Plan") when they become effective upon consummation of this
offering. Prior to September 1997, decisions concerning the compensation of
officers were made by the Board
37
<PAGE>
of Directors as a whole. The Audit Committee makes recommendations to the
Board of Directors regarding the selection of independent auditors, reviews
the results and scope of the audit and other accounting related services and
reviews and evaluates the Company's internal control functions.
DIRECTOR COMPENSATION
Directors currently receive no cash compensation for their service on the
Board of Directors, although they are reimbursed for all reasonable expenses
incurred in connection with the performance of their duties as directors.
Prior to the consummation of this offering, the directors were eligible to
receive stock options under the 1994 Stock Incentive Plan. After the
consummation of this offering directors will receive options under the
Director Option Plan. In April 1995, the Company issued to each of six
directors an option to purchase 3,780 shares of Common Stock at a purchase
price of $4.50 per share and in August 1996 identical grants were made to two
additional directors. The Board of Directors has approved an annual grant
under the Director Option Plan to each director of an option to purchase 1,000
shares of Common Stock at a price per share equal to the fair market value per
share of Common Stock as of the grant date for each quarterly director's
meeting which such director attended during the previous year (aggregating a
maximum grant of 4,000 options per year). See "--Director Option Plan."
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company for the fiscal year ended July 31, 1997 to the Company's
Chief Executive Officer and its other executive officers whose total salary
plus bonus exceeded $100,000 for such fiscal year ("Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
----------------- --------------------
SHARES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) STOCK OPTIONS (#)(1)
--------------------------- ---- --------- --------------------
<S> <C> <C> <C>
Billy D. Prim, 1997 $125,250 57,089
Chief Executive Officer
Richard E. Belmont, 1997 $106,727 1,890
Vice President Sales and Marketing
Joseph T. Culp, 1997 $104,242 1,890
Vice President of Partner Development
</TABLE>
- ---------------------
(1) The number of shares underlying the stock options reflects the Reverse
Stock Split.
38
<PAGE>
OPTION GRANTS
The following table sets forth information on grants of stock options to the
Named Officers pursuant to the Company's 1994 Stock Incentive Plan during
fiscal 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
NUMBER OF % OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTION TERM(3)
OPTIONS EMPLOYEES IN PER EXPIRATION ---------------------
NAME GRANTED(1)(2) FISCAL YEAR SHARE(2) DATE 5% 10%
- ---- ------------- ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Billy D. Prim (4)....... 57,089 54.8% $7.05(5) 6/15/07 $ 253,116 $ 641,445
Richard E. Belmont...... 1,890 6.6 6.61 3/20/07 7,857 19,911
Joseph T. Culp.......... 1,890 6.6 6.61 11/15/06 7,857 19,911
</TABLE>
- ---------------------
(1) The options are granted pursuant to the Company's 1994 Stock Incentive
Plan. These options have a term of ten years and, except as described in
note 4 below, are nonqualified stock options and have an exercise price
equal to the estimated fair value of the Company's Common Stock on the
date of grant. In determining the fair market value of the Company's
Common Stock, the Board of Directors considered various factors, including
the Company's financial condition and business prospects, its operating
results and the absence of a market for its Common Stock.
(2) The number of securities underlying options granted and exercise price per
share have been adjusted to reflect the Reverse Stock Split.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of the Company's future
Common Stock prices.
(4) 19,282 of these options are nonqualified stock options issued at an
exercise price of $6.61 per share and 37,807 of these options are
qualified stock options issued at an exercise price of $7.27 per share
which represents the Board of Directors' estimate of fair market value
plus 10%.
(5) Weighted average exercise price.
The following table sets forth information with respect to unexercised stock
options granted under the Company's 1994 Stock Incentive Plan as of the end of
fiscal 1997. The Named Officers did not exercise any stock options during such
fiscal year.
AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-
NUMBER OF UNEXERCISED THE-MONEY
OPTIONS OPTIONS AT JULY 31,
HELD AT JULY 31, 1997(1) 1997(3)
---------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE(2) EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Billy D. Prim............ 1,512 59,357 $3,190 $ 2,268
Richard E. Belmont....... 3,781 9,451 7,978 15,954
Joseph T. Culp........... 2,268 10,964 4,785 19,144
</TABLE>
- ---------------------
(1) The number of underlying options has been adjusted to reflect the Reverse
Stock Split.
(2) All unexercisable options will become exercisable upon consummation of
this offering.
(3) Calculated by determining the difference between the fair market value of
the securities underlying the options at July 31, 1997 ($0.50 per share
($6.61 per share post Reverse Stock Split) as determined by the Board of
Directors) and the exercise price of the Named Officer's option.
39
<PAGE>
1994 STOCK INCENTIVE PLAN
The 1994 Stock Incentive Plan was adopted by the Board of Directors and
approved by the stockholders in December 1994 and has 182,607 shares of Common
Stock reserved for issuance upon the exercise of Options granted thereunder.
As of January 31, 1998, Options to purchase 182,607 shares of Common Stock at
a weighted average exercise price of $6.03 per share were outstanding under
the 1994 Stock Incentive Plan. Upon consummation of the offering, the Company
intends to accelerate the vesting of all outstanding Options under its 1994
Stock Incentive Plan. No additional options, stock appreciation rights,
restricted stock or deferred stock will be granted under the 1994 Stock
Incentive Plan. See "Description of Capital Stock--Recapitalization."
1998 STOCK INCENTIVE PLAN
The Board of Directors has adopted and the stockholders have approved the
institution of the 1998 Stock Incentive Plan effective as of the consummation
of this offering. The Company has reserved 300,000 shares of Common Stock for
issuance upon the exercise of options to be granted under the 1998 Stock
Incentive Plan. Pursuant to the 1998 Stock Incentive Plan, the Company may
make grants of options to officers, employees, consultants and advisors of the
Company to encourage them to acquire a proprietary interest in the Company and
to generate an increased incentive to contribute to the Company's future
success and prosperity. Options granted under the 1998 Stock Incentive Plan
are not "qualified stock options," as that term is defined in Section 422(b)
of the Internal Revenue Code of 1986, as amended. The Compensation Committee
of the Board of Directors is the administrator for the 1998 Stock Incentive
Plan and has the power to select officers, employees, consultants and advisors
for participation, determine the number of shares of Common Stock subject to
each grant and the vesting, price and terms of exercise for each option
granted thereunder. The Compensation Committee also may adjust the number of
shares of Common Stock subject to option grants in case of stock dividends,
stock splits, recapitalizations and other similar events. Options may not be
assigned or transferred except by will or operation of the laws of descent and
distribution. Subject to vesting requirements, options granted under the 1998
Stock Incentive Plan may be exercised only by the participant, with certain
exceptions in the event of death during his or her employment with or
engagement by the Company.
DIRECTOR OPTION PLAN
All non-employee directors are entitled to participate in the Non-Employee
Director Stock Option Plan (the "Director Option Plan"). The Director Option
Plan was adopted by the Board of Directors and approved by the stockholders in
November 1997, but will not become effective until the consummation of this
offering. The Company has reserved 100,000 shares of Common Stock for issuance
under the Director Option Plan. The Board of Directors has approved an annual
grant to each Director under the Director Option Plan of options to purchase
4,000 shares of Common Stock at a price per share equal to the fair market
value per share of the Common Stock as of the grant date consisting of 1,000
shares for each quarterly board meeting such director attended during the
previous year. One third of these options will vest on each of the first three
anniversaries of the grant date. See "--Director Compensation."
Options granted under the Director Option Plan are not "qualified stock
options," as that term is defined in Section 422(b) of the Code. The
Compensation Committee of the Board of Directors administers the Director
Option Plan and has the power to adjust the number of shares of Common Stock
subject to option grants in case of stock dividends, stock splits,
recapitalizations and other similar events. Each option granted under the
Director Option Plan is exercisable for a period not to exceed ten years from
the date of grant and shall lapse upon expiration of such period. Options may
not be assigned or transferred except by will or operation of the laws of
descent and distribution and each option is exercisable during the lifetime of
the optionee only by such optionee.
40
<PAGE>
DISTRIBUTOR OPTION PLAN
In November 1997, the Board of Directors adopted and the stockholders
approved the Distributor Incentive Stock Option Plan (the "Distributor Option
Plan") to be effective upon the consummation of this offering. The Company has
reserved 400,000 shares of Common Stock for issuance upon the exercise of
options granted under the Distributor Option Plan. Of this amount, the Board
of Directors has authorized and is expected to grant options to purchase
approximately 250,000 shares of Common Stock to existing Blue Rhino
distributors at an exercise price equal to the initial public offering price.
Blue Rhino distributors and their stockholders, partners, members, directors,
general partners, managers, officers, employees and consultants are eligible
to receive options under the Distributor Option Plan.
Blue Rhino adopted the Distributor Option Plan to assist in attracting and
retaining distributors, provide distributors an incentive to offer quality
service to and increase the number of Blue Rhino customer accounts and to
promote the identification of the distributor's interests with those of the
Company's stockholders. Options issued under the Distributor Option Plan will
not be "qualified stock options" as that term is defined in Section 422(b) of
the Code, nor is the Distributor Option Plan an "employee benefit plan" as
that term is defined under Rule 405 promulgated under the Securities Act. The
Compensation Committee of the Board of Directors administers the Distributor
Option Plan and has the power to select distributors for participation and to
determine the number of shares of Common Stock subject to each grant. The
exercise price for options granted to distributors under the Distributor
Option Plan will be the market price of the Company's Common Stock on the date
of the option grant. Options granted under the Distributor Option Plan will
typically have a term of ten years and vest over four years with 25% vesting
on the first anniversary of issuance and on each subsequent anniversary
thereafter until fully vested. The Company intends to register the shares of
Common Stock reserved for sale to distributors upon the exercise of vested
options granted under the Distributor Option Plan. In the event the Company
does not or is unable to register shares in a sufficient number to issue to
distributors upon their exercise of vested options issued under the
Distributor Option Plan, the options shall be exercisable only in the event
exemptions from registration under the Securities Act and state "blue sky"
laws exist for the issuance of shares upon the exercise of the option.
401(K) PLAN
The Company's employees participate in the Platinum Service Corporation
401(k) plan, a multi-employer plan established in July 1994 to serve employees
of Blue Rhino and its subsidiaries, Platinum Propane and its subsidiaries and
Platinum Rotisserie, Inc., and its subsidiaries. All employees of the Company
who have been employed for one year or more are eligible to participate in the
plan beginning on the first day of the first fiscal quarter following the
completion of 1,000 hours of service. Participants in the 401(k) plan may
contribute up to 10% of their total base compensation to the plan. Each
employee's interest in contributions of the Company, if any, vests 20% per
year of service with the Company. Contributions by the Company are at the
Company's discretion and no such contributions have been made to date.
41
<PAGE>
CERTAIN TRANSACTIONS
The share numbers in this section reflect the Reverse Stock Split.
TRANSACTIONS WITH STOCKHOLDERS AND DIRECTORS
Billy D. Prim and Andrew J. Filipowski founded the Company in March 1994
contributing the assets of American Cylinder Exchange, Inc. in consideration
for 746,692 and 589,792 shares of the Company's Common Stock, respectively.
In December 1994, the Company sold 1,570,221 shares of Series A Convertible
Participating Preferred Stock and warrants to purchase 318,650 shares of
Common Stock at an exercise price of approximately $0.45 per share for an
aggregate purchase price of approximately $6.7 million. Mr. Prim purchased
3,268 shares of preferred stock for $15,000 and Mr. Filipowski purchased
444,630 shares of preferred stock and warrants to purchase 127,037 shares of
Common Stock for an aggregate purchase price of approximately $2.0 million.
In May 1995, Messrs. Filipowski, Duchossois and Steel, each a director and
stockholder of the Company, and Peter H. Huizenga, a former director of the
Company, loaned $800,000 in aggregate to Blue Rhino at 7.84% per annum. Each
also received a warrant to purchase 2,179 shares of Common Stock at an
exercise price of $4.59 per share. The Company has repaid this loan in full.
At the same time, Platinum Venture Partners I, L.P. ("PVP"), a stockholder of
the Company, loaned the Company $600,000 at 7.84% per annum and received a
warrant to purchase 6,537 shares of Common Stock at an exercise price of $4.59
per share. Messrs. Devick, Liautaud, Filipowski, Prim, Duchossois and Steel,
each a director of the Company, hold a limited partnership interest in PVP.
The Company has repaid this loan in full.
In June 1995, the Company entered into a $6.0 million credit facility with
Bank of America, Illinois. Messrs. Prim, Filipowski, Duchossois, Steel and
Huizenga executed limited guarantees of this indebtedness and received a
warrant to purchase Common Stock at an exercise price of $4.59 per share in
consideration therefor. Messrs. Prim, Filipowski and Duchossois each received
a warrant to purchase 39,219 shares; Mr. Huizenga received a warrant to
purchase 52,293 shares; and Mr. Steel received a warrant to purchase 26,146
shares. In addition, PVP received a warrant to purchase 19,610 shares of
Common Stock in connection with this credit facility. The Company has repaid
and terminated the credit facility and the obligations of the aforementioned
stockholders under the guarantees have lapsed.
In October 1995, the Company sold 12,575 Units for $1,000 per Unit, each
Unit consisting of a 10.5% Senior Discount Note with a face value of $1,364.93
and a warrant to purchase approximately 40 shares of Common Stock at an
exercise price of approximately $4.59 per share. Mr. Prim, individually and
through affiliates, purchased 25 Units, Mr. Filipowski purchased 200 Units and
Mr. Duchossois and his affiliates purchased 1,000 Units. In consideration for
their assistance in securing financing, certain individuals received in the
aggregate 72,589 warrants to purchase Common Stock at an exercise price of
$4.59 per share which included 7,561 warrants issued to Mr. Huizenga and
27,095 warrants issued to Mr. Duchossois and his affiliates. All outstanding
Senior Discount Notes will be repaid in full with a portion of the proceeds
from this offering and the warrants will be exercised upon consummation of the
offering.
In June 1996, the Company awarded distributorships for North Carolina, South
Carolina, Georgia, Florida and parts of Virginia and Tennessee to Platinum
Propane Corporation ("PPC"), an entity indirectly owned and managed by Messrs.
Prim and Filipowski. The terms of the distribution agreements are
substantially the same as those negotiated with other Blue Rhino distributors.
In March 1997, Messrs. Prim and Filipowski contributed the assets and certain
liabilities of PPC to Platinum Propane Holding, L.L.C. ("Platinum Propane") in
exchange for approximately 40% of the membership interests in Platinum
Propane. In March 1997, Platinum Propane raised approximately $4.8 million in
a private placement of membership interests pursuant to which Mr. Duchossois
and his affiliates invested $375,000. On March 1, 1997, the Company sold
151,229 shares of Common Stock and a warrant to purchase 113,422 shares of
Common Stock at an exercise price of $6.61 per share to Platinum Propane for
an aggregate purchase price of $1.0 million. At the same time, the Company
entered into distributor agreements with subsidiaries of Platinum Propane
covering the Chicago, Illinois and Los Angeles, California territories, in
addition to the territories previously
42
<PAGE>
served by PPC. Messrs. Prim and Filipowski have the ability to select, and
currently occupy, two of the seven director positions at Platinum Propane. In
fiscal 1996 and 1997, PPC and Platinum Propane received approximately $1.6
million and $5.3 million, respectively, from the Company on behalf of cylinder
distribution services performed by them. The Company has also entered into
display rack financing leases with Platinum Propane requiring lease payments
of $12,116 per month as of January 31, 1998.
From March 1994 until June 1996, the Company leased a 13,000 square foot
warehouse and refurbishing facility in Booneville, North Carolina from Mr.
Prim. The lease provided for $1,000 rent per month on a triple net basis. The
Company also leased equipment at this facility from American Oil and Gas, Inc.
of which Messrs. Prim and Filipowski own approximately 91% of the outstanding
stock. These leases were assigned to PPC in June 1996.
Since March 1994, the Company has leased its offices in Winston-Salem, North
Carolina from Platinum Services Corporation, an entity owned 65% by Mr.
Filipowski, 30% by Mr. Prim and 5% by Mr. Fogleman. Pursuant to the terms of
the lease, the Company pays annual rent of $82,000, plus its allocable share
of all taxes, utilities, and maintenance. Although the lease terminates on
December 31, 1998, the Company expects to renew the lease on substantially
similar terms for an additional three year term.
In January 1998, Messrs. Filipowski, Duchossois and Liautaud and Lennard
Carlson, a stockholder, collectively loaned the Company $3.25 million (the
"1998 Stockholder Loans"). The 1998 Stockholder Loans are repayable in full on
the earlier of December 31, 2000 or the initial public offering of the
Company's Common Stock in which the net proceeds to the Company equal at least
$30.0 million. The 1998 Stockholder Loans bear interest at 10.5% per annum,
accruing for one year and payable quarterly thereafter until paid in full. The
1998 Stockholder Loans will be repaid in full with a portion of the proceeds
from this offering. Messrs. Filipowski, Duchossois, Liautaud and Carlson also
received warrants to purchase approximately .08 shares of Common Stock for
every $3.00 they loaned to the Company for a total of 81,916 shares (the "1998
Warrants"). The 1998 Warrants may be exercised prior to December 31, 2008 at a
price per share equal to the price at which the shares offered hereby are
sold. The 1998 Warrants will remain outstanding following the consummation of
the offering. See "Use of Proceeds" and "Risk Factors--Management's Discretion
as to Use of Unallocated Net Proceeds; Benefits to Existing Stockholders."
Mr. Muehlstein, a director of the Company, is also a stockholder in the firm
of Pedersen & Houpt, P.C., legal counsel to the Company.
The Company believes that the foregoing transactions with directors,
officers, stockholders and other affiliates were completed on terms as
favorable to the Company as could have been obtained from unaffiliated third
parties. The Company has adopted a policy that it will not enter into any
material transaction in which a Company director, officer or stockholder has a
direct or indirect financial interest, unless the transaction is determined by
the Company's Board of Directors to be fair as to the Company or is approved
by a majority of the Company's disinterested directors or by the Company's
stockholders.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of March 1, 1998 and as adjusted to reflect
the sale of the Common Stock offered hereby by (i) each person known by the
Company to own beneficially more than 5% of the Common Stock; (ii) each
director of the Company; (iii) each Named Officer; and (iv) all executive
officers and directors as a group.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED
THE AFTER THE
OFFERING(1)(2) OFFERING(1)(3)
----------------- -----------------
NAME AND ADDRESS NUMBER PERCENT NUMBER PERCENT
- ---------------- ------ ------- --------- -------
<S> <C> <C> <C> <C>
DIRECTORS AND OFFICERS:
Andrew J. Filipowski(4)
1815 S. Meyers Road
Oakbrook Terrace, IL 60181 ............... 1,772,795 40.8% 1,848,583 25.6%
Billy D. Prim(5)
104 Cambridge Plaza Drive
Winston-Salem, NC 27104................... 1,324,371 30.5 1,344,423 18.6
Craig J. Duchossois(6)
845 Larch Avenue
Elmhurst, IL 60126........................ 374,380 8.6 400,980 5.6
Richard G. Belmont(7)
104 Cambridge Plaza Drive
Winston-Salem, NC 27104................... 15,123 * 15,123 *
Joseph T. Culp(7)
104 Cambridge Plaza Drive
Winston-Salem, NC 27104................... 15,123 * 15,123 *
S.H. Fogleman, III(8)
100 Cambridge Plaza Drive
Winston-Salem, NC 27104................... 18,904 * 18,904 *
James P. Liautaud(9)
132 East Delaware
Chicago, IL 60611......................... 152,809 3.5 165,315 2.3
John H. Muehlstein(7)
161 N. Clark Street, Suite 3100
Chicago, IL 60601......................... 3,781 * 3,781 *
Robert F. Steel(10)
445 East 4th Street
Hinsdale, IL 60521........................ 50,406 1.1 52,907 *
Steven D. Devick(11)
2001 Butterfield Road, Suite 1400
Downers Grove, IL 60515................... 306,737 7.1 332,023 4.5
Directors and executive officers as a group
(12 individuals).......................... 3,341,128 76.8 3,461,027 47.9
5% STOCKHOLDERS:
Platinum Venture Partners I, L.P.(12)
2001 Butterfield Road, Suite 1400
Downers Grove, IL 60515................... 302,956 7.0 328,242 4.5
</TABLE>
- ---------------------
*Less than 1%.
44
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by
that person that are currently exercisable or exercisable within 60 days
of March 1, 1998 are deemed outstanding. Except as indicated in the
footnotes to this table and as provided pursuant to applicable community
property laws, the stockholders named in the table have sole voting and
investment power with respect to the shares set forth opposite each
stockholder's name.
(2) The Shares Beneficially Owned Prior to the Offering reflects the shares
outstanding following the Recapitalization.
(3) The Shares Beneficially Owned After the Offering reflects 2,700,000
shares of Common Stock to be issued pursuant to the offering.
(4) Includes 882,003 shares of Common Stock owned by Mr. Filipowski, 18,903
shares of Common Stock issuable upon the exercise of vested Options held
by Mr. Filipowski, 111,798 shares of Common Stock to be issued upon the
cashless exercise of warrants held by Mr. Filipowski, except the 1998
Warrants, in connection with this offering, 36,547 shares of Common Stock
to be issued upon exercise of the 1998 Warrants, 32,953 shares of Common
Stock issued in payment of the Preferred Dividend following the
consummation of the offering, 155,619 shares of Common Stock owned by
American Oil and Gas, Inc., of which Mr. Filipowski owns 42% of the
issued and outstanding shares, 42,893 shares of Common Stock to be issued
upon the cashless exercise of a warrant held by American Oil and Gas,
Inc. in connection with this offering, 17,549 shares of Common Stock
issued to American Oil and Gas, Inc. in payment of the Preferred Dividend
following the consummation of the offering, 151,227 shares owned by
Platinum Propane, of which Mr. Filipowski acts as a director and
indirectly owns 16% of the membership interests, 55,728 shares of Common
Stock to be issued upon the cashless exercise of a warrant held by
Platinum Propane in connection with this offering, 224,235 shares of
Common Stock owned by Platinum Venture Partners I, L.P. ("PVP"), the
general partner of which is Platinum Venture Partners, Inc. ("PVP,
Inc."), a corporation of which Mr. Filipowski owns 22.5% of the shares
and serves as a director, 78,721 shares of Common Stock to be issued upon
the cashless exercise of a warrant held by PVP in connection with this
offering, 25,286 shares of Common Stock issued to PVP in payment of the
Preferred Dividend following the consummation of the offering, 1,890
shares of Common Stock beneficially owned by Jennifer R. Filipowski,
1,890 shares of Common Stock beneficially owned by Mr. Filipowski as
trustee on behalf of the Andrew E. Filipowski Trust, 1,890 shares of
Common Stock beneficially owned by Veronica Champney as trustee on behalf
of the Alexandra Filipowski Trust, 1,890 shares of Common Stock
beneficially owned by Veronica Champney as trustee on behalf of the James
Meadows Trust and 7,561 shares of Common Stock beneficially owned by
Veronica Champney.
(5) Includes 811,222 shares of Common Stock held by Mr. Prim, 64,181 shares
of Common Stock issuable upon the exercise of vested Options held by Mr.
Prim, 32,160 shares of Common Stock to be issued upon the cashless
exercise of warrants held by Mr. Prim in connection with this offering,
2,503 shares of Common Stock issued in payment of the Preferred Dividend
following the consummation of the offering, 155,619 shares of Common
Stock owned by American Oil and Gas, Inc., of which Mr. Prim owns 51% of
the issued and outstanding shares and has voting control, 42,893 shares
of Common Stock to be issued upon the cashless exercise of a warrant held
by American Oil and Gas, Inc. in connection with this offering, 17,549
shares of Common Stock issued to American Oil and Gas, Inc. in payment of
the Preferred Dividend following the consummation of the offering,
151,227 shares owned by Platinum Propane, of which Mr. Prim acts as a
director and indirectly owns 20.4% of the membership interests, 55,728
shares of Common Stock to be issued upon the cashless exercise of a
warrant held by Platinum Propane in connection with this offering, 7,561
shares of Common Stock beneficially owned by Debbie W. Prim, 1,890 shares
of Common Stock beneficially owned by Debbie W. Prim as trustee on behalf
of Sarcaneda Westmoreland and 1,890 shares of Common Stock beneficially
owned by Debbie W. Prim as trustee on behalf of Anthony G. Westmoreland.
(6) Includes 165,371 shares of Common Stock owned by Mr. Duchossois, 3,781
shares of Common Stock issuable upon the exercise of vested Options held
by Mr. Duchossois, 57,350 shares of Common Stock to be issued upon the
cashless exercise of warrants held by Mr. Duchossois in connection with
this offering, 36,547 shares of Common Stock to be issued upon exercise
of the 1998 Warrants, 18,648 shares of Common Stock issued in payment of
the Preferred Dividend following the consummation of the offering, 12,038
shares of Common Stock beneficially owned by the Craig Duchossois
Revocable Trust of which Mr. Duchossois is the trustee, 30,608 shares of
Common Stock to be issued upon the cashless exercise of a warrant held by
such Trust in connection with this offering, 1,357 shares of Common Stock
issued to such Trust in payment of the Preferred Dividend following the
consummation of the offering, 58,483 shares of Common Stock beneficially
owned by the Kimberly Family Discretionary Trust over which Mr.
Duchossois has voting and investment control, 10,202 shares of Common
Stock to be issued upon the cashless exercise of a warrant held by such
Trust in connection with this offering and 6,595 shares of Common Stock
issued to such Trust in payment of the Preferred Dividend following the
consummation of the offering.
(7) Represents the number of shares issuable upon the exercise of vested
Options.
(8) Includes 15,123 shares of Common Stock owned by Mr. Fogleman and 3,781
shares of Common Stock issuable upon the exercise of vested Options held
by Mr. Fogleman.
(9) Includes 3,781 shares of Common Stock issuable upon the exercise of
vested Options held by Mr. Liautaud, 7,561 shares of Common Stock to be
issued upon the exercise of the 1998 Warrants held by Mr. Liautaud,
30,567 shares of Common Stock issued upon the cashless exercise of
Warrants held by Mr. Liautaud in connection with the offering, 12,506
shares of Common Stock issued in payment of the Preferred Dividend
following the consummation of the offering and 110,900 shares of Common
Stock owned by Gabriel, Inc., of which Mr. Liautaud is the sole
stockholder and has sole voting and investment power.
(10) Includes 22,185 shares of Common Stock owned jointly by Mr. Steel and his
wife, Jennifer Steel, 3,781 shares of Common Stock issuable upon the
exercise of vested Options held by Mr. Steel, 2,502 shares of Common
Stock issued in payment of the Preferred
45
<PAGE>
Dividend following the consummation of the offering and 24,440 shares of
Common Stock to be issued upon the cashless exercise of a Warrant held by
Mr. Steel in connection with this offering.
(11) Includes 3,781 shares issuable upon the exercise of vested Options held
by Mr. Devick and 224,235 shares owned beneficially by PVP and 78,721
shares of Common Stock to be issued upon the cashless exercise of a
warrant held by PVP , the general partner of which is PVP, Inc., in
connection with this offering, 25,286 shares of Common Stock issued in
payment to PVP of the Preferred Dividend following the consummation of
the offering. Mr. Devick is President, serves as a director and owns
22.5% of the outstanding shares of PVP, Inc.
(12) Includes 224,235 shares owned beneficially by PVP, the general partner of
which is PVP, Inc., 78,721 shares of Common Stock to be issued in
connection with this offering upon the cashless exercise of a warrant
held by PVP and 25,286 shares of Common Stock issued to PVP in payment of
the Preferred Dividend following the consummation of the offering.
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, there will be approximately 7,225,220
shares of Common Stock outstanding. The 2,700,000 shares (or up to 3,105,000
shares if the Underwriters' overallotment option is exercised in full) of
Common Stock issued and sold in this offering will be freely tradeable (other
than by an "affiliate" of the Company as such term is defined in the
Securities Act) without restriction under the Securities Act. The remaining
shares of Common Stock then outstanding will be deemed "restricted securities"
within the meaning of Rule 144 under the Securities Act (the "Restricted
Shares") and may be resold only in compliance with the registration provisions
of the Securities Act or an exemption thereunder.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned Restricted Shares for at least one year from the later of the date such
Restricted Shares were acquired from the Company or (if applicable) from an
affiliate or the date on which they were fully paid, is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then-outstanding shares of Common Stock or the average
weekly trading volume in the public market as reported through the Nasdaq
National Market during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain requirements as to the manner and
notice of sale and the availability of public information concerning the
Company.
Restricted Shares held by affiliates of the Company are subject to the
foregoing volume limitations, holding period and other restrictions under Rule
144. Affiliates may sell shares other than Restricted Shares in accordance
with the foregoing volume limitations and other restrictions, but without
regard to any holding period.
Further, under Rule 144(k), if a period of at least two years has elapsed
since the later of the date Restricted Shares were acquired from the Company
or from an affiliate of the Company or the date on which they were fully paid,
a holder of such Restricted Shares who is not an affiliate of the Company at
the time of the sale, and has not been an affiliate of the Company for at
least three months prior to the sale, would be entitled to sell the shares
immediately without regard to volume limitations and the other conditions
described above.
Prior to this offering, there has been no market for the Common Stock and no
prediction can be made as to the effect, if any, that market sales of shares
or the availability of such shares for sale will have on the market price of
the Common Stock from time to time. Nevertheless, sales of substantial amounts
of Common Stock in the public market could have an adverse impact on such
market price and the Company's ability to raise additional equity capital.
Certain stockholders of the Company, including the executive officers and
directors, who will own in the aggregate 3,581,027 shares of Common Stock
after the offering, have agreed that they will not, without the prior written
consent of Hambrecht & Quist LLC, directly or indirectly sell, offer, contract
to sell, transfer the economic risk of ownership in, make any short sale,
pledge or otherwise dispose of any shares of Common Stock or any securities
convertible or exchangeable for or any other rights to purchase or acquire
Common Stock owned by them during the 180-day period following the date of
this Prospectus. The Company has agreed that it will not, without the prior
written consent of Hambrecht & Quist LLC, directly or indirectly sell, offer,
contract to sell, transfer the economic risk of ownership in, make any short
sale, pledge or otherwise dispose of any shares of Common Stock or any
securities convertible or exchangeable for or any other rights to purchase or
acquire Common Stock during the 180-day period following the date of this
Prospectus, except that the Company may issue shares upon the exercise of
options granted prior to the date hereof, and may grant additional options
under it stock option plans, provided, that, without the prior written consent
of Hambrecht & Quist LLC, such additional options shall not be exercisable
during such period. Upon expiration of such 180-day period, all of the shares
of Common Stock subject to such agreements will be eligible for sale subject,
in certain cases, to certain volume and other limitations of Rule 144 under
the Securities Act
47
<PAGE>
applicable to affiliates of the Company. Following consummation of this
offering, the Company intends to file registration statements under the
Securities Act to register the sale of 182,607 shares of Common Stock reserved
for issuance under the 1994 Stock Incentive Plan, 300,000 shares of Common
Stock reserved for issuance under the 1998 Stock Incentive Plan, 100,000
shares of Common Stock reserved for issuance under the Director Option Plan
and 400,000 shares reserved for issuance under the Distributor Option Plan.
The Company intends on granting approximately 250,000 options under the
Distributor Option Plan shortly after the consummation of the offering. Upon
expiration of the lock-up agreements referred to above, holders of
approximately 2,757,526 shares of Common Stock will be entitled to certain
registration rights, at the Company's expense, with respect to such shares.
The sale of a substantial number of shares, whether pursuant to a subsequent
public offering, the exercise of registration rights or otherwise, or the
perception that such sales could occur, could adversely affect the market
price of the Common Stock and could materially impair the Company's future
ability to raise capital through an offering of equity securities.
48
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the filing of the Second Amended and Restated Certificate of
Incorporation of the Company (the "Charter") prior to the consummation of this
offering, the authorized capital stock of the Company shall consist of
100,000,000 shares of Common Stock having a par value of $0.001 per share and
20,000,000 shares of "blank check" preferred stock having a par value of
$0.001 per share.
The following description of the proposed Recapitalization, the Company's
capital stock and certain provisions of the Charter and the Company's By-laws
is qualified in its entirety by the provisions of the Charter and By-laws
(which are included as exhibits to the Registration Statement of which this
Prospectus is a part) and the General Corporation Law of the State of Delaware
(the "DGCL").
RECAPITALIZATION
The Board of Directors and stockholders of the Company have approved the
Recapitalization of the Company in connection with the consummation of this
offering. Pursuant to the Recapitalization, all outstanding Preferred Stock
will be converted into Common Stock on a one share for one share basis, all
accrued dividends on the Preferred Stock will be converted into Common Stock
and all outstanding Warrants (except for the 1998 Warrants) will be converted
into Common Stock in a cashless exercise. The Company will then effect the 1
for 13.22513 Reverse Stock Split resulting in 4,525,220 shares of Common Stock
outstanding immediately prior to the sale of Common Stock offered hereby.
Pursuant to the Recapitalization, 182,607 Options (post Reverse Stock Split)
exercisable at a weighted average exercise price of $6.03 per share will be
deemed fully vested upon consummation of the offering.
The pre-offering capitalization of the Company includes 1,778,921 shares of
issued and outstanding Common Stock and 1,572,474 shares of issued and
outstanding Preferred Stock. Each share of Preferred Stock will be converted
into one share of Common Stock. In addition, each share of Preferred Stock is
entitled to an 8% cumulative preferred dividend (the "Preferred Dividend")
payable in cash or Common Stock. The Preferred Dividend is estimated to be
$2,305,209 upon consummation of this offering and will be converted into
177,301 shares of Common Stock in connection therewith. The Company has issued
Warrants to purchase (i) 318,650 shares of Common Stock at a purchase price of
$0.45 per share, (ii) 803,574 shares of Common Stock at a purchase price of
approximately $4.59 per share, (iii) 227,049 shares of Common Stock at a
purchase price of $6.61 and (iv) 81,916 shares of Common Stock at an exercise
price equal to the price at which the shares offered hereby are sold (referred
to herein as the 1998 Warrants).
Each holder of warrants (except for the holders of the 1998 Warrants) will
exercise their Warrants in a cashless exercise whereby the number of shares of
Common Stock with a value at the initial public offering price equal to the
exercise price will be deducted from the total number of shares which the
warrant holder would have been entitled to receive had they exercised their
Warrant in full. The following table summarizes the projected recapitalization
of the Company:
<TABLE>
<CAPTION>
TOTAL TOTAL SHARES
SHARES SHARES OF OF COMMON
OUTSTANDING COMMON STOCK
OR ISSUABLE WARRANT STOCK OUTSTANDING
UPON EXERCISE OUTSTANDING AFTER THE
EXERCISE OF PRICE PER POST REVERSE
CLASS OF SECURITY WARRANTS SHARE CONVERSION STOCK SPLIT
- ----------------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Common Stock................... 24,289,444 -- 24,289,444 1,836,613
Preferred Stock................ 20,796,172 -- 20,796,172 1,572,474
Preferred Stock Dividend....... -- -- 2,344,829 177,301
Warrants....................... 4,214,185 $0.034704 4,065,403 307,400
Warrants....................... 10,627,364 $0.347037 6,875,406 519,874
Warrants....................... 3,002,745 $0.500000 1,475,372 111,558
---------- ---------- ---------
Totals..................... 62,929,910 59,846,625 4,525,220(1)
========== ========== =========
</TABLE>
49
<PAGE>
- ---------------------
(1) The total shares of Common Stock outstanding after the Reverse Stock Split
(a) excludes 81,916 shares issuable upon the exercise of the 1998 Warrants
which will not be exercised in connection with the offering and (b)
includes 57,692 shares of Common Stock to be issued in connection with the
Bison Acquisition.
COMMON STOCK
All outstanding shares of Common Stock are, and the shares offered hereby
will be, fully paid and nonassessable. The holders of Common Stock are
entitled to one vote for each share held of record on all matters voted upon
by stockholders and may not cumulate votes. Thus, the owners of a majority of
the Common Stock outstanding may elect all of the directors if they choose to
do so, and the owners of the balance of such shares would not be able to elect
any directors. Subject to the rights of holders of any future series of
Preferred Stock that may be designated, each share of outstanding Common Stock
is entitled to participate equally in any distribution of net assets made to
the stockholders in a liquidation, dissolution or winding up of the Company
and is entitled to participate equally in dividends if, as and when declared
by the Board. There are no redemption, sinking fund, conversion or preemptive
rights with respect to the shares of Common Stock. All shares of Common Stock
have equal rights and preferences. See "Risk Factors--Control by Existing
Stockholders."
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to 20,000,000 shares of Preferred Stock and to determine the price,
rights, preferences and privileges of those shares. In addition, the terms of
the Preferred Stock and the rights of the holders of Preferred Stock may
adversely affect the rights of the holders of Common Stock. While the Company
has no present intention to issue shares of preferred stock, such issuance
could have the effect of making it more difficult for a third party to acquire
a majority of the outstanding voting stock of the Company. In addition, such
preferred stock may have other rights, including economic rights senior to the
Common Stock, and, as a result, the issuance thereof could have a material
adverse effect on the market value of the Common Stock.
CERTAIN PROVISIONS OF DELAWARE LAW
Business Combination Provision. The Company is subject to the provisions of
Section 203 of the DGCL. Subject to certain exceptions, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
the interested stockholder attained such status with the approval of the Board
or unless the business combination is approved in a prescribed manner. A
"business combination" includes mergers, assets sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
certain exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock.
Limitation on Liability. As permitted by the provisions of the DGCL, the
Company's Charter eliminates, in certain circumstances, the monetary liability
of directors of the Company for a breach of their fiduciary duty as directors.
These provisions do not eliminate the liability of a director: (i) for a
breach of a director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions by a director not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for liability
arising under Section 174 of the DGCL (relating to the declaration of
dividends and purchase or redemption of shares in violation of the DGCL), or
(iv) for any transaction from which the director derived an improper personal
benefit. In addition, these provisions do not eliminate the liability of a
director for violations of federal securities laws, nor do they limit the
rights of the Company or its stockholders, in appropriate circumstances, to
seek equitable remedies such as injunctive or other forms of non-monetary
relief. Such remedies may not be effective in all cases.
