<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted
[X] Definitive Proxy Statement by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
BLUE RHINO CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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<PAGE>
[Blue Rhino Logo]
BLUE RHINO CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 21, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 annual meeting of stockholders
(the "Annual Meeting") of Blue Rhino Corporation (the "Company") which will be
held on Tuesday, December 21, 1999 at the Village Conference Center, 6205
Ramada Drive, Clemmons, North Carolina, at 10:30 a.m.
At the Annual Meeting, we will report on matters of current interest and
ask stockholders to:
1. Elect three Class B Directors to hold office until the annual meeting of
stockholders for the fiscal year ending July 31, 2002,
2. Authorize the amendment of the Company's Second Amended and Restated
Certificate of Incorporation to reduce the Company's authorized capital
stock from 120,000,000 shares to 45,000,000 shares,
3. Approve the issuance of common stock issuable upon conversion of
convertible notes and common stock issuable upon exercise of related
warrants,
4. Ratify the adoption of the Blue Rhino Corporation Employee Stock
Purchase Plan,
5. Ratify the appointment of Ernst & Young LLP as the Company's independent
public accountants for the fiscal year ending July 31, 2000 and
6. Transact any other business that may properly come before the Annual
Meeting or any adjournment or postponement of the meeting.
Only stockholders of record at the close of business on the record date of
November 5, 1999 are entitled to vote their shares at the Annual Meeting. A
list of stockholders entitled to vote will be available for inspection during
regular business hours at the executive offices of the Company at 104
Cambridge Plaza Drive, Winston-Salem, North Carolina 27104 for ten days prior
to the Annual Meeting.
A proxy card is enclosed for the convenience of those stockholders who do
not plan to attend the Annual Meeting in person but desire to have their
shares voted. If you do not plan to attend the Annual Meeting, please complete
and return the proxy card in the envelope provided for that purpose. If you
return your card and later decide to attend the Annual Meeting in person or
for any other reason desire to revoke your proxy, you may do so at any time
before your proxy is voted.
For the Board of Directors
Billy D. Prim
Chairman of the Board, President
and Chief Executive Officer
Winston-Salem, North Carolina
November 24, 1999
<PAGE>
BLUE RHINO CORPORATION
104 Cambridge Plaza Drive
Winston-Salem, North Carolina 27104
PROXY STATEMENT FOR
1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 21, 1999
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Blue Rhino Corporation (the "Company" or
"Blue Rhino") for use at the Company's annual meeting of stockholders for the
fiscal year ended July 31, 1999 (the "Annual Meeting") to be held on December
21, 1999 at the Village Conference Center, 6205 Ramada Drive, Clemmons, North
Carolina, at 10:30 a.m., or any adjournment or postponement thereof. This
proxy statement and the accompanying materials are being mailed to the
Company's stockholders beginning on or about November 24, 1999.
GENERAL
Capital Stock
The Company's authorized capital stock consists of 100,000,000 shares of
common stock having a par value of $0.001 per share ("Common Stock") and
20,000,000 shares of preferred stock having a par value of $0.001 per share
("Preferred Stock"). As of October 31, 1999, there were 8,647,654 shares of
Common Stock outstanding and no shares of Preferred Stock outstanding.
Stockholders Entitled to Vote
Only common stockholders of record at the close of business on the record
date of November 5, 1999 are entitled to vote their shares at the Annual
Meeting and at any adjournment or postponement of the meeting. Each
outstanding share of Common Stock is entitled to one vote.
Voting
Holders of a majority of the outstanding shares of Common Stock entitled to
vote at the Annual Meeting who are present in person or represented by proxy
will constitute a quorum to conduct business at the Annual Meeting. The
affirmative vote of holders of a plurality of the shares of Common Stock
present in person or represented by proxy and entitled to vote at the Annual
Meeting will be required for the election of directors. For each other matter
coming before the Annual Meeting, the affirmative vote of the holders of a
majority of the shares of Common Stock present in person or represented by
proxy and entitled to vote will be required for approval of such matter.
Because abstentions with respect to any matter are treated as shares present
in person or represented by proxy and entitled to vote for the purposes of
determining whether that matter has been approved by the stockholders,
abstentions have the same effect as negative votes for Proposals 2, 3, 4 and 5
in this proxy statement. Non-votes by banks, brokerage houses, custodians,
nominees and other fiduciaries and shares as to which proxy authority has been
withheld with respect to any matter are not deemed to be present in person or
by proxy for purposes of determining whether stockholder approval of that
matter has been obtained.
Proxies
If a stockholder properly completes and returns the accompanying proxy
card, the shares represented by the proxy will be voted as the stockholder
directs. IF THE PROXY CARD IS RETURNED BUT NO INSTRUCTIONS ARE GIVEN BY THE
STOCKHOLDER, THE SHARES WILL BE VOTED BY THE PROXY HOLDERS IN ACCORDANCE WITH
THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
<PAGE>
A stockholder may revoke a proxy at any time before it is voted by filing a
signed notice of revocation with the Secretary of the Company or by returning
a properly completed proxy card bearing a later date. In addition, a
stockholder may revoke a proxy by attending the Annual Meeting and voting in
person.
Solicitation of Proxies
The Company intends to request that banks, brokerage houses, custodians,
nominees and other fiduciaries forward copies of these proxy materials to
those persons for whom they hold shares. In addition to solicitation by mail,
certain officers and employees of the Company, who will receive no
compensation for their services other than their regular salaries, may solicit
proxies in person or by telephone. The cost of preparing, assembling, mailing
and soliciting proxies and other miscellaneous expenses related thereto will
be borne by the Company.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of eight positions divided
into Classes A, B and C, comprised of three, three and two directors,
respectively, with staggered terms of three years each. Three Class B
Directors have been nominated for election at the Annual Meeting to serve
until the annual stockholders meeting for the fiscal year ending July 31, 2002
or until such time as their successors are elected and qualified.
Each nominee has consented to being named in this proxy statement and to
serve if elected. If any nominee should become unable to serve as a director
prior to the Annual Meeting, the persons authorized by your proxy will vote
for the election of a substitute nominee recommended by the Board of Directors
in place of that nominee.
The Board of Directors of the Company recommends a vote FOR the election of
the three Class B Director nominees named below. Proxies solicited by the
Board of Directors will be voted FOR this proposal unless instructions are
given to the contrary.
Information Concerning Nominees for Election
Certain information as to each of the three nominees for election as a
Class B Director is set forth in the table below. The information appearing in
the table and certain information regarding beneficial ownership of securities
by such nominees contained in this proxy statement has been furnished to the
Company by the nominees.
<TABLE>
<CAPTION>
Nominee Age Biographical Information
------- --- ------------------------
<C> <C> <S>
Richard A. Brenner 36 Mr. Brenner has served as a director since August 1998.
Mr. Brenner has been the president of Amarr Company
since July 1993 and serves on the board of advisors of
Wachovia Bank.
Robert J. Lunn 49 Mr. Lunn is the founder, managing partner and chief
investment officer of Lunn Partners LLC ("Lunn
Partners"), a private investment banking firm
established in 1994. Prior to establishing Lunn
Partners, Mr. Lunn was a managing director, member of
the operating committee and head of the financial
services division at Lehman Brothers Holdings Inc. Mr.
Lunn serves as a director of Shaw Industries Inc.
John H. Muehlstein 44 Mr. Muehlstein has served as a director since September
1995. Since 1986, Mr. Muehlstein has been a principal
of the law firm of Pedersen & Houpt, a Professional
Corporation, legal counsel to the Company. Mr.
Muehlstein also serves as a director of Einstein/Noah
Bagel Corp., SpinCycle, Inc. and several privately-held
companies.
</TABLE>
2
<PAGE>
Information Concerning Continuing Directors
Certain information as to each director who will continue in office is set
forth in the table below. The information appearing in the table and certain
information regarding beneficial ownership of securities by such directors
contained in this proxy statement has been furnished to the Company by the
directors.
Continuing Class A Directors to Serve Until Annual Meeting for the Fiscal Year
ending July 31, 2001
<TABLE>
<CAPTION>
Name Age Biographical Information
---- --- ------------------------
<S> <C> <C>
Billy D. Prim 43 Mr. Prim co-founded the Company in March 1994 and has served as
the Company's Chief Executive Officer and Chairman since the
Company's incorporation and as the Company's President since
January 1996. Mr. Prim also serves as president and chief
executive officer and is a 56% stockholder of American Oil and
Gas, Inc. ("American Oil and Gas"), a North Carolina based holding
company. Until April 1995, American Oil and Gas was 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 Holding, L.L.C. ("Platinum Propane") and Ark
Holding, L.L.C. ("Ark"), which represent eight of our
distributors. Mr. Prim is also a director of Southern Community
Bank & Trust and the National Propane Gas Association.
Andrew J. Filipowski 49 Mr. Filipowski co-founded the Company in March 1994 and has served
as our Vice Chairman since May 1994. Mr. Filipowski is the founder
of divine interVentures, Inc., formerly Platinum Venture Partners,
Inc., a venture capital firm with interests in information
technology, software and software services, and media related
enterprises. Mr. Filipowski was a co-founder of Platinum
technology, Inc. and was its chairman, president and chief
executive officer from its formation in April 1987 until its sale
to Computer Associates International, Inc. in March 1999. Mr.
Filipowski is also a director of Platinum Entertainment, Inc.
("Platinum Entertainment"), System Software Associates, Inc. and
several privately-held companies including Platinum Propane and
Ark, which represent eight of our distributors.
Craig J. Duchossois 55 Mr. 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 previously served as its president
from 1986 to 1995. Mr. Duchossois also serves as a director of
Platinum Entertainment, Bissell, Inc. and LaSalle Bank, National
Association as well as several privately-held companies.
</TABLE>
Continuing Class C Directors to Serve Until Annual Meeting for the Fiscal Year
ending July 31, 2000
<TABLE>
<CAPTION>
Name Age Biographical Information
---- --- ------------------------
<S> <C> <C>
Steven D. Devick 47 Mr. Devick has served as a director since May 1994. Mr. Devick is
a co-founder of Platinum Entertainment and has served as its
chairman and chief executive officer since January 1992 and as its
president since January 1996. Mr. Devick is an officer and
director of several privately-held companies.
Mark Castaneda 35 Mr. Castaneda has served as our Chief Financial Officer since
October 1997, as Secretary since February 1998 and as a director
since August 1998. Prior to joining us, Mr. Castaneda served as
the vice president of finance and the chief financial officer for
All Star Gas Corporation from July 1995 to October 1997, as a
director of planning and 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.
</TABLE>
3
<PAGE>
Committees of the Board of Directors
The Board of Directors has standing Executive, Compensation and Audit
Committees. The Board does not have a nominating committee.
The Executive Committee, consisting of Messrs. Duchossois, Filipowski and
Prim, 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,
consisting of Messrs. Brenner and Devick, makes recommendations to the Board
of Directors concerning salaries and incentive compensation for the Company's
directors, officers and employees and administers the Company's stock
incentive and option plans. Prior to September 1997, decisions concerning the
compensation of officers were made by the Board of Directors as a whole. The
Audit Committee, consisting of Messrs. Brenner, Devick and Muehlstein, makes
recommendations to the Board of Directors regarding the selection and
retention of independent accountants, reviews the results and scope of the
audit and other accounting-related services, and reviews and evaluates the
Company's internal control functions.
