BLUE RHINO CORP, S-1/A, 1999-07-21

BLUE RHINO CORP
S-1/A, 1999-07-21
RETAIL STORES, NEC

Previous: ADVENT INTERNATIONAL CORP/MA, 13F-HR, 1999-07-21

Next: CENTENNIAL HEALTHCARE CORP, DEF 14A, 1999-07-21

<PAGE>

As filed with the Securities and Exchange Commission on July 21, 1999

333-65015
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---------------

AMENDMENT NO. 1

TO
REGISTRATION STATEMENT
ON FORM S-1
Under
The Securities Act of 1933

---------------
Blue Rhino Corporation
(Exact name of Registrant as specified in its charter)

---------------
Delaware 5984
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)

56-1870472
(I.R.S. Employer Identification 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
Pedersen & Houpt, P.C.
161 N. Clark Street, Suite 3100
Chicago, Illinois 60601
Telephone (312) 641-6888

---------------
Approximate date of commencement of proposed sale to the public: From time
to time 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: [X]

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: [_]

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Aggregate Amount of
Registered Registered Per Unit Offering Price Registration Fee
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.001 per Share....... 1,400,000 Shares(2) $11.6355 $16,289,729 $4,276.81(3)
- -----------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------

(1) Calculated in accordance with Rule 457(c) and based upon the $13.00 per
share exercise price of warrants to purchase 245,112 shares to be
registered hereunder, the average of the closing bid and ask prices for
our common stock on The Nasdaq Stock Market of 11.6875 on September 25,
1998 with respect to 1,000,000 shares to be registered hereunder and the
average of the closing bid and ask prices for our common stock on The
Nasdaq Stock Market of $9.140625 on July 14, 1999 with respect to 154,888
shares to be registered hereunder.

(2) Such number of shares are also registered hereunder for resale with the
consent of the registrant, by persons who receive shares covered by the
Registration Statement and who may wish to sell such shares under
circumstances requiring or making desirable use of the Prospectus
contained herein.

(3) $3,447.81 of the total registration fee was paid in connection with the
filing of this Registration Statement on September 30, 1999. An additional
$1,279 is being paid in connection with the listing of an additional
400,000 shares on this Amendment No. 1.

---------------

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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 JULY 21, 1999

1,400,000 Shares

Blue Rhino Corporation

Common Stock

-----------

Of the 1,400,000 shares of common stock covered by this prospectus we may
offer 1,000,000 shares of common stock from time to time in connection with
acquisitions of other businesses, real or personal properties, or securities in
business combination transactions in accordance with Rule 415(a)(1)(viii) of
Regulation C under the Securities Act of 1933, and 400,000 shares of common
stock upon the exercise of options under our Distributor Option Plan in
accordance with Rule 415 (a)(1)(iv), or otherwise under Rule 415. Persons who
have received or will receive shares of common stock in connection with
acquisitions and who wish to offer and sell such shares may also use this
prospectus with our consent. See the inside back cover page hereof for the
identity of such persons, if any.

The common stock is traded on The Nasdaq Stock Market under the symbol
"RINO". The last reported sale price of the common stock on July 16, 1999 was
$9 1/8 per share.

-----------

The shares offered hereby involve a high degree of risk.
See "Risk Factors" commencing on page 8.

-----------

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 date of this prospectus is , 1999.
<PAGE>

The Blue Rhino(R) logo, including the names RhinoTUFF(R), Tri-Safe(R),
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>
Forward-Looking Statements................................................ 3
Summary................................................................... 4
Risk Factors.............................................................. 8
Securities Offered by this Prospectus..................................... 13
Price Range of Common Stock............................................... 14
Dividend Policy........................................................... 14
Selected Consolidated Financial Data...................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 17
Business.................................................................. 29
Management................................................................ 37
Certain Transactions...................................................... 45
Principal Stockholders.................................................... 46
Description of Capital Stock.............................................. 47
Legal Matters............................................................. 49
Experts................................................................... 49
Additional Information.................................................... 49
Index to Financial Statements............................................. F-1
</TABLE>

----------------

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 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, 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
<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 the parent company.
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 16,000
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, WalHMart, 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 50 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
nine months ended April 30, 1999, our sales increased approximately 112%
compared to the nine months ended April 30, 1998 to approximately $30.6
million, primarily as a result of the growth of sales at existing locations and
the addition of over 8,000 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 equaling 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.

4
<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 website)

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

5
<PAGE>

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. We formed CPD to hold our intangible assets. Our consolidated
financial information for the nine months ended April 30, 1999 also includes
the financial information of USA Leasing, L.L.C. ("USA Leasing"), an affiliate
formed in October 1998 which offers cylinder leasing services to our
distributors. 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.

6
<PAGE>

Summary Consolidated Financial Information

<TABLE>
<CAPTION>
Nine Months
Fiscal Year Ended Ended
--------------------------- -----------------
July April April
July 28, July 31, 31, 30, 30,
1996 1997 1998 1998 1999(1)
-------- -------- ------- -------- -------
(unaudited)
(in thousands, except per share data and
retail locations data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Total revenues................ $ 8,305 $ 14,506 $27,938 $ 14,401 $30,552
Income (loss) from operations
(2).......................... (6,130) (4,105) (679) (2,282) 463
Net loss (2) (3) (4).......... $ (7,431) $ (5,584) $(2,476) $ (3,631) $ (359)
Loss applicable to common
stockholders (5)............. $ (8,067) $ (6,271) $(3,072) $ (4,211) $ (359)
Loss per common share:
Basic and diluted........... $ (4.96) $ (3.74) $ (1.04) $ (2.36) $ (0.05)
Pro forma diluted........... $ (1.72) $ (1.27) $ (0.61) $ (0.86) $ (0.05)
Weighted average shares used
in computing loss per common
share:
Basic and diluted (6)....... 1,628 1,678 2,945 1,779 7,641
Pro forma diluted (7)....... 4,313 4,406 5,077 4,213 7,641
Selected Operating Data:
Retail locations (at period
end)......................... 2,981 4,400 9,500 8,000 16,000
Cylinder transactions......... 769 1,239 2,201 1,206 2,121
Consolidated Balance Sheet
Data:
Cash and cash equivalents..... $ 1,126 $ 325 $ 5,908 $ 440 $ 563
Working capital............... 1,580 737 11,819 (3,345) 2,509
Total assets.................. 11,897 9,974 30,470 16,578 49,534
Long-term obligations, less
current maturities........... 14,174 16,110 260 19,809 16,009
Total stockholders' equity
(deficit).................... (13,217) (18,488) 24,816 (22,669) 24,769
</TABLE>
- --------

(1) Includes financial information of USA Leasing, L.L.C., an affiliated
company which commenced operations on October 30, 1998.

(2) Includes nonrecurring charges of $1,363 for fiscal 1996, $970 for fiscal
1997, $476 for fiscal 1998, $506 for the nine months ended April 30, 1998
and $0 for the nine months ended April 30, 1999. See Note 11 of Notes to
Consolidated Financial Statements.

(3) Includes loss on investee of $324 for fiscal 1998 and $311 for the nine
months ended April 30, 1999. See Note 21 of Notes to Consolidated Financial
Statements for an explanation of loss on investee.

(4) Includes follow-on offering costs of $551 for the nine months ended April
30, 1999. See Note 22 of Notes to Consolidated Financial Statements.

(5) Equals net 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, $580 for the nine months
ended April 30, 1998 and $0 for the nine months ended April 30, 1999. The
Old Preferred Stock was converted into shares of common stock in May 1998.

(6) For fiscal years 1996, 1997 and 1998 and for the nine months ended April
30, 1998 and 1999, 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.

(7) 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 warrants to
purchase 81,913 shares of common stock issued in January 1998 (the "1998
Warrants")). No shares of preferred stock are currently outstanding.

7
<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 April 30, 1999, we had 50 independent distributors servicing in
excess of 16,000 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 approximately 22% of

8
<PAGE>

our net sales for the nine months ended April 30, 1999. Lowe's represented
approximately 16% of our net sales and WalHMart represented approximately 13%
of our 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. Sustained periods of
poor weather, particularly during the spring and summer, can negatively impact
our total revenues 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 April 30, 1999, six distributors serviced approximately 33% of our
retail locations. Sales by these key distributors resulted in approximately 44%
of our net sales for the nine months ended April 30, 1999. The five
distributors owned by Platinum Propane Holding, L.L.C. ("Platinum Propane")
accounted for approximately 35% of our net sales for the nine months ended
April 30, 1999. Ceramic Industries, Inc. accounted for approximately 9% of our
net sales for the nine months ended April 30, 1999. 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, and
Andrew J. Filipowski, our Vice Chairman and Craig Duchossois, one of our
directors, indirectly own in the aggregate approximately 42% 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 47% of
each of Caribou Cylinder Exchange, L.L.C. ("Caribou Propane"), Javelina
Cylinder

9
<PAGE>

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 addition, upon acquisition of the
assets of Bison Valve, we could be subject to additional product liability for
the failure of a valve, regardless of whether such valve was fitted on a Blue
Rhino cylinder. 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

10
<PAGE>

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.

