<PAGE>
As filed with the Securities and Exchange Commission on January 15, 1999
333-70127
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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Blue Rhino Corporation
(Exact name of Registrant as specified in its charter)
-----------------
Delaware 5984 56-1870472
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification Number)
of incorporation or Classification Code
organization) Number)
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-----------------
Billy D. Prim
Chairman and Chief Executive Officer
104 Cambridge Plaza Drive
Winston-Salem, North Carolina 27104
Telephone (336) 659-6900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Susan M. Hermann Larry A. Barden
Pedersen & Houpt, P.C. Sidley & Austin
161 N. Clark Street, Suite 3100 One First National Plaza
Chicago, Illinois 60601 Chicago, Illinois 60603
Telephone (312) 641-6888 Telephone: (312) 853-7000
-----------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, please check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If the Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
-----------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion
Preliminary Prospectus dated January 15, 1999
PROSPECTUS
2,000,000 Shares
Common Stock
-----------
Blue Rhino Corporation is offering 2,000,000 shares of common stock. Our
common stock is listed on The Nasdaq Stock Market under the symbol "RINO." The
last reported sale price for the common stock on January 13, 1999 was $17 3/8
per share.
Investing in the common stock involves risks which are described in the
"Risk Factors" section beginning on page 9 of this prospectus.
-----------
<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Public Offering Price............................. $ $
Underwriting Discount............................. $ $
Proceeds, before expenses, to Blue Rhino
Corporation...................................... $ $
</TABLE>
The underwriters may also purchase from Blue Rhino Corporation up to an
additional 300,000 shares at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover over-
allotments.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The shares of common stock will be ready for delivery in New York, New York
on or about , 1999.
-----------
Merrill Lynch & Co.
NationsBanc Montgomery Securities LLC
-----------
The date of this prospectus is , 1999
<PAGE>
The Blue Rhino(R) logo, including the name, RhinoTUFF(R), Tri-Safe(TM),
Fuelcheck(TM), Endless Summer(TM) and Endless Summer Comfort(TM) are our
registered and pending trademarks. This prospectus also includes trademarks of
other companies.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 5
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 14
Price Range of Common Stock.............................................. 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Selected Consolidated Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 28
Management............................................................... 37
Certain Transactions..................................................... 44
Principal Stockholders................................................... 45
Description of Capital Stock............................................. 47
Shares Eligible for Future Sale.......................................... 49
Underwriting............................................................. 51
Legal Matters............................................................ 53
Experts.................................................................. 53
Additional Information................................................... 53
Index to Financial Statements............................................ F-1
</TABLE>
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are not guarantees of future
performance and are subject to risks, uncertainties and assumptions, including,
among other things:
. Anticipated trends in our business, including consumer preferences
for propane grills and acceptance of cylinder exchange,
. Adequacy of our management, systems and distribution infrastructure
to manage growth in sales and locations,
. Ability of our distributors to provide adequate service to retailers,
. Placement of Blue Rhino cylinder exchange at new retail locations and
increasing sales at existing locations,
. Maintenance of relationships with existing retailers and
distributors,
. Securing capital for future acquisitions and growth,
. Successful identification and introduction of new products and
services, and
. Adaptation to changes in the regulatory environment.
Words such as "expect," "anticipate," "intend," "plan," "believe,"
"estimate" and variations of such words and similar expressions are intended to
identify such forward-looking statements. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
prospectus might not occur.
-----------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
3
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This page intentionally left blank.
4
<PAGE>
SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire prospectus, including the financial data and
related notes, before making an investment decision. The terms "we," "our,"
"us," "Blue Rhino" and "the Company" as used in this prospectus refer to Blue
Rhino Corporation and its subsidiaries and predecessor as a combined entity,
except where it is made clear that such term means only Blue Rhino Corporation.
Unless otherwise indicated, the data regarding grill ownership, use and
consumer preferences contained in this prospectus is based on information
contained in the 1997 Barbecue Grill Usage and Attitude Study conducted on
behalf of the Barbecue Industry Association of America ("BIA").
The Company
We are the leading national provider of propane grill cylinder exchange in
the United States with Blue Rhino cylinder exchange displays at over 12,000
retail locations in 47 states and Puerto Rico. Cylinder exchange provides
consumers with a convenient means to exchange empty grill cylinders for clean,
safer, precision-filled cylinders. We offer our cylinder exchange at many major
home center/hardware, mass merchant, grocery and convenience stores including
Home Depot, Lowe's, Sears, WalMart, Kroger and Kwik Shop. We partner with
retailers and independent distributors to provide consumers with a nationally
branded alternative to traditional grill cylinder refill. We dedicate our
efforts and capital to brand development, value-added marketing, customer
service and management information systems while our 53 independent
distributors make the investments in the vehicles and refilling and
refurbishing equipment necessary to operate cylinder exchange businesses.
Cylinder exchange is a relatively new retail concept. We believe that
consumer awareness of the benefits of cylinder exchange will increase as it
becomes more widely available. Furthermore, we estimate there are approximately
225,000 potential cylinder exchange locations in our target markets. During the
twelve months ended October 31, 1998, our sales increased approximately 105%
compared to the twelve months ended October 31, 1997 to approximately $32.5
million, primarily as a result of the growth of sales at existing locations and
the addition of over 6,700 new retail locations.
The Industry
The grill cylinder exchange industry is highly fragmented with numerous
regional and local distributors serving less than 500 locations each. We
believe this fragmentation results in part from the relative newness of
cylinder exchange and the challenges cylinder exchange poses to commercially
focused traditional propane distributors. To build critical mass at the
consumer level, a propane distributor must establish and maintain relationships
with major retailers, many of which prefer to stock quality, branded products
supplied by reliable, sophisticated vendors. To service retail cylinder
exchange accounts, a propane distributor must make investments in refurbishing
equipment, vehicles, cylinder displays and grill cylinders not required in its
traditional propane business. Finally, to properly account for exchange,
upgrade and sale transactions, a propane distributor must invest in
sophisticated management information systems tailored to servicing retailers.
We believe there are opportunities to expand through selective acquisitions of
smaller cylinder exchange businesses with established retail accounts.
As reported in the BIA study, the popularity of outdoor barbecuing
continues to grow driven by consumer interest in healthier food preparation and
the desire to spend more time outside at family and social gatherings. The
popularity of propane grills has increased significantly in recent years with
propane grill sales now exceeding the combined sales of charcoal, natural gas
and electric grills. According to the BIA study, approximately 38.5 million
United States households own a propane grill, with the average propane grill
owner using 1.8 cylinders of propane per year. Based on the BIA study's
estimate that there are approximately 69 million cylinder transactions per
year, we estimate the annual retail market for grill cylinder refill to be
approximately $1 billion.
5
<PAGE>
Business Model
We have created a new paradigm for grill cylinder exchange which provides
the following benefits to consumers, retailers and distributors:
Consumers
. Convenient branded alternative to traditional cylinder refill
. Clean, safer product
. Access to consumer and product information (1-800-BLU-RINO and web
site)
Retailers
. High margin branded product
. Potential to increase customer traffic
. Improved use of exterior retail space
. Nationwide direct store delivery with automatic restocking
. Centralized billing and electronic inventory, invoicing and reporting
. Employee training
Distributors
. Access to major retail accounts
. Opportunity to sell a branded product in a growing market segment
. Service support such as sophisticated management information systems,
training and consolidated purchasing
. Assistance in obtaining and maintaining local permits
. Provision of cylinder displays and access to cylinder leasing programs
. Counter-seasonal complement to traditional propane business
Business Strategy
Our objective is to further strengthen our position as the leading
national provider of cylinder exchange. To achieve this objective, the key
elements of our strategy are:
. Promoting the Blue Rhino brand and driving consumer awareness of
cylinder exchange
. Expanding existing retailer relationships by opening new locations and
increasing sales at existing locations
. Adding new retailer relationships
. Leveraging distributors' infrastructure by adding new retail locations
within their territories
. Leveraging our corporate infrastructure to increase profitability
. Pursuing strategic account acquisitions from other cylinder exchange
providers
. Developing new products and services related to propane use and
backyard living, such as patio heaters and the related cylinder
exchange service
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by Blue
Rhino........................... 2,000,000 shares
Shares outstanding after the
offering........................ 9,645,742 shares (1)
Use of Proceeds.................. We estimate that the net proceeds we receive
from this offering (excluding the exercise
of the over-allotment option) will be
approximately $32.2 million. We intend to
use these net proceeds to acquire cylinder
exchange providers and accounts, provide
working capital, fund general corporate
purposes and develop and introduce new
products and services.
Risk Factors..................... See "Risk Factors" for a discussion of
factors you should carefully consider before
deciding to invest in shares of the common
stock.
Nasdaq Symbol.................... RINO
</TABLE>
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(1) Excludes 1,867,740 shares of common stock reserved for issuance under our
stock incentive plans, of which options to purchase up to 764,627 shares
with a weighted average exercise price of $12.14 were outstanding as of
December 31, 1998. See "Management--1998 Stock Incentive Plan." Also
excludes 81,913 shares of common stock reserved for issuance upon exercise
of outstanding warrants (the "1998 Warrants") with an exercise price of
$13.00 per share. Also excludes up to 1,000,000 shares of common stock
which are the subject of a registration statement on file with the
Securities and Exchange Commission and which we expect to issue in
connection with business acquisitions. See "Shares Eligible for Future
Sale." We have signed a letter of intent to acquire Bison Valve, L.L.C.
which contemplates the issuance of a portion of these shares. See
"Business--Business Strategy" and "Management--Compensation Committee
Interlocks and Insider Participation." Assumes that the underwriters' over-
allotment option is not exercised. If the underwriters' over-allotment
option is exercised in full, we will issue an additional 300,000 shares.
COMPANY BACKGROUND AND CONTACT INFORMATION
Our business was incorporated in North Carolina on March 24, 1994 and
reincorporated in Delaware on December 16, 1994. We have two wholly-owned
subsidiaries, Rhino Services, L.L.C., a Delaware limited liability company
("Rhino Services"), and CPD Associates, Inc., a North Carolina corporation
("CPD"). Rhino Services offers centralized purchasing services to our
distributors. CPD was formed to hold our intangible assets. In May 1998, we
consummated our initial public offering of 3,105,000 shares (including the
over-allotment option) at an offering price of $13.00 per share.
Our principal executive offices are at 104 Cambridge Plaza Drive, Winston-
Salem, North Carolina 27104 and our telephone number is (336) 659-6900.
7
<PAGE>
Summary Consolidated Financial Information
<TABLE>
<CAPTION>
Fiscal Year Ended Three Months Ended
---------------------------- -----------------------
July 28, July 31, July 31, October 31, October 31,
1996 1997 1998 1997 1998
-------- -------- -------- ----------- -----------
(unaudited)
(in thousands, except per share data and retail
locations data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net sales.............. $ 8,216 $ 14,211 $ 27,372 $ 4,140 $9,222
Gross profit........... 316 2,567 6,847 985 2,440
Income (loss) from
operations (1)........ (6,130) (4,105) (896) (957) 384
Net income (loss) (1).. $ (7,431) $ (5,584) $ (2,369) $ (1,340) $ 422
Income (loss)
applicable to common
stockholders (2)...... $ (8,067) $ (6,271) $ (2,965) $ (1,447) $ 422
Earnings (loss) per
common share:
Basic and diluted ... $ (4.96) $ (3.74) $ (1.01) $ (0.81) $ 0.05
Pro forma diluted.... $ (1.72) $ (1.27) $ (0.47) $ (0.30) $ 0.05
Weighted average shares
used in computing
earnings (loss) per
common share:
Basic................ 1,628 1,678 2,945 1,779 7,631
Diluted (3).......... 1,628 1,678 2,945 1,779 7,719
Pro forma diluted
(4)................. 4,313 4,406 5,077 4,464 7,719
Selected Operating Data:
Retail locations (at
period end)........... 2,981 4,400 9,500 5,228 12,000
Cylinder transactions.. 769 1,239 2,201 375 705
Consolidated Balance
Sheet Data:
Cash and cash
equivalents .......... $ 1,126 $ 325 $ 5,908 $ 313 $4,122
Working capital........ 1,580 737 11,689 (715) 8,387
Total assets........... 11,897 9,974 30,577 8,555 29,476
Long-term obligations,
less current
maturities............ 14,174 16,110 260 19,448 283
Total stockholders'
equity (deficit)...... (13,217) (18,488) 24,923 (10,893) 25,419
</TABLE>
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(1) Includes nonrecurring charges of $1,363 for fiscal 1996, $970 for fiscal
1997, $563 for fiscal 1998, $281 for the three months ended October 31,
1997 and $0 for the three months ended October 31, 1998. See Note 11 of
Notes to Consolidated Financial Statements.
(2) Equals net income (loss) less dividends on our redeemable Series A
Convertible Participating Preferred Stock ("Old Preferred Stock") of $636
for fiscal 1996, $687 for fiscal 1997, $596 for fiscal 1998, $107 for the
three months ended October 31, 1997 and $0 for the three months ended
October 31, 1998.
(3) For fiscal years 1996, 1997 and 1998 and for the three months ended October
31, 1997, the weighted average number of shares outstanding excludes the
effect of the exercise of all outstanding stock options and warrants and
the conversion of the Old Preferred Stock into shares of common stock
because such exercise or conversion would be anti-dilutive.
(4) The unaudited pro forma share information assumes that the following (which
did not occur until our recapitalization was effected in connection with
our May 1998 initial public offering) had been effected as of the beginning
of the first year presented: the conversion of all outstanding shares of
Old Preferred Stock into common stock, the conversion of the accrued and
unpaid dividends on outstanding Old Preferred Stock into common stock and
the exercise of all outstanding warrants (other than the 1998 Warrants). No
shares of preferred stock are currently outstanding.
8
<PAGE>
RISK FACTORS
Investing in the common stock will provide you with an equity ownership
interest in Blue Rhino. As a Blue Rhino stockholder, you may be subject to
risks inherent in our business. The performance of your shares will reflect the
performance of our business relative to, among other things, competition and
general economic, market and industry conditions. The value of your investment
may increase or decline and could result in a loss. You should carefully
consider the following factors as well as other information contained in this
prospectus before deciding to invest in shares of our common stock.
UNCERTAINTY OF CONTINUED RAPID GROWTH
We are a young company that has experienced a very high growth rate. In
order to continue to grow, we must be able to:
. Find productive new retail locations
. Demonstrate to consumers the benefits of cylinder exchange
. Maintain relationships with distributors who are able to expand our
business and achieve our quality and service standards
. Refine and maintain a corporate infrastructure sufficient to support
growth
. Secure capital to fund growth
. Identify and consummate acquisitions of retail accounts from existing
cylinder exchange providers
Even if we successfully implement our growth strategy, we may not be able to
sustain our recent growth rates.
ABILITY OF DISTRIBUTORS AND MANAGEMENT TO MANAGE GROWTH IN SALES AND NUMBER OF
RETAIL LOCATIONS
The number of retail locations offering Blue Rhino cylinder exchange and
our corresponding sales have grown significantly over the past several years
along with the creation of our independent distributor network. As of July 31,
1995, we had 1,608 retail exchange locations, substantially all of which were
in the South/Southeast region of the United States and no independent
distributor network. As of October 31, 1998, we had 53 independent distributors
servicing in excess of 12,000 retail locations in 47 states and Puerto Rico. To
successfully grow, our distributors must be able to adequately service an
increasing number of retail accounts. Due to our recent growth, certain
distributors have experienced service problems, particularly during peak demand
periods such as holiday weekends. This growth also requires our executive
officers, who have only limited prior experience managing a public company, to
skillfully manage Blue Rhino and our retailer and distributor relationships. If
we fail to effectively manage our growth, our business may suffer.
LACK OF CONTRACTUAL RELATIONSHIPS WITH RETAILERS
None of our significant retail accounts are contractually bound to offer
Blue Rhino cylinder exchange. Therefore, those retailers can discontinue Blue
Rhino cylinder exchange at any time and offer a competitor's cylinder exchange
or no cylinder exchange program at all. Continued relations with a retailer
depend upon various factors, including customer service, consumer demand,
competition and cost. In addition, certain of our retailers have multiple
vendor policies and, therefore, may seek to offer a competitor's cylinder
exchange program at new or existing locations. If any significant retailer
terminates, reduces or is unwilling to expand its relationship with us, our
business may suffer. See "--Volatile Product; Potential Product Liability."
CONCENTRATION OF REVENUES WITH A LIMITED NUMBER OF RETAILERS
We depend upon our relationships with a limited number of major retailers
for a significant portion of our net sales. Home Depot represented
approximately 26% of our fiscal 1998 net sales and
9
<PAGE>
approximately 25% of our net sales for the three months ended October 31, 1998.
Lowe's and WalMart each represented approximately 16% and 13% of our net sales
for the same periods. Our failure to maintain or expand relationships with any
of these retailers or a significant business downturn at any of these retailers
could negatively impact our business.
Dependence on Distributor Relationships
We rely exclusively on independent distributors to deliver our products
to retailers. Our success will depend on our ability to maintain existing
distributor relationships and on the distributors' ability to set up and
adequately service an expanding base of retail accounts. We exercise only
limited influence over the resources that our independent distributors devote
to cylinder exchange. We could suffer a loss of consumer or retailer goodwill
if our distributors do not adhere to our quality control and service guidelines
or fail to ensure an adequate and timely supply of cylinders at retail
locations. Problems a national retailer may have with one distributor could
result in the loss of other locations of that retailer serviced by one or more
of our other distributors. If any major distributor were to discontinue
servicing one or more retailers or terminate its distribution agreement, our
business may suffer. See "Business--Distributor Network."
Dependence on Consumer Acceptance of Cylinder Exchange
We derive substantially all of our revenues from cylinder exchange, a
relatively new retailing concept for consumers and retailers. According to the
BIA study, 79% of the consumers who use propane grills refill rather than
exchange their cylinders. Our success will depend in large part on our ability
to successfully encourage consumers to switch from traditional refilling
methods to cylinder exchange and encourage retailers to offer cylinder
exchange.
Seasonal and Quarterly Fluctuations in Our Business
Our quarterly operating results fluctuate significantly primarily because
consumers grill most frequently in the spring and summer, especially in colder
regions of the United States. As a result, we earn most of our revenue during
our third and fourth quarters ended April 30 and July 31. In addition, as of
October 31, 1998, approximately 41% of our retail locations were in the
South/Southeast region, and during the twelve months ended October 31, 1998 we
derived approximately 47% of our revenues from this region. Sustained periods
of poor weather, particularly during the spring and summer or in the
South/Southeast region, can negatively impact our net sales and gross margin.
Our timing and rate of establishing new retail locations and expenses incurred
in anticipation of increased sales also may cause quarterly fluctuations in our
results of operations. Accordingly, the results of operations in any quarter
will not necessarily be indicative of the results that we may achieve for a
full fiscal year or any future quarter. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Selected Quarterly
Results of Operations."
Concentration of Retail Locations with a Limited Number of Distributors
As of October 31, 1998, six distributors serviced approximately 35% of
our retail locations. Sales by these key distributors resulted in approximately
47% of our net sales for the twelve months ended October 31, 1998. The five
distributors owned by Platinum Propane Holding, L.L.C. ("Platinum Propane")
accounted for approximately 37% of our net sales for the twelve months ended
October 31, 1998. Ceramic Industries, Inc. accounted for approximately 10% of
our net sales for the twelve months ended October 31, 1998. A disruption in
service by one or more of these distributors may cause our business to suffer.
Potential Conflicts of Interest in Enforcing Remedies Against Our Affiliates
Billy D. Prim, our Chairman, President and Chief Executive Officer,
Andrew J. Filipowski, our Vice Chairman and Craig Duchossois, one of our
directors, indirectly own in the aggregate approximately 45% of Platinum
Propane whose five distributors collectively serve more locations and
collectively have had higher net sales than any of our other distributors. In
addition, Messrs. Prim and Filipowski own in the aggregate approximately 45% of
each of Caribou Cylinder Exchange, L.L.C.
10
<PAGE>
("Caribou Propane"), Javelina Cylinder Exchange, L.L.C. ("Javelina Propane")
and Raven Propane, L.L.C. ("Raven Propane"), three of our distributors. Messrs.
Prim and Filipowski, along with Craig J. Duchossois, one of our directors, and
Peer Pedersen, one of our stockholders and a partner in Pedersen & Houpt, our
legal counsel, own USA Leasing, L.L.C. ("USA Leasing"), an entity which leases
grill cylinders to our distributors. We have guaranteed 80% of USA Leasing's
obligations under a $13.0 million credit facility and in return have received a
subordinated security interest in USA Leasing's assets. We believe that the
foregoing transactions with directors, officers, stockholders and other
affiliates were completed on terms as favorable to us as could have been
obtained from unaffiliated third parties. If any of Platinum Propane, Caribou
Propane, Javelina Propane or Raven Propane fail to meet performance goals, or
USA Leasing defaults on its indebtedness, the cross-ownership of these entities
and Blue Rhino could reduce our incentive to terminate distribution agreements,
enforce security agreements or subrogation rights or take other actions. See
"Business--Distributor Network--Dedicated Distributors," "Management--
Compensation Committee Interlocks and Insider Participation" and "Certain
Transactions."
Varying Local Permitting Processes Affecting Retail Locations
Local ordinances, which vary from jurisdiction to jurisdiction, generally
require retailers to obtain permits to store and sell propane cylinders. These
ordinances influence retailers' acceptance of cylinder exchange, distribution
methods, cylinder packaging and storage. The ability and time required to
obtain permits varies by jurisdiction. Delays in obtaining permits have from
time to time significantly delayed the installation of new retail locations.
Some jurisdictions have refused to issue the necessary permits and thereby have
prevented a limited number of installations. Certain jurisdictions may also
impose additional restrictions on our ability to market and our distributors'
ability to maintain the cylinder exchange program. Revisions to these
regulations or violations of current or future regulations by us or our
distributors may cause our business to suffer. See "Business--Governmental
Regulation."
Competition in Grill Cylinder Refilling Industry
The grill cylinder refilling industry is highly fragmented and
competitive. Competition in our industry is based primarily upon convenience,
quality of product, service, historical relationships, perceived safety and
price. The BIA study states that 79% of the consumers who use propane grills
refill rather than exchange their cylinders. Accordingly, our primary
competition comes from the approximately 20,000 bulk refilling stations owned
and operated by propane dealers, as well as certain rental outlets,
recreational vehicle centers and hardware stores. Major propane providers, such
as AmeriGas Propane Partners, L.P., Cornerstone Propane Partners, L.P.,
Ferrellgas Propane Partners, L.P., Heritage Propane Partners, L.P. and Suburban
Propane Partners, L.P., could establish new or expand their existing cylinder
exchange businesses nationally. These major propane providers have greater
resources than we do and may be able to undertake more extensive marketing
campaigns and adopt more aggressive pricing policies than we can. We also
compete with numerous regional cylinder exchange providers, which typically
have operations in a few states, and with local cylinder exchange providers. If
these competitors expand their cylinder exchange programs or new competitors
enter the market or grow to compete with us on a national scale, our market
share and gross margins could decrease.
Volatile Product; Potential Product Liability
Propane is a gas which, if exposed to flame or high pressure, may ignite
or explode, potentially causing significant property damage and/or bodily harm.
Accidents may occur during the refurbishing, refilling, transport, storage,
exchange, use or disposal of cylinders and other Blue Rhino products. Because
the Blue Rhino name and logo are prominently displayed on all cylinders,
cylinder displays and other Blue Rhino products, such as patio heaters, we
could be subjected to damage claims. In the event of an accident, we could
incur substantial expense, receive adverse publicity and/or suffer a loss of
sales. A grill cylinder-related accident involving personal injury could result
in product liability actions against us or our distributors and could affect
the willingness of retailers to offer or consumers to use cylinder exchange.
Adverse publicity relating to any such incident could also affect our
reputation and the perceived benefits of cylinder exchange. Furthermore, there
can be no assurance that insurance will provide sufficient coverage in any
particular case or that we or our distributors will be able to continue to
obtain insurance coverage at acceptable levels and cost.
11
<PAGE>
Product Recalls and Prior Accidents Affecting Blue Rhino
Prior to May 1996, we operated a propane refilling facility in
Booneville, North Carolina. In July 1995, an explosion resulting in significant
structural damage to the plant occurred at this facility when a filled cylinder
fell from a conveyor belt, began to leak and subsequently ignited. In September
1997, a fire occurred at one of our distributor's cylinder refurbishing
facility when a cylinder was left unattended on a sleeve application machine
and caught fire. In August 1997, Rotorix, Inc., the distributor of Ceodux
cylinder valves, issued a recall of Ceodux valves placed on Worthington
cylinders after July 16, 1997. We instructed our distributors to inventory the
cylinders at their plants and retail locations and remove any cylinders with
the recalled valves. However, we cannot be sure that all recalled valves have
been removed from circulation.
Regulation of Propane
Federal, state and local authorities regulate the transportation,
handling, storage and sale of propane in order to protect consumers, employees,
property and the environment. The handling of propane in most regions of the
United States is governed by guidelines published by the National Fire
Protection Association in Pamphlets 54 and 58. These guidelines require that
all cylinders produced or recertified after September 30, 1998 and all grill
cylinders refilled after April 2002 must be fitted with an overfill prevention
device valve. Failure of our distributors to comply with these regulations
could subject us to potential governmental action for violation of such
regulations which could result in fines, penalties and/or injunctions. See
"Business--Governmental Regulation."
Blue Rhino's Dependence on Management Information Systems
We depend on our management information systems ("MIS") to process
orders, manage inventory and accounts receivable, maintain distributor and
customer information, maintain cost-efficient operations and assist
distributors in delivering products on a timely basis. In addition, our staff
of four MIS professionals relies heavily on the support of Information
Management System Services ("IMSS"), a division of R. J. Reynolds Tobacco
Company. Any disruption in the operation of our MIS, the loss of employees
knowledgeable about such systems, the termination of our relationship with IMSS
or our failure to continue to effectively modify such systems as our business
expands could negatively affect our business. See "Business--Management
Information Systems."
Potential Negative Effect of Our Failure to Achieve Year 2000 Compliance
Certain of our MIS use two digit data fields which recognize dates using
the assumption that the first two digits are "19" (i.e., the number 00 is
recognized as the year 1900 rather than the year 2000). Therefore, our date
critical functions relating to the Year 2000 and beyond, such as sales,
distribution, inventory control and financial systems, may be negatively
affected unless we make changes to these computer systems. We expect that
upgrades to our MIS with respect to the Year 2000 issue will require capital
expenditures of approximately $35,000. In addition, the failure of parties with
whom we have a material relationship to achieve Year 2000 compliance could
cause an interruption in our business. It is still uncertain whether we can
resolve these issues in a cost-effective or timely manner or whether we will
incur significantly greater expense in resolving these issues. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Year 2000 Compliance."
Blue Rhino's Dependence on Trademarks, Proprietary Information and Copyrights
We consider our trademarks, particularly the Blue Rhino logo, including
the name, and the design of our product packaging, to be valuable to our
business and the establishment of our national branded cylinder exchange
program. We rely on a combination of copyright and trademark laws and other
arrangements to protect our proprietary rights and could incur substantial
expense to enforce our rights under copyright or trademark laws. The
requirement to change any of our trademarks, service marks or trade name could
entail significant expense, result in the loss of any goodwill associated with
that trademark, service mark or trade name, and impact our ability to apply for
copyrights and additional trademarks in the future.
12
<PAGE>
Unpredictable Propane Supplies and Costs
Our distributors purchase propane from natural gas providers and oil
refineries which produce propane as a by-product of the refining process. The
supply and price of propane fluctuates depending upon underlying natural gas
and oil prices and the ability of suppliers to deliver propane. A substantial
increase in propane prices could lead to decreased profit margins for
distributors and could impact their ability or desire to service our retail
accounts.
Blue Rhino Distributors' Dependence on Suppliers
To adequately service our retail accounts, our distributors need a
sufficient supply of cylinders and valves. There are only two major cylinder
suppliers and only five major valve suppliers in the U.S. market. The
implementation of National Fire Protection Association guidelines requiring the
introduction of valves with overfill prevention devices and growth in propane
grill sales and use could increase demand for cylinders and valves. If the
distributors were unable to obtain sufficient quantities of cylinders or
valves, delays or reductions in cylinder availability could occur which may
cause our business to suffer.
Management's Substantial Ownership of Blue Rhino
As of November 30, 1998, current executive officers, directors and
entities controlled by them beneficially owned, in the aggregate, approximately
42.1% and, adjusted for the shares offered by us in this offering would have
owned, in the aggregate, approximately 33.5% of our outstanding common stock.
As a result, they can exert considerable voting control in connection with
matters requiring stockholder approval, including election of directors and
approval of significant corporate transactions, provided that they vote
together on such matters, and may have the effect of delaying or preventing a
change in control of Blue Rhino or impeding or precluding transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices.
Future Sales of Shares May Negatively Affect Market Price
After this offering, 9,645,742 shares of common stock will be outstanding
(assuming the over-allotment option is not exercised). Of these shares,
approximately 6,505,000 shares will be freely tradeable without restriction
under the Securities Act of 1933, as amended (the "Securities Act") or pursuant
to Rule 144(k) under the Securities Act, except for any such shares acquired by
one of our "affiliates" as defined in Rule 144. The remaining 3,140,742 shares
then outstanding (which includes 3,068,787 shares beneficially owned by our
directors and officers) may be resold only in compliance with the registration
provisions of the Securities Act or an exemption therefrom, including the
resale provisions of Rule 144. In connection with this offering our directors
and officers and certain of our stockholders have agreed, with respect to
approximately 3,364,000 shares, not to sell such shares for a period of 120
days after the date of this prospectus without the consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated. Upon expiration or waiver of such lock-up
agreements, all such shares will be eligible for sale in the public market,
subject to compliance with the volume limitations and other restrictions of
Rule 144. In addition, options and warrants to purchase a total of 846,540
shares of common stock will be outstanding after this offering. See
"Management--1994 Stock Incentive Plan," "--1998 Stock Incentive Plan," "--
Director Option Plan," "--Distributor Option Plan" and "--Compensation
Committee Interlocks and Insider Participation." Holders of approximately
2,400,000 shares of common stock may under certain circumstances require us to
register their shares under the Securities Act at our expense. None of the
holders of these shares have elected to register their shares in connection
with this offering. Furthermore, we have filed a registration statement under
the Securities Act to register an additional 1,000,000 shares of our common
stock. These shares may be issued from time to time in connection with the
acquisition of businesses. We have signed a letter of intent to acquire Bison
Valve, L.L.C. which contemplates the issuance of a portion of these shares. See
"Business--Business Strategy" and "Management--Compensation Committee
Interlocks and Insider Participation." The sale of a substantial number of
shares, whether pursuant to a subsequent public offering, the exercise of
registration rights, through private resales under Rule 144, or otherwise, or
the perception that such sales could occur, could negatively affect the market
price of the common stock and could materially impair our future ability to
raise capital through an offering of equity securities. See "Shares Eligible
for Future Sale."
13
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 2,000,000 shares
of common stock offered by us will be $32.2 million (after deducting the
underwriting discount and estimated offering expenses) based upon an assumed
public offering price of $17 3/8 per share. We intend to use the net proceeds
from this offering primarily to acquire cylinder exchange providers and
accounts, provide working capital, fund general corporate purposes and develop
and introduce new products and services. During the twelve months ended October
31, 1998, we acquired approximately 3,350 retail locations in 20 transactions
for approximately $8.8 million. Pending such uses for the proceeds of this
offering, we intend to invest the proceeds in short term investment grade,
interest bearing securities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Business--Business Strategy."
PRICE RANGE OF COMMON STOCK
Our common stock is traded on The Nasdaq Stock Market under the symbol
"RINO." The following table sets forth, for the quarters indicated, the range
of high and low sale prices for our common stock on The Nasdaq Stock Market.
Trading of our common stock commenced on May 19, 1998. On January 13, 1999, the
last reported sale price of our common stock on The Nasdaq Stock Market was $17
3/8 per share. We estimate there were approximately 147 record holders of our
common stock as of November 6, 1998.
<TABLE>
<CAPTION>
Price Range of
Common Stock
------------------
High Low
----- --------
<S> <C> <C>
Fiscal Year Ended July 31, 1998
Fourth Quarter (from May 19, 1998)................. $ 21 $13 1/4
Fiscal Year Ending July 31, 1999
First Quarter...................................... $ 16 $ 7
Second Quarter (through January 13, 1999).......... $25 5/8 $12 1/4
</TABLE>
DIVIDEND POLICY
We have never declared or paid any cash dividends on shares of our common
stock. We currently intend to retain any earnings for future growth and,
therefore, do not anticipate paying any cash dividends in the foreseeable
future. Our board of directors will decide if any cash dividends will be paid
in the future. Any future financing agreements we may enter into could also
contain prohibitions on the payment of cash dividends.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of October 31, 1998
(i) on an actual basis and (ii) on an as adjusted basis to reflect our issuance
of the shares in this offering at an assumed offering price of $17 3/8 per
share and the application of the estimated net proceeds therefrom. See "Use of
Proceeds." This table should be read in conjunction with our Consolidated
Financial Statements and the Notes thereto included in this prospectus.
<TABLE>
<CAPTION>
October 31, 1998
-----------------------------
Actual As Adjusted
------------ ---------------
(unaudited, in thousands)
<S> <C> <C>
Short-term obligations............................ $ 805 $ 805
------------ ------------
Long-term obligations, less current maturities.... $ 283 $ 283
------------ ------------
Stockholders' equity:
Common Stock, par value $0.001, 100,000,000
shares authorized; 7,630,873 shares issued and
outstanding (actual); and 9,630,873 shares
issued and outstanding (as adjusted)(1)........ 8 10
Additional paid-in capital...................... 46,320 78,470
Accumulated deficit............................. (20,909) (20,909)
------------ ------------
Total stockholders' equity.................... 25,419 57,571
------------ ------------
Total capitalization.......................... $ 26,507 $ 58,659
============ ============
</TABLE>
- --------
(1) Excludes: (a) 81,913 shares of common stock reserved for issuance upon
exercise of the 1998 Warrants, (b) 982,609 shares of common stock reserved
for issuance upon the exercise of options under the 1994 Stock Incentive
Plan, 1998 Stock Incentive Plan, Amended and Restated Stock Option Plan for
Non-employee Directors and Distributor Stock Option Plan as of October 31,
1998, of which options to purchase up to 694,796 shares were outstanding,
(c) 14,869 shares issued pursuant to the exercise of options after October
31, 1998 through December 31, 1998, (d) 900,000 shares of common stock
reserved for issuance upon the exercise of additional options authorized
under the 1998 Stock Incentive Plan on December 22, 1998, and (e) 1,000,000
shares which are the subject of a registration statement on file with the
Securities and Exchange Commission and which we expect to issue in
connection with business acquisitions. We have signed a letter of intent to
acquire Bison Valve, L.L.C. which contemplates the issuance of a portion of
these shares. See "Business--Business Strategy," "Description of Capital
Stock," "Management--1994 Stock Incentive Plan," "--1998 Stock Incentive
Plan," "--Director Option Plan," "--Distributor Option Plan," "--
Compensation Committee Interlocks and Insider Participation" and Note 13 of
Notes to Financial Statements. Assumes that the underwriters'
overallotment-option is not exercised. If the underwriters' overallotment
is exercised in full, we will issue an additional 300,000 shares.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our Consolidated Financial Statements, including
the Notes thereto, appearing elsewhere in this prospectus. We derived the
selected consolidated financial data for the fiscal years ended July 28, 1996,
July 31, 1997 and July 31, 1998 from our Consolidated Financial Statements
included elsewhere in this prospectus that have been audited by
PricewaterhouseCoopers LLP, independent accountants. We derived the selected
consolidated financial data as of and for the fiscal year ended July 31, 1995
from our consolidated financial statements not included in this prospectus that
have been audited by PricewaterhouseCoopers LLP, independent accountants. We
derived the selected combined financial data for the thirteen months ended July
31, 1994 and the selected consolidated financial data for the three months
ended October 31, 1997 and 1998 from our unaudited financial statements which,
in the opinion of our management, reflect all adjustments, including normal
recurring adjustments, that we consider necessary for a fair presentation of
the combined and consolidated financial position and results of operations for
these periods. The operating results for the periods presented are not
necessarily indicative of the results to be expected for any other interim
period or any other future fiscal year.
<TABLE>
<CAPTION>
Thirteen Month Fiscal Year Ended Three Months Ended
Period Ended -------------------------------------- -----------------------
July 31, July 31, July 28, July 31, July 31, October 31, October 31,
1994 1995 1996 1997 1998 1997 1998
-------------- -------- -------- -------- -------- ----------- -----------
(unaudited) (unaudited)
(in thousands, except per share and retail locations data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net sales--
distributors........... $ -- $ -- $ 2,386 $ 13,060 $27,372 $ 4,140 $ 9,222
Net sales--direct....... 449 2,728 5,830 1,151 -- -- --
----- ------- -------- -------- ------- -------- -------
Total net sales........ 449 2,728 8,216 14,211 27,372 4,140 9,222
----- ------- -------- -------- ------- -------- -------
Cost of sales--
distributors........... -- -- 1,811 9,873 20,525 3,155 6,782
Cost of sales--direct... 185 3,523 6,089 1,771 -- -- --
----- ------- -------- -------- ------- -------- -------
Total cost of sales.... 185 3,523 7,900 11,644 20,525 3,155 6,782
----- ------- -------- -------- ------- -------- -------
Gross profit (loss)..... 264 (795) 316 2,567 6,847 985 2,440
----- ------- -------- -------- ------- -------- -------
Operating expenses
(income):
Sales and marketing.... -- 532 1,112 1,950 2,392 564 669
General and
administrative........ 602 2,787 3,192 3,022 3,591 844 1,104
Lease income, net...... -- -- (89) (143) (81) 8 (212)
Depreciation and
amortization.......... 28 284 868 873 1,278 245 495
Nonrecurring charges
(1)................... -- -- 1,363 970 563 281 --
----- ------- -------- -------- ------- -------- -------
Total operating
expenses, net......... 630 3,603 6,446 6,672 7,743 1,942 2,056
----- ------- -------- -------- ------- -------- -------
Income (loss) from
operations............. (366) (4,398) (6,130) (4,105) (896) (957) 384
Other expense (income):
Interest expense....... 5 287 1,469 1,665 1,707 434 32
Other income, net...... (2) (25) (168) (186) (234) (51) (70)
----- ------- -------- -------- ------- -------- -------
Net income (loss)...... $(369) $(4,660) $ (7,431) $ (5,584) $(2,369) $ (1,340) $ 422
===== ======= ======== ======== ======= ======== =======
Income (loss)
applicable to common
stockholders (2)...... $(369) $(5,055) $ (8,067) $ (6,271) $(2,965) $ (1,447) $ 422
===== ======= ======== ======== ======= ======== =======
Earnings (loss) per
common share:
Basic and diluted...... $ -- $ (3.09) $ (4.96) $ (3.74) $ (1.01) $ (0.81) $ 0.05
===== ======= ======== ======== ======= ======== =======
Pro forma diluted...... $ -- $ (1.08) $ (1.72) $ (1.27) $ (0.47) $ (0.30) $ 0.05
===== ======= ======== ======== ======= ======== =======
Weighted average common
shares used in
computing earnings
(loss) per common
share:
Basic.................. -- 1,638 1,628 1,678 2,945 1,779 7,631
===== ======= ======== ======== ======= ======== =======
Diluted (3)............ -- 1,638 1,628 1,678 2,945 1,779 7,719
===== ======= ======== ======== ======= ======== =======
Pro forma diluted (4).. -- 4,303 4,313 4,406 5,077 4,464 7,719
===== ======= ======== ======== ======= ======== =======
Selected Operating Data:
Retail locations (at
period end)............ 331 1,608 2,981 4,400 9,500 5,228 12,000
Cylinder transactions... -- 306 769 1,239 2,201 375 705
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $ 150 $ 209 $ 1,126 $ 325 $ 5,908 $ 313 $ 4,122
Working capital......... 109 (3,264) 1,580 737 11,689 (715) 8,387
Total assets............ 631 10,424 11,897 9,974 30,577 8,555 29,476
Long-term obligations,
less current
maturities............. 518 1,361 14,174 16,110 260 19,448 283
Total stockholders'
equity (deficit)...... (179) (5,149) (13,217) (18,488) 24,923 (10,893) 25,419
</TABLE>
- -------
(1) See Note 11 of Notes to Consolidated Financial Statements for an
explanation of the nonrecurring charges.
(2) Equals net income (loss) less dividends on our redeemable Old Preferred
Stock of $395 for fiscal 1995, $636 for fiscal 1996, $687 for fiscal 1997,
$596 for fiscal 1998, $107 for the three months ended October 31, 1997 and
$0 for the three months ended October 31, 1998.
(3) For fiscal years 1996, 1997 and 1998 and for the three months ended October
31, 1997, the weighted average number of shares outstanding excludes the
effect of the exercise of all outstanding stock options and warrants and
the conversion of the Old Preferred Stock into shares of common stock
because such exercise or conversion would be anti-dilutive.
(4) The unaudited pro forma share information assumes that the following (which
did not occur until our recapitalization was effected in connection with
our May 1998 initial public offering) had been effected as of the beginning
of the first year presented: the conversion of all outstanding shares of
Old Preferred Stock into common stock, the conversion of the accrued and
unpaid dividends on outstanding Old Preferred Stock into common stock and
the exercise of all outstanding warrants (other than the 1998 Warrants). No
shares of preferred stock are currently outstanding.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and our Consolidated Financial
Statements and Notes thereto included elsewhere in this prospectus. Unless
otherwise indicated, all references to fiscal years in this section of the
prospectus refer to the Company's fiscal years, which ran as follows: from
August 1, 1995 through July 28, 1996, July 29, 1996 through July 31, 1997 and
August 1, 1997 through July 31, 1998. See "Forward-Looking Statements" and
"Risk Factors."
Overview
Blue Rhino was founded in March 1994 and has become the leading national
provider of grill cylinder exchange in the United States offering consumers a
convenient means to obtain propane for their barbecue grills. We originally
focused on serving markets in the Southeastern United States and have since
developed a network of 53 independent distributors which, as of October 31,
1998, serviced Blue Rhino grill cylinder exchange at over 12,000 retail
locations in 47 states and Puerto Rico. During the twelve months ended October
31, 1998, our net sales increased approximately 105% from our net sales for the
preceding twelve months to approximately $32.5 million primarily as a result of
the growth of sales at existing locations and the addition of over 6,700 new
retail locations.
Since formation, we have focused on creating an infrastructure to support
our nationwide cylinder exchange program. Initially, we developed a vertically
integrated operation, purchasing and leasing grill cylinders, cylinder
displays, filling sites, refurbishing equipment and delivery vehicles while at
the same time developing a sales, marketing and management information systems
("MIS") infrastructure. In March 1996, we began to transition from a vertically
integrated business model to an independent distributor business model in order
to accelerate the development and implementation of our cylinder exchange
program in a more capital efficient manner. At that time, we began to dispose
of distribution assets and to enter into exclusive agreements with independent
distributors to refurbish and refill cylinders and service our retail accounts.
We believe that as a result of this transition, we have been able to
significantly accelerate the growth of our nationwide service. We expect to
focus future capital expenditures on cylinder displays and continued
enhancement of our MIS. We completed our transition to an independent
distributor business model in the third quarter of fiscal 1997 although we
incurred some expenses related to the prior business model in fiscal 1998.
We currently offer three types of grill cylinder transactions: (i) like-
for-like cylinder exchanges; (ii) cylinder exchanges with valve upgrades
offering additional safety features; and (iii) filled cylinder sales. Our net
sales from cylinder exchanges, cylinder upgrades and cylinder sales comprised
approximately 81%, 10% and 9%, respectively, of our net sales for fiscal 1998
and 82%, 11% and 7%, respectively, of our net sales for the three months ended
October 31, 1998. Our suggested retail prices for cylinder exchanges, cylinder
upgrades and cylinder sales are currently $14.99, $24.99 and $39.99,
respectively, although the actual prices for these transactions may vary from
retailer to retailer. We recognize sales at the time our distributors make a
delivery at a retail location. We invoice retailers, receive payment and remit
a fixed portion of this payment to our distributors for their services. Our
sales growth depends on increasing sales at existing locations and increasing
the number of new retail locations that we serve. Other factors which influence
our sales include seasonality, consumer awareness, weather conditions, new
grill sales, alternative uses for grill cylinders, promotional activities and
advertising.
Our cost of sales is primarily comprised of a contractually determined
fixed charge which we pay to distributors based upon the type of cylinder
transaction. Beginning in May 1998, our cost of sales has included a non-cash
charge associated with options granted under our Distributor Stock Option Plan
("Distributor Option Plan"). Based upon prior grants of options under the
Distributor Option Plan, we estimate that we will incur annual non-cash charges
of approximately $300,000 through fiscal 2002 related to these prior grants.
Additional grants of options under the Distributor Option Plan would result in
additional non-cash charges. Sales and marketing expenses are primarily
comprised of compensation,
17
<PAGE>
commission, promotional and travel costs. General and administrative expenses
are primarily comprised of compensation, professional fees, office and
equipment rent and travel costs. Beginning in the second quarter of fiscal
1999, our general and administrative expenses will include a non-cash charge
associated with options granted under our Amended and Restated Stock Option
Plan for Non-employee Directors ("Director Option Plan"). Net lease income is
comprised of rental revenue from cylinders, cylinder displays and certain plant
facilities and equipment leased to distributors. Until May 1998, lease income
was offset by rent expense we paid to lease the cylinder displays under an
operating lease. In May 1998, we purchased all of the cylinder displays we
previously leased under the operating lease. Depreciation and amortization
consist primarily of depreciation of cylinder displays and, to a lesser extent,
depreciation of equipment, building and leasehold improvements and computer
technology and amortization of intangibles. Operating expenses also included
nonrecurring charges of approximately $1.4 million, $1.0 million and $563,000
during fiscal 1996, fiscal 1997 and fiscal 1998, respectively, resulting from
our transition from a vertically integrated business model to our present
independent distributor business model. We did not incur any nonrecurring
charges in the three months ended October 31, 1998 and we do not anticipate
incurring any additional nonrecurring charges in connection with this
transition.
While we believe that we have created the infrastructure necessary to
support a nationwide cylinder exchange program, development of this
infrastructure has resulted in an accumulated deficit of approximately $20.9
million as of October 31, 1998. This has resulted in a net operating loss
carryforward for federal income tax purposes of approximately $19.0 million
which we can use to offset future taxable income, if any. Based on our history
of operating losses, we have recorded a valuation allowance to the full extent
of our net deferred tax assets.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship of certain items from our statement of operations to net sales.
Due to the change in our business model and our rapid sales growth, any trends
reflected by the following table may not be indicative of future results.
<TABLE>
<CAPTION>
Percentage of Net Sales
-------------------------------------------
Three
Months
Ended
Fiscal Year Ended October 31,
---------------------------- -------------
July 28, July 31, July 31,
1996 1997 1998 1997 1998
-------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales............................ 100.0 % 100.0 % 100.0 % 100.0 % 100.0%
Cost of sales........................ 96.2 81.9 75.0 76.2 73.5
----- ----- ----- ----- -----
Gross margin......................... 3.8 18.1 25.0 23.8 26.5
----- ----- ----- ----- -----
Operating expenses (income):
Sales and marketing................ 13.5 13.7 8.7 13.6 7.2
General and administrative......... 38.9 21.3 13.2 20.4 12.0
Lease income, net.................. (1.1) (1.0) (0.3) 0.2 (2.3)
Depreciation and amortization...... 10.6 6.1 4.7 5.9 5.4
Nonrecurring charges............... 16.5 6.8 2.1 6.8 --
----- ----- ----- ----- -----
Total operating expenses, net.... 78.4 46.9 28.4 46.9 22.3
----- ----- ----- ----- -----
Income (loss) from operations........ (74.6) (28.8) (3.4) (23.1) 4.2
Other expense (income):
Interest expense................... 17.8 11.7 6.2 10.5 0.4
Other income, net.................. (2.0) (1.3) (0.9) (1.2) (0.8)
----- ----- ----- ----- -----
Net income (loss)................ (90.4)% (39.2)% (8.7)% (32.4)% 4.6%
===== ===== ===== ===== =====
As a percentage of net sales:
Net sales--distributors............ 29.0 % 91.9 % 100.0 % 100.0 % 100.0%
Net sales--direct.................. 71.0 % 8.1 % -- % -- % -- %
Gross margin:
Gross margin of net sales--
distributors...................... 24.1 % 24.4 % 25.0 % 23.8 % 26.5%
Gross margin of net sales--direct.. (4.4)% (53.9)% -- % -- % -- %
</TABLE>
18
<PAGE>
Comparison of Three Months Ended October 31, 1997 and 1998
Net sales. Net sales increased 122.8% from approximately $4.1 million for
the three months ended October 31, 1997 to approximately $9.2 million for the
three months ended October 31, 1998. The increase in net sales was due
primarily to the increase in the number of retail locations placed in service
and increased sales volume at existing locations, with a corresponding increase
in cylinder transactions during the period. The installed base of retail
locations increased 130% from 5,228 locations at October 31, 1997 to
approximately 12,000 locations at October 31, 1998. The number of cylinder
transactions increased 88% from approximately 375,000 units in the three months
ended October 31, 1997 to approximately 705,000 units in the three months ended
October 31, 1998.