Meetings
The Board of Directors held eight meetings during fiscal 1999. The
Executive Committee held no meetings, the Compensation and Audit Committees
held three and five meetings, respectively, in fiscal 1999. During fiscal
1999, all members of the Board of Directors attended at least 75% of the total
number of (i) Board of Directors meetings and (ii) meetings held by the
committees of which each is a member.
DIRECTOR COMPENSATION
In order to enhance its ability to attract, retain and motivate qualified
non-employee directors, the Company adopted the Amended and Restated Stock
Option Plan for Non-Employee Directors (the "Director Option Plan") effective
December 30, 1998. The Company has reserved 100,000 shares of Common Stock for
issuance under the plan. Directors 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. The five non-employee directors serving during fiscal
1999 were entitled to participate in the Director Option Plan. Until December
30, 1998, the plan provided that non-employee directors would receive grants
of options to purchase up to 4,000 shares of Common Stock, 1,000 shares per
quarterly meeting attended, as of the date of the annual stockholders meeting
for that fiscal year. As of December 30, 1998, the grants for the fiscal year
then in progress have been made as of the date of the annual stockholders
meeting for the prior fiscal year. In addition, in December 1998, non-employee
directors each received one-time grants of an option to purchase 4,000
additional shares of Common Stock for fiscal 1999. All options granted for
fiscal 1999 and thereafter are subject to forfeiture for each quarterly
meeting missed, 1,000 shares per meeting, and all are forfeited if a director
fails to attend at least two quarterly meetings in a fiscal year. The exercise
price for all options granted under the plan is the market value per share of
the Common Stock as of the grant date. All options granted under the plan vest
on each of the first three anniversaries of the grant date. Currently, there
are options to purchase 56,000 shares with a weighted average exercise price
of $21.68 per share outstanding under this plan. Options to purchase 18,667
shares will have vested and be exercisable on December 30, 1999.
Options granted under the Director Option Plan are not "incentive stock
options," as that term is defined in Section 422(b) of the Internal Revenue
Code of 1986, as amended (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 grantee only by such grantee.
4
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company for the fiscal years ended July 31, 1999, 1998 and 1997 to
the Company's Chief Executive Officer and four most highly compensated
executive officers at the end of fiscal 1999 (collectively, the "Named
Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- -----------------
Name and Principal Shares Underlying All Other
Position Year Salary Stock Options Compensation
------------------ ------------------- ----------------- ------------
<S> <C> <C> <C> <C>
Billy D. Prim........... 1999 $ 288,923 60,000 --
Chief Executive Officer 1998 218,538 43,312 --
1997 125,250 57,088 --
Mark Castaneda.......... 1999 138,359 36,796 --
Chief Financial Officer 1998 78,846(1) 32,561 --
1997 -- -- --
Richard E. Belmont...... 1999 118,322 24,000 --
Vice President of
Marketing 1998 112,708 26,890 --
1997 106,727 1,890 --
Joseph T. Culp.......... 1999 115,174 24,000 --
Vice President of
Partner Development 1998 109,710 26,890 --
1997 104,242 1,890 --
Jerald D. Shadley....... 1999 132,247(2) 24,000 $40,000(3)
Vice President of Sales 1998 -- -- --
1997 -- -- --
</TABLE>
- --------
(1) Mr. Castaneda's salary for fiscal 1998 reflects amounts earned from the
commencement of his employment with the Company in October 1997.
(2) Mr. Shadley's salary for fiscal 1999 reflects amounts earned from the
commencement of his employment with the Company in August 1998.
(3) Mr. Shadley was paid a $40,000 moving allowance in connection with joining
the Company in August 1998.
5
<PAGE>
Option Grants
The following table sets forth information on grants of stock options to
the Named Officers pursuant to the 1998 Stock Incentive Plan during fiscal
1999.
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(2)
Options Employees in Per Expiration ---------------------
Name Granted(1) Fiscal Year Share Date(1) 5% 10%
- ---- ---------- ------------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Billy D. Prim........... 50,000 17.27% $13.125 3/31/09 $ 412,712 $ 1,045,893
10,000 3.45% 13.125 3/31/09 82,542 209,179
Mark Castaneda.......... 1,796 0.62% 13.00 11/2/08 14,683 37,211
3,433 1.19% 13.00 11/2/08 28,067 71,127
1,567 0.54% 13.125 3/31/09 12,934 32,778
30,000 10.36% 13.125 3/31/09 247,627 627,536
Richard E. Belmont...... 2,746 0.95% 13.00 11/2/08 22,450 56,893
1,254 0.43% 13.125 3/31/09 10,351 26,231
20,000 6.91% 13.125 3/31/09 165,085 418,357
Joseph T. Culp.......... 2,746 0.95% 13.00 11/2/08 22,450 56,893
1,254 0.43% 13.125 3/31/09 10,351 26,231
20,000 6.91% 13.125 3/31/09 165,085 418,357
Jerald D. Shadley....... 2,746 0.95% 13.00 11/2/08 22,450 56,893
1,254 0.43% 13.125 3/31/09 10,351 26,231
20,000 6.91% 13.125 3/31/09 165,085 418,357
</TABLE>
- --------
(1) These options have a term of ten years, are nonqualified stock options and
have an exercise price equal to the market value of the Common Stock on
the date of grant. Options which expire on November 2, 2008 became fully
vested and exercisable on November 3, 1999. The option for 10,000 shares
granted to Mr. Prim and expiring on March 31, 2009 will become fully
vested and exercisable on April 1, 2000. All other options which expire on
March 31, 2009 vest 20% on each anniversary of the grant date until fully
vested (i.e., five years from the grant date) and are exercisable upon
vesting.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission (the
"Commission") and do not represent the Company's estimate or projection of
the Company's future Common Stock prices.
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<PAGE>
The following table sets forth information with respect to exercised and
unexercised stock options granted under the 1994 Stock Incentive Plan and the
1998 Stock Incentive Plan as of the end of fiscal 1999. Mr. Culp is the only
Named Officer who exercised stock options during fiscal 1999.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Options Held at In-the-Money Options at
Shares July 31, 1999 July 31, 1999(2)
Acquired on Value ------------------------- -------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Billy D. Prim........... -- -- 72,181 92,000 $175,990 --
Mark Castaneda.......... -- -- 12,561 56,796 22,777 --
Richard E. Belmont...... -- -- 20,122 44,000 68,498 --
Joseph T. Culp.......... 15,122 $81,730 5,000 44,000 -- --
Jerald D. Shadley....... -- -- 4,000 40,000 -- --
</TABLE>
- --------
(1) Calculated by determining the difference between the market value of the
Common Stock at the exercise date and the exercise price of the Named
Officer's options.
(2) Calculated by determining the difference between the market value of
$9.625 per share for the Common Stock underlying the options at July 31,
1999 and the exercise price of the Named Officer's options.
Compensation Committee Report on Executive Compensation
The Compensation Committee is responsible for the development of the
Company's executive compensation policies and the administration of those
policies. The Compensation Committee evaluates the performance of management
and recommends to the full Board of Directors the salaries and incentive
compensation for executive officers and key employees. In reviewing the
compensation of individual executive officers and employees during fiscal
1999, the Compensation Committee considered published compensation surveys,
the amount of compensation paid to executive officers at comparable companies
in the consumer product and propane industries, market conditions, the
recommendations of management and the attainment of certain performance goals.
Executive Compensation Policy
The Company's general compensation policy is that total compensation should
vary with the performance of the Company and the individual in attaining
certain financial and non-financial objectives. The Compensation Committee's
objectives include:
. Attracting and retaining talented executives and employees critical to
the long-term success of the Company by offering compensation packages
competitive with those provided by other publicly-held high growth
companies.
. Aligning the interests of the Company's management with the interests of
the Company's stockholders by developing compensation programs that link
compensation directly to increases in stockholder value.
. Maintaining an appropriate balance between base salary and performance-
based compensation, with a higher proportion of compensation being
performance-based as an officer or key employee's level of
responsibility increases.
During fiscal 1999, the compensation of an officer or key employee of the
Company was comprised of base salary and options granted under the Company's
1998 Stock Incentive Plan. In addition, all employees of the Company who have
been employed for six months or more are eligible to participate in the
Company's 401(k)
7
<PAGE>
plan beginning on the first day of the first fiscal quarter following the
completion of six months of service. Subject to limitations imposed by the
Code, participants in the 401(k) plan may contribute up to 15% of their total
base compensation to the plan. In addition, in fiscal 1999 the Company
initiated a match to an employee's 401(k) contributions in the amount of $.50
of every $1.00 contributed up to 6% of an employee's salary.
Incentive Cash Bonus
The Company's policy is to pay a cash incentive bonus to certain employees
for attainment of internal revenue and earnings targets. The Compensation
Committee determines and recommends to the Board of Directors a cash incentive
for each of the officers and key employees based on revenue and earnings
targets, individual performance, level of responsibility, experience and
competitive factors. The executive officers and key employees did not attain
the internal targets necessary to earn incentive cash bonuses for fiscal 1999.
Base Salary
The Company's policy is to pay base salaries that are generally competitive
with the median base salaries paid by comparable companies in the consumer
product and propane industries. The Compensation Committee determines and
recommends to the Board of Directors a base salary for each of the officers
and key employees based upon individual performance, level of responsibility,
experience and competitive factors. The Compensation Committee did not
commission any formal surveys of executive officer compensation at comparable
companies, but relied on published surveys for indications of salary trends
generally and at growth companies in particular. The Compensation Committee
used all of these factors in recommending base salary levels, but did not
assign specific weight to any particular factor.
1998 Stock Incentive Plan
Granting options under the Company's 1998 Stock Incentive Plan is the
primary method by which the Compensation Committee motivates executive
officers and key employees to meet and surpass performance goals. Stock
options are intended to focus executive officers and key employees on managing
the Company from the perspective of owners and to link their long-term
compensation directly with increases in stockholder value. Options granted
under the 1998 Stock Incentive Plan typically vest 20% on each anniversary of
the grant date and, thus, do not fully vest until five years after the grant
date. Additional options may be granted to executive officers if certain
revenue and earnings targets are met. These options vest in one year plus one
day. In addition, because the exercise price of options granted under the 1998
Stock Incentive Plan may not be less than the market value of the Common Stock
on the grant date, recipients of option grants receive no compensation unless
the price per share of Common Stock increases after the grant date.
In determining the stock option grants to individual executive officers,
the Compensation Committee employs various factors including whether Company-
wide revenue targets and individual performance targets are achieved. The
Company's revenues increased approximately 92.5% from $27.4 million in fiscal
1998 to $53.8 million in fiscal 1999 and nearly all of the Company's internal
revenue targets were achieved. Individual performance targets are established
for each executive officer on a quarterly and annual basis. Each executive
officer's performance targets vary depending upon the officer's position.
Individual performance targets included increases in the Company's revenue and
number of retail locations being serviced.