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 Distributors' Dependence on Management Information Systems

We depend on our management information systems ("MIS") to process orders,
manage inventory and accounts receivable collections, 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."

11
<PAGE>

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.

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's 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 May 31, 1999, current executive officers, directors and entities
controlled by them beneficially owned, in the aggregate, approximately 42.1% 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.

12
<PAGE>

SECURITIES OFFERED BY THIS PROSPECTUS

We may issue the shares of common stock covered by this prospectus in
connection with future acquisitions of other businesses, real or personal
properties, or securities in business combination transactions in accordance
with Rule 415(a)(1)(viii) of Regulation C under the Securities Act, upon the
exercise of options to purchase shares of common stock granted under our
Distributor Option Plan in accordance with Rule 415 (a)(1)(iv), or otherwise
under Rule 415.

We may make acquisitions directly or indirectly through a subsidiary and may
acquire assets or securities of businesses similar or dissimilar to our propane
cylinder exchange business. In addition to the shares of common stock offered
by this prospectus, we may offer additional consideration consisting of cash,
debt or other securities (which may be convertible into shares of common stock
covered by this prospectus), or assume liabilities of the business, properties
or securities being acquired or of their owners, or a combination thereof. We
will determine the terms of acquisitions, including the party that will bear
the expense of the registration of the shares issued in connection therewith,
through our negotiations with the owners of the businesses, properties or
securities to be acquired. When determining the terms of an acquisition, we
will take into account such factors as the quality of management, the past and
potential earning power, growth and appreciation of the businesses, properties
or securities acquired, and other relevant factors. We anticipate that shares
of common stock we may issue in acquisitions will be valued at a price
reasonably related to the market value of the common stock either at the time
the terms of the acquisition are tentatively agreed upon or at or about the
time or times of delivery of the shares.

The shares of common stock we issue upon the exercise of options granted
under our Distributor Option Plan will be issued for cash at a price per share
set forth in an option grant agreement entered into between us and our
distributor. The exercise price of options granted under our Distributor Option
Plan equals the closing price of our common stock on The Nasdaq Stock Market on
the date of the option grant. We may grant options to purchase up to 400,000
shares of common stock to our distributors and their stockholders, partners,
members, directors, general partners, managers, officers, employees and
consultants. See "Management-- Distributor Option Plan."

We may from time to time, in an effort to maintain an orderly market in our
common stock, negotiate agreements with persons receiving common stock covered
by this prospectus that will limit the number of shares that they may sell at
specified intervals. Such agreements may be more restrictive than restrictions
on sales made pursuant to the exemption from registration requirements of the
Securities Act, including the requirements under Rule 144 or Rule 145(d), and
certain persons party to such agreements may not otherwise be subject to such
Securities Act requirements. We anticipate that, in general, such negotiated
agreements will be of limited duration and will permit the recipients of common
stock issued in connection with acquisitions to sell up to a specified number
of shares per business day or days.

With our consent, persons who have received or will receive common stock
covered by this prospectus and who may wish to sell such stock under
circumstances requiring or making desirable its use may also use this
prospectus. Pledgees, donees or assignees of such persons may also use this
prospectus with our consent. We may condition our consent to any such use upon
such persons' agreeing not to offer more than a specified number of shares
following supplements or amendments to this prospectus, which we may agree to
use our best efforts to prepare and file at certain intervals. We may require
that any such offering be effected through securities dealers.

Sales by means of this prospectus may be made from time to time privately at
prices to be individually negotiated with the purchasers, or publicly through
transactions in the over-the-counter market (which may involve block
transactions), at prices reasonably related to market prices at the time of
sale or at negotiated prices. Broker-dealers participating in such transactions
may act as agent or as principal and, when acting as agent, may receive
commissions from the purchasers as well as from the sellers (if also acting as
agent for the

13
<PAGE>

purchasers). We may indemnify any broker-dealer participating in such
transactions against certain liabilities, including liabilities under the
Securities Act. Profits, commissions and discounts on sales by persons who may
be deemed to be underwriters within the meaning of the Securities Act may be
deemed underwriting compensation under the Securities Act.

Stockholders may also offer shares of stock covered by this prospectus by
means of prospectuses under other registration statements or pursuant to
exemptions from the registration requirements of the Securities Act, including
sales which meet the requirements of Rule 144 or Rule 145(d) under the
Securities Act, and stockholders should seek the advice of their own counsel
with respect to the legal requirements for such sales.

We may supplement or amend this prospectus from time to time to reflect its
use for resales by persons who have received shares of common stock for whom we
have authorized to the use this prospectus in connection with resales of their
shares. See the inside back cover page of this prospectus for the identity of
any such persons.

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 July 16, 1999, the

last reported sale price of our common stock on The Nasdaq Stock Market was $9
1/8 per share. We estimate there were approximately 122 record holders of our
common stock as of May 31, 1999.

<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....................................... $25 5/8 $12 1/4
Third Quarter........................................ $19 $10 3/4
Fourth Quarter (through July 14, 1999)............... $14 1/16 $ 8 9/16
</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>

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 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 nine months ended
April 30, 1998 and April 30, 1999 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>
Fiscal Year Ended Nine Months Ended
Thirteen Month ------------------ --------------------
Period Ended July 31, July 28, July 31, July 31, April 30, April 30,
July 31, 1994 1995 1996 1997 1998 1998 1999(1)
-------------- -------- -------- -------- -------- --------- ---------
(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 $ 14,008 $29,184
Net sales direct........ 449 2,728 5,830 1,151 -- -- --
Lease income-cylinders.. -- -- -- -- -- -- 612
Other revenues.......... -- -- 89 295 566 393 756
----- ------- -------- -------- ------- -------- -------
Total revenues....... 449 2,728 8,305 14,506 27,938 14,401 30,552
----- ------- -------- -------- ------- -------- -------
Operating costs and
expenses:
Cost of sales-
distributors.......... -- -- 1,811 9,873 20,525 10,693 21,705
Cost of sales-direct... 185 3,523 6,089 1,771 -- -- --
Cost of leased
cylinders............. -- -- -- -- -- -- 612
Selling, general and
administrative........ 602 3,319 4,304 5,124 6,338 4,638 6,070
Depreciation and
amortization.......... 28 284 868 873 1,278 846 1,702
Nonrecurring charges
(2)................... -- -- 1,363 970 476 506 --
----- ------- -------- -------- ------- -------- -------
Total operating costs
and expenses, net... 815 7,126 14,435 18,611 28,617 16,683 30,089
----- ------- -------- -------- ------- -------- -------
Income (loss) from
operations............. (366) (4,398) (6,130) (4,105) (679) (2,282) 463
Other expenses (income):
Interest expense....... 5 287 1,469 1,665 1,707 1,496 91
Loss on investee (3)... -- -- -- -- 324 -- 311
Follow-on offering
(4)................... -- -- -- -- -- -- 551
Other income, net...... (2) (25) (168) (186) (234) (147) (131)
----- ------- -------- -------- ------- -------- -------
Loss before taxes.... (369) (4,660) (7,431) (5,584) (2,476) (3,631) (359)
Income taxes........... -- -- -- -- -- -- --
----- ------- -------- -------- ------- -------- -------
Net loss............. $(369) $(4,660) $ (7,431) $ (5,584) $(2,476) $ (3,631) $ (359)
===== ======= ======== ======== ======= ======== =======
Loss applicable to
common stockholders
(5)................... $(369) $(5,055) $ (8,067) $ (6,271) $(3,072) $ (4,213) $ (359)
===== ======= ======== ======== ======= ======== =======
Loss per common share:
Basic and diluted...... $ -- $ (3.09) $ (4.96) $ (3.74) $ (1.04) $ (2.36) $ (0.05)
===== ======= ======== ======== ======= ======== =======
Pro forma diluted...... $ -- $ (1.08) $ (1.72) $ (1.27) $ (0.61) $ (0.86) $ (0.05)
===== ======= ======== ======== ======= ======== =======
Weighted average common
shares used in
computing loss per
common share:
Basic and diluted (6).. -- 1,638 1,628 1,678 2,945 1,779 7,641
===== ======= ======== ======== ======= ======== =======
Pro forma diluted (7).. -- 4,303 4,313 4,406 5,077 4,213 7,641
===== ======= ======== ======== ======= ======== =======
Selected Operating Data:
Retail locations (at
period end)........... 331 1,608 2,981 4,400 9,500 8,000 16,000
Cylinder transactions.. -- 306 769 1,239 2,201 1,206 2,121
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $ 150 $ 209 $ 1,126 $ 325 $ 5,908 $ 440 $ 563
Working capital......... 109 (3,264) 1,580 737 11,819 (3,345) 2,509
Total assets............ 631 10,424 11,897 9,974 30,470 16,578 49,534
Long-term obligations,
less current
maturities............. 518 1,361 14,174 16,110 260 19,809 16,009
Convertible Redeemable
Preferred Stock........ -- 7,613 7,849 8,936 -- -- --
Total stockholders'
equity (deficit)....... (179) (5,149) (13,217) (18,488) 24,816 (22,669) 24,769
</TABLE>

15
<PAGE>

- --------

(1) Includes financial data of USA Leasing, L.L.C., an affiliated company which
commenced operations on October 30, 1998.