Gross margin. Gross margin increased from 23.8% in the three months ended
October 31, 1997 to 26.5% in the three months ended October 31, 1998. This
improvement was primarily due to a price increase on all cylinder transactions
which became effective in April 1998 and to a lesser extent due to a shift in
sales to accounts with higher margins. A change in the transaction mix of
exchanges, upgrades and sales also had a positive impact on gross margin.
Sales and marketing expenses. Sales and marketing expenses increased
18.6% from approximately $564,000 in the three months ended October 31, 1997 to
approximately $669,000 in the three months ended October 31, 1998, but
decreased as a percentage of net sales from approximately 13.6% in the three
months ended October 31, 1997 to approximately 7.2% in the three months ended
October 31, 1998. The increase in sales and marketing expenses was due
primarily to approximately $130,000 of additional compensation and travel
related costs for additional sales persons offset by approximately $30,000 in
reduced commissions to external sales representatives. This increase in our
internal sales force converted a portion of our variable sales and marketing
expenses to fixed costs. The decrease in sales and marketing expenses as a
percentage of net sales was due primarily to the fact that a significant
portion of the compensation of our sales and marketing staff is fixed and, as a
result, sales and marketing expenses increased at a slower rate than net sales.
General and administrative expenses. General and administrative expenses
increased 30.8% from approximately $844,000 in the three months ended October
31, 1997 to approximately $1.1 million in the three months ended October 31,
1998, but decreased as a percentage of net sales from 20.4% in the three months
ended October 31, 1997 to 12.0% in the three months ended October 31, 1998. The
increase in general and administrative expenses was due primarily to additional
compensation costs, incremental costs associated with being a public company,
including investor relations and other professional fees, and, to a lesser
extent, other variable operating costs. The decrease in general and
administrative expenses as a percentage of net sales was due primarily to the
fact that a significant portion of our general and administrative expenses are
fixed and, as a result, general and administrative expenses increased at a
slower rate than net sales.
Lease income, net. Gross lease income increased from approximately
$116,000 for the three months ended October 31, 1997 to approximately $212,000
for the three months ended October 31, 1998, while gross rent expense for the
same periods decreased from approximately $124,000 to $0. The increase in lease
income was due to the addition of new retail locations resulting in an increase
in the number of cylinder displays leased to our distributors. The decrease in
rent expense was a result of our purchase of cylinder displays previously
leased under an operating lease facility.
Depreciation and amortization. Depreciation and amortization increased
from approximately $245,000 in the three months ended October 31, 1997 to
approximately $495,000 in the three months ended October 31, 1998. Depreciation
expense increased by approximately $177,000 from approximately $225,000 in the
three months ended October 31, 1997 to approximately $402,000 in the three
months ended October 31, 1998 primarily due to the increase in the number of
cylinder displays. This increase was due to our purchase of cylinder displays
which we previously leased under an operating lease facility and our ongoing
purchase of additional cylinder displays to support growth in our installed
base of retail locations. Our purchase of computer technology under capital
leases also impacted depreciation expense
19
<PAGE>
to a lesser extent. Amortization expense increased by approximately $73,000
from $20,000 in the three months ended October 31, 1997 to approximately
$93,000 in the three months ended October 31, 1998 primarily due to the
increased amortization of intangibles associated with a number of acquisitions.
Nonrecurring charges. We had no nonrecurring charges for the three months
ended October 31, 1998 and do not expect to incur any additional nonrecurring
charges related to our transition to an independent distributor business model
from a vertically integrated business model. In the three months ended October
31, 1997, nonrecurring charges were approximately $281,000, consisting
primarily of the write-down of facilities and equipment purchased to support
the vertically integrated business model.
Interest expense. Interest expense decreased from approximately $434,000
in the three months ended October 31, 1997 to approximately $32,000 in the
three months ended October 31, 1998. The decrease in interest expense resulted
from our repayment of substantially all of our outstanding indebtedness in May
1998 with proceeds from our initial public offering. The interest expense in
the three months ended October 31, 1998 was a result of capital lease
obligations incurred primarily to acquire computer technology.
Other income, net. Other income, net increased from approximately $51,000
in the three months ended October 31, 1997 to approximately $70,000 in the
three months ended October 31, 1998. The increase was primarily due to
increased interest income from excess cash balances and various notes
receivable.
Comparison of Years Ended July 31, 1997 and 1998
Net sales. Net sales consist of sales from our independent distributor
network ("net sales--distributors") and to a lesser extent from our previous
vertically integrated distribution operations ("net sales--direct"). During the
third quarter of fiscal 1997, we completed our transition to our independent
distributor business model and, as a result, all of our net sales during fiscal
1998 were net sales--distributors. Net sales increased 92.6% from approximately
$14.2 million for fiscal 1997 to approximately $27.4 million for fiscal 1998.
Net sales--distributors increased 109.6% from approximately $13.1 million in
fiscal 1997 to approximately $27.4 million in fiscal 1998. The increase in net
sales--distributors was due primarily to the increase in the number of retail
locations placed in service and the corresponding increase in the number of
cylinder transactions during the period. The installed base of retail locations
increased 116.0% from approximately 4,400 locations at the end of fiscal 1997
to approximately 9,500 locations at the end of fiscal 1998. The number of
cylinder transactions increased 77.6% from approximately 1.2 million units in
fiscal 1997 to approximately 2.2 million units in fiscal 1998.
Gross margin. Gross margin increased from 18.1% in fiscal 1997 to 25.0%
in fiscal 1998. This increase was due to the shift in net sales from a
vertically integrated business model to an independent distributor business
model. With respect to net sales--distributors, gross margin increased from
24.4% in fiscal 1997 to 25.0% in fiscal 1998. This increase was due to a shift
in the mix of cylinder transactions with lower margin cylinder sales accounting
for a smaller percentage of net sales in fiscal 1998 than in fiscal 1997, as
well as a price increase which became effective in April 1998 on all cylinder
transactions.
Sales and marketing expenses. Sales and marketing expenses increased
22.7% from approximately $2.0 million in fiscal 1997 to approximately $2.4
million in fiscal 1998 but decreased as a percentage of net sales from 13.7% in
fiscal 1997 to 8.7% in fiscal 1998. The increase in sales and marketing expense
was due primarily to additional commissions to outside brokers, which were
based on a percentage of net sales. The decrease in sales and marketing
expenses as a percentage of net sales was due primarily to the fact that a
significant portion of the compensation of our sales and marketing staff is
fixed and, as a result, sales and marketing expenses increased at a slower rate
than net sales.
General and administrative expenses. General and administrative expenses
increased 18.8% from approximately $3.0 million in fiscal 1997 to approximately
$3.6 million in fiscal 1998 but decreased as a percentage of net sales from
21.3% in fiscal 1997 to 13.2% in fiscal 1998. The increase in general and
administrative expenses was due primarily to additional compensation costs. The
decrease in general and administrative expense as a percentage of net sales was
due primarily to the fact that a significant
20
<PAGE>
portion of our general and administrative expenses are fixed and, as a result,
general and administrative expenses increased at a slower rate than net sales.
Lease income, net. Gross lease income increased from approximately
$295,000 in fiscal 1997 to $566,000 in fiscal 1998, while gross rent expense
for the same periods increased from approximately $152,000 to $485,000. The
increase in lease income was due to the implementation of a plant facility and
equipment lease with a distributor during the second quarter of fiscal 1997 and
the addition of new retail locations resulting in an increase in the number of
cylinder displays under lease. The increase in rent expense was due primarily
to the increase in the number of cylinder displays purchased under an operating
lease facility which was initiated in the first quarter of fiscal 1997. We
purchased all of the assets leased pursuant to that facility with a portion of
the proceeds from our May 1998 initial public offering and concurrently
terminated the facility.
Depreciation and amortization. Depreciation and amortization increased
from approximately $873,000 in fiscal 1997 to approximately $1.3 million in
fiscal 1998. Depreciation expense increased by approximately $337,000 from
approximately $764,000 in fiscal 1997 to approximately $1.1 million in fiscal
1998 principally due to the purchase of additional cylinder display panels and
the acquisition of computer technology under capital leases. Amortization
expense increased by approximately $68,000 from approximately $109,000 in
fiscal 1997 to approximately $177,000 in fiscal 1998 primarily due to increased
goodwill amortization associated with the acquisitions of retail locations from
local and regional cylinder exchange providers.
Nonrecurring charges. Nonrecurring charges decreased from approximately
$970,000 in fiscal 1997 to approximately $563,000 for fiscal 1998. The
nonrecurring charges were associated with our transition from a vertically
integrated business model to an independent distributor business model and
consisted primarily of the write-down of facilities and equipment purchased to
support the vertically integrated business model. The nonrecurring charges in
fiscal 1998 also included a $202,000 impairment adjustment to reduce the
carrying value of existing handheld computer terminals incurred when we made a
commitment to acquire new handheld computer terminal technology.
Interest expense. Interest expense remained relatively constant at
approximately $1.7 million for fiscal 1997 and 1998. Interest expense was
attributed to accretion of interest on senior discount notes, additional
borrowings under lines of credit and, to a lesser extent, borrowings from
stockholders. However, these debts were paid in full in May 1998 with a portion
of the proceeds from our initial public offering, eliminating additional
interest expense with respect to these obligations.
Other income, net. Other income, net increased from approximately
$186,000 in fiscal 1997 to approximately $234,000 in fiscal 1998. Other income,
net consisted primarily of interest income from various notes receivable and
excess cash balances.
Comparison of Years Ended July 28, 1996 and July 31, 1997
Net sales. Net sales increased 72.9% from approximately $8.2 million for
fiscal 1996 to approximately $14.2 million for fiscal 1997. Net sales--
distributors increased from approximately $2.4 million for fiscal 1996 to
approximately $13.1 million for fiscal 1997. The increase in net sales--
distributors was due primarily to our transition from a vertically integrated
business model to an independent distributor business model, as well as an
increase in the number of retail locations placed in service and an increase in
the number of cylinder transactions during fiscal 1997. The installed base of
retail locations increased 47.6% from approximately 3,000 locations at the end
of fiscal 1996 to approximately 4,400 locations at the end of fiscal 1997. The
number of cylinder transactions increased 61.1% from approximately 769,000
units for fiscal 1996 to approximately 1.2 million units for fiscal 1997.
Gross margin. Gross margin increased from 3.8% in fiscal 1996 to 18.1% in
fiscal 1997. This increase was due to the shift in net sales from a vertically
integrated business model to an independent distributor business model. With
respect to net sales--distributors, gross margin increased from 24.1% for
fiscal 1996 to 24.4% for fiscal 1997.
21
<PAGE>
Sales and marketing expenses. Sales and marketing expenses increased
75.4% from approximately $1.1 million for fiscal 1996 to approximately $2.0
million for fiscal 1997 and as a percentage of net sales increased from 13.5%
for fiscal 1996 to 13.7% for fiscal 1997. The increase in sales and marketing
expenses was due primarily to additional compensation, promotional and
advertising expenditures.
General and administrative expenses. General and administrative expenses
decreased 5.3% from approximately $3.2 million for fiscal 1996 to approximately
$3.0 million for fiscal 1997, and decreased as a percentage of net sales from
38.9% for fiscal 1996 to 21.3% for fiscal 1997. The decrease in general and
administrative expenses was due to the transition to the independent
distributor business model.
Lease income, net. Lease income, net increased 60.7% from $89,000 for
fiscal 1996 to approximately $143,000 for fiscal 1997. The increase in lease
income, net was due to the implementation of certain plant facilities and
equipment leases with distributors during the fourth quarter of fiscal 1996 and
the second quarter of fiscal 1997 and the addition of new retail locations
resulting in an increase in the number of cylinder displays under lease.
Depreciation and amortization. Depreciation and amortization increased
from approximately $868,000 for fiscal 1996 to approximately $873,000 for
fiscal 1997.
Nonrecurring charges. Nonrecurring charges were associated with our
transition to the independent distributor model and decreased from
approximately $1.4 million during fiscal 1996, the first year of the business
model transition, to approximately $970,000 during fiscal 1997.
Interest expense. Interest expense increased from approximately $1.5
million for fiscal 1996 to approximately $1.7 million for fiscal 1997 due to
accretion of interest on senior discount notes and additional borrowings under
our bank credit facility.
Other income, net. Other income, net increased from approximately
$168,000 for fiscal 1996 to approximately $186,000 for fiscal 1997.
Selected Quarterly Results of Operations
We have experienced and expect to continue to experience significant
seasonal fluctuations in our net sales and net income (loss). Our net sales
generally are highest in the third and fourth quarters, which include the
majority of the grilling season, and historically have been lower in the first
and second quarters which include the winter months. Sustained periods of poor
weather, particularly in the spring and summer seasons, can negatively impact
sales. Our rate of establishing new retail locations and expenses incurred in
anticipation of increased sales also cause quarterly fluctuations in our
results of operations. Accordingly, the results of operations in any quarter
will not necessarily be indicative of the results that we may achieve for a
full fiscal year or any future quarter. See "Risk Factors--Seasonal and
Quarterly Fluctuations in Our Business," "--Uncertainty of Continued Rapid
Growth" and "--Ability of Distributors and Management to Manage Growth in Sales
and Number of Retail Locations."
22
<PAGE>
The following table sets forth selected unaudited quarterly financial
information and operating data for our most recently completed five fiscal
quarters. This information has been prepared on the same basis as the
Consolidated Financial Statements and includes, in the opinion of our
management, all normal and recurring adjustments necessary for a fair
statement of the quarterly results for the periods. Given our limited
operating history, seasonal demand for our product and our dependence upon
continuing market acceptance of cylinder exchange by retailers and consumers,
significant variation may occur between our operating results for any
quarters. The operating results and data for any quarter are not necessarily
indicative of the results for future periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------
OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31,
1997 1998 1998 1998 1998
----------- ----------- --------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales............... $ 4,140 $ 4,175 $ 5,694 $13,364 $9,222
Cost of sales........... 3,155 3,217 4,322 9,832 6,782
------- ------- ------- ------- ------
Gross profit........ 985 958 1,372 3,532 2,440
------- ------- ------- ------- ------
Operating expenses
(income):
Sales and marketing... 564 463 563 802 669
General and
administrative....... 844 862 906 978 1,104
Lease income, net..... 8 15 18 (122) (212)
Depreciation and
amortization......... 245 271 331 432 495
Nonrecurring charges.. 281 127 99 56 --
------- ------- ------- ------- ------
Total operating
expenses, net...... 1,942 1,738 1,917 2,146 2,056
------- ------- ------- ------- ------
Income (loss) from
operations............. (957) (780) (545) 1,386 384
Other expense (income):
Interest expense...... 434 495 566 211 32
Other income, net..... (51) (51) (44) (86) (70)
------- ------- ------- ------- ------
Net income (loss)....... $(1,340) $(1,224) $(1,067) $ 1,261 $ 422
======= ======= ======= ======= ======
Income (loss) applicable
to common stockholders
(1).................... $(1,447) $(1,485) $(1,280) $ 1,247 $ 422
======= ======= ======= ======= ======
Earnings (loss) per
common share:
Basic................. $ (0.81) $ (0.83) $ (0.72) $ 0.20 $ 0.05
======= ======= ======= ======= ======
Diluted............... $ (0.81) $ (0.83) $ (0.72) $ 0.19 $ 0.05
======= ======= ======= ======= ======
Weighted average common
shares used in
computing earnings
(loss) per common
share:
Basic................. 1,779 1,779 1,779 6,407 7,631
======= ======= ======= ======= ======
Diluted (2)........... 1,779 1,779 1,779 6,611 7,719
======= ======= ======= ======= ======
<CAPTION>
PERCENTAGE OF NET SALES
--------------------------------------------------------
THREE MONTHS ENDED
--------------------------------------------------------
OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31,
1997 1998 1998 1998 1998
----------- ----------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 76.2 77.1 75.9 73.6 73.5
------- ------- ------- ------- ------
Gross margin........ 23.8 22.9 24.1 26.4 26.5
Operating expenses
(income):
Sales and marketing... 13.6 11.1 9.9 6.0 7.2
General and
administrative....... 20.4 20.6 15.9 7.3 12.0
Lease income, net..... 0.2 0.4 0.3 (0.9) (2.3)
Depreciation and
amortization......... 5.9 6.5 5.8 3.2 5.4
Nonrecurring charges.. 6.8 3.0 1.8 0.4 --
------- ------- ------- ------- ------
Total operating
expenses, net...... 46.9 41.6 33.7 16.0 22.3
------- ------- ------- ------- ------
Income (loss) from
operations............. (23.1) (18.7) (9.6) 10.4 4.2
Other expense (income):
Interest expense...... 10.5 11.8 9.9 1.6 0.4
Other income, net..... (1.2) (1.2) (0.8) (0.6) (0.8)
------- ------- ------- ------- ------
Net income (loss)....... (32.4)% (29.3)% (18.7)% 9.4% 4.6%
======= ======= ======= ======= ======
</TABLE>
- -------
(1) Equals net income (loss) less dividends on our Old Preferred Stock of $636
for fiscal 1996, $687 for fiscal 1997, $596 for fiscal 1998, $107 for the
three months ended October 31, 1997 and $0 for the three months ended
October 31, 1998.
(2) For fiscal years 1996, 1997 and 1998 and for the three months ended
October 31, 1997, the weighted average number of shares outstanding
excludes the effect of the exercise of all outstanding stock options and
warrants and the conversion of the Old Preferred Stock into common stock
because such exercise and conversion would be anti-dilutive.
23
<PAGE>
Liquidity and Capital Resources
Our primary sources of funds have been the issuance of stock, most
recently through our initial public offering in May 1998, and the incurrence of
debt. We had positive working capital of approximately $8.4 million as of
October 31, 1998, which was primarily the result of available proceeds from our
initial public offering and cash provided by operations.
Net cash provided by operations was approximately $3.1 million for the
three months ended October 31, 1998, while net cash used in operations was
approximately $459,000 for the three months ended October 31, 1997. Net cash
used in operations was approximately $4.9 million, $2.2 million and $5.2
million for fiscal 1998, fiscal 1997 and fiscal 1996, respectively. In the
three months ended October 31, 1998, cash provided by operations resulted
primarily from profitable operations, net proceeds of approximately $2.7
million from the sale of cylinders to USA Leasing, L.L.C. ("USA Leasing"), and
a decrease in accounts receivable due to the seasonal nature of our business.
In the three months ended October 31, 1998, cash used in operations resulted
primarily from approximately $522,000 of advances on certain products and
services, approximately $420,000 of equipment acquired through acquisitions and
held for resale and a decrease in accounts payable due to the seasonal nature
of our business. In the three months ended October 31, 1997, cash provided by
operations resulted primarily from a seasonal decrease in accounts receivable
and cash used in operations resulted from a net loss and a seasonal decrease in
accounts payable. In fiscal 1998, fiscal 1997 and fiscal 1996, cash provided by
operations resulted primarily from increases in accounts payable and cash used
in operations resulted primarily from net losses and increases in accounts
receivable.
Net cash used in investing activities was approximately $4.6 million in
the three months ended October 31, 1998 and approximately $72,000 for the three
months ended October 31, 1997. Net cash used in investing activities was
approximately $6.0 million for fiscal 1998 and $1.4 million for fiscal 1996
while net cash provided by investing activities was approximately $342,000 for
fiscal 1997. The primary components of cash used in investing activities has
included acquisitions of cylinder exchange accounts and related assets, as well
as investments in property and equipment including cylinder displays and
computer technology. Additionally, in fiscal 1998 we loaned $635,000 to Bison
Valve, L.L.C. ("Bison Valve"). The primary components of cash provided by
investing activities has included collections on notes receivable and proceeds
from the sale of property, equipment and cylinders as part of our transition to
an independent distributor business model.
Net cash used in financing activities was approximately $285,000 for the
three months ended October 31, 1998, while net cash provided by financing
activities was approximately $519,000 for the three months ended October 31,
1997, $16.5 million for fiscal 1998, $1.0 million for fiscal 1997 and $7.5
million for fiscal 1996. The cash used in financing activities included
payments on various notes payable and capital lease obligations. The primary
components of cash provided by financing activities included the net proceeds
of our initial public offering in May 1998, loans from four stockholders in
January 1998, the issuance of 10.5% senior discount notes in October 1995 and
bank borrowings.
In connection with our initial public offering, we issued a total of
3,105,000 shares of common stock and received net proceeds of approximately
$36.4 million. We used approximately $29.9 million of the net proceeds from our
initial public offering to repay principal and interest on indebtedness. We
used approximately $4.2 million of the net proceeds to acquire assets,
including approximately 1,350 new accounts, from twelve local and regional
cylinder exchange providers. In addition, we used approximately $1.1 million of
the net proceeds to purchase property and equipment and approximately $500,000
for general corporate purposes.
During the three months ended October 31, 1998, we acquired approximately
$4.6 million of cylinders from our distributors in contemplation of selling
cylinders to USA Leasing. In previous periods, we acquired approximately $2.9
million of cylinders in connection with the acquisition of retail accounts and
purchases from our distributors. In October 1998, we sold grill cylinders to
USA Leasing for $6.5 million. Messrs. Prim, Duchossois and Filipowski own
approximately 74% of the membership interests in
24
<PAGE>
USA Leasing and Mr. Prim serves as its manager. We sold the cylinders to USA
Leasing to facilitate the creation of an operating lease arrangement between
USA Leasing and our distributors whereby participating distributors pay monthly
rent of 1% of the initial purchase price of the cylinders. We have guaranteed
80% of USA Leasing's $13.0 million credit facility with NationsBank, N.A. and
in return have received a subordinated security interest in USA Leasing's
assets. See "Risk Factors--Potential Conflicts of Interest in Enforcing
Remedies Against Our Affiliates," "Management--Compensation Committee
Interlocks and Insider Participation" and "Certain Transactions."
In December 1998, we entered into a $12.0 million credit facility with
NationsBank, N.A. (the "Bank Credit Facility") which includes a $7.0 million
revolving line of credit and a $5.0 million acquisition facility. Our ability
to borrow under the Bank Credit Facility will be reduced by an amount equal to
our contingent liability pursuant to our guarantee of USA Leasing's credit
facility with NationsBank, N.A. Our contingent liability at December 31, 1998
was approximately $8.9 million. The Bank Credit Facility replaces a prior
facility we had with NationsBank and is collateralized by a lien on
substantially all of our assets. The Bank Credit Facility requires us to meet
certain covenants, including minimum net worth and cash flow. The loans under
the Bank Credit Facility bear interest at a maximum rate of LIBOR plus 225
basis points.
We currently lease handheld computers and various other computer
equipment from three lessors under the terms of three master leases for an
aggregate annual rent of approximately $500,000. We have an option to purchase
the handheld computers for $1.00 per handheld unit at the end of each lease
term. Under each of the three handheld computer leases, we are responsible for
insurance, maintenance and taxes on the leased equipment.
We currently lease our offices under a lease from Rhino Real Estate, LLC,
an entity affiliated with two of our directors. Pursuant to the terms of the
lease, we pay annual rent of approximately $213,000, plus our allocable share
of all taxes, utilities and maintenance. The lease terminates on December 31,
2001 with an option to renew for one three-year term.
We anticipate our total capital expenditures for fiscal 1999 (excluding
acquisitions) will be approximately $5.5 million and will relate primarily to
cylinder displays and computer technology. Our capital expenditure and working
capital requirements in the foreseeable future will change depending on our
rate of expansion, operating results and any other adjustments in our operating
plan as needed in response to competition, acquisition opportunities or
unexpected events. We believe that existing borrowing capacity under the Bank
Credit Facility, cash provided by operations and the net proceeds from this
offering will be sufficient to meet our working capital requirements in the
near term. However, we offer no assurance that we will not seek or require
additional capital in the future as a result of expansion or otherwise.
Impact of New Accounting Pronouncements
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130")
establishes standards for reporting and display of comprehensive income and its
components (revenues, gains, expenses, losses) in a full set of general purpose
financial statements and is effective for fiscal years beginning after December
15, 1997. We do not expect SFAS No. 130 to have any impact on our consolidated
financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). SFAS No. 131 requires public business enterprises to adopt
its provisions for periods beginning after December 15, 1997, and to report
certain information about operating segments in complete sets of financial
statements of the enterprise and in condensed financial statements of interim
periods issued to shareholders. We do not expect SFAS No. 131 to have any
impact on our consolidated financial statements.
25
<PAGE>
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and hedging activities. It also requires entities to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. We do not
expect SFAS No. 133 to have any impact on our consolidated financial statements
as we do not invest in any derivative instruments or engage in any hedging
activities.
Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") defines such costs and requires that they be expensed
as incurred. This pronouncement is effective for financial statements for
fiscal years beginning after December 15, 1998 although earlier application is
encouraged. We do not expect SOP 98-5 to have a significant impact on our
consolidated financial statements.
Year 2000 Compliance
Year 2000 issues are the result of computer programs that were written
using two digits rather than four to define the applicable year. For example,
date sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among other material adverse
consequences, a temporary inability to process transactions or engage in
similar normal business activities. We depend on our MIS to process orders,
manage inventory and accounts receivable, maintain distributor and customer
information, assist distributors in delivering products on a timely basis and
to maintain cost-efficient operations. See "Business--Management Information
Systems."
Our State of Readiness for Year 2000. We began evaluating our MIS for
Year 2000 compliance in January 1997. Since that time we have developed a Year
2000 compliance policy encompassing employee education, testing, progress
reporting, external impact plans and contingency plans. Our Chief Information
Officer directs our Year 2000 compliance policy and oversees the remediation
and testing of our MIS. As of December 31, 1998, we believe that we are
approximately 70% Year 2000 compliant. Based on our current assessment, we
believe that we will be 100% Year 2000 compliant by March 31, 1999. However, if
our modifications, testing and solicitations of third party compliance are not
made on a timely basis or we do not resolve our Year 2000 issues, these issues
could have a negative effect on our business.
We have assessed the Year 2000 readiness of each of our core MIS and
remediated these systems as necessary. Our core MIS include Online Sales
Account Information System ("OASIS"), Platinum for Windows, Electronic Data
Interchange ("EDI") and Blue Rhino Electronic Accounting System ("BREAS").
OASIS was Year 2000 compliant when it was implemented in February 1998,
Platinum for Windows was updated in March 1998 to be Year 2000 compliant, EDI
was upgraded in December 1998 to be Year 2000 compliant and BREAS was upgraded
in October 1998 to be Year 2000 compliant. In addition, we have engaged
Integrated Solutions International, L.L.C. to, among other things, assist us in
exchanging our distributors' handheld computer units for Year 2000 compliant
units. We expect to have all of our distributors using Year 2000 compliant
handheld units by March 31, 1999. We are developing integrated test procedures
in which all of our MIS are simultaneously tested for Year 2000 compliance. We
expect these integrated tests to continue throughout 1999.
Historical and Estimated Costs. We have not established a separate Year
2000 compliance budget and do not expect to do so. As of December 31, 1998, we
had incurred approximately $8,000 in Year 2000 compliance costs. We currently
anticipate that the implementation of our Year 2000 compliance policy will cost
approximately $35,000, all of which will be expensed as incurred. Although we
can give no assurances, we do not expect future costs related to Year 2000
compliance to negatively affect our business in any material way. Costs are
based on current estimates and actual results may vary significantly from such
estimates.
26
<PAGE>
Most Reasonably Likely Worst Case Scenario. The most reasonably likely
worst case Year 2000 scenario we face is an interruption of our business
operations caused by the failure of third parties with which we have a material
relationship to achieve Year 2000 compliance. The consequences of a third party
failure are unknown, but could have a negative effect on our business. We are
considering several contingency plans to address possible business
interruptions caused by a non-compliant third party. Possible contingency plans
include using alternate service providers and using a manual payment and
collection system. We expect that our contingency plans will be developed by
May 31, 1999. In addition, in an effort to protect ourselves and increase the
awareness of third parties whose failure to comply could negatively affect our
business, we are seeking to obtain certifications from them that they are Year
2000 compliant.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk related to changes in interest rates on
borrowings under our Bank Credit Facility. Our Bank Credit Facility bears
interest based on LIBOR. However, because we have no balance on our Bank Credit
Facility, we do not believe this risk will be material.
We have no derivative financial instruments or derivative commodity
instruments in our cash and cash equivalents and investments. We invest our
cash and cash equivalents and investments in investment grade, highly liquid
investments consisting of money market instruments, bank certificates of
deposit and overnight investments in commercial paper. We anticipate investing
our net proceeds from this offering in similar investment grade and highly
liquid investments pending their use as described in this prospectus. See "Use
of Proceeds."
All of our transactions are conducted and accounts are denominated in
United States Dollars and as such we do not currently have exposure to foreign
currency risk. Furthermore, we do not have any direct exposure to commodity
price risk.
27
<PAGE>
BUSINESS
Overview
We are the leading national provider of propane grill cylinder exchange
in the United States with Blue Rhino cylinder exchange displays at over 12,000
retail locations in 47 states and Puerto Rico. Cylinder exchange provides
consumers with a convenient means to exchange empty grill cylinders for clean,
safer, precision-filled cylinders. We offer our cylinder exchange at many major
home center/hardware, mass merchant, grocery and convenience stores including
Home Depot, Lowe's, Sears, WalMart, Kroger and Kwik Shop. We partner with
retailers and independent distributors to provide consumers with a nationally
branded alternative to traditional grill cylinder refill. We dedicate our
efforts and capital to brand development, value-added marketing, customer
service and management information systems ("MIS") while our 53 independent
distributors make the investments in the vehicles and refilling and
refurbishing equipment necessary to operate cylinder exchange businesses.
Cylinder exchange is a relatively new retail concept. We believe that
consumer awareness of the benefits of cylinder exchange will increase as it
becomes more widely available. Furthermore, we estimate there are approximately
225,000 potential cylinder exchange locations in our target markets. During the
twelve months ended October 31, 1998, our net sales increased approximately
105% compared to the twelve months ended October 31, 1997 to approximately
$32.5 million, primarily as a result of the growth of sales at existing
locations and the addition of over 6,700 new retail locations.
Our objective is to further strengthen our position as the leading
national provider of cylinder exchange. To achieve this objective, the key
elements of our strategy are:
. Promoting the Blue Rhino brand and driving consumer awareness of
cylinder exchange
. Expanding existing retailer relationships by opening new locations
and increasing sales at existing locations
. Adding new retailer relationships
. Leveraging distributors' infrastructure by adding new retail
locations within their territories
. Leveraging our corporate infrastructure to increase profitability
. Pursuing strategic account acquisitions from other cylinder exchange
providers
. Developing new products and services related to propane use and
backyard living, such as patio heaters and the related cylinder
exchange service
Industry Background
Barbecue Grill Market. As reported in the BIA study, the popularity of
outdoor barbecuing continues to grow driven by consumer interest in healthier
food preparation and the desire to spend more time outside at family and social
gatherings. The popularity of propane grills has increased significantly in
recent years with propane grill sales now exceeding the combined sales of
charcoal, natural gas and electric grills. Consumers enjoy the convenience of
propane grills over charcoal grills as they light easier, heat up faster and
require less preparation and clean up time. Approximately 68% of backyard
propane grill owners use their grills throughout the year. According to the BIA
study, approximately 38.5 million United States households own a propane grill,
with the average propane grill owner using 1.8 cylinders of propane per year.
Based on the BIA study's estimate that there are 69 million cylinder
transactions per year, we estimate the annual retail market for grill cylinder
refill to be approximately $1 billion.
Grill Cylinder Exchange. In recent years, cylinder exchange has emerged
as a convenient alternative to refilling cylinders at traditional propane
filling stations. Cylinder exchange, in which the consumer exchanges an empty
grill cylinder for one which is full, is available at retail locations such as
home center/hardware, mass merchant, grocery and convenience stores. These
retailers are typically more accessible and have longer business hours, making
them more convenient than propane filling stations. As cylinder exchange
becomes more widely available, we believe consumers will prefer it to
refilling, which
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<PAGE>
often involves traveling to a remote location and waiting for a refill. Growing
consumer acceptance of cylinder exchange is reflected in estimates derived from
the BIA study that the percentage of propane grill owners using cylinder
exchange increased from less than 10% in 1995 to 21% in 1997.
The grill cylinder exchange industry is highly fragmented with numerous
regional and local distributors serving less than 500 locations each. We
believe this fragmentation results in part from the relative newness of
cylinder exchange and the challenges cylinder exchange poses to commercially
focused traditional propane distributors. To build critical mass at the
consumer level, propane distributors must establish and maintain relationships
with major retailers, many of which prefer to stock quality, branded products
supplied by reliable, sophisticated vendors. To service retail cylinder
exchange accounts, a propane distributor must make investments in refurbishing
equipment, vehicles, cylinder displays and grill cylinders not required in its
traditional propane business. Finally, to properly account for exchange,
upgrade and sale transactions, a propane distributor must invest in
sophisticated MIS tailored to servicing retailers. We believe that
opportunities exist to expand through selective acquisitions of smaller
cylinder exchange businesses with established retail accounts.
Business Model
We have created a new paradigm for grill cylinder exchange which provides
the following benefits to consumers, retailers and distributors:
Consumers
. Convenient branded alternative to traditional cylinder refill
. Clean, safer product
. Access to consumer and product information (1-800-BLU-RINO and web
site)
Retailers
. High margin branded product
. Potential to increase customer traffic
. Improved use of exterior retail space
. Nationwide direct store delivery with automatic restocking
. Centralized billing and electronic inventory, invoicing and reporting
. Employee training
Distributors
. Access to major retail accounts
. Opportunity to sell a branded product in a growing market segment
. Service support such as sophisticated MIS, training and consolidated
purchasing
. Assistance in obtaining and maintaining local permits
. Provision of cylinder displays and access to cylinder leasing
programs
. Counter-seasonal complement to traditional propane business
Business Strategy
Promoting the Blue Rhino Brand and Driving Consumer Awareness of Cylinder
Exchange. Our branding efforts focus on developing and maintaining a brand
identity synonymous with a convenient, clean and safer product. We have created
a distinctive Blue Rhino brand name and logo which we prominently display on
cylinder sleeves and displays. We also plan to undertake brand marketing and
promotional initiatives, including point of purchase displays, cross marketing
promotions with other barbecue-related products, print media and cooperative
advertising. Our recognized brand also provides a platform to introduce new
Blue Rhino products to the backyard living category.
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<PAGE>
Delivering Clean, Safer Cylinders at Convenient Locations. We believe
that convenience and safety are critical factors in achieving consumer
acceptance of cylinder exchange. Blue Rhino cylinder exchange allows consumers
to exchange empty cylinders for clean, precision-filled cylinders at a variety
of well known, convenient retail locations. Our distributors refill and
resleeve cylinders according to prescribed standards designed to prevent
overfills or refills of unsafe cylinders. Each Blue Rhino cylinder has a
consistent, like-new appearance, which we believe enhances retail sales and
consumer loyalty. In fiscal 1999, we will be adding our Fuelcheck(TM) indicator
to our cylinder sleeves to help consumers determine when to exchange their
cylinders.
Expanding Relationships with and Increasing Sales at Retailers. Our
relationships with major retailers such as Home Depot, Lowe's, Sears, WalMart,
Kroger and Kwik Shop allow us to place cylinders in a large number of
convenient, high traffic locations. We believe that our ability to provide
national and regional retailers with a single vendor for branded grill cylinder
exchange supported by value-added customer service, marketing and MIS gives us
a competitive advantage over traditional propane distributors. We believe there
are approximately 225,000 potential grill cylinder exchange locations in our
targeted markets of which we currently service more than 12,000, approximately
6,700 of which we added during the twelve months ended October 31, 1998. We
plan to continue to increase the number of new retail locations by adding
locations with existing retailers and developing relationships with new
retailers. Furthermore, we plan to continue increasing sales at existing retail
locations.
Leveraging National Distributor Network. Within the last three years, we
have established a network of 53 independent distributors serving 47 states and
Puerto Rico. Nine of these distributors are dedicated exclusively to developing
and providing Blue Rhino cylinder exchange in some of our key geographic
markets. We believe that our distributor network affords us the opportunity to
service approximately 90% of the cylinder exchange markets in the United
States. We plan to leverage this network by aggressively increasing each
distributor's market penetration through the addition of new retail locations.
Leveraging Corporate Infrastructure to Increase Profitability. We have
assembled a management, sales and administrative team and have developed
sophisticated MIS which we believe can support substantial growth in retail
locations and the introduction of new products and services without significant
expenditures on additional personnel or systems. With this infrastructure in
place, we believe that we can achieve higher profit margins as we increase our
sales. We were able to reduce our selling, general and administrative expenses
as a percentage of net sales for the twelve months ended October 31, 1998 to
19.6% from 33.4% in the preceding twelve month period.
Pursuing Strategic Account Acquisitions. The cylinder exchange industry
is highly fragmented. All participants, other than Blue Rhino, are either
regionally or locally focused. We believe that opportunities exist to expand
through selective acquisitions of smaller cylinder exchange businesses with
established retail accounts. We added approximately 3,350 retail locations in
the twelve months ended October 31, 1998 through 20 acquisitions with an
aggregate purchase price of approximately $8.8 million. See "Risk Factors--
Ability of Distributors and Management to Manage Growth in Sales and Number of
Retail Locations."
Developing and Marketing New Products and Services Related to Propane Use
and Backyard Living. We are seeking additional product opportunities which are
associated with or use propane cylinders or are otherwise associated with
backyard living. New products include patio heaters which are fueled by grill
cylinders. We also intend to begin offering grill cylinder exchange service for
patio heaters. We expect our entry into the patio heater market to afford us
opportunities to enhance our core cylinder exchange business while building the
Blue Rhino brand as a symbol of backyard living.
. Patio Heater Cylinder Exchange Service. In November 1998, we acquired
the patio heater accounts of Mr. Propane, located in Southern
California. Mr. Propane's business included placing cylinder displays
and patio heaters in restaurants, resorts, bars and other outdoor
commercial establishments. We intend to introduce patio heater
cylinder exchange service
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<PAGE>
nationwide with our distributors servicing commercial heater accounts
in the same manner as they service retail locations in their area. We
believe that the patio heater cylinder exchange service will increase
demand for cylinder exchange and further leverage Blue Rhino's and
our distributors' existing infrastructure.
. Patio Heater Sales. We intend to market and sell a Blue Rhino branded
patio heater for commercial and backyard use through our retail
partners and distributors. We have developed a prototype patio heater
in conjunction with a heater manufacturer. We are currently
negotiating with manufacturers to produce both commercial and
consumer grade patio heaters. In addition to increasing demand for
cylinder exchange, we expect this product to further associate Blue
Rhino with backyard living in the minds of consumers.
. Empty Cylinders. In January 1999, we entered into a strategic
alliance with Manchester Tank Corporation to manufacture Blue Rhino
branded cylinders. We will also serve as a sales representative for
empty Manchester grill cylinders to be sold to our existing retailers
and distributors.
. Overfill Prevention Devices. National Fire Protection Association
guidelines require that all grill cylinders produced or recertified
after September 30, 1998 and all grill cylinders refilled after April
2002 must be fitted with an overfill prevention device valve. In
December 1998, we signed a letter of intent to purchase Bison Valve
which designed an Underwriters Laboratories approved overfill
prevention device. The purchase price for Bison Valve includes
approximately $700,000 in cash to be used to repay Bison Valve's
indebtedness to us, $1.2 million of common stock and warrants to
purchase 100,000 shares of common stock. We believe our acquisition
of Bison Valve will help insure a supply of overfill prevention
device valves for our distributors while allowing us to share in the
unique market opportunity created by these new requirements.
Blue Rhino Cylinder Exchange Program
The cylinder exchange process typically begins with a Blue Rhino
distributor replenishing a retail grill cylinder display. Upon delivery, the
distributor records the cylinder inventory into a handheld computer which
calculates the number and type of cylinder exchanges, upgrades and sales for
the location and creates a delivery ticket for the retailer. Distributors
routinely transfer this delivery and inventory information to Blue Rhino
electronically. We then prepare an invoice for each retailer which we
typically transmit in a customized electronic format compatible with the
retailer's existing systems. We collect invoiced amounts directly from the
retailers and in turn remit a fixed amount per cylinder transaction to our
distributors. We negotiate terms of payment with retailers which are generally
30 to 60 days from the date of invoice. We in turn remit payment to our
distributors on the fifteenth of each month for transactions occurring during
the previous month. The following graph illustrates the cylinder exchange
process:
[GRAPHIC OF BLUE RHINO BUSINESS MODEL HERE]
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Blue Rhino Brand Marketing
Our marketing efforts focus primarily on developing and maintaining a
brand identity synonymous with a convenient, clean and safer product which
enhances consumer loyalty and builds retailer and distributor relationships.
Our brand marketing efforts include the following initiatives:
Blue Rhino Cylinder Packaging. Blue Rhino cylinders are covered with a
distinctive and colorful RhinoTUFF(R) cylinder sleeve. The RhinoTUFF(R)
cylinder sleeve provides safety and use information and prominently displays
the Blue Rhino name and logo. The RhinoTUFF(R) sleeve also protects the
cylinders from damage during shipping and handling and from exposure to the
elements. In fiscal 1999, we will be adding our Fuelcheck(TM) indicator to our
cylinder sleeves to help consumers determine when to exchange their cylinders.
We believe that our unique branded packaging increases consumer recognition and
loyalty.
Blue Rhino Cylinder Displays. Blue Rhino cylinder displays, which
prominently feature the Blue Rhino name and logo, are typically located near a
retailer's main entrance or in its lawn and garden department providing
"billboard" advertising for our products. We believe these cylinder displays
enhance consumer awareness of the Blue Rhino brand and reinforce the
association of Blue Rhino with convenient, clean and safer grilling.
Advertising and Promotions. We have selectively placed targeted broadcast
and print media advertising campaigns that focus on raising consumer awareness
of the Blue Rhino brand and cylinder exchange program. In addition, we offer
special promotions to encourage spare filled cylinder purchases. We are also
actively involved with consumer, trade and regulatory associations in an effort
to promote the growth of cylinder exchange. Ongoing Blue Rhino promotions
include our toll free number (1-800 BLU-RINO), our web site, co-operative
advertising programs and cooking and safety demonstrations.
Retailer Relationships
We target the following four categories of retailers for cylinder
exchange:
<TABLE>
<CAPTION>
Retail Category Major Accounts
---------------------------- -------------------------------
<S> <C>
Home Centers/Hardware Stores Home Depot, Lowe's, Sears
Mass Merchants WalMart, Kmart, Meijer
Grocery Stores Kroger, Food Lion, Winn Dixie
Convenience Stores Kwik Shop, SuperAmerica, Conoco
</TABLE>
Home Depot represented approximately 26% of our fiscal 1998 net sales and
approximately 25% of our net sales for the three months ended October 31, 1998.
Lowe's and WalMart each represented approximately 16% and 13% of our net sales
for the same periods. See "Risk Factors--Concentration of Revenues with a
Limited Number of Retailers."
Retailer Opportunity. We offer retailers the opportunity to increase
sales and profits with minimal time and financial investment. Blue Rhino
cylinder exchange is available to retailers nationally, providing retailers
with attractive sales margins while using exterior retail space. In addition,
we offer the potential to increase retailers' sales of ancillary products
through increased traffic from repeat cylinder exchange customers and cross-
marketing initiatives with other barbecue and outdoor living products.
Account Set-Up. We actively assist distributors and retailers in
obtaining local permits to set up cylinder exchange programs and developing a
site plan for cylinder displays. The permitting process is generally completed
within 60 days. Typically, within two weeks of obtaining the necessary permits
or other approvals, the distributor installs the cylinder displays at the
retail location. During the set-up process, our customer service and training
personnel conduct in-store training and provide safety manuals to store
employees. See "Risk Factors--Varying Local Permitting Processes Affecting
Retail Locations" and "--Regulation of Propane."
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Account Service. Blue Rhino cylinder exchange is a turnkey program for
retailers. Our employees and distributors work together to set up new accounts,
train store employees, deliver the cylinders directly to retail locations,
maintain the cylinder displays and cylinder inventory and provide ongoing
marketing and sales support. Through our distributor network, we can install
and service the Blue Rhino program at retail locations nationwide.
Sales Support. Our retail sales organization is divided into four regions
and includes thirteen corporate sales executives supported by a network of
approximately 500 independent sales representatives and grocery brokers. This
sales force is responsible for selling the Blue Rhino program to targeted
retailers and developing value-added relationships with manufacturers of grills
and other barbecue-related products. Our sales managers analyze sales volume by
location and coordinate promotions to maximize sales opportunities.
Systems Support. Through the use of our electronic accounting software,
we provide accurate, timely customized invoices and can provide electronic
sales and inventory information to retailer home offices to relieve local store
managers of processing invoices. We are also capable of providing retailers
with detailed information regarding sales trends at each of their Blue Rhino
locations.
Distributor Network
In an effort to build a strong national cylinder exchange program, we
have sought to attract experienced, well-capitalized, safety conscious propane
distributors to service our target cylinder exchange markets nationwide. The
following map shows the location of and the territory served by our 53
distributors:
[INDEPENDENT DISTRIBUTOR NETWORK MAP APPEARS HERE]
A dedicated distributor's only line of business is servicing Blue Rhino
cylinder exchange customers while a non-dedicated distributor operates a
traditional propane or industrial gas business in addition to its Blue Rhino
cylinder exchange business.
Distributor Opportunity. Propane distributors have traditionally
generated a large part of their sales during cold weather months. We offer
distributors an attractive counter-seasonal propane business with access to
major retail accounts to sell a recognizable branded product in the growing
backyard living segment. We continually pursue new relationships and additional
locations with existing retail partners to
33
<PAGE>
increase the density of each distributor's territory. Our personnel are
experienced in regulatory matters and assist distributors in completing the
permitting and set-up process. Through our Rhino Services, L.L.C. subsidiary we
offer distributors a cooperative propane buying program and cylinder financing
program. We have also arranged for a cylinder leasing program for distributors
with USA Leasing, L.L.C. ("USA Leasing"), a company controlled by some of our
affiliates. USA Leasing leases cylinders to participating distributors for a
monthly rental fee of 1% of the initial purchase price of the cylinders.
Our distributors lease cylinder displays and sublease handheld computers
from us. The distributors lease cylinder displays from us for monthly rental
payments equal to 1% of the initial purchase price of the displays for the term
of the lease. The distributors are also responsible for maintenance, insurance
and risk of loss with respect to the leased cylinder displays. The cylinder
display leases may be terminated by either party on 60 days notice. The
distributors pay $1.00 per month for each handheld computer which they sublease
from us, which is approximately $139 less than the average monthly rent we pay
to our lessors for the handheld computers. The handheld computer subleases are
terminable by either party on 60 days notice.
Distributor Standards. We set standards for and continually monitor our
distributors' performance to ensure a high level of account service. We
encourage distributors to develop an infrastructure sufficient to:
. Complete customer installations within two weeks of receipt of all
necessary permits and governmental approvals
. Avoid stock-outs at all accounts serviced
. Resolve stock-outs within 48 hours
. Respond to retailers' emergency requests within 30 minutes
. Refurbish and, when necessary, recertify cylinders according to
prescribed standards
Distributor Selection Process. We have selectively identified and pursued
high quality distributors through direct contacts and industry trade forums. We
screen all distributor candidates by reviewing credit reports and safety
records and conducting management reference checks. As a result of our thorough
selection process, we have terminated only one distributor to date.
Distributor Services. We employ business development managers to
cultivate and manage ongoing distributor relationships, address set-up and
servicing problems and provide distributors with marketing feedback and
industry updates. We also employ safety and training personnel who provide set-
up seminars and safety training. This continuing support allows distributors to
concentrate their efforts on opening and servicing retail locations.
Dedicated Distributors. In order to establish a presence in and rapidly
develop certain key markets, we have entered into distribution agreements with
nine distributors dedicated solely to providing Blue Rhino cylinder exchange.
Platinum Propane Holding, L.L.C. ("Platinum Propane"), through the five
distributors that it owns, serves the largest number of locations and generates
the most sales of all distributors. Platinum Propane serves our
South/Southeast, Chicago and Los Angeles markets. Ceramic Industries Inc.,
another dedicated distributor, serves the Houston and Dallas markets. The other
three dedicated distributors, Caribou Propane, Javelina Propane and Raven
Propane, serve the Pacific Northwest, Phoenix and New Jersey/Philadelphia
markets. See "Risk Factors--Potential Conflicts of Interest in Enforcing
Remedies Against Our Affiliates."