The most significant factor influencing the Compensation Committee's
determination of performance compensation in this fiscal year was management's
commitment to increase penetration of existing retail accounts and add new
retail accounts through acquisitions and otherwise. In fiscal 1999, the
Company's installed locations nearly doubled from 9,500 to 18,500 at year end
1999. Based upon their position and level of responsibility within the
Company, the Named Officers were granted options for a total of 168,796 shares
of Common Stock in fiscal 1999.
8
<PAGE>
Compensation of Chief Executive Officer
The Compensation Committee determines the compensation of Mr. Prim, the
Company's President and Chief Executive Officer, based on the same criteria
applicable to the Company's other executive officers. The Compensation
Committee believes Mr. Prim's current base salary of $350,000 is in line with
the median salaries of other chief executive officers in the consumer product
and propane industries. Pursuant to the Committee's recommendations, Mr. Prim
was granted options in March 1999 for 10,000 shares of Common Stock which will
fully vest as of April 1, 2000 and 50,000 shares of Common Stock which vest
over five years. Mr. Prim's leadership was essential to the Company's
successful expansion of retail locations and the attainment of certain
internal performance targets. The Compensation Committee also considered
significant Mr. Prim's role in identifying and negotiating the Company's 16
acquisitions during fiscal 1999, as well as his oversight of the integration
of the acquired businesses into the Company's operations.
Employment Agreement
The Compensation Committee commissioned a report on chief executive
compensation in October 1998. The findings of the report indicated that Mr.
Prim's compensation was in line with companies of similar size in similar
industries and also indicated that employment contracts are standard for chief
executives. Based on this report, the Company entered into an employment
agreement with Mr. Prim on May 31, 1999. The agreement has a rolling five year
term beginning as of January 1, 1999. Upon 90 days notice by either the
Company or Mr. Prim, the term will thereafter continue for five years from the
end of the notice period. The agreement provides for a minimum base salary of
$350,000 during the term of the agreement, with cost of living adjustments,
and cash and/or incentive bonuses and stock option grants at the discretion of
the Compensation Committee. Mr. Prim's base salary in calendar 1999 is
$350,000. In addition to those perquisites provided to other executives of the
Company, the agreement also provides for health benefits, split dollar life
insurance, club memberships and an automobile during the term of the
agreement.
Upon termination of Mr. Prim's employment for any reason, he shall be
entitled to receive his then current base compensation through the last day of
the calendar month in which the termination date occurs. Upon termination of
Mr. Prim other than for "cause," as defined in the agreement, or Mr. Prim's
election to terminate his relationship with the Company because of (i) a
material change in his position and/or duties or (ii) within 12 months of a
change in control of the Company, or an action by either party to exercise the
90 day notice provision, Mr. Prim (or his spouse in the event of his death)
shall be entitled to receive his base salary, with annual cost of living
adjustments, for five years following his termination date. For the ten years
following the five years of continuing base salary, Mr. Prim (or his spouse)
shall be entitled to receive retirement benefit payments, payable in
accordance with the Company's ordinary payroll, in the amount of 70% of his
base salary in the fifth year of continuing payments. Following termination
other than for "cause," the Company shall use its best efforts to provide Mr.
Prim and his dependents with coverage under the Company's health care plans
until the earlier of his death or the month in which the last retirement
benefit payment is made. Such health care coverage shall be at no cost to Mr.
Prim unless the premium exceeds the then highest premium payable by an
employee of the Company in which case he shall be responsible for paying any
excess premium.
For two years following the termination of his employment, Mr. Prim is
subject to a non-competition and non-solicitation agreement. Failure to comply
with these provisions will result in cessation of any post-termination
payments to or benefits for Mr. Prim or his dependents.
Section 162(m)
Under Section 162(m) of the Code, federal income tax deductions of publicly
traded companies may be limited to the extent total compensation (including
base salary, annual bonus, restricted stock awards, stock options exercises
and nonqualified benefits) for certain executive officers exceeds $1.0 million
in any one year. Currently, none of the Company's executive officers receive
annual compensation in excess of $1.0 million. However, if an executive
officer were to receive compensation in excess of $1.0 million, the
Compensation
9
<PAGE>
Committee expects to structure such compensation to meet the requirements of
Section 162(m) and preserve the Company's federal income tax deduction.
Each current member of the Compensation Committee approved the foregoing
report. Mr. Duchossois, a member of the Compensation Committee during fiscal
1999, resigned from the Compensation Committee in November 1998. Mr.
Duchossois resigned from the Compensation Committee in order for the
composition of the committee to meet independence standards necessary to
exempt certain transactions between the Company and its officers and directors
from the operation of Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Mr. Duchossois therefore did not participate in
the preparation of this report.
COMPENSATION COMMITTEE
Richard A. Brenner
Steven D. Devick
Compensation Committee Interlocks and Insider Participation
During fiscal 1999, Messrs. Brenner, Devick and Duchossois served on the
Compensation Committee of the Board of Directors. In October 1998, the Company
sold substantially all of its grill cylinders to USA Leasing, L.L.C. ("USA
Leasing") for approximately $6.5 million. Mr. Duchossois previously owned
approximately 25% of the membership interests in USA Leasing. Prior to their
sale to USA Leasing, the Company either leased the grill cylinders to its
distributors or charged distributors a fee for their use of the cylinders. USA
Leasing has entered into leases with Blue Rhino's distributors on
substantially the same terms as the Company previously leased cylinders to its
distributors. In July 1999, the Company purchased 100% of the membership
interests in USA Leasing for consideration consisting solely of an increase in
the amount of USA Leasing's bank debt which the Company guarantees from 80% to
100%. Mr. Duchossois received no distributions from USA Leasing.
10
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Company's
Common Stock for the period May 19, 1998, the first date on which the Common
Stock was traded, through July 31, 1999 with (1) the cumulative total return
of the Nasdaq Composite Index for The Nasdaq Stock Market for the same period
and (2) the cumulative total return of an index of peer group companies for
the same period. The following emerging consumer product and consumer service
companies have been included in the peer group index: Central Garden and Pet
Company, Glacier Water Services, Inc., Service Experts, Inc., U.S.A. Floral
Products, Inc. and NuCo2, Inc. The graph assumes $100 was invested on May 19,
1998 in the Company's Common Stock and in the stock represented by the two
indexes, and that all dividends paid, if any, were reinvested. The stock price
performance of the Company's Common Stock reflected in the following graph is
not necessarily indicative of future performance.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG BLUE RHINO CORPORATION,
THE PEER GROUP AND THE NASDAQ COMPOSITE INDEX
[GRAPH FOR BLUE RHINO]
11
<PAGE>
COMMON STOCK OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of October 31, 1999 by (1) each
person known by the Company to own beneficially more than 5% of the Common
Stock, (2) each director of the Company, (3) each director nominee, (4) each
Named Officer and (5) all executive officers, directors and director nominees
as a group.
<TABLE>
<CAPTION>
Amount and
Nature of Percent of
Beneficial Common
Name and Address Ownership (1) Stock
- ---------------- ------------- ----------
<S> <C> <C>
Andrew J. Filipowski(2)
1815 South Meyers Road
Oakbrook Terrace, IL 60181........................... 1,919,279 21.9%
Billy D. Prim(3)
104 Cambridge Plaza Drive
Winston-Salem, NC 27104.............................. 1,377,181 15.7%
Craig J. Duchossois(4)
845 Larch Avenue
Elmhurst, IL 60126................................... 653,659 7.5%
Richard E. Belmont(5)
104 Cambridge Plaza Drive
Winston-Salem, NC 27104.............................. 22,868 *
Richard A. Brenner(6)
464 Sheffield Drive
Winston-Salem, NC 27104.............................. 29,636 *
Joseph T. Culp(7)
104 Cambridge Plaza Drive
Winston-Salem, NC 27104.............................. 22,868 *
Mark Castaneda(8)
104 Cambridge Plaza Drive
Winston-Salem, NC 27104.............................. 19,676 *
John H. Muehlstein(9)
161 North Clark Street, Suite 3100
Chicago, IL 60601.................................... 7,781 *
Steven D. Devick(10)
2001 Butterfield Road, Suite 1400
Downers Grove, IL 60515.............................. 359,551 4.2%
Jerald R. Shadley(11)
104 Cambridge Plaza Drive
Winston-Salem, NC 27104.............................. 16,471 *
Robert J. Lunn(12)
209 South LaSalle Street
Chicago, Illinois 60604.............................. 91,524 1.1%
Directors, director nominees and executive officers as
a group (13 individuals)............................. 3,993,705 44.0%
5% or more stockholders:
SAFECO Corporation
4333 Brooklyn Avenue NE
Seattle Washington 98185(13)......................... 796,200 9.2%
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of
12
<PAGE>
Common Stock subject to options or warrants held by that person that are
currently exercisable or exercisable within 60 days of the date hereof 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) Includes 1,247,659 shares of Common Stock owned by Mr. Filipowski, 47,457
shares issuable upon the exercise of a warrant issued to Mr. Filipowski
in September 1999, 36,546 shares of Common Stock issuable upon the
exercise of a warrant issued to Mr. Filipowski in January 1998, 18,903
shares of Common Stock issuable upon the exercise of vested options held
by Mr. Filipowski, 1,333 shares of Common Stock issuable upon the
exercise of options held by Mr. Filipowski which will vest under the
Director Option Plan on December 21, 1999, 2,667 shares of Common Stock
which will vest under the Director Option Plan on December 30, 1999,
216,127 shares of Common Stock owned by American Oil and Gas, of which
Mr. Filipowski owns 44% of the issued and outstanding shares, 333,466
shares of Common Stock owned by Platinum Venture Partners I, L.P.
("PVP"), the general partner of which is divine interVentures, Inc.,
formerly Platinum Venture Partners, Inc., of which Mr. Filipowski owns
22.5% of the shares, 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 Filipowski as
trustee on behalf of the Alexandra Filipowski Trust, 1,890 shares of
Common Stock beneficially owned by Veronica Filipowski as trustee on
behalf of the James Meadows Trust and 7,561 shares of Common Stock
beneficially owned by Veronica Filipowski.
(3) Includes 1,030,076 shares of Common Stock held by Mr. Prim, 47,457 shares
issuable upon the exercise of a warrant issued to Mr. Prim in September
1999, 72,180 shares of Common Stock issuable upon the exercise of vested
options held by Mr. Prim, 216,127 shares of Common Stock owned by
American Oil and Gas, of which Mr. Prim owns 56% of the issued and
outstanding shares, 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 Sarcanda Westmoreland and 1,890 shares of
Common Stock beneficially owned by Debbie W. Prim as trustee on behalf of
Anthony G. Westmoreland.
(4) Includes 482,147 shares of Common Stock beneficially owned by the Craig
J. Duchossois Revocable Trust (the "C. Duchossois Trust"), 47,457 shares
issuable upon the exercise of a warrant issued to the
C. Duchossois Trust in September 1999, 36,546 shares of Common Stock
issuable upon exercise of a warrant issued to the C. Duchossois Trust in
January 1998, 2,500 shares of Common Stock beneficially owned by R. Bruce
Duchossois over which Mr. Duchossois has voting and investment control,
3,781 shares of Common Stock issuable upon the exercise of vested options
held by Mr. Duchossois, 1,333 shares of Common Stock issuable upon the
exercise of options held by Mr. Duchossois which will vest under the
Director Option Plan on December 21, 1999, 2,667 shares of Common Stock
which will vest under the Director Option Plan on December 30, 1999 and
77,228 shares of Common Stock beneficially owned by the Kimberly Family
Discretionary Trust over which Mr. Duchossois has voting and investment
control.