50
<PAGE>
If the DGCL is amended to authorize a further limitation or elimination of
the liability of directors or officers, then the liability of a director or
officer of the Company shall, in addition to the limitation of personal
liability provided in the Charter, be limited or eliminated to the fullest
extent permitted by the DGCL, as from time to time amended.
ANTI-TAKEOVER EFFECT OF PROVISIONS OF CHARTER AND BY-LAWS
Certain provisions of the Company's Charter and By-laws could discourage
potential acquisition proposals and could delay or prevent a change in control
of the Company. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Board and in the policies
formulated by the Board and to discourage certain types of transactions that
may involve an actual or threatened change of control of the Company, such as
an unsolicited acquisition proposal. Because these provisions could have the
effect of discouraging a third party from acquiring control of the Company,
they may inhibit fluctuations in the market price of shares of Common Stock
that could otherwise result from actual or rumored takeover attempts and,
therefore could deprive stockholders of an opportunity to realize a takeover
premium. These provisions also may have the effect of limiting the price that
certain investors might be willing to pay in the future for shares of the
Company's Common Stock and of preventing changes in the management of the
Company.
Election and Removal of Directors. The Company's Board of Directors is
divided into three classes of directors serving staggered three year terms,
thereby preventing a change in a majority of the Board in any single year.
Ordinary vacancies in the Board may be filled by the affirmative vote of the
Board members then in office.
Stockholder Consent. The Charter provides that stockholder action can be
taken only at an annual or special meeting of stockholders and cannot be taken
by written consent in lieu of a meeting. In addition, the Charter provides
that, except as otherwise required by law, special meetings of the
stockholders can be called only pursuant to a resolution adopted by a majority
of the Board, the Chairman of the Board or the President. Stockholders
desiring to nominate persons for the election of directors or to have other
business placed on the agenda of a meeting of the stockholders must give
written notice to the Board of Directors of such request 90 days in advance of
the date that notice of such meeting will be sent to all stockholders.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock will be Lasalle
National Bank, Chicago, Illinois.
51
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Hambrecht & Quist LLC,
NationsBanc Montgomery Securities LLC and Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated ("Dain Rauscher Wessels"), are acting as
representatives (the "Representatives"), have severally agreed to purchase
from the Company the following respective numbers of shares of Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC...........................................
NationsBanc Montgomery Securities LLC...........................
Dain Rauscher Wessels...........................................
------
Total...........................................................
======
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in the Company's business and the receipt of certain
certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligations is such that
they are committed to purchase all shares of Common Stock offered hereby if
any of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
re-allow, a concession not in excess of $ per share to certain other
dealers. After the initial public offering of the shares, the offering price
and other selling terms may be changed by the Representatives. The
Representatives have advised the Company that the Underwriters do not intend
to confirm discretionary sales in excess of 5% of the shares of Common Stock
offered hereby.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 405,000
additional shares of Common Stock at the initial public offering price, less
the underwriting discount, set forth on the cover page of this Prospectus. To
the extent that the Underwriters exercise this option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased
by it shown in the above table bears to the total number of shares of Common
Stock offered hereby. The Company will be obligated, pursuant to the option,
to sell shares to the Underwriters to the extent the option is exercised. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of shares of Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
52
<PAGE>
The Company has agreed to indemnify the Underwriters against certain
liabilities, including labilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
Certain stockholders of the Company, including the executive officers and
directors, who will own in the aggregate 3,581,027 shares of Common Stock
after the offering, have agreed that they will not, without the prior written
consent of Hambrecht & Quist LLC, directly or indirectly sell, offer, contract
to sell, transfer the economic risk of ownership in, make any short sale,
pledge or otherwise dispose of any shares of Common Stock or any securities
convertible or exchangeable for or any other rights to purchase or acquire
Common Stock owned by them during the 180-day period following the date of
this Prospectus. The Company has agreed that it will not, without the prior
written consent of Hambrecht & Quist LLC, directly or indirectly sell, offer,
contract to sell, transfer the economic risk of ownership in, make any short
sale, pledge or otherwise dispose of any shares of Common Stock or any
securities convertible or exchangeable for or any other rights to purchase or
acquire Common Stock during the 180-day period following the date of this
Prospectus, except that the Company many issue shares upon the exercise of
options granted prior to the date hereof, and may grant additional options
under its stock option plans, provided, that, without the prior written
consent of Hambrecht & Quist LLC, such additional options shall not be
exercisable during such period.
NationsBanc Montgomery Securities LLC ("NationsBanc Montgomery") is
affiliated with NationsBank, N.A. ("NationsBank") which is a lender to the
Company pursuant to the Bank Credit Facility (see "Use of Proceeds"). As of
the date of this Prospectus, NationsBank has advanced approximately $5.5
million to the Company pursuant to the Bank Credit Facility, all of which will
be repaid with a portion of the proceeds from the offering. The decision of
NationsBanc Montgomery to underwrite the offering was made independently of
NationsBank, which had no involvement in determining whether or when to
underwrite the offering or the terms thereof. NationsBanc Montgomery will not
receive any benefit from the offering other than its respective portion of the
underwriting commission payable by the Company. Because it is anticipated that
more than 10% of the proceeds from the offering (excluding the underwriting
commission) will be received by NationsBank pursuant to the repayment of
amounts outstanding under the Bank Credit Facility, and NationsBank is an
affiliate of NationsBanc Montgomery, a member of the National Association of
Securities Dealers, Inc. ("NASD"), the offering is being conducted pursuant to
Rule 2710(c)(8) of the NASD. In accordance with such rule, Hambrecht & Quist
LLC has agreed to act as a qualified independent underwriter ("QIU") pursuant
to the requirements of Rule 2720(c)(3) of the NASD. In connection with Rule
2720(c)(3), the initial public offering price of the Common Stock will be set
at a price which is no higher than that recommended by Hambrecht & Quist LLC,
as a QIU. Moreover, Hambrecht & Quist LLC, as a QIU, has performed due
diligence investigations and has reviewed and participated in the preparation
of this Prospectus.
Prior to the offering, there has been no public market for the Common Stock.
The initial public offering price of the Common Stock was determined by
negotiation between the Company and the Representatives. Among the factors
considered in determining the initial public offering price were prevailing
market and economic conditions, sales and earnings of the Company, market
valuations of other companies engaged in activities similar to the Company,
estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other
factors deemed relevant. The estimated initial public offering price range set
forth on the cover of this Prospectus is subject to change as a result of
market conditions and other factors.
Certain persons participating in the offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase, for the purpose of pegging,
fixing or maintaining the price of the Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with the offering. A penalty bid means an arrangement that
53
<PAGE>
permits the Underwriters to reclaim a selling concession from a syndicate
member in connection with the offering when shares of Common Stock sold by the
syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected on the Nasdaq National Market, in the over-the-
counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The legality of the Common Stock being offered hereby will be passed upon
for the Company by Pedersen & Houpt, P.C., Chicago, Illinois ("Pedersen &
Houpt"). John H. Muehlstein, a director of the Company, is also a stockholder
of Pedersen & Houpt. Certain legal matters will be passed upon for the
Underwriters by Sidley & Austin, Chicago, Illinois.
EXPERTS
The consolidated financial statements of the Company as of July 28, 1996 and
July 31, 1997 and for each of the three years in the period ended July 31,
1997 included in this Prospectus have been audited by Coopers & Lybrand
L.L.P., independent auditors as stated in their report appearing herein and
are included in reliance upon such report given upon the authority of that
firm as experts in accounting and auditing.
The financial information appearing in this prospectus for the period March
24, 1994 (date of inception) through July 31, 1994 has been audited by The
Daniel Professional Group, Inc., independent auditors, and is included in
reliance upon the authority of that firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the Common Stock offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules filed therewith. While the material provisions of each
document filed as an exhibit to the Registration Statement have been disclosed
herein, statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made
to the Registration Statement and to the exhibits and schedules thereto. The
Registration Statement, including exhibits and schedules thereto may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, the New York Regional Office located at
7 World Trade Center, Suite 1300, New York, New York 10048, and the Chicago
Regional Office located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies of all or any part thereof may be obtained at
prescribed rates from the Commission's Public Reference Section at its
principal office. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's World Wide Web site is http://www.sec.gov.
54
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
BLUE RHINO CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets as of July 28, 1996, July 31, 1997 and January
31, 1998 (unaudited)..................................................... F-3
Consolidated Statements of Operations for the Fiscal Years Ended July 31,
1995, July 28, 1996 and July 31, 1997 and for the Six Months Ended
January 31, 1997 (unaudited) and 1998 (unaudited)........................ F-4
Consolidated Statements of Changes in Stockholders' Deficit for the Fiscal
Years Ended July 31, 1995, July 28, 1996 and July 31, 1997 and for the
Six Months Ended January 31, 1998 (unaudited)............................ F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended July 31,
1995, July 28, 1996 and July 31, 1997 and for the Six Months Ended
January 31, 1997 (unaudited) and 1998 (unaudited)........................ F-6
Notes to Consolidated Financial Statements................................ F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Blue Rhino Corporation:
We have audited the accompanying consolidated balance sheets of Blue Rhino
Corporation as of July 28, 1996 and July 31, 1997, and the related
consolidated statements of operations, changes in stockholders' deficit and
cash flows for the fiscal years ended July 31, 1995, July 28, 1996 and July
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
as of July 28, 1996 and July 31, 1997, and the consolidated results of their
operations and their cash flows for the fiscal years ended July 31, 1995, July
28, 1996 and July 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Greensboro, North Carolina
September 5, 1997, except for Note 7
for which the date is December 18, 1997
F-2
<PAGE>
BLUE RHINO CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JULY 28, 1996, JULY 31, 1997 AND JANUARY 31, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JULY 28, JULY 31, JANUARY 31,
ASSETS 1996 1997 1998
------ -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents..................... $ 1,126 $ 325 $ 1,207
Trade accounts receivable, net................ 1,924 3,110 2,487
Inventories................................... 1,154 240 701
Notes receivable.............................. 237 417 438
Prepaid expenses and other current assets..... 230 61 217
-------- -------- --------
Total current assets...................... 4,671 4,153 5,050
Property and equipment, net................... 5,666 4,438 4,569
Notes receivable.............................. 1,356 1,196 1,005
Goodwill, net................................. 117 104 1,238
Other assets.................................. 87 83 133
-------- -------- --------
Total assets.............................. $ 11,897 $ 9,974 $ 11,995
======== ======== ========
<CAPTION>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
-------------------------------------------
<S> <C> <C> <C>
Trade accounts payable........................ $ 1,354 $ 2,407 $ 1,791
Notes payable to bank......................... -- -- 1,468
Acquisition notes payable..................... 117 81 840
Note payable to vendor........................ 752 -- --
Current portion of long-term debt and capital
lease obligations............................ 179 165 182
Accrued liabilities........................... 689 763 473
-------- -------- --------
Total current liabilities................. 3,091 3,416 4,754
Long-term debt, less current maturities....... 13,764 15,142 19,179
Notes payable to bank......................... -- 840 --
Capital lease obligations, less current
maturities................................... 410 128 178
-------- -------- --------
Total liabilities......................... 17,265 19,526 24,111
-------- -------- --------
Redeemable Preferred Stock, Series A
convertible, participating, $0.001 par
value, 25,000,000 shares authorized,
20,796,172 shares issued and outstanding,
liquidating preference $0.347037 per share,
at redemption value........................ 7,849 8,936 9,304
-------- -------- --------
Stockholders' deficit:
Common stock, $0.001 par value, 68,000,000
shares authorized, 21,526,426, 23,526,456
and 23,526,456 shares issued and
outstanding at July 28, 1996, July 31, 1997
and January 31, 1998 (4,508,294 shares
outstanding on a pro forma basis--Note 20). 21 23 23
Additional paid-in capital.................. -- 311 --
Accumulated deficit......................... (13,238) (18,822) (21,443)
-------- -------- --------
Total stockholders' deficit............... (13,217) (18,488) (21,420)
-------- -------- --------
Total liabilities, redeemable preferred
stock and stockholders' deficit.......... $ 11,897 $ 9,974 $ 11,995
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
BLUE RHINO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED JULY 31, 1995, JULY 28, 1996 AND JULY 31, 1997
AND FOR THE SIX MONTHS ENDED JANUARY 31, 1997 (UNAUDITED) AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEARS ENDED JANUARY 31,
------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales--distributors............. $ -- $ 2,386 $13,060 $ 3,501 $ 8,314
Net sales--direct................... 2,728 5,830 1,151 1,008 --
------- ------- ------- ------- -------
Total net sales................. 2,728 8,216 14,211 4,509 8,314
------- ------- ------- ------- -------
Cost of sales:
Cost of sales--distributors....... -- 1,811 9,873 2,638 6,371
Cost of sales--direct............. 3,523 6,089 1,771 1,368 --
------- ------- ------- ------- -------
Total cost of sales............. 3,523 7,900 11,644 4,006 6,371
------- ------- ------- ------- -------
Gross profit.................... (795) 316 2,567 503 1,943
------- ------- ------- ------- -------
Operating expenses (income):
Sales and marketing............... 532 1,112 1,950 653 1,027
General and administrative........ 2,787 3,192 3,022 1,398 1,706
Lease expense (income)--net....... -- (89) (143) (93) 23
Depreciation and amortization..... 284 868 873 400 516
Restructuring/nonrecurring
charges.......................... -- 1,363 970 188 408
------- ------- ------- ------- -------
Total operating expenses........ 3,603 6,446 6,672 2,546 3,680
------- ------- ------- ------- -------
Loss from operations............ (4,398) (6,130) (4,105) (2,043) (1,737)
Other expense (income):
Interest expense.................. 287 1,469 1,665 817 929
Other income--net................. (25) (168) (186) (79) (102)
------- ------- ------- ------- -------
Net loss........................ $(4,660) $(7,431) $(5,584) $(2,781) $(2,564)
======= ======= ======= ======= =======
Basic and diluted loss per common
share (Note 15).................. $ (0.23) $ (0.37) $ (0.28) $ (0.14) $ (0.12)
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
BLUE RHINO CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE FISCAL YEARS ENDED JULY 31, 1995, JULY 28, 1996 AND JULY 31, 1997
AND FOR THE SIX MONTHS ENDED JANUARY 31, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON ADDITIONAL
------------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balances, July 31, 1994.... 20,060,000 $ 20 $181 $ (380) $ (179)
Issuance of 2,256,456
shares of common stock.... 2,256,456 2 83 -- 85
Preferred dividends........ -- -- (264) (131) (395)
Net loss................... -- -- -- (4,660) (4,660)
---------- ---- ---- -------- --------
Balances, July 31, 1995.... 22,316,456 22 -- (5,171) (5,149)
Cancellation of restricted
stock for nonvested
terminations.............. (790,000) (1) -- -- (1)
Preferred dividends........ -- -- -- (636) (636)
Net loss................... -- -- -- (7,431) (7,431)
---------- ---- ---- -------- --------
Balances, July 28, 1996.... 21,526,456 21 -- (13,238) (13,217)
Issuance of 2,000,000
shares of common stock.... 2,000,000 2 998 -- 1,000
Preferred dividends........ -- -- (687) -- (687)
Net loss................... -- -- -- (5,584) (5,584)
---------- ---- ---- -------- --------
Balances, July 31, 1997.... 23,526,456 23 311 (18,822) (18,488)
Preferred dividends
(unaudited)............... -- -- (311) (57) (368)
Net loss (unaudited)....... -- -- -- (2,564) (2,564)
---------- ---- ---- -------- --------
Balances, January 31, 1998
(unaudited)............... 23,526,456 $ 23 $-- $(21,443) $(21,420)
========== ==== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
BLUE RHINO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JULY 31, 1995, JULY 28, 1996 AND JULY 31, 1997
AND FOR THE SIX MONTHS ENDED JANUARY 31, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JANUARY
FISCAL YEAR ENDED 31,
------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss........................ $(4,660) $(7,431) $(5,584) $(2,781) $(2,564)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Accreted interest on senior
discount notes............... -- 1,049 1,489 719 815
Depreciation and amortization. 284 868 873 400 516
Nonrecurring charges.......... -- 1,268 963 193 --
Loss on disposal of assets.... -- -- -- -- 261
Changes in operating assets
and liabilities, net of
business acquisitions:
Trade accounts receivable... (886) (990) (1,186) 1,077 623
Inventories................. (249) (473) 127 194 (491)
Other current assets........ (164) 35 166 161 (247)
Accounts payable............ 535 624 1,045 (392) (696)
Accrued liabilities......... 565 (120) (85) (265) (293)
------- ------- ------- ------- -------
Net cash used in operating
activities................ (4,575) (5,170) (2,192) (694) (2,076)
------- ------- ------- ------- -------
Cash flows from investing
activities:
Business acquisitions........... (299) -- -- -- (790)
Acquisition of intangible
assets......................... (93) -- -- -- --
Proceeds from disposals of
cylinders...................... -- 29 340 -- --
Purchases of property and
equipment...................... (3,925) (1,840) (537) (32) (286)
Proceeds from disposals of
property and equipment......... -- 360 159 76 39
Collections on notes receivable. -- 58 380 90 261
------- ------- ------- ------- -------
Net cash (used in) provided
by investing activities... (4,317) (1,393) 342 134 (776)
------- ------- ------- ------- -------
Cash flows from financing
activities:
Proceeds from issuance of common
stock.......................... 85 -- 1,000 -- --
Proceeds from issuance of
preferred stock................ 6,218 100 400 -- --
Proceeds from issuance of senior
discount notes................. -- 12,575 -- -- --
Proceeds from stockholders loan. -- -- -- -- 3,250
Proceeds from note payable to
bank........................... 3,600 2,700 3,995 850 5,044
Payments on acquisition notes
payable........................ -- (669) (90) (63) (20)
Payments on note payable to
bank........................... (880) (4,900) (3,155) (524) (4,416)
Payment of debt issuance costs.. -- (57) (58) -- --
Repayment of note payable to
vendor......................... -- (948) (752) -- --
Payments on long-term debt and
capital lease obligations...... (73) (1,321) (291) (520) (124)
------- ------- ------- ------- -------
Net cash provided by (used
in) financing activities.. 8,950 7,480 1,049 (257) 3,734
------- ------- ------- ------- -------
Increase (decrease) in cash and
cash equivalents............... 58 917 (801) (817) 882
Cash and cash equivalents at
beginning of period............ 151 209 1,126 1,126 325
------- ------- ------- ------- -------
Cash and cash equivalents at end
of period...................... $ 209 $ 1,126 $ 325 $ 309 $ 1,207
======= ======= ======= ======= =======
Supplemental disclosure of cash
paid for:
Interest........................ $ 156 $ 428 $ 176
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
BLUE RHINO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE FISCAL YEARS ENDED JULY 31, 1995, JULY 28, 1996 AND JULY 31, 1997
AND FOR THE SIX MONTHS ENDED JANUARY 31, 1997 AND 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Supplemental schedule of non-cash investing activities:
During the fiscal years ended July 31, 1995, July 28, 1996, July 31, 1997,
the Company entered into capital lease obligations in the amounts of
approximately $913, $541, and $243, respectively, for computers, vehicles and
certain equipment.
In connection with the conversion to an independent distributor network, as
further discussed in Note 1, the Company consummated the following
transactions:
. In the fiscal years ended July 28, 1996 and July 31, 1997, the Company
transferred to distributors capital leases for vehicles with remaining
book values of $282 and $351 and remaining obligations of approximately
$302 and $344, respectively.
. In the fiscal years ended July 28, 1996 and July 31, 1997, the Company
sold cylinders and certain equipment aggregating approximately $1,652 and
$310, respectively in exchange for notes receivable from distributors
(Notes 5 and 16).
. In the fiscal year ended July 28, 1996, the Company transferred the
remaining book value of certain vehicles along with their related
obligations under capital leases and financing arrangements of
approximately $562 and $504, respectively, to Platinum Propane Holding,
LLC ("PPH"), an affiliate, and recorded a receivable of $37 (Note 16).
. In the fiscal year ended July 31, 1997, certain assets approximating $70
were reclassified as notes receivable.
Certain equipment amounting to $925 was acquired by the Company in fiscal
year ended July 31, 1995 through the issuance of long-term debt.
In December 1994, the Company converted $500 of notes payable into 1,441
shares of preferred stock.
During the fiscal year ended July 31, 1995, the Company purchased certain
assets from an existing cylinder exchange company of liquid propane gas under
various agreements which have been recorded as follows:
<TABLE>
<CAPTION>
1995
------
<S> <C>
Property and equipment............................................ $ 356
Cylinders......................................................... 310
Goodwill.......................................................... 501
------
$1,167
======
Cash paid......................................................... $ 299
Due to sellers.................................................... 868
------
$1,167
======
</TABLE>
The Company accreted preferred dividends from paid in capital and
accumulated deficit of $395, $636 and $687 for the fiscal years ended July 31,
1995, July 28, 1996 and July 31, 1997, respectively.
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
Blue Rhino Corporation (the "Company" or "Blue Rhino") was founded in March
1994 and commenced operations on July 1, 1994 after the contribution of the
net assets of American Cylinder Exchange, Inc. in exchange for 1,336,484
shares of the Company's Common Stock using the carryover basis of the net
assets contributed of approximately $180. The Company has become the leading
provider of grill cylinder exchange in the United States offering consumers a
convenient means to obtain fuel for their barbecue grills. The Company
currently offers three types of grill cylinder transactions: (i) like for like
cylinder exchanges; (ii) cylinders with valve upgrades offering additional
safety features; and (iii) outright cylinder sales. The Company originally
focused on serving markets in the southeastern United States and has since
developed a network of independent distributors which deliver Blue Rhino grill
cylinder exchange to retail locations across the United States.
Since its formation, the Company has focused on creating an infrastructure
to support its nationwide cylinder exchange program. Initially, the Company
developed a vertically integrated operation, purchasing and leasing grill
cylinders, cylinder displays, filling sites, refurbishing equipment and
delivery trucks while at the same time developing a sales, marketing and MIS
infrastructure. In March 1996, the Company began to transition from a
vertically integrated business model to an independent distributor business
model in order to implement its cylinder exchange program in a more capital
efficient manner and to accelerate development of its program. At this time,
the Company began to dispose of distribution assets and began to enter into
exclusive agreements with independent distributors to refurbish and refill
cylinders and service Blue Rhino's retail accounts. As a result, the Company
has significantly accelerated the growth of its nationwide service, pursued
additional retailer relationships and invested in the sales, marketing and MIS
infrastructure to support its growing cylinder exchange program. The Company
expects to focus future capital investments on cylinders, cylinder displays
and continued enhancement of its MIS. The transition to a 100% independent
distributor network was completed in the fourth quarter of 1997.
While the Company believes that it has created the infrastructure necessary
to support a nationwide cylinder exchange program, development of this
infrastructure has resulted in an accumulated deficit of approximately $18
million as of July 31, 1997. Management believes by leveraging from the
distributor's existing infrastructure the Company has eliminated the
significant capital requirements necessary to support the geographic expansion
and further penetration throughout the nation's significant demographic
markets and consequently, will continue to positively impact cash flows.
These consolidated financial statements include the accounts of Blue Rhino
and its wholly owned subsidiary Rhino Services, L.L.C., formed in March 1997.
All intercompany transactions and balances have been eliminated in
consolidation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition--Revenues are recognized upon delivery of cylinders to
customer locations. Sales returns, which are immaterial, occur principally
upon removal of cylinders and deinstallation of cylinder displays from
customer locations.
Cash and Cash Equivalents--The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. The Company's cash and cash equivalents are placed in major
domestic banks. Cash equivalents consisting of certificates of deposit totaled
$65 and $115 at July 28, 1996 and July 31, 1997, respectively.
Trade Accounts Receivable, Net--Trade accounts receivable, net include
allowances for doubtful accounts of approximately $82, and $154 at July 28,
1996 and July 31, 1997 respectively.
F-8
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Inventories--Inventories are valued at the lower of cost or market
determined on a first-in, first-out (FIFO) basis.
Property and Equipment, Net--Property and equipment are stated at cost and
depreciated over the estimated useful lives of the related assets using the
straight-line method. The estimated useful lives are principally 30 years for
buildings and leasehold improvements, 10 years for machinery and equipment,
vehicles and cylinder displays, 5 years for computer hardware and 3 years for
computer software. Equipment leased under capital leases are amortized over
their estimated useful lives.
In the event that facts and circumstances indicate that the cost of property
and equipment, or other long-lived assets may not be recoverable, the
estimated future undiscounted cash flows is compared to the asset's carrying
value and if less, recognize an impairment loss in an amount by which the
carrying amount exceeds its fair value. As a result of changes the Company
made to its business strategy (Note 12), impairments to property and equipment
recorded in 1996 and 1997 were $814 and $736, respectively.
Goodwill--Excess cost over fair value of assets acquired (goodwill) is being
amortized using the straight-line method over 10 to 30 years. The carrying
value of intangible assets is periodically reviewed by the Company, as well
as, the amortization period to determine whether the current events and
circumstances warrant adjustments to the carrying values and/or revised
estimates of useful lives. This valuation is performed using the expected
future undiscounted cash flows associated with the intangible assets compared
to the carrying value to determine if a writedown is required. To the extent
such projection indicates that the undiscounted cash flow is not expected to
be adequate to recover the carrying amounts the assets are written down to
discounted cash flow. In fiscal 1996, an impairment to goodwill of $355 was
recorded (Note 12).
Advertising and Promotion--The Company expenses advertising and promotion
costs as incurred and these costs are included as sales and marketing
expenses. Advertising and promotion costs for the fiscal years ended July 31,
1995, 1996 and 1997 were $0, $16 and $36, respectively.
Income Taxes--The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the year
in which the differences are expected to reverse. A valuation allowance is
recorded when it is more likely than not that the deferred tax asset will not
be realized (Note 17).
Financial Instruments--The Company values all financial instruments as
required by SFAS No. 107, "Disclosures about Fair Values of Financial
Instruments." Financial instruments consist of cash and cash equivalents,
accounts receivable, notes receivable, short-term debt and long-term,
variable-rate and fixed-rate debt. The Company estimates the fair value of its
long-term, fixed-rate debt using a discounted cash flow analysis based on
interest rates for similar types of debt currently available in the
marketplace. At July 28, 1996 and July 31, 1997 the carrying amounts of the
Company's financial instruments approximate their fair values.
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of temporary cash investments and trade
accounts receivable. The Company places its temporary cash investments with
major domestic financial institutions. At times, such deposits may be in
excess of the FDIC insurance limit. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. Due to the geographic dispersion and the high
credit
F-9
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
quality of the Company's significant customers, credit risk relating to trade
accounts receivable is limited. The Company's largest customers accounted for
approximately 55%, 46% and 58%, of sales in the fiscal years ended July 31,
1995, July 28, 1996 and July 31, 1997 as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Customer A................................................. 30% 30% 29%
Customer B................................................. 25 16 16
Customer C................................................. -- -- 13
--- --- ---
55% 46% 58%
=== === ===
</TABLE>
Approximately 35% and 32% of trade accounts receivable at July 28, 1996 and
July 31, 1997 were from these customers respectively. If the financial
condition and operations of these customers deteriorate, the Company's
operating results could be adversely affected.
Use of Estimates--The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the dates of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
Statement of Accounting Standards not yet Adopted--Statement of Financial
Accounting Standards ("SFAS") No. 130 ("Statement 130") establishes standards
for reporting and display of comprehensive income and its components
(revenues, gains, expenses, losses) in a full set of general purpose financial
statements and is effective in Fiscal 1998 for the Company. Management of the
Company does not expect Statement 130 to have a significant impact, if any, on
the Company's Consolidated Financial Statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"). Statement 131 requires public business enterprises to adopt
its provisions for periods beginning after December 15, 1997, and to report
certain information about operating segments in complete sets of financial
statements of the enterprise and in condensed financial statements of interim
periods issued to shareholders. The Company is evaluating the provisions of
Statement 131, but has not yet determined if additional disclosures will be
required.
Reclassification--Certain prior year amounts have been reclassified to
conform to the presentation adopted in fiscal 1998.
F-10
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. INVENTORIES:
Inventories consist of the following at:
<TABLE>
<CAPTION>
JULY 28, JULY 31,
1996 1997
-------- --------
<S> <C> <C>
Cylinders............................................... $ 945 $220
Other supplies.......................................... 174 20
Liquid propane gas...................................... 35 --
------ ----
$1,154 $240
====== ====
</TABLE>
4. PROPERTY AND EQUIPMENT, NET:
Property and equipment consists of the following at:
<TABLE>
<CAPTION>
JULY 28, JULY 31,
1996 1997
-------- --------
<S> <C> <C>
Land................................................... $ 83 $ 20
Building and leasehold improvements.................... 896 661
Cylinder displays, including panel graphics............ 2,945 3,188
Machinery and equipment................................ 1,746 1,361
Computer hardware and software......................... 95 175
Equipment leased under capital leases.................. 592 346
------- ------
6,357 5,751
Less accumulated depreciation and amortization (includ-
ing $51 and $65, respectively, for equipment under
capital lease)........................................ (691) (1,313)
------- ------
$ 5,666 $4,438
======= ======
</TABLE>
Depreciation and amortization expense for the fiscal years ended July 31,
1995, July 28, 1996 and July 31, 1997 was $282, $683 and $764, respectively.
5. NOTES RECEIVABLE:
In connection with the conversion to the distributor program discussed in
Note 1, the Company has financed the sale of cylinders and certain equipment
principally to distributors, including PPH (Note 16), who now service
territories previously serviced by the Company. The notes receivable are
payable monthly with interest ranging from 9.25% to 12.5%. The aggregate
maturities of these notes receivable at July 31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................................... $ 417
1999............................................................... 395
2000............................................................... 350
2001............................................................... 443
2002............................................................... 8
------
$1,613
======
</TABLE>
Interest income related to these notes for the fiscal years ended July 28,
1996 and July 31, 1997 was approximately $47 and $182, respectively. The notes
receivable from the sale of cylinders are collateralized by the cylinders.
F-11
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
6. GOODWILL:
Excess costs over fair value of assets acquired (goodwill) consist of the
following at:
<TABLE>
<CAPTION>
JULY 28, JULY 31,
1996 1997
-------- --------
<S> <C> <C>
Excess costs over fair value of assets acquired......... $124 $124
Accumulated amortization................................ (7) (20)
---- ----
$117 $104
==== ====
</TABLE>
Amortization expense for the fiscal years ended July 28, 1996 and July 31,
1997 was $7 and $14, respectively.
7. NOTE PAYABLE TO BANK:
In October 1996, the Company entered into an agreement with a bank to
provide up to $2 million in financing through a line of credit at an interest
rate of prime (8.50% at July 31, 1997) plus 1%. At July 31, 1997, $840 of the
line of credit was outstanding. This amount was subsequently paid in full on
December 18, 1997 (Note 20).
8. NOTE PAYABLE TO VENDOR:
Prior to the conversion to the distributor program, the Company financed the
acquisition of certain cylinders with its primary cylinder vendor. The
original line of credit was for purchases up to approximately $1.9 million and
was to be repaid in various installments including interest at prime (8.25% at
July 28, 1996) plus 1%. The balance due on this note was $752 at July 28, 1996
and was paid in full at July 31, 1997.
9. LONG-TERM DEBT:
Long-term debt consists of the following at:
<TABLE>
<CAPTION>
JULY 28, JULY 31,
1996 1997
-------- --------
<S> <C> <C>
Senior discount notes due October 2000................. $13,624 $15,113
Various equipment and vehicle notes bearing interest at
rates varying from 8% to 15%, due in monthly
installments through December 1999.................... 211 65
------- -------
13,835 15,178
Less amounts due within one year....................... 71 36
------- -------
$13,764 $15,142
======= =======
</TABLE>
The aggregate maturities of long-term debt at July 31, 1997 are as follows:
<TABLE>
<S> <C> <C> <C>
1998...................................................... $ 36
1999...................................................... 27
2000...................................................... 2
2001...................................................... 15,113
---------------
$15,178
=======
</TABLE>
F-12
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
In October 1995, the Company issued 12,575 units, each consisting of
approximately $1 principal amount (approximately $17.2 million aggregate) of
senior discount notes due in October 2000 and warrants to purchase 525.88 (pre
Reverse Stock Split) shares of common stock. The gross proceeds were $12,575.
The notes accrete in value until October 11, 1998 at an effective rate of
10.5%. Thereafter, cash interest will be payable semi-annually at a rate of
10.5%. The notes are redeemable in whole or in part at any time at 100% of the
accreted value plus accrued and unpaid interest, if any. Each warrant, when
exercised will entitle the holders to acquire one share of common stock
(subject to adjustment as described in the agreement) for $0.347037 per share,
which represented approximately 10% of the common stock outstanding on a fully
diluted basis at the time of issuance of the warrants. The note agreement
contains certain restrictive covenants relating to issuance of additional
debt, issuance of equity securities, and the payment of dividends without the
consent of a majority (as defined) of note holders. The Company is not in
default of any of the restrictive covenants. The Company did not assign any
value to the warrants because the valuation was not material.
The various equipment and vehicle notes are guaranteed by an affiliated
company and certain Blue Rhino shareholders.
10. CAPITAL LEASE OBLIGATIONS:
Capital lease obligations for computer equipment as of July 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998................................................................. $161
1999................................................................. 108
2000................................................................. 31
----
Total minimum lease payments......................................... 300
Less imputed interest at varying rates ranging from 11.75% to 19%.... 43
----
Present value of minimum lease payments.............................. 257
Less current maturities.............................................. 129
----
$128
====
</TABLE>
11. OPERATING LEASE COMMITMENTS:
The Company leases certain office, plant facilities and vehicle equipment
under noncancelable operating leases with original terms ranging from 36 to 51
months. Additionally, the Company has a land lease with an original term of 5
years. This lease carries 3 renewal options for periods of 5 years each.
Rent expense on these facilities and equipment for the fiscal years ended
1995, 1996 and 1997 was $497, $511 and $120, respectively.
In addition, the Company leases certain plant facilities and equipment to
distributors including PPH (Note 16). Lease income under these leases was $62
and $118 for the fiscal years ending 1996 and 1997, respectively.
In September 1996, the Company entered into a $3 million operating lease
facility to finance cylinder displays. At July 31, 1997, approximately $1.3
million of the facility was outstanding. Rental expense under this lease for
the year ended 1997 was approximately $152.
Lease expense (income) on the consolidated statements of operations is made
up of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- -----
<S> <C> <C> <C>
Lease income............................................ $-- $(89) $(295)
Lease expense........................................... -- -- 152
---- ---- -----
Net (income) expense.................................... $-- $(89) $(143)
==== ==== =====
</TABLE>
F-13
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Future minimum lease payments at July 31, 1997 from non-cancelable operating
leases with both affiliates (Note 16) and non-affiliates with initial or
remaining terms of one year or more are as follows:
<TABLE>
<S> <C>
1998................................................................. $504
1999................................................................. 453
2000................................................................. 415
2001................................................................. 306
</TABLE>
The Company also executes operating lease agreements with its distributors
including PPH (Note 16) for cylinder displays (both leased and owned) for use
within each distributor's territory. Under these leases, the distributor
(lessee) is obligated for all maintenance, installation, deinstallation, taxes
and insurance related to the cylinder displays. The terms of the leases
continue until either party terminates upon 60 days written notice to the
other party. The monthly rental amounts are based on 1% of the original fair
market value of the cylinder displays. Lease income for the fiscal years ended
1996 and 1997 was approximately $27 and $177, respectively. As of July 31,
1997, estimated future minimum rental payments to be received are
approximately $300 per year through the year 2002.
12. RESTRUCTURING/NONRECURRING CHARGES:
As described in Note 1, during fiscal 1997 and 1996 the Company made changes
to its business strategy, including the conversion to an independent
distributor network. As a result, the Company recorded certain nonrecurring
charges in 1996 and 1997 as summarized below:
<TABLE>
<CAPTION>
JULY 28, JULY 31,
1996 1997
-------- --------
<S> <C> <C>
Adjust equipment, including leasehold improvements of
$160 and $447, respectively, to net realizable value. $ 814 $736
Impairment of goodwill................................ 355 --
Severance, professional fees and other................ 194 234
------ ----
$1,363 $970
====== ====
</TABLE>
In 1996 and 1997, equipment including vehicles, display racks, leasehold
improvements of two distribution centers, cylinders, computer equipment and
filling station equipment were written down to estimated net realizable value.
Substantially all the equipment has either been sold or physically scrapped.
In 1996, as part of the changes in business strategy it was determined not to
focus on the smaller convenience store locations due to lower profit margins.
As a result, the Company recorded an impairment of goodwill ascribed to the
convenience store locations of $355.
13. REDEEMABLE PREFERRED STOCK:
On December 21, 1994, the Company issued 20,796,172 shares of Series A
cumulative preferred stock and warrants to purchase 4,214,185 shares of common
stock to investors through a private placement offering. The warrants are
exercisable at any time prior to their expiration date of December 1, 2004.
The exercise price for these warrants is $0.0347037 per share.
Holders of Series A preferred stock may convert any portion of the preferred
shares into common shares at any time. Each share of Series A preferred is
convertible to one share of common stock. The conversion price is based on a
formula as described in the agreement. The preferred shares have a liquidation
preference equal to the liquidation value of $0.347037 as defined in the
Certificate of Incorporation. The preferred shares rank senior to the common
stock in respect to dividend rights and have full voting rights.
The Company shall offer to redeem the outstanding Series A preferred shares
in equal increments semiannually between October 31, 2000 and April 30, 2002.
After April 30, 2002, any holder of outstanding Series A preferred shares may
elect to have their shares redeemed. Upon such an election, the Company shall
offer to redeem any other outstanding shares within five (5) days. The
redemption price is $0.347037 per share
F-14
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
plus undeclared, accrued dividends at a rate of 8% compounded daily of $1,031,
$1,718 and $2,086 at July 28, 1996, July 31, 1997 and January 31, 1998
(unaudited), respectively. Dividends are cumulative until declared by the
Board.