Agreements with Distributors. We have entered into distribution
agreements with each of our 53 distributors on substantially similar terms.
Under these agreements, each distributor must meet prescribed service standards
and maintain designated amounts of liability insurance naming us as an
additional insured party. The agreements typically run for terms of between
three and twenty years. We may terminate the agreements if a distributor does
not meet certain required service levels. Each agreement also includes a two-
year non-compete clause in the event the agreement is terminated or expires.
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In connection with our transition from a vertically integrated business
model to an independent distributor business model, we sold most of our
distribution assets to our independent distributors. In most of these sales the
distributor paid for the assets by delivering to us a promissory note requiring
monthly payments of principal and interest over 60 months and bearing 10.5%
interest. We have liens on the assets pursuant to security agreements which
contain standard representations and covenants. As of October 31, 1998, eight
distributors owed us in the aggregate approximately $462,000 for the purchase
of distribution assets from us.
Management Information Systems
We have made a substantial investment in our MIS which we believe
enhances our ability to serve retailers and helps to differentiate Blue Rhino
from other providers of cylinder exchange. Our technology uses highly
integrated, scalable software applications which cost-effectively support our
growing retail location base. Our systems also allow us to use historical data
to further enhance the execution, service and identification of new markets and
marketing opportunities. The primary components of our systems include the
following:
Sales and Marketing Support System. In partnership with Information
Management System Services ("IMSS"), a subsidiary of R.J. Reynolds Tobacco
Company, we have developed and implemented a custom database we refer to as
OASIS (Online Account Sales Information System). This system facilitates the
exchange of information with distributors and allows us to develop a database
to track delivery and transaction statistics.
Distributor Level Technology. Each distributor is electronically linked
to our accounting and database systems which allow drivers to provide delivery,
inventory and invoicing information through handheld computers. This technology
enables us to provide retailers with accurate and timely inventory and invoices
and assists the distributor in avoiding location stock-outs.
Financial Systems. We use a custom software package to link the handheld
computers used by the distributors with our accounting and financial reporting
system which we refer to as BREAS (Blue Rhino Electronic Accounting Systems).
All delivery transaction information entered into the handheld computers is
uploaded routinely via this software where it is verified and transmitted to
our accounting system for invoice processing. Many retailers are invoiced via
EDI, eliminating paper processing of those transactions. We pay distributors
via electronic deposits to further minimize administrative costs. BREAS was
upgraded to be Year 2000 compliant in October 1998. In addition, we have
engaged Integrated Solutions International, L.L.C. to, among other things,
assist us in exchanging our distributors' handheld computer units for Year 2000
compliant units. However, any failure to complete this upgrade by January 1,
2000 could lead to a significant disruption in our ability to account for sales
and deliveries. "Risk Factors--Blue Rhino's Dependence on Management
Information Systems," "--Potential Negative Effect of Our Failure to Achieve
Year 2000 Compliance" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Compliance."
Competition
The grill cylinder refilling industry is highly fragmented and
competitive. Competition in our industry is based primarily upon convenience,
quality of product, service, historical relationships, perceived safety and
price. The BIA study states that 79% of the consumers who use propane grills
refill rather than exchange their cylinders. Accordingly, our primary
competition comes from the approximately 20,000 bulk refilling stations owned
and operated by propane dealers, as well as certain rental outlets,
recreational vehicle centers and hardware stores. Major propane providers, such
as AmeriGas Propane Partners, L.P., Cornerstone Propane Partners, L.P.,
Ferrellgas Propane Partners, L.P., Heritage Propane Partners, L.P. and Suburban
Propane Partners, L.P., could establish new or expand their existing cylinder
exchange businesses nationally. These major propane providers have greater
resources than we do and may be able to undertake more extensive marketing
campaigns and adopt more aggressive pricing policies than we can. We also
compete with numerous regional cylinder exchange
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<PAGE>
providers, which typically have operations in a few states, and with local
cylinder exchange providers. If these competitors expand their cylinder
exchange programs or new competitors enter the market or grow to compete with
us on a national scale, our market share and gross margins could decrease.
Governmental Regulation
The storing and dispensing of propane is governed by guidelines published
by the National Fire Protection Association in Pamphlets 54 and 58. Recent
National Fire Protection Association initiatives include a requirement that all
grill cylinders placed in use or recertified after September 30, 1998 and all
grill cylinders refilled after April 2002 must be fitted with an overfill
prevention device valve. Our distributors are also governed by local laws and
regulations which vary by municipality and state. Typically, a distributor must
obtain permits from a local fire marshal for each propane sales location. Our
regional and corporate staffs attempt to assist the distributors in this
process whenever feasible. We play an active role in drafting model state
legislation through the National Propane Gas Association, an industry
association, which attempts to make state and local legislation uniform to
provide consumers, retailers and distributors with up to date safety
regulations. See "Risk Factors--Regulation of Propane" and "--Volatile Product;
Potential Product Liability."
Proprietary Rights
We have invested substantial time, effort and capital in establishing the
Blue Rhino brand and believe that our trademarks are an important part of our
business strategy. We have a registered trademark for the use of the Blue Rhino
logo, including the name, and the RhinoTUFF name and have trademark
applications pending for Tri-Safe, Endless Summer and Endless Summer Comfort.
While we may apply for additional trademarks or copyrights in the future, no
assurance can be given that any trademarks or copyrights will be issued, that
any of our trademarks or patents will be held valid if subsequently challenged
or that others will not claim rights in or ownership of our trademarks or
copyrights and other proprietary rights.
Litigation
In the ordinary course of our business, we are involved in certain
pending or threatened legal proceedings from time to time. In the opinion of
management, none of the legal proceedings currently pending or threatened will
have a material effect on our financial position or results of operations. See
"Risk Factors--Volatile Product; Potential Product Liability."
Employees
As of December 31, 1998, we had 60 employees, of whom 22 were engaged in
sales and marketing, 12 in distributor services, four in information systems
and 22 in administration and finance. We have not experienced any work
stoppages and believe we have good relations with our employees.
Facilities
Our headquarters are located in Winston-Salem, North Carolina in
facilities we lease from Rhino Real Estate, L.L.C., a company affiliated with
two of our directors. Pursuant to the terms of the lease, we pay annual rent of
approximately $213,000, plus our allocable share of all taxes, utilities and
maintenance. The lease terminates on December 31, 2001 and includes an option
to renew for one three-year term.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors and their ages as of the date of
this prospectus are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Billy D. Prim (1).......... 42 Chairman of the Board, President
and Chief Executive Officer
Andrew J. Filipowski (1)... 48 Vice Chairman
Mark Castaneda............. 34 Chief Financial Officer, Secretary and Director
Kay B. Martin.............. 46 Vice President, Chief Information Officer
Richard E. Belmont......... 39 Vice President, Marketing
Joseph T. Culp............. 41 Vice President, Partner Development
Jerald D. Shadley.......... 51 Vice President, Sales
Thomas W. Ferrell.......... 46 Vice President, Products
Richard A. Brenner (2)(3).. 35 Director
Steven D. Devick (2)(3).... 46 Director
Craig J. Duchossois (1).... 54 Director
John H. Muehlstein (3)..... 43 Director
</TABLE>
- --------
(1)Member of the Executive Committee.
(2)Member of the Compensation Committee.
(3)Member of the Audit Committee.
Billy D. Prim co-founded Blue Rhino Corporation in March 1994 and has
served as its Chief Executive Officer and Chairman since its incorporation and
as its President since January 1996. Mr. Prim also serves as president and
chief executive officer and is a 51% stockholder of American Oil and Gas, Inc.,
a North Carolina based holding company. Until April 1995, American Oil and Gas,
Inc. was a distributor of propane gas, home heating oil, diesel fuel and
kerosene. Mr. Prim is a director and part owner of several privately-held
companies, including Platinum Propane, Caribou Propane, Javelina Propane and
Raven Propane which act as our distributors. Mr. Prim is also a part owner and
the manager of USA Leasing which leases cylinders to our distributors. Mr. Prim
is also a director of Bison Valve, L.L.C. ("Bison Valve"), Southern Community
Bank & Trust and the National Propane Gas Association.
Andrew J. Filipowski co-founded Blue Rhino Corporation in March 1994 and
has served as its Vice Chairman since May 1994. Mr. Filipowski is a co-founder
of Platinum technology, Inc. and has been its chairman of the board, president
and chief executive officer since its formation in April 1987. Mr. Filipowski
is also a director of Platinum Entertainment, Inc., System Software Associates,
Inc. and several privately-held companies including Bison Valve and Platinum
Propane, Caribou Propane, Javelina Propane and Raven Propane, which act as our
distributors.
Mark Castaneda has served as our Chief Financial Officer since October
1997, our Secretary since February 1998 and one of our directors 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 until October 1997, served 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.
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<PAGE>
Kay B. Martin has served as our Vice President and Chief Information
Officer since March 1997. Prior to joining us, Ms. Martin served as the
director of information resources for R.J. Reynolds Tobacco Company from March
1988 to March 1997.
Richard E. Belmont has served as our Vice President of Marketing since
August 1998 and served as our Vice President of Sales and Marketing from March
1995 to August 1998. Prior to joining us, Mr. Belmont was a product planning
manager and a product manager with the Char-Broil Division of W.C. Bradley Co.
from January 1991 to March 1995. Mr. Belmont is currently a director of the
Barbecue Industry Association of America.
Joseph T. Culp has served as our Vice President of Partner Development
since November 1995. Prior to joining us, Mr. Culp was the general manager of
Skelgas Propane, Inc. from February 1994 to November 1995, and a regional
manager for Suburban Propane Partners, L.P. from January 1981 to February 1994.
Jerald D. Shadley has served as our Vice President of Sales since August
1998. Prior to joining us, Mr. Shadley served as vice president of sales and
marketing for McCulloch Corp. from January 1996 to May 1998. Mr. Shadley was
also executive vice president, sales and marketing from July 1994 to January
1996 and vice president, sales and marketing from April 1991 to July 1994 for
Homelite, Inc.
Thomas W. Ferrell has served as our Vice President of Products since
November 1998. Mr. Ferrell previously served as manager of our Rhino Services
subsidiary from March 1997 to November 1998. Prior to joining us, Mr. Ferrell
served as president of Total Operations Management, Inc. from November 1993 to
March 1997.
Richard A. Brenner has served as a director since August 1998. Mr.
Brenner has served as president of Amarr Company since July 1993 and has served
on the Board of Advisors of Wachovia Bank since 1993.
Steven D. Devick has served as one of our directors since May 1994. Mr.
Devick is a co-founder of Platinum Entertainment, Inc. and has served as its
chairman of the board and chief executive officer since January 1992 and as its
president since January 1996. Mr. Devick is a director of Platinum technology,
Inc., as well as an officer and director of several privately-held companies.
Craig J. Duchossois has served as one of our directors since May 1994.
Mr. Duchossois has been the chief executive officer of Duchossois Industries,
Inc. since 1995 and served as its president from 1986 to 1995. Mr. Duchossois
has also served as a director of Platinum Entertainment, Inc., and currently
serves as a director of Bissell, Inc. and LaSalle National Bank as well as
several privately-held companies, including Bison Valve.
John H. Muehlstein has served as one of our directors since September
1995. Since 1986, Mr. Muehlstein has been a partner of the law firm of Pedersen
& Houpt, P.C., our legal counsel. Mr. Muehlstein also serves as a director of
Einstein/Noah Bagel Corp., SpinCycle, Inc. and several privately-held
companies.
Committees of the Board of Directors
The board of directors has an executive committee, a compensation
committee and an audit committee. The executive committee makes recommendations
to the board of directors concerning matters of strategic planning and
operational management of Blue Rhino Corporation and has the power to address
matters on behalf of the board of directors which require attention between
meetings of the board of directors. The compensation committee makes
recommendations to the board of directors concerning salaries and incentive
compensation for our officers and employees and administers the 1994 Stock
Incentive Plan ("1994 Stock Incentive Plan"), the 1998 Stock Incentive Plan
("1998 Stock Incentive Plan"), the Distributor Incentive Stock Option Plan
("Distributor Option Plan") and the
38
<PAGE>
Amended and Restated Stock Option Plan for Non-employee Directors ("Director
Option Plan"). The audit committee makes recommendations to the board of
directors regarding the selection of independent accountants, reviews the
results and scope of the audit and other accounting related services and
reviews and evaluates our internal control functions.
Director Compensation
Directors currently receive no cash compensation for serving on the board
of directors, although they are reimbursed for their reasonable expenses
incurred in connection with the performance of their duties as directors. Prior
to our initial public offering, the directors were eligible to receive stock
options under the 1994 Stock Incentive Plan. Our directors collectively hold
101,987 options granted to them under the 1994 Stock Incentive Plan with a
weighted average exercise price of $6.48 per share. Since our initial public
offering, non-employee directors have been eligible to receive options under
the Director Option Plan. See "--Director Option Plan."
Executive Compensation
The following table sets forth certain information regarding compensation
we paid for the fiscal years ended July 31, 1998 and 1997 to our Chief
Executive Officer and our other executive officers whose total salary plus
bonus exceeded $100,000 for such fiscal year ("Named Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
------------- -----------------
Shares Underlying
Name and Principal Position Year Salary Stock Options
------------------------------------- ---- -------- -----------------
<S> <C> <C> <C>
Billy D. Prim........................ 1998 $218,538 43,312
Chief Executive Officer............. 1997 $125,250 57,088
Richard E. Belmont................... 1998 $112,708 26,890
Vice President Sales and Marketing.. 1997 $106,727 1,890
Joseph T. Culp....................... 1998 $109,710 26,890
Vice President of Partner
Development........................ 1997 $104,242 1,890
Mark Castaneda....................... 1998 $ 78,846(1) 32,561
Secretary and Chief Financial
Officer............................ 1997 $ -- --
Kay B. Martin........................ 1998 $102,288 26,890
Vice President and Chief Information
Officer............................ 1997 $ 38,712(2) 5,671
</TABLE>
- --------
(1) Mr. Castaneda's salary for fiscal 1998 reflects amounts earned from the
commencement of his employment with us in October 1997 through July 1998.
(2) Ms. Martin's salary for fiscal 1997 reflects amounts earned from the
commencement of her employment with us in February 1997 through July 1997.
Option Grants
The following table sets forth information on grants of stock options to
the Named Officers pursuant to the 1994 Stock Incentive Plan and the 1998 Stock
Incentive Plan during fiscal 1998.
39
<PAGE>
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 5% 10%
- ---- ---------- ------------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Billy D. Prim........... 40,000 13.6% $13.00 5/18/08 $327,025 $828,746
3,312(3) 1.1% $ 6.61 8/1/07 13,759 34,882
Richard E. Belmont...... 25,000 8.5% $13.00 5/18/08 204,391 517,966
1,890(3) 0.6% $ 6.61 8/1/07 7,852 19,906
Joseph T. Culp.......... 25,000 8.5% $13.00 5/18/08 204,391 517,966
1,890(3) 0.6% $ 6.61 8/1/07 7,852 19,906
Mark Castaneda.......... 25,000 8.5% $13.00 5/18/08 204,391 517,966
7,561(3) 2.6% $ 6.61 8/1/07 31,411 79,633
Kay B. Martin........... 25,000 8.5% $13.00 5/18/08 204,391 517,966
1,890(3) 0.6% $ 6.61 8/1/07 7,852 19,906
</TABLE>
- --------
(1) Except as described in note 3 below, options were granted pursuant to the
1998 Stock Incentive Plan. These options have a term of ten years, are
nonqualified stock options and have an exercise price equal to the fair
value of the common stock on the date of grant. Options vest 20% on each
anniversary of the grant date until fully vested and are exercisable upon
vesting. In determining the fair market value of the common stock for
options issued prior to the establishment of a public market for the common
stock, the compensation committee relied on the estimate of the mid-point
of the estimated range of the offering price for the common stock for our
initial public offering.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock prices.
(3) Options were granted pursuant to the 1994 Stock Incentive Plan. These
options have a term of ten years, are nonqualified stock options and have
an exercise price equal to the actual or estimated fair value of the common
stock on the date of grant. All options issued under the 1994 Stock
Incentive Plan are fully vested and exercisable. In determining the fair
market value of the common stock for options issued prior to our initial
public offering, the board of directors considered various factors,
including our financial condition and business prospects, our operating
results and the absence of a market for our common stock.
The following table sets forth information with respect to unexercised
stock options granted under the 1994 Stock Incentive Plan and the 1998 Stock
Incentive Plan as of the end of fiscal 1998. The Named Officers did not
exercise any stock options during fiscal 1998.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Values
<TABLE>
<CAPTION>
Number of Value of Unexercised
Options In-the-Money Options at
Held at July 31, 1998 July 31, 1998(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Billy D. Prim............... 64,180 40,000 $585,144 $120,000
Richard E. Belmont.......... 15,122 25,000 $164,901 $ 75,000
Joseph T. Culp.............. 15,122 25,000 $164,901 $ 75,000
Mark Castaneda.............. 7,561 25,000 $ 70,978 $ 75,000
Kay B. Martin............... 7,561 25,000 $ 70,978 $ 75,000
</TABLE>
- --------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the options at July 31, 1998 of $16.00 per share
and the exercise price of the Named Officer's options.
40
<PAGE>
1994 Stock Incentive Plan
The 1994 Stock Incentive Plan was adopted by the board of directors and
approved by the stockholders in December 1994. We currently have 167,740 shares
of common stock reserved for issuance upon the exercise of options granted
under this plan. As of December 31, 1998, options to purchase 167,740 shares of
common stock at a weighted average exercise price of $6.16 per share were
outstanding under the 1994 Stock Incentive Plan. As of December 31, 1998,
options to purchase 14,869 shares of common stock at an exercise price of $4.69
per share have been exercised. Upon consummation of our initial public
offering, all outstanding options under the 1994 Stock Incentive Plan became
vested. No additional options, stock appreciation rights, restricted stock or
deferred stock will be granted under the 1994 Stock Incentive Plan.
1998 Stock Incentive Plan
The board of directors adopted and the stockholders approved the 1998
Stock Incentive Plan in November 1997, effective as of May 18, 1998. As of
December 31, 1998, options to purchase 300,000 common shares at a weighted
average exercise price of $13.00 per share were outstanding under the plan.
While the 1998 Stock Incentive Plan provides for the issuance of up to an
additional 900,000 shares of common stock upon the exercise of options to be
granted under the plan, we have delivered a letter to the underwriters stating
that, prior to 360 days after the closing of this offering, we will not grant
options to purchase more than an additional 300,000 shares of common stock
pursuant to the plan. Pursuant to the 1998 Stock Incentive Plan, we may grant
options to officers, employees, consultants and advisors to encourage them to
acquire a proprietary interest in Blue Rhino and to generate an increased
incentive to contribute to our future success. Options granted under the 1998
Stock Incentive 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 is the
administrator for the 1998 Stock Incentive Plan and has the power to grant
options to select officers, employees, consultants and advisors, determine the
number of shares of common stock subject to each grant and the vesting, price
and terms of exercise for each option granted. However, options may not be
granted with an exercise price per share less than the fair market value per
share of the common stock as of the date of the grant. The compensation
committee also may adjust the number of shares of common stock subject to
option grants in case of stock dividends, stock splits, recapitalizations and
other similar events. Options may not be assigned or transferred except by will
or operation of the laws of descent and distribution. Subject to vesting
requirements, options granted under the 1998 Stock Incentive Plan may be
exercised only by the participant, with certain exceptions in the event of
death during his or her employment with or engagement by Blue Rhino.
Director Option Plan
All non-employee directors may participate in the Director Option Plan.
The board of directors adopted and the stockholders approved the Director
Option Plan in November 1997, and the plan became effective on May 18, 1998.
The Director Option Plan was amended and restated on December 30, 1998. We have
reserved 100,000 shares of common stock for issuance under the Director Option
Plan. As of December 31, 1998, options to purchase 56,000 shares of common
stock, at a weighted average exercise price of $21.68 per share, were
outstanding under the plan. Of the options to purchase 56,000 shares currently
outstanding, options to purchase 16,000 shares were granted on December 21,
1998 to four non-employee directors for service in fiscal 1998. Options to
purchase the other 40,000 shares were granted on December 30, 1998 to five non-
employee directors for service in fiscal 1999. For service in fiscal 2000 and
beyond, the board of directors has approved an annual grant under the Director
Option Plan of options to purchase 4,000 shares of common stock as of the day
after the annual stockholders meeting with an exercise price equal to the fair
market value of the stock on the grant date. All grants for fiscal 1999 and
thereafter are subject to forfeiture in the event a director fails to attend at
least two quarterly board of directors meetings prior to the next annual
stockholders meeting. If the director attends at least two but less than four
meetings, the director will forfeit options to purchase one quarter of the
shares he received for that fiscal year for each meeting less than four which
he attends. One-third of the options granted under this plan vest on each of
the first three anniversaries of the grant date. See "--Director
41
<PAGE>
Compensation" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview."
Options granted under the Director Option Plan are not "incentive stock
options," as that term is defined in Section 422(b) of the Code. The
compensation committee of the board of directors administers the Director
Option Plan and has the power to adjust the number of shares of common stock
subject to option grants in case of stock dividends, stock splits,
recapitalizations and other similar events. Each option granted under the
Director Option Plan is exercisable for a period not to exceed ten years from
the date of grant and shall lapse upon expiration of such period. Options may
not be assigned or transferred except by will or operation of the laws of
descent and distribution and each option is exercisable during the lifetime of
the optionee only by such optionee.
Distributor Option Plan
In November 1997, the board of directors adopted and the stockholders
approved the Distributor Option Plan which became effective on May 18, 1998. We
have reserved 400,000 shares of common stock for issuance upon the exercise of
options granted under the Distributor Option Plan. In May 1998, we granted
options to purchase 240,887 shares of common stock to existing Blue Rhino
distributors at an exercise price equal to $13.00 per share. Blue Rhino
distributors and their stockholders, partners, members, directors, general
partners, managers, officers, employees and consultants are eligible to receive
options under the Distributor Option Plan. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview."
We adopted the Distributor Option Plan to assist in attracting and
retaining distributors, to provide distributors an incentive to offer quality
service to and increase the number of our customer accounts and to promote the
alignment of our distributors' and our stockholders' interests. Options issued
under the Distributor Option Plan will not be "incentive stock options" as that
term is defined in Section 422(b) of the Code, nor is the Distributor Option
Plan an "employee benefit plan" as that term is defined under Rule 405
promulgated under the Securities Act. The compensation committee of the board
of directors administers the Distributor Option Plan and has the power to
select distributors for participation and to determine the number of shares of
common stock subject to each grant. The exercise price for options granted to
distributors under the Distributor Option Plan will be the market price of our
common stock on the date of the option grant. Options granted under the
Distributor Option Plan will typically have a term of ten years and vest over
four years with 25% vesting on the first anniversary of the end of the quarter
during which the options were granted and on each subsequent end of quarter
anniversary thereafter until fully vested. We intend to register the shares of
common stock to be issued upon the exercise of vested options granted under the
Distributor Option Plan. In the event we do not or are unable to register
shares in a sufficient number to issue to distributors upon their exercise of
vested options issued under the Distributor Option Plan, the options shall be
exercisable only in the event exemptions from registration under the Securities
Act and state "blue sky" laws exist for the issuance of shares upon the
exercise of the option.
401(k) Plan
As of January 1, 1999, our employees may participate in our 401(k) plan.
All Blue Rhino employees who have been employed for six months or more are
eligible to participate in the plan beginning on the first day of the first
fiscal quarter following the completion of 1,000 hours of service. Participants
in the 401(k) plan may contribute up to 15% of their total base compensation to
the plan, subject to applicable Internal Revenue Code limitations. Each
employee's interest in contributions we make on their behalf, if any, vests 20%
per year of service. Any contributions we make are at our discretion and no
such contributions have been made to date.
Compensation Committee Interlocks and Insider Participation
During fiscal 1998, Messrs. Devick, Duchossois, Filipowski, S.H. Fogleman
III and Prim served on the compensation committee of our board of directors.
Mr. Fogleman resigned from our compensation committee and board of directors in
August 1998. Messrs. Filipowski and Prim resigned from our
42
<PAGE>
compensation committee in February 1998 and Mr. Duchossois resigned from our
compensation committee in November 1998. Our compensation committee is
currently comprised of Messrs. Brenner and Devick. Mr. Fogleman was our Chief
Financial Officer and Vice President, Finance from May 1994 until December
1995.
Since March 1994, we have leased our offices in Winston-Salem, North
Carolina from Rhino Real Estate, L.L.C., an entity owned 50% by Mr. Filipowski
and 50% by Mr. Prim. Pursuant to the terms of the lease, we pay annual rent of
approximately $213,000, plus our allocable share of all taxes, utilities and
maintenance. The lease terminates on December 31, 2001 and includes an option
to renew for one three-year term.
In October 1995, we sold 12,575 units for $1,000 per unit. Each unit
consisted of a 10.5% senior discount note with a face value of $1,364.93
("Senior Discount Note") and a warrant to purchase approximately 40 shares of
common stock at an exercise price of approximately $4.59 per share ("1995
Warrants"). Mr. Prim, individually and through affiliates, purchased 25 units,
Mr. Filipowski purchased 200 units and Mr. Duchossois and his affiliates
purchased 1,000 units. In consideration for their assistance in securing
financing, certain individuals received 1995 Warrants to purchase in the
aggregate 72,589 shares of common stock at an exercise price of $4.59 per share
which included 1995 Warrants to purchase 27,095 shares of common stock issued
to Mr. Duchossois and his affiliates. All outstanding Senior Discount Notes
were repaid in full with a portion of the proceeds from our initial public
offering and the 1995 Warrants were exercised concurrently with the
consummation of our initial public offering.
In June 1996, we awarded distributorships for North Carolina, South
Carolina, Georgia, Florida and parts of Virginia and Tennessee to Platinum
Propane Corporation ("PPC"), an entity indirectly owned and managed by Messrs.
Prim and Filipowski. The terms of the distribution agreements are substantially
the same as those negotiated with other Blue Rhino distributors. In March 1997,
Messrs. Prim and Filipowski contributed the assets and certain liabilities of
PPC to Platinum Propane, L.L.C. ("Platinum Propane") in exchange for
approximately 40% of the membership interests in Platinum Propane. In March
1997, Platinum Propane raised approximately $4.8 million in a private placement
of membership interests pursuant to which Mr. Duchossois and his affiliates
invested $375,000. In March 1997, we sold 151,229 shares of common stock and a
warrant to purchase 113,422 shares of common stock at an exercise price of
$6.61 per share to Platinum Propane for an aggregate purchase price of $1.0
million. At the same time, we entered into distribution agreements with
subsidiaries of Platinum Propane covering the Chicago and Los Angeles
territories, in addition to the territories previously served by PPC. Messrs.
Prim and Filipowski have the ability to select, and currently occupy, two of
the seven director positions at Platinum Propane. In fiscal 1996 we paid PPC
approximately $1.6 million, and in fiscal 1997 and 1998, we paid Platinum
Propane approximately $5.3 million and $7.9 million, respectively, for cylinder
exchange services which they performed. We have also entered into cylinder
display financing leases with Platinum Propane requiring lease payments of
$11,295 per month as of July 31, 1998. We purchased approximately $3.2 million
of grill cylinders from Platinum Propane through December 31, 1998.
We entered into distribution agreements in February 1998 with Caribou
Propane to service our Pacific Northwest market and Javelina Propane to service
our Phoenix market and in May 1998 with Raven Propane to service our
Philadelphia/New Jersey markets. Messrs. Prim and Filipowski own, in the
aggregate, 45% of the membership interests in 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
1998, we paid Caribou Propane, Javelina Propane and Raven Propane approximately
$31,000, $118,000 and $381,000, respectively, for cylinder exchange services
performed by them. We purchased approximately $200,000, $184,000 and $303,000
of grill cylinders from Caribou Propane, Javelina Propane and Raven Propane,
respectively, through December 31, 1998.
In May 1998, we granted the following options pursuant to the Distributor
Option Plan:
<TABLE>
<CAPTION>
Number of Shares
Distributor Subject to Options
----------- ------------------
<S> <C>
Caribou Propane.. 4,600
Javelina
Propane......... 5,282
Platinum
Propane......... 74,461
Raven Propane.... 10,051
</TABLE>
43
<PAGE>
These options vest 25% on July 31, 1999 and each July 31st thereafter until
fully vested and may be exercised at a price of $13.00 per share on or before
May 18, 2008.
In January 1998, Messrs. Filipowski and Duchossois along with two other
stockholders collectively loaned us $3.25 million at a rate of 10.5% per annum.
These loans were repaid in full with a portion of the proceeds from our initial
public offering. These stockholders received warrants to purchase approximately
0.08 shares of common stock for every $3.00 they loaned to us for a total of
81,913 shares (the "1998 Warrants"). Messrs. Filipowski and Duchossois each
loaned us $1.45 million and received 1998 Warrants to purchase 36,456 shares of
common stock. The 1998 Warrants may be exercised prior to December 31, 2008 at
a price per share of $13.00.
Mr. Prim executed a guarantee in favor of Blue Rhino Corporation in
connection with our outstanding loan to Bison Valve. We have signed a letter of
intent to purchase Bison Valve. This acquisition will relieve Mr. Prim of his
obligations under this guarantee.
During the three months ended October 31, 1998, we acquired approximately
$4.6 million of cylinders from our distributors in contemplation of selling
cylinders to USA Leasing. In previous periods, we also acquired approximately
$2.9 million of cylinders in connection with the acquisition of retail accounts
and purchases from our distributors. In October 1998, we sold grill cylinders
to USA Leasing for $6.5 million. Messrs. Prim, Duchossois and Filipowski own
approximately 74% of the membership interests in USA Leasing and Mr. Prim
serves as its manager. This sale of cylinders was in contemplation of an
operating lease arrangement between USA Leasing and our distributors whereby
participating distributors pay rent of 1% per month of the initial purchase
price of the cylinders. We have guaranteed 80% of USA Leasing's $13.0 million
credit facility with NationsBank, N.A. See "Certain Transactions."
We believe that the foregoing transactions with directors, officers,
stockholders and other affiliates were completed on terms as favorable to us as
could have been obtained from unaffiliated third parties. We have adopted a
policy that we will not enter into any material transaction in which one of our
directors, officers or stockholders has a direct or indirect financial
interest, unless the transaction is determined by our board of directors to be
fair to us or is approved by a majority of our disinterested directors or by
our stockholders.
CERTAIN TRANSACTIONS
Billy D. Prim and Andrew J. Filipowski founded Blue Rhino Corporation in
March 1994, contributing the assets of American Cylinder Exchange, Inc. in
consideration for 746,692 and 589,792 shares of our common stock, respectively.
John Muehlstein, one of our directors, is a partner in the firm of
Pedersen & Houpt, P.C., our legal counsel.
Peer Pedersen, one of our stockholders and part owner of USA Leasing, is
a partner of Pedersen & Houpt, P.C. See "Risk Factors--Potential Conflicts of
Interest in Enforcing Remedies Against Our Affiliates" and "Management--
Compensation Committee Interlocks and Insider Participation."
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the common stock as of November 30, 1998 (and as adjusted for this
offering) by (i) each person known by us to beneficially own more than 5% of
our common stock; (ii) each of our directors; (iii) each Named Officer; and
(iv) all of our Named Officers and directors as a group.
<TABLE>
<CAPTION>
Percent of Shares
Beneficially Owned
-----------------------
Shares Prior to
Beneficially this After this
Name and Address Owned(1) Offering(2) Offering(3)
---------------- ------------ ----------- -----------
<S> <C> <C> <C>
Directors and Named Officers:
Andrew J. Filipowski(4)
1815 S. Meyers Road
Oakbrook Terrace, IL 60181............. 1,861,869 24.2% 19.2%
Billy D. Prim(5)
104 Cambridge Plaza Drive
Winston-Salem, NC 27104................ 1,344,497 17.5% 13.9%
Craig J. Duchossois(6)
845 Larch Avenue
Elmhurst, IL 60126..................... 456,994 6.0% 4.7%
Richard E. Belmont(7).................... 15,122 * *
Joseph T. Culp(7)........................ 15,122 * *
Mark Castaneda(8)........................ 8,061 * *
Kay B. Martin(9)......................... 8,561 * *
Richard A. Brenner....................... 8,665 * *
Steven D. Devick(10)..................... 332,119 4.3% 3.4%
John H. Muehlstein(7).................... 3,781 * *
Directors and Named Officers as a group
(10 individuals)(11).................... 3,303,371 42.1% 33.5%
5% Stockholders:
Gilder, Gagnon, Howe & Co.(12)
1775 Broadway, 26th Floor
New York, NY 10019..................... 1,023,675 13.4% 10.6%
Feirstein Capital Management(13)
767 Third Avenue, 28th Floor
New York, NY 10017..................... 500,000 6.5% 5.2%
Zweig-DiMenna Special Opportunities,
L.P.(14)
900 Third Avenue
New York, NY 10022..................... 385,000 5.0% 4.0%
</TABLE>
- --------
* Less than 1%.
45
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of common stock subject to options or warrants held by that
person that are currently exercisable or exercisable within 60 days of 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) Percent of Shares Beneficially Owned--Prior to this Offering reflects
7,639,267 shares outstanding as of November 30, 1998.
(3) Percent of Shares Beneficially Owned--After this Offering reflects the
2,000,000 shares of common stock issued by Blue Rhino Corporation and do
not include any shares issued upon the exercise of the underwriters' over-
allotment.
(4) Includes 1,039,879 shares of common stock owned by Mr. Filipowski, 18,903
shares of common stock issuable upon the exercise of vested options under
the 1994 Stock Incentive Plan held by Mr. Filipowski, 36,546 shares of
common stock issuable upon exercise of the 1998 Warrants, 216,127 shares
of common stock owned by American Oil and Gas, Inc., of which Mr.
Filipowski owns 40% of the issued and outstanding shares, 206,955 shares
owned by Platinum Propane, of which Mr. Filipowski acts as a director and
indirectly owns 16% of the membership interests, 328,338 shares of common
stock owned by Platinum Venture Partners I, L.P. ("PVP"), the general
partner of which is Platinum Venture Partners, Inc. ("PVP, Inc."), a
corporation of which Mr. Filipowski owns 22.5% of the shares and serves as
a director, 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 Alexandria 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.
(5) Includes 845,894 shares of common stock held by Mr. Prim, 64,180 shares of
common stock issuable upon the exercise of vested options under the 1994
Stock Incentive Plan held by Mr. Prim, 216,127 shares of common stock
owned by American Oil and Gas, Inc., of which Mr. Prim owns 51% of the
issued and outstanding shares and has voting control, 206,955 shares owned
by Platinum Propane, of which Mr. Prim acts as a director and indirectly
owns 20.4% of the membership interests, 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.
(6) Includes 338,862 shares of common stock beneficially owned by the Craig J.
Duchossois Revocable Trust of which Mr. Duchossois is the trustee, 36,546
shares of common stock issuable upon exercise of the 1998 Warrants, 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, and 75,305 shares of common stock beneficially owned by the
Kimberly Family Discretionary Trust over which Mr. Duchossois has voting
and investment control.
(7) Represents the number of shares issuable upon the exercise of vested
options.
(8) Includes 500 shares of common stock owned by Mr. Castaneda and 7,561
shares of common stock issuable upon the exercise of vested options held
by Mr. Castaneda.
(9) Includes 1,000 shares of common stock owned by Ms. Martin and 7,561 shares
of common stock issuable upon the exercise of vested options held by Ms.
Martin.
(10) Includes 3,781 shares issuable upon the exercise of vested options held by
Mr. Devick and 328,338 shares owned beneficially by PVP, the general
partner of which is PVP, Inc.
(11) Includes 3,090,487 shares of common stock and options and warrants to
purchase 212,884 shares which are currently exercisable or exercisable
within 60 days of the date of this prospectus which are beneficially owned
by the directors and Named Officers as a group.
(12) Derived from a Schedule 13G dated August 11, 1998 and furnished to us by
Gilder, Gagnon, Howe and Co. ("GGH"). The Schedule 13G indicates that GGH
had shared investment control for all 1,023,675 shares of common stock and
shared voting power for 13,000 of such shares of common stock.
(13) Derived from a Schedule 13G dated November 10, 1998 and jointly furnished
to us pursuant to a joint filing agreement by Barry R. Feirstein,
Feirstein Capital Management, L.L.C. ("FCM") and Feirstein Partners, L.P.
("FP"). The Schedule 13G indicates that Mr. Feirstein had sole voting and
dispositive power over 60,100 shares of common stock and Mr. Feirstein,
FCM and FP shared voting and dispositive power over 439,900 shares of
common stock.
(14) Derived from a Schedule 13G dated June 4, 1998 and jointly furnished to us
pursuant to a joint filing agreement by Zweig-DiMenna Special
Opportunities, L.P. ("ZD Opportunities"), Zweig-DiMenna Partners, L.P.
("ZD Partners"), Zweig-DiMenna International Limited ("ZD Limited"),
Zweig-DiMenna International Managers, Inc. ("ZD Managers") and Gotham
Advisors, Inc. ("Gotham"). The Schedule 13G indicates that these entities
beneficially owned our common stock as follows: (i) ZD Opportunities--
49,100 shares, (ii) ZD Partners--82,500 shares, (iii) ZD Limited--198,700
shares, (iv) ZD Managers--35,200 shares and (v) Gotham--19,500 shares.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares of common
stock having a par value of $0.001 per share and 20,000,000 shares of "blank
check" preferred stock having a par value of $0.001 per share.
The following description of our capital stock and certain provisions of
our Second Amended and Restated Certificate of Incorporation (the "Charter")
and our by-laws is qualified in its entirety by the provisions of the Charter
and by-laws (which are included as exhibits to the Registration Statement of
which this prospectus is a part) and the General Corporation Law of the State
of Delaware (the "DGCL").
Common Stock
All outstanding shares of common stock are fully paid and nonassessable.
The holders of common stock are entitled to one vote for each share held of
record on all matters voted upon by stockholders and may not cumulate votes.
Thus, the owners of a majority of the common stock outstanding may elect all of
the directors if they choose to do so, and the owners of the balance of such
shares would not be able to elect any directors. Subject to the rights of
holders of any future series of preferred stock that may be designated, each
share of outstanding common stock is entitled to participate equally in any
distribution of net assets made to the stockholders in a liquidation,
dissolution or winding up of Blue Rhino Corporation and is entitled to
participate equally in dividends if, as and when declared by our board of
directors. There are no redemption, sinking fund, conversion or preemptive
rights with respect to the shares of common stock. All shares of common stock
have equal rights and preferences. See "Risk Factors--Management's Substantial
Ownership of Blue Rhino," "--Future Sales of Shares May Negatively Affect
Market Price" and "Shares Eligible for Future Sale."
Preferred Stock
Our board of directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to 20,000,000 shares of preferred stock and to determine the price,
rights, preferences and privileges of those shares. In addition, the terms of
the preferred stock and the rights of the holders of preferred stock may
adversely affect the rights of the holders of common stock. While we have no
present intention to issue shares of preferred stock, such issuance could have
the effect of making it more difficult for a third party to acquire a majority
of our outstanding voting stock. In addition, such preferred stock may have
other rights, including economic rights senior to the common stock, and, as a
result, the issuance of preferred stock could negatively impact the market
value of the common stock.
Warrants
The holders of the 1998 Warrants have the right to purchase in the
aggregate 81,913 shares of common stock at an exercise price of $13.00 per
share. The 1998 Warrants are exercisable until December 31, 2008.
Certain Provisions of Delaware Law
Business Combination Provision. We are subject to the provisions of
Section 203 of the DGCL. Subject to certain exceptions, Section 203 prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
the interested stockholder attained such status with the approval of the board
of directors or unless the business combination is approved in a prescribed
manner. A "business combination" includes mergers, assets sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, an
47
<PAGE>
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
Limitation on Liability. As permitted by the provisions of the DGCL, the
Charter eliminates, in certain circumstances, the monetary liability of our
directors for a breach of their fiduciary duty as directors. These provisions
do not eliminate the liability of a director: (i) for a breach of a director's
duty of loyalty to us or our stockholders, (ii) for acts or omissions by a
director not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for liability arising under Section 174 of the DGCL
(relating to the declaration of dividends and purchase or redemption of shares
in violation of the DGCL) or (iv) for any transaction from which the director
derived an improper personal benefit. In addition, these provisions do not
eliminate the liability of a director for violations of federal securities
laws, nor do they limit our rights or our stockholders' rights, in appropriate
circumstances, to seek equitable remedies such as injunctive or other forms of
non-monetary relief. Such remedies may not be effective in all cases.
If the DGCL is amended to authorize a further limitation or elimination
of the liability of directors or officers, then the liability of one of our
directors or officers shall, in addition to the limitation of personal
liability provided in the Charter, be limited or eliminated to the fullest
extent permitted by the DGCL, as from time to time amended.
Anti-takeover Effect of Provisions of Charter and By-laws
Certain provisions of our Charter and by-laws could discourage potential
acquisition proposals and could delay or prevent a change in control of Blue
Rhino. These provisions are intended to enhance the likelihood of continuity
and stability in the composition of our board of directors and in the policies
formulated by our board of directors and to discourage certain types of
transactions that may involve an actual or threatened change in our control,
such as an unsolicited acquisition proposal. Because these provisions could
have the effect of discouraging a third party from acquiring control of Blue
Rhino, they may inhibit fluctuations in the market price of shares of common
stock that could otherwise result from actual or rumored takeover attempts and,
therefore could deprive stockholders of an opportunity to realize a takeover
premium. These provisions also may have the effect of limiting the price that
certain investors might be willing to pay in the future for shares of our
common stock and of preventing changes in our management.
Election and Removal of Directors. Our board of directors is divided into
three classes of directors serving staggered three-year terms, thereby
preventing a change in a majority of the Board in any single year. Ordinary
vacancies in the board of directors may be filled by the affirmative vote of
the directors then in office.
Stockholder Consent. The Charter provides that stockholder action can be
taken only at an annual or special meeting of stockholders and cannot be taken
by written consent in lieu of a meeting. In addition, the Charter provides
that, except as otherwise required by law, special meetings of our stockholders
can be called only pursuant to a resolution adopted by a majority of our board
of directors, our Chairman of the Board or our President. Stockholders desiring
to nominate persons to be elected as our directors or to have other business
placed on the agenda of an annual meeting of our stockholders must give written
notice to the board of directors of such request 90 days in advance of the
anniversary date of the release of our proxy statement to stockholders in
connection with the preceding year's annual meeting.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is LaSalle National
Bank, Chicago, Illinois.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, there will be approximately 9,645,742
shares of common stock outstanding. Of the shares outstanding, 6,505,000 shares
will be freely tradeable without restriction under the Securities Act or
pursuant to Rule 144(k) under the Securities Act, except for any such shares
acquired by one of our "affiliates" as defined in Rule 144. The remaining
3,140,742 shares (the "Restricted Shares") then outstanding (which includes
3,068,787 shares beneficially owned by our directors and officers) are
restricted securities as defined in Rule 144 and may be resold in compliance
with the registration provisions of the Securities Act or an exemption
therefrom, including the resale provisions of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned Restricted Shares for at least one year from the later of the date such
Restricted Shares were acquired from us or (if applicable) from an affiliate or
the date on which they were fully paid, is entitled to sell within any three-
month period a number of shares that does not exceed the greater of 1% of the
then-outstanding shares of common stock or the average weekly trading volume in
the public market as reported through The Nasdaq Stock Market during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain requirements as to the manner and notice of sale and the availability
of public information concerning Blue Rhino.
Shares held by our affiliates are subject to the foregoing volume
limitations, holding period and other restrictions under Rule 144. Affiliates
may sell shares only in accordance with the foregoing volume limitations and
other restrictions, but without regard to any holding period.
Further, under Rule 144(k), if a period of at least two years has elapsed
since the later of the date Restricted Shares were acquired from Blue Rhino or
from one or more of our affiliates or the date on which they were fully paid, a
holder of such Restricted Shares who is not one of our affiliates at the time
of the sale, and has not been one of our an affiliates for at least three
months prior to the sale, would be entitled to sell the shares immediately
without regard to volume limitations and the other conditions described above.
Sales of substantial amounts of common stock in the public market could
have a negative impact on the market price of our common stock and our ability
to raise additional equity capital.
We, our executive officers and directors and certain of our stockholders
have agreed for a period of 120 days after the date of this prospectus not to
directly or indirectly, without the prior written consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant for the sale of, or otherwise dispose
of or transfer any shares of common stock or any securities convertible into or
exchangeable or exercisable for common stock, or file any registration
statement under the Securities Act with respect to any of the foregoing or (ii)
enter into any swap or any other agreement or any transaction that transfers,
in whole or in part, directly or indirectly, the economic consequence of
ownership of our common stock, whether any such swap or transaction is to be
settled by delivery of common stock or other securities, in cash or otherwise
(except for options granted under the Distributor Option Plan, the 1998 Stock
Incentive Plan and the shares of common stock sold pursuant to this offering).
However, Merrill Lynch, Pierce, Fenner & Smith Incorporated, in its sole
discretion, may release such persons from these lock-up agreements, in whole or
in part, at any time without notice. We have also agreed not to grant options
to purchase more than 300,000 additional shares pursuant to the 1998 Stock
Incentive Plan prior to 360 days after the closing of this offering.
We have a registration statement on Form S-1 on file for the offer of up
to 1,000,000 shares of our common stock on a delayed or continuous basis in
connection with the acquisition of businesses or assets. As of December 31,
1998, none of the shares which are the subject of this shelf registration had
been issued. We have signed a letter of intent to purchase Bison Valve which
contemplates the issuance
49
<PAGE>
of a portion of these shares. See "Business--Business Strategy" and
"Management--Compensation Committee Interlocks and Insider Participation."
Following consummation of this offering, we intend to file registration
statements on Form S-8 under the Securities Act to register the sale of the
167,740 shares of common stock reserved for issuance under the 1994 Stock
Incentive Plan, 1,200,000 shares of common stock reserved for issuance under
the 1998 Stock Incentive Plan and 100,000 shares of common stock reserved for
issuance under the Director Option Plan and a shelf registration on Form S-1
for the sale of 400,000 shares reserved for issuance under the Distributor
Option Plan. Upon the effectiveness of such registration statements and
expiration of the 120-day lock-up period, all of the shares of common stock
subject to such agreements will be eligible for sale subject, in certain cases,
to certain volume and other limitations of Rule 144 under the Securities Act
applicable to our affiliates.
Blue Rhino Corporation and certain holders (the "Holders") of our common
stock entered into the Amended and Restated Registration Rights Agreement dated
as of March 1, 1997, which provides the Holders with certain registration
rights with respect to our common stock. The Holders own approximately
2,400,000 registerable shares (the "Registerable Shares") of our common stock.
If we propose to register any of our securities under the Securities Act,
either for Blue Rhino's account or for the account of others, the Holders are
entitled to notice of such registration and, subject to certain limitations, to
include Registerable Shares therein. Additionally, the Holders of 51% of the
Registerable Shares may demand that we file a registration statement under the
Securities Act with respect to their Registerable Shares, subject to certain
limitations. The Holders may demand two registrations on Form S-1 and an
unlimited number of registrations on Form S-2 or Form S-3 if the use of such
forms becomes available to us. Generally, we are required to pay all
registration and selling expenses, excluding underwriting fees, incurred in
connection with such registrations. The rights are subject to certain
conditions and limitations including the rights of the underwriters of an
offering to limit the number of shares included in such registration. The sale
of a substantial number of shares, whether pursuant to a subsequent public
offering or otherwise, or the perception that such sales could occur, could
adversely affect the market price of the common stock and could materially
impair our future ability to raise capital through an offering of equity
securities. All Holders have waived their registration rights in connection
with the offering covered by this prospectus.
50
<PAGE>
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated and NationsBanc
Montgomery Securities LLC are acting as representatives (the
"Representatives") of each of the underwriters named below (the
"Underwriters"). Subject to the terms and conditions contained in the purchase
agreement among us and the Underwriters, we have agreed to sell to the
Underwriters, and each of the Underwriters severally and not jointly has
agreed to purchase from us, the number of shares of common stock set forth
opposite its name below.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................................
NationsBanc Montgomery Securities LLC...........................
---------
Total...................................................... 2,000,000
=========
</TABLE>
The offering will be underwritten on a firm commitment basis. In the
purchase agreement, the several Underwriters have agreed, subject to the terms
and conditions set forth therein, to purchase all of the shares of common
stock being sold pursuant to such agreement if any of the shares of common
stock being sold are purchased. Under certain circumstances described in the
purchase agreement, the commitments of non-defaulting Underwriters may be
increased.
The Representatives have advised us that the Underwriters propose
initially to offer the common stock to the public at the public offering price
set forth on the cover page of this prospectus, and to certain dealers at such
price less a concession not in excess of $ per share. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share to certain other dealers. After this offering, the
public offering price, concession and discount may be changed.