(5) Represents shares of Common Stock issuable upon the exercise of vested
options.
(6) Includes 22,224 shares of Common Stock, 4,745 shares issuable upon the
exercise of a warrant issued in September 1999 and 2,667 shares of Common
Stock issuable upon the exercise of options which will vest under the
Director Option Plan on December 30, 1999 held by Mr. Brenner.
(7) Includes 15,122 shares of Common Stock and 7,746 shares of Common Stock
issuable upon the exercise of vested options held by Mr. Culp.
(8) Includes 2,850 shares of Common Stock, 472 shares of Common Stock
issuable upon the exercise of a warrant issued in September 1999 and
16,354 shares of Common Stock issuable upon the exercise of vested
options held by Mr. Castaneda.
(9) Represents 3,781 shares of Common Stock issuable upon the exercise of
vested options, 1,333 shares of Common Stock issuable upon the exercise
of options which will vest under the Director Option Plan on
13
<PAGE>
December 21, 1999 and 2,667 shares of Common Stock which will vest under
the Director Option Plan on December 30, 1999 held by Mr. Muehlstein.
(10) Includes 13,559 shares of Common Stock held by Mr. Devick, 4,745 shares
of Common Stock issuable upon the exercise of a warrant issued to Mr.
Devick in September 1999, 3,781 shares issuable upon the exercise of
vested options held by Mr. Devick, 1,333 shares of Common Stock issuable
upon the exercise of options held by Mr. Devick which will vest under the
Director Option Plan on December 21, 1999, 2,667 shares of Common Stock
which will vest under the Director Option Plan on December 30, 1999 and
333,466 shares owned beneficially by PVP.
(11) Includes 2,000 shares of Common Stock owned by Mr. Shadley, 6,746 shares
of Common Stock issuable upon the exercise of vested options held by Mr.
Shadley, 3,500 shares held jointly by Jerald and Sidney Shadley and 1,225
shares issuable upon the exercise of warrants issued in September 1999
held jointly by Jerald and Sidney Shadley.
(12) Includes 33,898 shares of Common Stock and 11,864 shares issuable upon
the exercise of a warrant issued in September 1999 held by Lunn Partners
Multiple Opportunities Portfolio, L.P. (the "Lunn Multiple Opportunities
Portfolio") and 33,898 shares of Common Stock and 11,864 shares issuable
upon the exercise of a warrant issued in September 1999 held by Lunn
Partners Small Cap Value Equity Fund, L.P. (the "Lunn Small Cap Fund").
Lunn Partners is the general partner of the Lunn Multiple Opportunities
Portfolio and Lunn Small Cap Fund. Mr. Lunn is the managing partner of
Lunn Partners and has shared voting and investment power with respect to
the shares held by the Lunn Multiple Opportunities Portfolio and Lunn
Small Cap Fund.
(13) Derived from a Schedule 13G dated September 8, 1999 and jointly furnished
to the Company by SAFECO Corporation, SAFECO Asset Management Company and
SAFECO Common Stock Trust. The Schedule 13G indicates that the SAFECO
Common Stock Trust has shared voting and dispositive power over 623,600
of these shares and that SAFECO Corporation and SAFECO Asset Management
Company have shared voting and dispositive power over all 796,200 of
these shares including those beneficially owned by the SAFECO Common
Stock Trust. SAFECO Corporation and SAFECO Asset Management Company have
disclaimed any beneficial ownership of these shares.
CERTAIN TRANSACTIONS
Since March 1994, the Company has leased its offices in Winston-Salem,
North Carolina from Rhino Real Estate, L.L.C., an entity majority owned by
Messrs. Filipowski and Prim. Pursuant to the terms of the lease, the Company
pays annual rent of $213,000, plus its allocable share of all taxes, utilities
and maintenance. The lease terminates on December 31, 2001 and includes an
option to renew for an additional three year term.
Since March 1997, Platinum Propane and its subsidiaries have acted as the
Company's distributors for North Carolina, South Carolina, Georgia, Florida,
parts of Virginia and Tennessee, and the Los Angeles, California and Chicago,
Illinois territories. Until August 1999, Messrs. Prim and Filipowski owned
approximately 40% of the membership interests in Platinum Propane, a holding
company for five of the Company's distributors. The terms of the distribution
agreements are substantially the same as those negotiated with other Blue
Rhino distributors. In fiscal 1999, Platinum Propane received approximately
$11.3 million from the Company on behalf of cylinder distribution services
performed by its subsidiaries. The Company has also entered into cylinder
display operating leases with Platinum Propane requiring lease payments of
approximately $32,000 per month as of July 31, 1999.
The Company entered into distribution agreements in February 1998 with
Caribou Propane and Javelina Propane to service its Pacific Northwest and
Phoenix markets, respectively, and in May 1998 with Raven Propane to service
its Philadelphia/New Jersey markets. Until August 1999, Messrs. Prim and
Filipowski owned 45% of the membership interests in Ark, the holding company
for Caribou Propane, Javelina Propane and Raven Propane. The terms of the
distribution agreements are substantially the same as those negotiated with
other Blue Rhino distributors. In fiscal 1999, Ark received approximately $2.1
million from the Company on behalf of cylinder distribution services performed
by its subsidiaries. The Company has also entered into cylinder display
operating leases with Ark requiring lease payments of approximately $6,300 per
month as of July 31, 1999. In August 1999, Messrs. Prim and Filipowski sold
their interests in Platinum Propane and Ark to a third party.
14
<PAGE>
In October 1998, the Company sold substantially all of its grill cylinders
to USA Leasing for approximately $6.5 million. Messrs. Prim, Filipowski and
Duchossois along with Mr. Peer Pedersen, a stockholder, owned 100% of the
membership interests in USA Leasing. Prior to selling the grill cylinders to
USA Leasing, the Company owned the cylinders and leased them to its
distributors or charged its distributors a fee for use of the cylinders. USA
Leasing has entered leases with Blue Rhino's distributors on substantially the
same terms as those on which the Company previously leased cylinders to its
distributors. In July 1999, the Company purchased 100% of the membership
interests in USA Leasing for consideration consisting solely of an increase in
the amount of USA Leasing's bank debt which the Company guarantees from 80% to
100%. Messrs. Prim, Filipowski and Duchossois received no distribution from
USA Leasing on behalf of their interest in USA Leasing.
In September 1999, the Company completed two private placements raising an
aggregate of $14.2 million in new capital. Among the participants in one of
the private placements were the following directors and executive officers:
Messrs. Prim, Duchossois, Filipowski, Castaneda, Devick, Brenner and Shadley,
who in the aggregate purchased 438,747 of the 981,119 units sold. In addition,
two investment partnerships of which
Mr. Lunn, a director nominee, is the chief investment officer, purchased a
total of 67,696 units. The units sold consisted of one share of Common Stock
and one warrant to purchase 0.35 shares of Common Stock. The price per unit
was $7.375, which was the closing price of our Common Stock on September 3,
1999, the final trading day prior to the consummation of the offering. The
warrants may be exercised at a price equal to $8.48 per share at any time
prior to September 7, 2004. Lunn Partners, of which Mr. Lunn is the managing
partner, received a placement fee in the amount of $120,000 in connection with
the purchase of these units by persons other than officers and directors of
the Company.
Mr. Muehlstein, a director of the Company, is also a principal in the firm
of Pedersen & Houpt, a Professional Corporation, 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.
PROPOSAL 2
APPROVAL OF AMENDMENT OF
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors, subject to the approval of the Company's
stockholders, has adopted resolutions approving an amendment to the Company's
Second Amended and Restated Certificate of Incorporation ("Certificate") to
reduce the number of the Company's authorized shares of capital stock from
120,000,000 shares to 45,000,000 shares. Reducing the number of the Company's
authorized shares of capital stock to 45,000,000 will reduce the Company's
annual franchise tax payable to the State of Delaware by approximately
$75,000. If this amendment to the Certificate is approved, the Company's
authorized shares of Common Stock will be reduced from 100,000,000 to
37,500,000 and authorized shares of Preferred Stock will be reduced from
20,000,000 to 7,500,000. Approval of this amendment to the Certificate will in
no way alter or amend other provisions or requirements of the Certificate.
The Board of Directors of the Company unanimously recommends a vote FOR the
amendment of the Certificate to reduce the number of the Company's authorized
shares of capital stock. Proxies solicited by the Board of Directors will be
voted FOR amendment of the Certificate unless a vote against this proposal or
abstention is specifically indicated.
15
<PAGE>
PROPOSAL 3
APPROVE THE ISSUANCE OF THE SHARES OF COMMON STOCK UPON CONVERSION OF
CONVERTIBLE NOTES AND RELATED WARRANTS
On September 22, 1999, the Company entered into an agreement with two
institutional investors (the "Investors") to issue $7,000,000 of 5%
Convertible Notes (the "Convertible Notes") and warrants to purchase Common
Stock (the "Warrants") in a private placement (the "Convertible Note
Offering"). The Convertible Note Offering was the second of two private
placements completed by the Company in September 1999. The Company will use
the net proceeds from the Convertible Note Offering to reduce indebtedness and
acquire assets and for working capital and general corporate purposes.
Summary of Convertible Note Offering Terms
The following is a summary of the material terms of the Convertible Note
Offering, which terms are qualified by reference to the full text of the
underlying documents which are exhibits to the Company's Form8-K filed on
September 23, 1999 (the "Form 8-K"). The underlying documents for the
Convertible Note Offering are a securities purchase agreement ("Securities
Purchase Agreement"), a registration rights agreement and a form of warrant by
and between the Company and the Investors and two Convertible Notes made by
the Company, all filed as exhibits to the Form 8-K. All capitalized terms used
but otherwise not defined herein have the meanings ascribed to those terms in
the transaction documents.
The Initial Closing
At the initial closing (the "Initial Closing"), the Investors purchased
Convertible Notes in the aggregate principal amount of $7.0 million. The
Company also issued to the Investors Warrants to purchase in the aggregate
332,203 shares of Common Stock. The Warrants are exercisable until September
23, 2004 at an exercise price of $8.48 per share.
Additional Closings
In the future, the Company may also require the Investors to purchase, in
up to two additional closings, Convertible Notes in an amount equal in the
aggregate to at least $1.0 million but not more than $4.9 million if certain
conditions are met. The Investors' obligation to purchase additional
Convertible Notes is conditioned upon:
. the effectiveness of a registration statement with the Commission
covering the resale of the shares of Common Stock issuable upon
conversion or exercise of the Convertible Notes and the Warrants issued
at the Initial Closing and shares to be issued upon the conversion of
any notes or exercise of warrants issued at any subsequent closing,
. the Company's Common Stock is listed on the National Market System of
The Nasdaq Stock Market ("Nasdaq") or the New York Stock Exchange (the
"NYSE"),
. the Company shall not have consummated a change of control or defaulted
under the terms of the Securities Purchase Agreement or Convertible
Notes,
. the stock price of the Common Stock shall be at least $8.50 per share
(adjusted for stock splits, combinations and recapitalizations effected
after September 23, 1999),
. the Company shall have converted at least $1.75 million of the balance
of the initial Convertible Notes into Common Stock,
. the Company shall have received stockholder approval of the issuance of
the Common Stock issuable upon the conversion of the Convertible Notes
and exercise of the Warrants as required and
. the satisfaction of certain other terms and conditions, all as more
fully set forth in the Securities Purchase Agreement.