14. STOCKHOLDERS' DEFICIT:
At July 31, 1997, 41,055,467 common shares were reserved for issuance upon
conversion of Series A preferred shares, exercise of warrants and exercise of
common stock options issuable to employees, directors, or consultants of the
Company.
Common Stock Options and Restricted Stock--The Company has a stock incentive
plan (the "Plan") and has reserved 3,500,000 shares of common stock for use
and distribution under terms of the Plan. Under the Plan, the Company may, at
its discretion, issue incentive or non-qualified stock options, stock
appreciation rights, restricted stock or deferred stock. The terms and
conditions of the awards made under the plan vary but, in general, are at the
discretion of the Board of Directors or its appointed committee to the Plan.
In November 1994, the Company issued 1,875,000 shares of its common stock
under the Plan, at par $0.001, to key management employees under a restricted
stock agreement. Under this agreement, the stockholders' rights to the stock
are subject to length of employment and are restricted with regard to
transferability. The employees' rights vest quarterly over periods determined
by management. After five (5) years, the employee may sell any vested shares
with a bona fide reason, the Company at its option may repurchase all unvested
shares and any vested shares, provided no public offering of the Company's
equity securities has occurred. The repurchase price may vary, depending upon
the reasons for termination, and range from market value for all vested shares
to $1 for any and all shares. During 1996, 790,000 shares were canceled due to
termination of employment.
The Company has granted 2,450,000 options through July 31, 1997, of which
281,800 options have been forfeited. Under the Plan, the option exercise price
is determined by the Stock Option Committee of the Board of Directors. Non-
qualified stock options granted expire 10 years from the date of grant and are
exercisable in five equal installments commencing one year from the date of
grant. As of July 31, 1997, the Company had 2,168,200 options outstanding, no
options have been exercised and 283,000 options are exercisable. The exercise
price for outstanding warrants and common stock options range from $0.0347037
to $0.55.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting For Stock-Based Compensation." Accordingly, since options were
granted at fair value, no compensation cost has been recognized for stock
options granted to date. Had compensation cost for these plans been determined
for options granted since August 1, 1995 consistent with SFAS No. 123, the
Company's net loss and loss per share would have increased to the following
pro forma amounts.
<TABLE>
<CAPTION>
FOR THE
FISCAL YEARS
ENDED
----------------
1996 1997
------- -------
<S> <C> <C>
Net loss: As reported.................................. $(7,431) $(5,584)
Pro forma............................................. (7,454) (5,649)
Basic and
Diluted EPS:As reported............................... $ (0.22) $ (0.17)
Pro forma............................................. $ (0.22) $ (0.17)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants since August 1, 1995: expected lives of 5 years;
expected volatility 0.0% and a risk-free interest rate of 9.25%
SFAS No. 123 method of accounting has not been applied to options granted
prior to August 1, 1995, therefore, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
F-15
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
A summary of the status of the Company's Plan at July 31, 1995, July 28,
1996, and July 31, 1997 and changes during the periods then ended is presented
in the table and narrative below:
<TABLE>
<CAPTION>
1995 1996 1997
----------------- ----------------- -------------------
WTD AVG WTD AVG WTD AVG
SHARES EX PRICE SHARES EX PRICE SHARES EX PRICE
------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ -- $ -- 575,000 $0.347037 953,000 $0.355062
Granted................. 575,000 0.347037 499,000 0.362364 1,376,000 0.505602
Exercised............... -- -- -- -- -- --
Forfeited............... -- -- 121,000 0.347037 160,800 0.366749
------- --------- ------- --------- --------- ---------
Outstanding at end of
year................... 575,000 $0.347037 953,000 $0.355062 2,168,200 $0.449732
======= ========= ======= ========= ========= =========
Exercisable at end of
year................... -- $ -- 95,000 $0.347037 283,000 $0.353069
======= ========= ======= ========= ========= =========
Weighted average fair
value of options
granted................ $ 0.126 $ 0.116 $ 0.167
========= ========= =========
</TABLE>
Warrants--In fiscal 1997, the Company issued approximately 3,000,000
warrants in connection with the new cylinder display lease facility (Note 9),
and the issuance of the common stock to PPH (Note 16). In addition, during
fiscal years 1996 and 1995, the Company issued approximately 4,014,000
warrants to individuals to purchase common stock for their assistance in
connection with various debt placements. The exercise price for these warrants
ranges from $0.347037 to $0.50 per share. The Company did not assign any value
to the warrants because the valuation was considered immaterial.
15. LOSS PER SHARE:
The Company has retroactively adopted SFAS No. 128, "Earnings Per Share."
The impact of adopting this statement had no effect on loss per share for
fiscal year 1996 and 1995. The basic and diluted loss per share was determined
as follows:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEARS ENDED ENDED
------------------------------------- -----------
JULY 31, JULY 28, JULY 31, JANUARY 31,
1995 1996 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED)
Basic and diluted loss per share:
<S> <C> <C> <C> <C>
Net loss................ $ (4,660) $ (7,431) $ (5,584) $ (2,564)
Less: Redeemable
Preferred Stock
dividends.............. 395 636 687 368
----------- ----------- ----------- -----------
Loss available to common
shareholders........... $ (5,055) $ (8,067) $ (6,271) $ (2,932)
Weighted average common
shares................. 21,658,323 21,521,456 22,276,456 23,526,426
----------- ----------- ----------- -----------
Basic and diluted loss
per share............ $ (0.23) $ (0.37) $ (0.28) $ (0.12)
=========== =========== =========== ===========
</TABLE>
The weighted average common shares outstanding includes the effect of all
shares, stock options and stock warrants issued prior to the filing date of
the Company's Form S-1 for all periods presented. In addition, the assumed
conversion of preferred shares would have been anti-dilutive. Therefore, basic
and diluted loss per share are the same.
F-16
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
16. RELATED PARTY TRANSACTIONS:
Platinum Propane Holdings ("PPH"), an affiliate, began operations as a
distributor during fiscal 1996. The following represents related party
balances outstanding at July 28, 1996, and July 31, 1997 and transactions for
the fiscal years then ended, respectively:
<TABLE>
<CAPTION>
JULY 28, JULY 31,
1996 1997
-------- --------
<S> <C> <C>
Notes receivable........................................ $1,399 $1,191
Trade accounts payable.................................. 407 648
Cost of sales--distributors............................. 1,561 5,319
Interest income......................................... 43 142
Lease income............................................ 25 160
Issuance of common stock................................ -- 1,000
</TABLE>
Certain operational and financial management services were provided to the
Company by an affiliate through common ownership. Fees for these services for
the fiscal years ended July 31, 1995, July 28, 1996 and July 31, 1997 were
approximately $721, $519, and $154, respectively.
The Company leases a facility from an affiliate under a noncancelable
operating lease which expires in December 1998. Future minimum lease payments
for the lease are $82 and $34 for the fiscal years ending 1998 and 1999,
respectively. Rent expense under this lease was $22 and $76 for the fiscal
years ended July 28, 1996 and July 31, 1997, respectively.
The Company leases a facility and certain equipment to PPH. Lease income
from PPH for the fiscal years ended July 31, 1995, July 28, 1996, and July 31,
1997, was $24, $62, and $56, respectively.
17. INCOME TAXES:
There is no current or deferred tax expense for the fiscal years ended July
31, 1995, July 28, 1996 and July 31, 1997.
A reconciliation of the differences between the statutory federal income tax
rate of 34% and the effective rate of income tax expense is as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------
JULY 31, JULY 28, JULY 31,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Federal statutory tax rate........................... 34.0% 34.0% 34.0%
Operating losses having no current tax benefit..... (33.7) (33.8) (33.9)
Permanent Differences and Other.................... (0.3) (0.2) (0.1)
----- ----- -----
Effective tax rate................................... 0.0% 0.0% 0.0%
===== ===== =====
</TABLE>
F-17
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liability are as follows at:
<TABLE>
<CAPTION>
JULY 28, JULY 31,
1996 1997
-------- --------
<S> <C> <C>
Assets:
Net operating loss carry forward.......................... $ 4,842 $ 6,981
Allowance for doubtful accounts........................... 32 60
Inventory capitalization.................................. 19 4
Organization costs........................................ 37 24
Other..................................................... 34 78
Depreciation and amortization............................. -- 1
------- -------
Total gross deferred tax assets......................... 4,964 7,148
Valuation allowance....................................... (4,960) (7,148)
------- -------
Net deferred tax assets................................. $ 4 $ --
======= =======
Liability:
Depreciation and amortization............................. $ 4 $ --
======= =======
</TABLE>
At July 31, 1997, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $18.0 million which is available
to offset future federal taxable income, if any, in varying amounts through
2012.
18. DEFINED CONTRIBUTION PLAN:
The Company has a 401(k) plan, sponsored by an affiliate, which allows
participants to make voluntary pretax contributions, through payroll
deductions, up to 10% of total compensation, subject to Internal Revenue
Service limitations. All employees who have at least one year of service and
1,000 hours within that year of service are eligible to participate in this
plan. The plan provides for discretionary profit sharing contributions by the
Company. The Company made no contributions to the plan during fiscal 1995,
1996 and 1997.
19. CHANGE IN FISCAL YEAR END:
In 1997, the Company changed from a 52-53 week year end, to a July 31 fiscal
year end. The effect of this change was not material.
20. EVENTS SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITOR'S REPORT
(UNAUDITED):
The interim consolidated financial data with respect to January 31, 1997 and
1998 have been prepared without audit; however, in the opinion of management,
all adjustments (which included those that are normal and recurring) necessary
to present fairly the consolidated financial position at January 31, 1998 and
the results of operations and cash flows for the six month periods ended
January 31, 1998 and 1997, have been made. The results for six months ended
January 31, 1998 are not necessarily indicative of the results of operations
for a full year. Interim financial data conforms to the requirements of
Article X of Regulation S-X and, therefore, does not include all the
disclosures normally required under generally accepted accounting principles.
F-18
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
On December 18, 1997, the Company entered into a short-term loan Agreement
(the "Bank Credit Facility") which allows for maximum borrowings of $9.0
million including a $3.0 million revolving line of credit based on 80% of
eligible receivables with a $1.0 million overadvance provision, a $1.0 million
capital expenditures line of credit and a $4.0 million acquisition line of
credit. These lines of credit mature on November 30, 1998 and bear interest at
the prime rate (8.50% at January 31, 1998) plus 0.5%. As of January 31, 1998,
the Company had $1,468 outstanding under the Bank Credit Facility.
The agreement requires payment of a fee of 0.25 percent of the average
unused portion of the revolving line of credit, as well as requires the
Company to meet certain covenants, including minimum net worth and earnings
before interest, taxes, depreciation and amortization and restricts the level
of capital expenditures, as defined. The Company was in compliance with these
covenants as of January 31, 1998.
The Bank Credit Facility is personally guaranteed by a principle shareholder
and an affiliated company up to a maximum amount of $6.0 million each.
The Company has pledged receivables and inventory and all of its rights,
titles and interest to indebtedness due from shareholders, affiliates and
related companies, including the remaining balance of $1.2 million on the note
receivable due from PPH (Note 16).
In December 1997, the Company entered into a services agreement with
Information Management System Services ("IMSS") whereby IMSS will provide
certain electronic data processing and telecommunications services including
the provision of customized software and hardware.
In January 1998, several stockholders collectively loaned the Company $3.25
million (the "1998 Stockholder Loans"). The 1998 Stockholder Loans are
repayable in full on the earlier of December 31, 2000 or the successful
initial public offering of the Company's Common Stock in which the net
proceeds to the Company after deducting all offering expenses equal at least
$30.0 million. The 1998 Stockholders Loans accrue interest at 10.5% per annum,
for one year from issuance date and with principle and interest payable
quarterly thereafter until paid in full. The stockholders also received
warrants to purchase one share of Common Stock for every $3.00 they loaned to
the Company for a total of 1,083,333 warrants (the "1998 Warrants"). The 1998
Warrants may be exercised prior to December 31, 2008 at a price per warrant
equal to the initial public offering price.
The Company completed two acquisitions, the first in October 1997 and the
second in January 1998, for approximately $90 and $1.5 million, respectively,
related to assets including cylinder display racks, and rights, title and
interest in and to sellers' retail propane cylinder exchange accounts and
locations.
The Company paid a combined $790 in cash of which $750 was provided by the
Bank Credit Facility and $40 from available cash. The remaining $750
associated with the January 1998 acquisition will be completed by the transfer
and delivery of unregistered common stock to the seller valued at the same
sales price as sold to the public in the anticipated initial public offering
("IPO"). However, if the IPO is not completed within twelve months, the seller
may receive the balance in cash plus a sum equal to 8% annual interest from
the closing date. The January 1998 acquisition also includes a purchase price
adjustment based on the number of locations transferred to the Company.
The excess cost over market value of net assets acquired for the above
acquisitions was approximately $1.1 million, which is being amortized on a
straight-line basis over 30 years.
F-19
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
On February 12, 1998, the Company loaned $635 to Bison Valve, L.L.C. ("Bison
Valve"), an entity formed to market, produce and sell a specialty valve to the
Company's distributors and third parties.
The loan is convertible into 65% of the membership units, at $1 per unit, of
Bison Valve at the option of the Company. In the event of non-conversion the
loan accrues interest at 9.5% for four (4) years after which the principal and
accrued interest will be amortized over two (2) years.
In February 1998, Caribou Cylinder Exchange, L.L.C. ("Caribou Propane") and
Javilina Cylinder Exchange, L.L.C. ("Javilina Propane"), affiliates through
common ownership, began operations as distributors.
On March 9, 1998, the Board of Directors increased the authorized shares of
common stock from 65,000,000 to 68,000,000 shares.
On November 17, 1997, the Board approved the following matters for which
shareholder consent was received effective December 31, 1997 that will be
executed contemporaneously with the closing of the IPO:
. A reverse stock split of 1 share of common stock for 13.225130 shares of
the Company's common shares outstanding. The reverse stock split has not
been reflected in the average shares outstanding, shares outstanding and
loss per share amounts in the balance sheets, statements of operations
and changes in shareholders deficit. All other per share information
included in the footnotes do not reflect the affect of the reverse stock
split.
. The authorized shares of the Capital Stock shall be increased to
120,000,000 comprised of 100,000,000 shares of Common Stock par value
0.001 per share and 20,000,000 shares of preferred, with terms to be
determined by the Board.
. Give the Company the right to convert preferred stock on a one for one
basis into common stock and to issue common stock payment for accrued
dividends payable.
. Issue shares of common stock to the holders of outstanding warrants to
satisfy their right to receive common stock (assuming a cashless exercise
of their warrants).
. Accelerate the vesting of all outstanding options.
. Adoption of a stock option plan for employees. Approximately 5% of the
shares of common stock (on a post offering basis) will be reserved for
issuance to the Company's directors, officers, employees, consultants and
agents.
. Adoption of a distributor option plan whereby approximately 5% of the
shares of Common Stock (on a post offering basis) will be reserved for
the issuance to the Company's distributors.
The outstanding shares on a pro forma basis included on the face of the
balance sheet include shares issuable upon the exercise of all outstanding
stock warrants as of January 31, 1998 (except the 1998 Warrants), the
conversion of preferred stock and preferred stock dividends to Common Stock,
the 1 for 13.22513 reverse stock split and the issuance of shares to Bison
Propane Bottle Exchange, L.L.C. described above, all of which will be effected
immediately prior to the consummation of the IPO.
The Company completed three additional acquisitions in March and April 1998
for an aggregate purchase price of approximately $2.3 million for assets
including cylinder display racks and rights, title and interest in and to
sellers' retail propane cylinder exchange accounts and locations. These
acquisitions were financed with the Company's line of credit.
F-20
<PAGE>
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- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Consolidated Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 28
Management............................................................... 36
Certain Transactions..................................................... 42
Principal Stockholders................................................... 44
Shares Eligible for Future Sale.......................................... 47
Description of Capital Stock............................................. 49
Underwriting............................................................. 52
Legal Matters............................................................ 54
Experts.................................................................. 54
Additional Information................................................... 54
Index to Consolidated Financial Statements............................... F-1
</TABLE>
-----------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
[LOGO]
COMMON STOCK
--------------
PROSPECTUS
--------------
HAMBRECHT & QUIST
NATIONSBANC MONTGOMERY SECURITIES LLC
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be borne by the
Company in connection with the registration, issuance, and distribution of the
securities be registered hereby, other than underwriting discounts and
commissions. All amounts are estimates except the SEC registration fee, the
NASD filing fee, and the Nasdaq listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 12,824
NASD filing fee................................................. $ 4,847
Nasdaq listing fee.............................................. $ 69,375
Transfer agent and registrar's fee and expenses................. $ 25,000
Blue Sky fees and expenses...................................... $ 10,000
Printing and engraving expenses................................. $125,000
Legal fees and expenses......................................... $350,000
Accounting fees and expenses.................................... $125,000
Miscellaneous................................................... $ 27,954
--------
Total....................................................... $750,000
========
</TABLE>
- ---------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes
indemnification of directors, officers, employees and agents of the Company;
allows the advancement of costs of defending against litigation; and permits
companies incorporated in Delaware to purchase insurance on behalf of
directors, officers, employees and agents against liabilities whether or not
in the circumstances such companies would have the power to indemnify against
such liabilities under the provisions of the statute. The Company's Second
Amended and Restated Certificate of Incorporation ("Charter") provides that
the Company will indemnify its directors and officers to the fullest extent
permitted by law.
Under the provisions of the Company's Charter, any director or officer who,
in his or her capacity as such, is made or threatened to be made a party to
any suit or proceeding shall be indemnified if the Board of Directors
determines such director or officer acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Company or, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The Company will
not however indemnify any director or officer where such director or officer:
(a) breaches his or her duty of loyalty to the Company or its stockholders;
(b) fails to act in good faith or engages in intentional misconduct or knowing
violation of law; (c) authorizes payment of an unlawful dividend or stock
repurchase or redemption; or (d) obtains an improper personal benefit. While
liability for monetary damages has been eliminated, equitable remedies such as
injunctive relief or rescission remain available. In addition, a director is
not relieved of his or her responsibilities under any other law, including the
federal securities laws.
Indemnification under the Company's Charter and Amended and Restated By-laws
("By-laws") includes payment by the Company of expenses in defending an
action, suit or proceeding in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by the indemnified party to
repay such advance if it is ultimately determined that such person is not
entitled to indemnification under the Charter, which undertaking may be
accepted without reference to the financial ability of such person that makes
such repayments. The Company is not responsible for the indemnification of any
person seeking indemnification in connection with a proceeding initiated by
such person unless the initiation was approved by the Board of Directors of
the Company. The Charter and the DGCL further provide that such
II-1
<PAGE>
indemnification is not exclusive of any other rights to which such individuals
may be entitled under the Charter, the Bylaws, any agreement, any vote of
stockholders or disinterested directors, or otherwise. The Company intends to
obtain directors and officers insurance covering its executive officers and
directors.
Insofar as indemnification by the Company for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), may be permitted to
directors, officers and controlling persons of the Company pursuant to the
foregoing provisions, the Company has been advised that in the opinion of the
Securities and Exchange Commission (the "Commission"), such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In October 1995, the Company issued units (the "Units"), each comprised of a
10.5% Senior Discount Note due October 2000 with a face value of $1,364.93 per
Unit and a warrant to purchase approximately 40 shares of Common Stock at an
exercise price of approximately $4.59 per share for $1,000 per Unit (the "1995
Unit Offering"). The Company sold 12,575 Units representing a face value of
$17.2 million of Senior Discount Notes and warrants to purchase an aggregate
of 500,028 shares of Common Stock. The gross proceeds from the sale of the
Units were approximately $12.6 million. The discounted portion of the Senior
Discount Notes represent a yield of 10.5% compounded semi-annually from the
date of issuance until October 11, 1998. Thereafter, interest is payable semi-
annually at a rate of 10.5% per annum. The Senior Discount Notes are
redeemable by the Company in whole or part at any time at their face value
less unearned interest. The warrants may be exercised at any time before
October 2005. The Senior Discount Notes were issued without registration under
the Securities Act in reliance on Section 4(2) of the Securities Act. The
following persons and entities purchased the Units in the 1995 Unit Offering:
Michael Arrington, Richard Brenner, Dean Buntrock, Conant Family Partnership,
Cornelius & Lothian, L.P., Joseph Cusimano, Peter Desnoes, Doerge-Blue Rhino,
L.P., The Craig Duchossois Revocable Trust, The Richard L. Duchossois
Revocable Trust, Andrew J. Filipowski, Donald Flynn, Kevin F. Flynn June 1992
Non-Exempt Trust, Bryan J. Flynn June 1992 Non-Exempt Trust, Richard Forsythe
Trust, Douglass Gray, William Hulligan, The Kimberly Family Discretionary
Trust, David Meltzer, Peer Pedersen, Billy D. Prim, Charles Reeder,
Christopher Reyes, Jude Reyes, Ryan Holding Corporation, Howard Warren and
Arthur Watson.
On September 24, 1996, the Company issued a warrant to purchase 227,048
shares of its Common Stock at an exercise price of $6.61 per share to
Forsythe/Lunn Technology Partners, L.P. in connection with the execution of a
master lease agreement between the Company and Forsythe/McArthur & Associates,
Inc. The warrants may be exercised at any time before September 24, 2006.
These warrants were issued without registration under the Securities Act in
reliance on Section 4(2) of the Securities Act.
On April 30, 1997, the Company sold 151,227 shares of its Common Stock and
warrants to purchase an additional 113,420 shares of its Common Stock with an
exercise price of $6.61 per share to Platinum Propane Holding, L.L.C.
("Platinum Propane") for total consideration of $1,000,000 in cash. The
warrants may be exercised at any time prior to April 30, 2007. The shares and
warrants sold to Platinum Propane were issued without registration under the
Securities Act in reliance on Section 4(2) of the Securities Act and Rule 506
of Regulation D promulgated thereunder.
On January 1, 1998, the Company issued $3,250,000 of 10.5% Subordinated
Notes and warrants to purchase in the aggregate 81,915 shares of Common Stock
with an exercise price equal to the initial public offering price of the
Common Stock offered hereby (the "1998 Warrants") to Lennard Carlson, Craig J.
Duchossois, Andrew J. Filipowski, and James P. Liautaud, four stockholders of
the Company for total consideration of $3,250,000 in cash. The Subordinated
Promissory Notes bear interest at 10.5% per annum and are due on the earlier
of a qualified public offering of the Company's Common Stock or December 31,
2000. The warrants may be exercised at any time before December 31, 2008. The
Subordinated Promissory Notes and warrants purchased by the stockholders were
offered and sold without registration under the Securities Act in reliance on
Section 4(2) of the Securities Act and Rule 505 of Regulation D promulgated
thereunder.
II-2
<PAGE>
Since formation, the Company has granted options to its employees for
182,607 shares of Common Stock pursuant to its 1994 Stock Incentive Plan at a
weighted average exercise price of $6.03 per share, of which options to
purchase 0 shares have been exercised and options to purchase 24,559 shares
are currently exercisable. Under the proposed recapitalization in connection
with this offering, all outstanding options under the 1994 Stock Incentive
Plan will be vested upon the completion of the offering. The options were
issued without registration under the Securities Act in reliance on Section
4(2) and Rule 701 promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits to the Registration Statement are listed in the Exhibit Index
which appears elsewhere in this Registration Statement and is hereby
incorporated herein by reference.
All other schedules are omitted because of the absence of the condition
under which they are required or because the information is included in the
consolidated financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as the Company may be permitted to indemnify directors, officers and
controlling persons of the Company for liabilities arising under the
Securities Act pursuant to the provisions described under Item 14 above or
otherwise, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted against the Company by such director, officer, or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
WINSTON-SALEM, NORTH CAROLINA, ON APRIL 22, 1998.
Blue Rhino Corporation
/s/ Billy D. Prim
By___________________________________
Billy D. Prim
President and Chairman of the
Board
II-4
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON APRIL 22, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Billy D. Prim President and Chairman of the Board
___________________________________________ (Principal Executive Officer)
Billy D. Prim
/s/ Mark Castaneda* Secretary and Chief Financial Officer
___________________________________________ (Principal Financial and Accounting
Mark Castaneda Officer)
/s/ Andrew J. Filipowski* Vice Chairman of the Board
___________________________________________
Andrew J. Filipowski
/s/ Craig J. Duchossois* Director
___________________________________________
Craig J. Duchossois
/s/ Steven D. Devick* Director
___________________________________________
Steven D. Devick
/s/ S.H. Fogleman III* Director
___________________________________________
S.H. Fogleman III
/s/ James P. Liautaud* Director
___________________________________________
James P. Liautaud
/s/ John H. Muehlstein* Director
___________________________________________
John H. Muehlstein
/s/ Robert S. Steel* Director
___________________________________________
Robert S. Steel
</TABLE>
- ---------------------
*Signed by Billy D. Prim pursuant to power of attorney.
II-5
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
1.1 Underwriting Agreement
3.1 Form of Second Amended and Restated Certificate of Incorpora-
tion of the Company+
3.2 Amended and Restated Bylaws of the Company+
4.1 Form of Certificate of Common Stock of the Company*
5.1 Legal Opinion of Pedersen & Houpt, P.C.*
10.1(a) Loan Agreement, dated as of December 18, 1997, between the
Company and NationsBank, N.A.+
10.1(b) Security Agreement, dated as of November 26, 1997 between the
Company and NationsBank, N.A.
10.2 Note Purchase Agreement, dated as of January 1, 1998, among
the Company and Craig J. Duchossois, Andrew Filipowski, James
Liautaud and Lennard Carlson
10.3(a) Cylinder Display Rack Lease Agreement, dated as of September
16, 1996, between the Company and Forsythe McArthur Associ-
ates, Inc.+
10.3(b) Master Equipment Lease Agreement, dated as of September 24,
1996, between the Company and Forsythe McArthur Associates,
Inc.+
10.4(a) Asset Purchase Agreement, dated as of December 9, 1997, be-
tween the Company and Bison Propane Bottle Exchange, LLC+
10.4(b) First Amendment to the Asset Purchase Agreement, dated as of
December 10, 1997, between the Company and Bison Propane Bot-
tle Exchange, LLC+
10.5 Multi-Draw Convertible Secured Promissory Note, dated as of
February 12, 1998, by Bison Valve, L.L.C. to the Company+
10.6 Collateral Assignment of License Agreement, dated as of Febru-
ary 12, 1998, by Bison Valve, L.L.C. to the Company+
10.7(a) Form of Distribution Agreement of the Company and Its Distrib-
utors+
10.7(b) Form of Sublease of Personal Property between the Company and
Its Distributors+
10.8(a) Form of Security Agreement to Secure the Sale of Cylinders
between the Company and Its Distributors
10.8(b) Form of Promissory Note Evidencing the Sale of Cylinders
between the Company and Its Distributors
10.9 Series A Securities Purchase Agreement, dated as of December
1, 1994, among the Company and the Purchasers of the Series A
Convertible Participating Preferred Stock+
10.10 Unit Purchase Agreement of a 10.5% Senior Discount Note and a
Warrant to purchase Common Stock of the Company, dated as of
October 11, 1995, between the Company and Purchasers named
therein+
10.11 Securities Purchase Agreement, dated as of March 1, 1997, be-
tween the Company and Platinum Propane Holding, L.L.C.+
10.12 Director Option Plan of the Company
10.13 Distributor Stock Option Plan of the Company
10.14 1994 Stock Incentive Plan of the Company+
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
10.15 Amended and Restated Registration Rights Agreement, dated as
of March 1, 1997, among the Company, Forsythe/Lunn Technology
Partners, L.L.C., Platinum Propane Holding, L.L.C., the Pur-
chasers of Units pursuant to the Unit Purchase Agreement dated
October 11, 1995 and the Purchasers of the Company's Series A
Convertible Participating Preferred Stock+
10.16 The Shareholders' Agreement, dated as of December 1, 1994,
among the Company and its Stockholders+
10.17 First Amendment to the Shareholders' Agreement, dated as of
October 11, 1995, among the Company and its Stockholders+
10.18 1998 Stock Incentive Plan of the Company
10.19 Real Estate Lease between the Company and Platinum Services
Corporation dated as of January 1, 1996
21.1 Subsidiaries of the Company
23.1 Consent of Pedersen & Houpt, P.C.
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of The Daniel Professional Group, Inc.
24.1 Power of Attorney+
27.1 Financial Data Schedule*
</TABLE>
- ---------------------
*To be filed by amendment.
+Previously Filed.
II-7
<PAGE>
BLUE RHINO CORPORATION DRAFT 4/20/98
2,700,000 Shares/1/
Common Stock
UNDERWRITING AGREEMENT
----------------------
May __, 1998
Hambrecht & Quist LLC
NationBanc Montgomery Securities LLC
Dain Rauscher Wessels
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
Blue Rhino Corporation, a Delaware corporation (herein called the Company),
proposes to issue and sell 2,700,000 shares of its authorized but unissued
Common Stock, $0.001 par value (herein called the Common Stock) (said 2,700,000
shares of Common Stock being herein called the Underwritten Stock). The Company
proposes to grant to the Underwriters (as hereinafter defined) an option to
purchase up to 405,000 additional shares of Common Stock (herein called the
Option Stock and with the Underwritten Stock herein collectively called the
Stock). The Common Stock is more fully described in the Registration Statement
and the Prospectus hereinafter mentioned.
The Company hereby confirms the agreements made with respect to the
purchase of the Stock by the several underwriters, for whom you are acting,
named in Schedule I hereto (herein collectively called the Underwriters, which
term shall also include any underwriter purchasing Stock pursuant to Section
3(b) hereof). You represent and warrant that you have been authorized by each
of the other Underwriters to enter into this Agreement on its behalf and to act
for it in the manner herein provided.
1. Registration Statement. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-1 (No. 333-_____), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act) of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus as used in this Agreement shall mean the
prospectus relating to the Stock first filed with the Commission pursuant to
Rule 424(b) and Rule 430A (or if no such filing is required, as included in the
Registration Statement) and, in the event of any supplement or amendment to such
prospectus after the Effective Date, shall also mean (from and after the filing
with the Commission
- ---------------------
/1/ Plus an option to purchase from the Company up to 405,000 additional shares
to cover over-allotments.
<PAGE>
of such supplement or the effectiveness of such amendment) such prospectus as so
supplemented or amended. The term Preliminary Prospectus as used in this
Agreement shall mean each preliminary prospectus included in such registration
statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. Representations and Warranties of the Company.
(a) The Company hereby represents and warrants as follows:
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware, has
full corporate power and authority to own or lease its properties and
conduct its business as described in the Registration Statement and the
Prospectus and as being conducted, and is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which the
character of the property owned or leased or the nature of the business
transacted by it makes qualification necessary (except where the failure to
be so qualified would not have a material adverse effect on the business,
properties, financial condition or results of operations of the Company and
its subsidiaries, taken as a whole).
(ii) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, properties, financial condition
or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, other than as set forth in
the Registration Statement and the Prospectus, and since such dates, except
in the ordinary course of business, the Company has not entered into any
material transaction not referred to in the Registration Statement and the
Prospectus.
(iii) The Registration Statement and the Prospectus comply, and on the
Closing Date (as hereinafter defined) and any later date on which Option
Stock is to be purchased, the Prospectus will comply, in all material
respects, with the provisions of the Securities Act and the rules and
regulations of the Commission thereunder; on the Effective Date, the
Registration Statement did not contain any untrue statement of a material
fact and did not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date the Prospectus did not and, on the
Closing Date and any later date on which Option Stock is to be purchased,
will not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that none of the representations and warranties in this
subparagraph (iii) shall apply to statements in, or omissions from, the
Registration Statement or the Prospectus made in reliance upon and in
conformity with information herein or otherwise furnished in writing to the
Company by or on behalf of the Underwriters for use in the Registration
Statement or the Prospectus.
(iv) The Stock, when issued and sold to the Underwriters as provided
herein, will be duly and validly issued, fully paid and nonassessable, free
of preemptive or similar rights, and conforms to the description thereof in
the Prospectus. No further approval or authority of the stockholders or the
Board of Directors of the Company will be required for the issuance and
sale of the Stock as contemplated herein.
(v) Any transaction entered into by the Company prior to the date
hereof with one or more the Company's stockholders, officers, directors or
other related parties (herein called a Related Party) has been consummated
on a basis no less favorable to the Company than which the Company could
have entered into with a non-Related Party.
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(vi) Attached hereto as Schedule II is a capitalization table of the
Company setting forth all holders of securities of the Company, including
the number such securities, the exercise or conversion price (if
applicable), and the respective percentages of ownership of such holders on
a fully diluted basis.
(vii) The Company currently has in effect (a) a "commercial umbrella
insurance policy" with United States Fire Insurance Company which
indemnifies the Company for claims made pursuant to the terms thereof up to
an aggregate of $10 million per year and (b) an "excess liability insurance
policy" with National Union Fire Insurance Company which indemnifies the
Company for claims made pursuant to the terms thereof up to an aggregate of
$25 million per year in addition to and in excess of claims made by the
Company pursuant to the commercial umbrella insurance policy (the
commercial umbrella insurance policy and the excess liability insurance
policy are hereinafter collectively referred to as the Liability Insurance
Policies). Each of the Liability Insurance Policies constitutes a valid and
binding obligation of the parties thereto and is in full force and effect.
The Company has fulfilled and performed its obligations under each of the
Liability Insurance Policies and the Company is not in, nor alleged to be
in, breach or default under either of the Liability Insurance Policies, and
no event has occurred and no condition or state of facts exists which, with
the passage of time or the giving of notice or both, would constitute such
a default or breach by the Company. Complete and correct copies of each of
the Liability Insurance Policies have previously been delivered to the
Underwriters or representatives thereof.
(viii) Messrs. Prim and Filipowski, the Chairman and Chief Executive
Officer and Vice Chairman of the Company, respectively, directly or
indirectly own in aggregate approximately 40%, __% and __% of the equity
interests of Platinum Propane Holding, L.L.C., Caribou Cylinder Exchange,
L.L.C. and Javalina Cylinder Exchange, L.L.C., respectively.
(ix) The issued and outstanding shares of capital stock of the Company
as set forth in the Prospectus have been duly authorized and validly
issued, are fully paid and nonassessable and free of preemptive or similar
rights, and conform to the description thereof contained in the Prospectus.
(x) The making and performance by the Company of this Agreement has
been duly authorized by all necessary corporate action and will not violate
any provision of the Company's charter or bylaws and will not result in the
breach, or be in contravention, of any provision of any material agreement,
franchise, license, indenture, mortgage, deed of trust, or other material
instrument to which the Company is a party or by which the Company or its
property may be bound or affected, or violate or conflict with any order,
rule or regulation applicable to the Company of any court or regulatory
body, administrative agency or other governmental body having jurisdiction
over the Company, or any order of any court or governmental agency or
authority entered in any proceeding to which the Company was or is now a
party or by which it is bound.
(xi) The Shareholders' Agreement filed as Exhibit 10.16 to the
Registration Statement will be terminated as of the Closing Date.
(xii) There are no holders of securities of the Company (i) having
rights to registration thereof, except as disclosed on the Prospectus or
(ii) preemptive or similar rights to purchase Common Stock.
(xiii) There is no material document of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or filed as
required.
(xiv) The Company owns and possesses all right, title and interest in
and to all trademarks, copyrights and other proprietary rights ("Trade
Rights") material to the business of the Company. The Company has not
received any written notice of infringement, misappropriation or conflict
from any third party as to such material Trade Rights and the Company has
not infringed, misappropriated or otherwise conflicted with material Trade
Rights of any third parties.
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(xv) The conduct of the business of the Company and each of its
subsidiaries is in compliance in all respects with applicable federal,
state, local and foreign laws and regulations, except where the failure to
be in compliance would not have a material adverse effect upon the
condition (financial or otherwise) or results of operations of the Company.
(xvi) All offers and sales of the Company's securities by the Company
prior to the date hereof were exempt from the registration requirements of
the Securities Act and were duly registered with or the subject of an
available exemption from the registration requirements of the applicable
state securities or blue sky laws.
(xvii) Neither the Company nor any director, executive officer, agent,
employee or other person associated with or acting on behalf of the Company
has used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political activity;
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in
violation of any provisions of the Foreign Corrupt Practices Act of 1972;
or made any bribe, rebate, payoff, influence payment, kickback or other
unlawful payment.
(xviii) Prior to the Closing Date the Stock to be issued and sold by
the Company will be approved for listing by the Nasdaq National Market upon
official notice of issuance.
3. Purchase of the Stock by the Underwriters.
(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell
2,700,000 shares of the Underwritten Stock to the several Underwriters and each
of the Underwriters agrees to purchase from the Company the respective aggregate
number of shares of Underwritten Stock set forth opposite its name in Schedule
I. The price at which such shares of Underwritten Stock shall be sold by the
Company and purchased by the several Underwriters shall be $___ per share. In
making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraphs (b) and (c) of this Section 3, the
agreement of each Underwriter is to purchase only the respective number of
shares of the Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 8 or 9 hereof) to purchase and pay for
the number of shares of the Stock agreed to be purchased by such Underwriter or
Underwriters, the Company shall immediately give notice thereof to you, and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by you of such notice to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon between you
and such purchasing Underwriter or Underwriters and upon the terms herein set
forth, all or any part of the shares of the Stock which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of shares of the Stock which each non-defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the non-defaulting Underwriters shall not be obligated
to purchase the shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such shares of the
Stock exceeds 10% of the total number of shares of the Stock which all
Underwriters agreed to purchase hereunder. If the total number of shares of the
Stock which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the 24-hour period
above referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such shares and portion on the terms herein
set forth. In any such case, either you or the Company shall have the right to
postpone the Closing Date determined as provided in Section 5 hereof for not
more than seven business days after the date originally fixed as the Closing
Date pursuant to said Section 5 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the non-defaulting Underwriters nor the Company shall
make arrangements within the
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24-hour periods stated above for the purchase of all the shares of the Stock
which the defaulting Underwriter or Underwriters agreed to purchase hereunder,
this Agreement shall be terminated without further act or deed and without any
liability on the part of the Company to any non-defaulting Underwriter and
without any liability on the part of any non-defaulting Underwriter to the
Company. Nothing in this paragraph (b), and no action taken hereunder, shall
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the Company
grants an option to the several Underwriters to purchase, severally and not
jointly, up to 405,000 shares in the aggregate of the Option Stock from the
Company at the same price per share as the Underwriters shall pay for the
Underwritten Stock. Said option may be exercised only to cover over-allotments
in the sale of the Underwritten Stock by the Underwriters and may be exercised
in whole or in part at any time (but not more than once) on or before the
thirtieth day after the date of this Agreement upon written or telegraphic
notice by you to the Company setting forth the aggregate number of shares of the
Option Stock as to which the several Underwriters are exercising the option.