Our common stock is traded on The Nasdaq Stock Market under the symbol
"RINO."
We have granted an option to the Underwriters, exercisable for 30 days
after the date of this prospectus, to purchase up to an aggregate of 300,000
additional shares of common stock at the public offering price set forth on
the cover page of this prospectus, less the underwriting discount. The
Underwriters may exercise this option only to cover over-allotments, if any,
made on the sale of the common stock offered by this prospectus. To the extent
that the Underwriters exercise this option, each Underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
shares of common stock proportionate to such Underwriter's initial amount
reflected in the foregoing table.
The following table shows the per share and total public offering price,
underwriting discount to be paid by us to the Underwriters and the proceeds
before expenses to us. The amounts are shown assuming either no exercise or
full exercise by the Underwriters of their over-allotment option.
<TABLE>
<CAPTION>
Per Without With
Share Option Option
----- ------- ------
<S> <C> <C> <C>
Public Offering Price................................ $ $ $
Underwriting Discount................................ $ $ $
Proceeds, before expenses, to Blue Rhino............. $ $ $
</TABLE>
The expenses of this offering (exclusive of the underwriting discount)
are estimated at $600,000.
51
<PAGE>
The shares of common stock are being offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by their counsel and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and reject orders in whole or in part.
Until the distribution of the shares of common stock is completed,
certain rules of the Securities and Exchange Commission may limit the ability
of the Underwriters to bid for and purchase shares of the common stock. As an
exception to these rules, the Representatives are permitted to engage in
certain transactions that stabilize the price of the common stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of our common stock.
If the Underwriters create a short position in the common stock in
connection with this offering (i.e., if they sell more shares of common stock
than are set forth on the cover page of this prospectus), the Representatives
may reduce that short position by purchasing shares of common stock in the open
market. The Representatives may also elect to reduce any short position through
the exercise of all or part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of common stock in the open market to reduce the Underwriters' short
position or to stabilize the price of our common stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of this offering.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither we nor the Underwriters make any representation or prediction as
to the direction or magnitude of any effect that the transactions described
above might have on the price of our common stock. In addition, neither we nor
the Underwriters make any representation that the Underwriters will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
In connection with this offering, certain Underwriters and selling group
members may engage in passive market making transactions in the common stock on
The Nasdaq Stock Market in accordance with Regulation M under the Securities
Exchange Act of 1934 during a period before the commencement of offers or sales
of common stock under this prospectus.
We, our executive officers and directors and certain of our stockholders
have agreed for a period of 120 days from the date of this prospectus not to,
without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, directly or indirectly (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant for the sale of, or otherwise dispose
of or transfer any shares of common stock or any securities convertible into or
exchangeable or exercisable for common stock, or file any registration
statement under the Securities Act with respect to any of the foregoing or (ii)
enter into any swap or any other agreement or any transaction that transfers,
in whole or in part, directly or indirectly, the economic consequence of
ownership of the common stock, whether any such swap or transaction is to be
settled by delivery of common stock or other securities, in cash or otherwise,
except for options granted under the Distributor Option Plan, the 1998 Stock
Incentive Plan and the shares of common stock sold pursuant to this offering.
See "Shares Eligible for Future Sale."
Certain of the Underwriters and their affiliates engage in transactions
with, and perform services for, us in the ordinary course of business and have
engaged, and may in the future engage, in commercial banking and investment
banking transactions with us. In connection with rendering such services in the
past, the Underwriters and their affiliates have received customary
compensation. NationsBank, N.A., an affiliate of NationsBanc Montgomery
Securities LLC, is a lender to us pursuant to our credit facility and the
lender to USA Leasing, L.L.C., an affiliated entity.
52
<PAGE>
LEGAL MATTERS
The legality of the common stock being offered hereby will be passed upon
for us by Pedersen & Houpt, P.C., Chicago, Illinois. John H. Muehlstein, one of
our directors, is also a partner of Pedersen & Houpt, P.C. Certain legal
matters will be passed upon for the underwriters by Sidley & Austin, Chicago,
Illinois.
EXPERTS
Our consolidated financial statements as of July 31, 1997 and 1998 and
for each of our three fiscal years in the period ended July 31, 1998 included
in this prospectus have been audited by PricewaterhouseCoopers LLP, independent
accountants as stated in their report appearing herein and are included in
reliance upon such report given upon the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith we file reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, registration statements, proxy
statements and other information filed by us with the Commission may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, the New York Regional Office located at 7
World Trade Center, Suite 1300, New York, New York 10048, and the Chicago
Regional Office located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies of all or any part thereof may be obtained at
prescribed rates from the Commission's Public Reference Room at its principal
office. Information regarding the operation of the Public Reference Room may be
obtained by calling 1-800-SEC-0330. The Commission maintains a World Wide Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The address of the Commission's World Wide Web site is http://www.sec.gov.
We have filed with the Commission a Registration Statement on Form S-1
under the Securities Act with respect to the common stock offered hereby. This
prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules filed therewith. While the material
provisions of each document filed as an exhibit to the Registration Statement
have been disclosed herein, statements contained in this prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract
or document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. For further
information with respect to us and the common stock offered hereby, reference
is made to the Registration Statement and to the exhibits and schedules
thereto.
53
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
BLUE RHINO CORPORATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of July 31, 1997 and 1998 and October 31,
1998 (unaudited)........................................................ F-3
Consolidated Statements of Operations for the Fiscal Years Ended July 28,
1996, and July 31, 1997 and 1998 and for the Three Months Ended October
31, 1997 (unaudited) and 1998 (unaudited)............................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Fiscal
Years Ended July 28, 1996, and July 31, 1997 and 1998 and for the Three
Months Ended October 31, 1998 (unaudited)............................... F-5
Consolidated Statements of Cash Flows for the Fiscal Years Ended July 28,
1996, and July 31, 1997 and 1998 and for the Three Months Ended October
31, 1997 (unaudited) and 1998 (unaudited)............................... F-6
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Blue Rhino Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows present fairly, in all material respects, the financial position
of Blue Rhino Corporation and its subsidiaries at July 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the three
fiscal years in the period ended July 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Greensboro, North Carolina
September 22, 1998
F-2
<PAGE>
BLUE RHINO CORPORATION
CONSOLIDATED BALANCE SHEETS
As of July 31, 1997 and 1998 and October 31, 1998 (unaudited)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
October 31,
ASSETS 1997 1998 1998
- ------ -------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Cash and cash equivalents........................ $ 325 $ 5,908 $ 4,122
Trade accounts receivable, net................... 3,110 7,771 5,219
Cylinder inventories............................. 220 2,377 1,005
Notes receivable................................. 417 540 254
Prepaid expenses and other current assets........ 81 487 1,561
-------- -------- --------
Total current assets......................... 4,153 17,083 12,161
Property and equipment, net...................... 4,438 8,418 9,682
Notes receivable................................. 1,196 1,424 842
Intangibles, net................................. 104 3,532 6,605
Other assets..................................... 83 120 186
-------- -------- --------
Total assets................................. $ 9,974 $ 30,577 $ 29,476
======== ======== ========
<CAPTION>
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
- ---------------------------------------------
<S> <C> <C> <C>
Trade accounts payable........................... $ 2,407 $ 4,421 $ 2,555
Acquisition notes payable........................ 81 212 476
Current portion of long-term debt and capital
lease obligations............................... 165 286 329
Accrued liabilities.............................. 763 475 414
-------- -------- --------
Total current liabilities.................... 3,416 5,394 3,774
Long-term debt, less current maturities.......... 15,142 104 86
Notes payable to bank............................ 840 -- --
Capital lease obligations, less current
maturities...................................... 128 156 197
-------- -------- --------
Total liabilities............................ 19,526 5,654 4,057
-------- -------- --------
Commitments and contingencies
Convertible redeemable preferred stock........... 8,936 -- --
-------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.001 par value, 100,000,000
shares authorized, 1,778,920, 7,630,873 and
7,630,873 shares issued and outstanding at
July 31, 1997 and 1998 and October 31, 1998,
respectively.................................. 2 8 8
Additional paid-in capital..................... 332 46,320 46,320
Accumulated deficit............................ (18,822) (21,405) (20,909)
-------- -------- --------
Total stockholders' equity (deficit)......... (18,488) 24,923 25,419
-------- -------- --------
Total liabilities, convertible redeemable
preferred stock and stockholders' equity
(deficit)................................... $ 9,974 $ 30,577 $ 29,476
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
BLUE RHINO CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Fiscal Years Ended July 28, 1996, and July 31, 1997 and 1998 and
for the Three Months Ended October 31, 1997 (unaudited) and 1998 (unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Three Months
Fiscal Years Ended Ended October 31,
------------------------- -----------------------
1996 1997 1998 1997 1998
------- ------- ------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net sales--distributors.... $ 2,386 $13,060 $27,372 $ 4,140 $9,222
Net sales--direct.......... 5,830 1,151 -- -- --
------- ------- ------- ------- ------
Total net sales........ 8,216 14,211 27,372 4,140 9,222
------- ------- ------- ------- ------
Cost of sales:
Cost of sales--
distributors............ 1,811 9,873 20,525 3,155 6,782
Cost of sales--direct.... 6,089 1,771 -- -- --
------- ------- ------- ------- ------
Total cost of sales.... 7,900 11,644 20,525 3,155 6,782
------- ------- ------- ------- ------
Gross profit........... 316 2,567 6,847 985 2,440
------- ------- ------- ------- ------
Operating expenses
(income):
Sales and marketing...... 1,112 1,950 2,392 564 669
General and
administrative.......... 3,192 3,022 3,591 844 1,104
Lease income, net........ (89) (143) (81) 8 (212)
Depreciation and
amortization............ 868 873 1,278 245 495
Nonrecurring charges..... 1,363 970 563 281 --
------- ------- ------- ------- ------
Total operating
expenses, net......... 6,446 6,672 7,743 1,942 2,056
------- ------- ------- ------- ------
Income (loss) from
operations............ (6,130) (4,105) (896) (957) 384
Other expenses (income):
Interest expense......... 1,469 1,665 1,707 434 32
Other income, net........ (168) (186) (234) (51) (70)
------- ------- ------- ------- ------
Income (loss) before
taxes................. (7,431) (5,584) (2,369) (1,340) 422
Income taxes............. -- -- -- -- --
------- ------- ------- ------- ------
Net income (loss)...... $(7,431) $(5,584) $(2,369) $(1,340) $ 422
======= ======= ======= ======= ======
Basic and diluted earnings
(loss) per common share... $ (4.96) $ (3.74) $ (1.01) $ (0.81) $ 0.05
======= ======= ======= ======= ======
Weighted average common
shares used in computing
earnings (loss) per common
share (in thousands):
Basic.................... 1,628 1,678 2,945 1,779 7,631
======= ======= ======= ======= ======
Diluted.................. 1,628 1,678 2,945 1,779 7,719
======= ======= ======= ======= ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
BLUE RHINO CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Fiscal Years Ended July 28, 1996 and, July 31, 1997 and 1998 and for
the Three Months Ended October 31, 1997 (unaudited) and 1998 (unaudited)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Common Stock Additional
----------------- paid-in Accumulated
Shares Amount capital deficit Total
--------- ------ ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balances, July 31, 1995..... 1,687,428 $ 2 $ 20 $ (5,171) $ (5,149)
Cancellation of restricted
stock for nonvested
terminations............. (59,735) -- (1) -- (1)
Preferred dividends....... -- -- -- (636) (636)
Net loss.................. -- -- -- (7,431) (7,431)
--------- ---- ------- -------- --------
Balances, July 28, 1996..... 1,627,693 2 19 (13,238) (13,217)
Issuance of common stock.. 151,227 -- 1,000 -- 1,000
Preferred dividends....... -- -- (687) -- (687)
Net loss.................. -- -- -- (5,584) (5,584)
--------- ---- ------- -------- --------
Balances, July 31, 1997..... 1,778,920 2 332 (18,822) (18,488)
Preferred dividends....... -- -- (332) (264) (596)
Issuance of common stock
in connection with
Initial Public Offering,
net of offering expenses
of $4,320................ 3,105,000 3 36,042 -- 36,045
Compensation expense
related to distributor
stock option plan........ -- -- -- 50 50
Conversion of preferred
stock and preferred
dividends................ 1,750,472 2 9,528 -- 9,530
Exercise of warrants...... 938,789 1 -- -- 1
Issuance of common stock
as partial consideration
for an acquisition....... 57,692 -- 750 -- 750
Net loss.................. -- -- -- (2,369) (2,369)
--------- ---- ------- -------- --------
Balances, July 31, 1998..... 7,630,873 8 46,320 (21,405) 24,923
Compensation expense
related to distributor
stock option plan
(unaudited).............. -- -- -- 74 74
Net income (unaudited).... -- -- -- 422 422
--------- ---- ------- -------- --------
Balances, October 31, 1998
(unaudited)................ 7,630,873 $ 8 $46,320 $(20,909) $ 25,419
========= ==== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
BLUE RHINO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Years Ended July 28, 1996, July 31, 1997 and 1998 and for the
Three Months Ended October 31, 1997 (unaudited) and 1998 (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months
Ended October
Fiscal Years Ended 31,
------------------------- ----------------
1996 1997 1998 1997 1998
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)................ $(7,431) $(5,584) $(2,369) $(1,340) $ 422
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization.. 868 873 1,278 245 495
Nonrecurring charges........... 1,268 963 285 240 --
Accreted interest on senior
discount notes................ 1,049 1,489 1,378 390 --
Compensation expense related to
stock option plan............. -- -- 50 -- 74
Changes in operating assets and
liabilities, net of business
acquisitions:
Trade accounts receivable.... (990) (1,186) (4,661) 1,021 2,552
Cylinder inventories......... (473) 127 (1,726) -- 2,679
Other current assets......... 35 166 (389) 39 (1,186)
Accounts payable............. 624 1,045 1,516 (670) (1,866)
Accrued liabilities.......... (120) (85) (261) (384) (62)
------- ------- ------- ------- -------
Net cash provided by (used
in) operating activities.. (5,170) (2,192) (4,899) (459) 3,108
------- ------- ------- ------- -------
Cash flows from investing
activities:
Business acquisitions............ -- -- (3,640) (40) (3,614)
Payment of organizational costs.. -- -- (25) -- --
Proceeds from disposal of
cylinders....................... 29 340 -- -- --
Purchases of property and
equipment....................... (1,840) (537) (2,283) (151) (1,099)
Proceeds from disposal of
property and equipment.......... 360 159 65 3 --
Issuance of note receivable...... -- -- (635) -- --
Collections on notes receivable.. 58 380 496 116 104
------- ------- ------- ------- -------
Net cash (used in) provided
by investing activities... (1,393) 342 (6,022) (72) (4,609)
------- ------- ------- ------- -------
Cash flows from financing
activities:
Proceeds from issuance of common
stock, net of expenses paid of
$3,947 in fiscal 1998........... -- 1,000 36,418 -- --
Proceeds from issuance of
preferred stock................. 100 400 -- -- --
Proceeds from issuance of senior
discount notes.................. 12,575 -- -- -- --
Repayment of senior discount
notes........................... -- -- (16,491) -- --
Proceeds from stockholder loans.. -- -- 3,250 -- --
Payments of stockholder loans.... -- -- (3,250) -- --
Proceeds from notes payable to
bank............................ 2,700 3,995 8,411 566 3,433
Payments on notes payable to
bank............................ (4,900) (3,155) (9,251) -- (3,433)
Payment on cylinder display lease
facility........................ -- -- (2,119) -- --
Payments on acquisition notes
payable......................... (669) (90) (108) -- (175)
Payment of debt issuance costs... (57) (58) (108) -- --
Repayment of note payable to
vendor.......................... (948) (752) -- -- --
Payments on long-term debt and
capital lease obligations....... (1,321) (291) (248) (47) (110)
------- ------- ------- ------- -------
Net cash provided by (used
in) financing activities.. 7,480 1,049 16,504 519 (285)
------- ------- ------- ------- -------
Increase (decrease) in cash and
cash equivalents................ 917 (801) 5,583 (12) (1,786)
Cash and cash equivalents at
beginning of period............. 209 1,126 325 325 5,908
------- ------- ------- ------- -------
Cash and cash equivalents at end
of period....................... $ 1,126 $ 325 $ 5,908 $ 313 $ 4,122
======= ======= ======= ======= =======
Supplemental disclosure of cash
paid for:
Interest......................... $ 428 $ 176 $ 342
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
BLUE RHINO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
For the Fiscal Years Ended July 28, 1996, July 31, 1997 and 1998 and for the
Three Months Ended October 31, 1997 (unaudited) and 1998 (unaudited)
(in thousands, except share and per share data)
Supplemental schedule of non-cash investing and financing activities:
During the fiscal years ended July 28, 1996, and July 31, 1997 and 1998,
the Company entered into capital lease obligations in the amounts of
approximately $541, $243, and $306, respectively, for computers, vehicles and
certain equipment.
In connection with the conversion to an independent distributor network,
as further discussed in Note 1, the Company consummated the following
transactions:
. During the fiscal year ended July 31, 1997, the Company
transferred capital leases to distributors for vehicles with
remaining book values of $351 and remaining obligations of
approximately $344.
. In the fiscal years ended July 31, 1997 and 1998, the Company sold
cylinders and certain equipment aggregating approximately $310 and
$224, respectively, in exchange for notes receivable from
distributors (Notes 4 and 15).
. In the fiscal year ended July 31, 1997, certain assets
approximating $70 were reclassified as notes receivable.
During the fiscal year ended July 31, 1998, the Company purchased
certain assets from existing cylinder exchange companies under various
agreements which have been recorded as follows (Note 5):
<TABLE>
<S> <C>
Property and equipment...... $ 774
Cylinders................... 439
Intangibles................. 3,495
-------
$ 4,708
=======
Cash paid................... $ 3,640
Common stock issued......... 750
Acquisition notes payable... 318
-------
$ 4,708
=======
</TABLE>
The Company accreted preferred dividends from paid in capital and
accumulated deficit of $636, $687 and $596 for the fiscal years ended July 28,
1996, and July 31, 1997 and 1998, respectively.
The Company has unpaid costs associated with its Initial Public Offering
of $373 outstanding at July 31, 1998.
The Company financed the premiums on certain insurance policies in the
amount of $164.
The accompanying notes are an integral part of the consolidated financial
statements.
F- 7
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
1. Description of Business and Basis of Presentation:
Blue Rhino Corporation (the "Company" or "Blue Rhino") was founded in
March 1994 and commenced operations on July 1, 1994. The Company has become the
leading provider of grill cylinder exchange in the United States offering
consumers a convenient means to obtain fuel for their barbecue grills. The
Company currently offers three types of grill cylinder transactions: (i) like
for like cylinder exchanges; (ii) cylinders with valve upgrades offering
additional safety features; and (iii) outright cylinder sales. The Company
originally focused on serving markets in the southeastern United States and has
since developed a network of independent distributors which deliver Blue Rhino
grill cylinder exchange to retail locations across the United States.
Since its formation, the Company has focused on creating an
infrastructure to support its nationwide cylinder exchange program. Initially,
the Company developed a vertically integrated operation, purchasing and leasing
grill cylinders, cylinder displays, filling sites, refurbishing equipment and
delivery vehicles while at the same time developing a sales, marketing and
management information systems ("MIS") infrastructure. In March 1996, the
Company began to transition from a vertically integrated business model to an
independent distributor business model in order to implement its cylinder
exchange program in a more capital efficient manner and to accelerate
development of its program. At this time, the Company began to dispose of
distribution assets and began to enter into exclusive agreements with
independent distributors to refurbish and refill cylinders and service Blue
Rhino's retail accounts. As a result, the Company has significantly accelerated
the growth of its nationwide service, pursued additional retailer relationships
and invested in the sales, marketing and MIS infrastructure to support its
growing cylinder exchange program. The Company expects to focus future capital
investments on cylinders, cylinder displays and continued enhancement of its
MIS. The transition to a 100% independent distributor network was completed in
the fourth quarter of fiscal 1997.
While the Company believes that it has created the infrastructure
necessary to support a nationwide cylinder exchange program, development of
this infrastructure has resulted in an accumulated deficit of approximately
$21.4 million as of July 31, 1998. Management believes that by leveraging the
distributors' existing infrastructure the Company has eliminated significant
capital requirements necessary to support the geographic expansion and further
penetration throughout the nation's significant demographic markets. Management
believes that the existing infrastructure and independent distribution business
model will improve future cash flows.
These consolidated financial statements include the accounts of Blue
Rhino and its wholly owned subsidiaries Rhino Services, L.L.C., formed in March
1997 and CPD Associates, Inc., formed in March 1998. All intercompany
transactions and balances have been eliminated in consolidation.
2. Summary of Significant Accounting Policies:
Revenue Recognition--Revenues are recognized upon delivery of cylinders
to customer locations. Sales returns, which are immaterial, occur principally
upon removal of cylinders and deinstallation of cylinder displays from customer
locations.
Cash and Cash Equivalents--The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Cash equivalents consisting of certificates of deposit totaled
$115 and $1,126 at July 31, 1997 and 1998, respectively.
Trade Accounts Receivable, Net--Trade accounts receivable, net include
allowances for doubtful accounts of approximately $154, and $264 at July 31,
1997 and 1998, respectively.
F-8
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
Cylinder Inventories--Cylinder inventories are valued at the lower of
cost or market determined on a first-in, first-out (FIFO) basis and represent
cylinders held for sale.
Property and Equipment, Net--Property and equipment are stated at cost
and depreciated over the estimated useful lives of the related assets using the
straight-line method. The estimated useful lives are principally 30 years for
buildings and leasehold improvements, 10 years for machinery and equipment,
vehicles and cylinder displays, 5 years for computer hardware and 3 years for
computer software. Equipment leased under capital leases are amortized over
their estimated useful lives.
In the event that facts and circumstances indicate that the cost of
property and equipment, or other long-lived assets may not be recoverable, the
estimated future undiscounted cash flows is compared to the asset's carrying
value and if less, an impairment loss is recognized in an amount by which the
carrying amount exceeds its fair value. As a result of changes the Company made
to its business strategy (Note 11), impairments to property and equipment
recorded in 1997 and 1998 were $736 and $283, respectively.
Intangibles, net--Excess cost over fair value of assets acquired
(goodwill) is being amortized using the straight-line method, principally over
30 years. Noncompete agreements are being amortized using the straight-line
method over the life of the agreements ranging from three to five years. The
carrying value of intangible assets is periodically reviewed by the Company, as
well as, the amortization period to determine whether the current events and
circumstances warrant adjustments to the carrying values and/or revised
estimates of useful lives. This valuation is performed using the expected
future undiscounted cash flows associated with the intangible assets compared
to the carrying value to determine if a writedown is required. To the extent
such projection indicates that the undiscounted cash flow is not expected to be
adequate to recover the carrying amounts, the assets are written down to
discounted cash flow.
Advertising and Promotion--The Company expenses advertising and promotion
costs as incurred and these costs are included as sales and marketing expenses.
Advertising and promotion costs for the fiscal years ended July 28, 1996, and
July 31, 1997 and 1998 were $16, $36 and $114, respectively.
Income Taxes--Deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. A valuation allowance is recorded when it
is more likely than not that the deferred tax asset will not be realized.
Financial Instruments--Financial instruments consist of cash and cash
equivalents, accounts receivable, notes receivable, short-term debt and long-
term, variable-rate and fixed-rate debt. The Company estimates the fair value
of its long-term, fixed-rate debt using a discounted cash flow analysis based
on interest rates for similar types of debt currently available in the
marketplace. At July 31, 1997 and 1998 the carrying amounts of the Company's
financial instruments approximated their fair values.
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of temporary cash investments
and trade accounts receivable. The Company continually monitors the credit
quality of the domestic financial institutions in which temporary investments
are maintained. At times, such deposits may be in excess of the FDIC insurance
limit. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, requires no collateral from its customers.
Due to the geographic dispersion and the high credit quality of the Company's
significant customers, credit risk relating to trade accounts receivable is
limited. The
F-9
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
Company's three largest customers accounted for approximately 46%, 58% and 58%,
of sales in the fiscal years ended July 28, 1996, and July 31, 1997 and 1998 as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Customer A................................................. 30% 29% 26%
Customer B................................................. 16 16 16
Customer C................................................. -- 13 16
--- --- ---
46% 58% 58%
=== === ===
</TABLE>
Approximately 32% and 53% of trade accounts receivable at July 31, 1997 and
1998 were from these customers, respectively. If the financial condition and
operations of these customers deteriorate, the Company's operating results
could be adversely affected.
Use of Estimates--The preparation of the consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the dates of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from these estimates.
Statement of Accounting Standards not yet Adopted--Statement of Financial
Accounting Standards ("SFAS") No. 130 ("SFAS No. 130") establishes standards
for reporting and display of comprehensive income and its components (revenues,
gains, expenses, losses) in a full set of general purpose financial statements
and is effective in Fiscal 1999 for the Company. Management of the Company does
not expect SFAS No. 130 to have any impact on the Company's Consolidated
Financial Statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"). Statement 131 requires public business enterprises to adopt
its provisions for periods beginning after December 15, 1997, and to report
certain information about operating segments in complete sets of financial
statements of the enterprise and in condensed financial statements of interim
periods issued to shareholders. Management of the Company does not expect SFAS
No. 131 to have any impact on the Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and hedging activities. It also requires entities to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. Management of
the Company does not expect SFAS No. 133 to have any impact on the Company's
consolidated financial statements as the Company does not currently have any
derivative instruments or engage in any hedging activities.
F-10
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
Reclassification--Certain prior year amounts have been reclassified to
conform to the presentation adopted in fiscal 1998.
3. Property and Equipment, net:
Property and equipment consists of the following at July 31:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Land..................................................... $ 20 $ 20
Building and leasehold improvements...................... 661 661
Cylinder displays, including panel graphics.............. 3,188 7,688
Machinery and equipment.................................. 1,361 1,235
Computer hardware and software........................... 175 654
Equipment leased under capital leases.................... 346 492
------ ------
5,751 10,750
Less accumulated depreciation and amortization (including
$65 and $144, respectively, for equipment under capital
leases)................................................. (1,313) (2,332)
------ ------
$4,438 $8,418
====== ======
</TABLE>
Depreciation and amortization expense for the fiscal years ended July 28,
1996, and July 31, 1997 and 1998 was $683, $764 and $1,101, respectively.
4. Notes Receivable:
In connection with the conversion to the distributor program discussed in
Note 1, the Company has financed the sale of cylinders and certain equipment
principally to distributors, including Platinum Propane Holding, L.L.C. ("PPH")
(Note 15), who now service territories previously serviced by the Company.
These notes receivable are due at various times through 2002 and are payable
monthly with interest ranging from 9.25% to 12.5%.
On February 12, 1998, the Company loaned $635 to Bison Valve, L.L.C.
("Bison Valve"), an entity formed to market, produce and sell a specialty valve
to the Company's distributors and third parties. The loan is convertible into
65% of the membership units of Bison Valve, at $1 per unit, at the option of
the Company. The loan is guaranteed by a principal shareholder of the Company.
The loan accrues interest at 9.5% for four (4) years after which the principal
and accrued interest will be amortized over two (2) years.
The aggregate maturities of these notes receivable at July 31, 1998 are
as follows:
<TABLE>
<S> <C>
1999......................... $ 540
2000......................... 350
2001......................... 432
2002......................... 510
2003 and after............... 132
------
$1,964
======
</TABLE>
Interest income related to these notes for the fiscal years ended July
31, 1997 and 1998 was approximately $182 and $159, respectively. The notes
receivable from the sale of cylinders are collateralized by the cylinders.
F-11
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
5. Intangibles, net:
During fiscal 1998, the Company completed a number of acquisitions (the
"Acquisitions") for approximately $4.7 million in the aggregate related to
assets including cylinders, cylinder display racks and other equipment and the
right, title and interest in and to sellers' retail propane cylinder exchange
accounts and locations.
The aggregate purchase price was paid approximately $3.6 million in cash,
initially financed with borrowings under the Bank Credit Facility and
subsequently repaid with proceeds from the Initial Public Offering, $750 in
common stock and $318 in seller financing. Acquisitions have been accounted for
under the purchase method and, accordingly, the operating results from these
acquisitions have been included in the Company's consolidated financial
statements since the dates of acquisition.
Intangibles consist of the following at July 31:
<TABLE>
<CAPTION>
1997 1998
---- ------
<S> <C> <C>
Goodwill.................................................... $124 $3,518
Noncompete agreements....................................... -- 102
Accumulated amortization.................................... (20) (88)
---- ------
$104 $3,532
==== ======
</TABLE>
Amortization expense for the fiscal years ended July 28, 1996, July 31,
1997 and 1998 was $8, $14 and $68, respectively.
The following unaudited pro forma summary presents the financial
information as if the acquisitions had occurred on August 1, 1996. These pro
forma results have been prepared for comparative purposes and do not purport to
be indicative of what would have occurred had the acquisitions been made on
August 1, 1996, nor is it indicative of future results.
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Net sales.............................................. $17,611 $28,717
======= =======
Net loss............................................... $(5,459) $(2,320)
======= =======
Net loss per common share.............................. $ (3.66) $ (0.99)
======= =======
</TABLE>
6. Notes Payable to Bank:
On December 18, 1997, the Company entered into a short-term loan
Agreement (the "Bank Credit Facility") which allows for maximum borrowings up
to $9.0 million including a $3.0 million revolving line of credit based on 80%
of eligible receivables with a $1.0 million overadvance provision, a $1.0
million capital expenditures line of credit and a $4.0 million acquisition line
of credit. These lines of credit mature on November 30, 1998 and bear interest
at the prime rate (8.50% at July 31, 1998) plus 0.5%. As of July 31, 1998, the
Company had no outstanding borrowings under the Bank Credit Facility.
The agreement requires payment of a fee of 0.25 percent of the average
unused portion of the revolving line of credit, and requires the Company to
meet certain covenants, including minimum net worth and earnings before
interest, taxes, depreciation and amortization and restricts the level of
capital expenditures, as defined. The Company was in compliance with these
covenants as of July 31, 1998.
F-12
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
The Bank Credit Facility was amended at July 30, 1998 to remove certain
covenants, release the guarantees of a principal stockholder and an entity
affiliated with certain principal stockholders and to waive a violation of the
cash flow ratio as of April 30, 1998.
7. Notes Payable to Vendor and Stockholder Loans:
In January 1998, several stockholders collectively loaned the Company
$3.25 million (the "1998 Stockholder Loans"). The 1998 Stockholder Loans were
repaid in full in May 1998, including accrued interest at 10.5% with $3.4
million of the proceeds from the Initial Public Offering. The stockholders also
received Warrants to purchase approximately .08 shares of common stock for
every $3.00 they loaned to the Company for a total of 81,913 shares of common
stock (the "1998 Warrants"). The 1998 Warrants may be exercised prior to
December 31, 2008 at a price per share equal to $13.00.
Prior to the conversion to the distributor program, the Company financed
the acquisition of certain cylinders with its primary cylinder vendor. The
original line of credit was for purchases up to approximately $1.9 million and
was to be repaid in various installments including interest at prime plus 1%.
The balance due on this note was paid in full during fiscal year ended July 31,
1997.
8. Long-Term Debt:
Long-term debt consists of the following at July 31:
<TABLE>
<CAPTION>
1997 1998
------- ----
<S> <C> <C>
Senior discount notes due October 2000...................... $15,113 $--
Various equipment and vehicle notes and insurance premium
financing bearing interest at rates varying from 8% to 15%,
due in monthly installments through April 2001............. 65 174
------- ----
15,178 174
Less amounts due within one year............................ 36 70
------- ----
$15,142 $104
======= ====
</TABLE>
The aggregate maturities of long-term debt at July 31, 1998 are $70, $66
and $38 for 1999, 2000 and 2001, respectively.
In October 1995, the Company issued 12,575 units, each consisting of
approximately $1 principal amount (approximately $17.2 million aggregate) of
senior discount notes due in October 2000 and warrants to purchase 39.764
shares of common stock. The gross proceeds were $12,575. The notes accreted in
value at an effective rate of 10.5% through May 1998 until they were repaid
with proceeds from the Initial Public Offering in the amount of $16,491. Each
warrant entitled the holders to acquire one share of common stock for $4.5896
per share.
9. Capital Lease Obligations:
Capital lease obligations for computer equipment as of July 31, 1998 are
as follows:
<TABLE>
<S> <C>
1999................................................................ $254
2000................................................................ 157
2001................................................................ 10
----
Total minimum lease payments........................................ 421
Less imputed interest at varying rates ranging from 11.75% to 19%... 49
----
Present value of minimum lease payments............................. 372
Less current maturities............................................. 216
----
$156
====
</TABLE>
F-13
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
10. Operating Leases and Other Commitments:
The Company leases certain office and vehicle equipment under
noncancelable operating leases with original terms ranging from 36 to 51
months. Additionally, the Company has a land lease with an original term of 5
years. This lease carries 3 renewal options for periods of 5 years each.
Rent expense on these facilities and equipment for the fiscal years ended
July 28, 1996 and July 31, 1997 and 1998 was $435, $44 and $21, respectively.
In addition, the Company leases certain plant facilities and equipment to
distributors including PPH (Note 15). Lease income under these leases was $62,
$118 and $118 for the fiscal years ending 1996, 1997 and 1998, respectively.
In September 1996, the Company entered into a $3.0 million operating
lease facility to finance cylinder displays. In May 1998, the Company repaid
the lease facility, aggregating $2,119, with proceeds from the initial public
offering. Rental expense under this lease for the fiscal years ended July 31,
1997 and 1998 was approximately $152 and $485, respectively.
Lease income, net on the consolidated statements of operations is made up
of the following for the fiscal years ended:
<TABLE>
<CAPTION>
1996 1997 1998
---- ----- -----
<S> <C> <C> <C>
Lease income.......................................... $(89) $(295) $(566)
Lease expense......................................... -- 152 485
---- ----- -----
Net (income) expense.................................. $(89) $(143) $ (81)
==== ===== =====
</TABLE>
Future minimum lease payments at July 31, 1998 from noncancelable
operating leases with both affiliates (Note 15) and non-affiliates with initial
or remaining terms of one year or more are $109, $41, $33, $27 and $1 for 1999,
2000, 2001, 2002 and 2003, respectively.
The Company also executes operating lease agreements with its
distributors including PPH (Note 15) for cylinder displays (both leased and
owned) for use within each distributor's territory. Under these leases, the
distributor (lessee) is obligated for all maintenance, installation,
deinstallation, taxes and insurance related to the cylinder displays. The terms
of the leases continue until either party terminates upon 60 days written
notice to the other party. The monthly rental amounts are based on 1% of the
original fair market value of the cylinder displays. Lease income for the
fiscal years ended July 28, 1996 and July 31, 1997 and 1998 was approximately
$27, $177 and $448, respectively. As of July 31, 1998, estimated future minimum
rental payments to be received are approximately $664 per year through the year
2003.
In December 1997, the Company entered into a service agreement with
Information Management System Services ("IMSS") whereby IMSS will provide
certain electronic data processing and telecommunications services including
the provision of customized software and hardware. Fees under the service
agreement for fiscal year ended July 31, 1998 were $306.
F-14
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
11. Nonrecurring Charges:
As described in Note 1, the Company made changes to its business
strategy, including the conversion to an independent distributor network. As a
result, the Company recorded certain nonrecurring charges in fiscal years ended
July 28, 1996 and July 31, 1997 and 1998 as summarized below:
<TABLE>
<CAPTION>
1996 1997 1998
------ ---- ----
<S> <C> <C> <C>
Adjust equipment, including leasehold improvements of $160,
$447 and $0, respectively, to net realizable value............ $ 814 $736 $283
Impairment of goodwill......................................... 355 -- --
Severance, professional fees and other......................... 194 234 280
------ ---- ----
$1,363 $970 $563
====== ==== ====
</TABLE>
In the fiscal years ended July 28, 1996 and July 31, 1997, equipment
including vehicles, display racks, leasehold improvements of two distribution
centers, cylinders, computer equipment and filling station equipment were
written down to estimated net realizable value. Substantially all the equipment
has either been sold or physically scrapped. In the fiscal year ended July 28,
1996, as part of the changes in business strategy it was determined not to
focus on the smaller convenience store locations due to lower profit margins.
As a result, the Company recorded an impairment of goodwill ascribed to the
convenience store locations of $355. In the fiscal year ended July 31, 1998,
the Company made a commitment to acquire new handheld terminal technology. As a
result, the Company recorded a $202 impairment adjustment to reduce the
carrying value of existing handheld terminals as the future benefit of these
assets could not be fully recoverable over their original estimated lives.
12. Convertible Redeemable Preferred Stock:
On December 21, 1994, the Company issued 1,572,474 shares of Series A
cumulative preferred stock and warrants to purchase 318,650 shares of common
stock to investors through a private placement offering. The exercise price for
these warrants was $0.45896 per share. These warrants were exercised upon
consummation of the initial public offering (Note 13).
Holders of Series A preferred stock could convert any portion of the
preferred shares into common shares at any time. Each share of Series A
preferred was convertible to one share of common stock. The preferred shares
had a liquidation preference equal to the liquidation value of $4.5896 as
defined in the Certificate of Incorporation. The preferred shares ranked senior
to the common stock in respect to dividend rights and had full voting rights.
The Company was required to redeem the outstanding Series A preferred
shares in equal increments semiannually between October 31, 2000 and April 30,
2002. The redemption price was $4.5896 per share plus undeclared, accrued
dividends at a rate of 8% compounded daily of $1,031, $1,718 and $596 at July
28, 1996, and July 31, 1997 and the period August 1, 1997 through May 18, 1998
(the date amounts were funded through issuance of common stock in conjunction
with the initial public offering), respectively. Dividends are cumulative until
declared by the Board.
In May 1998, contemporaneous with the closing of the initial public
offering, all outstanding shares of preferred stock were converted on a one for
one basis into common stock and common stock was issued in payment of accrued
preferred dividends of $2,314.
F-15
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
13. Stockholders' Equity (Deficit):
On November 17, 1997, the Board approved the following matters for which
stockholder consent was received effective December 31, 1997 that were executed
contemporaneously with the closing of the IPO:
. A reverse stock split of 1 share of common stock for 13.225130
shares of the Company's common shares outstanding. The reverse
stock split has been reflected in the average shares outstanding,
shares outstanding and loss per share amounts in the balance
sheets, statements of operations and changes in stockholders'
equity (deficit).
. The authorized shares of the Capital Stock were increased to
120,000,000 comprised of 100,000,000 shares of common stock par
value $0.001 per share and 20,000,000 shares of preferred, with
terms to be determined by the Board.
. Issue shares of common stock to the holders of outstanding
warrants to satisfy their right to receive common stock (assuming
a cashless exercise of their warrants).
. Accelerate the vesting of all outstanding options under the 1994
Stock Incentive Plan.
Common Stock Options and Restricted Stock--The Company has four active
stock option plans (the "Plans") and has reserved 982,609 shares of common
stock for use and distribution under terms of the Plans. Under the Plans, the
Company may, at its discretion, issue incentive or non-qualified stock options,
stock appreciation rights, restricted stock or deferred stock. The terms and
conditions of the awards made under the plans vary but, in general, are at the
discretion of the board of directors or its appointed committee.
The 1994 Stock Incentive Plan was adopted by the board of directors and
approved by the stockholders in December 1994 and has 181,853 shares of common
stock reserved for issuance upon the exercise of Options granted thereunder. As
of July 31, 1998, Options to purchase 181,853 shares of common stock at a
weighted average exercise price of $6.03 per share were outstanding under the
1994 Stock Incentive Plan. All Options are vested and exercisable, however, no
Options have been exercised. These options expire 10 years from their date of
grant. No additional options, stock appreciation rights, restricted stock or
deferred stock can be granted under the 1994 Stock Incentive Plan.
The 1998 Stock Incentive Plan was adopted by the board of directors and
approved by the stockholders in May 1998 under which 300,000 shares of common
stock have been reserved for issuance upon the exercise of Options granted
thereunder. As of July 31, 1998, the Company had 275,300 Options outstanding,
none of the Options are vested or exercisable. The exercise price for
outstanding common stock options is $13.00 per share. Pursuant to the 1998
Stock Incentive Plan, the Company may make grants of options to officers,
employees, consultants and advisors of the Company. These options vest ratably
over 5 years and expire 10 years from their date of grant.
All non-employee directors are entitled to participate in the Non-
Employee Director Stock Option Plan (the "Director Option Plan"). The Director
Option Plan was adopted by the board of directors and approved by the
stockholders in November 1997, and became effective on May 18, 1998. The
Company has reserved 100,000 shares of common stock for issuance under the
Director Option Plan. As of July 31, 1998, the Company has not granted any
options under this plan. The board of directors has approved an annual grant to
each Director under the Director Option Plan of options to purchase 4,000
shares of common stock at a price per share equal to the fair market value per
share of the common stock as of the grant date consisting of 1,000 shares for
each quarterly board meeting such director attended during the previous year.
One third of these options will vest on each of the first three anniversaries
of the grant date and expire 10 years from their date of grant.
F-16
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
In November 1997, the board of directors adopted and the stockholders
approved the Distributor Incentive Stock Option Plan (the "Distributor Option
Plan") which became effective on May 18, 1998. The Company has reserved 400,000
shares of common stock for issuance upon the exercise of options granted under
the Distributor Option Plan. In May 1998, the Company granted Options to
purchase 240,887 shares of common stock to existing Blue Rhino distributors at
an exercise price equal to $13.00 per share. Blue Rhino distributors and their
stockholders, partners, members, directors, general partners, managers,
officers, employees and consultants are eligible to receive options under the
Distributor Option Plan. As of July 31, 1998 the Company had 240,887 options
outstanding, none of the Options are vested or exercisable. Options issued
under the Distributor Option Plan vest ratably over 4 years and expire 10 years
from their date of grant. For the fiscal year ended July 31, 1998, the Company
recognized compensation expense of $50 related to the issuance of stock options
under the Distributor Option Plan.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting For Stock-Based Compensation." Accordingly, since options were
granted at fair value, compensation expense has not been recognized for stock
options granted to date under the 1994 Stock Incentive Plan, the 1998 Stock
Incentive Plan and the Director Stock Incentive Plan. Had compensation expense
for all of the option plans been determined for options granted since August 1,
1995 consistent with SFAS No. 123, the Company's net loss and loss per share
would have increased to the following pro forma amounts.
<TABLE>
<CAPTION>
For the Fiscal Years
Ended
-------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Net loss:
As reported....................................... $(7,431) $(5,584) $(2,369)
======= ======= =======
Pro forma......................................... $(7,454) $(5,649) $(2,694)
======= ======= =======
Basic and diluted loss per common share:
As reported....................................... $ (4.96) $ (3.74) $ (1.01)
======= ======= =======
Pro forma......................................... $ (4.97) $ (3.78) $ (1.12)
======= ======= =======
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-
average assumptions used for all grants: expected lives of 6 years; expected
volatility 30%; expected dividends of $0 and a risk-free interest rate of 5.5%.
F-17
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
A summary of the status of the Company's Plans at July 31, 1996, July 31,
1997 and 1998 and changes during the periods then ended is presented in the
table and narrative below:
<TABLE>
<CAPTION>
1994 Stock 1998 Stock Distributor Director
Incentive Plan Incentive Plan Option Plan Option Plan
---------------- ---------------- ---------------- ----------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Shares Price Shares Price Shares Price Shares Price
------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares under option:
Outstanding at August 1, 1995.. 43,478 $4.59 -- $ -- -- $ -- -- $ --
Granted........................ 37,731 4.79 -- -- -- -- -- --
Exercised...................... -- -- -- -- -- -- -- --
Forfeited...................... 9,149 4.59 -- -- -- -- -- --
Exercisable.................... 7,183 4.59 -- -- -- -- -- --
Weighted average fair value of
options granted............... -- 1.53 -- -- -- -- -- --
Outstanding at July 28, 1996... 72,060 4.70 -- -- -- -- -- --
Granted........................ 104,044 6.69 -- -- -- -- -- --
Exercised...................... -- -- -- -- -- -- -- --
Forfeited...................... 12,159 4.85 -- -- -- -- -- --
Exercisable.................... 21,399 4.67 -- -- -- -- -- --
Weighted average fair value of
options granted............... -- 2.21 -- -- -- -- -- --
Outstanding at July 31, 1997... 163,945 5.94 -- -- -- -- -- --
Granted........................ 19,643 6.86 275,300 13.00 240,887 13.00 -- --
Exercised...................... -- -- -- -- -- -- -- --
Forfeited...................... 979 6.15 -- -- -- -- -- --
Exercisable.................... 182,609 6.04 -- -- -- -- -- --
Weighted average fair value of
options granted............... -- 2.69 -- 5.29 -- 4.77 -- --
Outstanding at July 31, 1998... 182,609 6.04 275,300 13.00 240,887 13.00 -- --
Options available for grant at
July 31, 1998................. -- -- 24,700 -- 159,113 -- 100,000 --
</TABLE>
Warrants--During fiscal 1998, the Company issued 81,913 warrants ("1998
Warrants") to stockholders in connection with loans made to the Company (Note
7). In fiscal 1997, the Company issued approximately 226,841 warrants in
connection with the cylinder display lease facility (Note 10), and the issuance
of the common stock to PPH (Note 15). In addition, during fiscal years ended
July 28, 1996 and July 31, 1995, the Company issued approximately 303,513
warrants to individuals to purchase common stock for their assistance in
connection with various debt placements. During fiscal 1998, 938,789 shares of
common stock were issued for the exercise of all outstanding warrants, except
for the 1998 Warrants, upon consummation of the initial public offering.
F-18
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
14. Earnings (Loss) per Share:
The Company has retroactively adopted SFAS No. 128, "Earnings Per Share."
The impact of adopting this statement had no effect on loss per share for
fiscal years 1998, 1997 and 1996. The basic and diluted earnings (loss) per
share was determined as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended Three Months Ended
------------------------- -----------------------
July July July
28, 31, 31, October 31, October 31,
1996 1997 1998 1997 1998
------- ------- ------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Basic and diluted earnings
(loss) per common share:
Net income (loss)........ $(7,431) $(5,584) $(2,369) $(1,340) $ 422
Less: Redeemable
preferred stock
dividends............... 636 687 596 107 --
------- ------- ------- ------- -----
Earnings (loss) applicable
to common stockholders.... $(8,067) $(6,271) $(2,965) $(1,447) $ 422
======= ======= ======= ======= =====
Weighted average common
shares used in computing
the earnings (loss) per
common share (in
thousands):
Basic.................... 1,628 1,678 2,945 1,779 7,631
======= ======= ======= ======= =====
Diluted.................. 1,628 1,678 2,945 1,779 7,719
======= ======= ======= ======= =====
Basic and diluted earnings
(loss) per common share... $ (4.96) $ (3.74) $ (1.01) $ (0.81) $0.05
======= ======= ======= ======= =====
</TABLE>
Options to purchase common stock and the assumed exercise of warrants
during the fiscal years ended 1998, 1997 and 1996 have been excluded from the
computation of diluted earnings (loss) per common share as they were anti-
dilutive. For the three months ended October 31, 1997, the assumed conversion
of preferred shares would have been anti-dilutive.
15. Related Party Transactions:
PPH, Caribou Cylinder Exchange, L.L.C. ("Caribou"), Javelina Cylinder
Exchange, L.L.C. ("Javelina") and Raven Propane, L.L.C. ("Raven Propane"), are
affiliates and operate as distributors for the Company. PPH began operations as
a distributor during fiscal 1996, while Caribou, Javelina and Raven Propane
began operations as distributors during fiscal 1998. The following represents
related party balances with these affiliates outstanding at July 28, 1996 and
July 31, 1997 and 1998, and transactions for the fiscal years then ended,
respectively:
<TABLE>
<CAPTION>
PPH Javelina Raven Caribou
-------------------- -------- ----- -------
1996 1997 1998 1998 1998 1998
------ ------ ------ -------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Notes receivable................... $1,399 $1,191 $1,072 $-- $-- $--
Trade accounts payable............. 407 648 903 33 130 33
Cost of sales--distributors........ 1,561 5,319 7,889 118 381 31
Interest income.................... 43 142 117 -- -- --
Lease income....................... 25 160 160 2 3 1
Issuance of common stock........... -- 1,000 -- -- -- --
Cylinder usage fee................. -- -- 51 -- 3 --
Cylinder purchases................. -- -- 1,397 7 89 22
</TABLE>
Certain operational and financial management services were provided to
the Company by an affiliate through common ownership. Fees for these services
for the fiscal years ended July 28, 1996 and July 31, 1997 were approximately
$519, and $154, respectively.
The Company leases a facility from an affiliate under a noncancelable
operating lease which expires in December 1998. Future minimum lease payments
for the lease are $34 for the fiscal year ending 1999. Rent expense under this
lease was $22, $76, and $82 for the fiscal years ended July 28, 1996, and July
31, 1997 and 1998, respectively.