16
<PAGE>
Conversion
The principal and accrued interest on the Convertible Notes is convertible,
in whole or in part, by dividing the amount to be converted by the lesser of
(i) a "fixed conversion price" or (ii) a "variable conversion price." The
fixed conversion price shall equal $20.00 per share. The variable conversion
price shall equal 95% of the dollar volume-weighted average price for the
Common Stock on Nasdaq (as reported by Bloomberg Financial Markets through its
"Volume at Price" function) on the conversion date (the "Variable Conversion
Price"). For a period of 18 months, the Convertible Notes may not be converted
unless the Company, subject to certain exceptions, requires conversion or:
. the Common Stock is not listed or quoted on Nasdaq or NYSE, or has been
suspended from trading for more than one day,
. a Change of Control or Triggering Event or Event of Default shall have
occurred or be pending,
. the Company issues or sells or is deemed to have issued or sold any
Convertible Securities that are convertible into or exercisable or
exchangeable for shares of Common Stock at a variable price,
. the Company fails to pay any redemption amount or issue any shares upon
a conversion of the Convertible Notes or exercise of the Warrants,
. the Company issues additional shares of Common Stock or securities
convertible into Common Stock other than (i) up to 500,000 shares
issuable in connection with acquisitions at a value per share equal or
greater than the market price of the Common Stock and (ii) shares
issuable upon the exercise of outstanding warrants and employee,
director and distributor options or
. with respect to the conversion of up to 25% of the total amount
outstanding on the Convertible Notes, if on or after December 23, 2000
at least 75% of the aggregate original principal amounts of all
Convertible Notes remains outstanding.
Upon the occurrence of any events in the bullets above, the holders of the
Convertible Notes may elect to convert all or any portion of the Convertible
Notes into Common Stock.
"Triggering Events" include the Company's:
. failure to register the shares issuable upon conversion of the
Convertible Notes or Warrants on or before February 25, 2000;
. failure to maintain the effectiveness of such registration statement,
. the Common Stock not being listed or quoted on Nasdaq or the NYSE,
. failure to issue any Common Stock upon conversion as required,
. inability to issue any shares of Common Stock as a result of
restrictions on the issuance of shares under Nasdaq rules or
. failure to obtain the consent of its stockholders to the issuance of
Common Stock upon conversion of the Convertible Notes and Warrants
before January 31, 2000.
Upon the occurrence of a Triggering Event, the holders of Convertible Notes
could require the Company to convert the balance of their Convertible Notes
into Common Stock or to redeem all of the remaining principal and interest at
a price equal to 120% of the outstanding balance. In the event that the
Company or its transfer agent does not timely effect a conversion of the
Convertible Notes, the Company is subject to certain liquidated damage
penalties including reductions in the Variable Conversion Price, adjustments
to the applicable fixed conversion price and certain other penalties as more
fully described in the Convertible Notes.
The holders of the Convertible Notes are prohibited from converting their
notes if, after giving effect to such conversion, the holder would
beneficially own at the time of conversion in excess of 4.99% of the
outstanding shares of Common Stock of the Company following such conversion.
In addition, the Convertible Notes are subordinate subject to certain
exceptions, to up to $25.0 million of the Company's bank indebtedness.
17
<PAGE>
Interest
The outstanding principal balance on the Convertible Notes bears interest
at 5% per annum. Interest accrues until paid in full. After and during the
continuance of an event of default, the Convertible Notes bear a default rate
of interest equal to 18%.
Registration of Shares; Possible Adjustment of Conversion Price and Exercise
Price
The Company is required to register with the Commission the resale of at
least 200% of the number of shares of Common Stock issuable upon conversion of
the Convertible Notes and exercise of the Warrants. The number of shares is
based on the Conversion Price at the time of the filing of the registration
statement. The Company has agreed to use its best efforts to file the initial
registration statement as soon as possible but no later than November 21, 1999
and have the registration statement declared effective by the Commission no
later than February 4, 2000. The registration statement was filed on November
12, 1999 but has not yet been declared effective. In addition, during the
period the registration statement is effective, the Company has agreed that
the resale of at least 150% of the shares issuable upon conversion of the
Convertible Notes and the resale of at least 100% of the shares of Common
Stock issuable upon exercise of the Warrants will remain registered under the
registration statement.
Other Terms
The transaction documents relating to the Convertible Notes also contain
certain other representations, warranties, agreements and indemnification
obligations of the Company. The operative agreements also contain (i) a right
of first refusal in favor of the investors which applies to certain private
equity financings by the Company and (ii) prohibit the Company from entering
into certain related party transactions. The Convertible Notes and Warrants
are also subject to anti-dilution provisions which are triggered in the event
of certain stock splits, recapitalizations or other dilutive transactions, as
well as issuances of Common Stock at a price below the market price or the
fixed conversion price in effect, or the issuance of warrants, options, rights
or convertible securities which have an exercise price or conversion price
less than the market price on the date of issuance or the fixed conversion
price, other than for certain previously outstanding securities and certain
excluded securities. In the event that the Company issues securities in the
future which have a conversion price or exercise price which varies with the
market price and the terms of such variable price are more favorable than the
variable conversion price in the Convertible Notes, the purchasers may elect
to substitute the more favorable variable price when making conversions of the
Convertible Notes.
Warrants
The Company issued to the Investors Warrants to purchase in the aggregate
332,203 shares of Common Stock at an exercise price of $8.48 per share. The
Warrants expire on September 23, 2004 and are subject to certain anti-dilution
provisions in the event the Company sells Common Stock or securities
convertible or exercisable into Common Stock at a price less than the exercise
price of such Warrants or the market price of the Common Stock. In connection
with any additional closings of the Convertible Notes, the Company is
obligated to issue warrants to purchase Common Stock, exercisable for five
years, which at the time of issuance have a market value (as determined using
the average of the closing share price for the ten days prior to such
additional closing) equal to 35% of the principal value of the Convertible
Notes.
Nasdaq Rules and Stockholder Approval
Under Nasdaq Rule 4460, as a condition of listing on Nasdaq, the Company
must obtain the approval of a majority of stockholders prior to the Company's
sale or issuance in a transaction other than a public offering at a price less
than the greater of book or market value of Common Stock (or securities
convertible into Common Stock) equal to 20% or more of the outstanding Common
Stock before the sale or issuance. In addition, Rule 4460 requires the
approval of a majority of stockholders in connection with issuances which will
result in a
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change of control of the issuer. Although the Company does not believe that
the issuance of the Convertible Notes and warrants issued in the Convertible
Note Offering constitutes a change in control, the Company is seeking
stockholder approval of the issuance of the shares issuable upon the
conversion of the Convertible Notes or exercise of the Warrants in the event
these actions result in any change of control. Further, the Company is
obligated under the transaction documents with the Investors to use its best
efforts to obtain stockholder approval of these issuance of shares at the
Annual Meeting.
We cannot determine the exact number of shares of Common Stock issuable
upon conversion of the Convertible Notes issued (and to be issued at the
additional closings, if any, as more fully described below) because the
applicable conversion price is a function of the market price for the Common
Stock. Therefore, if the price of the Common Stock rises, fewer shares must be
issued upon conversion, and if the price of the Common Stock falls, more
shares must be issued upon conversion. If the market price of the Common Stock
were to fall below approximately $4.26 per share, the total number of shares
issuable upon the conversion of the Convertible Notes would be in excess of
20% of the total shares outstanding prior to the Convertible Note Offering. In
order to assure continued compliance with the Nasdaq rules, the terms of the
Convertible Notes and the related Warrants provide that shares of Common Stock
issuable upon conversion of the Convertible Notes may not be issued if such
issuance would violate Nasdaq rules (i.e., issuances of Common Stock in excess
of approximately 1,729,530 shares without stockholder approval). However, the
terms of the Convertible Notes and related Warrants also grant the holders the
right to require the Company to redeem the Convertible Notes. See "Summary of
Convertible Note Offering Terms" and "Consequences if Stockholder Approval Not
Obtained" above.
Consequences if Stockholder Approval Not Obtained
If the stockholder approval sought hereby is deemed by Nasdaq to be
required and is not obtained, the Company will be prohibited under the terms
of its listing agreement with Nasdaq from issuing more than an aggregate of
approximately 1,729,530 shares of Common Stock upon conversion of the
Convertible Notes. If the operation of the Nasdaq Rule 4460 prohibits the
Company from issuing any shares upon the conversion of the Convertible Notes
or exercise of the Warrants, the Company could be required by the holders to
redeem the portion of the Convertible Notes which could not be converted into
Common Stock at a price equal to the greater of (i) 120% of value of the
balance to be redeemed or (ii) the product of (a) the balance to be redeemed
divided by the Conversion Price in effect on the date a notice of redemption
is delivered by the holders and (b) the Conversion Price in effect on the
trading day immediately preceding the Triggering Event which enabled the
holder to request redemption. If the Company is unable to redeem the
Convertible Notes submitted for redemption within five business days, the
Company must pay interest on the balance of the unredeemed notes at 1.5% per
month. In addition, the holders are also entitled to void their redemption
notices and receive a reset of their applicable Fixed Conversion Price, as
more fully set forth in the Convertible Notes.
The Board of Directors recommends a vote FOR the issuance of shares upon
conversion of the Convertible Notes and Warrants. Proxies solicited by the
Board of Directors will be voted FOR the issuance of shares upon conversion of
the Convertible Notes and Warrants unless a vote against this proposal or
abstention is specifically indicated.
PROPOSAL 4
EMPLOYEE STOCK PURCHASE PLAN
On November 9, 1999, the Board of Directors adopted the Blue Rhino
Corporation Employee Stock Purchase Plan (the "Stock Purchase Plan") and
reserved 300,000 shares of the Company's Common Stock for issuance thereunder,
subject to stockholder approval.
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Summary of the Stock Purchase Plan
The full text of the plan is set forth as Appendix A hereto, and readers
are urged to refer to it for a complete description of the proposed Stock
Purchase Plan. The summary of the Stock Purchase Plan which follows is
qualified entirely by such reference.
General. The purpose of the Stock Purchase Plan is to provide eligible
employees of the Company and its subsidiaries with an opportunity to purchase
Common Stock through payroll deductions at a discount to the market price.
Administration. The Stock Purchase Plan shall be administered by the
Compensation Committee.