(2) See Note 11 of Notes to Consolidated Financial Statements for an
explanation of the nonrecurring charges.

(3) See Note 21 of Notes to Consolidated Financial Statements for an
explanation of loss on investee.

(4) See Note 22 of Notes to Consolidated Financial Statements for an
explanation of follow-on offering costs.

(5) Equals net loss less dividends payable on our redeemable Old Preferred
Stock of $395 for fiscal 1995, $636 for fiscal 1996, $687 for fiscal 1997,
$596 for fiscal 1998, $580 for the nine months ended April 30, 1998 and $0
for the nine months ended April 30, 1999. The Old Preferred Stock was
converted into shares of common stock in May 1998.

(7) 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 50 independent distributors which, as of April 30, 1999,
serviced Blue Rhino grill cylinder exchange at over 16,000 retail locations in
47 states and Puerto Rico. During the nine months ended April 30, 1999, our
total revenues increased approximately 112% to approximately $30.6 million from
our total revenues for the nine months ended April 30, 1998 primarily as a
result of the growth of sales at existing locations and the addition of over
8,000 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 have experienced rapid and substantial growth in cylinder transactions
and retail locations. While we are committed to our independent distributor
model, we recognize that our rapid and substantial growth imposes significant
capital demands on our distributors. Accordingly, we sought to establish a
financing facility which would enable our distributors to acquire sufficient
cylinders to service our rapid growth. In October 1998, four individuals
associated with us as directors, officers and/or stockholders formed USA
Leasing, L.L.C. ("USA Leasing") to provide the necessary cylinder lease
financing to our distributors. To enable us to maintain control over the
servicing of our accounts in the event of either USA Leasing's or a
distributor's default, we agreed to guarantee 80% of USA Leasing's $13 million
credit facility and received a lien, subordinate to the lender's, on all of USA
Leasing's assets. We believe that it is in our best interest to facilitate the
business development of our distributors. As a result of the common ownership
and control of USA Leasing and Blue Rhino and our guarantee of the facility, it
is necessary to present the financial statements of USA Leasing and Blue Rhino
on a consolidated basis. The owners of USA Leasing expect to transfer its
leasing operations to an unaffiliated third party or Blue Rhino.

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 79%, 12% and 9%, respectively, of our net sales for

17
<PAGE>

the nine months ended April 30, 1999. 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 revenues 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. In addition to grill cylinder transactions, our revenues
consist of product sales principally from patio heaters, lease income-cylinders
which relates to lease income on cylinders leased to our distributors by USA
Leasing and other revenues which relate primarily to lease income on cylinder
displays leased to our distributors. Our revenue growth depends on increasing
sales at existing locations and increasing the number of new retail locations
that we serve. Other factors which influence our revenues 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. Cost of leased cylinders consists of all of USA
Leasing's expenses and charges including interest, depreciation, other expenses
and the minority interest due from USA Leasing. Selling, general and
administrative expenses are primarily comprised of compensation, commissions,
promotions, professional fees, office and equipment rent and travel costs.
Beginning in the first quarter of fiscal 2000, our selling, general and
administrative expenses are expected to include a non-cash charge associated
with options granted under our Amended and Restated Stock Option Plan for Non-
Employee Directors ("Director Option Plan"). Depreciation and amortization
consist primarily of depreciation of cylinder displays and, to a lesser extent,
depreciation of equipment, building and leasehold improvements, computer
technology and amortization of intangibles. Operating expenses also included
nonrecurring charges of approximately $1.4 million, $1.0 million and $476,000
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 do not anticipate incurring any
additional nonrecurring charges in connection with this transition. In
connection with our $635,000 convertible loan to Bison Valve, L.L.C. ("Bison
Valve") we recognized charges of $324,000 and $311,000 related to losses
incurred by Bison Valve for the three months ended July 31, 1998 and October
31, 1998, respectively. These charges reflect the application of the equity
method of accounting to our convertible loan to Bison Valve. During the three
months ended April 30, 1999, we recognized a one-time charge of $551,000
related to offering costs incurred in connection with an offering of common
stock which was terminated in February 1999 due to unfavorable market
conditions.

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 $21.7
million as of April 30, 1999. 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.

18
<PAGE>

Results of Operations

The following table sets forth, for the periods indicated, the percentage
relationship of certain items from our statement of operations to total
revenues. 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 Total Revenues
-------------------------------------------
Nine Months
Ended
Fiscal Year Ended April 30,
---------------------------- -------------
July 28, July 31, July 31,
1996 1997 1998 1998 1999
-------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C>
Total revenues...................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Operating costs and expenses:
Cost of sales..................... 95.1 80.3 73.5 74.3 71.0
Cost of leased cylinders.......... 0.0 0.0 0.0 0.0 2.0
Selling, general and
administrative................... 51.8 35.3 22.7 32.2 19.9
Depreciation and amortization..... 10.5 6.0 4.6 5.9 5.6
Nonrecurring charges.............. 16.4 6.7 1.7 3.5 0.0
----- ----- ----- ----- -----
Total operating costs and
expenses, net.................. 173.8 128.3 102.4 115.8 98.5
----- ----- ----- ----- -----
Income (loss) from operations... (73.8) (28.3) (2.4) (15.8) 1.5
Other expense (income):
Interest expense.................. 17.7 11.5 6.1 10.4 0.3
Loss on investee.................. 0.0 0.0 1.2 0.0 1.0
Follow-on offering................ 0.0 0.0 0.0 0.0 1.8
Other, net........................ (2.0) (1.3) (0.8) (1.0) (0.4)
----- ----- ----- ----- -----
Loss before taxes............... (89.5) (38.5) (8.9) (25.2) (1.2)
===== ===== ===== ===== =====
Income taxes........................ 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- -----
Net loss........................ (89.5)% (38.5)% (8.9)% (25.2)% (1.2)%
===== ===== ===== ===== =====
As a percentage of total revenues:
Net sales--distributors........... 28.7 % 90.0 % 98.0 % 97.3 % 95.5 %
Net sales--direct................. 70.2 % 7.9 % -- % -- % -- %
Gross margin:
Gross margin of net sales--
distributors..................... 24.1 % 24.4 % 25.0 % 23.7 % 25.6 %
Gross margin of net sales--direct. (4.4)% (53.9)% -- % -- % -- %
</TABLE>

Comparison of Nine Months Ended April 30, 1998 and 1999

Beginning in the quarter ended October 31, 1998, we have included the
financial information of USA Leasing, an affiliate of ours which offers
cylinder financing to our distributors, in our consolidated financial
statements on a consolidated basis.

Total revenues. Total revenues increased 112.2% to approximately $30.6
million for the nine months ended April 30, 1999 from approximately $14.4
million for the nine months ended April 30, 1998. The total revenues of $30.6
million for the nine months ended April 30, 1999 consisted of $28.7 million
from cylinder transactions, $516,000 from product sales (combined cylinder
transactions and product sales are reflected on the statement of operations as
net sales--distributors), $612,000 from lease income-cylinders and $756,000 of
other revenues. Lease income-cylinders relates to cylinder lease income of USA
Leasing, which began leasing cylinders to our independent distributors on
October 30, 1998. Other revenues consist primarily of cylinder display lease
income which was reclassified from a negative operating expense for all periods
presented. The increase in total revenues was due primarily to the increase in
the number of retail locations placed in service and increased sales volume at
existing locations. The number of cylinders transacted increased 75.9% to
approximately 2.1 million units during the nine months ended April 30, 1999
from approximately 1.2 million units during the nine months ended April 30,
1998.