Delivery of certificates for the shares of Option Stock, and payment therefor,
shall be made as provided in Section 5 hereof. The number of shares of the
Option Stock to be purchased by each Underwriter shall be the same percentage of
the total number of shares of the Option Stock to be purchased by the several
Underwriters as such Underwriter is purchasing of the Underwritten Stock, as
adjusted by you in such manner as you deem advisable to avoid fractional shares.
4. Offering by Underwriters.
(a) The terms of the initial public offering by the Underwriters of the
Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front cover page
and under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Stock filed by the Company
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriters to the Company for inclusion in the
Registration Statement, any Preliminary Prospectus, and the Prospectus, and you
on behalf of the respective Underwriters represent and warrant to the Company
that the statements made therein are correct.
5. Delivery of and Payment for the Stock.
(a) Delivery of certificates for the shares of the Underwritten Stock and
the Option Stock (if the option granted by Section 3(c) hereof shall have been
exercised not later than 7:00 A.M., San Francisco time, on the date two business
days preceding the Closing Date), and payment therefor, shall be made at the
office of Pedersen & Houpt, P.C., 161 North Clark Street, Chicago, Illinois, at
7:00 a.m., San Francisco time, on the fourth business day after the date of this
Agreement, or at such time on such other day, not later than seven full business
days after such fourth business day, as shall be agreed upon in writing by the
Company and you. The date and hour of such delivery and payment (which may be
postponed as provided in Section 3(b) hereof) are herein called the Closing
Date.
(b) If the option granted by Section 3(c) hereof shall be exercised after
7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Pedersen & Houpt, P.C., 161
North Clark Street, Chicago, Illinois, at 7:00 a.m., San Francisco time, on the
third business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made to the
Company or its order by one or more certified or official bank check or checks
or a wire transfer in same day funds. Such
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payment shall be made upon delivery of certificates for the Stock to you for the
respective accounts of the several Underwriters against receipt therefor signed
by you. Certificates for the Stock to be delivered to you shall be registered in
such name or names and shall be in such denominations as you may request at
least one business day before the Closing Date, in the case of Underwritten
Stock, and at least one business day prior to the purchase thereof, in the case
of the Option Stock. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at the offices of Lewco
Securities Corporation, 2 Broadway, New York, New York 10004 on the business day
prior to the Closing Date or, in the case of the Option Stock, by 3:00 p.m., New
York time, on the business day preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later date on which Option Stock is
purchased for the account of such Underwriter. Any such payment by you shall
not relieve such Underwriter from any of its obligations hereunder.
6. Further Agreements of the Company. The Company covenants and agrees
as follows:
(a) The Company will (i) prepare and timely file with the Commission under
Rule 424(b) a Prospectus containing information previously omitted at the time
of effectiveness of the Registration Statement in reliance on Rule 430A and (ii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you shall have reasonably objected in writing or which
is not in compliance with the Securities Act or the rules and regulations of the
Commission.
(b) The Company will promptly notify each Underwriter in the event of (i)
the request by the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Stock for sale in any jurisdiction, or (v) the receipt by it of notice of the
initiation or threatening of any proceeding for such purpose. The Company will
make every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal thereof
at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you a
signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each post-
effective amendment, if any, to the Registration Statement (together with, in
each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is necessary, in the opinion of counsel
for the Company or of counsel for the Underwriters, to supplement or amend the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser of
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the Stock, the Company will forthwith prepare and file with the Commission a
supplement to the Prospectus or an amended prospectus so that the Prospectus as
so supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time such
Prospectus is delivered to such purchaser, not misleading. If, after the initial
public offering of the Stock by the Underwriters and during such period, the
Underwriters shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the Company
in writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the Prospectus or
an amended prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Stock may be sold by the several
Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Stock in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified. The Company will, from time
to time, prepare and file such statements, reports, and other documents as are
or may be required to continue such qualifications in effect for so long a
period as you may reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission (including the Report on Form SR required by Rule 463 of the
Commission under the Securities Act).
(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the Company
will make generally available to its security holders an earnings statement in
accordance with Section 11(a) of the Securities Act and Rule 158 thereunder.
(i) The Company agrees to pay all costs and expenses incident to the
performance of its obligations under this Agreement, including all costs and
expenses incident to (i) the preparation, printing and filing with the
Commission and the National Association of Securities Dealers, Inc. (the NASD)
of the Registration Statement, any Preliminary Prospectus and the Prospectus,
(ii) the furnishing to the Underwriters of copies of any Preliminary Prospectus
and of the several documents required by paragraph (c) of this Section 6 to be
so furnished, (iii) the printing of this Agreement and related documents
delivered to the Underwriters, (iv) the preparation, printing and filing of all
supplements and amendments to the Prospectus referred to in paragraph (d) of
this Section 6, (v) the furnishing to you and the Underwriters of the reports
and information referred to in paragraph (g) of this Section 6 and (vi) the
printing and issuance of stock certificates, including the transfer agent's
fees.
(j) The Company agrees to reimburse you, for the account of the several
Underwriters, for blue sky fees and related disbursements (including counsel
fees and disbursements and cost of printing memoranda for the Underwriters) paid
by or for the account of the Underwriters or their counsel in qualifying the
Stock under state securities or blue sky laws and in the review of the offering
by the NASD.
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(k) The Company hereby agrees that, without the prior written consent of
Hambrecht & Quist LLC on behalf of the Underwriters, the Company will not, for a
period of 180 days following the commencement of the public offering of the
Stock by the Underwriters, directly or indirectly, (i) sell, offer, contract to
sell, make any short sale, pledge, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any rights to
purchase or acquire Common Stock or (ii) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic consequences or
ownership of Common Stock, whether any such transaction described in clause (i)
or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Stock to be sold to the Underwriters pursuant to this Agreement, (B) shares
of Common Stock issued by the Company upon the exercise of options outstanding
as of the date hereof granted under the stock option plans of the Company (the
"Option Plans") or upon the exercise of warrants outstanding as of the date
hereof, all as described in footnote (2) to the table under the caption
Capitalization in the Preliminary Prospectus, and (C) options to purchase Common
Stock granted under the Option Plans.
(l) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(m) The Company is not, and upon receipt and pending application of the net
proceeds from the sale of the Stock to be sold by the Company in the manner
described in the Prospectus will not be, an "investment company", a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, and the rules and regulations thereunder.
(n) The Company agrees to maintain or cause to be maintained, with
financially sound and reputable insurers, insurance with respect to its assets
and business substantially similar (including but not limited to policy amounts
and deductibles) to the Liability Insurance Policies for at least 18 months from
the date hereof, and shall provide to the Underwriters, upon request, copies of
all such insurance policies.
7. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person (including each partner or officer thereof) who controls any
Underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages or liabilities, joint or several, to
which such indemnified parties or any of them may become subject under the
Securities Act, the Securities Exchange Act of 1934, as amended (herein called
the Exchange Act), or the common law or otherwise, and the Company agrees to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact
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necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that (1) the indemnity agreements of the Company contained in this paragraph (a)
shall not apply to any such losses, claims, damages, liabilities or expenses if
such statement or omission was made in reliance upon and in conformity with
information furnished as herein stated or otherwise furnished in writing to the
Company by or on behalf of any Underwriter for use in any Preliminary Prospectus
or the Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto and (2) the indemnity agreement contained in this paragraph
(a) with respect to any Preliminary Prospectus shall not inure to the benefit of
any Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Stock which is the subject thereof (or to
the benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof. The indemnity agreements of
the Company contained in this paragraph (a) and the representations and
warranties of the Company contained in Section 2 hereof shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the delivery of and payment
for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his own
behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, from and against any and all losses, claims, damages
or liabilities, joint or several, to which such indemnified parties or any of
them may become subject under the Securities Act, the Exchange Act, or the
common law or otherwise and to reimburse each of them for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein stated or otherwise furnished in writing to the Company by
or on behalf of such indemnifying Underwriter for use in the Registration
Statement or the Prospectus or any such amendment thereof or supplement thereto.
The indemnity agreement of each Underwriter contained in this paragraph (b)
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and (b) of
this Section 7 agrees that, upon the service of a summons or other initial legal
process upon it in any action or suit instituted against it or upon its receipt
of written notification of the commencement of any investigation or inquiry of,
or proceeding against, it in respect of which indemnity may be sought on account
of any indemnity agreement contained in such paragraphs, it will promptly give
written notice (herein called the Notice) of such service or notification to the
party or parties from whom indemnification may be sought hereunder. No
indemnification provided for in such paragraphs shall be available to any party
who shall fail so to give the Notice if the party to whom such Notice was not
given was unaware of the action, suit, investigation, inquiry or proceeding to
which the Notice would have related and was prejudiced by the failure to give
the Notice, but the omission so to notify such indemnifying party or parties of
any such service or notification shall not relieve such
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indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party shall be entitled at its own expense
to participate in the defense of any action, suit or proceeding against, or
investigation or inquiry of, an indemnified party. Any indemnifying party shall
be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (herein called the Notice of Defense) to the
indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct the defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable or
insufficient to hold harmless an indemnified party under paragraph (a) or (b) of
this Section 7, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in paragraph (a) or (b) of this Section 7 (i) in such proportion as
is appropriate to reflect the relative benefits received by each indemnifying
party from the offering of the Stock or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each indemnifying party in connection with
the statements or omissions that resulted in such losses, claims, damages or
liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Underwriters shall be deemed to be in the same respective proportions as the
total net proceeds from the offering of the Stock received by the Company and
the total underwriting discount received by the Underwriters, as set forth in
the table on the cover page of the Prospectus, bear to the aggregate public
offering price of the Stock. Relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by each indemnifying party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparing to defend or defending against any action or claim which is
10
<PAGE>
the subject of this paragraph (d). Notwithstanding the provisions of this
paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Stock purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) The Company will not without the prior written consent of each
Underwriter settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of such Underwriter and each such controlling
person from all liability arising out of such claim, action, suit or proceeding.
8. Termination. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company if after the
date of this Agreement trading in the Common Stock shall have been suspended, or
if there shall have occurred (i) the engagement in hostilities or an escalation
of major hostilities by the United States or the declaration of war or a
national emergency by the United States on or after the date hereof, (ii) any
outbreak of hostilities or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
calamity, crisis or change in economic or political conditions in the financial
markets of the United States would, in the Underwriters' reasonable judgment,
make the offering or delivery of the Stock impracticable, (iii) suspension of
trading in securities generally or a material adverse decline in value of
securities generally on the New York Stock Exchange, the American Stock
Exchange, The Nasdaq Stock Market, or limitations on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such exchange or system, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of, or
commencement of any proceeding or investigation by, any court, legislative body,
agency or other governmental authority which in the Underwriters' reasonable
opinion materially and adversely affects or will materially or adversely affect
the business or operations of the Company, (v) declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the Underwriters' reasonable opinion has a
material adverse effect on the securities markets in the United States. If this
Agreement shall be terminated pursuant to this Section 8, there shall be no
liability of the Company to the Underwriters and no liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of the
Company under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 6 hereof.
9. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company of all its obligations to be performed hereunder at
or prior to the Closing Date or any later date on which Option Stock is to be
purchased, as the case may be, and to the following further conditions:
11
<PAGE>
(a) The Registration Statement shall have become effective; and no
stop order suspending the effectiveness thereof shall have been issued and
no proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder
and the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing,
and the form of the Registration Statement and of the Prospectus (except as
to the financial statements contained therein), shall have been approved at
or prior to the Closing Date by Sidley & Austin, counsel for the
Underwriters.
(c) You shall have received from Pedersen & Houpt, P.C., counsel for
the Company, an opinion, addressed to the Underwriters and dated the
Closing Date, covering the matters set forth in Annex A hereto, and if
Option Stock is purchased at any date after the Closing Date, additional
opinions from each such counsel, addressed to the Underwriters and dated
such later date, confirming that the statements expressed as of the Closing
Date in such opinions remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not
misleading, (ii) since the Effective Date, no event has occurred which
should have been set forth in a supplement or amendment to the Prospectus
which has not been set forth in such a supplement or amendment, (iii) since
the respective dates as of which information is given in the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein, there has not been any material adverse
change or any development involving a prospective material adverse change
in or affecting the business, properties, financial condition or results of
operations of the Company, whether or not arising from transactions in the
ordinary course of business, and, since such dates, except in the ordinary
course of business, the Company has not entered into any material
transaction not referred to in the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein,
(iv) the Company does not have any material contingent obligations which
are not disclosed in the Registration Statement and the Prospectus, (v)
there are not any pending or known threatened legal proceedings to which
the Company is a party or of which property of the Company is the subject
which are material and which are not disclosed in the Registration
Statement and the Prospectus, (vi) there are not any franchises, contracts,
leases or other documents which are required to be filed as exhibits to the
Registration Statement which have not been filed as required, (vii) the
representations and warranties of the Company herein are true and correct
in all material respects as of the Closing Date or any later date on which
Option Stock is to be purchased, as the case may be, and (viii) there has
not been any material change in the market for securities in general or in
political, financial or economic conditions from those reasonably
foreseeable as to render it impracticable in your reasonable judgment to
make a public offering of the Stock, or a material adverse change in market
levels for securities in general (or those of companies in particular) or
financial or economic conditions which render it inadvisable to proceed.
(e) You shall have received on the Closing Date and on any later date
on which Option Stock is purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company, stating that the respective signers
of said certificate have carefully examined the Registration Statement in
the form in which it originally became effective and the Prospectus
contained therein and any supplements or amendments thereto, and that the
statements included in clauses (i) through (vii) of paragraph (d) of this
Section 9 are true and correct.
(f) You shall have received on the Closing Date and on any later date
on which Option Stock is purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company, verifying the truth and accuracy of
any statistical or financial figure included in the Prospectus which has
not been otherwise verified by the letters referred to
12
<PAGE>
in clause (g) below, such verification to include the provision of
documentary evidence supporting any such statistical or financial figure.
(g) You shall have received from each of Coopers & Lybrand L.L.P. and
The Daniel Professional Group, Inc., a letter or letters, addressed to the
Underwriters and dated the Closing Date and any later date on which Option
Stock is purchased, confirming that they are independent public accountants
with respect to the Company within the meaning of the Securities Act and
the applicable published rules and regulations thereunder and based upon
the procedures described in their letters delivered to you concurrently
with the execution of this Agreement (each herein called the Original
Letter), but carried out to a date not more than three business days prior
to the Closing Date or such later date on which Option Stock is purchased
(i) confirming, to the extent true, that the statements and conclusions set
forth in the Original Letter are accurate as of the Closing Date or such
later date, as the case may be, and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original
Letter which are necessary to reflect any changes in the facts described in
the Original Letter since the date of the Original Letter or to reflect the
availability of more recent financial statements, data or information. The
letters shall not disclose any change, or any development involving a
prospective change, in or affecting the business or properties of the
Company which, in your sole judgment, makes it impractical or inadvisable
to proceed with the public offering of the Stock or the purchase of the
Option Stock as contemplated by the Prospectus.
(h) You shall have received from Coopers & Lybrand L.L.P. a letter
stating that their review of the Company's system of internal accounting
controls, to the extent they deemed necessary in establishing the scope of
their examination of the Company's financial statements as at July 31,
1998, did not disclose any weakness in internal controls that they
considered to be material weaknesses.
(i) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 6 hereof.
(j) Prior to the Closing Date, the Stock to be issued and sold by the
Company shall have been duly authorized for listing by the Nasdaq National
Market upon official notice of issuance.
(k) On or prior to the Closing Date, you shall have received from all
directors, officers, and beneficial holders of more than 2% of the
outstanding Common Stock (on a fully diluted basis) agreements, in form
reasonably satisfactory to Hambrecht & Quist LLC, stating that without the
prior written consent of Hambrecht & Quist LLC on behalf of the
Underwriters, such person or entity will not, for a period of 180 days
following the commencement of the public offering of the Stock by the
Underwriters, directly or indirectly, (i) sell, offer, contract to sell,
make any short sale, pledge, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant
to purchase or otherwise transfer or dispose of any shares of Common Stock
or any securities convertible into or exchangeable or exercisable for or
any rights to purchase or acquire Common Stock or (ii) enter into any swap
or other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Sidley & Austin, counsel for the Underwriters, shall
be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred
13
<PAGE>
to in paragraphs (i) and (j) of Section 6 hereof, and (ii) if this Agreement is
terminated by you because of any refusal, inability or failure on the part of
the Company to perform any agreement herein, to fulfill any of the conditions
herein, or to comply with any provision hereof other than by reason of a default
by any of the Underwriters, the Company will reimburse the Underwriters
severally upon demand for all out-of-pocket expenses (including reasonable fees
and disbursements of counsel) that shall have been incurred by them in
connection with the transactions contemplated hereby.
10. Conditions of the Obligation of the Company. The obligation of the
Company to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company by giving notice to
you. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that in the event of any such termination the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof.
11. Reimbursement of Certain Expenses. In addition to its other
obligations under Section 7 of this Agreement, the Company hereby agrees to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of the Company and the several Underwriters and, with respect to
the provisions of Section 7 hereof, the several parties (in addition to the
Company and the several Underwriters) indemnified under the provisions of said
Section 7, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give to
any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained. The
term "successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the Stock from any of the several Underwriters.
13. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telecopied or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104; and if to the Company, shall be mailed,
telecopied or delivered to it at its office, 104 Cambridge Plaza Drive, Winston-
Salem, North Carolina 27104, Attention: Billy D. Prim with a copy to Susan M.
Hermann, Pedersen & Houpt, P.C., 161 North Clark Street, Chicago, Illinois
60601. All notices given by telegraph shall be promptly confirmed by letter.
14. Miscellaneous. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or their respective directors or officers, and (c) delivery and
payment for the Stock under this Agreement; provided, however, that if this
Agreement is terminated prior to the Closing Date, the provisions of paragraphs
(k), (l), (m) and (n) of Section 6 hereof shall be of no further force or
effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
14
<PAGE>
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
15
<PAGE>
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
BLUE RHINO CORPORATION
By __________________________
Billy D. Prim
President and Chairman of the Board
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
NATIONSBANC MONTGOMERY SECURITIES LLC
DAIN RAUSCHER WESSELS
By Hambrecht & Quist LLC
By __________________________
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
16
<PAGE>
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Shares
to be
Underwriters Purchased
- ------------ ----------
<S> <C>
Hambrecht & Quist LLC.........................................
NationsBanc Montgomery Securities LLC.........................
Dain Rauscher Wessels.........................................
---------
Total......................................................... 2,700,000
</TABLE>
<PAGE>
SCHEDULE II
CAPITALIZATION TABLE
<PAGE>
ANNEX A
Matters to be Covered in the Opinion of Pedersen & Houpt, P.C.
Counsel for the Company
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, is duly
qualified as a foreign corporation and in good standing in each state of the
United States of America in which its ownership or leasing of property requires
such qualification, and has full corporate power and authority to own or lease
its properties and conduct its business as described in the Registration
Statement;
(ii) the authorized capital stock of the Company consists of (a) 60,000,000
shares of Common Stock, par value $0.001, of which there are [7,222,550] shares
issued and outstanding (including the Underwritten Stock plus the number of
shares of Option Stock issued on the date hereof) and (b) 20,000,000 shares of
Preferred Stock, par value $0.001, of which no shares are issued and
outstanding; proper corporate proceedings have been taken validly to authorize
such authorized capital stock; all of the outstanding shares of such capital
stock (including the Underwritten Stock and the shares of Option Stock issued,
if any) have been duly and validly issued and are fully paid and nonassessable;
any Option Stock purchased after the Closing Date, when issued and delivered to
and paid for by the Underwriters as provided in the Underwriting Agreement, will
have been duly and validly issued and be fully paid and nonassessable; and no
preemptive rights of, or rights of refusal in favor of, stockholders exist with
respect to the Stock, or the issue and sale thereof, pursuant to the Second
Amended and Restated Certificate of Incorporation or Bylaws of the Company and,
to the knowledge of such counsel, there are no contractual preemptive rights,
rights of first refusal or restrictions of transfer which exist with respect to
the issue and sale of the Stock;
(iii) the Registration Statement has become effective under the Securities
Act and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus is in effect and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and with the rules
and regulations of the Commission thereunder;
(v) such counsel has no reason to believe that the Registration Statement
(except as to the financial statements and schedules and other financial data
contained therein, as to which such counsel need not express any opinion or
belief) at the Effective Date contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the Prospectus (except as
to the financial statements and schedules and other financial data contained
therein, as to which such counsel need not express any opinion or belief) as of
its date and at the Closing Date (or any later date on which Option Stock is
purchased), contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(vi) the information required to be set forth in the Registration Statement
in answer to Items 9, 10 (insofar as it relates to such counsel) and 11(c) of
Form S-1 is to the best of such counsel's knowledge accurately and adequately
set forth therein in all material respects or no response is required with
respect to such Items, and the description of the Company's stock incentive
plan, director option plan, and distributor option plan, and the options which
have been previously granted and which may be granted thereunder, set forth in
the Prospectus accurately and fairly presents the information required to be
shown with respect to said plans and options to the extent required by the
Securities Act and the rules and regulations of the Commission thereunder;
(vii) the capitalization table attached as Schedule II to this Agreement
is true and accurate;
<PAGE>
(viii) such counsel does not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion of
such counsel are of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as required;
(ix) the Underwriting Agreement has been duly authorized, executed and
delivered by the Company;
(x) the issue and sale by the Company of the shares of Stock sold by the
Company as contemplated by the Underwriting Agreement will not conflict with, or
result in a breach of, the Second Amended and Restated Certificate of
Incorporation or Bylaws of the Company or any agreement or instrument known to
such counsel to which the Company is a party or any applicable law or
regulation, or so far as is known to such counsel, any order, writ, injunction
or decree, of any jurisdiction, court or governmental instrumentality;
(xi) all holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities, because of the
filing of the Registration Statement by the Company have waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement;
(xii) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Stock by
the Underwriters;
(xiii) the Stock issued and sold by the Company has been duly authorized
for listing on the Nasdaq Stock Market upon official notice of issuance.
---------------------------------
<PAGE>
NationsBank, N.A. Exhibit 10.1(b)
Customer # To Robin Schadt
__________________
Date:
_______________________
Security Agreement
================================================================================
Bank/Secured Party: Debtor(s)/Pledgor(s):
NationsBank, N.A.
Banking Center:
Commerical Lending BLUE RHINO CORPORATION
380 Knollwood Street 104 Cambridge Plaza Drive
Winston-Salem, NC 27103 Winston-Salem, NC 27104
County: Forsyth County: Forsyth
(Street address including county) (Street address including county)
================================================================================
Debtor/Pledgor is a corporation
Address is Debtor's Place of Business
Collateral (hereinafter defined) is located at: At Debtor's address shown
above.
================================================================================
1. Security Interest. For good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Debtor/Pledgor (hereinafter referred
to as "Debtor") assigns and grants to Bank (also known as "Secured Party"), a
security interest and lien in the Collateral (hereinafter defined) to secure the
payment and the performance of the Obligation (hereinafter defined).
2. Collateral. A security interest is granted in the following collateral
described in this Item 2 (the "Collateral"):
A. Types of Collateral (check as applicable)
Accounts: Any and all accounts and other rights of Debtor to the
payment for goods sold or leased or for services rendered whether or not earned
by performance, contract rights, book debts, checks, notes, drafts, instruments,
chattel paper, acceptances, and any and all amounts due to Debtor from a factor
or other forms of obligations and receivables, now existing or hereafter arising
out of the business of Debtor.
Inventory:
Blanket Lien: Any and all of Debtor's goods held as inventory, whether
now owned or hereafter acquired, including without limitation, any and all such
goods held for sale or lease or being processed for sale or lease in Debtor's
business, as now or hereafter conducted, including all materials, goods and work
in process, finished goods and other tangible property held for sale or lease or
furnished or to be furnished under contracts of service or used or consumed in
Debtor's business, along with all documents (including documents of title)
covering such inventory including the following (attach schedule if necessary):
- --------------------------------------------------------------------------------
Equipment:
Blanket Lien: Any and all of Debtor's goods held as equipment, without
limitation, all machinery, tools, dies, furnishings, or fixtures, wherever
located, whether now owned or hereafter acquired, together with all increases,
parts, fittings, accessories, equipment, and special tools now or hereafter
affixed to any part thereof or used in connection therewith including the
following (attach schedule if necessary) except for exchange racks:____________
_______________
B. Substitutions, Proceeds and Related Items. Any and all substitutes and
replacements for, accessions, attachments and other additions to, tools, parts
and equipment now or hereafter added to or used in connection with, and all cash
or non-cash proceeds and products of, the Collateral (including, without
limitation, all income, benefits and property receivable, received or
distributed which results from any of the Collateral, such as dividends payable
or distributable in cash, property or stock; insurance distributions of any kind
related to the Collateral, including, without limitation, returned premiums,
interest, premium and principal payments; redemption proceeds and subscription
rights; and shares or other proceeds of conversions or splits of any securities
in the Collateral); any and all choses in action and causes of action of Debtor,
whether now existing or hereafter arising, relating directly or indirectly to
the Collateral (whether arising in contract, tort or otherwise and whether or
not currently in litigation); all certificates of title, manufacturer's
statements of origin, other documents, accounts and chattel paper, whether now
existing or hereafter arising directly or indirectly from or related to the
Collateral; all warranties, wrapping, packaging, advertising and shipping
materials used or to be used in connection with or related to the Collateral;
all of Debtor's books, records, data, plans, manuals, computer software,
computer tapes, computer systems, computer disks, computer programs, source
codes and object codes containing any information, pertaining directly or
indirectly to the Collateral and all rights of Debtor to retrieve data and other
information pertaining directly or indirectly to the Collateral from third
parties, whether now existing or hereafter arising; and all returned, refused,
stopped in transit, or repossessed Collateral, any of which, if received by
Debtor, upon request shall be delivered immediately to Bank.
C. Balances and Other Property. The balance of every deposit account of
Debtor maintained with Bank and any other claim of Debtor against Bank, now or
hereafter existing, liquidated or unliquidated, and all money, instruments,
securities, documents, chattel paper, credits, claims, demands, income, and any
other property, rights and interests of Debtor which at any time shall come into
the possession or custody or under the control of Bank or any of its agents or
affiliates for any purpose, and the proceeds of any thereof. Bank shall be
deemed to have possession of any of the Collateral in transit to or set apart
for it or any of its agents or affiliates.
3. Description of Obligation(s). The following obligations ("Obligation" or
"Obligations") are secured by this Agreement: (a) All debts, obligations,
liabilities and agreements of Debtor to Bank, now or hereafter existing, arising
directly or indirectly between Debtor and Bank whether absolute or contingent,
joint or several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, and all
renewals, extensions or rearrangement of any of the above; (b) All costs
incurred by Bank to obtain, preserve, perfect and enforce this Agreement and
maintain, preserve, collect and realize upon the Collateral; (c) All debts,
obligations, liabilities and agreements of Debtor to Bank of the kinds described
in this Item 3., now existing or hereafter arising; (d) All other costs and
attorney's fees incurred by Bank, for which Debtor is obligated to reimburse
Bank in accordance with the terms of the Loan Documents (hereinafter defined),
together with interest at the rate set forth in such Loan Documents; and (e) All
amounts which may be owed to Bank pursuant to all other loan documents executed
between Bank and Debtor. If Debtor is not the obligor of the Obligation, and in
the event any amount paid to Bank on any Obligation is subsequently recovered
from Bank in or as a result of any bankruptcy, insolvency or fraudulent
conveyance proceeding, Debtor shall be liable to Bank for the amounts so
recovered up to the fair market value of the Collateral whether or not the
Collateral has been released or the security interest terminated. In the event
the Collateral has been released or the security interest terminated, the fair
market value of the Collateral shall be determined, at Bank's option, as of the
date the Collateral was released, the security interest terminated, or said
amounts were recovered.
Approved: 07/01/95
Revised: 05/29/96
-1-
<PAGE>
4. Debtor's Warranties. Debtor hereby represents and warrants to Bank as
follows:
A. Financing Statements. Except as may be noted by schedule attached
hereto and incorporated herein by reference, no financing statement covering the
Collateral is or will be on file in any public office, except the financing
statements relating to this security interest, and no security interest, other
than the one herein created, has attached or been perfected in the Collateral or
any part thereof.
B. Ownership. Debtor owns, or will use the proceeds of any loans by Bank
to become the owner of, the Collateral free from any setoff, claim, restriction,
lien, security interest or encumbrance except liens for taxes not yet due and
the security interest hereunder and purchase money security interests from trade
creditors in the ordinary case of business.
C. Fixtures and Accessories. None of the Collateral is affixed to real
estate or is an accession to any goods, or will become a fixture or accession,
except as expressly set out herein.
D. Environmental Compliance. The conduct of Debtor's business operations
and the condition of Debtor's property does not and to the best of Debtor's
knowledge will not violate any federal laws, rules or ordinances for
environmental protection, regulations of the Environmental Protection Agency and
any applicable local or state law, rule, regulation or rule of common law and
any judicial interpretation thereof relating primarily to the environment or any
materials defined as hazardous materials or substances under any local, state or
federal environmental laws, rules or regulations, and petroleum, petroleum
products, oil and asbestos ("Hazardous Materials").
E. Power and Authority. Debtor has full power and authority to make this
Agreement, and all necessary consents and approvals of any persons, entities,
governmental or regulatory authorities and securities exchanges have been
obtained to effectuate the validity of this Agreement.
5. Debtor's Covenants. Until full payment and performance of all of the
Obligation and termination or expiration of any obligation or commitment of Bank
to make advances or loans to Debtor, unless Bank otherwise consents in writing:
A. Obligation and This Agreement. Debtor shall perform all of its
agreements herein and in any other agreements between it and Bank.
B. Ownership and Maintenance of the Collateral. Debtor shall keep all
tangible Collateral in good condition except for those properties deemed to be
obsolete by Debtor. Debtor shall defend the Collateral against all claims and
demands of all persons at any time claiming any interest therein adverse to
Bank. Debtor shall keep the Collateral free from all liens and security
interests except those for taxes not yet due, purchase money security interests
from the trade creditors in the ordinary case of business and the security
interest hereby created.
C. Bank's Costs. Debtor shall pay all costs necessary to obtain,
preserve, perfect, defend and enforce the security interest created by this
Agreement, collect the Obligation, and preserve, defend, enforce and collect the
Collateral, including but not limited to taxes, assessments, insurance premiums,
repairs, rent, storage costs and expenses of sales, legal expenses, reasonable
attorney's fees and other fees or expenses for which Debtor is obligated to
reimburse Bank in accordance with the terms of the Loan Documents. Whether the
Collateral is or is not in Bank's possession, and without any obligation to do
so and without waiving Debtor's default for failure to make any such payment,
Bank at its option may pay any such costs and expenses, discharge encumbrances
on the Collateral, and pay for insurance of the Collateral, and such payments
shall be a part of the Obligation and bear interest at the rate set out in the
Obligation. Debtor agrees to reimburse Bank on demand for any costs so incurred.
D. Information and Inspection. Debtor shall (i) promptly furnish Bank any
information with respect to the Collateral requested by Bank; (ii) allow Bank or
its representatives to inspect the Collateral, at any time and wherever located,
and to inspect and copy, or furnish Bank or its representatives with copies of,
all records relating to the Collateral and the Obligation; (iii) promptly
furnish Bank or its representatives such information as Bank may request to
identify the Collateral, at the time and in the form requested by Bank; and (iv)
deliver upon request to Bank shipping and delivery receipts evidencing the
shipment of goods and invoices evidencing the receipt of, and the payment for,
the Collateral.
E. Additional Documents. Debtor shall sign and deliver any papers deemed
necessary in the reasonable judgment of Bank to obtain, maintain, and perfect
the security interest hereunder and to enable Bank to comply with any federal or
state law in order to obtain or perfect Bank's interest in the Collateral or to
obtain proceeds of the Collateral.
F. Parties Liable on the Collateral. Debtor shall preserve the liability
of all obligors on any Collateral and shall preserve the priority of all
security therefor. Bank shall have no duty to preserve such liability or
security, but may do so at the expense of Debtor, without waiving Debtor's
default.
G. Disposition of the Collateral. If disposition of any Collateral gives
rise to an account, chattel paper or instrument, Debtor immediately shall notify
Bank, and upon request of Bank shall assign or indorse the same to Bank.
H. Accounts. Each account held as Collateral will represent the valid and
legally enforceable obligation of third parties and shall not be evidenced by
any instrument or chattel paper.
I. Notice/Location of the Collateral. Debtor shall give Bank written
notice of each office of Debtor in which records of Debtor pertaining to
accounts held as Collateral are kept, and each location at which the Collateral
is or will be kept, and of any change of any such location. If no such notice is
given, all records of Debtor pertaining to the Collateral and all Collateral of
Debtor are and shall be kept at the address marked by Debtor above.
J. Change of Name/Status and Notice of Changes. Without the written
consent of Bank, Debtor shall not change its name, change its corporate status,
use any trade name or engage in any business not reasonably related to its
business as presently conducted. Debtor shall notify Bank immediately of (i) any
material change in the Collateral, (ii) a change in Debtor's residence or
location, (iii) a change in any matter warranted or represented by Debtor in
this Agreement, or in any of the Loan Documents or furnished to Bank pursuant to
this Agreement, and (iv) the occurrence of an Event of Default (hereinafter
defined).
K. Use and Removal of the Collateral. Debtor shall not use the Collateral
illegally. Debtor shall not, unless previously indicated as a fixture, permit
the Collateral to be affixed to real or personal property without the prior
written consent of Bank. Debtor shall not permit any of the Collateral to be
removed from the locations specified herein without the prior written consent of
Bank, except for the sale of inventory in the ordinary course of business.
L. Possession of the Collateral. Debtor shall deliver all investment
securities and other instruments, documents and chattel paper which are part of
the Collateral and in Debtor's possession to Bank, or if hereafter acquired,
following acquisition, appropriately indorsed to Bank's order, or with
appropriate, duly executed powers. Debtor waives presentment, notice of
acceleration, demand, notice of dishonor, protest, and all other notices with
respect thereto.
M. Waivers by Debtor. Debtor waives notice of the creation, advance,
increase, existence, extension or renewal of, and of any indulgence with respect
to, the Obligation; waives presentment, demand, notice of dishonor, and protest;
waives notice of the amount of the Obligation outstanding at any time, notice of
any change in financial condition of any person liable for the Obligation or any
part thereof, notice of any Event of Default, and all other notices respecting
the Obligation; and agrees that maturity of the Obligation and any part thereof
may be accelerated, extended or renewed one or more times by Bank in its
discretion, without notice to Debtor. Debtor waives any right to require that
any action be brought against any other person
Approved: 07/01/95
-2- Revised: 05/29/96
<PAGE>
or to require that resort be had to any other security or to any balance of any
deposit account. Debtor further waives any right of subrogation or to enforce
any right of action against any other Debtor until the Obligation is paid in
full.
M. Other Parties and Other Collateral. No renewal or extension of or any
other indulgence with respect to the Obligation or any part thereof, no release
of any security, no release of any person (including any maker, indorser,
guarantor or surety) liable on the Obligation, no delay in enforcement of
payment, and no delay or omission or lack of diligence or care in exercising any
right or power with respect to the Obligation or any security therefor or
guaranty thereof or under this Agreement shall in any manner impair or affect
the rights of Bank under the law, hereunder, or under any other agreement
pertaining to the Collateral. Bank need not file suit or assert a claim for
personal judgment against any person for any part of the Obligation or seek to
realize upon any other security for the Obligation, before foreclosing or
otherwise realizing upon the Collateral. Debtor waives any right to the benefit
of or to require or control application of any other security or proceeds
thereof, and agrees that Bank shall have no duty or obligation to Debtor to
apply to the Obligation any such other security or proceeds thereof.
O. Collection and Segregation of Accounts and Right to Notify. Bank hereby
authorizes Debtor to collect the Collateral, subject to the direction and
control of Bank, but Bank may, after the accrual of an event of default under
the Loan agreement, without cause or notice, curtail or terminate said authority
at any time. Upon notice by Bank, whether oral or in writing, to Debtor, Debtor
shall forthwith upon receipt of all checks, drafts, cash, and other remittances
in payment of or on account of the Collateral, deposit the same in one or more
special accounts maintained with Bank over which Bank alone shall have the power
of withdrawal. The remittance of the proceeds of such Collateral shall not,
however, constitute payment or liquidation of such Collateral until Bank shall
receive good funds for such proceeds. Funds placed in such special accounts
shall be held by Bank as security for all Obligations secured hereunder. These
proceeds shall be deposited in precisely the form received, except for the
indorsement of Debtor where necessary to permit collection of items, which
indorsement Debtor agrees to make, and which indorsement Bank is also hereby
authorized, as attorney-in-fact, to make on behalf of Debtor. In the event Bank
has notified Debtor to make deposits to a special account, pending such deposit,
Debtor agrees that it will not commingle any such checks, drafts, cash or other
remittances with any funds or other property of Debtor, but will hold them
separate and apart therefrom, and upon an express trust for Bank until deposit
thereof is made in the special account. Bank will, from time to time, apply the
whole or any part of the Collateral funds on deposit in this special account
against such Obligations as are secured hereby as Bank may in its sole
discretion elect. At the sole election of Bank, any portion of said funds on
deposit in the special account which Bank shall elect not to apply to the
Obligations, may be paid over by Bank to Debtor. At any time, after the accrual
of an event of default, Bank may notify persons obligated on any Collateral to
make payments directly to Bank and Bank may take control of all proceeds of any
Collateral. Until Bank elects to exercise such rights, Debtor, as agent of Bank,
shall collect and enforce all payments owed on the Collateral.