F-19
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
The Company leases a facility and certain equipment to PPH. Lease income
from PPH for the fiscal years ended July 28, 1996, July 31, 1997, and 1998 was
$62, $56, and $55, respectively.
During fiscal 1998, the Company paid professional fees to Pedersen &
Houpt, P.C. ("P & H") in the amount of $401. A stockholder of P & H is also a
director of the Company.
16. Income Taxes:
Due to the Company's operating losses, there is no current or deferred
tax expense for the fiscal years ended July 28, 1996, and July 31, 1997 and
1998.
A reconciliation of the differences between the statutory federal income
tax rate of 34% and the effective rate of income tax expense is as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended
--------------------------
July 28, July 31, July 31,
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Federal statutory tax rate........................... 34.0% 34.0% 34.0%
Operating losses having no current tax benefit..... (33.8) (33.9) (33.1)
Permanent differences and other.................... (0.2) (0.1) (0.9)
----- ----- -----
Effective tax rate................................... 0.0% 0.0% 0.0%
===== ===== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liability are as follows at:
<TABLE>
<CAPTION>
July July July
28, 31, 31,
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Assets:
Net operating loss carry forward .................. $ 4,842 $ 6,981 $ 7,745
Allowance for doubtful accounts ................... 32 60 242
Inventory capitalization........................... 19 4 105
Organization costs................................. 37 24 12
Other ............................................. 34 78 23
Depreciation and amortization...................... -- 1 --
------- ------- -------
Total gross deferred tax assets.................... 4,964 7,148 8,127
Valuation allowance ............................... (4,960) (7,148) (8,059)
------- ------- -------
Net deferred tax assets ............................. $ 4 $ -- $ 68
======= ======= =======
Liability:
Depreciation and amortization...................... $ 4 $ -- $ 68
======= ======= =======
</TABLE>
At July 31, 1998, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $19.9 million which is available
to offset future federal taxable income, if any, in varying amounts through
2013.
F-20
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
17. Defined Contribution Plan:
The Company has a 401(k) plan, sponsored by an affiliate, which allows
participants to make voluntary pretax contributions, through payroll
deductions, up to 10% of total compensation, subject to Internal Revenue
Service limitations. All employees who have at least one year of service and
1,000 hours within that year of service are eligible to participate in this
plan. The plan provides for discretionary profit sharing contributions by the
Company. The Company made no contributions to the plan during fiscal 1996, 1997
and 1998.
18. Change in Fiscal Year End:
In 1997, the Company changed from a 52--53 week year end, to a July 31
fiscal year end. The effect of this change was not material.
19. Subsequent Events:
The Company completed three acquisitions in August and September 1998 for
approximately $1.1 million in the aggregate related to assets including
cylinders, cylinder display racks, and right, title and interest in and to
sellers' retail propane cylinder exchange accounts and locations. These
acquisitions were funded with proceeds received from the Initial Public
Offering.
20. Quarterly Financial Data (unaudited):
<TABLE>
<CAPTION>
Fiscal 1997 Quarter Ended
----------------------------------------
April July
October 31, January 31, 30, 31,
----------- ----------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales............................. $ 2,491 $ 2,018 $ 3,000 $ 6,702
======= ======= ======= =======
Gross profit.......................... $ 285 $ 218 $ 522 $ 1,542
======= ======= ======= =======
Net loss.............................. $(1,215) $(1,566) $(1,971) $ (832)
======= ======= ======= =======
Per share data:
Basic and diluted earnings (loss)
per common share................... $ (0.85) $ (1.07) $ (1.26) $ (0.57)
======= ======= ======= =======
<CAPTION>
Fiscal 1998 Quarter Ended
----------------------------------------
April July
October 31, January 31, 30, 31,
----------- ----------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales............................. $ 4,140 $ 4,175 $ 5,694 $13,364
======= ======= ======= =======
Gross profit.......................... $ 985 $ 958 $ 1,372 $ 3,532
======= ======= ======= =======
Net income (loss)..................... $(1,340) $(1,224) $(1,067) $ 1,261
======= ======= ======= =======
Per share data:
Basic earnings (loss) per common
share................................ $ (0.81) $ (0.83) $ (0.72) $ 0.20
======= ======= ======= =======
Diluted earnings (loss) per common
share................................ $ (0.81) $ (0.83) $ (0.72) $ 0.19
======= ======= ======= =======
</TABLE>
21. Events Subsequent to the Date of the Independent Auditor's Report
(Unaudited):
The interim consolidated financial data with respect to October 31, 1998
and 1997 have been prepared without audit; however, in the opinion of
management, all adjustments (which included those that are normal and
recurring) necessary to present fairly the consolidated financial position at
October 31, 1998 and the results of operations and cash flows for the three
months ended October 31, 1998 and 1997,
F-21
<PAGE>
BLUE RHINO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands, except share and per share data)
have been made. The results for the three months ended October 31, 1998 are not
necessarily indicative of the results of operations for a full year. Interim
consolidated financial data conforms to the requirements of Article 10 of
Regulation S-X and, therefore, does not include all the disclosures normally
required under generally accepted accounting principles.
In December 1998, the Company entered into a $12.0 million credit
facility which includes a $7.0 million revolving line of credit and a $5.0
million acquisition facility with NationsBank, N.A. (the "Bank Credit
Facility"). The Company's ability to borrow under the Bank Credit Facility will
be reduced by an amount equal to the contingent liability under the guarantee
of USA Leasing's credit facility with NationsBank, N.A. The contingent
liability at December 31, 1998 was approximately $8.9 million. The Bank Credit
Facility replaces a prior facility with NationsBank, N.A. and is collateralized
by a lien on substantially all of the Company's assets. The Bank Credit
Facility requires the Company to meet certain covenants, including minimum net
worth and cash flow. The loans under the Bank Credit Facility bear interest at
a maximum rate of LIBOR plus 225 basis points.
The Company consummated three acquisitions, for an aggregate purchase
price of approximately $2.3 million for assets including cylinder displays and
cylinder exchange accounts and locations. These acquisitions were funded with
cash provided by operations and the remaining proceeds from the Company's
initial public offering. These acquisitions also include a purchase price
adjustment based on the number of locations transferred to the Company.
The excess cost over fair market value of the net assets acquired for the
above acquisitions was approximately $2.1 million, which is being amortized on
a straight-line basis over 30 years.
On November 24, 1998, the Board of Directors approved the following
matters for which shareholder consent was received effective December 22, 1998:
. Authorized the increase in the number of shares reserved and available
for distribution under the Company's 1998 Stock Incentive Plan by
900,000 shares.
In December 1998, the Company sold approximately $4.4 million of its
remaining cylinder inventories to USA Leasing, L.L.C., an affiliated entity.
The gain on the transaction was not material.
In December 1998, the Company also signed a letter of intent to purchase
Bison Valve, L.L.C. for consideration consisting of approximately $700,000 in
cash which will be used to repay indebtedness to the Company, $1.2 million in
common stock and warrants to purchase 100,000 shares of common stock.
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 Shares
Blue Rhino Corporation
Common Stock
-----------------
PROSPECTUS
-----------------
Merrill Lynch & Co.
NationsBanc Montgomery Securities LLC
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses to be borne by the
Company in connection with the registration, issuance, and distribution of the
securities be registered hereby, other than underwriting discounts and
commissions. All amounts are estimates except the Securties and Exchange
Commission (the "Commission") registration fee, the NASD filing fee and the
Nasdaq listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 14,467
NASD filing fee................................................. 4,500
Nasdaq listing fee.............................................. 17,500
Blue Sky fees and expenses...................................... 5,000
Printing and engraving expenses................................. 200,000
Legal fees and expenses......................................... 250,000
Accounting fees and expenses.................................... 60,000
Miscellaneous................................................... 48,533
--------
Total......................................................... $600,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL")
authorizes indemnification of directors, officers, employees and agents of the
Company; allows the advancement of costs of defending against litigation; and
permits companies incorporated in Delaware to purchase insurance on behalf of
directors, officers, employees and agents against liabilities whether or not in
the circumstances such companies would have the power to indemnify against such
liabilities under the provisions of the statute. The Company's Second Amended
and Restated Certificate of Incorporation ("Charter") provides that the Company
will indemnify its directors and officers to the fullest extent permitted by
law.
Under the provisions of the Company's Charter, any director or officer
who, in his or her capacity as such, is made or threatened to be made a party
to any suit or proceeding shall be indemnified if the Board of Directors
determines such director or officer acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Company or, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The Company will
not however indemnify any director or officer where such director or officer:
(a) breaches his or her duty of loyalty to the Company or its stockholders; (b)
fails to act in good faith or engages in intentional misconduct or knowing
violation of law; (c) authorizes payment of an unlawful dividend or stock
repurchase or redemption; or (d) obtains an improper personal benefit. While
liability for monetary damages has been eliminated, equitable remedies such as
injunctive relief or rescission remain available. In addition, a director is
not relieved of his or her responsibilities under any other law, including the
federal securities laws.
Indemnification under the Company's Charter and Amended and Restated By-
laws ("By-laws") includes payment by the Company of expenses in defending an
action, suit or proceeding in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by the indemnified party to
repay such advance if it is ultimately determined that such person is not
entitled to indemnification under the Charter, which undertaking may be
accepted without reference to the financial ability of such person that makes
such repayments. The Company is not responsible for the indemnification of any
person seeking indemnification in connection with a proceeding initiated by
such person unless the initiation was approved by the Board of Directors of the
Company. The Charter and the DGCL further provide that such indemnification is
not exclusive of any other rights to which such
II-1
<PAGE>
individuals may be entitled under the Charter, the Bylaws, any agreement, any
vote of stockholders or disinterested directors, or otherwise. The Company
intends to obtain directors and officers insurance covering its executive
officers and directors.
Insofar as indemnification by the Company for liabilities arising under
the Securities Act of 1933, as amended (the "Securities Act"), may be permitted
to directors, officers and controlling persons of the Company pursuant to the
foregoing provisions, the Company has been advised that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
Item 15. Recent Sales of Unregistered Securities.
On September 24, 1996, the Company issued a warrant to purchase 227,048
shares of its common stock at an exercise price of $6.61 per share to
Forsythe/Lunn Technology Partners, L.P. in connection with the execution of a
master lease agreement between the Company and Forsythe/McArthur & Associates,
Inc. The warrants may be exercised at any time before September 24, 2006. These
warrants were issued without registration under the Securities Act in reliance
on Section 4(2) of the Securities Act.
On April 30, 1997, the Company sold 151,227 shares of its common stock
and warrants to purchase an additional 113,420 shares of its common stock with
an exercise price of $6.61 per share to Platinum Propane Holding, L.L.C.
("Platinum Propane") for total consideration of $1,000,000 in cash. The
warrants may be exercised at any time prior to April 30, 2007. The shares and
warrants sold to Platinum Propane were issued without registration under the
Securities Act in reliance on Section 4(2) of the Securities Act and Rule 506
of Regulation D promulgated thereunder.
On January 1, 1998, the Company issued $3,250,000 of 10.5% Subordinated
Notes and warrants to purchase in the aggregate 81,913 shares of common stock
with an exercise price equal to the initial public offering price of the common
stock offered hereby (the "1998 Warrants") to Lennard Carlson, Craig J.
Duchossois, Andrew J. Filipowski, and James P. Liautaud, four stockholders of
the Company for total consideration of $3,250,000 in cash. The Subordinated
Promissory Notes bear interest at 10.5% per annum and are due on the earlier of
a qualified public offering of the Company's common stock or December 31, 2000.
The warrants may be exercised at any time before December 31, 2008. The
Subordinated Promissory Notes and warrants purchased by the stockholders were
offered and sold without registration under the Securities Act in reliance on
Section 4(2) of the Securities Act and Rule 505 of Regulation D promulgated
thereunder.
On May 18, 1998, the Company issued 57,692 shares of common stock to
Bison Propane Bottle Exchange, L.L.C. ("Bison Propane") in satisfaction of a
portion of the purchase price of assets acquired from Bison Propane pursuant to
an Asset Purchase Agreement dated December 10, 1997. These shares were issued
in reliance upon Section 4(2) of the Securities Act and Regulation D
promulgated thereunder.
Since formation, the Company has granted options to its employees for
182,906 shares of common stock pursuant to its 1994 Stock Incentive Plan at a
weighted average exercise price of $6.03 per share, of which options to
purchase 14,869 shares of common stock have been exercised and options to
purchase 167,740 shares are currently exercisable. The options were issued
without registration under the Securities Act in reliance on Section 4(2) and
Rule 701 promulgated thereunder.
Item 16. Exhibits and Financial Statement Schedules.
The exhibits to the Registration Statement are listed in the Exhibit
Index which appears elsewhere in this Registration Statement and is hereby
incorporated herein by reference.
All other schedules are omitted because of the absence of the condition
under which they are required or because the information is included in the
Company's consolidated financial statements or notes thereto.
II-2
<PAGE>
Item 17. Undertakings.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the
Underwriters, at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as the Company may be permitted to indemnify directors, officers
and controlling persons of the Company for liabilities arising under the
Securities Act pursuant to the provisions described under Item 14 above or
otherwise, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of
the Company in the successful defense of any action, suit or proceeding) is
asserted against the Company by such director, officer, or controlling person
in connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Amendment No. 1 to Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Winston-Salem, North Carolina, on January 15, 1999.
Blue Rhino Corporation
/s/ Billy D. Prim
By: _______________________________
Billy D. Prim
Chairman of the Board, President
and
Chief Executive Officer
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to Registration Statement has been signed below by the
following persons in the capacities indicated on January 15, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Billy D. Prim Chairman of the Board, President and Chief
___________________________________________ Executive Officer (Principal Executive
Billy D. Prim Officer)
/s/ Mark Castaneda Secretary, Chief Financial Officer and
___________________________________________ Director (Principal Financial and
Mark Castaneda Accounting Officer)
/s/ Andrew J. Filipowski Vice Chairman of the Board
___________________________________________
Andrew J. Filipowski
/s/ Craig J. Duchossois Director
___________________________________________
Craig J. Duchossois
/s/ Steven D. Devick Director
___________________________________________
Steven D. Devick
/s/ John H. Muehlstein Director
___________________________________________
John H. Muehlstein
/s/ Richard A. Brenner Director
___________________________________________
Richard A. Brenner
</TABLE>
II-5
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
1.1 Form of Underwriting Agreement.+
3.1 Second Amended and Restated Certificate of Incorporation of the
Company, incorporated by reference to Exhibit 3.1 to the Company's
Report on Form 10-Q dated July 2, 1998.
3.2 Amended and Restated Bylaws of the Company, incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on Form S-1
dated May 18, 1998.
4.1 Form of Certificate of Common Stock of the Company, incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-1 dated May 18, 1998.
5.1 Legal Opinion of Pedersen & Houpt, P.C.
10.1(a) Loan Agreement, dated as of December 31, 1998, between the Company and
NationsBank, N.A.
10.1(b) Security Agreement, dated as of December 31, 1998 between the Company
and NationsBank, N.A.
10.1(c) Promissory Note dated December 31, 1998 made by the Company in favor
of NationsBank, N.A.
10.1(d) Promissory Note dated December 31, 1998 made by the Company in favor
of NationsBank, N.A.
10.2 Note Purchase Agreement, dated as of January 1, 1998, among the
Company and Craig J. Duchossois, Andrew Filipowski, James Liautaud and
Lennard Carlson, incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement on Form S-1 dated May 18, 1998.
10.4(a) Asset Purchase Agreement, dated as of December 9, 1997, between the
Company and Bison Propane Bottle Exchange, LLC, incorporated by
reference to Exhibit 10.4(a) to the Company's Registration Statement
on Form S-1 dated May 18, 1998.
10.4(b) First Amendment to the Asset Purchase Agreement, dated as of December
10, 1997, between the Company and Bison Propane Bottle Exchange, LLC,
incorporated by reference to Exhibit 10.4(b) to the Company's
Registration Statement on Form S-1 dated May 18, 1998.
10.5 Multi-Draw Convertible Secured Promissory Note, dated as of February
12, 1998, by Bison Valve, L.L.C. to the Company, incorporated by
reference to Exhibit 10.5 to the Company's Registration Statement on
Form S-1 dated May 18, 1998.
10.6 Collateral Assignment of License Agreement, dated as of February 12,
1998, by Bison Valve, L.L.C. to the Company, incorporated by reference
to Exhibit 10.6 to the Company's Registration Statement on Form S-1
dated May 18, 1998.
10.7(a) Form of Distribution Agreement of the Company and Its Distributors,
incorporated by reference to Exhibit 10.7(a) to the Company's
Registration Statement on Form S-1 dated May 18, 1998.
10.7(b) Form of Sublease of Personal Property between the Company and Its
Distributors, incorporated by reference to Exhibit 10.7(b) to the
Company's Registration Statement on Form S-1 dated May 18, 1998.
10.8(a) Form of Security Agreement to Secure the Sale of Cylinders between the
Company and Its Distributors, incorporated by reference to Exhibit
10.8(a) to the Company's Registration Statement on Form S-1 dated May
18, 1998.
10.8(b) Form of Promissory Note Evidencing the Sale of Cylinders between the
Company and Its Distributors, incorporated by reference to Exhibit
10.8(b) to the Company's Registration Statement on Form S-1 dated May
18, 1998.
10.9 Amended and Restated Stock Option Plan for Non-employee Directors.+
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
10.10 Distributor Stock Option Plan of the Company, incorporated by
reference to Exhibit 10.13 to the Company's Registration Statement on
Form S-1 dated May 18, 1998.
10.11 1994 Stock Incentive Plan of the Company, incorporated by reference
to Exhibit 10.14 to the Company's Registration Statement on Form S-1
dated May 18, 1998.
10.12 Amended and Restated Registration Rights Agreement, dated as of March
1, 1997, among the Company, Forsythe/Lunn Technology Partners,
L.L.C., Platinum Propane Holding, L.L.C., the Purchasers of Units
pursuant to the Unit Purchase Agreement dated October 11, 1995 and
the Purchasers of the Company's Series A Convertible Participating
Preferred Stock, incorporated by reference to Exhibit 10.15 to the
Company's Registration Statement on Form S-1 dated May 18, 1998.
10.13 1998 Stock Incentive Plan of the Company, incorporated by reference
to Exhibit 10.18 to the Company's Registration Statement on Form S-1
dated May 18, 1998.
10.14 Real Estate Lease between the Company and Rhino Real Estate, L.L.C.
dated as of January 1, 1999.+
10.15(a) Master Lease dated as of February 1, 1996 between the Company and
Nelco, Ltd., incorporated by reference to Exhibit 10.20(a) to the
Company's Registration Statement as Form S-1 dated May 18, 1998.
10.15(b) Lease Agreement dated August 11, 1996 between the Company and Leasing
Innovations, Incorporated.
10.15(c) Lease Agreement dated June 26, 1997 between the Company and Green
Tree Vendor Services Corporation, incorporated by reference to
Exhibit 10.20(c) to the Company's Registration Statement on Form S-1
dated May 18, 1998.
10.16 Services Agreement dated June 1, 1997 between the Company and
Information Management Systems Services, incorporated by reference to
Exhibit 10.16 to the Company's Annual Report on Form 10-K dated
October 29, 1998.
10.17(a) Limited Guaranty dated December 31, 1998 made by the Company in favor
of NationsBank, N.A.
10.17(b) Subordinated Security Agreement dated December 31, 1998 between the
Company and USA Leasing, L.L.C.
21.1 Subsidiaries of the Company, incorporated by reference to Exhibit
21.1 to the Company's Registration Statement on Form S-1 dated May 8,
1998.
23.1 Consent of Pedersen & Houpt, P.C.
23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Barbecue Industry Association of America
24.1 Power of Attorney (see Signature Page)+
27.1 Financial Data Schedule
</TABLE>
- --------
+Previously filed.
<PAGE>
EXHIBIT 5.1
LEGAL OPINION OF PEDERSEN & HOUPT, P.C.
(Pedersen & Houpt, P.C. Letterhead)
January 15, 1999
Blue Rhino Corporation
104 Cambridge Plaza Drive
Winston Salem, North Carolina 27104
Gentlemen:
We have acted as counsel to Blue Rhino Corporation, a Delaware corporation
(the "Company"), in connection with the preparation of a Registration Statement
on Form S-1, Registration No. 333-70127 (as amended, the "Registration
Statement"), which has been filed by the Company with the Securities and
Exchange Commission for the purpose of registering under the Securities Act of
1933, as amended (the "Securities Act") and the rules and regulations thereunder
the sale of up to 2,300,000 shares (the "Shares") of the Company's Common Stock,
$.001 par value per share ("Common Stock"). The Shares will be offered and sold
(the "Offering") pursuant to a purchase agreement (the "Underwriting Agreement")
to be entered into between the Company and Merrill Lynch & Co. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as the representative of the
underwriters (the "Underwriters"). We are rendering this opinion as of the time
the Registration Statement becomes effective in accordance with Section 8(a) of
the Securities Act.
Before rendering the opinions hereinafter set forth, we examined, among
other things:
1. Registration Statement;
2. The form of the Company's Second Amended and Restated Certificate of
Incorporation;
3. The Company's Amended and Restated Bylaws;
4. Resolutions of the Company's Board of Directors;
5. The proposed form of Underwriting Agreement; and
<PAGE>
January 15, 1999
Page 2
originals or photostatic or certified copies of all those corporate records of
the Company and of all those agreements, communications and other instruments,
certificates of public officials, certificates of corporate officials and such
other documents as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth. As to factual matters known to the Company, we
have relied without investigation, to the extent we deem such reliance proper,
upon certificates or representations made by the Company's duly authorized
representatives.
We are members of the Bar of the State of Illinois, and we express no
opinion with respect to laws other than the laws of the State of Illinois, the
General Corporation Law of the State of Delaware and federal laws of the United
States of America.
Based upon the foregoing, and subject to the qualifications and limitations
stated herein, we are of the opinion that when (i) the Registration Statement
becomes effective under the Securities Act, (ii) the Second Amended and Restated
Certificate of Incorporation of the Company has been filed with the Secretary of
State of the State of Delaware, (iii) the final terms of the Underwriting
Agreement and the Offering have been approved by the Board of Directors (or a
duly constituted committee thereof), (iv) the Underwriting Agreement has been
duly executed and delivered by each of the parties thereto, and (v) the Shares
have been issued and delivered in accordance with the terms of the Underwriting
Agreement (including the receipt by the Company of the consideration for the
Shares described therein), the Shares will be validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion letter as an exhibit to the
Registration Statement and the references to us under the heading "Legal
Matters" in the prospectus that forms a part of the Registration Statement. We
also consent to the incorporation by reference of this consent into any
subsequent registration statement filed pursuant to Rule 462(b) under the
<PAGE>
January 15, 1999
Page 3
Securities Act in connection with the Offering. In giving this consent, we do
not hereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act and the rules and regulations of
the Securities and Exchange Commission promulgated thereunder.
/s/ Pedersen & Houpt, P.C.
<PAGE>
EXHIBIT 10.1(a)
NATIONSBANK, N.A.
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT (this "Agreement") dated as of December 31, 1998 by and
between NATIONSBANK, N.A., a national banking association ("Bank") and the
Borrower described below:
R E C I T A L S:
WHEREAS, Bank and Borrower entered into that certain Loan Agreement dated
as of December 18, 1997, pursuant to which Bank extended certain loans to
Borrower, including a Revolving Line of Credit in the original principal amount
of $3,000,000, a Working Capital Line of Credit in the amount of $1,000,000, and
a Capital Expenditures Line of Credit in the amount of $1,000,000 (collectively,
the "1997 Loans"); and
WHEREAS, the Loan Agreement was modified by that certain Amendment to Loan
Agreement dated July 30, 1998, pursuant to which certain changes were made to
the Loan Agreement, including deletion of certain guaranties of the 1997 Loans
and the subordination requirements, and modification of certain financial
covenants; and
WHEREAS, Borrower has now requested Bank to extend certain loans to repay
and refinance the 1997 Loans and to increase the amounts thereof; and
WHEREAS, Bank has also been requested to extend credit to USA Leasing, LLC,
a Delaware limited liability company (the "Lessor"), which is affiliated through
certain common ownership with Borrower; and
WHEREAS, Bank has agreed to extend the aforesaid loans and extensions of
credit to Borrower and Lessor, subject to certain terms and conditions; and
WHEREAS, the parties hereto wish to set forth their agreement with respect
to the said loans and extensions of credit herein;
NOW, THEREFORE, in consideration of the Loans described below and the
mutual covenants and agreements contained herein, and intending to be legally
bound hereby, Bank and Borrower agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms
defined herein, the following terms shall have the meaning set forth with
respect thereto:
<PAGE>
A. Accounts Receivable. All of the Borrower's accounts, instruments,
contract rights, chattel paper, documents, and general intangibles arising from
the sale of goods and/or the rendition of services by the Borrower in the
ordinary course of business, and the proceeds thereof and all security and
guaranties therefor, whether now existing or hereafter created, and all
returned, reclaimed or repossessed goods, and all books and records pertaining
to the foregoing.
B. Affiliate. As to any Person, each of the Persons that directly
or indirectly, through one or more intermediaries, owns or controls, or is
controlled by or under common control with, such Person or any individual
related to such Person. For the purpose of this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of management and policies, whether through the ownership of voting
securities, by contract or otherwise.
C. Borrower. Blue Rhino Corporation, a Delaware corporation.
D. Borrower's Address: 104 Cambridge Plaza Drive
Winston-Salem, NC 27104
E. Collateral. The property and interests in property securing
payment and performance of the Loans, as set forth in Section 3 hereof.
F. Current Ratio. The quotient of current assets divided by
current liabilities.
G. EBITDA. Earnings before interest expense, taxes, depreciation
and amortization.
H. Equipment. All machinery and equipment, including fixtures,
now owned or hereafter acquired by the Borrower.
I. Funded Debt. Debt incurred by borrowing money, specifically
excluding trade debt or accruals arising in the ordinary course of business, but
including, without limitation (i) purchase money indebtedness, (ii) the
principal portion of obligations under capital leases, and (iii) all obligations
guaranteeing or intended to guarantee any debt of any other entity (other than
the guarantee of obligations of the Lessor to the Bank), whether such obligation
is direct or indirect.
J. Hazardous Materials. All materials defined as hazardous wastes
or substances under any local, state or federal environmental laws, rules or
regulations, and petroleum, petroleum products, oil and asbestos.
K. Inventory. Means all non-obsolete inventory of Borrower of every
kind or character, wherever located, for which Borrower:
-2-
<PAGE>
(i) has full title, free and clear of any security interest,
liens and claims whatsoever; and
(ii) has the right to convey such inventory as security for the
Obligations; and
(iii) such inventory is in first class order, condition and
repair.
L. LIBOR. The London Interbank Offered Rate for thirty-day deposits,
adjusted for applicable reserves, deposit insurance assessments and other
regulatory costs, as determined by the Bank, from time to time.
M. Loans. Collectively, the loans described in Section 2 hereof and
any other existing or subsequent loan by Bank to the Borrower that is subject to
this Agreement.
N. Loan Documents. Loan Documents means this Loan Agreement and any
and all promissory notes executed by Borrower in favor of Bank and all other
documents, instruments, guarantees, certificates and agreements executed and/or
delivered by Borrower, any guarantor or third party in connection with any Loan.
O. Material Adverse Effect. Any material adverse effect on (i) the
business, assets, operations or financial or other condition of Borrower and
its subsidiaries, or the Lessee and its subsidiaries; (ii) the Borrower's
ability to pay the Obligations in accordance with the terms thereof, or (iii)
the Collateral or Bank's security interest in the Collateral or the priority of
such security interest. Without limiting the foregoing, any adverse effect on
the business, assets, operations or financial or other condition of Borrower and
its subsidiaries (if any) involving, individually or in the aggregate, a
liability of the Borrower or any of its subsidiaries in excess of applicable
insurance coverage by more than $100,000 shall be deemed to be a "Material
Adverse Effect" within the meaning of the applicable provisions of this
Agreement.
P. Notes. Collectively, the Revolver Note and the Acquisition Note,
as such terms are defined herein.
Q. Obligations. The Loans and all other loans, advances, indebted-
ness, liabilities, obligations, covenants and duties (including post-petition
interest on the foregoing, to the extent lawful) owing, arising, due or payable
from the Borrower to the Bank of any kind or nature, present or future, arising
under this Agreement or any of the other Loan Documents, whether direct or
indirect (including those acquired by assignment), absolute or contingent,
primary or secondary, due or to become due, now existing or hereafter arising.
The term includes, without limitation, all interest, charges, reasonable
expenses, reasonable fees, reasonable attorneys' fees and any other sums
-3-
<PAGE>
chargeable to the Borrower by the Bank under this Agreement or any of the other
Loan Documents.
R. Person. A corporation, an association, a joint venture, a
limited liability company, a partnership, an organization, a business, an
individual, a trust or a government or political subdivision thereof or any
government agency or any other legal entity.
S. Tangible Net Worth. The amount by which Borrower's total assets,
plus debt subordinated to prior payment of all debt to the Bank, exceeds
Borrower's total liabilities minus (i) goodwill, (ii) contract rights, (iii)
assets representing claims on (A) shareholders, directors, or officers or (B)
Affiliates, and (iv) other assets constituting intangible assets, including,
without limitation, any patents, trademarks, tradenames, copyrights or similar
intellectual property, all in accordance with GAAP.
Accounting Terms. All accounting terms not specifically defined or
specified herein shall have the meanings generally attributed to such terms
under generally accepted accounting principles ("GAAP"), as in effect from time
to time, consistently applied. All financial computations made under this
Agreement for the purpose of determining compliance with the financial
requirements of this Agreement shall be made, and all financial information
required under this Agreement shall be prepared, in accordance with GAAP, as in
effect on the date hereof.
2. LOANS. Subject to the terms of this Agreement, Bank hereby agrees to
make loans to Borrower, as follows:
A. Revolving Line of Credit. (i) Subject to the terms hereof, Bank
agrees to extend a revolving line of credit (the "Revolver") to Borrower, in
the original principal amount of up to Seven Million Dollars ($7,000,000), for
the purpose of refinancing and increasing the Borrower's existing revolving line
of credit, and financing its short-term working capital needs, including but not
limited to payments under letters of credit issued for the benefit of Borrower.
The Revolver will be available during the period commencing on the date hereof
and continuing until December 31, 2000 (which date, as extended in accordance
with the terms hereof, shall be the "Maturity Date"). Borrower may from time to
time borrow, repay and re-borrow, subject to the Borrowing Base Agreement
attached hereto as Exhibit "A" and by reference made a part hereof, and the
Borrowing Base set forth therein (the "Borrowing Base"). Borrower shall execute
and deliver to Bank a promissory note (the "Revolver Note") in the principal
amount of $7,000,000, which Revolver Note shall bear interest and be payable in
accordance with the terms set forth hereinbelow. It is further provided that
the commitment of the Bank to continue to make the Revolver available to the
Borrower beyond the Maturity Date is subject to annual review by the Bank
(subject to and following receipt of the Borrower's annual report of audit as
provided hereinafter), and the Bank may, in its sole discretion,
-4-
<PAGE>
elect to renew the commitment for an additional year, whereupon the Maturity
Date shall be extended to the date that is one year after the then-current
Maturity Date.
(ii) Interest and Principal. Interest on the principal amount outstanding
under the Revolver from time to time shall accrue at the rate of thirty-day
LIBOR, plus two hundred basis points (2.00%) per annum, which accrued interest
shall be payable monthly in arrears. The principal of the Revolver Note shall
be repaid in full, if not sooner paid, on the Maturity Date, together with all
accrued but unpaid interest thereon.
(iii) Fees. Borrower shall pay to Bank a commitment fee in the amount of
one-quarter percent (1/4%) of the principal amount of the Revolver at the
closing thereof. Borrower shall also pay Bank, quarterly as invoiced by Bank,
an availability fee in the amount of one-quarter percent (1/4%) of the average
unused amount of the Revolver.
(iv) Collateral Security. Repayment in full of the Revolver shall be
secured by all Accounts Receivable (as such term is defined in the borrowing
base agreement attached hereto), and all Inventory and Equipment of Borrower,
now owned or hereafter acquired, including all proceeds thereof (the
"Collateral").
(v) Administration of Accounts. (a) Borrower agrees to submit to Bank,
within thirty (30) days after the end of each month during the term of the
Revolver, a summary aged trial balance of all accounts existing as of the last
day of such month, and all inventory, in form satisfactory to the Bank.
Borrower agrees to keep accurate and complete records of its accounts, and of
all payments and collections thereof, and of all inventory.
(b) Monthly, within thirty (30) days after the end of each monthly
period, Borrower shall submit a borrowing base certificate to Bank setting forth
the amount of Borrower's Eligible Accounts Receivable (as defined in the
Borrowing Base Agreement), Eligible Inventory and Equipment as of the last day
of such monthly period.
(c) Whether or not an Event of Default has occurred, Borrower shall
permit Bank, including any of its officers, agents or designees, to inspect and
verify the amount of or any other matter relating to the Borrower's accounts.
Borrower agrees to cooperate fully with Bank in such inspection and verification
process.
(d) Bank shall have the right at any time after the occurrence of an
Event of Default to notify any or all account debtors that Borrower's accounts
have been assigned to Bank and to collect the accounts in its name.
B. Acquisition Line. (i) Subject to the terms hereof, Bank agrees to
extend a non-revolving line of credit (the "Acquisition Line") to Borrower, in
the original principal amount of up to Five Million Dollars ($5,000,000), for
the purpose of providing a portion of the funds required to finance acquisitions
by Borrower. The proceeds of the
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Acquisition Line will be available to Borrower at the closing of any such
acquisition in such amounts as the Bank, in its discretion, may agree to be
advanced in connection with such acquisition. To evidence the Acquisition Line,
Borrower shall execute and deliver to Bank a promissory note (the "Acquisition
Note") in the principal amount of $5,000,000, which Acquisition Note shall bear
interest and be payable in accordance with the terms set forth hereinbelow.
(ii) Interest and Principal. Interest on the principal amount outstanding
under the Acquisition Line from time to time shall accrue at the rate of thirty-
day LIBOR, plus two hundred twenty-five basis points (2.25%) per annum, which
accrued interest shall be payable monthly in arrears. The principal of the
Acquisition Note, together with any accrued but unpaid interest thereon, shall
be repaid in full on the Maturity Date.
(iii) Fees. Borrower shall pay to Bank a commitment fee in the amount of
one-quarter percent (1/4%) of the principal amount of the Acquisition Line at
the closing thereof. Borrower shall also pay Bank, quarterly as invoiced by
Bank, an availability fee in the amount of one-quarter percent (1/4%) of the
average unused amount of the Acquisition Line.
(iv) Collateral Security. Repayment in full of the Acquisition Line shall
be secured by the Collateral described above.
C. Other Interest Rate Provisions Applicable to the Loans.
(a) The interest rate applicable to the Loans will vary, according to the
Borrower's compliance with certain financial ratios, as set forth in Exhibit B
attached hereto, as computed by the Borrower's certified public accountants, in
a manner reasonably acceptable to the Bank. The financial ratios shall be
calculated quarterly, as of the last day of each fiscal quarter of the Borrower,
and, if satisfied, shall apply to the Loans during the next succeeding quarter;
provided, however, that the first computation of the Borrower's ratios shall be
as of February 28, 1999, and shall apply during the third quarter of Borrower's
1999 fiscal year. At any time that the Borrower does not meet the requirements
of such financial ratios, however, the interest rate will be or revert to the
rates set forth hereinabove (subject, however, to the imposition of any default
interest rate provided in the notes, if an event of default has occurred). It
is further provided that the Borrower must be in compliance with all of the
terms and provisions of this Agreement to receive the rates set forth in Exhibit
B.
(b) Borrower shall also have the option to fix the interest rate on all or
any portion of the Loans, at any time, through the use of a Hedge Agreement
purchased from the Bank at the market rate for such products. For purposes
hereof, a "Hedge Agreement" means any agreement between Borrower and Bank, or
any affiliate of Bank, now existing or hereafter entered into, which provides
for an interest rate or commodity swap, cap, floor, collar, forward foreign
exchange transaction, currency swap, cross-currency swap,
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currency option, or any combination of, or option with respect to, these or
similar transactions, for the purpose of hedging Borrower's exposure to
fluctuations in interest rates, currency valuations or commodity prices.
Notwithstanding any other terms of this Agreement, any loan subject to a Hedge
Agreement shall be prepayable only in accordance with, and subject to any fees
imposed under, the terms of such Hedging Agreement.
3. COLLATERAL SECURITY. Payment and performance of the Notes and any
Hedge Agreement shall be secured by the Collateral for such Notes described
above, and the Borrower hereby grants, conveys, transfers and assigns to the
Bank a security interest in and lien upon all of such Collateral for such Notes
and Hedge Agreements. All Obligations of the Borrower to the Bank pursuant to
the Revolver Note and the Acquisition Note shall be cross-collateralized, such
that all Collateral for any such Note shall be deemed to secure all such Notes.
Borrower agrees and undertakes to execute and deliver to the Bank such
security agreements, pledge agreements, assignments, financing statements,
subordinations, certificates, waivers, estoppel agreements, and other
documentation, in form acceptable to the Bank, as may be requested by the Bank
in connection with the Collateral.
4. PROVISIONS CONCERNING LOAN TO LESSOR. Simultaneously with the making
of the Revolver and the Acquisition Line, Bank is also extending a line of
credit to the Lessor in the principal amount of up to Thirteen Million Dollars
($13,000,000) (the "Lease Line"). The Borrower has guaranteed up to the lesser
of eighty percent (80%) of the total obligations of the Lessee under the Lease
Line or $10,400,000 (the "Guarantee"). Notwithstanding the terms of this Loan
Agreement total amount of credit that will be available at any time to the
Borrower pursuant to this Loan Agreement shall be reduced by an amount equal to
the Borrower's contingent liability under the Guarantee, measured as the lesser
of (a) eighty percent (80%) of the total outstanding obligations of the Lessee
under the Lease Line at any time or (b) $10,400,000 (the "Credit Limit"), until
such time as the conditions set forth below have been fulfilled. During any
time that such limitation is in force, the Revolver shall be available to the
Borrower in an amount that is not less than $1,000,000, subject to the Borrowing
Base.
The Credit Limit shall be lifted at such time or times, and only as long
as, the following conditions are satisfied:
(a) The ratio of Funded Debt to EBITDA (for the preceding twelve months),
on a combined basis for Borrower and Lessor, shall be less than 3.0 to one. For
purposes of such ratio, EBITDA shall include cylinder lease revenue, but shall
exclude any gain or loss with respect to transactions between Borrower and
Lessor, and shall also be reduced by the amount of any dividends, distributions
(except for permitted tax distributions), or redemptions of equity by Borrower
and Lessor; and
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(b) The debt service coverage ratio, on a combined basis for
Borrower and Lessor, shall not be less than 1.3 to one. For purposes
hereof, "debt service coverage ratio" shall mean the quotient of
combined net income (excluding gain or loss on the sale of propane
cylinders) plus combined depreciation and amortization plus combined
interest expense, minus combined unfunded capital expenditures,
divided by combined current maturities of long-term debt actually paid
plus combined imputed principal (as defined herein) plus combined
interest expense. "Imputed principal" shall mean an amount equal to
an assumed amortization of the aggregate advances made to Borrower on
the Acquisition Line, and to Lessor on the Lease Line, calculated in
accordance with the following amortization schedules. For Borrower,
the assumed amortization shall be over a five-year period. For the
Lessor, the assumed amortization shall be over a ten-year period. In
each case, the Bank shall utilize a commercial-style amortization
schedule; that is, equal installment payments of principal, together
with accrued interest.
If, at any time when the Credit Limit has been lifted, Borrower and Lessor
fail to comply with the foregoing conditions, Borrower and Lessor shall make
such repayments of the loans as may be required by the Bank to restore
compliance with such conditions.
5. CONDITIONS PRECEDENT. The Bank's agreement to extend the Loans to the
Borrower is subject to the fulfillment, to the Bank's satisfaction, of all of
the following conditions:
A. Bank shall have received, on or before the date hereof (i) a copy of
the resolutions of the Board of Directors of the Borrower, certified on such
date by an officer of the Borrower, authorizing the execution and delivery of
this Agreement, the borrowings hereunder and the execution and delivery of the
Revolver Note, the Acquisition Note, the other Loan Documents and the
Collateral, and (ii) such additional documents and requirements as the Bank or
counsel for the Bank may reasonably request.
B. The Borrower shall have executed and delivered all documentation for
the Loans, as requested by the Bank, which shall be in form and content
reasonably acceptable to the Bank and its counsel.
C. The Borrower shall have provided to the Bank, in form satisfactory to
the Bank, all financial and other information requested by Bank as to its
business and affairs.
D. The Borrower shall have provided to the Bank, in form and content
satisfactory to the Bank and its counsel, satisfactory evidence that the
Borrower is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, that it has been duly authorized to do
business as a foreign corporation
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in the State of North Carolina, and has the corporate and legal authority to own
its property and carry on its business as now being conducted.
E. All terms and conditions of the Bank's commitment letter to the
Borrower for the Loans have been satisfied and fulfilled, to the reasonable
satisfaction of the Bank.
F. No event has occurred or failed to occur that would have a Material
Adverse Effect on the financial condition of the Borrower as set forth in its
most recent annual financial statements and internally-prepared quarterly
financial statements submitted to Bank.
G. The Borrower shall have certified that the execution of the Loan
Documents shall not cause any default under any other contract or agreement to
which the Borrower is subject.
H. The Bank shall have entered into a Loan Agreement with the Lessor for
the Lease Line simultaneously herewith.
I. The Borrower shall have paid or provided for the payment of all costs
and expenses incurred in connection with the making of the Loans, including,
without limitation, the Bank's attorneys' fees and expenses.
6. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
A. Good Standing. Borrower is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Delaware, has been
duly authorized to do business as a foreign corporation in the State of North
Carolina, and has the power and authority to own its property and to carry on
its business in each jurisdiction in which Borrower does business.
B. Authority and Compliance. Borrower has full power and authority
to execute and deliver the Loan Documents and to incur and perform the
obligations provided for therein, all of which have been duly authorized by all
proper and necessary action of the appropriate governing body of Borrower,
respectively. No consent or approval of any public authority or other third
party is required as a condition to the validity of any Loan Document, and
Borrower, to the best of its knowledge after reasonable inquiry, is in
compliance with all laws and regulatory requirements to which it is subject.
C. Binding Agreement. This Agreement and the other Loan Documents
executed by Borrower constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their terms, subject to bankruptcy,
insolvency,
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reorganization and similar laws and other laws generally affecting the
enforceability of creditors' rights and to general principles of equity.
D. Litigation. There is no proceeding involving Borrower pending or,
to the knowledge of Borrower, threatened before any court or governmental
authority, agency or arbitration authority, except as disclosed to Bank in
writing and acknowledged by Bank prior to the date of this Agreement.
E. No Conflicting Agreements. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower and no provision of any existing
agreement, mortgage, indenture or contract binding on Borrower or affecting its
property, which would conflict with or in any way prevent the execution,
delivery or carrying out of the terms of this Agreement and the other Loan
Documents.
F. Ownership of Assets. Borrower has good title to its assets, and
its assets are free and clear of liens, except those granted to Bank and as
disclosed to Bank in writing prior to the date of this Agreement.
G. Taxes. All material taxes and assessments due and payable by
Borrower have been paid or are being contested in good faith by appropriate
proceedings and Borrower has filed all material tax returns which it is required
to file.
H. Financial Statements. The financial statements of Borrower
heretofore delivered to Bank have been prepared in accordance with GAAP applied
on a consistent basis throughout the period involved and fairly present
Borrower's financial condition as of the date or dates thereof, and there has
been no material adverse change in Borrower's financial condition or operations
since November 30, 1998. To the best of its knowledge, all factual information
furnished by Borrower to Bank in connection with this Agreement and the other
Loan Documents is accurate and complete on the date as of which such
information is delivered to Bank.
I. Place of Business. Borrower's chief executive office is located
at: 104 Cambridge Plaza Drive, Winston-Salem, North Carolina 27104.
J. Environmental Matters. The conduct of Borrower's business
operations does not and will not violate any federal laws, rules or ordinances
for environmental protection, regulations of the Environmental Protection
Agency, any applicable local or state law, rule, regulation or rule of common
law or any judicial interpretation thereof relating primarily to the environment
or Hazardous Materials, and Borrower will not use or permit any other party to
use any Hazardous Materials at Borrower's places of business except such
materials as are incidental to Borrower's normal course of business, maintenance
and repairs and which are handled in compliance with all applicable
environmental laws. Borrower agrees to permit Bank, its agents,
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contractors and employees to enter and inspect any of Borrower's places of
business or any other property of Borrower at any reasonable times upon three
(3) days prior notice for the purposes of conducting an environmental
investigation and audit (including taking physical samples) to insure that
Borrower is complying with this covenant and Borrower shall reimburse Bank on
demand for the costs of any such environmental investigation and audit. Borrower
shall provide Bank, its agents, contractors, employees and representatives with
access to and copies of any and all data and documents relating to or dealing
with any Hazardous Materials used, generated, manufactured, stored or disposed
of by Borrower's business operations within five (5) days of the request
therefor.
K. Year 2000 Compliance. Borrower represents that it has (i)
initiated a review and assessment of all areas within its and each of its
subsidiaries' businesses and operations (including those affected by suppliers
and vendors) that could be adversely affected by the "Year 2000 Problem" (that
is, the risk that computer applications used by Borrower or any of its
subsidiaries (or their suppliers and vendors) may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to and
any date after December 31, 1999), (ii) developed a plan and timeline for
addressing the Year 2000 Problem on a timely basis and (iii) to date,
implemented that plan in accordance with that timetable. Borrower reasonably
believes that all computer applications (including those of its suppliers and
vendors) that are material to its or any of its subsidiaries' business and
operations will on a timely basis be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000 (that is, be "Year 2000
compliant"), except to the extent that the Borrower reasonably believes a
failure to do so will not have a material adverse effect on its business,
financial condition, or ability to repay the Loans.
Borrower further represents that it will promptly notify the Bank in the
event Borrower discovers or determines that any computer application (including
those of its suppliers and vendors) that is material to its or any of its
subsidiaries' businesses and operations will not be Year 2000 compliant on a
timely basis, except to the extent that the Borrower believes such failure will
not have a material adverse effect on its business, financial condition or
ability to repay the Loans.
L. No Material Adverse Effect. To the best of the Borrower's
knowledge, neither this Agreement nor any of the Loan Documents, nor any
statements furnished to the Bank by or on behalf of the Borrower in connection
with the Loans or the Loan Documents, contain any untrue statement of a material
fact. To the best knowledge of the Borrower, there is no fact that the Borrower
has not disclosed to the Bank in writing that would have a Material Adverse
Effect.
M. Continuation of Representation and Warranties. All
representations and warranties made under this Agreement shall be deemed to be
made at and as of the date hereof and at and as of the date of any future
advance under any Loan (except insofar as such representations and warranties
relate expressly to an earlier date,
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and except for the representations and warranties in Section 6. D and H, which
shall be deemed to be made solely on the date of this Agreement).
7. AFFIRMATIVE COVENANTS. Until full payment and performance of all
Obligations of Borrower under the Loan Documents, Borrower will, unless Bank
consents otherwise in writing (and without limiting any requirement of any other
Loan Document):
A. Financial Condition. Maintain Borrower's financial condition as
follows, determined in accordance with GAAP applied on a consistent basis
throughout the period involved except to the extent modified by the following
definitions:
(i) At July 31, 1999, Borrower shall achieve a Tangible Net Worth of
not less than $24,000,000;
(ii) Maintain a ratio of total liabilities to Tangible
Net Worth of not more than 1.25 to one as of the end of each of
Borrower's fiscal quarters;
(iii) Maintain a Current Ratio of not less than 1.5 to one at all
times;
(iv) Achieve EBITDA that is not less than:
(a) $407,000 for the three months ending January 31, 1999;
(b) $1,338,000 for the three months ending April 30, 1999;
(c) $5,197,000 for the three months ending July 31, 1999.
B. Financial Statements and Other Information. Maintain a system of
accounting satisfactory to Bank and in accordance with GAAP applied on a
consistent basis throughout the period involved, permit Bank's officers or
authorized representatives to visit and inspect Borrower's books of account and
other records at such reasonable times and as often as Bank may desire.
Borrower shall pay the reasonable fees and disbursements of any accountants or
other agents of Bank selected by Bank for the foregoing purposes one time each
year during the term of the Loans. Unless written notice of another location is
given to Bank, Borrower's books and records will be located at Borrower's chief
executive office set forth above. All financial statements called for below
shall be prepared in form and content acceptable to Bank and by independent
certified public accountants acceptable to Bank.
In addition, Borrower will:
(i) Furnish to Bank a report of audit of Borrower, prepared by a firm of
certified public accountants reasonably acceptable to Bank, for each fiscal year
of
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Borrower, within 120 days after the close of each such fiscal year, including
any management letter.