19
<PAGE>

Gross margin. Gross margin, excluding the impact from other revenues and
leased cylinders, increased to approximately 25.6% for the nine months ended
April 30, 1999 from approximately 23.7% for the nine months ended April 30,
1998. This improvement was due to a change in pricing strategy, a favorable
cylinder transaction mix and to a lesser extent, the addition of higher margin
accounts to the customer base. The condensed consolidated statement of
operations contains no gross margin from leased cylinders as the lease cylinder
revenue was offset in full from the cost of leased cylinders, which includes
related interest, depreciation, other expenses and the minority interest due
from USA Leasing.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased 30.9% to approximately $6.0 million for the
nine months ended April 30, 1999 from approximately $4.6 million for the nine
months ended April 30, 1998 but decreased as a percentage of total revenues to
20.8% for the nine months ended April 30, 1999 from 33.1% for the nine months
ended April 30, 1998. The increase in selling, general and administrative
expenses was due primarily to additional compensation costs stemming primarily
from the growth of our internal sales force, costs related to our introduction
of a patio heater product and additional costs associated with operating a
public company including investor relations and other professional fees. The
decrease in selling, general and administrative expenses as a percentage of
total revenues was due primarily to the fact that a significant portion of our
selling, general and administrative expenses are fixed and, as a result,
selling, general and administrative expenses increased at a slower rate than
total revenues.

Depreciation and amortization. Depreciation and amortization increased to
approximately $1.7 million for the nine months ended April 30, 1999 from
approximately $846,000 for the nine months ended April 30, 1998. Depreciation
expense increased by $648,000 to approximately $1.4 million for the nine months
ended April 30, 1999 from approximately $746,000 for the nine months ended
April 30, 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 and our ongoing purchase of
additional cylinder displays to support growth in our installed base of retail
locations. Our purchase of computer technology also impacted depreciation
expense to a lesser extent. Amortization expense increased by $208,000 to
approximately $309,000 in the nine months ended April 30, 1999 from
approximately $100,000 in the nine months ended April 30, 1998 principally due
to the increased amortization of intangibles associated with the purchase of
retail propane cylinder exchange locations. Depreciation and amortization does
not include any depreciation of cylinders owned by USA Leasing which is
recognized under cost of leased cylinders.

Nonrecurring charges. We had no nonrecurring charges for the nine months
ended April 30, 1999 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 nine months ended April 30,
1998, nonrecurring charges were approximately $506,000, consisting primarily of
the write-down of facilities and equipment purchased to support the vertically
integrated business model.

Interest expense. Interest expense decreased to approximately $91,000 for
the nine months ended April 30, 1999 from approximately $1.5 million for the
nine months ended April 30, 1998. The decrease in interest expense resulted
from the repayment of substantially all of our outstanding indebtedness in May
1998 with proceeds from our initial public offering. The interest expense for
the nine months ended April 30, 1999 is a result of borrowings under our credit
facility with NationsBank and capital lease obligations incurred primarily to
acquire computer technology. Interest expense does not include interest on USA
Leasing's credit facility with NationsBank which is recognized under cost of
leased cylinders.

Follow-on offering. For the nine months ended April 30, 1999, we incurred a
one-time charge of approximately $551,000 in connection with an offering of
common stock which we terminated in February 1999 due to unfavorable market
conditions.

Loss on investee. Loss on investee was $311,000 for the nine months ended
April 30, 1999, which reflects the application of the equity method of
accounting to our convertible loan to Bison Valve, L.L.C. ("Bison Valve"). We
recorded a loss because Bison Valve used the proceeds of our loan to fund
losses incurred primarily in researching, developing, marketing and producing
an overfill prevention device and other propane related products. As of October
31, 1998, we recognized charges for the entire principal balance of our

20
<PAGE>

convertible loan. In December 1998, we signed a letter of intent to acquire all
intellectual property and other assets of Bison Valve related to its overfill
prevention device for $1.1 million of our common stock and warrants to purchase
100,000 shares of our common stock. We will account for substantially all of
the purchase price as a patent to be amortized over its remaining life.

Other income, net. Other income, net decreased to approximately $131,000 for
the nine months ended April 30, 1999 from approximately $147,000 for the nine
months ended April 30, 1998. The decrease was primarily due to the loss on
disposal of property and equipment of approximately $34,000 recorded in fiscal
1999 which was offset by increased interest income from excess cash balances
and various notes receivable.

Comparison of Years Ended July 31, 1998 and 1997

Total revenues. Total revenues consist of sales from our independent
distributor network ("net sales--distributors"), sales from our previous
vertically integrated distribution operations ("net sales--direct"), and to a
lesser extent, from other revenues. 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.
Other revenues consist of cylinder display lease income and lease income from
certain plant facilities and equipment leased to our distributors. Total
revenues increased 92.6% to approximately $27.9 million for fiscal 1998 from
approximately $14.5 million for fiscal 1997. 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 total revenues 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% to
approximately 9,500 locations at the end of fiscal 1998 from approximately
4,400 locations at the end of fiscal 1997. The number of cylinder transactions
increased 77.6% to approximately 2.2 million units in fiscal 1998 from
approximately 1.2 million units in fiscal 1997.

Gross margin. Gross margin, excluding the impact from other revenues,
increased to 25.0% in fiscal 1998 from 18.1% in fiscal 1997. This increase was
due to the shift from a vertically integrated business model to an independent
distributor business model and the subsequent increase in net sales--
distributors and decrease in net sales--direct. With respect to net sales--
distributors, gross margin increased to 25.0% in fiscal 1998 from 24.4% in
fiscal 1997. 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--distributors in fiscal 1998 than in fiscal 1997, as
well as a price increase which became effective in April 1998 on all cylinder
transactions.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased 23.7% to approximately $6.3 million in fiscal
1998 from approximately $5.1 million in fiscal 1997, but decreased as a
percentage of total revenues to 22.7% in fiscal 1998 from 35.3% in fiscal 1997.
The increase in selling, general and administrative expenses was due primarily
to additional commissions to outside brokers, which were based on a percentage
of total revenues, additional compensation costs and increased cylinder display
rent expense. The decrease in selling, general and administrative expenses as a
percentage of total revenues was due primarily to the fact that a significant
portion of our selling, general and administrative expenses are fixed and, as a
result, selling, general and administrative expenses increased at a slower rate
than total revenues.

Depreciation and amortization. Depreciation and amortization increased to
approximately $1.3 million in fiscal 1998 from approximately $873,000 in fiscal
1997. Depreciation expense increased by approximately $337,000 to approximately
$1.1 million in fiscal 1998 from approximately $764,000 in fiscal 1997
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 to approximately $177,000 in fiscal 1998
from approximately $109,000 in fiscal 1997 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 to approximately
$476,000 for fiscal 1998 from approximately $970,000 in fiscal 1997. 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.

21
<PAGE>

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.

Loss on investee. Loss on investee was $324,000 in fiscal 1998 which
reflects the application of the equity method of accounting to our convertible
loan to Bison Valve. A loss was recorded because Bison Valve used the proceeds
of our loan to fund losses incurred primarily in researching, developing,
marketing and producing an overfill prevention device and other propane related
products. We have signed a letter of intent to acquire all intellectual
property and other assets of Bison Valve related to its overfill prevention
device.

Other income, net. Other income, net increased to approximately $234,000 in
fiscal 1998 from approximately $186,000 in fiscal 1997. Other income, net
consisted primarily of interest income from various notes receivable and excess
cash balances.

Comparison of Years Ended July 31, 1997 and July 28, 1996

Total revenues. Total revenues consist of sales from our independent
distributor network ("net sales--distributors"), sales from our previous
vertically integrated distributor operations ("net sales--direct") and to a
lesser extent from other revenues. Total revenue increased 74.7% to
approximately $14.5 million for fiscal 1997 from approximately $8.3 million for
fiscal 1996. Net sales--distributors increased to approximately $13.1 million
for fiscal 1997 from approximately $2.4 million for fiscal 1996. 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% to approximately
4,400 locations at the end of fiscal 1997 from approximately 3,000 locations at
the end of fiscal 1996. The number of cylinder transactions increased 61.1% to
approximately 1.2 million units for fiscal 1997 from approximately 769,000
units for fiscal 1996.

Gross margin. Gross margin, excluding the impact from other revenues,
increased to 18.1% in fiscal 1997 from 3.8% in fiscal 1996. This increase was
due to the shift from a vertically integrated business model to an independent
distributor business model. With respect to net sales--distributors, gross
margin increased to 24.4% for fiscal 1997 from 24.1% for fiscal 1996.

Selling, general and administrative expenses. Selling, general and
administrative expenses increased 19.1% to approximately $5.1 million for
fiscal 1997 from approximately $4.3 million for fiscal 1996, but decreased as a
percentage of total revenues to 35.3% for fiscal 1997 from 51.8% for fiscal
1996. The increase in selling, general and administrative expenses was due to
additional compensation, promotional and advertising expenditures and increased
cylinder display rent expense.

Depreciation and amortization. Depreciation and amortization increased to
approximately $873,000 for fiscal 1997 from approximately $868,000 for fiscal
1996.