P. Compliance with State and Federal Laws. Debtor will maintain its
existence, good standing and qualification to do business, where required, and
comply with all laws, regulations and governmental requirements, including
without limitation, environmental laws applicable to it or any of its property,
business operations and transactions.
Q. Environmental Covenants. Debtor shall immediately advise Bank in writing
of (i) any and all enforcement, cleanup, remedial, removal, or other
governmental or regulatory actions instituted, completed or threatened pursuant
to any applicable federal, state, or local laws, ordinances or regulations
relating to any Hazardous Materials affecting Debtor's business operations; and
(ii) all claims made or threatened by any third party against Debtor relating to
damages, contribution, cost recovery, compensation, loss or injury resulting
from any Hazardous Materials. Debtor shall immediately notify Bank of any
remedial action taken by Debtor with respect to Debtor's business operations.
Debtor will not use or permit any other party to use any Hazardous Materials at
any of Debtor's places of business or at any other property owned by Debtor
except such materials as are incidental to Debtor's normal course of business,
maintenance and repairs and which are handled in compliance with all applicable
environmental laws. Debtor agrees to permit Bank, its agents, contractors and
employees to enter and inspect any of Debtor's places of business or any other
property of Debtor at any reasonable times upon three (3) days prior notice for
the purposes of conducting an environmental investigation and audit (including
taking physical samples) to insure that Debtor is complying with this covenant
and Debtor shall reimburse Bank on demand for the costs of any such
environmental investigation and audit. Debtor shall provide Bank, its agents,
contractors, employees and representatives with access to and copies of any and
all data and documents relating to or dealing with any Hazardous Materials used,
generated, manufactured, stored or disposed of by Debtor's business operations
within five (5) days of the request therefor.
6. Rights and Powers of Bank.
A. General. Bank, before or after default, without liability to Debtor may:
obtain from any person information regarding Debtor or Debtor's business, which
information any such person also may furnish without liability to Debtor;
require Debtor to give possession or control of any Collateral to Bank; indorse
as Debtor's agent any instruments, documents or chattel paper in the Collateral
or representing proceeds of the Collateral; contact account debtors directly to
verify information furnished by Debtor; take control of proceeds, including
stock received as dividends or by reason of stock splits; release the Collateral
in its possession to any Debtor, temporarily or otherwise; require additional
Collateral; take control of funds generated by the Collateral, such as cash
dividends, interest and proceeds or refunds from insurance, and use same to
reduce any part of the Obligation and exercise all other rights which an owner
of such Collateral may exercise, except the right to vote or dispose of the
Collateral before an Event of Default; at any time transfer any of the
Collateral or evidence thereof into its own name or that of its nominee; and
demand, collect, convert, redeem, receipt for, settle, compromise, adjust, sue
for, foreclose or realize upon the Collateral, in its own name or in the name of
Debtor, as Bank may determine. Bank shall not be liable for failure to collect
any account or instruments, or for any act or omission on the part of Bank, its
officers, agents or employees, except for its or their own willful misconduct or
gross negligence. The foregoing rights and powers of Bank will be in addition
to, and not a limitation upon, any rights and powers of Bank given by law,
elsewhere in this Agreement, or otherwise. If Debtor fails to maintain any
required insurance, to the extent permitted by applicable law Bank may (but is
not obligated to) purchase single interest insurance coverage for the Collateral
which insurance may at Bank's option (i) protect only Bank and not provide any
remuneration or protection for Debtor directly and (ii) provide coverage only
after the Obligation has been declared due as herein provided. The premiums for
any such insurance purchased by Bank shall be a part of the Obligation and shall
bear interest as provided in 3(d) hereof.
B. Convertible Collateral. Bank may present for conversion any Collateral
which is convertible into any other instrument or investment security or a
combination thereof with cash, but Bank shall not have any duty to present for
conversion any Collateral unless it shall have received from Debtor detailed
written instructions to that effect at a time reasonably far in advance of the
final conversion date to make such conversion possible.
7. Default.
A. Event of Default. An event of default ("Event of Default") shall occur
if: (i) there is a loss, theft, damage or destruction of any material portion of
the Collateral for which there is no insurance coverage or for which there is
insufficient insurance coverage; (ii) Debtor or any other obligor on all or part
of the Obligation shall fail to timely and properly pay or observe, keep or
perform subject to the tolling of any applicable cure periods, any term,
covenant, agreement or condition in this Agreement or in any other agreement
between Debtor and Bank or between Bank and any other obligor on the Obligation,
including, but not limited to, any other note or instrument, loan agreement,
security agreement, deed of trust, mortgage, promissory note, guaranty,
certificate, assignment, instrument, document or other agreement concerning or
related to the Obligation (collectively, the "Loan Documents"); (iii) Debtor or
such other obligor shall fail to timely and properly pay or observe, keep or
perform subject to the tolling of any applicable cure periods, any term,
covenant, agreement or condition in any agreement between such party and any
affiliate or subsidiary of NationsBank Corporation; (iv) Debtor or such other
obligor shall fail to timely and properly pay or observe, keep or perform
subject to the tolling of any applicable cure periods, any term, covenant,
agreement or condition in any lease agreement between such party and any lessor
pertaining to premises at which any Collateral is located or stored; or (v)
Debtor or such other obligor abandons any leased premises at which any
Collateral
-3- Approved: 07/01/95
Revised: 05/29/96
<PAGE>
is located or stored and the Collateral is either moved without the prior
written consent of Bank or the Collateral remains at the abandoned premises.
B. Rights and Remedies. If any Event of Default shall occur, then, in
each and every such case, Bank may, without presentment, demand, or protest;
notice of default, dishonor, demand, non-payment, or protest; notice of intent
to accelerate all or any part of the Obligation; notice of acceleration of all
or any part of the Obligation; or notice of any other kind, all of which Debtor
hereby expressly waives, (except for any notice required under this Agreement,
any other Loan Document or applicable law); at any time thereafter exercise
and/or enforce any of the following rights and remedies at Bank's option:
i. Acceleration. The Obligation shall, at Bank's option, become
immediately due and payable, and the obligation, if any, of Bank to permit
further borrowings under the Obligation shall at Bank's option immediately cease
and terminate.
ii. Possession and Collection of the Collateral. At its option: (a)
take possession or control of, store, lease, operate, manage, sell, or instruct
any Agent or Broker to sell or otherwise dispose of, all or any part of the
Collateral; (b) notify all parties under any account or contract right forming
all or any part of the Collateral to make any payments otherwise due to Debtor
directly to Bank; (c) in Bank's own name, or in the name of Debtor, demand,
collect, receive, sue for, and give receipts and releases for, any and all
amounts due under such accounts and contract rights; (d) indorse as the agent of
Debtor any check, note, chattel paper, documents, or instruments forming all or
any part of the Collateral; (c) make formal application for transfer to Bank (or
to any assignee of Bank or to any purchaser of any of the Collateral) of all of
Debtor's permits, licenses, approvals, agreements, and the like relating to the
Collateral or to Debtor's business; (f) take any other action which Bank deems
necessary or desirable to protect and realize upon its security interest in the
Collateral; and (g) in addition to the foregoing, and not in substitution
therefor, exercise any one or more of the rights and remedies exercisable by
Bank under any other provision of this Agreement, under any of the other Loan
Documents, or as provided by applicable law (including, without limitation, the
Uniform Commercial Code as in effect in North Carolina (hereinafter referred to
as the "UCC")). In taking possession of the Collateral Bank may enter Debtor's
premises and otherwise proceed without legal process, if this can be done
without breach of the peace. Debtor shall, upon Bank's demand, promptly make the
Collateral or other security available to Bank at a place designated by Bank,
which place shall be reasonably convenient to both parties.
Bank shall not be liable for, nor be prejudiced by, any loss, depreciation or
other damages to the Collateral, unless caused by Bank's willful and malicious
act or Bank's gross negligence. Bank shall have no duty to take any action to
preserve or collect the Collateral.
iii. Receiver. Obtain the appointment of a receiver for all or any of the
Collateral, Debtor hereby consenting to the appointment of such a receiver and
agreeing not to oppose any such appointment.
iv. Right of Set Off. Without notice or demand to Debtor, set off and
apply against any and all of the Obligation any and all deposits (general or
special, time or demand, provisional or final) and any other indebtedness, at
any time held or owing by Bank or any of Bank's agents or affiliates to or for
the credit of the account of Debtor or any guarantor or indorser of Debtor's
Obligation.
Bank shall be entitled to immediate possession of all books and records
evidencing any Collateral or pertaining to chattel paper covered by this
Agreement and it or its representatives shall have their authority to enter upon
any premises upon which any of the same, or any Collateral, may be situated and
remove the same therefrom without liability. Bank may surrender any insurance
policies in the Collateral and receive the unearned premium thereon. Debtor
shall be entitled to any surplus and shall be liable to Bank for any deficiency.
The proceeds of any disposition after default available to satisfy the
Obligation shall be applied to the Obligation in such order and in such manner
as Bank in its discretion shall decide.
Debtor specifically understands and agrees that any sale by Bank of all or part
of the Collateral pursuant to the terms of this Agreement may be effected by
Bank at times and in manners which could result in the proceeds of such sale as
being significantly and materially less than might have been received if such
sale had occurred at different times or in different manners, and Debtor hereby
releases Bank and its officers and representatives from and against any and all
obligations and liabilities arising out of or related to the timing or manner of
any such sale.
If, in the opinion of Bank, there is any question that a public sale or
distribution of any Collateral will violate any state or federal securities law,
Bank may offer and sell such Collateral in a transaction exempt from
registration under federal securities law, and any such sale made in good faith
by Bank shall be deemed "commercially reasonable".
8. General.
A. Parties Bound. Bank's rights hereunder shall inure to the benefit of
its successors and assigns. In the event of any assignment or transfer by Bank
of any of the Obligation or the Collateral, Bank thereafter shall be fully
discharged from any responsibility with respect to the Collateral so assigned or
transferred, but Bank shall retain all rights and powers hereby given with
respect to any of the Obligation or the Collateral not so assigned or
transferred. All representations, warranties and agreements of Debtor if more
than one are joint and several and all shall be binding upon the personal
representatives, heirs, successors and assigns of Debtor.
B. Waiver. No delay of Bank in exercising any power or right shall
operate as a waiver thereof; nor shall any single or partial exercise of any
power or right preclude other or further exercise thereof or the exercise of any
other power or right. No waiver by Bank of any right hereunder or of any default
by Debtor shall be binding upon Bank unless in writing, and no failure by Bank
to exercise any power or right hereunder or waiver of any default by Debtor
shall operate as a waiver of any other or further exercise of such right or
power or of any further default. Each right, power and remedy of Bank as
provided for herein or in any of the Loan Documents, or which shall now or
hereafter exist at law or in equity or by statute or otherwise, shall be
cumulative and concurrent and shall be in addition to every other such right,
power or remedy. The exercise or beginning of the exercise by Bank of any one or
more of such rights, powers or remedies shall not preclude the simultaneous or
later exercise by Bank of any or all other such rights, powers or remedies.
C. Agreement Continuing. This Agreement shall constitute a continuing
agreement, applying to all future as well as existing transactions, whether or
not of the character contemplated at the date of this Agreement, and if all
transactions between Bank and Debtor shall be closed at any time, shall be
equally applicable to any new transactions thereafter. Provisions of this
Agreement, unless by their terms exclusive, shall be in addition to other
agreements between the parties. Time is of the essence of this Agreement.
D. Definitions. Unless the context indicates otherwise, definitions in
the UCC apply to words and phrases in this Agreement; if UCC definitions
conflict, Article 9 definitions apply.
E. Notices. Notice shall be deemed reasonable if mailed postage prepaid
at least five (5) days before the related action (or if the UCC elsewhere
specifies a longer period, such longer period) to the address of Debtor given
above, or to such other address as any party may designate by written notice to
the other party. Each notice, request and demand shall be deemed given or made,
if sent by mail, upon the earlier of the date of receipt or five (5) days after
deposit in the U.S. Mail, first class postage prepaid, or if sent by any other
means, upon delivery.
F. Modifications. No provision hereof shall be modified or limited
except by a written agreement expressly referring hereto and to the provisions
so modified or limited and signed by Debtor and Bank. The provisions of this
Agreement shall not be modified or limited by course of conduct or usage of
trade.
NC071 -4- Approved: 07/01/95
Revised: 05/29/96
<PAGE>
G. Applicable Law and Partial Invalidity. This Agreement has been
delivered in the State of North Carolina and shall be construed in accordance
with the laws of that State. Wherever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provisions shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Agreement. The invalidity or
unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such provison as
it may apply to other persons or circumstances.
H. Financing Statement. To the extent permitted by applicable law, a
carbon, photographic or other reproduction of this Agreement or any financing
statement covering the Collateral shall be sufficient as a financing statement.
I. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PART
TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
i. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT, OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN THE COUNTY
WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED, AND ADMINISTERED BY J.A.M.S.
WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
ii. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE
APPOINTMENT OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE
UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE,
DURING OR AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO
THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP
REMEDIES WORK THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
J. Controlling Document. To the extent that this Security Agreement
conflicts with or is in any way incompatible with any other Loan Document
concerning the Obligation, any promissory note shall control over any other
document, and if such note does not address an issue, then each other document
shall control.
K. Execution Under Seal. This Agreement is being executed under seal by
Debtor(s).
L. Additional Provisions. See Schedule "_______" attached hereto and
incorporated hereunder for all purposes.
M. NOTICE OF FINAL AGREEMENT. THIS WRITTEN SECURITY AGREEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be
duly executed under seal by their duly authorized representatives as of the date
first above written.
Bank/Secured Party:
NATIONSBANK, N.A.
By: /s/ Simpson O. Brown, Jr.
-------------------------------
Name: Simpson O. Brown, Jr.
Title: Senior Vice President
Debtor/Pledgor:
BLUE RHINO CORPORATION
By: /s/ Billy D. Prim
-------------------------------
Name: Billy D. Prim
-----------------------------
Title: Chief Executive Officer
----------------------------
Attest:
/s/ Kurt Gehsmann
- -----------------------------------
Assistant Secretary
[Affix Corporate Seal]
NC071 -5- Approved: 07/01/95
Revised: 05/29/96
<PAGE>
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OFFERED FOR
SALE UNLESS REGISTERED UNDER SAID ACT OR UNLESS THE HOLDER OF THIS WARRANT
DELIVERS TO BLUE RHINO CORPORATION AN OPINION OF COUNSEL REASONABLY ACCEPTABLE
TO BLUE RHINO CORPORATION STATING THAT AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
Dated: January 1, 1998
WARRANT
To Purchase _______________ Shares of Common Stock (Subject to adjustment
herein)
Expiring December 31, 2008
THIS IS TO CERTIFY THAT, for value received, ________________ ("Original
Warrantholder") or his respective registered assign is entitled to purchase from
Blue Rhino Corporation, a Delaware corporation (the "Corporation"), at any time
and from time to time prior to 5:00 P.M., Chicago, Illinois time, on December
31, 2008, at the principal office of the Corporation which is currently 104
Cambridge Plaza Drive, Winston-Salem, North Carolina 27104 (or such other
address as the Corporation shall specify by notice to the Holder) at the
Exercise Price, the number of shares of Common Stock, with a par value of $0.001
per share (the "Common Stock"), of the Corporation shown above, all subject to
adjustment and upon the terms and conditions as hereinafter provided, and is
entitled also to exercise the other appurtenant rights, powers and privileges
hereinafter described.
This Warrant shall be accorded the same registration rights as the series
of warrants issued pursuant to a Unit Purchase Agreement dated October 11, 1995
entered into between the parties therein and the Corporation as more fully set
forth in that certain Amended and Restated Registration Rights Agreement dated
as of April 30, 1997, which amends and restates in its entirety that certain
Registration Rights Agreement dated as of December 1, 1994.
Certain terms used in this Warrant are defined in Article V.
ARTICLE I
EXERCISE OF WARRANTS
1.1 Method of Exercise and Payment.
(a) Method of Exercise. To exercise this Warrant in whole or in part,
the registered holder of this Warrant (the "Holder") shall deliver to the
Corporation on or prior to 5:00 P.M., Chicago, Illinois time, on December 31,
2000, at the principal office of the
<PAGE>
Corporation, (a) this Warrant, (b) a written notice, in substantially the form
of the subscription notice (the "Subscription Notice") attached hereto, of such
Holder's election to exercise this Warrant, which notice shall specify the
number of shares of Common Stock to be purchased or converted into, as the case
may be, the denominations of the share certificate or certificates desired and
the name or names in which such certificates are to be registered, and (c)
payment to the Corporation of the amount equal to the product of the then
applicable Exercise Price multiplied by the number of shares of Common Stock
then being purchased pursuant to one of the payment methods permitted under
Section 1.1(b) below.
(b) Method of Payment. Payment shall be made either (1) by cash,
money order, certified or bank cashier's check, (2) by wire transfer, (3) by
converting the Warrant, or any portion thereof, into Common Stock pursuant to
Section 1.1 (c) below ("Warrant Conversion") or (4) any combination of the
foregoing at the option of the Holder.
(c) Payment by Warrant Conversion. Subject to any limitations set
forth in this Warrant, the Holder may exercise the purchase right represented by
this Warrant with respect to a particular number of shares of Common Stock
subject to this Warrant and elect to pay for the Underlying Common Stock through
Warrant Conversion as defined in Section 1.1(b), by specifying such election in
the Subscription Notice. In such event, the Corporation shall deliver to the
Holder (without payment by the Holder of any Exercise Price or any cash or other
consideration) that number of shares of Common Stock equal to the quotient
obtained by dividing (x) the value of this Warrant (or the specified portion
hereof) on the Exercise Date, which value shall be determined by subtracting (A)
the aggregate Exercise Price of the Underlying Common Stock immediately prior to
the exercise of the Warrant from (B) the aggregate Fair Market Value of the
Underlying Common Stock issuable upon exercise of this Warrant (or the specified
portion hereof) on the Exercise Date, by (y) the Fair Market Value of one share
of Common Stock on the Exercise Date. For purposes of this Section 1, "Fair
Market Value" of a share of Common Stock as of a particular date shall mean:
(i) If the Corporation's Common Stock is Publicly Traded, then
the fair market value of a share of Common Stock as of the last
Business Day immediately prior to the Exercise Date. "Publicly
Traded" shall mean such stock is listed on any national securities
exchange (as defined in the Exchange Act) or quoted on NASDAQ.
(ii) If the Corporation stock is not Publicly Traded, then as
determined in good faith by the Board of Directors upon review of the
relevant factors; provided, however, that if the Exercise Date falls
within one day prior to the effective date of such registration
statement, the fair market value of a share of Common Stock will be
deemed to be the public offering price per share provided for in such
registration statement.
(d) Mechanics. The Corporation shall, as promptly as practicable and
in any event within three days after delivery of a Subscription Notice as
described above, execute and
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<PAGE>
deliver or cause to be executed and delivered, in accordance with such
Subscription Notice, a certificate or certificates representing the aggregate
number of shares of Common Stock specified in said Subscription Notice. The
share certificate or certificates so delivered shall be in such denominations as
may be specified in such Subscription Notice or, if such Subscription Notice
shall not specify denominations, in denominations of 100 shares each, and shall
be issued in the name of the Holder or such other name or names as shall be
designated in such Subscription Notice. Such certificate or certificates shall
be deemed to have been issued (and this Warrant or the portion thereof specified
in the Subscription Notice shall be deemed to have been exercised), and such
Holder or any other Person so designated to be named therein shall be deemed for
all purposes to have become a holder of record of such shares, as of the date
the aforementioned Subscription Notice is received by the Corporation, or
delivery thereof is refused (the "Exercise Date"). If this Warrant shall have
been exercised only in part, the Corporation shall, at the time of delivery of
the certificate or certificates, deliver to the Holder a new Warrant evidencing
the rights to purchase or convert the remaining shares of Common Stock called
for by this Warrant, which new Warrant shall in all other respects be identical
with this Warrant, or, at the request of the Holder, appropriate notation may be
made on this Warrant which shall then be refunded to the Holder. The Corporation
shall pay all expenses, taxes and other charges payable in connection with the
preparation, issuance and delivery of share certificates and new Warrants,
except that, if share certificates or new Warrants shall be registered in a name
or names other than the name of the Holder, funds sufficient to pay all transfer
taxes payable as a result of such transfer shall be paid by the Holder at the
time of delivering the aforementioned notice of exercise or promptly upon
receipt of a written request of the Corporation for payment.
1.2 Shares to Be Fully Paid and Nonassessable. All shares of Common Stock
issued upon the exercise of this Warrant shall be validly issued, fully paid and
nonassessable and free from all preemptive rights of any stockholder, and from
all taxes, liens and charges with respect to the issue thereof (other than
transfer taxes).
1.3 No Fractional Shares to Be Issued. The Corporation shall not be
required to issue fractions of shares of Common Stock upon exercise of this
Warrant. If any fraction of a share would, but for this Section, be issuable
upon any exercise of this Warrant, in lieu of such fractional share the
Corporation may pay to the Holder, in cash, an amount equal to such fraction of
the fair market value (as determined in good faith by the Board of Directors)
per share of outstanding Common Stock of the Corporation in the Business Day
immediately prior to the date of such exercise.
1.4 Share Legends. Each certificate for shares of Common Stock issued
upon exercise of this Warrant, unless at the time of exercise such shares are
registered under the Securities Act, shall bear the following legend:
"This security has not been registered under the Securities Act of
1933 and may not be sold or offered for sale unless registered
pursuant to such Act or unless the holder hereof delivers to Blue
Rhino Corporation an opinion of counsel reasonably acceptable to Blue
Rhino Corporation stating that an exemption from
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<PAGE>
such registration is available."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the
Securities Act) shall also bear such legend unless, in the opinion of counsel
selected by the holder of such certificate (who may be an employee of such
holder) and reasonably acceptable to the Corporation, the securities represented
thereby need no longer be subject to restrictions on resale under the Securities
Act. Each certificate for shares of Common Stock issued upon exercise of this
Warrant shall also bear any legends required under the Shareholders' Agreement,
dated as of December 1, 1994 between the Corporation, and certain investors and
management stockholders described therein, to the extent required thereby. Any
certificate issued at any time in exchange or substitution for any certificate
bearing such legend shall also bear such legend unless in the opinion of counsel
selected by the holder of such certificate (who may be an employee of such
holder) and reasonably acceptable to the Corporation, the restrictions contained
in such Shareholders' Agreement no longer apply because of the occurrence of one
or more of certain events described therein.
1.5 Reservation; Authorization. The Corporation has reserved and will
keep available for issuance upon exercise of the Warrant the total number of
shares of Common Stock deliverable upon exercise of the Warrant from time to
time outstanding. The issuance of the shares of Common Stock upon exercise of
the Warrant has been duly and validly authorized and, when issued and sold in
accordance with the Warrant, such shares of Common Stock will be duly and
validly issued, fully paid and nonassessable. The Corporation will take all
such actions as are necessary in order to insure the foregoing.
1.6 Result of Exercise. On the Exercise Date the rights of the holder of
such Warrant as such holder will cease and the Person or Persons in whose name
or names any certificate or certificates for shares of Common Stock are to be
issued upon such exercise will be deemed to have become the holder or holders of
record of the shares of Common Stock represented thereby.
1.7 Not Close Books Until Exercise. The Corporation will not close its
books against the transfer of this Warrant or shares of Common Stock issued or
issuable upon exercise of this Warrant in any manner which interferes with the
timely exercise of this Warrant.
ARTICLE II
TRANSFER, EXCHANGE AND
REPLACEMENT OF WARRANT
2.1 Ownership of Warrant. The Corporation may deem and treat the Person
in whose name this Warrant is registered as the holder and owner hereof for all
purposes and shall not be affected by any notice to the contrary, until this
Warrant is presented for registration of transfer as provided in this Article
II.
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<PAGE>
2.2 Transfer of Warrant. The Corporation agrees to maintain books for the
registration of transfers of the Warrants, and any transfer, in whole or in
part, of this Warrant and all rights hereunder shall be registered on such
books, upon surrender of this Warrant at the principal office of the Corporation
together with a written assignment of this Warrant duly executed by the Holder
or his, her or its duly authorized agent or attorney. The Warrants are
transferable pursuant to (i) public offerings registered under the Securities
Act, and (ii) Rule 144 of the Commission (or any similar rule then in force) if
such rule is available.
2.3 Division or Combination of Warrants. This Warrant may be divided or
combined with other Warrants upon surrender hereof and of any Warrant or
Warrants with which this Warrant is to be combined at the Corporation, together
with a written notice specifying the names and denominations in which the new
Warrant or Warrants are to be issued, signed by the holders hereof and thereof
or their respective duly authorized agents or attorneys. Subject to compliance
with Section 2.2 as to any transfer which may be involved in the division or
combination, the Corporation shall execute and deliver a new Warrant or Warrants
in exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice.
2.4 Loss, Theft, Destruction of Warrant Certificates. Upon receipt of
evidence reasonably satisfactory to the Corporation (an affidavit of the
registered holder will be satisfactory) of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss, theft or
destruction upon receipt of indemnity or security reasonably satisfactory to the
Corporation, or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, the Corporation will (at its expense) make and
deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new
Warrant of like tenor and representing the right to purchase the same aggregate
number of shares of Common Stock.
2.5 Expenses of Delivery of Warrants. The Corporation shall pay all
expenses, taxes (other than transfer taxes) and other charges payable in
connection with the preparation, issuance and delivery of Warrants and
Underlying Common Stock hereunder. If, pursuant to Section 2.2, the opinion of
counsel provides that registration is not required for the proposed exercise or
transfer of this Warrant or the proposed transfer of the Underlying Common Stock
and that the proposed exercise or transfer in the absence of registration would
require the Corporation to take any action including executing and filing forms
or other documents with the Commission or any state securities agency, or
delivering to the Holder any form or document in order to establish the right of
the Holder to effectuate the proposed exercise or transfer, the Corporation
agrees promptly, at its expense, to take any such action; and provided, further,
that the Corporation will reimburse the Holder in full for any expenses
(including but not limited to the fees and disbursements of such counsel, but
excluding brokers' commissions) incurred by the Holder or owner of Underlying
Common Stock on his, her or its behalf in connection with such exercise or
transfer of the Warrant or transfer of Underlying Common Stock.
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<PAGE>
ARTICLE III
ANTIDILUTION PROVISIONS
3.1 Adjustments Generally. The Exercise Price and the number of shares of
Common Stock (or other securities or property) issuable upon exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events, as provided in this Article III.
3.2 Exercise of Warrant. At any time and from time to time, any holder of
this Warrant may exercise all or any portion of this Warrant into the number of
shares of Common Stock computed by (i) multiplying the number of shares of
Common Stock sought to be purchased pursuant to this Warrant by Exercise Price
set forth in Section 3.3(a) and (ii) dividing the resulting product by the
Exercise Price then in effect.
3.3 Exercise Price.
(a) Exercise Price. The "Exercise Price" shall be equal to (i) prior
to the sale of Common Stock pursuant to a registered initial public offering
("IPO") by the Corporation, $1.645 per share and (ii) after an IPO (and the
application of the provisions of Section 3.6, if necessary), that price per
share at which the Common Stock of the Corporation is sold pursuant to the IPO.
In order to prevent dilution of the exercise rights granted to the holder of
this Warrant the Exercise Price will be subject to adjustment from time to time
pursuant to this Section 3.3 and Sections 3.5 and 3.6 below. For purposes of
this Section 3.3, the Corporation shall be deemed to have issued or sold Common
Stock as set forth in Section 3.4 below.
(b) Adjustment for Dilutive Events. If and whenever on or after the
original date of issuance of this Warrant the Corporation issues or sells, or in
accordance with Section 3.4 below is deemed to have issued or sold, any shares
of Common Stock for consideration per share less than the Exercise Price (the
"Diluted Share Price") in effect immediately prior to the time of such issue or
sale (a "Dilutive Event"), then forthwith upon the occurrence of any such
Dilutive Event the Exercise Price will be reduced so that the Exercise Price in
effect immediately following the Dilutive Event will equal the Diluted Share
Price. Notwithstanding the foregoing, (i) the issuance by the Corporation of up
to 3,500,000 shares of Common Stock, or securities convertible into or options
to acquire up to 3,500,000 shares of Common Stock, issued pursuant to the
Company's 1994 Stock Incentive Plan, (ii) the issuance of Common Stock upon
conversion of the Corporation's Series A Preferred Shares, (iii) the issuance of
up to 5% of the Common Stock of the company upon the exercise of options granted
to Blue Rhino Corporation distributors, (iv) the issuance of up to 5% of the
Common Stock of the Company upon the conversion of options issued pursuant to
stock option plans or grants to officers or employees approved by the Board of
Directors after an IPO, (v) the issuance of Common Stock upon exercise of
existing Warrants to acquire up to 17,844,244 shares of Common Stock issued
prior to the close hereof, or (vi) the issuance of $750,000 worth of Common
Stock to Bison Propane Bottle Exchange, L.L.C. at a price per share equal to the
purchase price for the Company's
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<PAGE>
Common Stock in an IPO or in a private placement of not less than $10,000,000 of
the Company's Common Stock, shall not constitute a Dilutive Event. As used in
this Section 3.3(b) and in Section 3.4 below, the term "Common Stock" shall
include Common Stock Equivalents. Notwithstanding anything contained herein to
the contrary, the Exercise Price of this Warrant held by a particular holder
shall not be adjusted pursuant to this Article III in connection with a
particular Dilutive Event, or any subsequent Dilutive Event, if such holder of
this Warrant fails to purchase, after being offered by the Corporation the
opportunity to purchase, a percentage of the securities, rights or options, or
any combination thereof, the sale of which constitute the Dilutive Event, which
is equal to or greater than 75% of the percentage ownership of the Corporation's
Common Stock on a fully diluted basis held by such holder immediately prior to
such Dilutive Event. A Warrant which is no longer subject to adjustment as a
result of the preceding sentence shall remain subject to such limitation
regardless of any subsequent transfers, and at each time that any Warrant so
loses its rights to such adjustment, all Warrants which have lost their right to
such adjustment as of such time shall be automatically classified into (and the
outstanding Warrant representing such Warrant will automatically be deemed to
represent). The holders of Warrants of each such sub-series shall promptly
deliver such Warrants to the Corporation upon the Corporation's request, for
exchange or notation to reflect such sub-series. If any such Warrants are not
delivered to the Corporation, the Corporation shall make appropriate notations
on its stock records, which may include stop transfer instructions, and may
place in escrow, pending receipt of such Warrants, all dividend Payments or
other distributions owing with respect to the Warrants represented by such
Warrants.
3.4 Issuance and Sale of Common Stock. For purposes of determining the
adjusted Exercise Price pursuant to Sections 3.3 above the following events
shall be deemed to be an issuance and sale of Common Stock by the Corporation:
(a) Issuance of Rights or Options. If (i) the Corporation in any
manner hereafter grants any rights or options to subscribe for or to purchase
shares of Common Stock or any securities convertible into or exchangeable for
shares of Common Stock (such rights or options referred to herein as "Options"
and such convertible or exchangeable stock or securities referred to herein as
"Convertible Securities"), except for options to purchase up to 3,500,000 shares
of Common Stock granted to directors, officers, employees or consultants
approved by the Board of Directors and (ii) the Price Per Share of shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Exercise Price in
effect immediately prior to the time of the granting of such Options then the
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities will be deemed to have
been issued and sold by the Corporation for such Price Per Share. For the
purposes of this Section 3.4(a), the "Price Per Share" is determined by dividing
(i) the total amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon exercise of
all such Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the issuance or sale of such Convertible
Securities and the conversion or exchange thereof, by (ii) the total maximum
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<PAGE>
number of shares of Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible Securities issuable upon
the exercise of such Options. No further adjustment of the Exercise Price will
be made when Convertible Securities are actually issued upon the exercise of
such Options or when Common Stock is actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities.
(b) Issuance of Convertible Securities. If (i) the Corporation in any
manner issues or sells any Convertible Securities and (ii) the Price Per Share
of shares of Common Stock issuable upon such conversion or exchange is less than
the Exercise Price in effect immediately prior to the time of such issue or sale
then the shares of Common Stock issuable upon the conversion or exchange of such
Convertible Securities will be deemed to have been issued and sold by the
Corporation for such Price Per Share. For the purposes of this Section 3.4(b),
the "Price Per Share" will be determined by dividing (i) the total amount
received or receivable by the Corporation as consideration for the issue or sale
of such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Exercise Price will be made when Common Stock is
actually issued upon the conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustments to the Exercise Price had been or
are to be made pursuant to Section 3.4(a) above, no further adjustment of the
Exercise Price will be made by reason of such issue or sale.
(c) Change in Option Price or Conversion Rate. If at any time there
is a change in (i) the purchase price provided for in any Options, (ii) the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible Securities, or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock, then the Exercise Price
in effect at the time of such change will be readjusted to the Exercise Price
which would have been in effect had those Options or Convertible Securities
still outstanding at the time of such change provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time such Options or Convertible Securities were initially granted,
issued or sold; provided that if such adjustment would result in an increase of
the Exercise Price then in effect, such adjustment will not be effective until
30 days after written notice thereof has been given by the Corporation to all
holders of Warrants.
(d) Calculation of Consideration Received. If any shares of Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor or the Price
Per Share, as the case may be, will be deemed to be the net amount received or
to be received, respectively, by the Corporation therefor. In case any shares of
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Corporation or the non-cash portion of the Price Per Share, as
the case may be, will be the fair value of such consideration received or to be
received, respectively, by the Corporation; except where such consideration
consists of securities, in which case the amount of consideration
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<PAGE>
received or to be received, respectively, by the Corporation will be the Market
Price thereof as of the date of receipt. If any shares of Common Stock, Options
or Convertible Securities are issued in connection with any merger in which the
Corporation is the surviving corporation, the amount of consideration therefor
will be deemed to be the fair value of such portion of the net assets and
business of the non-surviving corporation as is attributable to such shares of
Common Stock, Options or Convertible Securities, as the case may be. The fair
value of any consideration other than cash and securities will be determined
jointly by the Corporation and the holders of a majority of the outstanding
warrants issued by the Corporation. If such parties are unable to reach
agreement within a reasonable period of time, the fair value of such
consideration will be determined by an independent appraiser jointly selected by
the Corporation and the holders of a majority of the outstanding warrants issued
by the Corporation.
(e) Integrated Transactions. In case any Option is issued in
connection with the issuance or sale of other securities of the Corporation,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
will be deemed to have been issued for a consideration of $.01.
(f) Record Date. If the Corporation takes a record of the holders of
Common Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in shares of Common Stock, Options or in Convertible
Securities or (ii) to subscribe for or purchase shares of Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issuance or sale of the shares of Common Stock deemed to have been issued
or sold upon the declaration of such dividend or upon the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
3.5 Subdivision or Combination of Common Stock. If the Corporation at any
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Corporation at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination will be proportionately
increased.
3.6 Organic Change. Prior to the consummation of any Organic Change, the
Corporation will make appropriate provisions (in form and substance satisfactory
to the holders of a majority of the Warrants then outstanding) to insure that
the Holder of this Warrant will thereafter have the right to acquire and
receive, in lieu of or in addition to the shares of Common Stock immediately
theretofore acquirable and receivable upon the exercise of this Warrant, such
shares of stock, securities or assets as such holder would have received in
connection with such Organic Change if the Holder had exercised this Warrant
immediately prior to such Organic Change. In any such case, the Corporation will
make appropriate provisions (in form and substance satisfactory to the holders
of a majority of the warrants to purchase the Corporation's Common Stock then
outstanding) to insure that the provisions of this Section 3.6 will thereafter
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<PAGE>
be applicable to this Warrant (including, an immediate adjustment of the
Exercise Price to the value for the Common Stock reflected by the terms of such
Organic Change and a corresponding immediate adjustment in the number of shares
of Common Stock acquirable and receivable upon exercise of this Warrant, if the
value so reflected is less than the Exercise Price in effect immediately prior
to such Organic Change). The Corporation will not effect any such Organic
Change, unless prior to the consummation thereof, the successor Corporation
resulting from such Organic Change assumes by written instrument (in form
reasonably satisfactory to the holders of a majority of the Warrants then
outstanding), the obligation to deliver to each such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
All other terms of this Warrant shall remain in full force and effect
following such an Organic Change. The provisions of this Section 3.6 shall
similarly apply to successive Organic Changes.
3.7 Notices.
(a) Immediately upon any adjustment of the Exercise Price, the
Corporation shall give written notice thereof to the Holder of this Warrant
specifying the Exercise Price in effect thereafter with respect to the
particular holder.
(b) The Corporation shall give written notice to the Holder of this
Warrant at least 20 days prior to the date on which the Corporation closes its
books or takes a record for determining rights to vote with respect to any
Organic Change, Change of Control, Change in Ownership, Fundamental Change or
other reorganization, dissolution or liquidation. The Corporation shall also
give written notice to the Holder of this Warrant at least 20 days prior to the
date on which any Organic Change, Change of Control, Change in Ownership,
Fundamental Change or other reorganization, dissolution or liquidation shall
occur.
3.8 Certain Other Events. The Company will not, by amendment of its
certificate of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issues or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder against
dilution or other impairment. If any event occurs as to which the foregoing
provisions of this Article III are not strictly applicable or, if strictly
applicable, would not, in the good faith judgment of the Board of Directors,
fairly protect the purchase rights of this Warrant in accordance with the
essential intent and principles of such provisions, then the Board of Directors
shall make such adjustments in the application of such provisions, in accordance
with such essential intent and principles, as shall be reasonably necessary, in
the good faith opinion of the Board of Directors, to protect such purchase
rights as aforesaid, but in no event shall any such adjustment have the effect
of increasing the Exercise Price or decreasing the number of shares of Common
Stock subject to purchase upon exercise of this Warrant.