(ii) Furnish to Bank monthly financial statements (including a balance
sheet and profit and loss statement) of Borrower, which shall be prepared by
Borrower, for each month of each fiscal year of Borrower, within 30 days after
the close of each such month.
(iii) Furnish to Bank a compliance certificate for (and executed by an
authorized representative of) Borrower concurrently with and dated as of the
date of delivery of each of the financial statements as required in paragraphs i
and ii above, containing (a) a certification that the financial statements of
even date are true and correct and that the Borrower is not in default under the
terms of this Agreement, and (b) computations and conclusions, in such detail as
Bank may request, with respect to compliance with this Agreement, and the other
Loan Documents, including computations of all quantitative covenants. Such
compliance certificates shall be substantially in the form of Exhibit C attached
hereto.
(iv) Furnish to Bank promptly such additional information, reports and
statements respecting the business operations and financial condition of
Borrower, from time to time, as Bank may reasonably request.
C. Insurance. Except as otherwise provided herein, maintain
insurance with insurance companies reasonably acceptable to the Bank on such of
its properties, in such amounts and against such risks as is customarily
maintained by similar businesses operating in the same vicinity, specifically to
include fire and extended coverage insurance covering all assets, business
interruption insurance, and liability insurance, all to be with such companies
and in such amounts as are satisfactory to Bank. Satisfactory evidence of such
insurance will be supplied to Bank prior to funding under the Loans and 30 days
prior to each policy renewal. Bank acknowledges and agrees that Borrower is
self-insured for collision damage on all vehicles constituting equipment; that
it requires its lessees to maintain collision insurance on all vehicles
constituting inventory held for lease, which insurance names the Borrower as
loss payee; and that it is self-insured for workers compensation insurance.
Borrower agrees that it will notify Bank immediately if separate insurance
coverage is hereafter purchased by Borrower covering such risks, such insurance
to be subject to the terms of this section.
D. Existence and Compliance. Maintain its existence, good standing
and qualification to do business, where required and comply with all laws,
regulations and governmental requirements including, without limitation,
environmental laws applicable to it or to any of its property, business
operations and transactions.
E. Adverse Conditions or Events. Promptly advise Bank in writing of
(i) any condition, event or act which comes to its attention that would or might
have a Material Adverse Effect on Borrower's financial condition or operations,
the Collateral,
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or Bank's rights under the Loan Documents, (ii) any litigation filed by or
against Borrower seeking in excess of $50,000 in damages, (iii) any event that
has occurred that would constitute an event of default under any Loan Documents
and (iv) any uninsured or partially uninsured loss through fire, theft,
liability or property damage in which the uninsured damages are in excess of an
aggregate of $100,000.00.
F. Taxes and Other Obligations. Pay all of its taxes, assessments
and other obligations, including, but not limited to taxes, costs or other
expenses arising out of this transaction, as the same become due and payable,
except to the extent the same are being contested in good faith by appropriate
proceedings in a diligent manner.
G. Maintenance. Maintain all of its tangible property in good
condition and repair, except for those properties deemed to be obsolete by the
Borrower, and make all necessary replacements thereof, and preserve and maintain
all licenses, trademarks, privileges, permits, franchises, certificates and the
like necessary for the operation of its business.
H. Notification of Environmental Claims. Borrower shall immediately
advise Bank in writing of (i) any and all enforcement, cleanup, remedial,
removal, or other governmental or regulatory actions instituted, completed or
threatened pursuant to any applicable federal, state, or local laws, ordinances
or regulations relating to any Hazardous Materials affecting Borrower's business
operations; and (ii) all claims made or threatened by any third party against
Borrower relating to damages, contribution, cost recovery, compensation, loss or
injury resulting from any Hazardous Materials. Borrower shall immediately
notify Bank of any remedial action taken by Borrower with respect to Borrower's
business operations.
8. NEGATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will not, without the
prior written consent of Bank (and without limiting any requirement of any other
Loan Documents):
A. Ownership and Management. Make or permit to be made any material
change in the ownership or executive management of the Borrower; provided,
however, that the Borrower shall not be prohibited by this covenant from
conducting any public offering of its capital stock.
B. Transfer of Assets or Control. Sell, lease, sell and leaseback,
assign or otherwise dispose of or transfer any assets, except in the normal
course of its business, or enter into any merger or consolidation, or transfer
control or ownership of the Borrower, or form or acquire any subsidiary, except
for a wholly-owned subsidiary which has executed a guaranty of the Loans, in
form satisfactory to the Bank. Notwithstanding the foregoing, however, Borrower
may sell all propane cylinders it now owns or hereafter acquires to the Lessor
in the ordinary course of business.
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C. Liens. Grant, suffer or permit any contractual or noncontractual
lien on or security interest in its assets, except in favor of Bank, or fail to
promptly pay when due all lawful claims, whether for labor, materials or
otherwise, except claims which the Borrower is diligently contesting in good
faith and has provided reserves that are adequate in the Bank's reasonable
judgment.
D. Extensions of Credit. Make any loan or advance to any individual,
partnership, corporation or other entity, except (i) as previously disclosed to
Bank in writing, and (ii) other loans, not in excess of an aggregate principal
amount of $500,000, in connection with acquisitions made by the Borrower.
E. Borrowings. Create, incur, assume or become liable in any manner
for any indebtedness (for borrowed money, deferred payment for the purchase of
assets, lease payments, as surety or guarantor for the debt for another, or
otherwise), other than to Bank, except for normal trade debts incurred and
capital leases entered into in the ordinary course of Borrower's business, and
except for existing indebtedness disclosed to Bank in writing and acknowledged
by Bank prior to the date of this Agreement. Borrower shall also be permitted
to incur indebtedness to Affiliates, shareholders or related companies
hereafter, as long as the incurrence of such indebtedness is disclosed to Bank
and all such indebtedness (except for trade debt incurred in the ordinary course
of business) is fully subordinated to Borrower's indebtedness to Bank, in form
satisfactory to Bank.
F. Dividends and Distributions. At any time Borrower is in default
under this Agreement, or would be in default following or as a result thereof,
make any distribution (other than dividends payable in capital stock of
Borrower) on any shares of any class of its capital stock, or apply any of its
property or assets to the purchase, redemption or other retirement of any shares
of any class of capital stock of Borrower, or in any way amend its capital
structure.
G. Character of Business. Change the general character of business
as conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.
9. DEFAULT. Borrower shall be in default under this Agreement and under
each of the other Loan Documents (an "Event of Default") if it shall default in
the payment of any amounts due and owing under the Loans, or either of them.
Borrower shall also be in default if it should fail to timely and properly
observe, keep or perform any term, covenant, agreement or condition in any Loan
Document or in any other loan agreement, promissory note, guaranty, security
agreement, deed of trust, assignment, pledge or other contract securing or
evidencing payment of any indebtedness of Borrower to Bank or any affiliate or
subsidiary of NationsBank Corporation, and such default shall continue uncured
for a period of thirty (30) days (such thirty-day cure period to apply to
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any such default, notwithstanding the absence of any such cure period in, or the
conflicting provisions of, any other Loan Document).
10. REMEDIES UPON DEFAULT. If an Event of Default shall occur, Bank shall
have all rights, powers and remedies available under each of the Loan Documents
as well as all rights and remedies available at law or in equity.
11. NOTICES. All notices, requests or demands which any party is required
or may desire to give to any other party under any provision of this Agreement
must be in writing delivered to the other party at the following address:
Borrower: Blue Rhino Corporation
104 Cambridge Plaza Drive
Winston-Salem, NC 27104
ATTN: Mark Casteneda
Chief Financial Officer
Bank: NationsBank, N.A.
380 Knollwood Street
Winston-Salem, NC 27103
ATTN: Simpson O. Brown, Jr.
Senior Vice President
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows:
A. If sent by hand delivery, upon delivery;
B. If sent by mail, upon the earlier of the date of receipt or five
(5) days after deposit in the U.S. Mail, first class postage prepaid.
12. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in connection with Bank's
collection of, or attempts to collect, any Obligations due hereunder or under
the Notes.
13. MISCELLANEOUS. Borrower and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. Cumulative Rights and No Waiver. Each and every right granted to
Bank under any Loan Document, or allowed it by law or equity shall be cumulative
of each other and may be exercised in addition to any and all other rights of
Bank, and no delay in exercising any right shall operate as a waiver thereof,
nor shall any single or partial exercise by Bank of any right preclude any other
or future exercise thereof or the exercise of any other right. Borrower
expressly waives any presentment, demand, protest
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or other notice of any kind, including but not limited to notice of intent to
accelerate and notice of acceleration. No notice to or demand on Borrower in any
case shall, of itself, entitle Borrower to any other or future notice or demand
in similar or other circumstances.
B. Applicable Law. This Loan Agreement and the rights and
obligations of the parties hereunder shall be governed by and interpreted in
accordance with the laws of the State of North Carolina (excluding, however, any
principles of conflicts of laws) and applicable federal law.
C. Amendment. No modification, consent, amendment or waiver of any
provision of this Loan Agreement, nor consent to any departure by either party
therefrom, shall be effective unless the same shall be in writing and signed by
each party, and then shall be effective only in the specified instance and for
the purpose for which given. This Loan Agreement is binding upon Borrower, its
successors and assigns, and inures to the benefit of Bank, its successors and
assigns; however, no assignment or other transfer of Borrower's rights or
obligations hereunder shall be made or be effective without Bank's prior written
consent, nor shall it relieve Borrower of any obligations hereunder. There is
no third party beneficiary of this Loan Agreement.
D. Documents. All documents, certificates and other items required
under this Loan Agreement to be executed and/or delivered to Bank shall be in
form and content satisfactory to Bank and its counsel.
E. Partial Invalidity. The unenforceability or invalidity of any
provision of this Loan Agreement shall not affect the enforceability or validity
of any other provision herein and the invalidity or unenforceability of any
provision of any Loan Document to any person or circumstance shall not affect
the enforceability or validity of such provision as it may apply to other
persons or circumstances.
F. Indemnification. Borrower shall indemnify, defend and hold Bank
and its successors and assigns harmless from and against any and all claims,
demands, suits, losses, damages, assessments, fines, penalties, costs or other
expenses (including reasonable attorneys' fees and court costs) ("Indemnified
Damages") arising from or in any way related to any of the transactions
contemplated hereby, except Indemnified Damages occurring as a result of willful
or negligent conduct of the Bank, including but not limited to actual or
threatened damage to the environment, agency costs of investigation, personal
injury or death, or property damage, due to a release or alleged release of
Hazardous Materials, arising from Borrower's business operations, any other
property owned by Borrower or in the surface or ground water arising from
Borrower's business operations, or gaseous emissions arising from Borrower's
business operations or any other condition existing or arising from Borrower's
business operations resulting from the use or existence of Hazardous Materials,
whether such claim proves to be true or false. Borrower further agrees that its
indemnity obligations shall include, but are not
-17-
<PAGE>
limited to, liability for damages resulting from the personal injury or death of
an employee of the Borrower, regardless of whether the Borrower has paid the
employee under the worker's compensation laws of any state or other similar
federal or state legislation for the protection of employees. The term "property
damage" as used in this paragraph includes, but is not limited to, damage to any
real or personal property of the Borrower, the Bank, and of any third parties.
The Borrower's obligations under this paragraph shall survive the repayment of
the Loans and foreclosure of the Collateral.
G. Survivability. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the making
of the Loans and shall continue in full force and effect so long as the Loans
are outstanding or the obligation of the Bank to make any advances under the
Loans shall not have expired.
H. Updated Appraisals and Maintenance of Collateral Value. Bank may,
at its option, at Borrower's expense, obtain an appraisal of the Collateral
securing payment of the Loans. Without limitation, NationsBank Business Credit
Services may audit the Borrower's Accounts Receivable annually, with results
that are satisfactory to the Bank in its sole discretion. The reasonable costs
of each such appraisal or audit shall be payable by Borrower to Bank on demand.
If such appraisal shows the market value of the Collateral has declined,
Borrower agrees that, upon demand by Bank, it will immediately either pledge
additional collateral in form and substance satisfactory to Bank or make such
payments as shall be necessary to reduce the principal balance outstanding under
the Loan.
14. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO, INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW). THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE, INC., OR ANY SUCCESSOR THEREOF
("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY
OF THE BORROWER'S DOMICILE AT TIME OF
-18-
<PAGE>
THE EXECUTION OF THIS AGREEMENT AND ADMINISTERED BY J.A.M.S., WHICH WILL APPOINT
AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE
STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR
(II) BE A WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC.
91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE
BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO)
SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR
(C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT
LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A
RECEIVER. THE BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
AGREEMENT. NEITHER THE EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR
MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES
SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN
ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
15. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be duly executed under seal by their duly authorized representatives as of the
date first above written.
BORROWER:
--------
BLUE RHINO CORPORATION
ATTEST:
By: /s/Billy D. Prim
------------------------------------
/s/Mark Castaneda Title: Chairman, President and Chief
----------------- Executive Officer
Secretary
[Corporate Seal]
BANK:
----
NATIONSBANK, N.A.
By: /s/Simpson O. Brown Jr.
----------------------------------
Title:Senior Vice President
-20-
<PAGE>
EXHIBIT 10.1(b)
NationsBank, N.A.
Date: DECEMBER 31, 1998
Security Agreement
<TABLE>
<CAPTION>
===================================================================================================================
Bank/Secured Party: Debtor(s)/Pledgor(s):
<S> <C>
NationsBank, N.A.
Banking Center:
Commercial Lending BLUE RHINO CORPORATION
380 Knollwood Street 104 CAMBRIDGE PLAZA DRIVE
Winston-Salem, Forsyth Co., NC 27103 WINSTON-SALEM, FORSYTH CO., NC 27104
(Street address including county) (Name and street address, including county)
=====================================================================================================================
Debtor/Pledgor is: [ ] Individual [X] Corporation [ ] Partnership [ ] Other ________________________________
Address is Debtor's/Pledgor's: [ ] Residence [X] Place of Business [ ] Chief Executive Office if more than one place of business
Collateral (hereinafter defined) is located at:
[X] Debtor's/Pledgor's address shown above [ ] the following address:________________
___________________________________________________________________________________________________________________
___________________________________________________________________________________________________________
</TABLE>
[This Security Agreement ("Agreement") contains some provisions preceded by
boxes. If a box is marked, the provision applies to this transaction. If it is
not marked, the provision does not apply to this transaction.]
1. Security Interest. For good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Debtor/Pledgor (hereinafter referred
to as "Debtor") assigns and grants to Bank (also known as "Secured Party"), a
security interest and lien in the Collateral (hereinafter defined) to secure the
payment and the performance of the Obligation (hereinafter defined).
2. Collateral. A security interest is granted in the following collateral
described in this Item 2 (the "Collateral"):
A. Types of Collateral (check as applicable)
[X] Accounts: Any and all accounts and other rights of Debtor to the payment
for goods sold or leased or for services rendered whether or not earned by
performance, contract rights, book debts, checks, notes, drafts, instruments,
chattel paper, acceptances, and any and all amounts due to Debtor from a factor
or other forms of obligations and receivables, now existing or hereafter arising
out of the business of Debtor.
[X] Inventory:
[X] Blanket Lien: Any and all of Debtor's goods held as inventory, or
[ ] Specific Inventory: Limited to any and all of Debtor's goods held as
inventory which are specifically described in the space below,
whether now owned or hereafter acquired, including without limitation, any and
all such goods held for sale or lease or being processed for sale or lease in
Debtor's business, as now or hereafter conducted, including all materials, goods
and work in process, finished goods and other tangible property held for sale or
lease or furnished or to be furnished under contracts of service or used or
consumed in Debtor's business, along with all documents (including documents of
title) covering such inventory including the following (attach schedule if
necessary):_____________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
[X] Equipment:
[X] Blanket Lien: Any and all of Debtor's goods held as equipment, or
[ ] Specific Equipment: Limited to any and all of Debtor's goods held as
equipment which are specifically described in the space below,
including, without limitation, all machinery, tools, dies, furnishings, or
fixtures, wherever located, whether now owned or hereafter acquired, together
with all increases, parts, fittings, accessories, equipment, and special tools
now or hereafter affixed to any part thereof or used in connection therewith
including the following (attach schedule if necessary):
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
B. Substitutions, Proceeds and Related Items. Any and all substitutes and
replacements for, accessions, attachments and other additions to, tools, parts
and equipment now or hereafter added to or used in connection with, and all cash
or non-cash proceeds and products of, the Collateral (including, without
limitation, all income, benefits and property receivable, received or
distributed which results from any of the Collateral, such as dividends payable
or distributable in cash, property or stock; insurance distributions of any kind
related to the Collateral, including, without limitation, returned premiums,
interest, premium and principal payments; redemption proceeds and subscription
rights; and shares or other proceeds of conversions or splits of any securities
in the Collateral); any and all choses in action and causes of action of
Debtor, whether now existing or hereafter arising, relating directly or
indirectly to the Collateral (whether arising in contract, tort or otherwise and
whether or not currently in litigation); all certificates of title,
manufacturer's statements of origin, other documents, accounts and chattel
paper, whether now existing or hereafter arising directly or indirectly from or
related to the Collateral; all warranties, wrapping, packaging, advertising and
shipping materials used or to be used in connection with or related to the
Collateral; all of Debtor's books, records, data, plans, manuals, computer
software, computer tapes, computer systems, computer disks, computer programs,
source codes and object codes containing any information, pertaining directly or
indirectly to the Collateral and all rights of Debtor to retrieve data and other
information pertaining directly or indirectly to the Collateral from third
parties, whether now existing or hereafter arising; and all returned, refused,
stopped in transit, or repossessed Collateral, any of which, if received by
Debtor, upon request shall be delivered immediately to Bank.
C. Balances and Other Property. The balance of every deposit account of
Debtor maintained with Bank and any other claim of Debtor against Bank, now or
hereafter existing, liquidated or unliquidated, and all money, instruments,
securities, documents, chattel paper, credits, claims, demands, income, and any
other property, rights and interests of Debtor which at any time shall come into
the possession or custody or under the control of Bank or any of its agents or
affiliates for any purpose, and the proceeds of any thereof. Bank shall be
deemed to have possession of any of the Collateral in transit to or set apart
for it or any of its agents or affiliates.
3. Description of Obligation(s). The following obligations ("Obligation" or
"Obligations") are secured by this Agreement: (a) All debts, obligations,
liabilities and agreements of Debtor to Bank, now or hereafter existing, arising
directly or indirectly between Debtor and Bank whether absolute or contingent,
joint or several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, and all
renewals, extensions or rearrangement of any of the above; (b) All costs
incurred by Bank to obtain, preserve, perfect and enforce this Agreement and
maintain, preserve, collect and realize upon the Collateral; (c) All debts,
obligations, liabilities and agreements of ______________________ to Bank of
the kinds described in this Item 3., now existing or hereafter arising; (d) All
other costs and attorney's fees incurred by Bank, for which Debtor is obligated
to reimburse Bank in accordance with the terms of the Loan Documents
(hereinafter defined), together with interest at the rate set forth in such Loan
Documents; and (e) All amounts
<PAGE>
which may be owed to Bank pursuant to all other loan documents executed between
Bank and ____________________________________. If Debtor is not the obligor of
the Obligation, and in the event any amount paid to Bank on any Obligation is
subsequently recovered from Bank in or as a result of any bankruptcy, insolvency
or fraudulent conveyance proceeding, Debtor shall be liable to Bank for the
amounts so recovered up to the fair market value of the Collateral whether or
not the Collateral has been released or the security interest terminated. In the
event the Collateral has been released or the security interest terminated, the
fair market value of the Collateral shall be determined, at Bank's option, as of
the date the Collateral was released, the security interest terminated, or said
amounts were recovered.
4. Debtor's Warranties. Debtor hereby represents and warrants to Bank as
follows:
A. Financing Statements. Except as may be noted by schedule attached
hereto and incorporated herein by reference, no financing statement covering the
Collateral is or will be on file in any public office, except the financing
statements relating to this security interest, and no security interest, other
than the one herein created, has attached or been perfected in the Collateral or
any part thereof.
B. Ownership. Debtor owns, or will use the proceeds of any loans by Bank
to become the owner of, the Collateral free from any setoff, claim, restriction,
lien, security interest or encumbrance except liens for taxes not yet due and
the security interest hereunder and purchase money security interests from trade
creditors in the ordinary case of business.
C. Fixtures and Accessions. None of the Collateral is affixed to real
estate or is an accession to any goods, or will become a fixture or accession,
except as expressly set out herein.
D. Environmental Compliance. The conduct of Debtor's business operations
and the condition of Debtor's property does not and to the best of Debtor's
knowledge will not violate any federal laws, rules or ordinances for
environmental protection, regulations of the Environmental Protection Agency and
any applicable local or state law, rule, regulation or rule of common law and
any judicial interpretation thereof relating primarily to the environment or any
materials defined as hazardous materials or substances under any local, state or
federal environmental laws, rules or regulations, and petroleum, petroleum
products, oil and asbestos ("Hazardous Materials").
E. Power and Authority. Debtor has full power and authority to make this
Agreement, and all necessary consents and approvals of any persons, entities,
governmental or regulatory authorities and securities exchanges have been
obtained to effectuate the validity of this Agreement.
5. Debtor's Covenants. Until full payment and performance of all of the
Obligation and termination or expiration of any obligation or commitment of Bank
to make advances or loans to Debtor, unless Bank otherwise consents in writing:
A. Obligation and This Agreement. Debtor shall perform all of its
agreements herein and in any other agreements between it and Bank.
B. Ownership and Maintenance of the Collateral. Debtor shall keep all
tangible Collateral in good condition except for those properties deemed to be
obsolete by Debtor. Debtor shall defend the Collateral against all claims and
demands of all persons at any time claiming any interest therein adverse to
Bank. Debtor shall keep the Collateral free from all liens and security
interests except those for taxes not yet due, purchase money security interests
from the trade creditors in the ordinary case of business, and the security
interest hereby created.
C. Bank's Costs. Debtor shall pay all costs necessary to obtain, preserve,
perfect, defend and enforce the security interest created by this Agreement,
collect the Obligation, and preserve, defend, enforce and collect the
Collateral, including but not limited to taxes, assessments, insurance premiums,
repairs, rent, storage costs and expenses of sales, legal expenses, reasonable
attorney's fees and other fees or expenses for which Debtor is obligated to
reimburse Bank in accordance with the terms of the Loan Documents. Whether the
Collateral is or is not in Bank's possession, and without any obligation to do
so and without waiving Debtor's default for failure to make any such payment,
Bank at its option may pay any such costs and expenses, discharge encumbrances
on the Collateral, and pay for insurance of the Collateral, and such payments
shall be a part of the Obligation and bear interest at the rate set out in the
Obligation. Debtor agrees to reimburse Bank on demand for any costs so incurred.
D. Information and Inspection. Debtor shall (i) promptly furnish Bank any
information with respect to the Collateral requested by Bank; (ii) allow Bank
or its representatives to inspect the Collateral, at any time and wherever
located, and to inspect and copy, or furnish Bank or its representatives with
copies of, all records relating to the Collateral and the Obligation; (iii)
promptly furnish Bank or its representatives such information as Bank may
reasonably request to identify the Collateral, at the time and in the form
requested by Bank; and (iv) deliver upon request to Bank shipping and delivery
receipts evidencing the shipment of goods and invoices evidencing the receipt
of, and the payment for, the Collateral.
E. Additional Documents. Debtor shall sign and deliver any papers deemed
necessary in the reasonable judgment of Bank to obtain, maintain, and perfect
the security interest hereunder and to enable Bank to comply with any federal or
state law in order to obtain or perfect Bank's interest in the Collateral or to
obtain proceeds of the Collateral.
F. Parties Liable on the Collateral. Debtor shall preserve the liability
of all obligors on any Collateral and shall preserve the priority of all
security therefor. Bank shall have no duty to preserve such liability or
security, but may do so at the expense of Debtor, without waiving Debtor's
default.
G. Disposition of the Collateral. If disposition of any Collateral (other
than propane cylinders) gives rise to an account, chattel paper or instrument,
Debtor immediately shall notify Bank, and upon request of Bank shall assign or
indorse the same to Bank.
H. Accounts. Each account held as Collateral will represent the valid and
legally enforceable obligation of third parties and shall not be evidenced by
any instrument or chattel paper.
I. Notice/Location of the Collateral. Debtor shall give Bank written
notice of each office of Debtor in which records of Debtor pertaining to
accounts held as Collateral are kept, and each location at which the Collateral
is or will be kept. Any changes to or additions of any such locations shall be
reported to Bank monthly by Debtor. If no such notice is given, all records of
Debtor pertaining to the Collateral and all Collateral of Debtor are and shall
be kept at the address marked by Debtor above.
J. Change of Name/Status and Notice of Changes. Without the written
consent of Bank, Debtor shall not change its name, change its corporate status,
use any trade name or engage in any business not reasonably related to its
business as presently conducted. Debtor shall notify Bank immediately of (i) any
material change in the Collateral, (ii) a change in Debtor's residence or
location, (iii) a change in any matter warranted or represented by Debtor in
this Agreement, or in any of the Loan Documents or furnished to Bank pursuant to
this Agreement, and (iv) the occurrence of an Event of Default (hereinafter
defined).
K. Use and Removal of the Collateral. Debtor shall not use the Collateral
illegally. Debtor shall not, unless previously indicated as a fixture, permit
the Collateral to be affixed to real or personal property without the prior
written consent of Bank. Debtor shall not permit any of the Collateral to be
removed from the locations specified by Debtor without the prior written consent
of Bank, except for (i) the sale of inventory in the ordinary course of
business, and (ii) the new installation or de-installation of propane cylinders
and cylinder display racks, in the ordinary course of Debtor's business.
L. Possession of the Collateral. Debtor shall deliver all investment
securities and other instruments, documents and chattel paper which are part of
the Collateral and in Debtor's possession to Bank, or if hereafter acquired,
following acquisition, appropriately indorsed to Bank's order, or with
appropriate, duly executed powers. Debtor waives presentment, notice of
acceleration, demand, notice of dishonor, protest, and all other notices with
respect thereto.
M. Waivers by Debtor. Debtor waives notice of the creation, advance,
increase, existence, extension or renewal of, and of any indulgence with respect
to, the Obligation; waives presentment, demand, notice of dishonor, and protest;
waives notice of the amount of the Obligation outstanding at any time, notice of
any change in financial condition of any person liable for the Obligation or any
part thereof, notice of any Event of Default, and all other notices respecting
the Obligation; and agrees that maturity of the Obligation and any part thereof
may be accelerated, extended or renewed one or more times by Bank in its
discretion, without notice to Debtor. Debtor waives any right to require that
any action be brought against any other person or to require that resort be had
to any other security or to any balance of any deposit account. Debtor further
waives any right of subrogation or to enforce any right of action against any
other Debtor until the Obligation is paid in full.
N. Other Parties and Other Collateral. No renewal or extension of or any
other indulgence with respect to the Obligation or any part thereof, no release
of any security, no release of any person (including any maker, indorser,
guarantor or surety) liable on the Obligation, no delay in enforcement of
payment, and
-2-
<PAGE>
no delay or omission or lack of diligence or care in exercising any right or
power with respect to the Obligation or any security therefor or guaranty
thereof or under this Agreement shall in any manner impair or affect the rights
of Bank under the law, hereunder, or under any other agreement pertaining to the
Collateral. Bank need not file suit or assert a claim for personal judgment
against any person for any part of the Obligation or seek to realize upon any
other security for the Obligation, before foreclosing or otherwise realizing
upon the Collateral. Debtor waives any right to the benefit of or to require or
control application of any other security or proceeds thereof, and agrees that
Bank shall have no duty or obligation to Debtor to apply to the Obligation any
such other security or proceeds thereof.
O. Collection and Segregation of Accounts and Right to Notify. Bank
hereby authorizes Debtor to collect the Collateral, subject to the direction and
control of Bank, but Bank may, after the accrual of an event of default under
the Loan Agreement, without cause or notice, curtail or terminate said authority
at any time. Upon notice by Bank, whether oral or in writing, to Debtor, Debtor
shall forthwith upon receipt of all checks, drafts, cash, and other remittances
in payment of or on account of the Collateral, deposit the same in one or more
special accounts maintained with Bank over which Bank alone shall have the power
of withdrawal. The remittance of the proceeds of such Collateral shall not,
however, constitute payment or liquidation of such Collateral until Bank shall
receive good funds for such proceeds. Funds placed in such special accounts
shall be held by Bank as security for all Obligations secured hereunder. These
proceeds shall be deposited in precisely the form received, except for the
indorsement of Debtor where necessary to permit collection of items, which
indorsement Debtor agrees to make, and which indorsement Bank is also hereby
authorized, as attorney-in-fact, to make on behalf of Debtor. In the event Bank
has notified Debtor to make deposits to a special account, pending such deposit,
Debtor agrees that it will not commingle any such checks, drafts, cash or other
remittances with any funds or other property of Debtor, but will hold them
separate and apart therefrom, and upon an express trust for Bank until deposit
thereof is made in the special account. Bank will, from time to time, apply the
whole or any part of the Collateral funds on deposit in this special account
against such Obligations as are secured hereby as Bank may in its sole
discretion elect. At the sole election of Bank, any portion of said funds on
deposit in the special account which Bank shall elect not to apply to the
Obligations, may be paid over by Bank to Debtor. At any time, after the accrual
of an event of default, Bank may notify persons obligated on any Collateral to
make payments directly to Bank and Bank may take control of all proceeds of any
Collateral. Until Bank elects to exercise such rights, Debtor, as agent of Bank,
shall collect and enforce all payments owed on the Collateral.
P. Compliance with State and Federal Laws. Debtor will maintain its
existence, good standing and qualification to do business, where required, and
comply with all laws, regulations and governmental requirements, including
without limitation, environmental laws applicable to it or any of its property,
business operations and transactions.
Q. Environmental Covenants. Debtor shall immediately advise Bank in
writing of (i) any and all enforcement, cleanup, remedial, removal, or other
governmental or regulatory actions instituted, completed or threatened pursuant
to any applicable federal, state, or local laws, ordinances or regulations
relating to any Hazardous Materials affecting Debtor's business operations; and
(ii) all claims made or threatened by any third party against Debtor relating to
damages, contribution, cost recovery, compensation, loss or injury resulting
from any Hazardous Materials. Debtor shall immediately notify Bank of any
remedial action taken by Debtor with respect to Debtor's business operations.
Debtor will not use or permit any other party to use any Hazardous Materials at
any of Debtor's places of business or at any other property owned by Debtor
except such materials as are incidental to Debtor's normal course of business,
maintenance and repairs and which are handled in compliance with all applicable
environmental laws. Debtor agrees to permit Bank, its agents, contractors and
employees to enter and inspect any of Debtor's places of business or any other
property of Debtor at any reasonable times upon three (3) days prior notice for
the purposes of conducting an environmental investigation and audit (including
taking physical samples) to insure that Debtor is complying with this covenant
and Debtor shall reimburse Bank on demand for the costs of any such
environmental investigation and audit. Debtor shall provide Bank, its agents,
contractors, employees and representatives with access to and copies of any and
all data and documents relating to or dealing with any Hazardous Materials used,
generated, manufactured, stored or disposed of by Debtor's business operations
within five (5) days of the request therefor.
6. Rights and Powers of Bank.
A. General. Bank, before or after default, without liability to Debtor
may: obtain from any person information regarding Debtor or Debtor's business,
which information any such person also may furnish without liability to Debtor;
require Debtor to give possession or control of any Collateral to Bank; indorse
as Debtor's agent any instruments, documents or chattel paper in the Collateral
or representing proceeds of the Collateral; contact account debtors directly to
verify information furnished by Debtor; take control of proceeds, including
stock received as dividends or by reason of stock splits; release the Collateral
in its possession to any Debtor, temporarily or otherwise; after default, Bank
may: require additional Collateral; take control of funds generated by the
Collateral, such as cash dividends, interest and proceeds or refunds from
insurance, and use same to reduce any part of the Obligation and exercise all
other rights which an owner of such Collateral may exercise, except the right to
vote or dispose of the Collateral before an Event of Default; at any time
transfer any of the Collateral or evidence thereof into its own name or that of
its nominee; and demand, collect, convert, redeem, receipt for, settle,
compromise, adjust, sue for, foreclose or realize upon the Collateral, in its
own name or in the name of Debtor, as Bank may determine. Bank shall not be
liable for failure to collect any account or instruments, or for any act or
omission on the part of Bank, its officers, agents or employees, except for its
or their own willful misconduct or gross negligence. The foregoing rights and
powers of Bank will be in addition to, and not a limitation upon, any rights and
powers of Bank given by law, elsewhere in this Agreement, or otherwise. If
Debtor fails to maintain any required insurance, to the extent permitted by
applicable law Bank may (but is not obligated to) purchase single interest
insurance coverage for the Collateral which insurance may at Bank's option (i)
protect only Bank and not provide any remuneration or protection for Debtor
directly and (ii) provide coverage only after the Obligation has been declared
due as herein provided. The premiums for any such insurance purchased by Bank
shall be a part of the Obligation and shall bear interest as provided in 3(d)
hereof.
B. Convertible Collateral. Bank may present for conversion any Collateral
which is convertible into any other instrument or investment security or a
combination thereof with cash, but Bank shall not have any duty to present for
conversion any Collateral unless it shall have received from Debtor detailed
written instructions to that effect at a time reasonably far in advance of the
final conversion date to make such conversion possible.
7. Default.
A. Event of Default. An event of default ("Event of Default") shall occur
if: (i) there is a loss, theft, damage or destruction of any material portion of
the Collateral for which there is no insurance coverage or for which there is
insufficient insurance coverage; (ii) Debtor or any other obligor on all or part
of the Obligation shall fail to timely and properly pay or observe, keep or
perform, subject to the tolling of any applicable cure periods, any term,
covenant, agreement or condition in this Agreement or in any other agreement
between Debtor and Bank or between Bank and any other obligor on the Obligation,
including, but not limited to, any other note or instrument, loan agreement,
security agreement, deed of trust, mortgage, promissory note, guaranty,
certificate, assignment, instrument, document or other agreement concerning or
related to the Obligation (collectively, the "Loan Documents"); (iii) Debtor or
such other obligor shall fail to timely and properly pay or observe, keep or
perform, subject to the tolling of any applicable cure periods, any term,
covenant, agreement or condition in any agreement between such party and any
affiliate or subsidiary of NationsBank Corporation; (iv) Debtor or such other
obligor shall fail to timely and properly pay or observe, keep or perform,
subject to the tolling of any applicable cure periods, any term, covenant,
agreement or condition in any lease agreement between such party and any lessor
pertaining to premises at which any Collateral is located or stored; or (v)
Debtor or such other obligor abandons any leased premises at which any
Collateral is located or stored and the Collateral is either moved without the
prior written consent of Bank or the Collateral remains at the abandoned
premises.
B. Rights and Remedies. If any Event of Default shall occur, then, in each
and every such case, Bank may, without presentment, demand, or protest; notice
of default, dishonor, demand, non-payment, or protest; notice of intent to
accelerate all or any part of the Obligation; notice of acceleration of all or
any part of the Obligation; or notice of any other kind, all of which Debtor
hereby expressly waives, (except for any notice required under this Agreement,
any other Loan Document or applicable law); at any time thereafter exercise
and/or enforce any of the following rights and remedies at Bank's option:
i. Acceleration. The Obligation shall, at Bank's option, become
immediately due and payable, and the obligation, if any, of Bank to permit
further borrowings under the Obligation shall at Bank's option immediately cease
and terminate.
ii. Possession and Collection of the Collateral. At its option: (a)
take possession or control of, store, lease, operate, manage, sell, or instruct
any Agent or Broker to sell or otherwise dispose of, all or any part of the
Collateral; (b) notify all parties under any account or contract right forming
all or any part of the Collateral to make any payments otherwise due to Debtor
directly to Bank; (c) in Bank's own name, or in the name of Debtor, demand,
collect, receive, sue for, and give receipts and releases for, any and all
amounts due under such accounts and contract rights; (d) indorse as the agent of
Debtor any check, note, chattel paper, documents, or instruments forming all or
any part of the Collateral; (e) make formal application for transfer to Bank (or
to any assignee of Bank or to any purchaser of any of the Collateral) of all of
Debtor's permits, licenses, approvals, agreements, and the like relating to the
Collateral or to Debtor's business; (f) take any other action which Bank deems
necessary or desirable to protect and realize upon its security interest in the
Collateral; and (g) in addition to the foregoing, and not in substitution
therefor, exercise any one or more of the rights and remedies exercisable by
Bank under any other provision of this Agreement,
-3-
<PAGE>
under any of the other Loan Documents, or as provided by applicable law
(including, without limitation, the Uniform Commercial Code as in effect in
North Carolina (hereinafter referred to as the "UCC")). In taking possession of
the Collateral Bank may enter Debtor's premises and otherwise proceed without
legal process, if this can be done without breach of the peace. Debtor shall,
upon Bank's demand, promptly make the Collateral or other security available to
Bank at a place designated by Bank, which place shall be reasonably convenient
to both parties.
Bank shall not be liable for, nor be prejudiced by, any loss, depreciation or
other damages to the Collateral, unless caused by Bank's willful and malicious
act or Bank's gross negligence. Bank shall have no duty to take any action to
preserve or collect the Collateral.
iii. Receiver. Obtain the appointment of a receiver for all or any of
the Collateral, Debtor hereby consenting to the appointment of such a receiver
and agreeing not to oppose any such appointment.
iv. Right of Set Off. Without notice or demand to Debtor, set off
and apply against any and all of the Obligation any and all deposits (general or
special, time or demand, provisional or final) and any other indebtedness, at
any time held or owing by Bank or any of Bank's agents or affiliates to or for
the credit of the account of Debtor or any guarantor or indorser of Debtor's
Obligation.
Bank shall be entitled to immediate possession of all books and records
evidencing any Collateral or pertaining to chattel paper covered by this
Agreement and it or its representatives shall have the authority to enter upon
any premises upon which any of the same, or any Collateral, may be situated and
remove the same therefrom without liability. Bank may surrender any insurance
policies in the Collateral and receive the unearned premium thereon. Debtor
shall be entitled to any surplus and shall be liable to Bank for any deficiency.
The proceeds of any disposition after default available to satisfy the
Obligation shall be applied to the Obligation in such order and in such manner
as Bank in its discretion shall decide.
Debtor specifically understands and agrees that any sale by Bank of all or part
of the Collateral pursuant to the terms of this Agreement may be effected by
Bank at times and in manners which could result in the proceeds of such sale as
being significantly and materially less than might have been received if such
sale had occurred at different times or in different manners, and Debtor hereby
releases Bank and its officers and representatives from and against any and all
obligations and liabilities arising out of or related to the timing or manner of
any such sale.
8. General.
A. Parties Bound. Bank's rights hereunder shall inure to the benefit of
its successors and assigns. In the event of any assignment or transfer by Bank
of any of the Obligation or the Collateral, Bank thereafter shall be fully
discharged from any responsibility with respect to the Collateral so assigned or
transferred, but Bank shall retain all rights and powers hereby given with
respect to any of the Obligation or the Collateral not so assigned or
transferred. All representations, warranties and agreements of Debtor if more
than one are joint and several and all shall be binding upon the successors and
assigns of Debtor.
B. Waiver. No delay of Bank in exercising any power or right shall operate
as a waiver thereof; nor shall any single or partial exercise of any power or
right preclude other or further exercise thereof or the exercise of any other
power or right. No waiver by Bank of any right hereunder or of any default by
Debtor shall be binding upon Bank unless in writing, and no failure by Bank to
exercise any power or right hereunder or waiver of any default by Debtor shall
operate as a waiver of any other or further exercise of such right or power or
of any further default. Each right, power and remedy of Bank as provided for
herein or in any of the Loan Documents, or which shall now or hereafter exist at
law or in equity or by statute or otherwise, shall be cumulative and concurrent
and shall be in addition to every other such right, power or remedy. The
exercise or beginning of the exercise by Bank of any one or more of such rights,
powers or remedies shall not preclude the simultaneous or later exercise by Bank
of any or all other such rights, powers or remedies.
C. Agreement Continuing. This Agreement shall constitute a continuing
agreement, applying to all future as well as existing transactions, whether or
not of the character contemplated at the date of this Agreement, and if all
transactions between Bank and Debtor shall be closed at any time, shall be
equally applicable to any new transactions thereafter. Provisions of this
Agreement, unless by their terms exclusive, shall be in addition to other
agreements between the parties. Time is of the essence of this Agreement.
D. Definitions. Unless the context indicates otherwise, definitions in the
UCC apply to words and phrases in this Agreement; if UCC definitions conflict,
Article 9 definitions apply.
E. Notices. Notice shall be deemed reasonable if mailed postage prepaid at
least five (5) days before the related action (or if the UCC elsewhere specifies
a longer period, such longer period) to the address of Debtor given above, or to
such other address as any party may designate by written notice to the other
party. Each notice, request and demand shall be deemed given or made, if sent
by mail, upon the earlier of the date of receipt or five (5) days after deposit
in the U.S. Mail, first class postage prepaid, or if sent by any other means,
upon delivery.
F. Modifications. No provision hereof shall be modified or limited except
by a written agreement expressly referring hereto and to the provisions so
modified or limited and signed by Debtor and Bank. The provisions of this
Agreement shall not be modified or limited by course of conduct or usage of
trade.
G. Applicable Law and Partial Invalidity. This Agreement has been
delivered in the State of North Carolina and shall be construed in accordance
with the laws of that State. Wherever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Agreement. The invalidity or
unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such provision
as it may apply to other persons or circumstances.
H. Financing Statement. To the extent permitted by applicable law, a
carbon, photographic or other reproduction of this Agreement or any financing
statement covering the Collateral shall be sufficient as a financing statement.
I. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
i. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
BORROWER'S DOMICILE, OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN THE
COUNTY WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED AT THE TIME OF THE
EXECUTION OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S.
WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
ii. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT,
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<PAGE>
AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE
INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR
ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
J. Controlling Document. To the extent that this Security Agreement
conflicts with or is in any way incompatible with any other Loan Document
concerning the Obligation, any promissory note shall control over any other
document, and if such note does not address an issue, then each other document
shall control.
K. Execution Under Seal. This Agreement is being executed under seal by
Debtor(s).
L. Additional Provisions. See Schedule "___________" attached hereto and
incorporated hereunder for all purposes.
M. NOTICE OF FINAL AGREEMENT. THIS WRITTEN SECURITY AGREEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be
duly executed under seal by their duly authorized representatives as of the date
first above written.
Bank/Secured Party: Debtor(s)/Pledgor(s):
NationsBank, N.A.
By: /s/ Simpson O. Brown, Jr. _____________________________ (Seal)
-------------------------
Name: Simpson O. Brown, Jr. _____________________________
------------------------ Print Individual's Name
Title: Senior Vice President
----------------------- _____________________________ (Seal)
_____________________________
Print Individual's Name
Corporate or Partnership Debtor/Pledgor:
BLUE RHINO CORPORATION
By: /s/ Billy D. Prim (Seal)
--------------------------
Name: Billy D. Prim
------------------------
Title: Chairman and CEO
-----------------------
_____________________________
Attest (If Applicable)
[Corporate Seal]
-5-
<PAGE>
Exhibit 10.1(c)
NationsBank, N.A.
Promissory Note
Date: DECEMBER 31, 1998 [X] New [_] Renewal Amount $7,000,000.00
Maturity Date: DECEMBER 31, 2000
<TABLE>
<CAPTION>
====================================================================================
Bank: Borrower:
<S> <C>
NationsBank, N.A.
Banking Center:
Commercial Lending BLUE RHINO CORPORATION
380 Knollwood Street 104 CAMBRIDGE PLAZA DR.
Winston-Salem, Forsyth Co., NC 27103 WINSTON-SALEM,FORSYTH CO., NC 27104
(Street address including county) (Name and street address, including county)
====================================================================================
</TABLE>
FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and
severally, if more than one) promises to pay to the order of Bank, its
successors and assigns, without setoff, at its offices indicated at the
beginning of this Note, or at such other place as may be designated by Bank, the
principal amount of UP TO SEVEN MILLION AND NO/100 DOLLARS ($7,000,000.00), or
so much thereof as may be advanced from time to time in immediately available
funds, together with interest computed daily on the outstanding principal
balance hereunder, at an annual interest rate, and in accordance with the
payment schedule, indicated below.
[This Note contains some provisions preceded by boxes. If a box is marked, the
provision applies to this transaction; if it is not marked, the provision does
not apply to this transaction.]
1. Rate.
[_] Prime Rate. The Rate shall be the Prime Rate, plus ______________________
percent, per annum. The "Prime Rate" is the fluctuating rate of interest
established by Bank from time to time, at its discretion, whether or not such
rate shall be otherwise published. The Prime Rate is established by Bank as an
index and may or may not at any time be the best or lowest rate charged by Bank
on any loan.
[_] Fixed Rate. The Rate shall be fixed at ___________________ percent per
annum.
[X] Other. The rate shall be thirty-day LIBOR, plus two hundred basis points
(2.00%) per annum, as such Rate is determined by the Bank and changes from time
to time.
Notwithstanding any provision of this Note, Bank does not intend to charge and
Borrower shall not be required to pay any amount of interest or other charges in
excess of the maximum permitted by the applicable law of the State of North
Carolina; if any higher rate ceiling is lawful, then that higher rate ceiling
shall apply. Any payment in excess of such maximum shall be refunded to
Borrower or credited against principal, at the option of Bank.
2. Accrual Method. Unless otherwise indicated, interest at the Rate set forth
above will be calculated by the 365/360 day method (a daily amount of interest
is computed for a hypothetical year of 360 days; that amount is multiplied by
the actual number of days for which any principal is outstanding hereunder). If
interest is not to be computed using this method, the method shall be: ________
________________________________________________________________________________
________________________________________________________________________________
_________________________________________.
3. Rate Change Date. Any Rate based on a fluctuating index or base rate will
change, unless otherwise provided, each time and as of the date that the index
or base rate changes. The Rate may also change in accordance with the interst
rate provisions of the Loan Agreement of even date herewith between the Borrower
and the Bank (the "Loan Agreement").
In the event any index is discontinued, Bank shall substitute an index
determined by Bank to be comparable, in its sole discretion.
4. Payment Schedule. All payments received hereunder shall be applied first to
the payment of any expense or charges payable hereunder or under any other loan
documents executed in connection with this Note, then to interest due and
payable, with the balance applied to principal, or in such other order as Bank
shall determine at its option.
[_] Principal Plus Accrued Interest. Principal shall be paid in consecutive
equal installments of $_______________________, plus accrued interest, payable
[_] monthly, [_] quarterly or [_]______________________________________________,
commencing on ______________________________, 19_______, and continuing on the
[_] same day, [_] last day of each successive month, quarter or other period (as
applicable) thereafter, with a final payment of all unpaid principal and
accrued interest due on ___________________________, 19______.
[_] Fixed Principal and Interest. Principal and interest shall be paid in
consecutive equal installments of $______________________________, payable [_]
monthly, [_] quarterly or [_]________________________________________,
commencing on _______________________________, 19_______, and continuing on the
[_] same day, [_] last day of each successive month, quarter or other period
(as applicable) thereafter, with a final payment of all unpaid principal and
interest due thereon on ____________________________________________, 19______.
If, on any payment date, accrued interest exceeds the installment amount set
forth above, Borrower will also pay such excess as and when billed.
[X] Single Principal Payment. Principal shall be paid in full in a single
payment on DECEMBER 31, 2000. Interest thereon shall be paid [_] at maturity,
or else [X] monthly, [_] quarterly or [_] _________________________________,
commencing on FEBRUARY 2, 1999, and continuing on the [X] same day, [_] last
day of each successive month, quarter or other period (as applicable)
thereafter, with a final payment of all unpaid interest at the stated maturity
of this Note.
[X] Other. This is the "Revolver Note" described in the Loan Agreement, to
which reference is hereby made for additional provisions affecting this Note.
5. Revolving Feature.
[X] Borrower may borrow, repay and reborrow hereunder at any time, up to a
maximum aggregate amount outstanding at any one time equal to the principal
amount of this Note, provided that Borrower is not in default under any
provision of this Note, any other documents executed in connection with this
Note, or any other note or other loan documents now or hereafter executed in
connection with any other obligation of Borrower to Bank, and provided that the
borrowings hereunder do not exceed any borrowing base or other limitation on
borrowings by Borrower. Bank shall incur no liability for its refusal to
advance funds based upon its determination that any conditions of such further
advances have not been met. Bank records of the amounts borrowed from time to
time shall be conclusive proof thereof.
[_] Uncommitted Facility. Borrower acknowledges and agrees that,
notwithstanding any provisions of this Note or any other documents executed
in connection with this Note, Bank has no obligation to make any advance,
and that all advances are at the sole discretion of Bank.