Eligibility. Each employee who shall have completed 90 consecutive days of
employment with the Company prior to the commencement of any of the five
annual Offerings (as defined below), or any designated subsidiary of the
Company, and who is customarily employed by the Company or a subsidiary at
least 20 hours per week and more than five months in any calendar year is
eligible to participate in the Stock Purchase Plan; provided, however, that no
employee may participate in the plan (i) to the extent that, immediately after
the grant, such employee would own 5% or more of either the voting power or
value of the stock of the Company or of any subsidiary or (ii) to the extent
that the participant's rights to purchase stock under the plan accrue at a
rate which exceeds $25,000 worth of stock (determined by the fair market value
of the shares at the time such right is granted) for each calendar year.
Eligible employees may become participants in the Stock Purchase Plan by
delivering to the Company a subscription agreement authorizing payroll
deductions at least seven days prior to the beginning of any Offering. As of
October 31, 1999, approximately 65 Company employees would be eligible to
participate in the Plan.
Participation in an Offering. If approved by the stockholders, the Stock
Purchase Plan will be operated with a new offering period commencing every
calendar year (each, an "Offering"). The first Offering under the plan will
commence on January 1, 2000. Common Stock shall be purchased under the plan on
the last day of every Purchase Period (March 31, June 30, September 30 and
December 31) unless the participant timely notifies the Company of his desire
to withdraw from the plan or terminates employment before the end of the
Purchase Period. To participate in the plan, eligible employees must authorize
the Company to make payroll deductions of amounts between 1% and 15% of a
participant's compensation. Once an employee becomes a participant in the
plan, the employee will automatically participate in each successive Offering
until such time as the employee withdraws from the plan or the employee's
employment with the Company or a subsidiary terminates. At the beginning of
each Offering, each eligible employee who elects to participate is
automatically granted the right to purchase shares of Common Stock to the
extent of their payroll deductions during the Offering Period divided by the
applicable purchase price. The right to purchase shares of Common Stock is
automatically exercised at the end of each Purchase Period to the extent of
the payroll deductions accumulated during such Purchase Period.
Purchase Price, Shares Purchased. Shares of Common Stock may be purchased
under the Stock Purchase Plan at a price equal to 85% of the lesser of the
fair market value of the Common Stock on the first day of the Offering or the
last day of the Purchase Period. The "fair market value" of the Common Stock
on any relevant date will be the last sale price for the Common Stock as
reported on Nasdaq. The number of shares of Common Stock a participant
purchases in each Purchase Period is determined by dividing the total amount
of payroll deductions withheld from the participant's compensation during that
Purchase Period by the applicable purchase price.
Termination of Employment. Termination of a participant's employment for
any reason, including disability or death, or the failure of the participant
to maintain scheduled employment with the Company or a designated subsidiary
of at least 20 hours per week, cancels his participation in the plan
immediately. In such event, the payroll deductions credited to the
participant's account will be returned to the participant or, in the case of
death, to the person or persons entitled thereto as provided in the plan.
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Adjustment Upon Change in Capitalization, Change in Control. In the event
that the Common Stock is changed by reason of any stock split, reverse stock
split, stock dividend, combination, reclassification or other change in the
capital structure of the Company effected without the receipt of
consideration, appropriate proportional adjustments shall be made in the
number and class of shares of stock subject to the plan, the number and class
of shares of stock subject to rights outstanding under the plan, and the
exercise price of any such outstanding rights. Any such adjustment shall be
made by the Compensation Committee, whose determination shall be conclusive.
Notwithstanding the above, in connection with the Company's merger with, or
acquisition of all or substantially all of the Company's assets by, another
corporation, the Board shall take all reasonable steps to cause the successor
corporation to assume or substitute outstanding rights under the plan. If such
rights are not assumed or substituted, then any Purchase Period then in
progress shall be shortened to provide for a new exercise date and the
Compensation Committee shall notify each participant that his right shall be
exercised automatically on the new exercise date, unless prior to such date
the participant has withdrawn from the Offering.
Amendment and Termination of the Stock Purchase Plan. The Board may at any
time terminate or amend the plan; provided, however, that the Board shall not,
without the approval of the stockholders, alter (i) the aggregate number of
shares of Common Stock which may be issued under the plan (except for
adjustments upon a change in capitalization, change in control, etc.), or (ii)
the class of employees eligible to participate in the plan (other than to
designate that employees of additional subsidiaries shall be eligible to
participate in the plan); and provided further, however, that no termination,
modification, or amendment of the plan may, without the consent of an employee
then having a right under the plan to purchase shares of Common Stock,
adversely affect the rights of such employee under such option. If not
terminated earlier by the Board, the plan will terminate on the earlier of
December 31, 2004 or such date on which all shares of Common Stock which have
been reserved under the plan have been purchased.
Withdrawal. Generally, a participant may withdraw from an Offering at any
time without affecting his eligibility to participate in future Offerings.
However, once a participant withdraws from a particular Offering, that
participant may not participate again in the same Offering. Upon processing of
any written notice of withdrawal, no further payroll deductions will be made
from the participant's compensation during such Purchase Period or thereafter,
unless and until such participant elects to participate in a subsequent
Offering. Such participant's payroll deductions accumulated prior to
processing of such notice of withdrawal shall be, at the participant's option,
applied toward purchasing full shares of Common Stock in the then current
Purchase Period or shall be paid to the participant promptly after the
Company's receipt of the participant's notice of withdrawal, and no further
payroll deductions will be made from the participant's pay during such
Purchase Period. Any cash balance remaining after the purchase of shares in
such Offering after the participant's withdrawal from the plan shall be
refunded promptly to such participant. Except in the event of termination of
their employment, executive officers of the Company may not under any
circumstances withdraw from the Stock Purchase Plan during an Offering.
Plan Benefits. Because levels of participation, rates of deferral and the
eventual purchase price are not presently known, the future benefits to be
distributed under the plan are not determinable at this time. All of the
Company's Named Officers other than Mr. Prim are presently eligible to
participate in the plan.
Federal Tax Information for Stock Purchase Plan. The plan and the right of
participants to make purchases thereunder are intended to qualify under the
provisions of Sections 421 and 423 of the Code. Under these provisions, no
income will be taxable to a participant until the shares purchased under the
plan are sold or otherwise disposed of. Upon sale or other disposition of the
shares, the participant will generally be subject to tax and the amount of the
tax will depend upon the holding period. If the shares are sold or otherwise
disposed of more than two years from the first day of the Offering Period and
more than one year from the date of transfer of the stock to the participant,
then the participant will recognize ordinary income measured as the lesser of
(i) the excess of the fair market value of the shares at the time of such sale
or disposition over the purchase price or
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(ii) an amount equal to 15% of the fair market value of the shares as of the
first day of the Offering. Any additional gain will be treated as long-term
capital gain. If the shares are sold or otherwise disposed of before the
expiration of this holding period, the participant will recognize ordinary
income generally measured as the excess of the fair market value of the shares
on the date the shares are purchased over the purchase price. Any additional
gain or loss on such sale or disposition will be long-term or short-term
capital gain or loss, depending on the holding period. The Company is not
entitled to a deduction for amounts taxed as ordinary income or capital gain
to a participant except to the extent ordinary income is recognized by
participants upon a sale or disposition of shares prior to the expiration of
the holding period(s) described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased
under the Stock Purchase Plan. Reference should be made to the applicable
provisions of the Code. In addition, the summary does not discuss the tax
consequences of a participant's death or the income tax laws of any state or
foreign country in which the participant may reside.
The Board of Directors recommends a vote FOR adoption of the Stock Purchase
Plan. Proxies solicited by the Board of Directors will be voted FOR adoption
of the Stock Purchase Plan unless a vote against the proposal or an abstention
is specifically indicated.
PROPOSAL 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee recommended and the Board of Directors approved the
engagement of Ernst & Young, LLP ("Ernst & Young") as the independent auditors
of the Company for the fiscal year ending July 31, 2000. Ernst & Young,
independent certified public accountants, has reviewed the financial
statements of the Company since the fiscal quarter ended April 30, 1999 and
audited the Company's financial statements for the fiscal year ended July 31,
1999. A representative of Ernst & Young is expected to be present at the
Annual Meeting and will have the opportunity to make a statement if he or she
chooses to do so. The representative will also be available to respond to
appropriate questions from stockholders.
Although stockholder approval of the engagement is not required by law, the
Board of Directors desires to solicit such approval. If the appointment of
Ernst & Young is not approved by a majority of the shares represented at the
Annual Meeting, the Board of Directors will consider the appointment of other
independent auditors for fiscal 2000.
Effective February 19, 1999, the Company severed its relationship with its
independent accountants, PricewaterhouseCoopers LLP
("PricewaterhouseCoopers"). The action was recommended and approved by the
Audit Committee of the Company.
PricewaterhouseCoopers' report on the Company's financial statements for
the fiscal year ended July 31, 1998 contained no adverse opinion or disclaimer
of opinion, and was not qualified or modified as to uncertainty, audit scope
or accounting principles.
During fiscal 1998 and the subsequent interim periods preceding February
19, 1999, there were no disagreements between the Company and
PricewaterhouseCoopers on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers,
would have caused it to make a reference to the subject matter of the
disagreements in connection with its reports on the financial statements.
During the interim fiscal period ending January 31, 1999,
PricewaterhouseCoopers notified the Company that they were reviewing the
appropriate accounting treatment for two items at the time of their dismissal
which, depending on the results of the review that was not completed, may have
had a material impact on the fairness or reliability of financial statements
covering the fiscal periods ending January 31, 1999 and thereafter. The first
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item involved the estimated useful life of propane cylinders acquired by USA
Leasing, whose financial statements have been consolidated with those of the
Company. The second item involved the appropriate accounting for certain
acquisition costs related to customer accounts. The Company's Audit Committee
did not discuss the subject matter of either of these issues with
PricewaterhouseCoopers and the Company has authorized PricewaterhouseCoopers
to respond fully to any inquiries which the successor accountants may have had
with respect to these issues.
The Company has previously provided a copy of this disclosure to
PricewaterhouseCoopers in compliance with the provisions of Item 304(a)(3) of
Regulation S-K of the Securities Act.
The Board of Directors of the Company recommends a vote FOR the appointment
of Ernst & Young as independent auditors for the fiscal year ending July 31,
2000. Proxies solicited by the Board of Directors will be voted FOR
ratification of the appointment unless a vote against this proposal or
abstention is specifically indicated.
STOCKHOLDER PROPOSALS
Under the Company's By-laws, any stockholder who intends to present any
matter of business to be considered and voted upon at the annual meeting of
stockholders for the fiscal year ending July 31, 2000 must provide timely
written notice of the stockholder's intent to the Secretary of the Company.
Pursuant to applicable rules under the Exchange Act, some stockholder
proposals may be eligible for inclusion in the Company's proxy statement for
the fiscal year ending July 31, 2000. Any such stockholder proposals must be
submitted in writing to the Secretary of the Company not later than July 27,
2000. Stockholders interested in submitting such a proposal are advised to
contact knowledgeable counsel with regards to the detailed requirements of
such securities rules.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons beneficially owning more than 10% of the
Company's outstanding Common Stock to file periodic reports of stock ownership
and stock transactions with the Commission. Based solely on a review of copies
of these reports, the Company believes all of these reports were filed in a
timely manner except as set forth below. Messrs. Shadley and Thomas Ferrell,
two of our vice presidents, inadvertently failed to timely file Form 3's
within ten days of their appointment as executive officers of the Company in
August 1998 and November 1998, respectively, and Mr. Brenner inadvertently
failed to timely file a Form 3 within ten days of his appointment to the Board
of Directors in August 1998. Messrs. Devick, Duchossois, Filipowski and Prim
failed to timely file a Form 4 in connection with the distribution of shares
of Common Stock held by Platinum Propane to its members in March 1999. Messrs.