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<PAGE>
3.9 Proceedings Prior to Any Action Requiring Adjustment. As a condition
precedent to the taking of any action which would require an adjustment pursuant
to this Article III, the Corporation shall take any action which may be
necessary, including obtaining regulatory approvals or exemptions, in order that
the Corporation may thereafter validly and legally issue as fully paid and
nonassessable all shares of Common Stock which the Holder of this Warrant is
entitled to receive upon exercise thereof, and if all such approvals and actions
are not taken, the Corporation shall take any action which would cause the
Corporation to be able to issue to the Holder of this Warrant the full number of
shares issuable upon exercise hereof in accordance with the terms hereof.
ARTICLE IV
LIQUIDATION, DISSOLUTION, DISTRIBUTIONS
4.1 Liquidation or Dissolution. In case the Corporation at any time while
this Warrant shall remain unexpired and unexercised, shall dissolve, liquidate,
or wind up its affairs other than in connection with an Organic Change, the
Holder shall have the right to exercise this Warrant for a period of sixty (60)
days after the later of (i) such event having occurred and (ii) receipt by the
Holder of a notice from the Company indicating the kind and amount of securities
or assets issuable or distributable to holders of shares of Common Stock with
respect to such event, and upon exercise of this Warrant during such period, the
Holder shall have the right to receive in lieu of each share of the Underlying
Common Stock, the same kind and amount of any securities or assets as may be
issuable, distributable, or payable upon any such dissolution, liquidation, or
winding up with respect to each of the shares of the Common Stock.
ARTICLE V
DEFINITIONS
The following terms, as used in this Warrant, have the following respective
meanings:
"Board of Directors" means the Corporation's duly elected Board of
Directors.
"Business Day" shall mean (a) if any class of Common Stock is listed or
admitted to trading on a national securities exchange, a day on which the
principal national securities exchange on which such class of Common Stock is
listed or admitted to trading is open for business or (b) if no class of Common
Stock is so listed or admitted to trading, a day on which any New York Stock
Exchange member firm is open for business.
"Change in Ownership" means any sale or issuance or series of sales and/or
issuances of shares of the Corporation's capital stock by the Corporation or any
holders thereof which results in any Person or group of affiliated Persons
(other than the holders of the Company's Common Stock and Series A Convertible
Participating Preferred Stock as of the date hereof) owning capital stock of the
Corporation possessing the voting power (under ordinary circumstances) to
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<PAGE>
elect a majority of the Board of Directors.
"Change of Control" means any transaction, circumstance or event that shall
cause or result in Billy Prim and Andrew Filipowski either (a) owning, directly
or indirectly, beneficial or record ownership of shares of the Corporation's
capital stock or securities having less than 20% of the issued and outstanding
shares of the Corporation entitled to vote on matters submitted to the
Corporation's shareholders, or (b) resigning or being removed or otherwise not
serving as a member of the Board of Directors.
"Commission" means the Securities and Exchange Commission.
"Existing Warrants" means the warrants to purchase up to 17,844,294 shares
of Common Stock issued by the corporation prior to the issuance of this Warrant.
"Fundamental Change" means (a) a sale or transfer of all or substantially
all of the assets of the Corporation, or of the Corporation and its Subsidiaries
on a consolidated basis, in any transaction or series of transactions, and (b)
any merger or consolidation to which the Corporation is a party, except for a
merger in which the Corporation is the surviving Corporation and, after giving
effect to such merger, the holders of the Corporation's outstanding capital
stock immediately prior to the merger shall own the Corporation's outstanding
capital stock possessing the voting power (under ordinary circumstances) to
elect a majority of the Board of Directors after such merger.
"Holder" means the Person in whose name this Warrant is registered on the
books of the Corporation maintained for such purpose or the Person in whose name
any Underlying Common Stock is registered on such books. Together each Holder
known as the "Holders."
"Market Price" of any security means the average of the closing prices of
such security's sales on all securities exchanges on which such security may at
the time be listed, or, if there has been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on the primary
exchange on which such security is listed at the end of such day, or, if on any
day such security is not so listed, the average of the representative bid and
asked prices quoted in the NASDAQ as of 4:00 P.M., New York time, or, if on any
day such security is not quoted in the NASDAQ, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day. The "Market Price" of a note or
other obligation which is not listed on a securities exchange or quoted in the
NASDAQ or reported by the National Quotation Bureau, Incorporated, the total
consideration received by the Corporation (including interest) will be
discounted at the prime rate of interest at the Bank of America Illinois in
effect at the time the note or obligation is deemed to have been issued. If at
any other time such security is not listed on any securities exchange or quoted
in the NASDAQ or the over-the-counter market, the "Market Price" will be the
fair value thereof determined jointly by
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<PAGE>
the Corporation and the holders of a majority of the Warrants. If such parties
are unable to reach agreement within a reasonable period of time, such fair
value will be determined by an independent appraiser jointly selected by the
Corporation and the holders of a majority of the Warrants.
"NASDAQ" means The National Association of Securities Dealers' National
Market or Small Capitalization Market.
"Organic Change" means any capital reorganization, reclassification,
consolidation, merger, lease, or sale of all or substantially all of the
Corporation's assets to another Person (other than a dissolution, liquidation or
winding up of the Company as indicated in Section 3.1 above) which is effected
in such a way that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets with
respect to or in exchange for shares of Common Stock.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization
and a governmental entity or any department, agency or political subdivision
thereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means any corporation, association or other business entity of
which securities or other ownership interests representing more than fifty
percent (50%) of the ordinary voting power are, at the time as of which any
determination is being made, owned or controlled by the Corporation or one or
more Subsidiaries of the Corporation or by the Corporation and one or more
Subsidiaries of the Corporation.
"Underlying Common Stock" means (i) the Common Stock issued or issuable
upon conversion of the Class A Preferred Stock, (ii) the Common Stock issuable
upon the exercise of the Existing Warrants, (iii) the Common Stock issuable upon
exercise of this Warrant and (iv) any Common Stock issued or issuable with
respect to the securities referred to in clauses (i), (ii) or (iii) above by way
of stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. Any Person who
holds Class A Preferred Stock will be deemed to be the Holder of the Common
Stock obtainable upon the conversion of the Class A Preferred Stock in
connection with the transfer thereof or otherwise regardless of any restriction
or limitation on the conversion. As to any particular shares of Underlying
Common Stock, such shares will cease to be Underlying Common Stock when they
have been (a) effectively registered under the Securities Act and disposed of in
accordance with the registration statement covering them or (b) distributed to
the public through a broker, dealer or market maker pursuant to Rule 144 under
the Securities Act (or any similar provision then in force).
"Voting Stock" of any Person means securities of any class or classes of
such Person the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the
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<PAGE>
directors of such Person.
"Warrants" shall have the meaning set forth in the second paragraph of this
Warrant.
ARTICLE VI
MISCELLANEOUS
6.1 Notices. Notices and other communications provided for herein shall
be in writing and shall be delivered personally or mailed certified mail, return
receipt requested or delivered by overnight courier service to the addresses
specified below or such other address as any party hereto other than the
Corporation designates by written notice to the Corporation or if the
designation is by the Corporation, such notice of other address shall be to the
Holder, and all notices shall be deemed to have been given upon delivery if
delivered personally, three (3) days after mailing if mailed, or one (1)
business day after delivery to the courier, if delivered by overnight courier
service. If to the Corporation, such notice shall be mailed to
Blue Rhino Corporation
104 Cambridge Plaza Drive
Winston-Salem, North Carolina 27104
Attention: Billy D. Prim, Chief Executive Officer
In the case of the Holder, such notices and communications shall be addressed to
his, her or its address as shown on the books maintained by the Corporation.
6.2 Waivers; Amendments. No failure or delay of the Holder in exercising
any power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any rights
or remedies which it would otherwise have. The provisions of this Warrant may
be amended, modified or waived with (and only with) the written consent of the
Corporation and the Holders.
Any such amendment, modification or waiver effected pursuant to this
Section shall be binding upon the Holder of this Warrant and upon each future
holder thereof and upon the Corporation. In the event of any such amendment,
modification or waiver, the Corporation shall give prompt notice thereof to the
Holder and, if appropriate, notation thereof shall be made on the Warrant
thereafter surrendered for registration of transfer or exchange.
No notice or demand on the Corporation in any case shall entitle the
Corporation to any other or further notice or demand in similar or other
circumstances.
6.3 Governing Law. This Warrant shall be construed in accordance with and
governed by the internal laws of the State of Delaware, without regard to
principles of conflicts
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<PAGE>
of law.
6.4 Survival of Agreements; Representations and Warranties, etc. All
warranties, representations and covenants made by the Corporation herein or in
any certificate or other instrument delivered by or on behalf of it in
connection with the Warrants shall be considered to have been relied upon by the
Holder and shall survive the issuance and delivery of the Warrant, regardless of
any investigation made by the Holder, and shall continue in full force and
effect so long as this Warrant or any Warrant Stock is outstanding. All
statements in any such certificate or other instrument shall constitute
representations and warranties hereunder.
6.5 Covenants to Bind Successor and Assigns. All covenants, stipulations,
promises and agreements in this Warrant contained by or on behalf of the
Corporation shall bind its successors and assigns, whether so expressed or not.
6.6 Severability. In case any one or more of the provisions contained in
this Warrant shall be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein shall not in any way be affected or impaired thereby.
6.7 Section Headings. The section headings used herein are for
convenience of reference only, are not part of this Warrant and are not to
affect the construction of or be taken into consideration in interpreting this
Warrant.
6.8 No Rights as Stockholder. This Warrant shall not entitle the Holder
to any rights as a stockholder of the Corporation except as set forth in Section
4.2.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed
in its corporate name by one of its officers thereunto duly authorized, all as
of the day and year first above written.
Blue Rhino Corporation, a Delaware corporation
By__________________________________________
Billy D. Prim, Chief Executive Officer
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<PAGE>
SUBSCRIPTION NOTICE
(To be executed upon exercise of Warrant)
To _____________________________
[Choose one or both of first two paragraphs, as applicable]
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the attached Warrant for, and to purchase thereunder, ___________
shares of Common Stock, as provided for therein, and tenders herewith payment of
the Exercise Price in full in the form of certified or bank cashier's check or
wire transfer.
The undersigned hereby irrevocably elects to exercise the right of
conversion represented by the attached Warrant for, and to convert thereunder,
_______________ shares of Common Stock, as provided for therein.
Please issue a certificate or certificates for such shares of Common
Stock in the following name or names and denominations:
If said number of shares shall not be all the shares issuable upon exercise
of the attached Warrant, a new Warrant is to be issued in the name of the
undersigned for the balance remaining of such shares less any fraction of a
share paid in cash.
Dated:____________, 19___
______________________________
___________________________
NOTE: The above signature should correspond
exactly with the name on the face of the
attached Warrant or with the name of the
assignee appearing in the assignment form
below.
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<PAGE>
ASSIGNMENT
(To be executed upon assignment of Warrant)
For value received, ___________________ hereby sells, assigns and transfers
unto the attached Warrant, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ________________ attorney to
transfer said Warrant on the books of Blue Rhino Corporation, with full power of
substitution in the premises.
_______________________________
________________________
Note: The above signature should correspond
exactly with the name on the face of the
attached Warrant.
Dated:___________________
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<PAGE>
EXHIBIT 10.8(A)
NORTH CAROLINA )
)
) SECURITY AGREEMENT
)
FORSYTH COUNTY )
________________________________________________________________________________
THIS SECURITY AGREEMENT is made this /th/ day of , 199 ("Agreement")
by and between BLUE RHINO CORPORATION, a Delaware corporation ("Secured Party"),
and ( ), a Corporation
("Debtor").
W I T N E S E T H:
- - - - - - - - --
WHEREAS, Debtor and Secured Party have entered into an agreement under
which Secured Party has sold to Debtor certain propane gas cylinders and tanks
and received as all or a part of the purchase price a Promissory Note in the
original principal amount of $ of even date which is to be secured
------------
by the security interest created by this Agreement; and
WHEREAS, Secured Party may sell to Debtor additional propane gas cylinders
and tanks and receive as all or a part of the purchase price additional
Promissory Notes of varying amounts and dates, all of which will also be secured
by the security interest created by this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and obligations
herein contained and of other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Creation of Security Interest. To secure the indebtedness and obligations
-----------------------------
of Debtor (as hereinafter defined in paragraph 2), whether presently
existing or hereafter arising, as any of such indebtedness and obligations
may be extended, amended or renewed from time to time (the "Indebtedness"),
Debtor agrees to, and hereby does, grant to Secured Party a security
interest in the Collateral (as defined in paragraph 3) and all proceeds
thereof.
2. Indebtedness. The following is the Indebtedness secured by this Agreement:
------------
(a) Promissory Noted dated the same date as this Agreement in the original
principal amount of $ payable by Debtor to Secured Party
------------
("Note");
(b) All future promissory notes ("Future Notes") or accounts ("Accounts")
due to Secured Party for the sale of propane gas cylinders and tanks
to Debtor.
(c) all past, present and future advances, of whatever type by Secured
Party to Debtor, and extensions and renewals
1
<PAGE>
thereof, whether or not of the nature contemplated at the date hereof;
(d) all existing and future liabilities, of whatever type, of Debtor to
Secured Party;
(e) all costs incurred by Secured Party to obtain, preserve, and enforce
this security interest, collect the Indebtedness and maintain and
preserve the Collateral, and including but, not limited to, taxes,
assessments, reasonable attorney's fees, legal expenses, and expenses
of sale; and
(f) interest on the above amounts as agreed between Secured Party and
Debtor from time to time and at a default interest rate of
( %) percent per annum.
3. Collateral. The term "Collateral" with respect to this Agreement means all
----------
of Debtor's propane gas cylinders and tanks wherever located, and all
additions and accessions thereto and replacements thereof, now or hereafter
acquired by the Debtor, or any portion thereof, and all proceeds and
products of any and all of the foregoing Collateral and, to the extent not
otherwise included, all payments under insurance (whether or not Secured
Party is the loss payee thereof), or any indemnity, warranty or guaranty,
payable by reason of loss or damage to or otherwise with respect to any of
the foregoing Collateral (all such proceeds being the "Proceeds").
4. Covenants and Warranties. Debtor covenants and warrants that it:
------------------------
(a) is, will be and will remain, the lawful owner of the Collateral, and
the security interest hereby created constitutes, will constitute and
will remain a valid first lien upon and security interest in the
Collateral;
(b) shall maintain and pay for insurance on the Collateral against the
risks of fire (with extended coverage) and such other risks as Secured
Party may reasonably require, with insurance companies and in amounts
acceptable to Secured Party which shall include Secured Party as a
loss payee. The proceeds of any such policy shall be deemed proceeds
of the Collateral;
(c) shall pay, when due, all taxes, assessments and other charges levied
or assessed upon the Collateral;
(d) shall not sell or otherwise dispose of any material item comprising
the Collateral, or remove the same from its present location unless
sold or disposed of in the ordinary course of business and the
Collateral so sold or disposed of is replaced with goods or other
items of quality and value at least equal to that being replaced; and
(e) shall execute and deliver to Secured Party, concurrently with the
execution of this Agreement and upon the request of Secured Party from
time to time hereafter, all
2
<PAGE>
financing statements and other documents reasonably required to
perfect and maintain the security interests created hereby and Debtor
hereby irrevocably makes, constitutes and appoints Secured Party as
its true and lawful attorney, to sign its name on any financing
statement, continuation of financing statement, or similar document
required to perfect or continue the perfected security interests
created hereby.
5. Default. Any of the following shall constitute a default hereunder:
-------
(a) the failure of the Debtor to pay, perform or observe any covenant or
condition of the Indebtedness;
(b) the failure of the Debtor to pay, perform or observe any covenant or
condition required by Debtor to be paid, performed or observed
pursuant to the Note, Future Notes and Accounts; or
(c) any other event or condition constituting a default under the North
Carolina Uniform Commercial Code or other applicable law.
6. In the Event of Default. In the event of default:
-----------------------
(a) Secured Party shall have all of the rights and remedies of a secured
party under the North Carolina Uniform Commercial Code and under other
applicable law and may require Debtor to assemble the Collateral for
secured Party's benefit;
(b) Secured Party may accelerate and declare immediately due and payable
the entire Indebtedness; and
(c) Secured Party may, without waiving his other rights and remedies, cure
the default and the expense shall thereupon become part of the
Indebtedness secured hereby.
No delay or omission of Secured Party in the exercise of any right or
remedy arising from a default by any Debtor shall impair such right or
remedy or be construed as a waiver of same.
7. Application of Proceeds. The proceeds of any sale of the Collateral or any
-----------------------
interest therein, whether pursuant to foreclosure, power of sale or
otherwise, or other sums retained by Secured Party, upon the occurrence of
an event of default shall be applied to pay:
(a) First. The costs and expenses of the sale, reasonable attorney's
-----
fees, Secured Party's fees and expenses, court costs and other
expenses or advances made or incurred in the protection of the rights
of Secured Party or in the pursuance of any remedies hereunder;
(b) Second. The Indebtedness secured by this Agreement at the time due
------
and payable (whether by acceleration or otherwise), the application of
which to specific portions
3
<PAGE>
of the Indebtedness shall be within Secured Party's sole discretion;
and
(c) Third. The balance, if any, as required by law.
-----
8. Payment of Costs, Attorney's Fees and Expenses. Debtor shall pay any and
----------------------------------------------
all costs, attorney's fees and other expenses of whatever kind incurred by
Secured Party in connection with:
(a) the collection of any of the Indebtedness secured hereby;
(b) any litigation involving the Collateral, the lien created hereby, any
benefit accruing by virtue of the provisions hereof, or the rights of
Secured Party;
(c) the presentation of any claim under any administrative or other
proceeding in which proof of claim is required by law to be filed;
(d) any examination of title to the Collateral which may be reasonably
required by Secured Party; or
(e) taking any steps whatsoever in enforcing this Agreement, claiming any
benefit accruing by virtue of provisions hereof, or exercising the
rights of Secured Party hereunder.
9. Advances by Secured Party. Secured Party is authorized, for the account of
-------------------------
Debtor, to make any required payments under any lien prior to this security
interest, or under this Agreement, the non-payment of which would
constitute a default hereunder or under the Note. All sums so advanced
shall attach to and become part of the Indebtedness, shall become payable
at any time on demand therefor and, from the date of the advance to the
date of repayment, any sum so advanced shall bear interest at a rate per
annum equal to ( %) percent per annum. The failure by Debtor to
make payment of any such sum on demand shall, at the option of Secured
Party, constitute a default hereunder, giving rise to all of the remedies
herein provided for an event of default.
10. Notices. All notices, approvals, consents, requests and other
-------
communications hereunder shall be in writing and, given by first class
United States mail, telecopied or hand delivered.
11. Governing Law; Jurisdiction. The interpretation, validity and
---------------------------
enforceability of this Agreement shall be governed by the laws of the State
of North Carolina. The parties agree that any dispute arising out of this
Agreement shall be subject to the jurisdiction of both the state and
federal courts in North Carolina. For that purpose, the parties submit to
the jurisdiction of the state and federal courts of North Carolina, and
Debtor agrees to accept service of process out of any such courts in any
such dispute by registered or certified mail addressed to Debtor. The
parties waive trial by jury of any matter relating to this Agreement.
4
<PAGE>
12. Assignment. The obligations and benefits of this Agreement shall bind and
----------
inure to the benefit of the parties and their legal representatives,
successors and assigns.
13. Severability. In the event any term, provision or covenant herein
------------
contained or the application thereof to any circumstances or situation
shall be invalid or unenforceable in whole or in part, the remainder
thereof and the application of said term, provision or covenant to any
other circumstances or situation shall not be affected hereby, and every
other term, provision or covenant herein shall be valid and enforceable to
the full extent permitted by law.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
SECURED PARTY:
BLUE RHINO CORPORATION
BY:
-------------------------------
VICE PRESIDENT
ATTEST:
BY:
---------------------------
ASSISTANT SECRETARY
(AFFIX CORPORATE SEAL)
DEBTOR:
BY:
------------------------------------
CORPORATE REPRESENTATIVE
ATTEST:
BY:
------------------------------
WITNESS
(AFFIX CORPORATE SEAL)
5
<PAGE>
EXHIBIT 10.8(B)
PROMISSORY NOTE
---------------
Winston-Salem N.C.
$ , 199
- -----------
_____________
FOR VALUE RECEIVED the undersigned, jointly and severally, promise to pay
the BLUE RHINO CORPORATION, or order, the principal sum of
($ ) Dollars with interest from the date hereof, at
----------
the rate of Ten and one-half (10.5%) percent per annum on the unpaid balance
-----
until paid or until default, both principal and interest payable in lawful money
of the United States of America at the office of BLUE RHINO CORPORATION, or at
such place as the legal Holder hereof may designate in writing.
The principal and interest shall be due and payable in 60 monthly
----------
installments of $ including principal and interest, commencing on ,
-------
199 , and on the same day of each consecutive month until paid in full.
If not sooner paid, the entire remaining indebtedness shall be due and
payable on , .
Each such installment shall, unless otherwise provided, be applied first to
payment of interest then accrued and due on the unpaid balance, with the
remainder applied to the unpaid principal.
Unless otherwise provided, this Note may be prepaid in full or in part at
any time without penalty or premium. Partial prepayments shall be applied to
installments due in reverse order of their maturity.
In the event of (a) default in payment of any installment of principal or
interest hereof as the same becomes due, (b) default in any other promissory
note from the undersigned Maker to Blue Rhino Corporation, (c) default under the
terms of any instrument securing this Note, and such default is not cured within
five (5) days after written notice to Maker, (d) the bankruptcy or insolvency of
the Maker or any endorser or guarantor or, (e) a sale, transfer or new issue of
a majority of the stock or substantially all of the assets of the Maker, then
the Holder may, without further notice, declare the remainder of the principal
sum, together with all interest accrued thereon at once due and payable. Failure
to exercise this option shall not constitute a waiver of the right to exercise
the same at any other time. The unpaid principal of this Note and any part
thereof, accrued interest and all other sums due under this Note and any related
security agreement shall bear interest at the rate of Twelve (12%) percent per
------------
annum after default until paid.
All parties to this Note, including Maker and any sureties, endorsers, or
guarantors hereby waive protest, presentment, notice of dishonor, and notice of
acceleration of maturity and agree to continue to remain bound for the payment
of principal, interest and all other
<PAGE>
sums due under this Note and security agreement not withstanding any change or
changes by way of release, surrender, exchange, modification or substitution of
any security for this Note or by way of any extension or extensions of time for
the payment of principal and interest; and all such parties waive all and every
kind of notice of such change or changes and agree that the same may be made
without notice or consent of any of them.
Upon default the Holder of this Note may employ an attorney to enforce the
Holder's rights and remedies and the Maker, principal, surety, guarantors and
endorsers of this Note hereby agree to pay to the Holder reasonable attorney's
fees not exceeding a sum equal to fifteen percent (15%) of the outstanding
balance owing on said Note, plus all other reasonable expenses incurred by the
Holder in exercising any of the Holder's rights and remedies upon default. The
rights and remedies of the Holder as provided in this Note and any security
agreement securing this Note shall be cumulative and may be pursued singly,
successively, or together against the property described in the security
agreement or any other funds, property or security held by the Holder for
payment or security, in the sole discretion of the Holder. The failure to
exercise any such right or remedy shall not be a waiver or release of such
rights or remedies or the right to exercise any of them at another time.
This note is to be governed and construed in accordance with the laws of
the State of North Carolina.
This note is given for funds advanced for the purchase price of goods and
is secured by a Security Agreement of even date.
IN TESTIMONY WHEREOF, each corporate Maker has caused this instrument to be
executed in its corporate name by its President, attested by its Secretary, and
its corporate seal to be hereto affixed, all by order of its Board of Directors
first duly given, this the day and year first above written.
MAKER:
-----------------------
WITNESS BY:
---------------------
Vice President
BY:
---------------------------
Assistant Secretary
(Affix Corporate Seal)
GUARANTORS:
_________________________ (SEAL)
_________________________ (SEAL)
2
<PAGE>
Exhibit 10.12
Blue Rhino Corporation
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
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<TABLE>
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SECTION 1. PURPOSE............................................ 1
SECTION 2. ADMINISTRATION..................................... 1
SECTION 3. TYPE OF OPTIONS.................................... 1
SECTION 4. ELIGIBILITY........................................ 1
SECTION 5. SHARES AVAILABLE UNDER THE PLAN.................... 1
SECTION 6. AUTOMATIC GRANT OF OPTIONS......................... 1
SECTION 7. TERMS AND CONDITIONS OF OPTIONS.................... 2
7.1 Exercise of Options................................ 2
7.2 Exercise Price..................................... 3
7.3 Payment of Exercise Price; Tax Withholding......... 3
7.4 Rights as a Shareholder............................ 4
7.5 Documentation of Option Grants..................... 4
7.6 Nontransferability of Options...................... 4
7.7 Approvals.......................................... 5
SECTION 8. REGULATORY COMPLIANCE AND LISTING.................. 5
SECTION 9. CHANGE IN CONTROL.................................. 5
SECTION 10. ADJUSTMENT IN EVENT OF CHANGES IN CAPITALIZATION.. 7
SECTION 11. NO RIGHT TO REELECTION............................ 7
SECTION 12. AMENDMENT AND TERMINATION......................... 8
SECTION 13. SUCCESSORS AND ASSIGNS............................ 8
SECTION 14. GOVERNING LAW..................................... 8
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BLUE RHINO CORPORATION
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
SECTION 1. PURPOSE. The purpose of the Stock Option Plan for Non-
employee Directors (the "Plan") is to attract and retain persons of exceptional
ability to serve as members of the Board of Directors of Blue Rhino Corporation
(the "Company"), and to align the interests of the Company's non-employee
directors with that of the stockholders in enhancing the value of the Company's
capital stock.
SECTION 2. ADMINISTRATION. The Plan shall be administered by the
Compensation Committee (the "Committee") of the Board of Directors of the
Company (the "Board") or such successor committee of the Board that is
designated by the Board to administer the Plan (the "Administrator"). Such
Committee shall be composed of two or more Directors who meet the requirements
of Rule 16b-3(b)(3)(i) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") or any successor rule. The Administrator shall have
responsibility finally and conclusively to interpret the provisions of the Plan
and to decide all questions of fact arising in its application. No member of
the Administrator shall be liable for any action or determination made in good
faith with respect to the Plan. The Administrator may delegate to an officer or
officers of the Company the authorization to execute and deliver on behalf of
the Company any document or instrument required to be delivered under this Plan.
SECTION 3. TYPE OF OPTIONS. Options granted pursuant to the Plan shall be
nonstatutory options which are not intended to meet the requirements of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
SECTION 4. ELIGIBILITY. Directors of the Company who are not employees or
officers of the Company ("Eligible Directors") and who are directors of the
Company on or after the date this Plan is approved by a majority of the
shareholders of the Company shall be eligible to participate in the Plan. Each
Eligible Director to whom stock options are granted shall be a participant
("Participant") under the Plan.
SECTION 5. SHARES AVAILABLE UNDER THE PLAN. Subject to adjustment as
provided in Section 10 below, an aggregate of 100,000 shares of the Company's
Common Stock, par value $0.001 (the "Common Stock") shall be available for
issuance pursuant to the provisions of the Plan. Such shares may be authorized
and unissued shares or may be shares issued and thereafter acquired by the
Company. If an option granted under the Plan shall expire or terminate for any
reason without having been exercised in whole or in part, the unpurchased shares
subject to such option shall again be available for subsequent option grants
under the Plan.
SECTION 6. AUTOMATIC GRANT OF OPTIONS. On an annual basis as of the day
before the annual meeting of the stockholders of the Company as designated in
the notice of
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annual meeting of stockholders (the "Grant Date"), beginning with the Grant Date
to occur in 1998, each Eligible Director of the Company on the Grant Date shall
receive options to purchase 1,000 shares of Common Stock for each Board meeting
the Eligible Director has attended since the last annual meeting of the
stockholders of the Company; provided, however, that (a) the maximum number of
shares of Common Stock for which options shall be granted under this Plan in any
calendar year to an Eligible Director shall be 4,000 shares; and (b)
participation by an Eligible Director in no more than two Board meetings per
year by conference telephone or by other telecommunications equipment will be
deemed attendance at a Board meeting for the purpose of receiving options under
this Plan.
SECTION 7. TERMS AND CONDITIONS OF OPTIONS.
7.1 Exercise of Options.
(a) Each option granted under the Plan shall be exercisable at the
rate of one-third (1/3) per year commencing on the first anniversary of the
Grant Date, subject to the provisions of Section 9 hereof.
(b) Notwithstanding the provisions of paragraph (a) above, an option
granted to any Participant shall become immediately exercisable in full upon the
first to occur of:
(i) the death of the Participant, in which case the option
may be exercised by the Participant's executor or administrator, or if
not so exercised, by the legatees or distributees of his or her estate
or by such other person or persons to whom the Participant's rights
under the option shall pass by will or by the applicable laws of
descent and distribution;
(ii) such time as the Participant ceases to be a director of
the Company by reason of his or her permanent disability;
(iii) such time as the Participant ceases to be a director
of the Company as a result of retirement from the Board of Directors
on or after attaining age 65; or
(iv) such time as a Participant ceases to be eligible to
participate in this Plan by reason of his or her becoming an employee
of the Company or any of its subsidiaries.
(c) In the event that the Participant ceases to be a director of the
Company for any reason other than those specified in paragraph 7.1(b) prior to
the time a Participant's option becomes fully exercisable, the option will
terminate on the date the Participant ceases to be a director of the Company
with respect to the shares as to which the option is not then exercisable
without further notice or action on the part of the Company.
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(d) Options granted under the Plan shall expire ten years from the
date on which the option is granted, unless terminated earlier in accordance
with the Plan; provided, however, that in the event a Participant ceases to be a
director of the Company by reason of an event described in Section 7.1(b)(i),
any option granted to such Participant hereunder shall expire 90 days from the
date the Participant ceases to be a director of the Company, but in no event
later than the day preceding the tenth anniversary of the date of the grant of
such option.
(e) In the event that the Participant ceases to be a director of the
Company other than for a reason described in Sections 7.1(b)(ii) through (iv)
and after his or her option has become exercisable in whole or in part, such
option shall remain exercisable in whole or in part, as the case may be, in
accordance with the terms hereof for a period of 30 days from the date the
Participant ceases to be a director, but in no event later than the day
preceding the tenth anniversary of the date of grant of such option.
7.2 Exercise Price. The exercise price of each share of Common Stock
subject to an option shall be the "Fair Market Value" of a share of Common Stock
on the Grant Date of the option. "Fair Market Value" means the value determined
on the basis of the good faith determination of the Committee, without regard to
whether the Common Stock is restricted or represents a minority interest,
pursuant to the applicable method described below:
(a) if the Common Stock is listed on a national securities exchange or
quoted on the Nasdaq National Market ("NASDAQ"), the closing price of the Common
Stock on the relevant date, as reported by the principal national exchange on
which such shares are traded (in the case of an exchange) or by the NASDAQ, as
the case may be;
(b) if the Common Stock is not listed on a national securities
exchange or quoted on the NASDAQ, but is actively traded in the over-the-counter
market, the average of the closing bid and asked prices for the Common Stock on
the relevant date, or the most recent preceding date for which such quotations
are reported; and
(c) if, on the relevant date, the Common Stock is not publicly traded
or reported as described in (a) or (b), the value determined in good faith by
the Committee.
7.3 Payment of Exercise Price; Tax Withholding.
(a) Subject to the terms and conditions of the Plan and the
documentation of the options pursuant to Section 7.5 hereof, an option granted
hereunder shall, to the extent then exercisable, be exercisable in whole or in
part by giving written notice to the Company's Secretary stating the number of
shares with respect to which the option is being exercised, accompanied by
payment in full for such shares.
(b) If approved by the Committee, payment in full or in part may also
be made (i) by delivering Common Stock already owned by the Participant having a
total Fair Market
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Value on the date of such delivery equal to the Option Price; (ii) by
authorizing the Company to retain shares of Common Stock which would otherwise
be issuable upon exercise of the Option having a total Fair Market Value on the
date of delivery equal to the Option Price; (iii) by the delivery of cash by a
broker-dealer to whom the Participant has submitted a notice of exercise (in
accordance with Part 220, Chapter II, Title 12 of the Code of Federal
Regulations, so-called "cashless" exercise); or (iv) by any combination of the
foregoing. No shares of Common Stock will be issued until full payment therefor
has been made.
(c) The Participant shall pay the Company an amount sufficient to
cover withholding required by law for any federal, state, local or foreign
taxes, if any, in connection with an exercise of options herewith. A
Participant may elect in lieu of paying cash to deliver shares of Common Stock
or direct the Company that shares of Common Stock be withheld to satisfy
required tax withholding and such shares shall be valued at the Fair Market
Value as of the exercise date and the Board shall determine the timing and other
terms and conditions in which the use of shares of Common Stock to satisfy tax
withholding may take place.
7.4 Rights as a Shareholder. No person will have any rights of a
stockholder as to shares of Common Stock subject to a Stock Option until, after
proper exercise of the Stock Option or other action required, such shares have
been recorded on the Company's official stockholder records as having been
issued or transferred. Upon exercise of the Stock Option or any portion
thereof, the Company will have thirty (30) days in which to issue the shares,
and the Participant will not be treated as a stockholder for any purpose
whatsoever prior to such issuance. No adjustment will be made for cash
dividends or other rights for which the record date is prior to the date such
shares are recorded as issued or transferred in the Company's official
stockholder records, except as provided herein or in an Option Agreement.
7.5 Documentation of Option Grants. Option grants shall be evidenced
by written instruments prescribed by the Board from time to time. The
instruments may be in the form of agreements to be executed by both the
Participant and the president or any vice president of the Company or in the
form of certificates, letters or similar instruments, which need not be executed
by the Participant but acceptance of which will evidence agreement to the terms
of the grant.
7.6 Nontransferability of Options. Except as otherwise provided in this
Section 7.6, no option granted under the Plan shall be assignable or
transferable by the Participant to whom it is granted, either voluntarily or by
operation of law, except (a) by will or the laws of descent and distribution or
(b) during the lifetime of the Participant, to (i) the spouse or lineal
descendants of the Participant ("Immediate Family Members"), (ii) a trust or
trusts maintained for the exclusive benefit of the Participant and/or such
Immediate Family Members, or (iii) a limited partnership or limited liability
company in which the only partners or members are the Participant and/or such
Immediate Family Members, formed for estate planning purposes; provided, that
(y) the stock option agreement or any amendment thereto executed by the
Administrator pursuant to which such option is granted must expressly provide
for the transferability in a manner consistent with this Section, and (z)
subsequent transfers of a transferred option shall be prohibited (except
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as otherwise provided in this Section 7.6), and except that distributions may be
made to the Participant and/or such Immediate Family members from trusts, family
limited partnerships or family limited liability companies described herein).
Following a transfer permitted herein, any such option shall continue to be
subject to the same terms and conditions as were applicable immediately prior to
transfer, provided, that for the purposes of Sections 7.3 and 7.4 of this Plan,
the term "Participant" shall be deemed to refer to the permitted transferee with
respect of the options so transferred. The events contained in Subsection 7.1(b)
shall continue to be applied with respect to the original Participant, and
transferred options shall expire at or after the date the original Participant
ceases to be a director of the Company as provided in Sections 7.1(c)-(d) and
shall otherwise be exercisable by the transferee only to the extent and for the
periods specified in Sections 7.1 and 7.3.
7.7 Approvals. The effectiveness of the Plan and any options granted
hereunder are subject to the approval of the Plan by affirmative vote of a
majority of the shares of the Common Stock present in person or by proxy and
entitled to vote at an annual or special meeting of the stockholders or by
written consent as provided in the Company's charter or by-laws. In the event
that the Plan is not approved by the stockholders, the Plan and any options
granted hereunder shall be void as of no effect.
The Company's obligation to sell and deliver shares of Common Stock under
the Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of the Common Stock.
SECTION 8. REGULATORY COMPLIANCE AND LISTING.
(a) The issuance or delivery of any shares of stock subject to
exercisable options hereunder may be postponed by, the Board for such period as
may be required to comply with any applicable requirements under Federal
securities laws, any applicable listing requirements of any national securities
exchange or any requirements under any law or regulation applicable to the
issuance or delivery of such shares. The Company shall not be obligated to
issue or deliver any such shares if the issuance or delivery thereof would
constitute a violation of any provision of any law or of any regulation of any
governmental authority or any rule of any national securities exchange.
(b) No discretion concerning decisions regarding the Plan shall be
afforded to a person who does not meet the requirements of Section 16 of, and
Rule 16b-3(b)(3)(i) of the Exchange. Should any provision of this paragraph
require modification or be unnecessary to comply with the requirements of
Section 16 of Rule 16b-3 under the 1934 Act, the Board may waive such provision
and/or amend this Plan to add to or modify the provisions hereof accordingly.
SECTION 9. CHANGE IN CONTROL. Notwithstanding anything to the contrary
in the Plan, the following shall apply to all outstanding options granted under
the Plan:
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(a) Definitions - The following definitions shall apply to this
Section:
A "Change in Control" shall mean:
(i) The acquisition by any individual entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) or beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act)
of 50% or more of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change of Control: (A)
any acquisition directly from the Company or any of its subsidiaries, (B)
any acquisition by the Company or any of its subsidiaries, (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its subsidiaries, (D) any acquisition
by any corporation with respect to which, following such acquisition, more
than 50% of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in the
election of directors is then beneficially owned, directly or indirectly,
by individuals, entities or groups who were the beneficial owners,
respectively, of at least 50% of the Outstanding Voting Securities
immediately prior to such acquisition in substantially the same proportions
as their ownership, immediately prior to such acquisition, of the
Outstanding Voting Securities, or (E) the acquisition by any individual,
entity or group which on the date this Plan was adopted by the Board owned
50% or more of the Outstanding Voting Securities.