<PAGE>
[_] Out-Of-Debt Period. For a period of at least ________________
consecutive days during [_] each fiscal year, [_] any consecutive 12-month
period, Borrower shall fully pay down the balance of this Note, so that no
amount of principal or interest and no other obligation under this Note
remains outstanding.
6. Automatic Payment.
[_] Borrower has elected to authorize Bank to effect payment of sums due under
this Note by means of debiting Borrower's account number_______________________
________. This authorization shall not affect the obligation of Borrower to pay
such sums when due, without notice, if there are insufficient funds in such
account to make such payment in full on the due date thereof, or if Bank fails
to debit the account.
7. Waivers, Consents and Covenants. Borrower, any indorser or guarantor
hereof, or any other party hereto (individually an "Obligor" and collectively
"Obligors") and each of them jointly and severally: (a) waive presentment,
demand, protest, notice of demand, notice of intent to accelerate, notice of
acceleration of maturity, notice of protest, notice of nonpayment, notice of
dishonor, and any other notice required to be given under the law to any Obligor
in connection with the delivery, acceptance, performance, default or enforcement
of this Note, any indorsement or guaranty of this Note, or any other documents
executed in connection with this Note or any other note or other loan documents
now or hereafter executed in connection with any obligation of Borrower to Bank
(the "Loan Documents"); (b) consent to all delays, extensions, renewals or other
modifications of this Note or the Loan Documents, or waivers of any term hereof
or of the Loan Documents, or release or discharge by Bank of any of Obligors, or
release, substitution or exchange of any security for the payment hereof, or the
failure to act on the part of Bank, or any indulgence shown by Bank (without
notice to or further assent from any of Obligors), and agree that no such
action, failure to act or failure to exercise any right or remedy by Bank shall
in any way affect or impair the obligations of any Obligors or be construed as a
waiver by Bank of, or otherwise affect, any of Bank's rights under this Note,
under any indorsement or guaranty of this Note or under any of the Loan
Documents; and (c) agree to pay, on demand, all costs and expenses of collection
or defense of this Note or of any indorsement or guaranty hereof and/or the
enforcement or defense of Bank's rights with respect to, or the administration,
supervision, preservation, or protection of, or realization upon, any property
securing payment hereof, including, without limitation, reasonable attorney's
fees, including fees related to any suit, mediation or arbitration proceeding,
out of court payment agreement, trial, appeal, bankruptcy proceedings or other
proceeding, in such amount as may be determined reasonable by any arbitrator or
court, whichever is applicable.
8. Prepayments. Prepayments may be made in whole or in part at any time on any
loan. All prepayments of principal shall be applied in the inverse order of
maturity, or in such other order as Bank shall determine in its sole discretion.
Except as may be prohibited by applicable law, no prepayment of any other loan
shall be permitted without the prior written consent of Bank. Notwithstanding
such prepayment prohibition, if there is a prepayment of any such loan, whether
by consent of Bank, or because of acceleration or otherwise, Borrower shall,
within 15 days of any request by Bank, pay to Bank, unless prohibited by
applicable law, any loss or expense which Bank may incur or sustain as a result
of such prepayment. For the purposes of calculating the amounts owed only, it
shall be assumed that Bank actually funded or committed to fund the loan through
the purchase of an underlying deposit in an amount and for a term comparable to
the loan, and such determination by Bank shall be conclusive, absent a manifest
error in computation.
9. Delinquency Charge. To the extent permitted by law, a delinquency charge
may be imposed in an amount not to exceed four percent (4%) of the unpaid
portion of any payment that is more than fifteen days late. Unless the terms of
this Note call for repayment of the entire balance of this Note (both principal
and interest) in a single payment and not for installments of interest or
principal and interest, the 4% delinquency charge may be imposed not only with
respect to regular installments of principal or interest or principal and
interest, but also with respect to any other payment in default under this Note
(other than a previous delinquency charge), including without limitation, a
single payment of principal due at the maturity of this Note. In the event any
installment, or portion thereof, is not paid in a timely manner, subsequent
payments will be applied first to the past due balance (which shall not include
any previous delinquency charges), specifically to the oldest maturing
installment, and a separate delinquency charge will be imposed for each payment
that becomes due until the default is cured.
10. Events of Default. The following are events of default hereunder: (a)
subject to the tolling of any applicable cure period, the failure to pay or
perform any obligation, liability or indebtedness of any Obligor to Bank, or to
any affiliate or subsidiary of NationsBank Corporation, whether under this Note
or any Loan Documents, as and when due (whether upon demand, at maturity or by
acceleration); (b) subect to the tolling of any applicable cure period, the
failure to pay or perform any other obligation, liability or indebtedness of any
Obligor to any other party; (c) the death of any Obligor (if an individual); (d)
the resignation or withdrawal of any partner or a material owner/guarantor of
Borrower, as determined by Bank in its sole discretion; (e) the commencement of
a proceeding against any Obligor for dissolution or liquidation, the voluntary
or involuntary termination or dissolution of any Obligor or the merger or
consolidation of any Obligor with or into another entity; (f) the insolvency of,
the business failure of, the appointment of a custodian, trustee, liquidator or
receiver for or for any of the property of, the assignment for the benefit of
creditors by, or the filing of a petition under bankruptcy, insolvency or
debtor's relief law or the filing of a petition for any adjustment of
indebtedness, composition or extension by or against any Obligor; (g) the
determination by Bank that any representation or warranty made to Bank by any
Obligor in any Loan Documents or otherwise is or was, when it was made, untrue
or materially misleading; (h) the entry of a judgment against any Obligor which
Bank deems to be of a material nature, in Bank's sole discretion; (i) the
seizure or forfeiture of, or the issuance of any writ of possession, garnishment
or attachment, or any turnover order for any property of any Obligor; (j) the
determination by Bank that a material adverse change has occurred in the
financial condition of any Obligor; or (k) the failure of Borrower's business to
comply with any law or regulation controlling its operation, the failure to
comply with which would result in a material adverse effect on Borrower.
11. Remedies upon Default. Whenever there is a default under this Note (a) the
entire balance outstanding hereunder and all other obligations of any Obligor to
Bank (however acquired or evidenced) shall, at the option of Bank, become
immediately due and payable and any obligation of Bank to permit further
borrowing under this Note shall immediately cease and terminate, and/or (b) to
the extent permitted by law, the Rate of interest on the unpaid principal shall
be increased to 4% per annum in excess of the rate previously applicable to the
balance of unpaid principal hereunder (the "Default Rate"). The provisions
herein for a Default Rate and a delinquency charge shall not be deemed to extend
the time for any payment hereunder or to constitute a "grace period" giving
Obligors a right to cure any default. At Bank's option, any accrued and unpaid
interest, fees or charges may, for purposes of computing and accruing interest
on a daily basis after the due date of this Note or any installment thereof, be
deemed to be a part of the principal balance, and interest shall accrue on a
daily compounded basis after such date at the Default Rate provided in this Note
until the entire outstanding balance of principal and interest is paid in full.
Upon a default under this Note, Bank is hereby authorized at any time, at its
option and without notice or demand to set off and charge against any deposit
accounts of any Obligor (as well as any money, instruments, securities,
documents, chattel paper, credits, claims, demands, income and any other
property, rights and interests of any Obligor), which at any time shall come
into the possession or custody or under the control of Bank or any of its
agents, affiliates or correspondents, any and all obligations due hereunder.
Additionally, Bank shall have all rights and remedies available under each of
the Loan Documents, as well as all rights and remedies available at law or in
equity.
12. Non-Waiver. The failure at any time of Bank to exercise any of its options
or any other rights hereunder shall not constitute a waiver thereof, nor shall
it be a bar to the exercise of any of its options or rights at a later date.
All rights and remedies of Bank shall be cumulative and may be pursued singly,
successively or together, at the option of Bank. The acceptance by Bank of any
partial payment shall not constitute a waiver of any default or of any of Bank's
rights under this Note. No waiver of any of its rights hereunder, and no
modification or amendment of this Note, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; each such
waiver shall apply only with respect to the specific instance involved, and
shall in no way impair the rights of Bank or the obligations of Obligors to Bank
in any other respect at any other time.
13. Applicable Law, Venue and Jurisdiction. This Note and the rights and
obligations of Borrower and Bank shall be governed by and interpreted in
accordance with the law of the State of North Carolina. In any litigation in
connection with or to enforce this Note or any indorsement or guaranty of this
Note or any Loan Documents, Obligors, and each of them, irrevocably consent to
and confer personal jurisdiction on the courts of the State of North Carolina or
the United States located within the State of North Carolina and expressly waive
any objections as to venue in any such courts. Nothing contained herein shall,
however, prevent Bank from bringing any action or exercising any rights within
any other state or jurisdiction or from obtaining personal jurisdiction by any
other means available under applicable law.
14. Partial Invalidity. The unenforceability or invalidity of any provision of
this Note shall not affect the enforceability or validity of any other provision
herein and the invalidity or unenforceability of any provision of this Note or
of the Loan Documents to any person or circumstance shall not affect the
enforceability or validity of such provision as it may apply to other persons or
circumstances.
15. Binding Effect. This Note shall be binding upon and inure to the benefit
of Borrower, Obligors and Bank and their respective successors, assigns, heirs
and personal representatives, provided, however, that no obligations of Borrower
or Obligors hereunder can be assigned without prior written consent of Bank.
16. Controlling Document. To the extent that this Note conflicts with or is in
any way incompatible with any other document related specifically to the loan
evidenced by this Note, this Note shall control over any other such document,
and if this Note does not address an issue, then each other such document shall
control to the extent that it deals most specifically with an issue.
17. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION
-2-
<PAGE>
IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF
("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR
EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH
THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN THE COUNTY
WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED, AND ADMINISTERED BY J.A.M.S.
WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
Borrower represents to Bank that the proceeds of this loan are to be used
primarily for business, commercial or agricultural purposes. Borrower
acknowledges having read and understood, and agrees to be bound by, all terms
and conditions of this Note and hereby executes this Note under seal as of the
date here above written.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN OR ORAL AGREEMENTS BETWEEN THE PARTIES.
<TABLE>
<CAPTION>
<S> <C>
Borrower Corporate or Partnership Borrower
BLUE RHINO CORPORATION
_____________________________(Seal)
___________________________________ By: /s/ Billy D. Prim (Seal)
Print Individual's Name ----------------------------
Name: Billy D. Prim
_____________________________(Seal) -----------------------------
Title: Chairman and CEO
___________________________________ ----------------------------
Print Individual's Name /s/ Mark Castaneda
-----------------------------------
Attest (If Applicable)
[Corporate Seal]
</TABLE>
-3-
<PAGE>
EXHIBIT 10.1(d)
NationsBank, N.A.
Promissory Note
Date: DECEMBER 31, 1998 [X] New [_] Renewal Amount $5,000,000.00
Maturity Date: DECEMBER 31, 2000
<TABLE>
<CAPTION>
Bank: Borrower:
<S> <C>
NationsBank, N.A.
Banking Center:
Commercial Lending BLUE RHINO CORPORATION
380 Knollwood Street 104 CAMBRIDGE PLAZA DR.
Winston-Salem, Forsyth Co., NC 27103 WINSTON-SALEM,FORSYTH CO., NC 27104
(Street address including county) (Name and street address, including county)
====================================================================================
</TABLE>
FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and
severally, if more than one) promises to pay to the order of Bank, its
successors and assigns, without setoff, at its offices indicated at the
beginning of this Note, or at such other place as may be designated by Bank, the
principal amount of UP TO FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00), or
so much thereof as may be advanced from time to time in immediately available
funds, together with interest computed daily on the outstanding principal
balance hereunder, at an annual interest rate, and in accordance with the
payment schedule, indicated below.
[This Note contains some provisions preceded by boxes. If a box is marked, the
provision applies to this transaction; if it is not marked, the provision does
not apply to this transaction.]
1. Rate.
[ ] Prime Rate. The Rate shall be the Prime Rate, plus ______________________
percent, per annum. The "Prime Rate" is the fluctuating rate of interest
established by Bank from time to time, at its discretion, whether or not such
rate shall be otherwise published. The Prime Rate is established by Bank as an
index and may or may not at any time be the best or lowest rate charged by Bank
on any loan.
[ ] Fixed Rate. The Rate shall be fixed at ___________________ percent per
annum.
[X] Other. The rate shall be thirty-day LIBOR, plus two hundred twenty-five
basis points (2.25%) per annum, as such Rate is determined by the Bank and
changes from time to time.
Notwithstanding any provision of this Note, Bank does not intend to charge and
Borrower shall not be required to pay any amount of interest or other charges in
excess of the maximum permitted by the applicable law of the State of North
Carolina; if any higher rate ceiling is lawful, then that higher rate ceiling
shall apply. Any payment in excess of such maximum shall be refunded to
Borrower or credited against principal, at the option of Bank.
2. Accrual Method. Unless otherwise indicated, interest at the Rate set forth
above will be calculated by the 365/360 day method (a daily amount of interest
is computed for a hypothetical year of 360 days; that amount is multiplied by
the actual number of days for which any principal is outstanding hereunder). If
interest is not to be computed using this method, the method shall be:
______________________________________________________
________________________________________________________________________________
_________________________________________
________________________________________________________________________________
_________________________________________.
3. Rate Change Date. Any Rate based on a fluctuating index or base rate will
change, unless otherwise provided, each time and as of the date that the index
or base rate changes. The Rate may also change in accordance with the interst
rate provisions of the Loan Agreement of even date herewith between the Borrower
and the Bank (the "Loan Agreement").
In the event any index is discontinued, Bank shall substitute an index
determined by Bank to be comparable, in its sole discretion.
4. Payment Schedule. All payments received hereunder shall be applied first to
the payment of any expense or charges payable hereunder or under any other loan
documents executed in connection with this Note, then to interest due and
payable, with the balance applied to principal, or in such other order as Bank
shall determine at its option.
[ ] Principal Plus Accrued Interest. Principal shall be paid in consecutive
equal installments of $_______________________, plus accrued interest, payable
[ ] monthly, [ ] quarterly or
[ ]_________________________________________________, commencing on
______________________________, 19_______, and continuing on the [ ] same day,
[ ] last day of each successive month, quarter or other period (as applicable)
thereafter, with a final payment of all unpaid principal and accrued interest
due on ___________________________, 19______.
[ ] Fixed Principal and Interest. Principal and interest shall be paid in
consecutive equal installments of $______________________________, payable [ ]
monthly, [ ] quarterly or [ ]________________________________________,
commencing on _______________________________, 19_______, and continuing on the
[ ] same day, [ ] last day of each successive month, quarter or other period
(as applicable) thereafter, with a final payment of all unpaid principal and
interest due thereon on ____________________________________________, 19______.
If, on any payment date, accrued interest exceeds the installment amount set
forth above, Borrower will also pay such excess as and when billed.
[X] Single Principal Payment. Principal shall be paid in full in a single
payment on DECEMBER 31, 2000. Interest thereon shall be paid [ ] at maturity,
or else [X] monthly, [ ] quarterly or [ ] _________________________________,
commencing on FEBRUARY 2, 1999, and continuing on the [X] same day, [ ] last
day of each successive month, quarter or other period (as applicable)
thereafter, with a final payment of all unpaid interest at the stated maturity
of this Note.
[X] Other. This is the "Acquisition Note" described in the Loan Agreement, to
which reference is hereby made for additional provisions affecting this Note.
5. Revolving Feature.
[ ] Borrower may borrow, repay and reborrow hereunder at any time, up to a
maximum aggregate amount outstanding at any one time equal to the principal
amount of this Note, provided that Borrower is not in default under any
provision of this Note, any other documents executed in connection with this
Note, or any other note or other loan documents now or hereafter executed in
connection with any other obligation of Borrower to Bank, and provided that the
borrowings hereunder do not exceed any borrowing base or other limitation on
borrowings by Borrower. Bank shall incur no liability for its refusal to
advance funds based upon its determination that any conditions of such further
advances have not been met. Bank records of the amounts borrowed from time to
time shall be conclusive proof thereof.
[ ] Uncommitted Facility. Borrower acknowledges and agrees that,
notwithstanding any provisions of this Note or any other documents executed in
connection with this Note, Bank has no obligation to make any advance, and that
all advances are at the sole discretion of Bank.
<PAGE>
[ ] Out-Of-Debt Period. For a period of at least ________________
consecutive days during [ ] each fiscal year, [ ] any consecutive 12-month
period, Borrower shall fully pay down the balance of this Note, so that no
amount of principal or interest and no other obligation under this Note remains
outstanding.
6. Automatic Payment.
[ ] Borrower has elected to authorize Bank to effect payment of sums due under
this Note by means of debiting Borrower's account number
_______________________________. This authorization shall not affect the
obligation of Borrower to pay such sums when due, without notice, if there are
insufficient funds in such account to make such payment in full on the due date
thereof, or if Bank fails to debit the account.
7. Waivers, Consents and Covenants. Borrower, any indorser or guarantor
hereof, or any other party hereto (individually an "Obligor" and collectively
"Obligors") and each of them jointly and severally: (a) waive presentment,
demand, protest, notice of demand, notice of intent to accelerate, notice of
acceleration of maturity, notice of protest, notice of nonpayment, notice of
dishonor, and any other notice required to be given under the law to any Obligor
in connection with the delivery, acceptance, performance, default or enforcement
of this Note, any indorsement or guaranty of this Note, or any other documents
executed in connection with this Note or any other note or other loan documents
now or hereafter executed in connection with any obligation of Borrower to Bank
(the "Loan Documents"); (b) consent to all delays, extensions, renewals or other
modifications of this Note or the Loan Documents, or waivers of any term hereof
or of the Loan Documents, or release or discharge by Bank of any of Obligors, or
release, substitution or exchange of any security for the payment hereof, or the
failure to act on the part of Bank, or any indulgence shown by Bank (without
notice to or further assent from any of Obligors), and agree that no such
action, failure to act or failure to exercise any right or remedy by Bank shall
in any way affect or impair the obligations of any Obligors or be construed as a
waiver by Bank of, or otherwise affect, any of Bank's rights under this Note,
under any indorsement or guaranty of this Note or under any of the Loan
Documents; and (c) agree to pay, on demand, all costs and expenses of collection
or defense of this Note or of any indorsement or guaranty hereof and/or the
enforcement or defense of Bank's rights with respect to, or the administration,
supervision, preservation, or protection of, or realization upon, any property
securing payment hereof, including, without limitation, reasonable attorney's
fees, including fees related to any suit, mediation or arbitration proceeding,
out of court payment agreement, trial, appeal, bankruptcy proceedings or other
proceeding, in such amount as may be determined reasonable by any arbitrator or
court, whichever is applicable.
8. Prepayments. Prepayments may be made in whole or in part at any time on any
loan. All prepayments of principal shall be applied in the inverse order of
maturity, or in such other order as Bank shall determine in its sole discretion.
Except as may be prohibited by applicable law, no prepayment of any other loan
shall be permitted without the prior written consent of Bank. Notwithstanding
such prepayment prohibition, if there is a prepayment of any such loan, whether
by consent of Bank, or because of acceleration or otherwise, Borrower shall,
within 15 days of any request by Bank, pay to Bank, unless prohibited by
applicable law, any loss or expense which Bank may incur or sustain as a result
of such prepayment. For the purposes of calculating the amounts owed only, it
shall be assumed that Bank actually funded or committed to fund the loan through
the purchase of an underlying deposit in an amount and for a term comparable to
the loan, and such determination by Bank shall be conclusive, absent a manifest
error in computation.
9. Delinquency Charge. To the extent permitted by law, a delinquency charge
may be imposed in an amount not to exceed four percent (4%) of the unpaid
portion of any payment that is more than fifteen days late. Unless the terms of
this Note call for repayment of the entire balance of this Note (both principal
and interest) in a single payment and not for installments of interest or
principal and interest, the 4% delinquency charge may be imposed not only with
respect to regular installments of principal or interest or principal and
interest, but also with respect to any other payment in default under this Note
(other than a previous delinquency charge), including without limitation, a
single payment of principal due at the maturity of this Note. In the event any
installment, or portion thereof, is not paid in a timely manner, subsequent
payments will be applied first to the past due balance (which shall not include
any previous delinquency charges), specifically to the oldest maturing
installment, and a separate delinquency charge will be imposed for each payment
that becomes due until the default is cured.
10. Events of Default. The following are events of default hereunder: (a)
subject to the tolling of any applicable cure period, the failure to pay or
perform any obligation, liability or indebtedness of any Obligor to Bank, or to
any affiliate or subsidiary of NationsBank Corporation, whether under this Note
or any Loan Documents, as and when due (whether upon demand, at maturity or by
acceleration); (b) subject to the tolling of any applicable cure period, the
failure to pay or perform any other obligation, liability or indebtedness of any
Obligor to any other party; (c) the death of any Obligor (if an individual); (d)
the resignation or withdrawal of any partner or a material owner/guarantor of
Borrower, as determined by Bank in its sole discretion; (e) the commencement of
a proceeding against any Obligor for dissolution or liquidation, the voluntary
or involuntary termination or dissolution of any Obligor or the merger or
consolidation of any Obligor with or into another entity; (f) the insolvency of,
the business failure of, the appointment of a custodian, trustee, liquidator or
receiver for or for any of the property of, the assignment for the benefit of
creditors by, or the filing of a petition under bankruptcy, insolvency or
debtor's relief law or the filing of a petition for any adjustment of
indebtedness, composition or extension by or against any Obligor; (g) the
determination by Bank that any representation or warranty made to Bank by any
Obligor in any Loan Documents or otherwise is or was, when it was made, untrue
or materially misleading; (h) the entry of a judgment against any Obligor which
Bank deems to be of a material nature, in Bank's sole discretion; (i) the
seizure or forfeiture of, or the issuance of any writ of possession, garnishment
or attachment, or any turnover order for any property of any Obligor; (j) the
determination by Bank that a material adverse change has occurred in the
financial condition of any Obligor; or (k) the failure of Borrower's business to
comply with any law or regulation controlling its operation, the failure to
comply with which would result in a material adverse effect on Borrower.
11. Remedies upon Default. Whenever there is a default under this Note (a) the
entire balance outstanding hereunder and all other obligations of any Obligor to
Bank (however acquired or evidenced) shall, at the option of Bank, become
immediately due and payable and any obligation of Bank to permit further
borrowing under this Note shall immediately cease and terminate, and/or (b) to
the extent permitted by law, the Rate of interest on the unpaid principal shall
be increased to 4% per annum in excess of the rate previously applicable to the
balance of unpaid principal hereunder (the "Default Rate"). The provisions
herein for a Default Rate and a delinquency charge shall not be deemed to extend
the time for any payment hereunder or to constitute a "grace period" giving
Obligors a right to cure any default. At Bank's option, any accrued and unpaid
interest, fees or charges may, for purposes of computing and accruing interest
on a daily basis after the due date of this Note or any installment thereof, be
deemed to be a part of the principal balance, and interest shall accrue on a
daily compounded basis after such date at the Default Rate provided in this Note
until the entire outstanding balance of principal and interest is paid in full.
Upon a default under this Note, Bank is hereby authorized at any time, at its
option and without notice or demand to set off and charge against any deposit
accounts of any Obligor (as well as any money, instruments, securities,
documents, chattel paper, credits, claims, demands, income and any other
property, rights and interests of any Obligor), which at any time shall come
into the possession or custody or under the control of Bank or any of its
agents, affiliates or correspondents, any and all obligations due hereunder.
Additionally, Bank shall have all rights and remedies available under each of
the Loan Documents, as well as all rights and remedies available at law or in
equity.
12. Non-Waiver. The failure at any time of Bank to exercise any of its options
or any other rights hereunder shall not constitute a waiver thereof, nor shall
it be a bar to the exercise of any of its options or rights at a later date.
All rights and remedies of Bank shall be cumulative and may be pursued singly,
successively or together, at the option of Bank. The acceptance by Bank of any
partial payment shall not constitute a waiver of any default or of any of Bank's
rights under this Note. No waiver of any of its rights hereunder, and no
modification or amendment of this Note, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; each such
waiver shall apply only with respect to the specific instance involved, and
shall in no way impair the rights of Bank or the obligations of Obligors to Bank
in any other respect at any other time.
13. Applicable Law, Venue and Jurisdiction. This Note and the rights and
obligations of Borrower and Bank shall be governed by and interpreted in
accordance with the law of the State of North Carolina. In any litigation in
connection with or to enforce this Note or any indorsement or guaranty of this
Note or any Loan Documents, Obligors, and each of them, irrevocably consent to
and confer personal jurisdiction on the courts of the State of North Carolina or
the United States located within the State of North Carolina and expressly waive
any objections as to venue in any such courts. Nothing contained herein shall,
however, prevent Bank from bringing any action or exercising any rights within
any other state or jurisdiction or from obtaining personal jurisdiction by any
other means available under applicable law.
14. Partial Invalidity. The unenforceability or invalidity of any provision of
this Note shall not affect the enforceability or validity of any other provision
herein and the invalidity or unenforceability of any provision of this Note or
of the Loan Documents to any person or circumstance shall not affect the
enforceability or validity of such provision as it may apply to other persons or
circumstances.
15. Binding Effect. This Note shall be binding upon and inure to the benefit
of Borrower, Obligors and Bank and their respective successors, assigns, heirs
and personal representatives, provided, however, that no obligations of Borrower
or Obligors hereunder can be assigned without prior written consent of Bank.
16. Controlling Document. To the extent that this Note conflicts with or is in
any way incompatible with any other document related specifically to the loan
evidenced by this Note, this Note shall control over any other such document,
and if this Note does not address an issue, then each other such document shall
control to the extent that it deals most specifically with an issue.
17. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION
-2-
<PAGE>
IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF
("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR
EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH
THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN THE COUNTY
WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED, AND ADMINISTERED BY J.A.M.S.
WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
Borrower represents to Bank that the proceeds of this loan are to be used
primarily for business, commercial or agricultural purposes. Borrower
acknowledges having read and understood, and agrees to be bound by, all terms
and conditions of this Note and hereby executes this Note under seal as of the
date here above written.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN OR ORAL AGREEMENTS BETWEEN THE PARTIES.
Borrower Corporate or Partnership Borrower
BLUE RHINO CORPORATION
___________________________(Seal)
___________________________ By: /s/ Billy D. Prim (Seal)
Print Individual's Name -------------------------------
___________________________(Seal)
Name: Billy D. Prim
-----------------------------
___________________________(Seal)
Title: Chairman and CEO
----------------------------
____________________________
Print Individual's Name /s/ Mark Castaneda
-----------------------------------
Attest (If Applicable)
[Corporate Seal]
-3-
<PAGE>
EXHIBIT 10.15 (b)
MASTER EQUIPMENT LEASE AGREEMENT
NO.HGF081196
between
LEASING INNOVATIONS, INCORPORATED
LESSOR
and
BLUE RHINO CORPORATION
LESSEE
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS............................................ 1
SECTION 2. AGREEMENT FOR LEASE OF EQUIPMENT BY LESSOR............. 2
SECTION 3. DELIVERY AND ACCEPTANCE OF EQUIPMENT................... 2
SECTION 4. NO WARRANTIES BY LESSOR................................ 2
SECTION 5. LEASE NON-CANCELLABLE; PAYMENTS TO BE NET.............. 3
SECTION 6. LEASE TERM............................................. 3
SECTION 7. RENT................................................... 3
SECTION 8. LESSEE'S REPRESENTATIONS AND WARRANTIES................ 3
SECTION 9. IDENTIFICATION MARKS................................... 4
SECTION 10. FEES AND TAXES......................................... 4
SECTION 11. INDEMNITY.............................................. 4
SECTION 12. USE OF EQUIPMENT....................................... 4
SECTION 13. IMPROVEMENT, MAINTENANCE AND REPAIR OF EQUIPMENT....... 5
SECTION 14. LOSS, DAMAGE OR DESTRUCTION OF EQUIPMENT............... 5
SECTION 15. ANNUAL REPORTS......................................... 6
SECTION 16. INSURANCE.............................................. 6
SECTION 17. RETURN OF EQUIPMENT.................................... 7
SECTION 18. LESSOR'S OWNERSHIP; EQUIPMENT TO BE AND REMAIN
PERSONAL PROPERTY...................................... 7
SECTION 19. EVENTS OF DEFAULT...................................... 8
SECTION 20. REMEDIES OF DEFAULT.................................... 9
SECTION 21. ASSIGNMENT............................................. 10
SECTION 22. RECORDING AND FILING EXPENSES.......................... 10
SECTION 23. QUIET ENJOYMENT........................................ 11
SECTION 24. OPTION TO RENEW........................................ 11
SECTION 25. OPTION TO PURCHASE..................................... 11
SECTION 26. MISCELLANEOUS.......................................... 12
<PAGE>
MASTER EQUIPMENT LEASE AGREEMENT
NO. HGF081196
THIS MASTER EQUIPMENT LEASE AGREEMENT is between Leasing Innovations,
Incorporated (the "Lessor"), a California Corporation having a place of business
at 437 S. Hwy 101, Suite 104, Solana Beach, CA 92075, and Blue Rhino Corporation
(the "Lessee"), a Delaware corporation with its principal place of business at
104 Cambridge Plaza Drive, Winston-Salem, NC 27103.
Lessor and Lessee expect that Lessee will request Lessor to acquire certain
equipment and lease it to Lessee, as will be more fully described in one or more
Rental Schedule(s). This Lease and each Rental Schedule and other documents
incorporated therein make up the total agreement between the parties for the
Equipment in each such Rental Schedule. Upon acceptance by the Lessee of the
Equipment leased under any Rental Schedule, Lessor leases to Lessee, and Lessee
leases from Lessor, such Equipment upon the terms and conditions contained in
this Lease.
In consideration of the mutual covenants contained herein, Lessor and Lessee
agree as follows:
1. DEFINITIONS - The following terms shall, unless the context otherwise
-----------
requires, have the following meanings for all purposes of this Lease and related
documents:
(a) "ACQUISITION COST" of the equipment means an amount equal to the sum
of the purchase price of such equipment paid by Lessor, plus any costs,
expenses, and fees paid or incurred by Lessor in obtaining such equipment.
(b) "CERTIFICATE OF DELIVERY AND ACCEPTANCE" means a certificate to be
executed by Lessee, and dated the date of Lessee's acceptance for lease of the
Equipment, delivered to Lessee.
(c) "EQUIPMENT" - the equipment listed on, and leased to Lessee under a
specific Rental Schedule.
(d) "FAIR MARKET VALUE" - the price that would be obtained in an arms-
length transaction between an informed and willing prospective buyer and an
informed and willing prospective seller under no compulsion to sell.
(e) "LEASE" shall be deemed to refer to this Master Equipment Lease
Agreement and any and all executed related documents.
(f) "LEASE COMMENCEMENT DATE" means that date upon which Lessee's
obligation under this Lease and such Rental Schedule will commence as specified
in the Certificate of Delivery and Acceptance and/or the Bill of Sale for each
Rental Schedule.
<PAGE>
(g) "LEASE EXTENSION AGREEMENT" - an agreement extending the Lease term of
a specific Rental Schedule beyond its original term for an agreed upon renewal
rent.
(h) "RENTAL SCHEDULE" means a schedule to be executed by Lessor and
Lessee, setting forth a full description of Equipment to be leased, its
locations, Acquisition Cost, the amount of rent payable by Lessee, the lease
term, and such other details as Lessor and Lessee may desire.
2. AGREEMENT FOR LEASE OF EQUIPMENT BY LESSOR - Lessee shall evidence its
------------------------------------------
request to Lessor to execute a purchase order or acceptance of assignment of a
purchase order for particular Equipment for lease to Lessee by executing and
delivering a Rental Schedule for such Equipment to Lessor. Lessee's execution of
such Rental Schedule shall obligate Lessee to lease the Equipment from Lessor
and Lessee shall indemnify Lessor against any loss, damage, claim, demand or
expense arising from Lessor's execution of a purchase order or acceptance of
assignment of a purchase order for such Equipment.
3. DELIVERY AND ACCEPTANCE OF EQUIPMENT - Promptly upon delivery and
------------------------------------
installation at Lessee's premises, Lessee shall inspect the Equipment, and if it
is found to be acceptable, execute and deliver to Lessor either a Certificate of
Delivery and Acceptance or a bill of sale. Thereafter, such Equipment shall be
deemed to have been delivered to and accepted by Lessee and shall be subject to
all the terms and conditions of this Lease and the respective Rental Schedule.
In the event the Equipment is not accepted in each Rental Schedule, Lessor, at
Lessor's option shall have the right to cancel said Rental Schedule.
4. NO WARRANTIES BY LESSOR - Lessee acknowledges that any equipment under this
-----------------------
Lease is (a) of a size, design, capacity and manufacture acceptable to Lessee
for lease; (b) suitable for Lessee's purposes; and (c) in good order, repair and
condition. LESSOR HEREBY MAKES NO EXPRESS OR IMPLIED WARRANTIES OR
REPRESENTATIONS AS TO ANY MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE
TITLE TO, OR CONDITION OF, ANY EQUIPMENT, ITS MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE. Lessor shall not be liable either for any defects, latent or
patent, in any of the equipment, or for any damage therefrom; or shall not be
liable for loss of use of any of the equipment or for any interruption in
Lessee's business occasioned by Lessee's inability to use any of the equipment
or for any interruption in Lessee's business occasioned by Lessee's inability to
use any of the equipment for any reason whatsoever. Lessor will take any
reasonable steps within its power to make available to Lessee any manufacturer's
similar warranty applicable to the equipment and make any assignment or other
transfer of rights in and to such warranty.
<PAGE>
5. LEASE NON-CANCELLABLE: PAYMENTS TO BE NET - Lessee agrees that all rent or
-----------------------------------------
other sums payable by Lessee, shall be the unconditional obligation of Lessee
and shall be made without abatement, reduction or setoff of any nature,
including any present or future claim the Lessee may have against the Lessor or
any of its assigns of the manufacturer or vendor of the equipment. This Lease
shall not be cancellable or terminable by Lessee prior to the end of the lease
term, except as herein expressly provided.
6. LEASE TERM - The lease term of each Rental Schedule shall commence on the
----------
Lease Commencement Date and shall continue until such time as all obligations of
Lessee are fulfilled, including all renewals as specified in Section 24.
7. RENT - Lessee agrees to pay rent to Lessor throughout the lease term, as
----
specified on each Rental Schedule.
Interim Rent will be payable for the period of time from the date the Equipment
is accepted until the beginning of the first regular rental period. The regular
period will begin on the first day of the month following the Commencement Date.
The amount of such Interim Rent will be calculated by dividing the amount of
rent for a regular rental period by the number of days in such period (based on
a 360 day year) and multiplying the quotient by the number of days for which
Interim Rent is payable. The Interim Rent is due upon receipt of invoice.
Lessee authorizes Lessor to insert the amount of Interim Rent and the date of
the first regular rental period on each Rental Schedule.
Rents payable hereunder shall be paid to Lessor at its address or to such other
person and address as Lessor may from time to time designate in writing.
8. LESSEE'S REPRESENTATION AND WARRANTIES - Lessee represents and warrants for
--------------------------------------
the benefit of Lessor and will provide an opinion of counsel and other
supporting documents to the effect that (a) Lessee is a corporation legally
incorporated and validly existing, in good standing, under its laws of
incorporation, with full corporate power to enter into this Lease and to pay and
perform its obligations; (b) this Lease has been duly authorized, executed and
delivered by Lessee and constitutes a valid, legal and binding obligation of
Lessee enforceable in accordance with its terms; (c) no approval is required
from any public regulatory body nor from any parent or affiliate of Lessee or
from any other person, firm or corporation with respect to the entering into or
performance of this Lease, and the leasing of the equipment by Lease, will not
result in any breach or default under any covenants or agreements or result in
the creation of any lien, charge, security interest or other encumbrance in or
upon any equipment pursuant to any indenture, mortgage, deed of trust, of other
lien of any nature whatsoever which now or hereafter covers or affects any
property or interest of Lessee, in any manner which will adversely affect
Lessor's right, title, and interest and (d) there are no suits or proceedings
pending or to the knowledge of Lessee threatened, in any court of before any
regulatory
<PAGE>
commission, board or other administrative governmental agency against affecting
Lessee, which will have a material adverse effect on the financial condition or
business of Lessee.
9 IDENTIFICATION MARKS - Upon Lessor's request, Lessee shall at Lessee's
---------------------
expense, affix and maintain on the equipment identification marks, satisfactory
to Lessor, indicating Lesors's ownership.
10. FEES AND TAXES - Lessee agrees to pay, promptly when due, all license fees
--------------
and assessments, and all sales, use, property, excise and other taxes or charges
(including any interest and penalties), now or hereafter imposed by any
governmental body or agency upon any equipment, the purchase, ownership,
possession, leasing, operation, use or disposition, the rentals or other
payments (excluding taxes on or measured by the net income of Lessor), Lessee
will prepare and file promptly with the appropriate offices any and all tax and
other similar returns required to be filed (sending copies to Lessor) or, if
requested by Lessor, notify Lessor of such requirement and furnish may effect
such filing. Any amounts required to be paid by Lessee under this Section which
Lessee fails to pay may be paid by Lessor and shall become immediately due form
Lessee and Lessor. If payment is not received within ten (10) days of notice of
such payment by Lessor to Lessee, a late fee will be assessed at the Late Charge
rate.
11. INDEMNITY - Lessee indemnifies, protects, saves and keeps harmless the
---------
Lessor and any and all of its assigns referred to in Section 21 and their
respective agents and servants, from any and all losses, damage, injuries,
claims, demands and expenses, including reasonable legal expenses, of whatsoever
kind and nature arising from the use or possession of the equipment by Lessee,
including incorporation by Lessee of an invention or attachment to the equipment
resulting in a claimed infringement of patent.
The Lessor shall give the Lessee prompt notice of any claim or liability
indemnified by Lessee and Lessee shall assume full responsibility for the
defense of such matter.
12. USE OF EQUIPMENT - Lessee agrees that its use of equipment will at all
----------------
times be in compliance with applicable laws, rules, regulations and orders; that
it will acquire and maintain all licenses, certificates, permits or other
approvals required because of its use of equipment or permit its use by anyone
other than Lessee.
13. IMPROVEMENT, MAINTENANCE AND REPAIR OF EQUIPMENT - Lessee will, at its own
------------------------------------------------
expense, (a) maintain the equipment in good and safe operating order, repair and
condition, and in accordance with the requirements of any governmental
authority, domestic or foreign, having jurisdiction; (b) pay for all fuel,
services, inspections, overhauls, materials and labor necessary for the proper
use, repair, operation and maintenance of the equipment; and (c) protect the
equipment from misuse, unnecessary exposure to the elements or other abuse or
damage. Lessee, at its sole cost and expense, may with Lessor's prior written
consent, modify and make additions or improvements to the equipment, provided
that (i) such alterations, modifications,
<PAGE>
additions or improvements do not reduce the value or utility of the equipment or
impair the certifications, performance, safety, quality, capability, use or
character of the equipment, (ii) such modifications, additions and improvements,
shall automatically become the sole property of Lessor and subject to the terms
of this Lease, and included in the term "Equipment" and (iii) upon the
termination of the lease term of any Rental Schedule as to which such have been
made, Lessee, if requested to do so by Lessor, shall remove any such
alterations, modifications, additions and improvements, and restore such
Equipment to its original conditions as of the respective Lease Commencement
Date, reasonable wear and tear only being excepted.
14. LOSS, DAMAGE OR DESTRUCTION OF EQUIPMENT - Lessee shall bear all risks of
----------------------------------------
damage to, or loss or destruction of, any equipment during the lease term and
until such equipment has been returned to Lessor pursuant to the provisions of
Sections 17 or 20, whichever is applicable.
In the event that any Equipment is damaged, but not irreparably so, the Lessee
agrees to promptly notify Lessor in writing of such fact and, at Lessor's
option, and at Lessee's sole cost and expense, place the same in good repair,
condition and working order.
In the event that any Equipment shall become lost, stolen, destroyed or
irreparable damaged from any cause whatsoever, or if any Equipment or Lessor's
title shall be requisitioned or seized by any governmental authority (each such
occurrence being called a "Casualty Occurrence") during the lease term of such
Equipment, Lessee shall promptly notify the Lessor in writing of such fact and
fully inform Lessor. Within thirty (30) days after the date of such Casualty
Occurrence, Lessee shall then pay Lessor an amount equal to the "Stipulated Loss
Value", stated as a percentage of Acquisition Cost, as set forth in such Rental
Schedule for the period said funds are received, plus any rent and other charges
due and payable. Upon such payment such Rental Schedule shall terminate and all
remaining right, title, and interest of Lessor, if any, in and to such Equipment
shall vest in Lessee.
15. ANNUAL REPORTS - Lessee will provide to Lessor within one hundred and
--------------
twenty (120) days of its fiscal year end, audited financial statements.
16. INSURANCE - Lessee will maintain, at its sole cost and expense, at all
---------
times during the lease term of any Rental Schedule, and until such Equipment on
said Rental Schedule has been returned to Lessor in accordance with the
provisions of Sections 17 or 20, whichever is applicable, with reputable
insurers acceptable to Lessor (a) insurance with an occurrence type coverage, in
an amount equal to the replacement value of the Equipment provided that the
amount of such insurance shall not at any time be less than the Stipulated Loss
Value, insuring against loss and/or damage to such Equipment arising out of any
risk covered by fire, windstorm, explosion, and extended coverage and against
such other risks as determined by Lessor and (b) comprehensive general liability
insurance, in the amount of $1 million or such greater amount as required by
Lessor,
<PAGE>
insuring against the liability for death, bodily injury and property damage
resulting from ownership, maintenance, use or operation of the Equipment.
All insurance policies shall name Lessor and its assigns as additional
insured(s), (a) with losses under the physical loss and/or damage policies to be
payable to Lessor and its collateral assigns, (b) provide that the policies will
not be invalidated as against Lessor or its collateral assigns because of any
violation of a condition or warranty of the policy or applications by Lessee,
and (c) provide that the policies may only be materially altered or canceled by
the insurer after thirty (30) days prior written notice to Lessor or its
collateral assigns. Prior to the Lease Commencement Date for any Equipment (or
at such other times as Lessor may request), Lessee shall provide to Lessor a
certificate or other evidence of all such insurance satisfactory to Lessor. In
the event of failure on the part of Lessee to provide and maintain any of the
aforesaid insurance, Lessor may procure such insurance and Lessee shall, upon
Lessor's demand, reimburse Lessor for all expenditures made by Lessor for such
insurance, together with assessment of a late fee at the Late Charge Rate from
the date Lessor is required to provide said insurance until payment is received
by Lessor form Lessee.
The physical loss or damage insurance policy or policies shall also provide that
upon receipt by the insurer from Lessor of any written notice of the occurrence
of an Event of Default, any proceeds payable by said insurer with respect to any
loss or destruction of, or damage to, any Equipment relating to said Rental
Schedule, shall be payable solely to Lessor and its collateral assigns, up to
the date said insurer receives written notice from Lessor that said Event of
Default is no longer continuing.
Any insurance proceeds received as the result of a Casualty Occurrence with
respect to any Equipment shall be applied first to reduction of any rent and
other charges due and payable by Lessee to Lessor and second to reduction of
Lessee's obligation to pay the Stipulated Loss Value for such Equipment, if not
already paid by Lessee to Lessor, or, if already paid by Lessee, to the
reimbursement of Lessee for its payment of such Stipulated Loss Value. The
balance of the insurance proceeds, if any, shall be paid to Lessee, if Lessee is
not then in default. In the event that any Equipment has been damaged, but not
irreparable, Lessor shall, if no Event of Default has occurred and is
continuing, release to Lessee the proceeds of any insurance received by
Lessor as a result of such damage for the purpose of reimbursing Lessee for the
costs of repairing or restoring such Equipment, upon receipt by Lessor of
evidence, satisfactory to Lessor, that such repair or restoration has been
completed, and a paid invoice for cost of such repairs.
17. RETURN OF EQUIPMENT. Lessee shall give Lessor at least 180 days notice in
-------------------
writing of its intention to return any Equipment to Lessor upon the expiration
of the lease term. In the event that Leasee shall fail to give Lessor 180 days
notice in writing, this Lease as it relates to such Equipment shall be
automatically extended and continued at the same rent in effect for the last
current rent period until 180 days after Lessor receives such notice in writing
form Lessee.
<PAGE>
Upon the expiration or termination of the lease term of any Rental Schedule,
Lessee will immediately surrender possession and return the Equipment on such
Rental Schedule to Lessor, together with instructional and other brochures or
manuals related to such Equipment, in its original condition as of the Lease
Commencement Date, reasonable wear and tear only being excepted, at Lessee's
cost, by (a) properly preparing, crating and/or assembling such Equipment for
shipment by common carrier, and (b) shipping such Equipment by common carrier,
with insurance prepaid to a place designated by Lessor.
Upon such expiration of the lease term, Lessee shall also provide Lessor a
certification by the manufacturer of the Equipment, or by its authorized
representative, that the Equipment being shipped to Lessor is in proper
operating order immediately prior to such shipment.
18. LESSOR'S OWNERSHIP: EQUIPMENT TO BE AND REMAIN PERSONAL PROPERTY - Lessee
----------------------------------------------------------------
agrees it has no rights in the equipment except its rights as Lessee. Lessee
agrees that no action will be taken or allowed by Lessee that will cause the
equipment to become real property notwithstanding the manner in which the
equipment may be attached or affixed to the realty. Upon the expiration or other
termination of the lease term of any Rental Schedule, Lessee shall have the
obligation, and Lessor shall have the right to remove, or to cause the removal
of, such Equipment, on such Rental Schedule from the premises where it is then
located, for return to Lessor pursuant to the provisions of Section 17. Lessor
shall not be liable for any damage caused to the realty occasioned by any
removal of the Equipment by Lessor or its agents, whether or not any such
Equipment is affixed or attached to the realty.
Lessee, at the request of Lessor, shall obtain and deliver to Lessor
concurrently with the execution and delivery of each Rental Schedule, a waiver,
from the owner, lessor, mortgagee of any lien or encumbrance on the realty where
the Equipment is located, under which such owner, (a) agree and consent that
they will consider such Equipment as personal property, owned by and removable
by Lessor, and (b) waive any rights of distraint or similar rights with respect
to such Equipment. If, for any reason, Lessee is unable to return, or is
prevented from returning, any Equipment to Lessor upon the expiration or
termination of the lease term as required Section 17, such action shall, for all
purposes of this Lease be deemed as Lessee's giving its notice to exercise its
Option to Purchase under Section 25.
19 EVENTS OF DEFAULT - One or more of the following events shall be defined as
-----------------
an Event of Default ("Default"):
(a) the failure to make the payment of any rent or any obligation as
provided for in this Lease;
<PAGE>
(b) Lessee shall fail in the observance and/or performance of any other
covenant, condition and agreement on the part of Lessee to be observed and/or
performed under this Lease;
(c) any representation or warranty made by Lessee or in any document or
certificate furnished to Lessor in connection with or pursuant to this Lease,
shall at any time prove to be incorrect when made in any respect;
(d) Lessee shall make or permit any authorized assignment or transfer of
this Lease or of Lessee's rights and obligations, or Lessee shall make or permit
any unauthorized sublease or transfer of any equipment, or the possession of
same;
(e) Lessee shall make an assignment for the benefit of its creditors, or
cease being in substantially the same line or lines of business or with the same
corporate structure in which Lessee is presently engaged, or ceased doing
business as a going concern, or become insolvent or bankrupt or admit in writing
its inability to pay its debt as they mature, or consent to the appointment of a
trustee or receiver, or a trustee, or a receiver shall be appointed for Lessee
without Lessee's consent,or bankruptcy, reorganization, insolvency, arrangement,
or liquidation proceedings shall be instituted by or against Lessee or Lessee's
corporation existence shall terminate; or
(f) any obligation of Lessee for the payment of borrowed money or the
acquisition of assets by lease, conditional sale or similar arrangement, shall
not be paid or refinanced at maturity, whether by acceleration or otherwise, or
shall be declared to be due and payable prior to the stated maturity by reason
of default or other violation of the terms of any promissory note or agreement
evidencing or governing such obligation.
20. REMEDIES OF DEFAULT - Upon an event of Default which is not satisfied
-------------------
within thirty (30) days of written notice from Lessor to Lessee of said Default,
Lessor may do one or more of the following:
(a) declare the entire amount of rent remaining to be paid over the balance
of the lease term for all equipment then leased, immediately due and payable;
(b) proceed by appropriate court actions at law or in equity or in
bankruptcy to enforce performance by Lessee of the covenants and terms of this
Lease and/or to recover damages for the breach;
(c) terminate this Lease; or
(d) repossess the equipment wherever found and for this purpose Lessor
and/or its agents may enter upon any premises of or under control or
jurisdiction of Lessee or any agent of Lessee without liability for suit, action
or other proceeding by Lessee (any damages occasioned by such repossession being
expressly waived by Lessee) and remove the equipment.