Filipowski and Castaneda failed to timely file a Form 4 in connection with the
purchase of Common Stock in October 1998 and March 1999, respectively. Mr.
Culp failed to timely file a Form 4 in connection with the exercise of options
to purchase Common Stock in June 1999.
ADDITIONAL INFORMATION
The Company's 1999 Annual Report furnished to all stockholders of record on
November 5, 1999 included a copy of its annual report on Form 10-K as filed
with the Commission for the fiscal year ended July 31, 1999. However, upon
written request by a stockholder of record on November 5, 1999, the Company
will provide without charge an additional copy of its annual report on Form
10-K for the fiscal year ended July 31, 1999. Requests should be directed to
Mark Castaneda, the Secretary of the Company, at 104 Cambridge Plaza Drive,
Winston-Salem, North Carolina 27104.
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OTHER MATTERS
As of the date of this proxy statement, the Board of Directors knows of no
other business to come before the Annual Meeting for consideration by the
Company's stockholders. If any other business properly comes before the
meeting, the persons named as proxies in the accompanying proxy card will vote
the shares represented by the proxy in accordance with their best judgment.
By Order of the Board of Directors
Mark Castaneda
Secretary
Winston-Salem, North Carolina
November 24, 1999
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Blue Rhino Corporation
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
Introduction
1.01 Purpose. The Blue Rhino Corporation Employee Stock Purchase Plan (the
"Plan") is intended to provide eligible employees of Blue Rhino Corporation
(the "Company") and its Eligible Subsidiary Corporations (as defined below)
with an opportunity to purchase shares of the Common Stock of the Company
through payroll deductions at a discount to the market price of the Common
Stock.
1.02 Rules of Interpretation. It is the intention of the Company to have
the Plan qualify as an "employee stock purchase plan" under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the
Plan shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
ARTICLE II
Definitions
2.01 "Board" shall mean the Board of Directors of the Company.
2.02 "Compensation" shall mean the gross cash compensation (including,
wage, salary and overtime earnings) paid by the Company or any Eligible
Subsidiary Corporation to a participant in accordance with the terms of
employment, but excluding all bonus payments, expense allowances and
compensation paid in a form other than cash.
2.03 "Committee" shall mean the committee described in Section 10.01.
2.04 "Common Stock" means the $.001 par value common stock of the Company.
2.05 "Eligible Subsidiary Corporation" shall mean each Subsidiary
Corporation, the employees of which are designated by the Board or the
Committee to participate in the Plan.
2.06 "Employee" shall mean any person employed by the Company or any
Eligible Subsidiary Corporation, including any full-time, part-time or
temporary employee who is scheduled to work more than twenty (20) hours per
week for at least five (5) months in any calendar year.
2.07 "Exercise Date" shall mean March 31, June 30, September 30 or December
31.
2.08 "Offering" shall have the meaning ascribed to it in Section 4.02.
2.09 "Offering Commencement Date" shall have the meaning ascribed to it in
Section 4.02.
2.10 "Offering Termination Date" shall have the meaning ascribed to it in
Section 4.02.
2.11 "Plan Representative" shall mean any person designated from time to
time by the Board or the Committee to receive certain notices from Employees
and take certain other administrative actions relating to participation in the
Plan.
2.12 "Purchase Period" shall mean the calendar quarters during each
Offering (as such term is defined in Section 4.02 hereof). The first Purchase
Period will begin on January 1, 2000 and end on March 31, 2000.
2.13 "Subsidiary Corporation" shall mean a corporation, partnership,
limited liability company or other entity, domestic or foreign, of which not
less than 50% of the voting interests are held by the Company or a Subsidiary
Corporation, whether or not such entity now exists or is hereafter organized
or acquired by the Company or a Subsidiary Corporation.
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ARTICLE III
Eligibility and Participation
3.01 Initial Eligibility. Each Employee who shall have completed ninety
(90) consecutive days of employment with the Company or any Eligible
Subsidiary Corporation prior to any Offering Commencement Date (as defined in
Section 4.02 below) and who is still employed by the Company or any Eligible
Subsidiary Corporation on the applicable Offering Commencement Date shall be
eligible to participate in the Plan. Persons who are not Employees shall not
be eligible to participate in the Plan.
3.02 Restrictions on Participation. Notwithstanding any provision of the
Plan to the contrary, no Employee shall be granted a right to purchase shares
of the Common Stock under the Plan:
(a) if, immediately after the grant, such Employee would own stock
and/or hold outstanding rights to purchase stock possessing 5% or more of
the total combined voting power or value of all classes of stock of the
Company (or any Eligible Subsidiary Corporation); or
(b) which permits such Employee's rights to purchase Common Stock under
all employee stock purchase plans of the Company to accrue at a rate which
exceeds $25,000 of fair market value of the Common Stock (determined at the
time such option is granted) for each calendar year in which such rights to
purchase Common Stock under the Plan are outstanding at any time.
3.03 Commencement of Participation. An eligible Employee may become a
participant by completing a subscription agreement authorizing payroll
deductions in the form attached hereto as Exhibit A (the "Subscription
Agreement") and by filing the completed Subscription Agreement with the Plan
Representative no later than seven (7) days prior to the next Offering
Commencement Date. Payroll deductions for a participant shall commence on the
payroll period coincident with or immediately following the Offering
Commencement Date after the Employee's authorization for payroll deductions
becomes effective and shall continue until the termination of the Plan or the
participant's earlier termination of participation in the Plan pursuant to
Article VIII below.
ARTICLE IV
Stock Subject to the Plan and Offerings
4.01 Stock Subject to the Plan. Subject to the provisions of Section 11.04
of the Plan, the Company's Board of Directors shall initially reserve an
aggregate of three hundred thousand (300,000) shares of Common Stock for
purchase by participants under the Plan, which shares shall be authorized but
unissued shares of Common Stock.
4.02 Offerings. The Plan will be implemented with five (5) annual offerings
of Common Stock (the "Offering(s)"). The first Offering will begin on January
1, 2000 and the last Offering will begin on January 1, 2004 and end on
December 31, 2004. The first day of each Offering shall be deemed the
"Offering Commencement Date" and the last day the "Offering Termination Date"
for such Offering. The Board or the Committee shall have the power to change
the duration of any Offering (including the Offering Commencement Dates
thereof) with respect to future Offerings without stockholder approval if such
change is announced at least five (5) days prior to the scheduled beginning of
the first Offering to be affected thereafter.
4.03 Shares Available During Offerings. The Board or the Committee, in its
sole discretion, shall have the right to determine whether participants will
be allowed to purchase all or a specific portion of the amount of shares of
Common Stock reserved for purchase by participants under the Plan in
accordance with Section 4.01 hereof during each Offering. Any shares of Common
Stock which are not purchased during an Offering shall be available for
purchase by participants in subsequent Offerings.
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ARTICLE V
Payroll Deductions
5.01 Amount of Deduction. The Subscription Agreement will permit a
participant to elect payroll deductions of one percent (1%) through fifteen
percent (15%) of such participant's Compensation for each pay period during an
Offering. In the case of a part-time hourly Employee, such Employee's
Compensation during an Offering shall be determined by multiplying such
Employee's hourly rate of pay in effect on the Offering Commencement Date by
the number of regularly scheduled hours of work for such Employee during such
Offering.
5.02 Accounting for Payroll Deductions. The Plan Representative shall keep
records to account for the amount of payroll deductions made by the
participants during each Offering. Notwithstanding the foregoing, neither the
Committee nor the Company shall be obligated to segregate such payroll
deductions and participants shall not be entitled to receive interest on
payroll deductions made by the participants during each Offering.
5.03 Changes in Payroll Deductions. A participant may discontinue or alter
his participation in the Plan only as provided in Article VIII.
ARTICLE VI
Granting of Purchase Rights
6.01 Number of Shares Attributable to Purchase Rights. On each Offering
Commencement Date, a participating Employee shall be deemed to have been
granted a right to purchase a number of shares of Common Stock equal to: (i)
that percentage of Compensation which the participant has elected to be
withheld in accordance with Section 5.01 multiplied by (ii) the Compensation
to be earned by the participant during the Offering divided by (iii) the
Purchase Price (as defined below).
6.02 Purchase Price. The price of Common Stock purchased with payroll
deductions made during any Purchase Period (the "Purchase Price") for a
participant therein shall be the lower of:
(a) 85% of the last sale price of the Common Stock on the Offering
Commencement Date for such Offering or the nearest prior business day on
which trading occurred on The Nasdaq Stock Market; or
(b) 85% of the last sale price on the applicable Exercise Date for such
Purchase Period or the nearest prior business day on which trading occurred
on The Nasdaq Stock Market.
If the Common Stock of the Company is not admitted to trading on any of the
aforesaid dates for which last sale prices of the Common Stock are to be
determined, then reference shall be made to the fair market value of the
Common Stock on each such date, as determined on such basis as shall be
established or specified for the purpose by the Board or the Committee.
ARTICLE VII
Exercise of Purchase Rights
7.01 Automatic Exercise. Unless a participant withdraws from the Plan as
provided in Section 8.02 hereof, the participant's right to purchase shares of
Common Stock shall be exercised automatically on each Exercise Date, and the
maximum number of whole shares of Common Stock subject to the purchase right
shall be purchased for such participant at the applicable Purchase Price with
the accumulated payroll deductions made by the participant during the Purchase
Period. If the number of shares of Common Stock to be purchased by
participants on a given Exercise Date exceeds the number of shares of Common
Stock then available under the
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Plan as set forth in Section 4.01 hereof, the Board or the Committee shall
make a pro rata allocation of the shares of Common Stock remaining available
for purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable and the balance of payroll deductions credited to
the account of the participants under the Plan shall be returned to the
participants as promptly as possible.
7.02 Fractional Shares. Fractional shares of Common Stock will not be
issued under the Plan. Except as otherwise provided in Article VIII below, any
accumulated payroll deductions which would have been used to purchase
fractional shares will be used for the purchase of Common Stock on the next
following Exercise Date.
7.03 Exercise of Purchase Rights. Purchase rights held by each participant
shall be exercisable only by such participant.
7.04 Delivery of Stock. As promptly as practicable after each Exercise
Date, the Company will deliver to each participant the shares of Common Stock
purchased upon exercise of such participant's purchase rights in accordance
with the participant's instructions contained in the Subscription Agreement.
The Company may deliver such shares in certificated or book entry form, at the
Company's sole election.
7.05 Stock Transfer Restrictions. The Plan is intended to satisfy the
requirements of Section 423 of the Code. A participant will not obtain the
benefits of Section 423 of the Code if such participant disposes of shares of
Common Stock acquired pursuant to the Plan within two (2) years from any
Offering Commencement Date or within one (1) year from the date such Common
Stock is transferred to the participant, whichever is later.