(ii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, with respect to
which all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Voting Securities
immediately prior to such reorganization, merger or consolidation do not,
following such reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 50% of the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such reorganization, merger or consolidation in substantially the same
proportions as their ownership, immediately prior to such reorganization,
merger or consolidation, of the Outstanding Voting Securities; or
(iii) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets of the Company
other than to a corporation, with respect to which following such sale or
other disposition, more than 50% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting power
for the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned,
directly or indirectly, by all or
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substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Voting Securities immediately
prior to such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale or other
disposition, of the Outstanding Voting Securities.
"CIC Price" shall mean the higher of (1) the highest price paid for a
share of Common Stock in the transaction or series of transactions pursuant to
which a Change in Control of the Company shall have occurred, or (2) the highest
reported sales price of a share of Common Stock during the 60 day period
immediately preceding the date upon which the event constituting a Change in
Control shall have occurred.
(b) Acceleration of Vesting and Payment of Stock Options.
(i) Upon the occurrence of an event constituting a Change in
Control, all stock options outstanding on such date shall become 100%
vested and shall be repurchased in cash to the Participant as soon as may
be practicable. Upon such payment, such stock options shall be cancelled.
(ii) The amount of cash to be paid shall be determined by
multiplying the number of such options by the difference between the
exercise price per share and the CIC Price, if higher.
(iii) Notwithstanding the foregoing subsections (i) and (ii), if
the exercise price of a stock option exceeds the CIC Price or the Fair
Market Value on the Post-Termination Date, as the case may be, such stock
option shall be 100% vested but shall not be cancelled.
SECTION 10. ADJUSTMENT IN EVENT OF CHANGES IN CAPITALIZATION. In the
event of a stock dividend, stock split or combination of shares,
recapitalization or other change in the Company's capitalization, or other
distribution with respect to holders of the Common Stock (other than normal cash
dividends), automatic adjustment shall be made in the number and kind of shares
as to which outstanding options or portions thereof then unexercised shall be
exercisable and in the available shares set forth in Section 5 hereof, to the
end that the proportionate interest of the option holder shall be maintained as
before the occurrence of such event. Such adjustment in outstanding options
shall be made without change in the total price applicable to the unexercised
portion of such options and with a corresponding adjustment in the option price
per share. Automatic adjustment shall also be made in the number and kind of
shares subject to options subsequently granted under the Plan.
SECTION 11. NO RIGHT TO REELECTION. Nothing in the Plan shall be deemed
to create any obligation on the part of the Board to nominate any Non-employee
Director for reelection by the Company's shareholders, nor confer upon any Non-
employee Director the right
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to remain a member of the Board for any period of time, or at any particular
rate of compensation.
SECTION 12. AMENDMENT AND TERMINATION.
(a) Except as provided in Section 8(b), the Board shall have the right
to amend, modify or terminate the Plan at any time and from time to time;
provided, however, that unless required by law, no such amendment or
modification shall (a) affect any right or obligation with respect to any grant
theretofore made; (b) in any manner affect the requirements set forth in Section
8(b) hereof, or (c) unless previously approved by the shareholders, increase the
number of shares of Common Stock available for grants as provided in Section 5
hereof other than an adjustment pursuant to Section 10 hereof. In addition, no
such amendment shall, unless previously approved by the shareholders (where such
approval is necessary to satisfy then applicable requirements of federal
securities laws, the Code or rules of any stock exchange on which the Company=s
Common Stock is listed) (i) in any manner affect the eligibility requirements
set forth in Section 4 hereof, (ii) increase the number of shares of Common
Stock subject to any option, (iii) change the purchase price of the shares of
Common Stock subject to any option, (iv) extend the period during which options
may be granted under the Plan, or (v) materially increase the benefits to
Participants under the Plan.
(b) Unless earlier terminated by the Board of Directors, or the shares
reserved under the Plan shall have all been committed for options granted
pursuant to the Plan, the Plan shall terminate on December 31, 2008; provided,
however, that options which are granted on or before this date shall remain
exercisable in accordance with their respective terms after the termination of
the Plan.
SECTION 13. SUCCESSORS AND ASSIGNS. The Plan shall be binding on all
successors and permitted assigns of a Participant, including but not limited to,
the estate of such Participant and the executor, administrator or trustee of
such estate, the guardian or legal representative of the Participant.
SECTION 14. GOVERNING LAW. The validity, construction and effect of the
Plan and any action taken or relating to the Plan shall be determined in
accordance with the laws of the State of Delaware and applicable Federal law.
Adopted by the Board of Directors on __________, 1998.
Approved by the written consent of the stockholders of the Company on
__________, 1998.
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Exhibit 10.13
Blue Rhino Corporation
DISTRIBUTOR OPTION PLAN
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ARTICLE I
ESTABLISHMENT...........................................................1
ARTICLE II
DEFINITIONS.............................................................1
ARTICLE III
ADMINISTRATION..........................................................4
3.1 Committee Structure and Authority................................4
ARTICLE IV
STOCK SUBJECT TO PLAN...................................................6
4.1 Number of Shares.................................................6
4.2 Release of Shares................................................6
4.4 Stockholder Rights...............................................7
4.5 Registration of Common Stock Under This Plan.....................7
ARTICLE V
ELIGIBILITY.............................................................8
5.1 Eligibility......................................................8
ARTICLE VI
GRANT OF STOCK OPTIONS..................................................9
6.1 General..........................................................9
6.2 Grant and Exercise...............................................9
6.3 Terms and Conditions.............................................9
6.4 Exercise Upon Death.............................................10
6.5 Other Termination...............................................10
6.6 Cashing Out of Option...........................................11
ARTICLE VII
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN.................11
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(i)
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7.1 Transfer of Shares..............................................11
7.2 Limited Transfer During Offering................................11
ARTICLE VIII
MISCELLANEOUS..........................................................11
8.1 Amendments and Termination......................................11
8.2 General Provisions..............................................12
8.3 Rights with Respect to Continuance of Distribution Agreement....13
8.4 Delay...........................................................13
8.5 Headings........................................................14
8.6 Severability....................................................14
8.7 Successors and Assigns..........................................14
(ii)
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Blue Rhino Corporation
DISTRIBUTOR OPTION PLAN
ARTICLE I
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ESTABLISHMENT
-------------
The Blue Rhino Corporation Distributor Option Plan ("Plan") is hereby
established by Blue Rhino Corporation ("Company"). The purpose of the Plan is to
attract and retain distributors who perform services for customers of the
Company or its "Affiliates" (as hereinafter defined), to give distributors an
incentive to provide quality service and thereby increase the number of Company
customer accounts and to promote the identification of the interests of such
distributors with those of the stockholders of the Company.
ARTICLE II
----------
DEFINITIONS
-----------
For purposes of the Plan, the following terms are defined as set forth
below:
"Affiliate" means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated association or other entity (other
than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company including, without limitation, any member of an affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
"Agreement" or "Option Agreement" means, individually or collectively, any
agreement entered into pursuant to the Plan pursuant to which a Stock Option is
granted to a Participant.
"Board of Directors" or "Board" means the Board of Directors of the
Company.
"Cause" means (a) any act or omission which permits the Company to
terminate its relationship immediately with a Distributor which is the
Participant or in which the Participant has an ownership interest; (b) any act
of gross negligence or willful misconduct on the part of the Participant or the
Distributor in which the Participant has an ownership interest which has, or in
the opinion of the Committee may have, an adverse affect on the Company's
customer accounts or the business of the Company or an Affiliate; or (c) any
failure to cure a breach of the Participant's or the Participant's Distributor's
obligations under its Distributor Agreement within ten (10) days after the
Company or an Affiliate has given written notice of such breach to the
Participant or the Participant's Distributor.
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"Code" or "Internal Revenue Code" means the Internal Revenue Code of 1986,
as amended, final Treasury Regulations thereunder and any subsequent Internal
Revenue Code.
"Commission" means the Securities and Exchange Commission or any successor
agency.
"Committee" means the Compensation Committee of the Board, or such other
committee of the Board appointed by the Board of Directors to administer the
Plan, as further described in the Plan.
"Common Stock" means the shares of the Common Stock, $0.001 par value, of
the Company whether presently or hereafter issued, and any other stock or
security resulting from adjustment thereof as described hereinafter or the
common stock of any successor to the Company which is designated for the purpose
of the Plan.
"Company" means Blue Rhino Corporation, a Delaware corporation, and
includes any successor or assignee corporation or corporations into which the
Company may be merged, changed or consolidated; any corporation for whose
securities the securities of the Company are exchanged; and any assignee of or
successor to substantially all of the assets of the Company.
"Distributor" means a Person, including an officer or director of the
Company, who is permitted to distribute the Company's or an Affiliate's products
and service the Company's or an Affiliate's customers pursuant to a Distribution
Agreement.
"Distribution Agreement" means a written agreement between the Company and
one or more of its Affiliates and a Person authorizing such Person to be
Distributor.
"Effective Date" means ____________, 1998.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Fair Market Value" means the value determined on the basis of the good
faith determination of the Committee, without regard to whether the Common Stock
is restricted or represents a minority interest, pursuant to the applicable
method described below:
(a) if the Common Stock is listed on a national securities exchange
or quoted on the Nasdaq National Market ("NASDAQ"), the closing price of the
Common Stock on the relevant date, as reported by the principal national
exchange on which such shares are traded (in the case of an exchange) or by the
NASDAQ, as the case may be;
(b) if the Common Stock is not listed on a national securities
exchange or quoted on the NASDAQ, but is actively traded in the over-the-counter
market, the average of the
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closing bid and asked prices for the Common Stock on the relevant date, or the
most recent preceding date for which such quotations are reported; and
(c) if, on the relevant date, the Common Stock is not publicly traded
or reported as described in (a) or (b), the value determined in good faith by
the Committee.
"Grant Date" means the date that as of which a Stock Option is granted
pursuant to the Plan.
"Non-Employee Directors" has the meaning set forth in Rule 16b-3, or any
successor definition adopted by the Commission, provided the person is also an
"outside director" under Section 162(m) of the Code.
"Non-Qualified Stock Option" means an Option to purchase Common Stock in
the Company granted under the Plan other than an incentive stock option within
the meaning of Section 422 of the Code.
"Option Period" means the period during which the Option will be
exercisable in accordance with the Option Agreement and Article VI.
"Option Price" means the price at which the Common Stock may be purchased
under an Option as provided in Section 6.3.
"Participant" means a Person who satisfies the eligibility conditions of
Article V and to whom a Stock Option has been granted by the Committee under the
Plan, and if a Representative is appointed for a Participant, then the term
"Participant" means such appointed Representative, successor Representative, or
spouse as the case may be. The term also includes a trust for the benefit of
the Participant, the Participant's parents, spouse or descendants, or a
custodian under a uniform gifts to minors act or similar statute for the benefit
of the Participant's descendants, to the extent permitted by the Committee and
not inconsistent with the Rule 16b-3.
"Person" means an individual, corporation, limited liability company,
partnership, joint venture, trust or other entity.
"Plan" means the Blue Rhino Corporation Distributor Option Plan, as herein
set forth and as may be amended from time to time.
"Representative" means (a) the person or entity acting as the executor or
administrator of a Participant's estate pursuant to the last will and testament
of a Participant or pursuant to the laws of the jurisdiction in which the
Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
beneficiary of the Participant upon
-3-
<PAGE>
or following the Participant's death; or (d) the person or entity acting as the
receiver or trustee on behalf of a Participant which is not a natural person.
"Rule 16b-3" means Rule 16b-3, as promulgated under the Exchange Act, as
amended from time to time, or any successor thereto.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Stock Option" means a Non-Qualified Stock Option granted under this Plan.
"Termination" means the termination of the Distribution Agreement and the
end of the distributorship relationship for whatever reason between the Company
or one or more of its Affiliates and the Participant or the Distributor in which
the Participant has an ownership interest.
ARTICLE III
-----------
ADMINISTRATION
--------------
3.1 Committee Structure and Authority. The Plan will be administered by
the Committee. After the Company has an effective registration statement for any
securities issued by the Company under the Securities Act, the Committee, except
as provided herein, will be comprised of such number of Non-Employee Directors
(and no other persons) as is required for application of Section 162(m) of the
Code and Rule 16b-3. In the absence of appointment of the Committee or a
successor committee of the Board, the entire Board of Directors will constitute
the Committee. A majority of the Committee will constitute a quorum at any
meeting thereof (thereof (including telephone conference) and the acts of a
majority of the members present, or acts approved in writing by a majority of
the entire Committee without a meeting, will be the acts of the Committee for
purposes of this Plan. The Committee may authorize any one or more of its
members or an officer of the Company to execute and deliver documents on behalf
of the Committee. A member of the Committee will not exercise any discretion
respecting himself, herself or any entity in which such member holds an
ownership interest under the Plan. The Board will have the authority to remove,
replace or fill any vacancy of any member of the Committee upon notice to the
Committee and the affected member. Any member of the Committee may resign upon
notice to the Board. The Committee may allocate among one or more of its
members, or may delegate to one or more of its agents, such duties and
responsibilities as it determines.
Among other things, the Committee will have the authority, subject to the
terms of the Plan:
-4-
<PAGE>
(a) to select those Persons to whom Stock Options may be granted from
time to time;
(b) to determine the number of shares of Common Stock to be covered
by each Stock Option granted hereunder; provided, however, that the number of
shares of Common Stock which can be awarded in any calendar year to any
Participant shall not exceed 100,000 shares:
(c) to determine the terms and conditions of any Stock Option granted
hereunder (including, without limitation, the Option Price, the Option Period,
any exercise restriction or limitation and any exercise acceleration, forfeiture
or waiver regarding any Stock Option and the shares of Common Stock relating
thereto); provided, however, that no Stock Option may be exercised earlier than
one (1) year from the Grant Date;
(d) to adjust the terms and conditions, at any time or from time to
time, of any Stock Option, subject to the limitations of Section 8.1;
(e) to determine to what extent and under what circumstances Common
Stock and other amounts payable with respect to the exercise of a Stock Option
will be deferred;
(f) to provide for the forms of Option Agreement to be utilized in
connection with the Plan;
(g) to determine what securities law requirements are applicable to
the Plan, Stock Options, and the issuance of shares of Common Stock and to
require of a Participant that appropriate action be taken with respect to such
requirements;
(h) to cancel, with the consent of the Participant or as otherwise
provided in the Plan or an Option Agreement, outstanding Stock Options;
(i) to require as a condition of the exercise of a Stock Option or
the issuance or transfer of a certificate of Common Stock, the withholding from
a Participant of the amount of any federal, state or local taxes as may be
necessary in order for the Company or any other employer to obtain a deduction
or as may be otherwise required by law;
(j) to determine whether a Termination has occurred and what effect
such Termination has on a Participant;
(k) to determine the restrictions or limitations on the transfer of
Common Stock;
(l) to determine under what circumstances a Stock Option may be
transferred during the Participant's lifetime or existence and to impose
restrictions on such transfers;
-5-
<PAGE>
(m) to determine whether a Stock Option is to be adjusted, modified
or purchased, or is to become fully exercisable, under the Plan or the terms of
an Option Agreement;
(n) to determine the permissible methods of Stock Option exercise and
payment, including cashless exercise arrangements;
(o) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan and to amend or
modify any Option Agreement accordingly; and
(p) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Committee will have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it may,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Stock Option issued under the Plan (and any Option Agreement) and
to otherwise supervise the administration of the Plan. The Committee's policies
and procedures may differ with respect to Stock Options granted at different
times.
Any determination made by the Committee pursuant to the provisions of the
Plan will be made in its sole discretion, and in the case of any determination
relating to a Stock Option, may be made at the time of the grant of the Stock
Option or, unless in contravention of any express term of the Plan or an Option
Agreement, at any time thereafter. All decisions made by the Committee pursuant
to the provisions of the Plan will be final and binding on all persons,
including the Company and Participants. No determination will be subject to de
novo review if challenged in court.
ARTICLE IV
----------
STOCK SUBJECT TO PLAN
---------------------
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
total number of shares of Common Stock reserved and available for distribution
pursuant to Stock Options under the Plan will be 400,000 shares of Common Stock
authorized for issuance on the Effective Date. Such shares may consist, in whole
or in part, of authorized and unissued shares or treasury shares.
5.2 Release of Shares. If any shares of Common Stock that have been
optioned cease to be subject to a Stock Option, if any shares of Common Stock
that are subject to any Stock Option are forfeited or if any Stock Option
otherwise terminates without issuance of shares of
-6-
<PAGE>
Common Stock being made to the Participant, such shares, in the discretion of
the Committee, may again be available for distribution in connection with Stock
Options under the Plan.
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise of
a Stock Option will be subject to the terms and conditions specified herein and
to such other terms, conditions and restrictions as the Committee in its
discretion may determine or provide in the Option Agreement. The Company will
not be required to issue or deliver any certificates for shares of Common Stock,
cash or other property prior to (i) the listing of such shares on any stock
exchange (or other public market) on which the Common Stock may then be listed
(or regularly traded), (ii) the completion of any registration or qualification
of such shares under federal or state law, or any ruling or regulation of any
government body which the Committee determines to be necessary or advisable, and
(iii) the satisfaction of any applicable withholding obligation in order for the
Company or an Affiliate to obtain a deduction with respect to the exercise of a
Stock Option. The Company may cause any certificate for any share of Common
Stock to be delivered to be properly marked with a legend or other notation
reflecting the limitations on transfer of such Common Stock as provided in this
Plan or as the Committee may otherwise require. The Committee may require any
person exercising a Stock Option to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of the shares of Common Stock in compliance with applicable law or
otherwise. Fractional shares will not be delivered, but will be rounded to the
next lower whole number of shares.
5.4 Stockholder Rights. No Person will have any rights of a stockholder
as to shares of Common Stock subject to a Stock Option until, after proper
exercise of the Stock Option or other action required, such shares have been
recorded on the Company's official stockholder records as having been issued or
transferred. Upon exercise of the Stock Option or any portion thereof, the
Company will have thirty (30) days in which to issue the shares, and the
Participant will not be treated as a stockholder for any purpose whatsoever
prior to such issuance. No adjustment will be made for cash dividends or other
rights for which the record date is prior to the date such shares are recorded
as issued or transferred in the Company's official stockholder records, except
as provided herein or in an Option Agreement.
6.5 Registration of Common Stock Under This Plan. The Company will
register under the Securities Act the Common Stock delivered or deliverable
pursuant to Stock Options on such Commission form as may be applicable to such
Common Stock if and when available to the Company for this purpose (or any
successor or alternate form that is substantially similar to that form to the
extent available to effect such registration), in accordance with the rules and
regulations governing such forms, as soon as the Committee, in its sole
discretion, deems such registration appropriate. The Company will use its best
efforts to cause the registration statement to become effective at such time as
the Committee deems appropriate and will file such supplements and amendments to
the registration statement as may be necessary to keep the registration
statement in effect until the earliest of (a) one year following the expiration
of the Option Period of the last Option outstanding, (b) the date the Company is
no longer a reporting
-7-
<PAGE>
company under the Exchange Act and (c) the date all Participants have disposed
of all shares delivered pursuant to any Stock Option.
4.6 Anti-Dilution. In the event of any Company stock dividend, stock
split, combination or exchange of shares, recapitalization or other change in
the capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction or event involving
the Company and having an effect similar to any of the foregoing, then the
Committee will adjust or substitute, as the case may be, the number of shares of
Common Stock available for Stock Options under the Plan, the number of shares of
Common Stock covered by outstanding Stock Options, the exercise price per share
of outstanding Stock Options, and any other characteristics or terms of the
Stock Options as the Committee deems necessary or appropriate to reflect
equitably the effects of such changes to the Participants; provided, however,
that any fractional shares resulting from such adjustment will be eliminated by
rounding to the next lower whole number of shares with appropriate payment for
such fractional share as will reasonably be determined by the Committee.
In the event of a consolidation or merger or sale of all or substantially
all of the assets of the Company in which outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity (the "Acquisition"), or in the event of a liquidation of the
Company, the Board or the board of directors of any corporation assuming the
obligations of the Company may, in its discretion, take any one or more of the
following actions as to outstanding Stock Options: (i) provide that such Stock
Options shall be assumed, or substantially equivalent Stock Options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof) on such terms as the Board determines to be appropriate, (ii) upon
written notice to Participants, provide that all unexercised vested Stock
Options will terminate immediately prior to the consummation of such transaction
unless exercised by the Participant within a specified period following the date
of such notice, (iii) in the event of an Acquisition under the terms of which
holders of the Common Stock of the Company will receive upon consummation
thereof a cash payment for each share surrendered in the Acquisition (the
"Acquisition Price"), make or provide for a cash payment to Participants equal
to the difference between (A) the Acquisition Price times the number of shares
of Common Stock subject to vested outstanding Stock Options (to the extent then
exercisable at prices not in excess of the Acquisition Price) and (B) the
aggregate exercise price of all such outstanding vested Stock Options in
exchange for the termination of such Stock Options, and (iv) provide that all or
any outstanding Stock Options shall become exercisable or realizable in full
prior to the effective date of such Acquisition.
-8-
<PAGE>
ARTICLE V
---------
ELIGIBILITY
-----------
5.1 Eligibility. Except as herein provided, the Persons who will be
eligible to participate in the Plan and be granted Stock Options will those
Persons which are Distributors and their stockholders, partners, members, joint
venturers, officers, employees, consultants or advisors, who are in a position,
in the opinion of the Committee, to make contributions to the growth and success
of the Company and its Affiliates by the acquisition, retention and servicing of
customers of the Company or its Affiliates. Of those Persons described in the
preceding sentence, the Committee may, from time to time, select Persons to be
granted Stock Options and determine the terms and conditions with respect
thereto. In making any such selection and in determining the form of the Stock
Option, the Committee may give consideration to such factors deemed relevant by
the Committee.
ARTICLE VI
----------
GRANT OF STOCK OPTIONS
----------------------
6.1 General. The Committee will have authority to grant Options under the
Plan at any time or from time to time. Stock Options granted under this Plan
shall be Non-Qualified Stock Options. An Option will entitle the Participant to
receive shares of Common Stock upon exercise of such Option, subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Option Agreement (the
terms and provisions of which may differ from other Option Agreements) including
without limitation, payment of the Option Price.
7.2 Grant and Exercise. The grant of a Stock Option will occur as of the
date the Committee determines. Each Option granted under this Plan will be
evidenced by an Option Agreement, in a form approved by the Committee, which
will embody the terms and conditions of such Option and which will be subject to
the express terms and conditions set forth in the Plan. Such Option Agreement
will become effective upon execution by the Participant. No Stock Options shall
be granted under this Plan after the tenth anniversary of the Effective Date of
this Plan.
8.3 Terms and Conditions. Stock Options will be subject to such terms and
conditions as will be determined by the Committee, including the following:
(a) Option Period. The Option Period of each Stock Option will be
fixed by the Committee; provided that no Stock Option will be exercisable
more than 10 years after the Grant Date.
-9-
<PAGE>
(b) Option Price. The Option Price per share of the Common Stock
purchasable under an Option will be not less than the Fair Market Value per
share on the Grant Date.
(c) Exercisability. Stock Options will vest and become exercisable at
the rate of 25% per year beginning on the first anniversary of the Grant
Date and on each subsequent anniversary thereafter until fully vested and
exercisable. The Committee may, in its discretion, accelerate at any time
the exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this Article VI,
a Participant may exercise vested Stock Options, in whole or in part, at
any time during the Option Period by the Participant's giving written
notice of exercise on a form provided by the Committee (if available) to
the Company specifying the number of shares of Common Stock subject to the
Stock Option to be purchased. Such notice will be accompanied by payment in
full of the purchase price by cash or check or such other form of payment
as the Company may accept. If approved by the Committee, payment in full or
in part may also be made (i) by delivering Common Stock already owned by
the Participant having a total Fair Market Value on the date of such
delivery equal to the Option Price; (ii) by authorizing the Company to
retain shares of Common Stock which would otherwise be issuable upon
exercise of the Option having a total Fair Market Value on the date of
delivery equal to the Option Price; (iii) by the delivery of cash by a
broker-dealer to whom the Participant has submitted a notice of exercise
(in accordance with Part 220, Chapter II, Title 12 of the Code of Federal
Regulations, so-called "cashless" exercise); or (iv) by any combination of
the foregoing. No shares of Common Stock will be issued until full payment
therefor has been made.
(e) Transferability of Options. The Committee, in its sole
discretion, may permit Stock Options to be transferred during the
Participant's lifetime or existence, subject to such conditions and
limitations as the Committee deems reasonable and proper, including
transfers pursuant to a domestic relations order which would be a
"qualified domestic relations order" as defined in Section 414(p) of the
Code.
6.4 Exercise Upon Death. Unless otherwise provided in an Option Agreement
or determined by the Committee, if an individual Participant dies, any unexpired
and unexercised Stock Option held by such Participant will thereafter be fully
exercisable for a period of 90 days following the date of the appointment of a
Representative (or such other period or no period as the Committee may specify)
or until the expiration of the Option Period, whichever period is the shorter.
7.5 Other Termination. Unless otherwise provided in an Option Agreement or
determined by the Committee, if there occurs a Termination with respect to a
Participant (but is not due to an event described in the immediately following
sentence), any Stock Option held by such Participant will thereupon terminate,
except that such Stock Option, to the extent then
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<PAGE>
exercisable, may be exercised for the lesser of (a) the 30-day period commencing
with the date of such Termination, or (b) until the expiration of the Option
Period. If there occurs a Termination with respect to a Participant due to Cause
or if the Participant or the Distributor in which the Participant has an
ownership interest becomes bankrupt or insolvent or makes an assignment for the
benefit of creditors, the Option will terminate on the date of the Termination.
The death of a Participant after a Termination otherwise provided herein will
not extend the time permitted to exercise an Option.
6.6 Cashing Out of Option. Unless otherwise provided in the Option
Agreement, on receipt of written notice of exercise, the Committee may elect to
cash out all or part of the portion of any Stock Option to be exercised by
paying the Participant an amount, in cash or Common Stock, equal to the excess
of the Fair Market Value of the Common Stock that is subject to the Option over
the Option Price times the number of shares of Common Stock subject to the
Option on the effective date of such cash out.
ARTICLE VII
-----------
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN
------------------------------------------------------
7.1 Transfer of Shares. Subject to the restriction in any Option Agreement
or any other transfer restriction contained in any agreement between a
Participant and the Company, a Participant may at any time make a transfer of
shares of Common Stock received pursuant to the exercise of a Stock Option. Any
transfer of shares received pursuant to the exercise of a Stock Option will not
be permitted or valid unless and until the transferee agrees to be bound by the
provisions of the Plan, and any provision respecting Common Stock under the
Option Agreement.
8.2 Limited Transfer During Offering. If there is an effective
registration statement under the Securities Act pursuant to which shares of
Common Stock are offered for sale in an underwritten offering, a Participant may
not, during the period requested by the underwriters managing the registered
public offering, effect any public sale or distribution of shares received
directly or indirectly pursuant to an exercise of a Stock Option.
ARTICLE VIII
------------
MISCELLANEOUS
-------------
8.1 Amendments and Termination. The Board may amend, alter, or discontinue
the Plan at any time, but no amendment, alteration or discontinuation may be
made which would (a) impair the rights of a Participant under a Stock Option
theretofore granted without the Participant's consent except such an amendment
made to cause the Plan to qualify for an
-11-
<PAGE>
exemption provided by the Exchange Act or the rules promulgated thereunder. In
addition, no such amendment may be made without the approval of the Company's
stockholders to the extent such approval is required by law or agreement.
The Committee may amend the terms of any Stock Option theretofore granted,
prospectively or retroactively, but no such amendment may impair the rights of
any Participant without the Participant's consent, except such an amendment made
to cause the Plan or Stock Option to qualify for the exemption provided by Rule
16b-3. The Committee may also substitute new Stock Options for previously
granted Stock Options, including previously granted Stock Options having higher
Option Prices but no such substitution may be made which would impair the rights
of the Participant under such Stock Options theretofore granted without the
Participant's consent.
Subject to the above provisions, the Board will have authority to amend the
Plan to take into account changes in law and tax and accounting rules, as well
as other developments, and to grant Stock Options which qualify for beneficial
treatment under such rules without stockholder approval.
8.2 General Provisions.
(a) Representation. The Committee may require each person purchasing
or receiving shares pursuant to a Stock Option to represent to and agree
with the Company in writing that such person is acquiring the shares
without a view to the distribution thereof. The certificates for such
shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.
(b) No Additional Obligation. Nothing in the Plan will prevent the
Company or an Affiliate from adopting other or additional compensation
arrangements for its Distributors or their owners.
(c) Withholding. If the relationship between the Participant and the
Company is such that the exercise of a Stock Option will result in the
requirement that the Company withhold income tax in respect of the
exercise, then no later than the date as of which an amount first becomes
includable in the gross income of the Participant for income tax purposes
with respect to any Stock Option, the Participant will pay to the Company
(or other entity identified by the Committee), or make arrangements
satisfactory to the Company or other entity identified by the Committee
regarding the payment of, any Federal, state, local or foreign taxes of any
kind required by law to be withheld with respect to such Stock Option or
exercise thereof. Unless otherwise determined by the Committee, withholding
obligations may be settled with Common Stock, including Common Stock that
is part of the Stock Option that gives rise to the withholding requirement,
provided that any applicable requirements under Section 16 of the Exchange
Act are satisfied. The obligations of the Company under the Plan, will be
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<PAGE>
conditional on such payment or arrangements, and the Company and its
Affiliates will, to the extent permitted by law, have the right to deduct
any such taxes from any payment otherwise due to the Participant.
(d) Representation. The Committee will establish such procedures as
it deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are to be
paid.
(e) Controlling Law. The Plan and all Stock Options made and actions
taken thereunder will be governed by and construed in accordance with the
laws of the State of Delaware (other than its law respecting choice of law)
except to the extent the General Corporation Law of the State of Delaware
would be mandatorily applicable. The Plan will be construed to comply with
all applicable law and to avoid liability to the Company, an Affiliate or a
Participant, including, without limitation, liability under Section 16(b)
of the Exchange Act.
(f) Offset. Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company from the value
of any shares of Common Stock, cash or other thing of value under this Plan
or an Option Agreement to be transferred to the Participant, and no shares
of Common Stock or other thing of value under this Plan or an Option
Agreement will be transferred unless and until all disputes between the
Company and the Participant have been fully and finally resolved and the
Participant has waived all claims to such against the Company or an
Affiliate.
8.3 Rights with Respect to Continuance of Distribution Agreement. Nothing
in this Plan will be deemed to alter the relationship between the Company or an
Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a Distribution Agreement
regarding such relationship. Nothing in this Plan will be construed to
constitute a contract to appoint or continue to maintain a Distributorship
arrangement or agreement between the Company or an Affiliate and a Participant.
The Company or an Affiliate and each of the Participants continue to have the
right to terminate the Distributorship relationship at any time for any reason,
except as provided in a Distribution Agreement. There will be no inference as to
the length of a Distributorship relationship hereby, and the Company or an
Affiliate reserves the same rights to terminate the Participant or the
Participant's Distributor as provided in the Distribution Agreement.
8.4 Delay. If at the time a Participant incurs a Termination (other than
due to Cause), the Participant is subject to "short-swing" liability under
Section 16 of the Exchange Act, any time period provided for under the Plan or
an Option Agreement to the extent necessary to avoid the imposition of liability
will be suspended and delayed during the period the Participant would be subject
to such liability, but not more than six months and one day and not to exceed
the Option Period as provided in the Option Agreement. The Company will have the
right to
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<PAGE>
suspend or delay any time period described in the Plan or an Option Agreement if
the Committee determines that the action may constitute a violation of any law
or result in liability under any law to the Company, an Affiliate or a
stockholder of the Company until such time as the action required or permitted
will not constitute a violation of law or result in liability to the Company, an
Affiliate or a stockholder of the Company. The Committee will have the
discretion to suspend the application of the provisions of the Plan required
solely to comply with Rule 16b-3 if the Committee determines that Rule 16b-3
does not apply to the Plan.
8.5 Headings. The headings in this Plan are for reference purposes only
and will not affect the meaning or interpretation of this Plan.
8.6 Severability. If any provision of this Plan is for any reason held to
be invalid or unenforceable, such invalidity or unenforceability will not affect
any other provision of this Plan, and this Plan will be construed as if such
invalid or unenforceable provision were omitted.
8.7 Successors and Assigns. This Plan will inure to the benefit of and be
binding upon each successor and assign of the Company. All obligations imposed
upon a Participant, and all rights granted to the Company hereunder, will be
binding upon the Participant's heirs, legal representatives and successors.
8.8 Effectiveness of Plan and Stock Option Grants. This Plan and the Stock
Options granted hereunder are subject to approval of the Plan by the
stockholders of the Company. If the Plan has not been approved within twelve
(12) months of the adoption of the Plan by the Company's Board of Directors by
holders of a majority of the stock entitled to vote at a meeting of such
stockholders or by an action of the stockholders taken in accordance with the
General Corporation Law of the State of Delaware, the Plan and all Stock Options
previously granted thereunder shall be null and void.
Adopted by the Board of Directors on ____________, 1998
Approved by the written consent of the Stockholders of the Company on
____________, 1998
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<PAGE>
Exhibit 10.18
Blue Rhino Corporation
1998 STOCK INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
ESTABLISHMENT........................................................... 1
ARTICLE II
DEFINITIONS............................................................. 1
ARTICLE III
ADMINISTRATION.......................................................... 5
3.1 Committee Structure and Authority................................. 5
ARTICLE IV
STOCK SUBJECT TO PLAN................................................... 7
4.1 Number of Shares.................................................. 7
4.2 Release of Shares................................................. 7
4.4 Stockholder Rights................................................ 8
4.5 Registration of Common Stock Under This Plan...................... 8
ARTICLE V
ELIGIBILITY............................................................. 9
5.1 Eligibility....................................................... 9
ARTICLE VI
GRANT OF STOCK OPTIONS..................................................10
6.1 General...........................................................10
6.2 Grant and Exercise................................................10
6.3 Terms and Conditions..............................................10
6.4 Termination by Reason of Death....................................11
6.5 Termination by Reason of Disability...............................11
6.6 Other Termination.................................................12
6.7 Cashing Out of Option.............................................12
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VII
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN..................12
7.1 Transfer of Shares................................................12
7.2 Limited Transfer During Offering..................................12
ARTICLE VIII
MISCELLANEOUS...........................................................13
8.1 Amendments and Termination........................................13
8.2 General Provisions................................................13
8.3 Rights with Respect to Continuance of Employment..................14
8.4 Stock Options in Substitution for Stock Options Granted by Other
Corporations......................................................15
8.5 Delay.............................................................15
8.6 Headings..........................................................15
8.7 Severability......................................................15
8.8 Successors and Assigns............................................16
</TABLE>
(ii)
<PAGE>
Blue Rhino Corporation
1998 STOCK INCENTIVE PLAN
ARTICLE I
---------
ESTABLISHMENT
-------------
The Blue Rhino Corporation Stock Incentive Plan ("Plan") is hereby
established by Blue Rhino Corporation ("Company"). The purpose of the Plan is
to encourage key employees, officers, consultants and advisors of the Company
and its Affiliates to acquire a proprietary interest in the Company and to
generate an increased incentive to contribute to the Company's future success
and prosperity.
ARTICLE II
----------
DEFINITIONS
-----------
For purposes of the Plan, the following terms are defined as set forth
below:
"Affiliate" means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated association or other entity (other
than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company including, without limitation, any member of an affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
"Agreement" or "Option Agreement" means, individually or collectively, any
agreement entered into pursuant to the Plan pursuant to which a Stock Option is
granted to a Participant.
"Board of Directors" or "Board" means the Board of Directors of the
Company.
"Cause" means, for purposes of whether and when a Participant has incurred
a Termination for Cause, any act or omission which permits the Company to
terminate the written agreement or arrangement between the Participant and the
Company or an Affiliate for Cause as defined in such agreement or arrangement,
or if there is no such agreement or arrangement or the agreement or arrangement
does not define the term "cause", then Cause means, unless otherwise defined in
the Option Agreement with respect to the corresponding Stock Option, (a) any act
or failure to act deemed to constitute cause under the Company's established
practices, policies or guidelines applicable to the Participant or (b) the
Participant's act or act of omission which constitutes gross misconduct with
respect to the Company or an Affiliate in any material respect, including,
without limitation, an act or act of omission of a criminal nature, the result
of which is
<PAGE>
detrimental to the interests of the Company or an Affiliate, or conduct or the
omission of conduct which constitutes a material breach of Participant's duty of
loyalty to the Company or an Affiliate.
"Code" or "Internal Revenue Code" means the Internal Revenue Code of 1986,
as amended, final Treasury Regulations thereunder and any subsequent Internal
Revenue Code.
"Commission" means the Securities and Exchange Commission or any successor
agency.
"Committee" means the Compensation Committee of the Board, or such other
committee of the Board appointed by the Board of Directors to administer the
Plan, as further described in the Plan.
"Common Stock" means the shares of the Common Stock, $0.001 par value, of
the Company whether presently or hereafter issued, and any other stock or
security resulting from adjustment thereof as described hereinafter or the
common stock of any successor to the Company which is designated for the purpose
of the Plan.
"Company" means Blue Rhino Corporation, a Delaware corporation, and
includes any successor or assignee corporation or corporations into which the
Company may be merged, changed or consolidated; any corporation for whose
securities the securities of the Company are exchanged; and any assignee of or
successor to substantially all of the assets of the Company.
"Disability" means a mental or physical illness that entitles the
Participant to receive benefits under the long term disability plan of the
Company or an Affiliate, or if the Participant is not covered by such a plan or
the Participant is not an employee of the Company or an Affiliate, a mental or
physical illness that renders a Participant totally and permanently incapable of
performing the Participant's duties for the Company or an Affiliate.