<PAGE>
With respect to any equipment returned to Lessor, or repossessed by Lessor
pursuant to subparagraph (d) above, Lessor may hold or use such equipment for
any purpose whatsoever, Lessor may, either sell same at a private or public,
cash or credit sale, or release same for such term and upon such rental as shall
be solely determined by the Lessor.
Whether or not any equipment is returned to, or repossessed by Lessor, as
aforesaid, Lessee shall also be liable for, and Lessor may forthwith recover
from Lessee, all unpaid rent, late charges and other unpaid sums consisting of
all costs and expenses of repossession, storage, repairs, reconditioning, sale,
re-leasing, attorneys' fees and collection fees with respect to such equipment.
In the event that any court of competent jurisdiction determines that any
provision of this section is invalid or unenforceable in whole or in part, such
determination shall not prohibit Lessor from establishing its damages sustained
as a result of any breach of this Lease in any action or proceeding in which
Lessor seeks to recover such damages. Any repossessing or resale of any
Equipment under and Rental Schedule shall not bar Lessor's right to repossess
any or all Equipment under all Rental Schedules.
21. ASSIGNMENT- Lessee will not assign or transfer its rights under this lease,
----------
or sublease any of the Equipment, or remove or suffer any of the Equipment to be
removed from the location specified in the Rental Schedule for such Equipment.
Lessor may transfer and make an absolute assignment of its rights to the
Equipment on each Rental Schedule and the Lease to a third party who shall
assume all the rights and obligations of Lessor. Lessor may also collaterally
assign this Lease, and may grant a mortgage on, or security interest in, any
Equipment on each Rental Schedule to any such assignee, in whole or in part,
without notice to, or the consent of, Lessee. Each collateral assignee shall
have all of the rights but none of the obligations of Lessor under this Lease
and Lessee shall, upon receipt of written notice, recognize each such assignment
and mortgage or security interest and shall assent and comply with the
directions or demands given in writing by any such assignee. Lessee shall not
assert against any such assignee any defense, counterclaim or set-off. However,
nothing shall relieve Lessor from its obligations to Lessee. After any such
assignment this Lease may not be amended or modified without the prior written
consent of any such assignee. Upon any assignment of this Lease or the granting
of any mortgage on, or security interest in, any of the equipment, Lessor or its
assignee may record any instruments relating to the assignment, mortgage, or
security interest desired by Lessor or such assignee in accordance with the laws
of appropriate jurisdictions.
22. RECORDING AND FILING EXPENSES - Lessee will, upon demand of Lessor, at
-----------------------------
Lessee's cost and expense, execute, acknowledge, deliver, file, register,
record, deposit (and will re-file, re-register, re-record, or re-deposit
whenever required) any and all further instruments required by law in the
United States or requested by Lessee (or any assignee of Lessor) including,
without limitation, financing statements under the Uniform
<PAGE>
Commercial Code for the purpose of proper protection to the satisfaction of
Lessor, of Lessor's and/or its assign's title to any Equipment on each Rental
Schedule (and/or of Lessor's and/or its assign's security interest, if any, in
any of the Equipment) or for the purpose of carrying out the intention of this
Lease. Lessee will also pay, or will upon demand reimburse Lessor for all of the
reasonable out-of-pocket costs and expenses incurred by Lessor in connection
with this Lease and/or Lessor's purchase of any of the Equipment for lease and
for all fees and cost of any attorney specially retained by Lessor to take any
action or proceeding to enforce the terms of this Lease.
23. QUIET ENJOYMENT - Lessor hereby represents and warrants to Lessee that
---------------
Lessor has the full right and authority to enter into this Lease on the terms
herein stated, and that, conditional upon Lessee performing all of the terms,
covenants and conditions hereof, Lessor will not interfere with Lessee's right
to peaceably and quietly hold, possess and use the equipment during the term of
this Lease.
24. OPTION TO RENEW - Provided Lessee is not in Default, upon the expiration of
---------------
the initial term with respect to each Rental Schedule, Lessee shall have the
option, exercisable on at lease 180 days prior written notice to Lessor, to
renew the lease term with respect to all but not less than all of the Equipment
then subject to said Rental Schedule for additional renewal terms at a renewal
rent that would be obtained in an arms-length transaction between an informed
and willing prospective Lessee and an informed and willing prospective Lessor
under no compulsion to lease.
In the event that Lessee shall fail to give Lessor 180 days notice in writing,
this Lease as it relates to such Equipment shall be automatically extended and
continued at the same rent in effect for the last current rent period until 180
days after Lessor receives such notice in writing from Lessee.
If, after 90 days from notification to renew, Lessor and Lessee are unable to
agree on the renewal rent of the Equipment and Lessee wishes to proceed with
this option, then Lessor and Lessee at Lessor's option shall at Lessee's expense
obtain appraisal values from three (3) independent dealers in similar equipment
(one to be selected by Lessor, one by Lessee, and the other by the two selected
by Lessor and Lessee) and the renewal rent shall be calculated on the average
amount as determined by such dealers and shall be binding on the parties.
If Lessee has elected to renew the Rental Schedule pursuant to this option, the
renewal rent shall be payable subject to the terms and conditions of a Lease
Extension Agreement.
25. OPTION TO PURCHASE - Provided Lessee is not in Default, upon the expiration
------------------
of the lease term or any subsequent renewal term with respect to each Rental
Schedule, Lessee shall have the option, exercisable on at lease 180 days prior
written notice to Lessor, to purchase all, but not less than all of the
Equipment on said Rental Schedule. In the event that Lessee shall fail to give
Lessor 180 days notice in writing, this Lease as it relates to such Equipment
shall be automatically extended and continued at the same rent
<PAGE>
in effect for the last current rent period until 180 days after Lessor receives
such notice in writing from Lessee. If Lessee elects to exercise this option,
Lessee shall pay to Lessor, in good funds upon the expiration of the 180 day
written notice, in an amount agreed to by Lessee and Lessor.
If, after 90 days from notification to purchase, Lessor and Lessee are unable to
agree on the value of the Equipment, and Lessee wishes to proceed with this
option, then Lessor and Lessee at Lessor's option shall at Lessee's expense
obtain appraisal values from three (3) independent dealers in similar equipment
(one to be selected by Lessor, one by Lessee and the other by the two selected
by Lessor and Lessee) and the average value as determined by such dealers shall
be binding on the parties as the Fair Market Value.
Upon receipt of good funds and payment of all taxes and other charges, Lessor
shall, upon request of Lessee, execute and deliver to Lessee a bill of sale
(without representations or warranties except as to title and that the Equipment
is free and clear of all claims, liens, security interests and other
encumbrances) and such other documents as may be required to release the
Equipment from the terms of this Lease all at Lessee's expense.
26. MISCELLANEOUS
-------------
26.1 LATE CHARGE RATE - If Lessee fails to pay when due any amount required
----------------
to be paid, Lessee shall pay to Lessor late charges of five (5%) percent of any
payment more than ten (10) days overdue (but not less than $1.00) or such other
late charges as shall be established by Lessor from time to time but in no event
to exceed maximum lawful charges.
26.2 NOTICES - Any notice required or permitted to be given by either party
-------
hereto to the other shall be deemed to have been given when deposited in the
United States mails, first-class postage prepaid, addressed to either party at
its address or to such other address as either party shall furnish to the other
in writing.
26.3 SEVERABILITY: EFFECT AND MODIFICATION OF LEASE - Any provision of this
----------------------------------------------
Lease which is prohibited or unenforceable in any jurisdiction, shall be, as to
such jurisdiction, ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. No variation or
modification of this Lease and no waiver of any of its provisions or conditions
shall be valid or may be relied upon unless in writing and signed by duly
authorized officers of Lessor and Lessee.
26.4 RIGHTS AND OBLIGATIONS THAT SURVIVE TERMINATION - Upon the termination
-----------------------------------------------
of this Lease, Sections 10, 11, and 26.1 shall survive and continue to be in
effect in accordance with their terms.
<PAGE>
26.5 COUNTERSIGNATURE - This Lease and subsequent Rental Schedules are not
----------------
binding upon Lessor and no terms or conditions may be relied upon by Lessee
until such time as a Lessee executed copy is received at the home office of
Lessor, and is countersigned by a properly designated officer of the Lessor.
26.6 GOVERNING LAW - Lessor and Lessee agree that this Lease and other
-------------
documents incorporated in it shall be governed by and construed in accordance
with the laws of the State of California.
26.7 LESSOR'S RIGHT TO PERFORM FOR LESSEE - If Lessee fails to duly and
------------------------------------
promptly perform any of its obligations under this Lease or fails to comply with
any of the covenants or agreements contained herein, Lessor may itself perform
such obligations or comply with such covenants and agreements, for the account
of Lessee without thereby waiving any default, and any amount paid or expense
(including reasonable attorney's fees) incurred by Lessor in connection with
such performance or compliance shall, together with interest at the Late Charge
Rate, be payable by Lessee to Lessor on demand.
26.8 AGREEMENT FOR LEASE ONLY - Lessor and Lessee agree that this Lease is
------------------------
and is intended to be a true Lease and not a Lease intended as a security or a
Lease in the nature of a security interest.
IN WITNESS WHEREOF, Lessor and Lessee, each pursuant to its due authority, have
caused these presents to be signed in their respective named by their duly
authorized officers and their corporate seals, if applicable, to be hereunto
affixed and duly attested.
LESSOR: LESSEE:
LEASE INNOVATIONS, BLUE RHINO CORPORATION
INCORPORATED
BY /s/ Heather Fritz BY /s/ Kurt Gehsmann
------------------------- ------------------------------
TITLE President TITLE Controller
----------------------- ----------------------------
DATE August 11, 1996 DATE August 11,1996
----------------------- ----------------------------
FEDERAL ID NUMBER:
56-1870472
------------------
<PAGE>
SECRETARY'S CERTIFICATE RELATING TO
INCUMBENCY AND CORPORATE AUTHORITY
(To be used where no sale and leaseback is involved)
The undersigned, Kurt Gehsmann , Secretary/Clerk of
---------------------------------
(SECRETARY/CLERK PRINT NAME)
Blue Rhino Corporation a Delaware Corporation (the "Corporation") does hereby
certify:
1. That he/she is the duly elected, qualified and acting Secretary/Clerk
of the Corporation and has the custody of the corporate records, minutes and
corporate seal.
2. That the following person(s) has/have been properly designated,
elected and assigned to the office in such corporation as indicated below; that
such persons(s) hold(s) such office at this time and that the specimen
signature appearing beside the name of such officer is his/her true and correct
signature.
Name Title Specimen
Signature
Mark Castaneda CFO /s/ Mark Castaneda
- --------------------------------------------------------------------------------
(MUST BE NAME, TITLE AND SIGNATURE OF PERSON SIGNING LEASE DOCUMENTS)
________________________________________________________________________________
3. That each of such officers is duly authorized for and on behalf of
said Corporation to execute and deliver any Master Equipment Lease Agreement
between said Corporation and Leasing Innovations, Incorporated, and all
agreements, documents, and instruments in connection therewith.
4. That the execution and delivery of any such Master Equipment Lease
Agreement, and all agreements, documents, and instruments in connection
therewith for and on behalf of said Corporation is not prohibited by or in any
manner restricted by the terms of said Corporation's Certificate of
Incorporation, its by-laws, or of any loan agreement, indenture or contract to
which said Corporation is a party or under which it is bound.
5. That he/she is one of the duly authorized and proper officer(s) of
said Corporation to make certificates in its behalf and that he/she has caused
this Certificate to be executed and the seal of said Corporation to be appended
on October 23, 1998.
(Corporate Seal)
/s/ Kurt Gehsmann
---------------------------------
Secretary/Clerk (SIGNATURE)
(CANNOT BE PERSON SIGNING LEASE DOCS)
<PAGE>
EXHIBIT 10.17(a)
NationsBank, N.A.
Date: DECEMBER 31, 1998
Limited Guaranty
================================================================================
Bank: Guarantor:
NationsBank, N.A.
Banking Center:
Commercial Lending BLUE RHINO CORPORATION
380 Knollwood Street 104 CAMBRIDGE PLAZA DRIVE
Winston-Salem, Forsyth Co., NC 27103 WINSTON-SALEM, FORSYTH CO., NC 27104
(Street address including county) (Name and street address,
including county)
================================================================================
"Borrower": USA LEASING, LLC
------------------------------------------------------------------
(Borrower's Name)
1. Guaranty. FOR VALUE RECEIVED, and to induce NationsBank, N.A.
(Attn: Simpson O. Brown, Jr.) ("Bank") to make loans or advances or to extend
credit or other financial accommodations or benefits, with or without security,
to or for the account of Borrower, the undersigned "Guarantor", if more than
one, then each of them jointly and severally, hereby becomes surety for and
irrevocably and unconditionally guarantees to Bank prompt payment in an amount
as provided herein, when due, whether by acceleration or otherwise, of any
Liabilities of Borrower to Bank. This Guaranty is cumulative to and does not
supersede any other guaranties.
[This Guaranty contains some provisions preceded by boxes. If a box is marked,
the provision applies to this transaction; if it is not marked, the provision
does not apply to this transaction.]
[_] This Guaranty is continuing and limited to the amount of $_____________
dollars principal plus interest owing at any time, plus attorney's fees, cost of
expenses of collection incurred and/or the cost of the enforcement of rights in
enforcing this Guaranty (including, without limitation, any liability arising
from failure to comply with any state or federal laws, rules and regulations
concerning the control of hazardous waste or substances at or with respect to
any real estate securing any loan guaranteed hereby), plus interest on such
attorney's fees and cost of collection.
[_] This Guaranty is limited to the amount of $_____________ dollars principal
plus interest incurred by Borrower pursuant to that certain promissory note or
other Loan Documents from Borrower to Bank, dated ____________, 19__ in the
principal amount of $_____________ dollars, including, without limitation, all
principal plus interest owing at any time thereunder whether arising by renewal
or advance of additional principal which may accrue or be incurred with respect
to said promissory note or other Loan Documents, plus attorney's fees, cost of
expenses of collection incurred and/or the cost of the enforcement of rights in
enforcing this Guaranty (including, without limitation, any liability arising
from failure to comply with any state or federal laws, rules and regulations
concerning the control of hazardous waste or substances at or with respect to
any real estate securing any loan guaranteed hereby), plus interest on such
attorney's fees and cost of collection.
[_] This Guaranty is continuing and limited to ____________________% percent of
all principal plus interest owing at any time, plus attorney's fees, cost of
expenses of collection incurred and/or the cost of the enforcement of rights in
enforcing this Guaranty (including, without limitation, any liability arising
from failure to comply with any state or federal laws, rules and regulations
concerning the control of hazardous waste or substances at or with respect to
any real estate securing any loan guaranteed hereby), plus interest on such
attorney's fees and cost of collection.
[X] This Guaranty is limited to the lesser of eighty percent (80%) of all
principal plus interest incurred by Borrower pursuant to that certain promissory
note or other Loan Documents from Borrower to Bank, dated December 31, 1998 in
the principal amount of $13,000,000.00 dollars, or $10,400,000.00, including,
without limitation, all principal plus interest arising thereunder whether
arising by renewal or advance of additional principal which may accrue or be
incurred with respect to said promissory note or other Loan Documents, plus
attorney's fees, cost of expenses of collection incurred and/or the cost of the
enforcement of rights in enforcing this Guaranty (including, without limitation,
any liability arising from failure to comply with any state or federal laws,
rules and regulations concerning the control of hazardous waste or substances at
or with respect to any real estate securing any loan guaranteed hereby), plus
interest on such attorney's fees and cost of collection.
Except to the extent limited above, Guarantor unconditionally guarantees the
faithful, prompt and complete compliance by Borrower with all Obligations (as
hereinafter defined). The undertakings of Guarantor hereunder are independent of
the Liabilities and Obligations of Borrower and a separate action or actions for
payment, damages or performance may be brought or prosecuted against Guarantor,
whether or not an action is brought against Borrower or to realize upon the
security for the Liabilities and/or Obligations, whether or not Borrower is
joined in any such action or actions, and whether or not notice is given or
demand is made upon Borrower.
Bank shall not be required to proceed first against Borrower, or any other
person or entity, whether primarily or secondarily liable, or against any
collateral held by it, before resorting to Guarantor for payment, and Guarantor
shall not be entitled to assert as a defense to the enforceability of the
Guaranty any defense of Borrower with respect to any Liabilities or Obligations.
2. Paragraph Headings, Governing Law and Binding Effect. Guarantor agrees that
the paragraph headings in this Guaranty are for convenience only and that they
will not limit any of the provisions of this Guaranty. Guarantor further agrees
that this Guaranty shall be governed by and construed in accordance with the
laws of the State of North Carolina and applicable United States federal law.
Guarantor further agrees that this Guaranty shall be deemed to have been made in
the State of North Carolina at Bank's address indicated above, and shall be
governed by, and construed in accordance with, the laws of the State of North
Carolina, or the United States courts located within the State of North
Carolina, and is performable in the State of North Carolina. This Guaranty is
binding upon Guarantor, his, their or its executors, administrators, successors
or assigns, and shall inure to the benefit of Bank, its successors, indorsees or
assigns. Anyone executing this Guaranty shall be bound by the terms hereof
without regard to execution by anyone else.
-1-
<PAGE>
3. Definitions.
A. "Guarantor" shall mean Guarantor or any one or more of them.
B. "Liability" or "Liabilities" shall mean without limitation, all
liabilities, overdrafts, indebtedness, and obligations of Borrower and/or
Guarantor to Bank, whether direct or indirect, absolute or contingent, joint or
several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, now or
hereafter existing, or held or to be held by Bank for its own account or as
agent for another or others, whether created directly, indirectly, or acquired
by assignment or otherwise, including but not limited to all extensions or
renewals thereof, and all sums payable under or by virtue thereof, including
without limitation, all amounts of principal and interest, all expenses
(including reasonable attorney's fees and cost of collection) incurred in the
collection thereof or the enforcement of rights thereunder (including without
limitation, any liability arising from failure to comply with state or federal
laws, rules and regulations concerning the control of hazardous waste or
substances at or with respect to any real estate securing any loan guaranteed
hereby), whether arising in the ordinary course of business or otherwise. If
Borrower is a partnership, corporation or other entity the term "Liability" or
"Liabilities" as used herein shall include all Liabilities to Bank of any
successor entity or entities.
C. "Loan Documents" shall mean all deeds to secure debt, deeds of trust,
mortgages, security agreements and other documents securing payment of the
Liabilities and all notes and other agreements, documents, and instruments
evidencing or relating to the Liabilities and Obligations.
D. "Obligation" or "Obligations" shall mean all terms, conditions,
covenants, agreements and undertakings of Borrower and/or Guarantor under all
notes and other documents evidencing the Liabilities, and under all deeds to
secure debt, deeds of trust, mortgages, security agreements and other
agreements, documents and instruments executed in connection with the
Liabilities or related thereto.
4. Waivers by Guarantor. Guarantor waives notice of acceptance of this
Guaranty, notice of any Liabilities or Obligations to which it may apply,
presentment, demand for payment, protest, notice of dishonor or nonpayment of
any Liabilities, notice of intent to accelerate, notice of acceleration, and
notice of any suit or the taking of other action by Bank against Borrower,
Guarantor or any other person, any applicable statute of limitations and any
other notice to any party liable on any Loan Document (including Guarantor).
Each Guarantor also hereby waives any claim, right or remedy which such
Guarantor may now have or hereafter acquire against Borrower that arises
hereunder and/or from the performance by any other Guarantor hereunder
including, without limitation, any claim, remedy or right of subrogation,
reimbursement, exoneration, contribution, indemnification, or participation in
any claim, right or remedy of Bank against Borrower or against any security
which Bank now has or hereafter acquires, whether or not such claim, right or
remedy arises in equity, under contract, by statute, under common law or
otherwise.
Guarantor also waives the benefits of any provision of law requiring that Bank
exhaust any right or remedy, or take any action, against Borrower, any
Guarantor, any other person and/or property including but not limited to the
provisions of N.C. Gen. Stat. (S)26-7 through (S)26-9, inclusive, as amended, or
otherwise.
Bank may at any time and from time to time (whether before or after revocation
or termination of this Guaranty) without notice to Guarantor (except as required
by law), without incurring responsibility to Guarantor, without impairing,
releasing or otherwise affecting the Obligations of Guarantor, in whole or in
part, and without the indorsement or execution by Guarantor of any additional
consent, waiver or guaranty: (a) change the manner, place or terms of payment,
or change or extend the time of or renew, or change any interest rate or alter
any Liability or Obligation or installment thereof, or any security therefor;
(b) loan additional monies or extend additional credit to Borrower, with or
without security, thereby creating new Liabilities or Obligations the payment or
performance of which shall be guaranteed hereunder, and the Guaranty herein made
shall apply to the Liabilities and Obligations as so changed, extended,
surrendered, realized upon or otherwise altered; (c) sell, exchange, release,
surrender, realize upon or otherwise deal with in any manner and in any order
any property at any time pledged or mortgaged to secure the Liabilities or
Obligations and any offset there against; (d) exercise or refrain from
exercising any rights against Borrower or others (including Guarantor) or act or
refrain from acting in any other manner; (e) settle or compromise any Liability
or Obligation or any security therefor and subordinate the payment of all or any
part thereof to the payment of any Liability or Obligation of any other parties
primarily or secondarily liable on any of the Liabilities or Obligations; (f)
release or compromise any Liability of Guarantor hereunder or any Liability or
Obligation of any other parties primarily or secondarily liable on any of the
Liabilities or Obligations; or (g) apply any sums from any sources to any
Liability without regard to any Liabilities remaining unpaid.
5. Subordination. Upon demand of Bank, Guarantor agrees that it will not
demand, take or receive from Borrower, by set-off or in any other manner,
payment of any debt, now and at any time or times hereafter owing by Borrower to
Guarantor unless and until all the Liabilities and Obligations shall have been
fully paid and performed, and any security interest, liens or encumbrances which
Guarantor now has and from time to time hereafter may have upon any of the
assets of Borrower shall be made subordinate, junior and inferior and postponed
in priority, operation and effect to any security interest of Bank in such
assets.
6. Waivers by Bank. No delay on the part of Bank in exercising any of its
options, powers or rights, and no partial or single exercise thereof, shall
constitute a waiver thereof. No waiver of any of its rights hereunder, and no
modification or amendment of this Guaranty, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; and each
such waiver, if any, shall apply only with respect to the specific instance
involved, and shall in no way impair the rights of Bank or the obligations of
Guarantor to Bank in any other respect at any other time.
7. Termination. This Guaranty shall be binding on each Guarantor until written
notice of revocation signed by such Guarantor or written notice of the
dissolution of such Guarantor shall have been received by Bank, notwithstanding
change in name, location, composition or structure of, or the dissolution,
termination or increase, decrease or change in personnel, owners or partners of
Borrower, or any one or more of Guarantors. No notice of revocation or
termination hereof shall affect in any manner rights arising under this Guaranty
with respect to Liabilities or Obligations that shall have been committed,
created, contracted, assumed or incurred prior to receipt of such written notice
pursuant to any agreement entered into by Bank prior to receipt of such notice.
The sole effect of such notice of revocation or termination hereof shall be to
exclude from this Guaranty, Liabilities or Obligations thereafter arising that
are unconnected with Liabilities or Obligations theretofore arising or
transactions entered into theretofore.
8. Partial Invalidity and/or Enforceability of Guaranty. The unenforceability
or invalidity of any provision of this Guaranty shall not affect the
enforceability or validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document as it may apply to any
person or circumstance shall not affect the enforceability or validity of such
provision as it may apply to other persons or circumstances.
In the event Bank is required to relinquish or return the payments, the
collateral or the proceeds thereof, in whole or in part, which
-2-
<PAGE>
had been previously applied to or retained for application against any
Liability, by reason of a proceeding arising under the Bankruptcy Code, or for
any other reason, this Guaranty shall automatically continue to be effective
notwithstanding any previous cancellation or release effected by Bank.
9. Change of Status. Guarantor will not become a party to a merger or
consolidation with any other company, except where Guarantor is the surviving
corporation or entity, and all covenants under this Guaranty are assumed by the
surviving entity. Further, Guarantor may not change its legal structure, without
the written consent of Bank and all covenants under this Guaranty are assumed by
the new or surviving entity. Guarantor further agrees that this Guaranty shall
be binding, legal and enforceable against Guarantor in the event Borrower
changes its name, status or type of entity.
10. Financial and Other Information. Guarantor agrees to furnish to Bank any
and all financial information and any other information regarding Guarantor
and/or collateral requested in writing by Bank within ten (10) days of the date
of the request. Guarantor has made an independent investigation of the financial
condition and affairs of Borrower prior to entering into this Guaranty, and
Guarantor will continue to make such investigation; and in entering into this
Guaranty Guarantor has not relied upon any representation of Bank as to the
financial condition, operation or creditworthiness of Borrower. Guarantor
further agrees that Bank shall have no duty or responsibility now or hereafter
to make any investigation or appraisal of Borrower on behalf of Guarantor or to
provide Guarantor with any credit or other information which may come to its
attention now or hereafter.
11. Notices. Notice shall be deemed reasonable if mailed postage prepaid at
least five (5) days before the related action to the address of Guarantor or
Bank, at their respective addresses indicated at the beginning of this Guaranty,
or to such other address as any party may designate by written notice to the
other party. Each notice, request and demand shall be deemed given or made, if
sent by mail, upon the earlier of the date of receipt or five (5) days after
deposit in the U.S. Mail, first class postage prepaid, or if sent by any other
means, upon delivery.
12. Guarantor Duties. Guarantor shall upon notice or demand by Bank promptly
and with due diligence pay all Liabilities and perform and satisfy all
Obligations for the benefit of Bank in the event of (a) the occurrence of any
default under any Loan Documents; (b) the failure of any Borrower or Guarantor
to perform any obligation or pay any liability or indebtedness of any Borrower
or Guarantor to Bank, or to any affiliate of Bank, whether under any Note,
Guaranty, or any other agreement, now or hereafter existing, as and when due
(whether upon demand, at maturity or by acceleration); (c) the failure of any
Borrower or Guarantor to pay or perform any other liability, obligation or
indebtedness of any Borrower or Guarantor to any other party; (d) the death of
any Borrower or Guarantor (if an individual); (e) the resignation or withdrawal
of any partner or a material owner/Guarantor of Borrower, as determined by Bank
in its sole discretion; (f) the commencement of a proceeding against any
Borrower or Guarantor for dissolution or liquidation, the voluntary or
involuntary termination or dissolution of any Borrower or Guarantor or the
merger or consolidation of any Borrower or Guarantor with or into another
entity; (g) the insolvency, or the business failure of, or the appointment of a
custodian, trustee, liquidator or receiver for or of any of the property of, or
the assignment for the benefit of creditors by, or the filing of a petition
under bankruptcy, insolvency or debtor's relief law or the filing of a petition
for any adjustment of indebtedness, composition or extension by or against any
Borrower or Guarantor; (h) the sole determination by Bank that any
representation or warranty to Bank in any Loan Document or otherwise to Bank was
untrue or materially misleading when made; (i) the failure of Guarantor or
Borrower to timely deliver such financial statements including tax returns and
all schedules, or other statements of condition or other information, as Bank
shall request from time to time; (j) the entry of a judgment against Borrower or
Guarantor which Bank deems to be of a material nature in the sole discretion of
Bank; (k) the seizure or forfeiture of any of Borrower or Guarantor's property,
or the issuance of any writ of possession, garnishment or attachment, or any
turnover order; (l) any lien or additional security interest being placed upon
any collateral which is security for any Loan Document; or (m) the failure of
Borrower's business to comply with any law or regulation controlling the
operation of Borrower's business, the failure to comply with which would result
in a material adverse effect on Borrower.
13. Remedies. Upon the failure of Guarantor to fulfill its duty to pay all
Liabilities and perform and satisfy all Obligations as required hereunder, Bank
shall have all of the remedies of a creditor and, to the extent applicable, of a
secured party, under all applicable law, and without limiting the generality of
the foregoing, Bank may, at its option and without notice or demand: (a)
declare any Liability due and payable at once; (b) take possession of any
collateral pledged by Borrower or Guarantor wherever located, and sell, resell,
assign, transfer and deliver all or any part of said collateral of Borrower or
Guarantor at any public or private sale or otherwise dispose of any or all of
the collateral in its then condition, for cash or on credit or for future
delivery, and in connection therewith Bank may impose reasonable conditions upon
any such sale, and Bank, unless prohibited by law the provisions of which cannot
be waived, may purchase all or any part of said collateral to be sold, free from
and discharged of all trusts, claims, rights or redemption and equities of
Borrower or Guarantor whatsoever; Guarantor acknowledges and agrees that the
sale of any collateral through any nationally recognized broker-dealer,
investment banker or any other method common in the securities industry shall be
deemed a commercially reasonable sale under the Uniform Commercial Code or any
other equivalent statute or federal law, and expressly waives notice thereof
except as provided herein; and (c) set-off against any or all liabilities of
Guarantor all money owed by Bank or any of its agents or affiliates in any
capacity to Guarantor whether or not due, and also set-off against all other
Liabilities of Guarantor to Bank all money owed by Bank in any capacity to
Guarantor, and if exercised by Bank, Bank shall be deemed to have exercised such
right of set-off and to have made a charge against any such money immediately
upon the occurrence of such default although made or entered on the books
subsequent thereto.
Bank shall have a properly perfected security interest in all of Guarantor's
funds on deposit with Bank to secure the balance of any Liabilities and/or
Obligations that Guarantor may now or in the future owe Bank. Bank is granted a
contractual right of set-off and will not be liable for dishonoring checks or
withdrawals where the exercise of Bank's contractual right of set-off or
security interest results in insufficient funds in Guarantor's account. As
authorized by law, Guarantor grants to Bank this contractual right of set-off
and security interest in all property of Guarantor now or at anytime hereafter
in the possession of Bank, including but not limited to any joint account,
special account, account by the entireties, tenancy in common, and all dividends
and distributions now or hereafter in the possession or control of Bank.
14. Attorney Fees, Cost and Expenses. Guarantor shall pay all costs of
collection and reasonable attorney's fees, including reasonable attorney's fees
in connection with any suit, mediation or arbitration proceeding, out of Court
payment agreement, trial, appeal, bankruptcy proceedings or otherwise, incurred
or paid by Bank in enforcing the payment of any Liability or defending this
agreement.
15. Collateral.
[ ] Check if applicable. Guarantor hereby pledges, assigns and grants to Bank a
security interest in and title to the collateral described in the security
agreement, deed of trust, deed to secure debt, mortgage or other collateral
instrument dated _______, 19___ which collateral, except for any margin stock
(as defined in Regulation U of the Board of Governors of the Federal Reserve
System), shall secure this Guaranty, whether currently existing or arising in
the future. Guarantor agrees to execute such security agreements, financing
statements and other documents as Bank may reasonably require or request to
obtain and perfect its security interest in said collateral.
-3-
<PAGE>
16. Preservation of Property. Bank shall not be bound to take any steps
necessary to preserve any rights in any property pledged as collateral to Bank
to secure Borrower and/or Guarantor's Liabilities and Obligations as against
prior parties who may be liable in connection therewith, and Borrower and
Guarantor hereby agree to take any such steps. Bank, nevertheless, at any time,
may (a) take any action it deems appropriate for the care or preservation of
such property or of any rights of Borrower and/or Guarantor or Bank therein; (b)
demand, sue for, collect or receive any money or property at any time due,
payable or receivable on account of or in exchange for any property pledged as
collateral to Bank to secure Borrower and/or Guarantor's Liabilities to Bank;
(c) compromise and settle with any person liable on such property; or (d) extend
the time of payment or otherwise change the terms of the Loan Documents as to
any party liable on the Loan Documents, all without notice to, without incurring
responsibility to, and without affecting any of the Obligations or Liabilities
of Guarantor.
17. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY
PARTY TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
BORROWER'S DOMICILE, OR IF THERE IS REAL OR PERSONAL PROPERTY COLLATERAL, IN THE
COUNTY WHERE SUCH REAL OR PERSONAL PROPERTY IS LOCATED AT THE TIME OF THE
EXECUTION OF THIS INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S.
WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL
SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND
FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
18. Controlling Document. To the extent that this Limited Guaranty conflicts
with or is in any way incompatible with any other Loan Document concerning this
Obligation, any promissory note shall control over any other document, and if
such promissory note does not address an issue, then each other document shall
control to the extent that it deals most specifically with an issue.
19. Execution Under Seal. This Guaranty is being executed under seal by
Guarantor.
20. NOTICE OF FINAL AGREEMENT. THIS WRITTEN LIMITED GUARANTY REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be executed
under seal on this 31st day of December , 1998.
Witnessed By: Guarantor:
(Seal)
- ---------------------------------- ----------------------------------
- ---------------------------------- -----------------------------------------
Print Name and Title Print Individual's Name
Corporate or Partnership Guarantor:
BLUE RHINO CORPORATION
By: /s/ Billy D. Prim (Seal)
------------------------------
Name: Billy D. Prim
-----------------------------------
Title: Chairman and CEO
----------------------------------
-4-
<PAGE>
/s/ Mark Castaneda
--------------------------------------
Attest (If Applicable)
[Corporate Seal]
Corporate Acknowledgment
State of North Carolina )
--------------------- )
)
County of Forseythe )
-------------------- )
This instrument was acknowledged before me on December 31, 1998, by Billy D.
Prim, Chairman and CEO of BLUE RHINO CORPORATION, a North Carolina corporation,
on behalf of said corporation.
/s/ Abbye R. Caudle
-----------------------------------------
(Seal) Notary Public
in and for the State of North Carolina
- ------------------------------
September 26, 1999 Abbye R. Caudle
- ------------------------------ -----------------------------------------
My Commission Expires Print Name of Notary
-5-
<PAGE>
EXHIBIT 10.17(b)
SUBORDINATED SECURITY AGREEMENT
SUBORDINATED SECURITY AGREEMENT, dated December 31, 1998, made by USA
Leasing, LLC, a Delaware limited liability company, ("USA") in favor of Blue
Rhino Corporation ("Blue Rhino").
W I T N E S S E T H:
-------------------
WHEREAS, USA is the obligor on a $13,000,000 credit facility from
NationsBank, N.A.(the "Bank") (the "USA Facility");
WHEREAS, pursuant to the terms of a Limited Guaranty (the "Guaranty"), Blue
Rhino has agreed to guaranty up to 80% of all principal owed by USA to the Bank
plus all interest due from USA to the Bank and all costs, fees, expenses and
other charges due from USA to the Bank;
WHEREAS, as a condition to the Bank's entry into the USA Facility, the Bank
has required Blue Rhino's execution of the Guaranty; and
WHEREAS, as an inducement to Blue Rhino to execute the Guaranty, USA has
agreed to execute and deliver this Subordinated Security Agreement granting a
security interest in substantially all of its assets as security for any amounts
which USA may owe Blue Rhino as a result of any payments made by Blue Rhino
under the Guaranty.
NOW, THEREFORE, in consideration of the premises and to induce Blue Rhino
to enter into the Guaranty, USA hereby agrees with Blue Rhino as follows:
1. Defined Terms.
a. Definitions. Unless otherwise defined herein, and the following
terms which are defined in the Uniform Commercial Code in effect in the State of
North Carolina on the date hereof are used herein as so defined: Accounts,
Chattel Paper, Documents, Equipment, Farm Products, General Intangibles,
Instruments, Inventory, Investment Property and Proceeds.
The following terms shall have the following meanings:
"Agreement": this Subordinated Security Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"Code": the Uniform Commercial Code as from time to time in effect in
the State of North Carolina.
"Collateral": as defined in Section 2.
<PAGE>
"Cylinder Leases": all leases for propane cylinders entered into
between USA and any third party, including, without limitation, (a) all
rights of USA to receive moneys due and to become due to it thereunder or
in connection therewith, (b) all rights of USA to damages arising out of or
for breach or default in respect thereof and (c) all rights of USA to
exercise all remedies thereunder.
"Obligations": the collective reference to all unpaid principal of and
interest on the USA Facility and all other obligations and liabilities of
USA to the Bank or to Blue Rhino (including, without limitation, interest
accruing at the then applicable rate provided in the Loan Agreement and
Promissory Note evidencing the USA Facility).
"Receivable": any right to payment for goods sold or leased or for
services rendered, whether or not such right is evidenced by an Instrument
or Chattel Paper and whether or not it has been earned by performance
(including, without limitation, any Account).
"Subordination Agreement" means that certain subordination agreement
of even date herewith among USA, Blue Rhino and the Bank.
b. Other Definitional Provisions. The words "hereof," "herein",
"hereto" and "hereunder" and words of similar import when used in this Agreement
shall refer to this Agreement as a whole and not to any particular provision of
this Agreement, and Section, subsection and Schedule references are to this
Agreement unless otherwise specified.
The meanings given to terms defined herein shall be equally applicable to
both the singular and plural forms of such terms.
2. Grant of Security Interest. As collateral security for the prompt
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of the Obligations of USA to Blue Rhino, USA
hereby grants to Blue Rhino a security interest in all of the following property
now owned or at any time hereafter acquired by USA or in which USA now has or
at any time in the future may acquire any right, title or interest
(collectively, the "Collateral"):
all Accounts;
all Chattel Paper;
all Contracts;
all Cylinder Leases;
<PAGE>
all Documents;
all Equipment;
all General Intangibles;
all Instruments;
all Inventory; and
all Investment Property.
all books, records, ledgercards, files, correspondence, computer programs,
tapes, disks, and related data processing software (owned by USA or in which it
has an interest) that at any time evidence or contain information relating to
any Collateral or are otherwise necessary or helpful on the collection thereof
or realization thereupon; and
to the extent not otherwise included, all Proceeds and products of any and
all of the foregoing and all collateral security and guarantees given by any
Person with respect to any of the foregoing.
3. Subordination. Pursuant to the terms of the Subordination Agreement,
entered into among the Bank, Blue Rhino and the Bank, all the security interest
granted pursuant to this Agreement and all rights and remedies of Blue Rhino
hereunder are expressly subordinate to the rights of the Bank in the Collateral.
4. Events of Default and Remedies.
In the event Blue Rhino is required to pay any amount under the Guaranty,
such payment will be deemed an Event of Default hereunder and Blue Rhino shall
have all rights of a secured party at law and equity subject only to the
limitations set forth in the Subordination Agreement. Such rights and remedies
include but are not limited to:
a. Notice to Obligors and Contract Parties. Upon the request of
Blue Rhino at any time after the occurrence and during the continuance of an
Event of Default, USA shall notify obligors on the Receivables and parties to
the Contracts and Cylinder Leases that the Receivables, the Contracts and
Cylinder Leases have been assigned to Blue Rhino and that payments in respect
thereof shall be made directly to Blue Rhino.
b. Proceeds to be Turned Over To Blue Rhino. If an Event of Default
shall occur and be continuing all Proceeds received by USA consisting of cash,
checks and other near-cash items shall be held by USA in trust for Blue Rhino,
segregated from other funds of USA, and shall, forthwith upon receipt by USA, be
turned over to Blue Rhino in the exact
<PAGE>
form received by USA (duly indorsed by USA to Blue Rhino, if required) to be
held as collateral security for all the Obligations and shall not constitute
payment thereof until applied as provided in subsection (c).
c. Application of Proceeds. If an Event of Default shall have
occurred and be continuing, at any time at Blue Rhino's election (subject to the
terms of the Subordination Agreement) Blue Rhino may apply all or any part of
Proceeds in payment of the Obligations in such order as Blue Rhino may elect.
Any balance of such Proceeds remaining after the Obligations shall have been
paid in full and the USA Leasing Facility has been terminated shall be paid over
to USA or to whomsoever may be lawfully entitled to receive the same.
d. Code Remedies. If an Event of Default shall occur and be
continuing, Blue Rhino may exercise, in addition to all other rights and
remedies granted to it in this Agreement and in any other instrument or
agreement securing, evidencing or relating to the Obligations, all rights and
remedies of a secured party under the Code. Without limiting the generality of
the foregoing, Blue Rhino, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon USA or any other Person (all and
each of which demands, defenses, advertisements and notices are hereby waived),
may in such circumstances forthwith collect, receive, appropriate and realize
upon the Collateral, or any part thereof, and/or may forthwith sell, lease,
assign, give option or options to purchase, or otherwise dispose of and deliver
the Collateral or any part thereof (or contract to do any of the foregoing), in
one or more parcels at public or private sale or sales, at any exchange,
broker's board or office of Blue Rhino or elsewhere upon such terms and
conditions as it may deem advisable and at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Blue Rhino shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of the Collateral so sold, free of any right or equity of
redemption in USA, which right or equity is hereby waived or released. USA
further agrees, at Blue Rhino's request, to assemble the Collateral and make it
available to Blue Rhino at places which Blue Rhino shall reasonably select,
whether at USA's premises or elsewhere. Blue Rhino shall apply the net proceeds
of any action taken by it pursuant to this subsection, after deducting all
reasonable costs and expenses of every kind incurred in connection therewith or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of Blue Rhino hereunder, including,
without limitation, reasonable attorneys' fees and disbursements, to the payment
in whole or in part of the Obligations, in such order as Blue Rhino may elect,
and only after such application and after the payment by Blue Rhino of any other
amount required by any provision of law, including, without limitation, Section
9-504(1)(c) of the Code, need Blue Rhino account for the surplus, if any, to
USA. To the extent permitted by applicable law, USA waives all claims, damages
and demands it may acquire against Blue Rhino arising out of the exercise by
them of any rights hereunder. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least 10 days
<PAGE>
before such sale or other disposition.
5. Blue Rhino's Appointment as Attorney-in-Fact; Blue Rhino's Performance
of USA's Obligations.
a. Powers. USA hereby irrevocably constitutes and appoints Blue
Rhino and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of USA and in the name of USA or in its own name, for the
purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Agreement, and,
without limiting the generality of the foregoing, USA hereby gives Blue Rhino
the power and right, on behalf of USA, without notice to or assent by USA, to do
any or all of the following:
(i) in the name of USA or its own name, or otherwise, take
possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Receivable, Contract, Cylinder Lease or with respect to any other
Collateral and file any claim or take any other action or proceeding in any
court of law or equity or otherwise deemed appropriate by Blue Rhino for
the purpose of collecting any and all such moneys due under any Receivable,
Contract or Cylinder Lease or with respect to any other Collateral whenever
payable;
(ii) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or any insurance
called for by the terms of this Agreement and pay all or any part of the
premiums therefor and the costs thereof;
(iii) execute, in connection with any sale provided for in
subsection, any indorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral; and
(iv) direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to Blue Rhino or as Blue Rhino shall direct; (ii) ask
or demand for, collect, receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral; (iii) sign and indorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, notices and
other documents in connection with any of the Collateral; (iv) commence and
prosecute any suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect the Collateral or any thereof
and to enforce any
<PAGE>
other right in respect of any Collateral; (v) defend any suit, action or
proceeding brought against USA with respect to any Collateral; (vi) settle,
compromise or adjust any such suit, action or proceeding and, in connection
therewith, to give such discharges or releases as Blue Rhino may deem
appropriate; and (vii) generally, sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any of the Collateral as
fully and completely as though Blue Rhino were the absolute owner thereof
for all purposes, and do, at Blue Rhino's option and USA's expense, at any
time, or from time to time, all acts and things which Blue Rhino deems
necessary to protect, preserve or realize upon the Collateral and Blue
Rhino's security interest therein and to effect the intent of this
Agreement, all as fully and effectively as USA might do.
Anything in this subsection to the contrary notwithstanding, Blue Rhino
agrees that it will not exercise any rights under the power of attorney provided
for in this subsection unless an Event of Default shall have occurred and be
continuing.
b. Performance by Blue Rhino of USA's Obligations. If USA fails to
perform or comply with any of its agreements contained herein, Blue Rhino, at
its option, but without any obligation so to do, may perform or comply, or
otherwise cause performance or compliance, with such agreement.
c. Ratification; Power Coupled With An Interest. USA hereby ratifies
all that said attorneys shall lawfully do or cause to be done by virtue hereof.
All powers, authorizations and agencies contained in this Agreement are coupled
with an interest and are irrevocable until this Agreement is terminated and the
security interests created hereby are released.
6. Execution of Financing Statements. Pursuant to Section 9-402 of the
Code, USA authorizes Blue Rhino to file financing statements with respect to the
Collateral without the signature of USA in such form and in such filing offices
as Blue Rhino reasonably determines appropriate to perfect the security
interests of Blue Rhino under this Agreement. A carbon, photographic or other
reproduction of this Agreement shall be sufficient as a financing statement for
filing in any jurisdiction.
7. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
8. Amendments in Writing; No Waiver; Cumulative Remedies.
a. Amendments in Writing. None of the terms or provisions of this
Agreement may
<PAGE>
be waived, amended, supplemented or otherwise modified except by a written
instrument executed by USA and Blue Rhino, provided that any provision of this
Agreement imposing obligations on USA may be waived by Blue Rhino in a written
instrument executed by Blue Rhino.
b. No Waiver by Course of Conduct. Blue Rhino shall not by any act
(except by a written instrument pursuant to subsection), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any Default or Event of Default. No failure to exercise,
nor any delay in exercising, on the part of Blue Rhino, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by Blue Rhino of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which Blue Rhino would
otherwise have on any future occasion.
9. Remedies Cumulative. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
other rights or remedies provided by law.
10. Section Headings. The Section and subsection headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
11. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of USA and shall inure to the benefit of Blue Rhino and
its successors and assigns.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NORTH CAROLINA.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Subordinated Security
Agreement to be duly executed and delivered as of the date first above written.
USA LEASING, LLC
By: /s/ Billy D. Prim
----------------------------
Billy D. Prim, Manager
BLUE RHINO CORPORATION
By /s/ Mark Castaneda
----------------------------
Mark Castaneda, Secretary
<PAGE>
Exhibit 23.1
Consent of Pedersen & Houpt, P.C.
Pedersen & Houpt, P.C. hereby consents to all references made to it in
Amendment No. 1 to the Registration Statement on Form S-1 of Blue Rhino
Corporation, as filed with the Securities and Exchange Commission on
January 15, 1999.
/s/ Pedersen & Houpt, P.C.
Pedersen & Houpt, P.C.
Chicago, Illinois
January 15, 1999
<PAGE>
Exhibit 23.2
Consent of Independent Accountants
We consent to the inclusion in this Amendment No. 1 to Registration
Statement on Form S-1 of our report dated September 22, 1998 on our audits of
the consolidated financial statements of Blue Rhino Corporation. We also consent
to the references to our firm under the captions "Experts" and "Selected
Consolidated Financial Data."
/s/ PricewaterhouseCoopers LLP
Greensboro, North Carolina
January 15, 1999
<PAGE>
Exhibit 23.3
Consent of the Barbecue Industry Association of America
The Barbecue Industry Association of America hereby consents to all
references made to it and to all facts and figures in the 1997 Barbecue
Lifestyle Usage and Amendment No. 1 Attitude Study performed on behalf of the
Barbecue Industry Association in this Amendment No. 1 to the Registration
Statement on Form S-1 of Blue Rhino Corporation, as filed with the Securities
and Exchange Commission on January 15, 1999.
Barbecue Industry Association of America
By: /s/ Bill G. Neal
---------------------------
Name: Bill G. Neal
-------------------------
Title: Chairman
------------------------
Barbecue Industry Association of America
Greeneville, Tennessee
January 14, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE BLUE RHINO CORPORATION CONSOLIDATED BALANCE SHEETS AS OF JULY 31, 1998
(AUDITED) AND OCTOBER 31, 1998 (UNAUDITED) AND CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE FISCAL YEAR ENDED JULY 31, 1998 (AUDITED) AND THREE MONTHS
ENDED OCTOBER 31, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> JUL-31-1998 JUL-31-1999
<PERIOD-START> AUG-01-1997 AUG-01-1998
<PERIOD-END> JUL-31-1998 OCT-31-1998
<CASH> 5,908 4,122
<SECURITIES> 0 0
<RECEIVABLES> 8,035 5,613
<ALLOWANCES> 264 394
<INVENTORY> 2,377 1,005
<CURRENT-ASSETS> 17,083 12,161
<PP&E> 10,750 12,416
<DEPRECIATION> 2,332 2,734
<TOTAL-ASSETS> 30,577 29,476
<CURRENT-LIABILITIES> 5,394 3,774
<BONDS> 104 86
0 0
0 0
<COMMON> 8 8
<OTHER-SE> 24,915 25,411
<TOTAL-LIABILITY-AND-EQUITY> 30,577 29,476
<SALES> 27,372 9,222
<TOTAL-REVENUES> 27,372 9,222
<CGS> 20,525 6,782
<TOTAL-COSTS> 20,525 6,782
<OTHER-EXPENSES> 7,743 2,056
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,707 32
<INCOME-PRETAX> (2,369) 422
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,369) 422
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,369) 422
<EPS-PRIMARY> (1.01) 0.05
<EPS-DILUTED> (1.01) 0.05
</TABLE>