Nonrecurring charges. Nonrecurring charges were associated with our
transition to the independent distributor model and decreased to approximately
$970,000 during fiscal 1997, from approximately $1.4 million during fiscal
1996, the first year of the business model transition.

Interest expense. Interest expense increased to approximately $1.7 million
for fiscal 1997 from approximately $1.5 million for fiscal 1996 due to
accretion of interest on senior discount notes and additional borrowings under
our bank credit facility.

22
<PAGE>

Other income, net. Other income, net increased to approximately $186,000 for
fiscal 1997 from approximately $168,000 for fiscal 1996.

Selected Quarterly Results of Operations

We have experienced and expect to continue to experience significant
seasonal fluctuations in our total revenues and net income (loss). Our total
revenues 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."

The following table sets forth selected unaudited quarterly financial
information and operating data for our most recently completed five fiscal
quarters. The information for the three months ended January 31, 1999 and April
30, 1999 includes financial information of USA Leasing, L.L.C., an affiliated
company. 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
-----------------------------------------------------
April 30, July 31, October 31, January 31, April 30,
1998 1998 1998 1999 1999
--------- -------- ----------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total revenues.......... $ 5,844 $13,537 $9,434 $9,228 $11,890
Operating costs and
expenses:
Cost of sales.......... 4,322 9,832 6,934 6,594 8,177
Cost of leased
cylinders............. -- -- -- 239 374
Selling, general and
administrative........ 1,637 1,701 1,773 1,812 2,484
Depreciation and
amortization.......... 331 432 524 561 618
Nonrecurring charges... 99 (31) -- -- --
------- ------- ------ ------ -------
Total operating costs
and expenses, net... 6,389 11,934 9,231 9,206 11,653
------- ------- ------ ------ -------
Income (loss) from
operations............. (545) 1,603 203 22 237
Other expense (income):
Interest expense....... 566 211 32 34 24
Loss on investee....... -- 324 311 -- --
Follow-on offering..... -- -- -- -- 551
Other, net............. (44) (86) (70) (80) 19
------- ------- ------ ------ -------
Income (loss) before
taxes............... (1,067) 1,154 (70) 68 (357)
Income taxes............ -- -- -- -- --
------- ------- ------ ------ -------
Net income (loss).... $(1,067) $ 1,154 $ (70) $ 68 $ (357)
======= ======= ====== ====== =======
Income (loss)
applicable to common
stockholders (1)...... $(1,280) $ 1,140 $ (70) $ 68 $ (357)
======= ======= ====== ====== =======
Earnings (loss) per
common share:
Basic................ $ (0.72) $ 0.18 $(0.01) $ 0.01 $ (0.05)
======= ======= ====== ====== =======
Diluted.............. $ (0.72) $ 0.17 $(0.01) $ 0.01 $ (0.05)
======= ======= ====== ====== =======
Weighted average common
shares used in
computing earnings
(loss) per common
share:
Basic.................. 1,779 6,407 7,631 7,642 7,650
======= ======= ====== ====== =======
Diluted (2)............ 1,779 6,611 7,631 7,935 7,650
======= ======= ====== ====== =======
</TABLE>

23
<PAGE>

<TABLE>
<CAPTION>
Percentage of Total Revenues
-----------------------------------------------------
Three Months Ended
-----------------------------------------------------
April 30, July 31, October 31, January 31, April 30,
1998 1998 1998 1999 1999
--------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Total revenues............ 100.0% 100.0% 100.0% 100.0% 100.0%
------ ----- ----- ----- -----
Operating costs and
expenses:
Cost of sales............ 73.95 72.63 73.50 71.46 68.77
Cost of leased
cylinders............... 0.00 0.00 0.00 2.59 3.15
Selling, general and
administrative.......... 28.01 12.56 18.80 19.64 20.89
Depreciation and
amortization............ 5.66 3.19 5.55 6.08 5.20
Nonrecurring charges..... 1.69 (0.23) 0.00 0.00 0.00
------ ----- ----- ----- -----
Total operating costs
and expenses, net..... 109.32 88.16 97.85 99.76 98.01
------ ----- ----- ----- -----
Income (loss) from
operations............... (9.32) 11.84 2.15 0.24 1.99
Other expense (income):
Interest expense......... 9.69 1.56 0.34 0.37 0.20
Loss on investee......... 0.00 2.39 3.30 0.00 0.00
Follow-on offering....... 0.00 0.00 0.00 0.00 4.63
Other, net............... (0.76) (0.63) (0.75) (0.87) 0.16
------ ----- ----- ----- -----
Income (loss) before
taxes................. (18.26) 8.52 (0.74) 0.74 (3.00)
Income taxes.............. 0.00 0.00 0.00 0.00 0.00
------ ----- ----- ----- -----
Net income (loss)...... (18.26)% 8.52% (0.74)% 0.74% (3.00)%
====== ===== ===== ===== =====
</TABLE>
- --------

(1) Equals net income (loss) less dividends on our Old Preferred Stock of $213
for the three months ended April 30, 1998, $14 for the three months ended
July 31, 1998, and $0 for the three months ended January 31, 1999 and April
30, 1999.

(2) For the three months ended April 30, 1998, October 31, 1998 and April 30,
1999, the weighted average number of shares outstanding excludes the effect
of the exercise of all outstanding stock options and warrants and for the
three months ended April 30, 1998 the conversion of the Old Preferred Stock
into common stock because such exercise and conversion would be anti-
dilutive.

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 $2.5 million as of April 30,
1999, which was primarily the result of cash provided by borrowing under our
bank credit facility and to a lesser extent cash provided by operations.

Net cash provided by operations was approximately $1.2 million for the nine
months ended April 30, 1999, while net cash used in operations was
approximately $2.8 million for the nine months ended April 30, 1998. 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. For the
nine months ended April 30, 1999 and April 30, 1998, cash provided by
operations resulted primarily from the increase in accounts payable associated
with the seasonal increase in our sales volume in our spring quarter.
Additionally, the net loss in both periods was positively adjusted for non-cash
expenses, primarily depreciation and amortization in the nine months ended
April 30, 1999 and accreted interest on senior discount notes in the nine
months ended April 30, 1998. Cash used in operations during the nine months
ended April 30, 1999 included approximately $1.6 million of advances on certain
products and services while during the nine months ended April 30, 1998 cash
used in operations resulted primarily from a net loss. 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 $19.8 million in the
nine months ended April 30, 1999 and approximately $4.3 million for the nine
months ended April 30, 1998. 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 cylinders from distributors, acquisitions of cylinder

24
<PAGE>

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"). We are currently in the process of acquiring all intellectual
property and other assets of Bison Valve related to its overfill prevention
device. 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 provided by financing activities was approximately $13.2 million
for the nine months ended April 30, 1999, approximately $7.2 million for the
nine months ended April 30, 1998, $16.5 million for fiscal 1998, $1.0 million
for fiscal 1997 and $7.5 million for fiscal 1996. 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,
including $13.0 million in proceeds from USA Leasing's loan from NationsBank,
N.A. ("NationsBank") during fiscal 1999 and approximately $2.5 million in net
proceeds from our New Bank Credit Facility with NationsBank during fiscal 1999.
The cash used in financing activities included payments on various notes
payable and capital lease obligations and for the nine month period ended April
30, 1999 and approximately $584,000 in common stock offering and registration
costs in connection with an offering of common stock which we terminated in
February 1999 and this registration.

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 $29.1 million of the net proceeds from our
initial public offering to repay principal and interest on indebtedness. We
used approximately $6.2 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.

In October 1998, USA Leasing was formed to provide a cylinder financing
facility for our distributors. In December 1998, USA Leasing entered into a two
year $13.0 million credit facility (the "USA Leasing Credit Facility") with
NationsBank which replaced an interim credit facility for $6.5 million extended
in October 1998. Under the terms of the USA Leasing Credit Facility, we were
required to guarantee 80% of the facility and each of the owners of USA Leasing
were required to guarantee 5% of the facility. USA Leasing is owned 24% each by
Messrs. Prim and Filipowski and 26% each by Mr. Craig Duchossois, a director
and stockholder of the Company, and Mr. Peer Pedersen, a stockholder of the
Company and a partner of Pedersen & Houpt, P.C., our legal counsel. NationsBank
has a first priority lien and we have a subordinate lien on all of the assets
of USA Leasing. The sale of cylinders to USA Leasing was approved unanimously
by our directors who had no financial interest in the transaction. See "Risk
Factors--Potential Conflicts of Interest in Enforcing Remedies Against Our
Affiliates," "Management--Compensation Committee Interlocks and Insider
Participation" and "Certain Transactions."