ARTICLE VIII
Termination of Participation
8.01 In General. After a participant makes an election to participate in an
Offering, payroll deductions will be made from the participant's Compensation
for all subsequent Offerings unless the participant submits a revised
Subscription Agreement to cease participation in the Plan to the Plan
Representative no later than seven (7) days prior to any subsequent Offering
Commencement Date. If a participant chooses to cease participation in the
Plan, such participant may elect to resume participation in the Plan for
subsequent Offerings by providing a new Subscription Agreement to the Plan
Representative pursuant to Section 3.03 above.
8.02 Withdrawal During an Offering. Except for any officer of the Company
who is subject to the reporting requirement of Section 16(a) of the Securities
Exchange Act of 1934, as amended (an "Insider"), a participant may stop
participating in the Plan during an Offering by giving written notice to the
Plan Representative in the form attached hereto as Exhibit B (a "Notice of
Withdrawal"). Upon processing by the Plan Representative of any such Notice of
Withdrawal, no further payroll deductions will be made from the participant's
Compensation during such Offering or thereafter unless and until such
participant elects to resume participation in the Plan by providing a new
Subscription Agreement to the Plan Representative pursuant to Section 3.03
above. Such participant's payroll deductions accumulated prior to processing
of such notice shall, at the participant's option, be applied toward
purchasing full shares of Common Stock on the next Exercise Date as provided
in Section 7.01 above or paid to the participant promptly after receipt by the
Plan Representative of the participant's Notice of Withdrawal. Any cash
balance remaining after the purchase of shares of Common Stock on the next
Exercise Date shall be refunded promptly to such participant. Insiders may not
make withdrawals pursuant to this Section 8.02 for so long as they remain
Insiders. A participant's withdrawal from any Offering will not have any
effect upon such participant's eligibility to participate in any succeeding
Offering or in any similar plan which may hereafter be adopted by the Company
and for which such participant is otherwise eligible.
8.03 Termination of Employment. Upon termination of a participant's
employment with the Company or any Eligible Subsidiary Corporation (as the
case may be) for any reason, including retirement or death, the participant's
payroll deductions accumulated prior to such termination, if any, shall be
refunded to the participant,
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or, in the case of participant's death, to the person or persons entitled
thereto under Section 11.01, and the participant's participation in the Plan
shall be deemed to be terminated.
ARTICLE IX
Stock
9.01 Participant's Interest in Stock Attributable to Purchase Rights. No
participant will have any interest in shares of Common Stock covered by any
right to purchase Common Stock under the Plan held by such participant until
such purchase right has been exercised as provided in Section 7.01 above.
9.02 Registration of Stock. Shares of Common Stock purchased by a
participant under the Plan will be registered in the name of the participant,
or, if the participant so directs in the Subscription Agreement delivered to
the Plan Representative prior to the Offering Termination Date applicable
thereto, in the names of the participant and the participant's spouse, as
joint tenants with rights of survivorship or as tenants by the entireties, to
the extent permitted by applicable law.
9.03 Restrictions on Exercise. The Board or the Committee may, in its
discretion, require as conditions to the issuance of any right to purchase
Common Stock under the Plan that the shares of Common Stock reserved for
issuance upon the exercise of such purchase right shall have been duly listed,
upon official notice of issuance, upon a stock exchange or market, and that
either:
(a) a registration statement under the Securities Act of 1933, as
amended, with respect to said shares shall be effective, or
(b) the participant shall have represented at the time of purchase, in
form and substance satisfactory to the Company, that it will be the
participant's intention to purchase the shares for investment and not for
resale or distribution.
ARTICLE X
Administration
10.01 Appointment of Committee. The Plan shall be administered by the
Compensation Committee of the Board (the "Committee"), or in the absence of
such Committee, by the Board.
10.02 Authority of the Board or the Committee. Subject to the express
provisions of the Plan, the Board or the Committee shall have plenary
authority in its discretion to interpret and construe any and all provisions
of the Plan, to adopt, amend, suspend or waive rules and regulations for
administering the Plan, appoint agents as it shall deem appropriate for the
proper administration of the Plan, and to make all other determinations deemed
necessary or advisable for administering the Plan. The determination of the
Board or the Committee with respect to the foregoing matters shall be
conclusive.
ARTICLE XI
Miscellaneous
11.01 Designation of Beneficiary. A participant may file with the Plan
Representative a written designation of a beneficiary who is to receive any
shares of Common Stock and/or cash under the Plan upon the participant's
death. Such designation of beneficiary may be changed by the participant at
any time by submitting a new Subscription Agreement to the Plan
Representative. Upon the death of a participant and receipt by the Company of
proof of identity and existence at the participant's death of a beneficiary
validly designated by the participant under the Plan, the Company shall
deliver any shares of Common Stock and/or cash credited to the participant's
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account to such beneficiary. In the event of the death of a participant
lacking a beneficiary validly designated under the Plan who is living at the
time of such participant's death, the Company shall deliver such cash and/or
Common Stock to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver
such cash and/or Common Stock to the spouse or to any one or more dependents
of the participant, in each case without any further liability of the Company
whatsoever under or relating to the Plan. No beneficiary shall, prior to the
death of the participant by whom he or she has been designated, acquire any
interest in the cash and/or shares of Common Stock credited to the participant
under the Plan.
11.02 Transferability. Participants may not assign, transfer, pledge or
otherwise dispose of any right to purchase Common Stock under the Plan or to
receive Common Stock upon the exercise of such purchase rights under the Plan
other than by will or the laws of descent and distribution. Any such attempted
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may, in its discretion, treat such act as an election
to withdraw from participation in the Plan in accordance with Section 8.02.
11.03 Use of Funds. All payroll deductions received or held by the Company
under the Plan may be used by the Company for any corporate purpose.
11.04 Adjustment Upon Changes in Capitalization.
(a) If, while any rights to purchase Common Stock are outstanding under
the Plan, the outstanding shares of Common Stock of the Company have
increased, decreased, changed into, or been exchanged for a different
number or kind of shares or securities of the Company through any
reorganization, merger, recapitalization, reclassification, stock split,
reverse stock split or similar transaction, appropriate and proportionate
adjustments may be made by the Board or the Committee, in its sole
discretion, in the number and/or kind of shares which are subject to
purchase under outstanding purchase rights and in the Purchase Price
applicable to such outstanding rights to purchase Common Stock under the
Plan. In addition, in any such event, the number and/or kind of shares
which may be offered in the Offerings described in Article IV hereof shall
also be proportionately adjusted.
(b) Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving
corporation, or upon a sale of substantially all of the property or capital
stock of the Company to another corporation, the Board shall take all
reasonable steps to cause the successor corporation to assume the Plan and
substitute new purchase rights of the successor employer corporation or a
parent or subsidiary thereof for such rights to purchase Common Stock
granted hereunder with appropriate adjustment as to the number and kinds of
shares attributable to such purchase rights and the exercise price of such
purchase rights. If the Plan is not assumed by the successor corporation as
set forth above, then any Purchase Period then in progress shall be
shortened to provide for a new Exercise Date for the rights to purchase
Common Stock granted hereunder during such Offering and the Board or the
Committee shall notify each participant that the participant's purchase
rights shall be exercised automatically on the new Exercise Date, unless
prior to such date the participant has withdrawn from the Offering.
11.05 Amendment and Termination. The Board shall have complete power and
authority to terminate or amend the Plan; provided, however, that the Board
shall not, without the approval of the stockholders of the Company, alter (i)
the aggregate number of shares of Common Stock which may be issued under the
Plan (except pursuant to Section 11.04 above) or (ii) the class of employees
eligible to receive rights to purchase Common Stock under the Plan, other than
to designate additional Subsidiary Corporations as Eligible Subsidiary
Corporations; and provided further, however, that no termination,
modification, or amendment of the Plan may, without the consent of an Employee
then having rights to purchase Common Stock under the Plan adversely affect
the rights of such Employee under such purchase right. Notwithstanding the
foregoing, the Plan shall terminate on the earlier of (i) such time as all of
the shares of Common Stock which have been reserved under the Plan pursuant to
Section 4.01 hereof have been purchased or (ii) December 31, 2004.
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11.06 Effective Date. The Plan shall become effective as of January 1, 2000
subject to approval by the holders of a majority of the shares of Common Stock
present or represented at any special or annual meeting of the stockholders of
the Company duly held within twelve (12) months after adoption of the Plan by
the Board. If the Plan is not so approved, the Plan shall not become
effective.
11.07 No Employment Rights. The Plan does not, directly or indirectly,
create in any person any right with respect to continuation of employment by
the Company or any Subsidiary Corporation, and it shall not be deemed to
interfere in any way with the Company's or any Subsidiary Corporation's right
to terminate, or otherwise modify, any employee's employment at any time.
11.08 Effect of Plan. The provisions of the Plan shall, in accordance with
its terms, be binding upon, and inure to the benefit of, all successors of
each Employee participating in the Plan, including, without limitation, such
Employee's estate and the executors, administrators or trustees thereof, heirs
and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Employee.
11.09 Governing Law. The laws of the State of North Carolina will govern
all matters relating to this Plan except to the extent superseded by the
federal laws of the United States.
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PROXY PROXY
BLUE RHINO CORPORATION
104 Cambridge Plaza Drive
Winston-Salem, NC 27104
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Billy Prim and Mark Castaneda as Proxies,
each with the power to appoint his substitute, and hereby authorizes them to
represent and to vote, as designated below, all the shares of Common Stock of
Blue Rhino Corporation held on record by the undersigned on November 5, 1999,
at the Annual Meeting of stockholders to be held on December 21, 1999 or any
adjournment thereof.
Please sign exactly as your name appears above. If shares are held jointly,
each holder should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS PROXY CARD
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
(Continued and to be signed on reverse side.)
FOLD AND DETACH HERE
<PAGE>
BLUE RHINO CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
1. ELECTION OF DIRECTORS Nominees:
John H. Muehlstein Richard A. Brenner Robert J. Lunn
For All
For Withheld Except
[_] [_] [_]
- -----------------------------------
(Except nominee(s) written above.)
2. PROPOSAL TO REDUCE the authorized capital stock of the Company from
120,000,000 shares to 45,000,000 shares:
For Against Abstain
[_] [_] [_]
3. PROPOSAL TO APPROVE THE ISSUANCE of common stock upon the conversion of
convertible notes and related warrants:
For Against Abstain
[_] [_] [_]
4. PROPOSAL TO RATIFY THE ADOPTION of the Blue Rhino Corporation Employee
Stock Purchase Plan:
For Against Abstain
[_] [_] [_]
5. PROPOSAL TO RATIFY THE APPOINTMENT of Ernst & Young LLP as the Company's
independent public accountants for the fiscal year ending July 31, 2000:
For Against Abstain
[_] [_] [_]
This Proxy will be voted as directed, but if no instructions are specified,
this Proxy will be voted for each of the proposals stated. If any other busi-
ness is presented at the Annual Meeting, this Proxy will be voted by those
named in this Proxy in their best judgment. At the present time, the Board of
Directors knows of no other business to be presented at the meeting.
Dated: _________________________________________________________________ , 1999
Signature _____________________________________________________________________
Signature if held jointly _____________________________________________________
================================================================================
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND MAIL THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