Notwithstanding the foregoing, a Disability will not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully self-
induced sickness; or (ii) an injury or disease contracted, suffered, or
incurred, while participating in a criminal offense. The determination of
Disability will be made by the Committee. The determination of Disability for
purposes of this Plan will not be construed to be an admission of disability for
any other purpose.
"Effective Date" means ___________, 1998.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Fair Market Value" means the value determined on the basis of the good
faith determination of the Committee, without regard to whether the Common Stock
is restricted or represents a minority interest, pursuant to the applicable
method described below:
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<PAGE>
(a) if the Common Stock is listed on a national securities exchange or
quoted on the Nasdaq National Market ("NASDAQ"), the closing price of the Common
Stock on the relevant date, as reported by the principal national exchange on
which such shares are traded (in the case of an exchange) or by the NASDAQ, as
the case may be;
(b) if the Common Stock is not listed on a national securities
exchange or quoted on the NASDAQ, but is actively traded in the over-the-counter
market, the average of the closing bid and asked prices for the Common Stock on
the relevant date, or the most recent preceding date for which such quotations
are reported; and
(c) if, on the relevant date, the Common Stock is not publicly traded
or reported as described in (a) or (b), the value determined in good faith by
the Committee.
"Grant Date" means the date that as of which a Stock Option is granted
pursuant to the Plan.
"Non-Employee Directors" has the meaning set forth in Rule 16b-3, or any
successor definition adopted by the Commission, provided the person is also an
"outside director" under Section 162(m) of the Code.
"Non-Qualified Stock Option" means an Option to purchase Common Stock in
the Company granted under the Plan other than an incentive stock option within
the meaning of Section 422 of the Code.
"Option Period" means the period during which the Option will be
exercisable in accordance with the Option Agreement and Article VI.
"Option Price" means the price at which the Common Stock may be purchased
under an Option as provided in Section 6.3.
"Participant" means a person who satisfies the eligibility conditions of
Article V and to whom a Stock Option has been granted by the Committee under the
Plan, and if a Representative is appointed for a Participant, then the term
"Participant" means such appointed Representative, successor Representative, or
spouse as the case may be. The term also includes a trust for the benefit of
the Participant, the Participant's parents, spouse or descendants, or a
custodian under a uniform gifts to minors act or similar statute for the benefit
of the Participant's descendants, to the extent permitted by the Committee and
not inconsistent with the Rule 16b-3.
"Plan" means the Blue Rhino Corporation 1998 Stock Incentive Plan, as
herein set forth and as may be amended from time to time.
"Representative" means (a) the person or entity acting as the executor or
administrator of a Participant's estate pursuant to the last will and testament
of a Participant or pursuant to the
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<PAGE>
laws of the jurisdiction in which the Participant had the Participant's primary
residence at the date of the Participant's death; (b) the person or entity
acting as the guardian or temporary guardian of a Participant; or (c) the person
or entity which is the beneficiary of the Participant upon or following the
Participant's death.
"Retirement" means the Participant's Termination after attaining either the
normal retirement age or the early retirement age as defined in the principal
(as determined by the Committee) tax-qualified plan of the Company or an
Affiliate, if the Participant is covered by such plan, and if the Participant is
not covered by such a plan, then age 65, or age 55 with the accrual of 10 years
of service.
"Rule 16b-3" means Rule 16b-3, as promulgated under the Exchange Act, as
amended from time to time, or any successor thereto.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Stock Option" means a Non-Qualified Stock Option granted under this Plan.
"Termination" means the occurrence of any act or event, whether pursuant to
an employment agreement, consulting agreement, advisory agreement or otherwise,
that actually or effectively causes or results in the person's ceasing, for
whatever reason, to be an officer, employee, consultant or advisor of the
Company or of any Affiliate, or to be an officer, employee, consultant or
advisor of any entity that provides services to the Company or an Affiliate,
including, without limitation, death, Disability, dismissal, removal,
resignation, severance at the election of the Participant, Retirement, or
severance as a result of the discontinuance, liquidation, sale or transfer by
the Company or its Affiliates of all businesses owned or operated by the Company
or its Affiliates. With respect to any person who is not an employee of the
Company or an Affiliate, the Option Agreement will establish what act or event
will constitute a Termination for purposes of the Plan. A Termination will occur
for an employee who is employed by an Affiliate if the Affiliate ceases to be an
Affiliate and the Participant does not immediately thereafter become an employee
of the Company or an Affiliate. A Participant who is an employee on the Grant
Date will not be deemed to have incurred a Termination if, within thirty (30)
days after such individual ceases to be an employee, he or she becomes a
consultant or advisor to the Company. Similarly, a Participant who is a
consultant or advisor on the Grant Date shall not be deemed to have incurred a
Termination if, within thirty (30) days after such individual ceases to be a
consultant or advisor, he or she becomes an employee of the Company.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
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ARTICLE III
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ADMINISTRATION
--------------
3.1 Committee Structure and Authority. The Plan will be administered by
the Committee. After the Company has an effective registration statement under
the Securities Act for the Common Stock, the Committee, except as provided
herein, will be comprised of such number of Non-Employee Directors (and no other
persons) as is required for application of Section 162(m) of the Code and Rule
16b-3. In the absence of appointment of the Committee or a successor committee
of the Board, the entire Board of Directors will constitute the Committee. A
majority of the Committee will constitute a quorum at any meeting thereof
(thereof (including telephone conference) and the acts of a majority of the
members present, or acts approved in writing by a majority of the entire
Committee without a meeting, will be the acts of the Committee for purposes of
this Plan. The Committee may authorize any one or more of its members or an
officer of the Company to execute and deliver documents on behalf of the
Committee. A member of the Committee will not exercise any discretion respecting
himself or herself under the Plan. The Board will have the authority to remove,
replace or fill any vacancy of any member of the Committee upon notice to the
Committee and the affected member. Any member of the Committee may resign upon
notice to the Board. The Committee may allocate among one or more of its
members, or may delegate to one or more of its agents, such duties and
responsibilities as it determines.
Among other things, the Committee will have the authority, subject to the
terms of the Plan:
(a) to select those persons to whom Stock Options may be granted from
time to time;
(b) to determine the number of shares of Common Stock to be covered by
each Stock Option granted hereunder; provided, however, that the number of
shares of Common Stock which can be awarded in any calendar year to any
Participant shall not exceed twenty percent (20%) of the number of shares of
Common Stock reserved and available for issuance under this Plan as of the Grant
Date, and further provided that the Committee may limit the aggregate number of
shares granted to consultants and advisors if required in order to make the
registration statement described in Section 4.5 effective or cause the
registration statement to remain effective;
(c) to determine the terms and conditions of any Stock Option granted
hereunder (including, without limitation, the Option Price, the Option Period,
any exercise restriction or limitation and any exercise acceleration, forfeiture
or waiver regarding any Stock Option and the shares of Common Stock relating
thereto); provided, however, that no Stock Option may be exercised earlier than
one (1) year from the Grant Date;
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<PAGE>
(d) to adjust the terms and conditions, at any time or from time to
time, of any Stock Option, subject to the limitations of Section 8.1;
(e) to determine to what extent and under what circumstances Common
Stock and other amounts payable with respect to the exercise of a Stock Option
will be deferred;
(f) to provide for the forms of Option Agreement to be utilized in
connection with the Plan;
(g) to determine whether a Participant has a Disability or a
Retirement;
(h) to determine what securities law requirements are applicable to
the Plan, Stock Options, and the issuance of shares of Common Stock and to
require of a Participant that appropriate action be taken with respect to such
requirements;
(i) to cancel, with the consent of the Participant or as otherwise
provided in the Plan or an Option Agreement, outstanding Stock Options;
(j) to require as a condition of the exercise of a Stock Option or
the issuance or transfer of a certificate of Common Stock, the withholding from
a Participant of the amount of any federal, state or local taxes as may be
necessary in order for the Company or any other employer to obtain a deduction
or as may be otherwise required by law;
(k) to determine whether and with what effect a Participant has
incurred a Termination;
(l) to determine the restrictions or limitations on the transfer of
Common Stock;
(m) to determine under what circumstances a Stock Option may be
transferred during the Participant's lifetime and to impose restrictions on such
transfers;
(n) to determine whether a Stock Option is to be adjusted, modified
or purchased, or is to become fully exercisable, under the Plan or the terms of
an Option Agreement;
(o) to determine the permissible methods of Stock Option exercise and
payment, including cashless exercise arrangements;
(p) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan and to amend or
modify any Option Agreement accordingly; and
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<PAGE>
(q) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Committee will have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it may,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Stock Option issued under the Plan (and any Option Agreement) and
to otherwise supervise the administration of the Plan. The Committee's policies
and procedures may differ with respect to Stock Options granted at different
times.
Any determination made by the Committee pursuant to the provisions of the
Plan will be made in its sole discretion, and in the case of any determination
relating to a Stock Option, may be made at the time of the grant of the Stock
Option or, unless in contravention of any express term of the Plan or an Option
Agreement, at any time thereafter. All decisions made by the Committee pursuant
to the provisions of the Plan will be final and binding on all persons,
including the Company and Participants. No determination will be subject to de
novo review if challenged in court.
ARTICLE IV
----------
STOCK SUBJECT TO PLAN
---------------------
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
total number of shares of Common Stock reserved and available for distribution
pursuant to Stock Options under the Plan will be 300,000 shares of Common Stock
authorized for issuance on the Effective Date. Such shares may consist, in
whole or in part, of authorized and unissued shares or treasury shares.
4.2 Release of Shares. If any shares of Common Stock that have been
optioned cease to be subject to a Stock Option, if any shares of Common Stock
that are subject to any Stock Option are forfeited or if any Stock Option
otherwise terminates without issuance of shares of Common Stock being made to
the Participant, such shares, in the discretion of the Committee, may again be
available for distribution in connection with Stock Options under the Plan.
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise
of a Stock Option will be subject to the terms and conditions specified herein
and to such other terms, conditions and restrictions as the Committee in its
discretion may determine or provide in the Option Agreement. The Company will
not be required to issue or deliver any certificates for shares of Common Stock,
cash or other property prior to (i) the listing of such shares on any stock
exchange (or other public market) on which the Common Stock may then be listed
(or regularly traded), (ii) the completion of any registration or qualification
of such shares under federal or state law, or any ruling or regulation of any
government body which the Committee
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<PAGE>
determines to be necessary or advisable, and (iii) the satisfaction of any
applicable withholding obligation in order for the Company or an Affiliate to
obtain a deduction with respect to the exercise of a Stock Option. The Company
may cause any certificate for any share of Common Stock to be delivered to be
properly marked with a legend or other notation reflecting the limitations on
transfer of such Common Stock as provided in this Plan or as the Committee may
otherwise require. The Committee may require any person exercising a Stock
Option to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of the shares
of Common Stock in compliance with applicable law or otherwise. Fractional
shares will not be delivered, but will be rounded to the next lower whole number
of shares.
4.4 Stockholder Rights. No person will have any rights of a stockholder
as to shares of Common Stock subject to a Stock Option until, after proper
exercise of the Stock Option or other action required, such shares have been
recorded on the Company's official stockholder records as having been issued or
transferred. Upon exercise of the Stock Option or any portion thereof, the
Company will have thirty (30) days in which to issue the shares, and the
Participant will not be treated as a stockholder for any purpose whatsoever
prior to such issuance. No adjustment will be made for cash dividends or other
rights for which the record date is prior to the date such shares are recorded
as issued or transferred in the Company's official stockholder records, except
as provided herein or in an Option Agreement.
4.5 Registration of Common Stock Under This Plan. The Company will
register under the Securities Act the Common Stock delivered or deliverable
pursuant to Stock Options on Commission Form S-8 if and when available to the
Company for this purpose (or any successor or alternate form that is
substantially similar to that form to the extent available to effect such
registration), in accordance with the rules and regulations, and any amendments
to such rules and regulations, governing such forms, as soon as the Committee,
in its sole discretion, deems such registration appropriate. The Company will
use its best efforts to cause the registration statement to become effective and
will file such supplements and amendments to the registration statement as may
be necessary to keep the registration statement in effect until the earliest of
(a) one year following the expiration of the Option Period of the last Option
outstanding, (b) the date the Company is no longer a reporting company under the
Exchange Act and (c) the date all Participants have disposed of all shares
delivered pursuant to any Stock Option.
4.6 Anti-Dilution. In the event of any Company stock dividend, stock
split, combination or exchange of shares, recapitalization or other change in
the capital structure of the Company, corporate separation or division of the
Company (including, but not limited to, a split-up, spin-off, split-off or
distribution to Company stockholders other than a normal cash dividend), sale by
the Company of all or a substantial portion of its assets (measured on either a
stand-alone or consolidated basis), reorganization, rights offering, a partial
or complete liquidation, or any other corporate transaction or event involving
the Company and having an effect similar to any of the foregoing, then the
Committee will adjust or substitute, as the case
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<PAGE>
may be, the number of shares of Common Stock available for Stock Options under
the Plan, the number of shares of Common Stock covered by outstanding Stock
Options, the exercise price per share of outstanding Stock Options, and any
other characteristics or terms of the Stock Options as the Committee deems
necessary or appropriate to reflect equitably the effects of such changes to the
Participants; provided, however, that any fractional shares resulting from such
adjustment will be eliminated by rounding to the next lower whole number of
shares with appropriate payment for such fractional share as will reasonably be
determined by the Committee.
In the event of a consolidation or merger or sale of all or substantially
all of the assets of the Company in which outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity (the "Acquisition"), or in the event of a liquidation of the
Company, the Board or the board of directors of any corporation assuming the
obligations of the Company may, in its discretion, take any one or more of the
following actions as to outstanding Stock Options: (i) provide that such Stock
Options shall be assumed, or substantially equivalent Stock Options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof) on such terms as the Board determines to be appropriate, (ii) upon
written notice to Participants, provide that all unexercised vested Stock
Options will terminate immediately prior to the consummation of such transaction
unless exercised by the Participant within a specified period following the date
of such notice, (iii) in the event of an Acquisition under the terms of which
holders of the Common Stock of the Company will receive upon consummation
thereof a cash payment for each share surrendered in the Acquisition (the
"Acquisition Price"), make or provide for a cash payment to Participants equal
to the difference between (A) the Acquisition Price times the number of shares
of Common Stock subject to outstanding Stock Options (to the extent then
exercisable at prices not in excess of the Acquisition Price) and (B) the
aggregate exercise price of all such outstanding Stock Options in exchange for
the termination of such Stock Options, and (iv) provide that all or any
outstanding Stock Options shall become exercisable or realizable in full prior
to the effective date of such Acquisition.
ARTICLE V
---------
ELIGIBILITY
-----------
5.1 Eligibility. Except as herein provided, the persons who will be
eligible to participate in the Plan and be granted Stock Options will be those
persons who are officers, employees, consultants or advisors of the Company or
any Affiliate, who are in a position, in the opinion of the Committee, to make
contributions to the growth, management, protection and success of the Company
and its Affiliates. Distributors of the Company and directors of the Company
and its affiliates who are not employees of the Company or its affiliates are
not eligible to participate in this Plan. Notwithstanding the foregoing, a
consultant or advisor shall not be eligible to receive a grant of Stock Options
under this Plan with respect to providing services directly or indirectly which
promote or maintain a market for the Company's or any Affiliate's
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<PAGE>
securities. Of those persons described in the preceding sentence, the Committee
may, from time to time, select persons to be granted Stock Options and determine
the terms and conditions with respect thereto. In making any such selection and
in determining the form of the Stock Option, the Committee may give
consideration to the functions and responsibilities of the person's
contributions to the Company and its Affiliates, the value of the individual's
service to the Company and its Affiliates and such other factors deemed relevant
by the Committee. The Committee may designate in writing any person who is not
eligible to participate in the Plan if such person would otherwise be eligible
to participate in the Plan.
ARTICLE VI
----------
GRANT OF STOCK OPTIONS
----------------------
6.1 General. The Committee will have authority to grant Options under
the Plan at any time or from time to time. Stock Options granted under this
Plan shall be Non-Qualified Stock Options. An Option will entitle the
Participant to receive shares of Common Stock upon exercise of such Option,
subject to the Participant's satisfaction in full of any conditions,
restrictions or limitations imposed in accordance with the Plan or an Option
Agreement (the terms and provisions of which may differ from other Option
Agreements) including without limitation, payment of the Option Price.
6.2 Grant and Exercise. The grant of a Stock Option will occur as of the
date the Committee determines. Each Option granted under this Plan will be
evidenced by an Option Agreement, in a form approved by the Committee, which
will embody the terms and conditions of such Option and which will be subject to
the express terms and conditions set forth in the Plan. Such Option Agreement
will become effective upon execution by the Participant. No Stock Options shall
be granted under this Plan after the tenth anniversary of the Effective Date of
this Plan.
6.3 Terms and Conditions. Stock Options will be subject to such terms
and conditions as will be determined by the Committee, including the following:
(a) Option Period. The Option Period of each Stock Option will be
fixed by the Committee; provided that no Stock Option will be exercisable
more than 10 years after the Grant Date.
(b) Option Price. The Option Price per share of the Common Stock
purchasable under an Option will not be less than the Fair Market Value per
share on the Grant Date.
(c) Exercisability. Stock Options will vest and be exercisable at
such time or times and subject to such terms and conditions as will be
determined by the Committee.
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If the Committee provides that any Stock Option is exercisable only in
installments, the Committee may at any time waive such installment exercise
provisions, in whole or in part. In addition, the Committee may at any time
accelerate the exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this Article VI,
a Participant may exercise vested Stock Options, in whole or in part, at
any time during the Option Period by the Participant's giving written
notice of exercise on a form provided by the Committee (if available) to
the Company specifying the number of shares of Common Stock subject to the
Stock Option to be purchased. Such notice will be accompanied by payment
in full of the purchase price by cash or check or such other form of
payment as the Company may accept. If approved by the Committee, payment
in full or in part may also be made (i) by delivering Common Stock already
owned by the Participant having a total Fair Market Value on the date of
such delivery equal to the Option Price; (ii) by authorizing the Company to
retain shares of Common Stock which would otherwise be issuable upon
exercise of the Option having a total Fair Market Value on the date of
delivery equal to the Option Price; (iii) by the delivery of cash by a
broker-dealer to whom the Participant has submitted a notice of exercise
(in accordance with Part 220, Chapter II, Title 12 of the Code of Federal
Regulations, so-called "cashless" exercise); or (iv) by any combination of
the foregoing. No shares of Common Stock will be issued until full payment
therefor has been made.
(e) Transferability of Options. The Committee, in its sole
discretion, may permit Stock Options to be transferred during the
Participant's lifetime, subject to such conditions and limitations as the
Committee deems reasonable and proper, including transfers pursuant to a
domestic relations order which would be a "qualified domestic relations
order" as defined in Section 414(p) of the Code.
6.4 Termination by Reason of Death. Unless otherwise provided in an
Option Agreement or determined by the Committee, if a Participant incurs a
Termination due to death, any unexpired and unexercised Stock Option held by
such Participant will thereafter be fully exercisable for a period of 90 days
following the date of the appointment of a Representative (or such other period
or no period as the Committee may specify) or until the expiration of the Option
Period, whichever period is the shorter.
6.5 Termination by Reason of Disability. Unless otherwise provided in an
Option Agreement or determined by the Committee, if a Participant incurs a
Termination due to a Disability, any unexpired and unexercised Stock Option held
by such Participant will thereafter be fully exercisable by the Participant for
the period of ninety (90) days (or such other period or no period as the
Committee may specify) immediately following the date of such Termination or
until the expiration of the Option Period, whichever period is shorter, and the
Participant's death at any time following such Termination due to Disability
will not affect the foregoing.
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6.6 Other Termination. Unless otherwise provided in an Option Agreement
or determined by the Committee, if a Participant incurs a Termination due to
Retirement, or the Termination is involuntary on the part of the Participant
(but is not due to death or Disability or with Cause), any Stock Option held by
such Participant will thereupon terminate, except that such Stock Option, to the
extent then exercisable, may be exercised for the lesser of (a) the 90-day
period commencing with the date of such Termination, or (b) until the expiration
of the Option Period. If the Participant incurs a Termination which is either
(a) voluntary on the part of the Participant (and is not due to Retirement) or
(b) with Cause, the Option will terminate immediately. The death or Disability
of a Participant after a Termination otherwise provided herein will not extend
the time permitted to exercise an Option.
6.7 Cashing Out of Option. Unless otherwise provided in the Option
Agreement, on receipt of written notice of exercise, the Committee may elect to
cash out all or part of the portion of any Stock Option to be exercised by
paying the Participant an amount, in cash or Common Stock, equal to the excess
of the Fair Market Value of the Common Stock that is subject to the Option over
the Option Price times the number of shares of Common Stock subject to the
Option on the effective date of such cash out.
ARTICLE VII
-----------
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN
------------------------------------------------------
7.1 Transfer of Shares. Subject to the restriction in any Option
Agreement or any other transfer restriction contained in any agreement between a
Participant and the Company, a Participant may at any time make a transfer of
shares of Common Stock received pursuant to the exercise of a Stock Option. Any
transfer of shares received pursuant to the exercise of a Stock Option will not
be permitted or valid unless and until the transferee agrees to be bound by the
provisions of the Plan, and any provision respecting Common Stock under the
Option Agreement.
7.2 Limited Transfer During Offering. If there is an effective
registration statement under the Securities Act pursuant to which shares of
Common Stock are offered for sale in an underwritten offering, a Participant may
not, during the period requested by the underwriters managing the registered
public offering, effect any public sale or distribution of shares received
directly or indirectly pursuant to an exercise of a Stock Option.
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ARTICLE VIII
------------
MISCELLANEOUS
-------------
8.1 Amendments and Termination. The Board may amend, alter, or
discontinue the Plan at any time, but no amendment, alteration or
discontinuation may be made which would impair the rights of a Participant under
a Stock Option theretofore granted without the Participant's consent except such
an amendment made to cause the Plan to qualify for an exemption provided by the
Exchange Act, registration provisions of the Securities Act, or the rules
promulgated thereunder. In addition, no such amendment may be made without the
approval of the Company's stockholders to the extent such approval is required
by law or agreement.
The Committee may amend the terms of any Stock Option theretofore granted,
prospectively or retroactively, but no such amendment may impair the rights of
any Participant without the Participant's consent, except such an amendment made
to cause the Plan or Stock Option to qualify for the exemption provided by Rule
16b-3. The Committee may also substitute new Stock Options for previously
granted Stock Options, including previously granted Stock Options having higher
Option Prices but no such substitution may be made which would impair the rights
of the Participant under such Stock Options theretofore granted without the
Participant's consent.
Subject to the above provisions, the Board will have authority to amend the
Plan to take into account changes in law and tax, accounting and securities
rules, as well as other developments, and to grant Stock Options which qualify
for beneficial treatment under such rules without stockholder approval.
8.2 General Provisions.
(a) Representation. The Committee may require each person purchasing
or receiving shares pursuant to a Stock Option to represent to and agree
with the Company in writing that such person is acquiring the shares
without a view to the distribution thereof. The certificates for such
shares may include any legend which the Committee deems appropriate to
reflect any restrictions on transfer.
(b) No Additional Obligation. Nothing in the Plan will prevent the
Company or an Affiliate from adopting other or additional compensation
arrangements for its employees.
(c) Withholding. No later than the date as of which an amount first
becomes includable in the gross income of the Participant for income tax
purposes with respect to any Stock Option, the Participant will pay to the
Company (or other entity identified by the Committee), or make arrangements
satisfactory to the Company or other entity
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<PAGE>
identified by the Committee regarding the payment of, any Federal, state,
local or foreign taxes of any kind required by law to be withheld with
respect to such Stock Option or exercise thereof. Unless otherwise
determined by the Committee, withholding obligations may be settled with
Common Stock, including Common Stock that is part of the Stock Option that
gives rise to the withholding requirement, provided that any applicable
requirements under Section 16 of the Exchange Act are satisfied. The
obligations of the Company under the Plan, will be conditional on such
payment or arrangements, and the Company and its Affiliates will, to the
extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the Participant.
(d) Representation. The Committee will establish such procedures as
it deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are to be
paid.
(e) Controlling Law. The Plan and all Stock Options made and actions
taken thereunder will be governed by and construed in accordance with the
laws of the State of Delaware (other than its law respecting choice of law)
except to the extent the General Corporation Law of the State of Delaware
would be mandatorily applicable. The Plan will be construed to comply with
all applicable law and to avoid liability to the Company, an Affiliate or a
Participant, including, without limitation, liability under Section 16(b)
of the Exchange Act.
(f) Offset. Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company from the value
of any shares of Common Stock, cash or other thing of value under this Plan
or an Option Agreement to be transferred to the Participant, and no shares
of Common Stock or other thing of value under this Plan or an Option
Agreement will be transferred unless and until all disputes between the
Company and the Participant have been fully and finally resolved and the
Participant has waived all claims to such against the Company or an
Affiliate.
8.3 Rights with Respect to Continuance of Employment. Nothing in this
Plan will be deemed to alter the relationship between the Company or an
Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing in this Plan will be construed to
constitute a contract of employment or engagement between the Company or an
Affiliate and a Participant. The Company or an Affiliate and each of the
Participants continue to have the right to terminate the employment or service
relationship at any time for any reason, except as provided in a written
contract. The Company or an Affiliate will have no obligation to retain the
Participant in its employ or service as a result of this Plan. There will be no
inference as to the length of employment or service hereby, and the Company or
an Affiliate reserves the same rights to
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<PAGE>
terminate the Participant's employment or service engagement as it existed prior
to the individual becoming a Participant in this Plan.
8.4 Stock Options in Substitution for Stock Options Granted by Other
Corporations. Stock Options may be granted under the Plan from time to time
in substitution for Stock Options held by employees, or service providers of
other corporations who are about to become officers, employees, consultants or
advisors of the Company or an Affiliate as the result of a merger or
consolidation of the employing corporation with the Company or an Affiliate, or
the acquisition by the Company or an Affiliate of the assets of the employing
corporation, or the acquisition by the Company or Affiliate of the stock of the
employing corporation, as the result of which it becomes an Affiliate. The
terms and conditions of the Stock Options so granted may vary from the terms and
conditions set forth in this Plan at the time of such grant as the majority of
the members of the Committee may deem appropriate to conform, in whole or in
part, to the provisions of the Stock Options in substitution for which they are
granted.
8.5 Delay. If at the time a Participant incurs a Termination (other than
due to Cause) or if at the time of a Change in Control, the Participant is
subject to "short-swing" liability under Section 16 of the Exchange Act, any
time period provided for under the Plan or an Option Agreement to the extent
necessary to avoid the imposition of liability will be suspended and delayed
during the period the Participant would be subject to such liability, but not
more than six months and one day and not to exceed the Option Period as provided
in the Option Agreement. The Company will have the right to suspend or delay
any time period described in the Plan or an Option Agreement if the Committee
determines that the action may constitute a violation of any law or result in
liability under any law to the Company, an Affiliate or a stockholder of the
Company until such time as the action required or permitted will not constitute
a violation of law or result in liability to the Company, an Affiliate or a
stockholder of the Company. The Committee will have the discretion to suspend
the application of the provisions of the Plan required solely to comply with
Rule 16b-3 if the Committee determines that Rule 16b-3 does not apply to the
Plan.
8.6 Headings. The headings in this Plan are for reference purposes only
and will not affect the meaning or interpretation of this Plan.
8.7 Severability. If any provision of this Plan is for any reason held to
be invalid or unenforceable, such invalidity or unenforceability will not affect
any other provision of this Plan, and this Plan will be construed as if such
invalid or unenforceable provision were omitted.
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<PAGE>
8.8 Successors and Assigns. This Plan will inure to the benefit of and be
binding upon each successor and assign of the Company. All obligations imposed
upon a Participant, and all rights granted to the Company hereunder, will be
binding upon the Participant's heirs, legal representatives and successors.
Adopted by the Board of Directors on ___________, 1998.
Approved by the written consent of the Shareholders of the Company on
____________, 1998.
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<PAGE>
PLATINUM
SERVICE CORPORATION
REAL ESTATE LEASE
This Lease Agreement (this "Lease") is made effective as of January 1, 1996, by
and between PLATINUM SERVICE CORP. ("Landlord"), and BLUE RHINO CORPORATION
("Tenant"). The parties agree as follows:
PREMISES. Landlord, in consideration of the lease payments provided in this
Lease, leases to Tenant 6,060 SQUARE FEET OF OFFICE SPACE (the "Premises")
located at 104 CAMBRIDGE PLAZA DRIVE, WINSTON-SALEM, NC 27104.
TERM. The lease term will begin on January 1, 1996 and will terminate on
December 31, 1998.
RENEWAL TERMS. This Lease shall automatically renew for an additional period of
three(3) years per renewal term on the same terms as this Lease, unless either
party gives written notice of the termination no later than ninety (90) days
prior to the end of the term or renewal term.
HOLDOVER. If Tenant maintains possession of the Premises for any period after
the termination of this Lease ("Holdover Period"), Tenant shall pay to Landlord
a lease payment for the Holdover Period based on the terms of the following
Lease Payments paragraph. Such holdover shall constitute a month to month
extension of this Lease.
LEASE PAYMENTS. Tenant shall pay to Landlord a total annual lease payment of
$72,720.00, payable in advance, in installments of $6,060.00 per month on the
first day of each month. Lease payments shall be made to the Landlord at 108
Cambridge Plaza Drive, Winston-Salem, NC 27104, as may be changed from time to
time by Landlord.
LATE PAYMENTS. Tenant shall pay a late charge equal to 1.50% of the required
installment payment for each payment that is not paid within 15 day(s) after the
due date for such late payment.
POSSESSION. Tenant shall be entitled to possession on the first day of the term
of this Lease, and shall yield possession to Landlord on the last day of the
term of this Lease, unless otherwise agreed by both parties in writing.
MAINTENANCE. Tenant shall have the responsibility to maintain the Premises in
good repair at all times.
ACCESS BY LANDLORD TO PREMISES. Subject to Tenant's consent (which shall not be
unreasonably withheld), Landlord shall have the right to enter the Premises to
make inspections, provide necessary services, or show the unit to prospective
buyers, mortgagees, tenants or workers. As provided by law, in the case of an
emergency, Landlord may enter the Premises without Tenant's consent.
UTILITIES AND SERVICES. Tenant shall be responsible for all utilities and
services in connection with the Premises.
PROPERTY INSURANCE. Landlord and Tenant shall each be responsible to maintain
appropriate insurance for their respective interests in the Premises and
property located on the Premises.
LIABILITY INSURANCE. Tenant shall maintain liability insurance in total
aggregate sum of at least $1,000,000.00. Tenant shall deliver appropriate
evidence to Landlord as proof that adequate insurance is in force. Landlord
shall
<PAGE>
have the right to require that the Landlord receive notice of any termination of
such insurance policies.
INDEMNITY REGARDING USE OF PREMISES. Tenant agrees to indemnify, hold harmless,
and defend Landlord from and against any and all losses, claims, liabilities,
and expenses, including reasonable attorney fees, if any, which Landlord may
suffer or incur in connection with Tenant's use of the Premises.
DANGEROUS MATERIALS. Tenant shall not keep or have on the Premises any article
or thing of a dangerous, inflammable, or explosive character that might
substantially increase the danger of fire on the Premises, or that might be
considered hazardous by a responsible insurance company, unless the prior
written consent of Landlord is obtained and proof of adequate insurance
protection is provided by Tenant to Landlord.
TAXES. Taxes attributable to the Premises or the use of the Premises shall be
allocated as follows:
Real Estate Taxes - Tenant shall pay all real estate taxes and assessments
for the Premises.
Personal Taxes - Tenant shall pay all personal taxes and any other charges
which may be levied against the Premises and which are attributable to
Tenant's use of the Premises.
DESTRUCTION OR CONDEMNATION OF PREMISES. If the Premises are partially
destroyed in a manner that prevents the conducting of Tenant's use of the
Premises in a normal manner, and if the damage is reasonably repairable within
sixty days after the occurrence of the destruction, and if the cost of repair is
less than $200,000.00. Landlord shall repair the Premises and lease payments
shall abate during the period of the repair. However, if the damage is not
repairable within sixty days, or if the cost of repair is $200,000.00 or more,
or if Landlord is prevented from repairing the damage by forces beyond
Landlord's control, if the property is condemned, this Lease shall terminate
upon twenty days written notice of such event or condition by either party.
MECHANICS LIENS. Neither the Tenant nor anyone claiming through the Tenant shall
have the right to file mechanics liens or any other kind of lien on the Premises
and the filing of this Lease constitutes notice that such liens are invalid.
Further, Tenant agrees to give actual advance notice to any contractors,
subcontractors or suppliers of goods, labor, or services that such liens will
not be valid.
DEFAULTS. Tenant shall be in default of this Lease, if Tenant fails to fulfill
any lease obligation or term by which Tenant is bound. Subject to any governing
provisions of law to the contrary, if Tenant fails to cure any financial
obligation within five day(s) (or any other obligation within twenty day(s))
after written notice of such default is provided by Landlord to Tenant, Landlord
may take possession of the Premises without further notice, and without
prejudicing Landlord's rights to damages. In the alternative, Landlord may elect
to cure any default and the cost of such action shall be added to Tenant's
financial obligations under this Lease. Tenant shall pay all costs, damages, and
expenses suffered by Landlord by reason of Tenants' defaults.
ASSIGNABILITY/SUBLETTING. Tenant may not assign or sublease any interest in the
Premises without the prior written consent of Landlord, which shall not be
unreasonably withheld.
TERMINATION UPON SALE OF PREMISES. Notwithstanding any other provision of this
Lease, Landlord may terminate this lease upon ninety day(s) written notice to
Tenant that the Premises have been sold.
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<PAGE>
NOTICE. Notices under this Lease shall not be deemed valid unless given or
served in writing and forwarded by mail, postage prepaid, addressed as follows:
LANDLORD:
PLATINUM SERVICE CORP.
108 CAMBRIDGE PLAZA DRIVE
WINSTON-SALEM, NC 27104
TENANT:
BLUE RHINO CORPORATION
104 CAMBRIDGE PLAZA DRIVE
WINSTON-SALEM, NC 27104
Such address may be changed from time to time by either party by providing
notice as set forth above.
ENTIRE AGREEMENT/AMENDMENT. This Lease Agreement contains the entire agreement
of the parties and there are no other promises or conditions in any other
agreement whether oral or written. This Lease may be modified or amended in
writing, if the writing is signed by the party obligated under the amendment.
SEVERABILITY. If any portion of this Lease shall be held to be invalid or
unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds that any provision of this Lease is
invalid or unenforceable, but that by limiting such provision, it would become
valid and enforceable, then such provision shall be deemed to be written,
construed, and enforced as so limited.
WAIVER. The failure of either party to enforce any provisions of this Lease
shall not be construed as a waiver or limitation of that party's right to
subsequently enforce and compel strict compliance with every provision of this
Lease.
CUMULATIVE RIGHTS. The rights of the parties under this Lease are cumulative,
and shall not be construed as exclusive unless otherwise required by law.
GOVERNING LAW. This Lease shall be construed in accordance with the laws of the
state of North Carolina.
SUBORDINATION OF LEASE. This Lease is subordinate to any mortgage that now
exists, or may be given later by Landlord, with respect to the Premises.
<PAGE>
LANDLORD:
PLATINUM SERVICE CORP.
/s/ S.H. Fogleman, III, V.P.
-------------------------------------------
PLATINUM SERVICE CORP.
TENANT:
BLUE RHINO CORPORATION
/s/ Lawrence Brumfield 5/9/96
-------------------------------------------
BLUE RHINO CORPORATION
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<PAGE>
This Summary is not an official part of your document. It contains highlights
of the important information that has been entered into the document.
SUMMARY
of the
COMMERCIAL REAL ESTATE LEASE
DATE SIGNED:_______________________________
LANDLORD
PLATINUM SERVICE CORP.
TENANT
BLUE RHINO CORPORATION
ADDRESS OF PREMISES
104 CAMBRIDGE PLAZA DRIVE
______________________________________
WINSTON-SALEM
NC
27104
DATE LEASE WILL BEGIN
January 1, 1996
DATE LEASE WILL TERMINATE
December 31, 1998
MAINTENANCE section included.
UTILITIES section included.
INDEMNIFICATION section included.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF
BLUE RHINO CORPORATION
Subsidiary State of Incorporation
- ---------- ----------------------
Rhino Services, L.L.C. Delaware
CPD Associates, Inc. North Carolina
<PAGE>
EXHIBIT 23.1
Consent of Pedersen & Houpt, P.C.
Pedersen & Houpt, P.C. hereby consents to all references made to it in
Amendment No. 1 to the Registration Statement on Form S-1 (Registration No.
333-47669) of Blue Rhino Corporation, as filed with the Securities and Exchange
Commission on April , 1998.
/s/ Pedersen & Houpt, P.C.
--------------------------
Pedersen & Houpt, P.C.
Pedersen & Houpt, P.C.
Chicago, Illinois
April , 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Blue Rhino Corporation
We consent to the inclusion in this pre-effective Amendment No. 1 to the
registration statement of Form S-1 (Registration No. 333-47669) of Blue Rhino
Corporation of our reports dated September 5, 1997, except for Note 7, for which
the date is December 18, 1997, on our audits of the consolidated financial
statements of Blue Rhino Corporation. We also consent to the reference of our
firm under the captions "Experts" and "Selected Consolidated Financial Data."
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Greensboro, North Carolina
April 22, 1998
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the reference in Amendment No. 1 to the Registration
Statement of Blue Rhino Corporation on Form S-1 (Registration No. 333-47669) of
our audit of the financial statements of Blue Rhino Corporation as of July 31,
1994, and for the initial period beginning July 1, 1994 and ending July 31,
1994, and to our review of the financial statements of American Cylinder
Exchange, Inc. (the "Predecessor Company") for the fiscal years ended June 30,
1993 and June 30, 1994, in the section "Selected Consolidated Financial Data"
and to the reference to us under the heading "Experts" in the Prospectus, which
is a part of this Registration statement.
/s/ The Daniel Professional Group, Inc.
- ---------------------------------------
The Daniel Professional Group, Inc.
April 22, 1998
Winston-Salem, North Carolina