USA Leasing has used the proceeds of the USA Leasing Credit Facility to
purchase cylinders from Blue Rhino. During the nine months ended April 30,
1999, we acquired and sold approximately $13.0 million of cylinders to USA
Leasing at no gain or loss. USA Leasing has entered into operating lease
agreements with the Company's independent distributors to lease the cylinders
at 1% per month of the initial cylinder value. Currently, we are not aware of
any defaults under USA Leasing's credit facility with NationsBank or under any
cylinder lease between USA Leasing and our distributors. However, we could be
required to fund up to 80% of USA Leasing's obligations to NationsBank in the
event of a default.

In December 1998, we entered into a $12 million credit facility with
NationsBank, which includes a $7.0 million revolving line of credit and a $5.0
million acquisition facility (the "New Bank Credit Facility"). At April 30,
1999, we had approximately $2.5 million outstanding under the New Bank Credit
Facility. The New Bank Credit Facility requires us to meet certain covenants,
including minimum net worth and cash flow requirements. Our ability to borrow
under the New Bank Credit Facility was initially reduced by an amount equal to
our contingent liability pursuant to our guarantee of USA Leasing's credit
facility with NationsBank. In June 1999, the New Bank Credit Facility was
amended to provide approximately $7.4 million of credit

25
<PAGE>

availability. This amended agreement provides up to $3.4 million of working
capital financing, $2.9 million of documentary letters of credit to support the
purchase of patio heaters and $1.1 million to finance acquisitions. This
amendment waives the provision under the New Bank Credit Facility which reduced
our ability to borrow by an amount equal to our contingent liability pursuant
to our guarantee of the USA Leasing Credit Facility. The amendment also amends
certain covenants and waives our non-compliance with our debt coverage and cash
flow coverage covenants as of and for the quarter ended April 30, 1999 which
resulted in part from the expenses incurred and termination of our follow-on
offering of common stock. As we achieve certain performance measures, our
availability under the New Bank Credit Facility will increase. The New Bank
Credit Facility is collateralized by a lien on substantially all of our assets.
The loans under the New Bank Credit Facility bear interest at a maximum of
LIBOR plus 2.25%.

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 $699,000. 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 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.

Inflation

We do not believe that inflation has had a material adverse effect on our
net sales or the results of operations. However, there can be no assurance that
our business will not be affected by inflation in the future.

Impact of New Accounting Pronouncements

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.

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.

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 management information
systems ("MIS") to process orders, manage inventory and accounts receivable,
maintain distributor and customer information, assist distributors in
delivering products on a timely basis and in maintaining cost-efficient
operations.

26
<PAGE>

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 MIS. As of May 31, 1999, we believe that we were approximately 90%
Year 2000 compliant. All core MIS are currently 100% Year 2000 compliant.
Remaining activity includes replacement of distributors' PC software which we
expect to complete by November 1999. However, if our modifications, testing and
solicitations of third party compliance are not made on a timely basis or 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 already 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. We have engaged Integrated Solutions
International, L.L.C. to, among other things, assist us in implementing our
distributors' use of Year 2000 compliant handheld computer units of BREAS. All
of our distributors are currently using Year 2000 compliant handheld units. We
have established 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. To date, we have incurred
approximately $15,000 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. 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.

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 billing, payment
and collection system. Initial contingency plans have been completed.
Additional refinement and monitoring will continue throughout the remainder of
1999. In addition, in an effort to protect ourselves and increase the awareness
of third parties whose failure to comply could have a material effect on 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 our
borrowings under the USA Leasing Credit Facility and our New Bank Credit
Facility. The USA Leasing Credit Facility and our New Bank

Credit Facility bear interest based on LIBOR. The USA Leasing Credit Facility
is collateralized by cylinders held under operating leases with the Company's
independent distributors. The operating leases currently yield 1% of the
cylinder value monthly (approximately 12% annual) and continue until either
party terminates upon 60 day written notice to the other party. Upon any
significant increase in LIBOR, USA Leasing would attempt to re-negotiate the
operating leases with the Company's independent distributors mitigating the
interest rate exposure on the majority of the notes payable to bank. However,
there can be no assurance that USA Leasing will be successful in such
renegotiations or that it will be able to mitigate any or all of the interest
rate risk.

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,

27
<PAGE>

highly liquid investments consisting of money market instruments, bank
certificates of deposit and overnight investments in commercial paper.

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.

Forward-Looking Information

Certain statements in this Section and elsewhere in this report are forward-
looking in nature and relate to trends and events that may affect the Company's
future financial position and operating results. Such statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "expect," "anticipate, " "intend," and "project"
and similar words or expressions are intended to identify forward-looking
statements. These statements speak only as of the date of this report. The
statements are based on current expectations, are inherently uncertain, are
subject to risks, and should be viewed with caution. Actual results and
experience may differ materially from the forward-looking statements as a
result of many factors, including changes in economic conditions in the markets
we serve, increasing competition and other unanticipated events and conditions.
It is not possible to foresee or identify all such factors. We make no
commitment to update any forward-looking statement or to disclose any facts,
events, or circumstances after the date hereof that may affect the accuracy of
any forward-looking statement.

28
<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 16,000
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, WalHMart, 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 50 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
nine months ended April 30, 1999, our total revenues increased approximately
112% compared to the nine months ended April 30, 1998 to approximately $30.6
million, primarily as a result of the growth of sales at existing locations and
the addition of over 8,000 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

29
<PAGE>

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 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

30
<PAGE>

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.

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.
During fiscal 1999, we added our FuelcheckTM 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, WalHMart,
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 16,000, approximately
8,000 of which we added during the twelve months ended

April 30, 1999. 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 50 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 total revenue for the twelve months ended April 30, 1999 to
17.6% from 29.7% 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 3,000 retail locations in
the twelve months ended April 30, 1999 through 20 acquisitions with an
aggregate purchase price of approximately $8.0 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

31
<PAGE>

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 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 Heaters. 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 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 or leased 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 certain assets of Bison Valve which designed an
Underwriters Laboratories approved overfill prevention device. The
purchase price for all intellectual property and other assets related to
Bison Valve's overfill prevention device is $1.1 million of common stock,
warrants to purchase 100,000 shares of common stock and the cancellation
of our $635,000 convertible loan to Bison Valve. We believe our
acquisition of certain assets 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.

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 cylinder sleeve. The RhinoTUFF cylinder
sleeve provides safety and use information and

32
<PAGE>

prominently displays the Blue Rhino name and logo. The RhinoTUFF sleeve also
protects the cylinders from damage during shipping and handling and from
exposure to the elements. During fiscal 1999, we added 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 WalHMart, Kmart
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 22% of our net sales for the nine months ended April 30, 1999.
Lowe's represented approximately 16% and WalHMart represented approximately 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."

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.

33
<PAGE>

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.

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 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 certain 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 lessor 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 two distributors 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

34
<PAGE>

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 50 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.

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. As of April 30, 1999, four distributors owed us in the aggregate
approximately $214,000 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,

35
<PAGE>

among other things, assist us in exchanging our distributors' handheld computer
units for Year 2000 compliant units. All of our distributors are currently
using Year 2000 compliant handheld units. However, any failure within our
financial systems 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

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."

36
<PAGE>

Employees

As of May 31, 1999, we had 73 employees, of whom 26 were engaged in sales
and marketing, 12 in distributor services, six in information systems and 29 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.

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)....... 43 Chairman of the Board, President
and Chief Executive Officer
Andrew J. Filipowski 48 Vice Chairman
(1)....................
Mark Castaneda.......... 35 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....... 47 Vice President, Products
Richard A. Brenner 35 Director
(2)(3).................
Steven D. Devick (2)(3). 47 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 the founder and
chairman of devine interVentures, Inc. (formerly Platinum Venture, Partners,
Inc.), a venture capital firm with interests in information technology,
software and software services and media related enterprises. Mr. Filipowski
was a co-founder of Platinum technology, Inc. and served as its chairman of the
board, president and chief executive officer from its formation in April 1987

37
<PAGE>

until its sale to Computer Associates, Inc. in March 1999. Mr. Filipowski is
also a director of Platinum Entertainment, Inc., System Software Associates,
Inc. and several privately-held companies including 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.

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 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 Bank, National Association as well
as several privately-held companies.

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

38
<PAGE>

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 Option Plan ("Distributor Option
Plan") and the 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
Stock
Name and Principal Position Year Salary 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.

39
<PAGE>

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.

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.

40
<PAGE>

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.

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 162,069 shares
of common stock reserved for issuance upon the exercise of options granted
under this plan. As of May 31, 1999, options to purchase 162,069 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 May 31, 1999, options to
purchase 20,540 shares of common stock at a weighted average exercise price of
$5.15 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. We have reserved
1,200,000 shares of common stock for issuance upon the exercise of options
granted under the 1998 Stock Incentive Plan. As of May 31, 1999, options to
purchase 512,709 common shares at a weighted average exercise price of $13.07
per share were outstanding under 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.

41
<PAGE>

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 plan
was amended and restated on December 30, 1998. We have reserved 100,000 shares
of common stock for issuance upon the exercise of options granted under the
Director Option Plan. As of May 31, 1999, 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 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 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. As of May 31, 1999, options
to purchase 245,112 shares of common stock to existing Blue Rhino distributors
at a weighted average exercise price of $13.14 per share were outstanding under
the plan. 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 are registering the shares of
common

42
<PAGE>

stock to be issued upon the exercise of vested options granted under the
Distributor Option Plan on the registration statement filed including this
prospectus. 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 25% per year
of service. Any contributions we make are at our discretion and no such
contributions have been made to date, however, beginning in July 1999, we will
make matching contributions at a fixed rate of 50% of the first 6% of employee
contributions.

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 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

43
<PAGE>

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, fiscal 1998 and during the nine
months ended April 30, 1999, we paid Platinum Propane approximately $5.3
million, $7.9 million and $6.0 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 May 31, 1999.

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. We paid
Caribou Propane, Javelina Propane and Raven Propane approximately $31,000,
$118,000 and $381,000, respectively, in fiscal 1998 and $118,000, $155,000 and
$465,000, respectively, during the nine months ended April 30, 1999 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 May 31, 1999.

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>

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 in October 1998. This
guarantee has since been replaced by a guarantee from the sole member of Bison
Valve. We have signed a letter of intent to purchase certain assets of Bison
Valve.

During the nine months ended April 30, 1999, we acquired and sold
approximately $13.0 million of cylinders to USA Leasing. 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. The owners of USA
Leasing expect to profit from providing this facility solely based upon the
difference between their cost of funds under the USA Leasing Credit Facility
(LIBOR plus 2.25%) and lease revenues equal to 1% per month of the initial
value of the cylinders or 12% per annum. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain
Transactions."

44
<PAGE>

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."

45
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the common stock as May 31, 1999 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 executive officers and directors
as a group.

<TABLE>
<CAPTION>
Shares
Beneficially Percent of Shares
Name and Address Owned(1) Beneficially Owned(2)
---------------- ------------ ---------------------
<S> <C> <C>
Directors and Named Officers:
Andrew J. Filipowski(3)
1815 S. Meyers Road
Oakbrook Terrace, IL 60181................. 1,695,515 22.2%

Billy D. Prim(4)
104 Cambridge Plaza Drive
Winston-Salem, NC 27104.................... 1,190,417 15.6%

Craig J. Duchossois(5)
845 Larch Avenue
Elmhurst, IL 60126......................... 467,894 6.1%

Richard E. Belmont(6)....................... 20,122 *

Joseph T. Culp(6)........................... 20,122 *

Mark Castaneda(7)........................... 13,561 *

Kay B. Martin(8)............................ 13,561 *

Richard A. Brenner.......................... 8,665 *

Steven D. Devick(9)......................... 337,247 4.4%

John H. Muehlstein(6)....................... 3,781 *

Directors and executive officers as a group
(10 individuals)(10)....................... 3,218,722 42.1%
</TABLE>
- --------
* Less than 1%.

(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 reflects 7,651,413 shares outstanding
as of May 31, 1999.

(3) Includes 1,074,066 shares of common stock owned by Mr. Filipowski, 18,904
shares of common stock issuable upon the exercise of vested options 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, 1,285 shares owned by Platinum Propane, of which Mr.
Filipowski acts as a director and indirectly owns 16.5% of the membership
interests, 333,466 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 Alexandra Filipowski
Trust, 1,890 shares of common stock beneficially owned by Veronica
Filipowski as trustee on behalf of the James Meadows Trust and 7,561
shares of common stock beneficially owned by Veronica Filipowski.

46
<PAGE>

(4) Includes 889,483 shares of common stock held by Mr. Prim, 72,181 shares of
common stock issuable upon the exercise of vested options held by Mr.
Prim, 216,127 shares of common stock owned by American Oil and Gas, Inc.,
of which Mr. Prim owns 51% of the issued and outstanding shares and has
voting control, 1,285 shares owned by Platinum Propane, of which Mr. Prim
acts as a director and indirectly owns 21.2% 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.

(5) Includes 346,554 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, 1,285
shares owned by Platinum Propane, of which Mr. Duchossois indirectly owns
3.8% of the membership interests, 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, 75,305 shares of
common stock beneficially owned by the Kimberly Family Discretionary Trust
over which Mr. Duchossois has voting and investment control and 1,923
shares owned by 3GT Investment Partnership over which Mr. Duchossois has
voting and investment control.

(6) Represents the number of shares issuable upon the exercise of vested
options.

(7) Includes 1,000 shares of common stock owned by Mr. Castaneda and 12,561
shares of common stock issuable upon the exercise of vested options held
by Mr. Castaneda.

(8) Includes 1,000 shares of common stock owned by Ms. Martin and 12,561
shares of common stock issuable upon the exercise of vested options held
by Ms. Martin.

(9) Includes 3,781 shares issuable upon the exercise of vested options held by
Mr. Devick and 333,466 shares owned beneficially by PVP, the general
partner of which is PVP, Inc.

(10) Includes 2,980,979 shares of common stock and options and warrants to
purchase 237,103 shares which are currently exercisable or exercisable
within 60 days of the date of this prospectus which are beneficially owned
by the directors and executive officers as a group.

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 is Substantial Ownership of Blue
Rhino" and "Shares Eligible for Future Sale."

47
<PAGE>

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 "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,

48
<PAGE>

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 preceeding year's annual meeting.

Transfer Agent and Registrar

The Transfer Agent and Registrar for our common stock is LaSalle Bank,
National Association, Chicago, Illinois.

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.

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.

49
<PAGE>

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.

50
<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 April 30,
1999 (unaudited)........................................................ F-3

Consolidated Statements of Operations for the Fiscal Years Ended July 28,
1996, and July 31, 1997 and 1998 and for the Nine Months Ended April 30,
1998 (unaudited) and 1999 (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 Nine
Months Ended April 30, 1999 (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 Nine Months Ended April 30,
1998 (unaudited) and 1999 (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.

The accompanying consolidated financial statements as of and for the year
ended July 31, 1998, have been adjusted as discussed in Note 21.

/s/ PricewaterhouseCoopers LLP

Greensboro, North CarolinaSeptember 22, 1998, exceptfor the information in
Note21 for which the date isFebruary 8, 1999

F-2
<PAGE>

BLUE RHINO CORPORATION

CONSOLIDATED BALANCE SHEETS

As of July 31, 1997 and 1998 and April 30, 1999 (unaudited)
(in thousands, except per share data)

<TABLE>
<CAPTION>
April 30,
ASSETS 1997 1998 1999
- ------ -------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Cash and cash equivalents........................ $ 325 $ 5,908 $ 563
Trade accounts receivable, net................... 3,110 7,901 8,224
Cylinder inventories............................. 220 2,377 162
Notes receivable................................. 417 540 80
Prepaid expenses and other current assets........ 81 487 2,236
-------- -------- --------
Total current assets......................... 4,153 17,213 11,265
Cylinders held under operating lease agreements.. -- -- 14,158
Property and equipment, net...................... 4,438 8,505 14,428
Notes receivable................................. 1,196 789 134
Intangibles, net................................. 104 3,532 9,144
Other assets..................................... 83 431 405
-------- -------- --------
Total assets................................. $ 9,974 $ 30,470 $ 49,534
======== ======== ========

<CAPTION>
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED
STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT)
- ---------------------------------------------
<S> <C> <C> <C>
Trade accounts payable........................... $ 2,407 $ 4,421 $ 6,616
Acquisition notes payable........................ 81 212 723
Current portion of long-term debt and capital
lease obligations............................... 165 286 637
Accrued liabilities.............................. 763 475 780
-------- -------- --------
Total current liabilities.................... 3,416 5,394 8,756
Long-term debt, less current maturities.......... 15,142 104 --
Notes payable to bank............................ 840 -- 15,480
Capital lease obligations, less current
maturities...................................... 128 156 529
-------- -------- --------
Total liabilities............................ 19,526 5,654 24,765
-------- -------- --------
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
7,650,657 shares issued and outstanding at
July 31, 1997 and 1998 and April 30, 1999,
respectively.................................. 2 8 8
Additional paid-in capital..................... 332 46,320 46,421
Accumulated deficit............................ (18,822) (21,512) (21,660)
-------- -------- --------
Total stockholders' equity (deficit)......... (18,488) 24,816 24,769
-------- -------- --------
Total liabilities, convertible redeemable
preferred stock and
stockholders' equity (deficit).............. $ 9,974 $ 30,470 $ 49,534
======== ======== ========
</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 Nine Months Ended April 30, 1998 (unaudited) and 1999 (unaudited)
(in thousands, except per share data)

<TABLE>
<CAPTION>
Nine Months
Fiscal Years Ended Ended April 30,
------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales--distributors.......... $ 2,386 $13,060 $27,372 $14,008 $29,184
Net sales--direct................ 5,830 1,151 -- -- --
Lease income--Cylinders.......... -- -- -- -- 612
Other revenues................... 89 295 566 393 756
------- ------- ------- ------- -------
Total revenues............... 8,305 14,506 27,938 14,401 30,552
------- ------- ------- ------- -------
Operating costs and expenses:
Cost of sales--distributors.... 1,811 9,873 20,525 10,693 21,705
Cost of sales--direct.......... 6,089 1,771 -- -- --
Cost of leased cylinders....... -- -- -- -- 612
Selling, general and
administrative................ 4,304 5,124 6,338 4,638 6,070
Depreciation and amortization.. 868 873 1,278 846 1,702
Nonrecurring charges........... 1,363 970 476 506 --
------- ------- ------- ------- -------
Total operating costs and
expenses, net............... 14,435 18,611 28,617 16,683 30,089
------- ------- ------- ------- -------
Income (loss) from operations.... (6,130) (4,105) (679) (2,282) 463
Other expenses (income):
Interest expense............... 1,469 1,665 1,707 1,496 91
Loss on investee............... -- -- 324 -- 311
Follow-on offering............. -- -- -- -- 551
Other, net..................... (168) (186) (234) (147) (131)
------- ------- ------- ------- -------
Income (loss) before taxes... (7,431) (5,584) (2,476) (3,631) (359)
Income taxes................... -- -- -- -- --
------- ------- ------- ------- -------
Net income (loss)............ $(7,431) $(5,584) $(2,476) $(3,631) $ (359)
======= ======= ======= ======= =======
Basic and diluted earnings (loss)
per common share................ $ (4.96) $ (3.74) $ (1.04) $ (2.36) $ (0.05)
======= ======= ======= ======= =======
Weighted average common shares
used in computing earnings
(loss) per common share (in
thousands):
Basic and diluted.............. 1,628 1,678 2,945 1,779 7,641
======= ======= ======= ======= =======
</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 Nine Months Ended April 30, 1999 (unaudited)
(in thousands, except 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
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.................. -- -- -- (2,476) (2,476)
--------- ---- ------- -------- --------
Balances, July 31, 1998..... 7,630,873 8 46,320 (21,512) 24,816
Proceeds from exercise of
stock options
(unaudited).............. 19,784 -- 101 -- 101
Expense related to
distributor stock option
plan (unaudited)......... -- -- -- 211 211
Net loss (unaudited)...... -- -- -- (359) (359)
--------- ---- ------- -------- --------
Balances, April 30, 1999
(unaudited)................ 7,650,657 $ 8 $46,421 $(21,660) $ 24,769
========= ==== ======= ======== ========
</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 Nine Months Ended April 30, 1998 (unaudited) and 1999 (unaudited)

(in thousands)

<TABLE>
<CAPTION>
Nine Months
Fiscal Years Ended Ended April 30,
-------------------------- -----------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net Loss....................... $(7,431) $(5,584) $ (2,476) $(3,631) $ (359)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.. 868 873 1,278 846 1,926
Loss on disposal of assets..... -- -- -- 285 34
Nonrecurring charges........... 1,268 963 198 -- --
Loss on investee............... -- -- 324 -- 311
Expense related to distributor
stock option plan............. -- -- 50 -- 211
Follow-on offering costs....... -- -- -- -- 551
Accreted interest on senior
discount notes................ 1,049 1,489 1,378 1,241 --
Changes in operating assets
and liabilities, net of
business acquisitions:
Accounts receivable........... (990) (1,186) (4,791) (1,008) (324)
Inventories................... (473) 127 (1,726) (813) (162)
Other current assets.......... 35 166 (389) (501) (1,848)
Accounts payable.............. 624 1,045 1,516 1,239 600
Other accrued liabilities..... (120) (85) (261) (482) 304
------- ------- -------- ------- --------
Net cash provided by (used
in) operating activities.... (5,170) (2,192) (4,899) (2,824) 1,244
------- ------- -------- ------- --------
Cash flows from investing
activities:
Business acquisitions.......... -- -- (3,640) (3,050) (5,927)
Payment of organizational
costs......................... -- -- (25) -- --
Proceeds from disposal of
cylinders..................... 29 340 -- -- --
Purchases of property, plant
and equipment................. (1,840) (537) (2,283) (1,027) (5,585)
Purchases of cylinders......... -- -- -- -- --
Proceeds from disposals of
property and equipment........ 360 159 65 39 --
Issuance of note receivable.... -- -- (635) (635) --
Purchase of cylinders held
under operating leases........ -- -- -- -- (8,570)
Collections on notes
receivable.................... 58 380 496 374 258
------- ------- -------- ------- --------
Net cash (used in) provided
by investing activities..... (1,393) 342 (6,022) (4,299) (19,824)
------- ------- -------- ------- --------
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 -- 101
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 3,250 --
Payments of stockholder loans.. -- -- (3,250) -- --
Proceeds from notes payable to
bank.......................... 2,700 3,995 8,411 9,974 19,913
Payments on notes payable to
bank.......................... (4,900) (3,155) (9,251) (5,801) (4,433)
Payment on cylinder display
lease facility................ -- -- (2,119) -- --
Payment of common stock
offering and registration
costs......................... -- -- -- -- (584)
Payments on acquisition notes
payable....................... (669) (90) (108) -- (1,133)
Payment of debt issuance costs. (57) (58) (108) -- (211)
Repayment of note payable to
vendor........................ (948) (752) -- -- --
Payments of long-term debt and
capital lease obligations..... (1,321) (291) (248) (185) (418)
------- ------- -------- ------- --------
Net cash provided by
financing activities........ 7,480 1,049 16,504 7,238 13,235
------- ------- -------- ------- --------
Net (decrease) increase in
cash and cash equivalents..... 917 (801) 5,583 115 (5,345)
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 $ 440 $ 563
======= ======= ======== ======= ========
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 Nine Months Ended April 30, 1998 (unaudited) and 1999 (unaudited)

(in thousands, except 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 had 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 $134 at July 31,
1997 and 1998, respectively.

F-8
<PAGE>

BLUE RHINO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 $196, 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

F-9
<PAGE>

BLUE RHINO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

relating to trade accounts receivable is limited. The 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.

Reclassification--Certain prior year amounts have been reclassified to
conform to the presentation adopted in fiscal 1998.

F-10
<PAGE>

BLUE RHINO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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) (2,245)
------- -------
$ 4,438 $ 8,505
======= =======
</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%.

The aggregate maturities of these notes receivable at July 31, 1998 are as
follows:

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.

5. Intangibles, net:

During fiscal 1998, the Company completed a number of acquisitions (the
"Acquisitions") for approximately $4,700 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 $3,600 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.

F-11
<PAGE>

BLUE RHINO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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) $(2,427)
======= =======
Net loss per common share.............................. $ (3.66) $ (1.02)
======= =======
</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 $9,000
including a $3,000 revolving line of credit based on 80% of eligible
receivables with a $1,000 overadvance provision, a $1,000 capital expenditures
line of credit and a $4,000 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.

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 $3,250
(the "1998 Stockholder Loans"). The 1998 Stockholder Loans were repaid in full
in May 1998, including accrued interest at 10.5% with $3,400 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.

F-12
<PAGE>

BLUE RHINO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 $1,900 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 $17,200 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>

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.

F-13
<PAGE>

BLUE RHINO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

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 $196
Impairment of goodwill.................................. 355 -- --
Severance, professional fees and other.................. 194 234 280
------ ---- ----
$1,363 $970 $476
====== ==== ====
</TABLE>

F-14
<PAGE>

BLUE RHINO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 $115 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.

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.

F-15
<PAGE>

BLUE RHINO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

In November 1997, the board of directors adopted and the stockholders
approved the Distributor 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

F-16
<PAGE>

BLUE RHINO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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) $(2,476)
======= ======= =======
Pro forma................................... $(7,454) $(5,649) $(2,801)
======= ======= =======
Basic and diluted loss per common share:
As reported................................. $ (4.96) $ (3.74) $ (1.04)
======= ======= =======
Pro forma................................... $ (4.97) $ (3.78) $ (1.15)
======= ======= =======
</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 5 years; expected volatility
30%; expected dividends of $0 and a risk-free interest rate of 5.5%.

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

F-17
<PAGE>

BLUE RHINO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

14. 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 loss per share was
determined as follows:

<TABLE>
<CAPTION>
Fiscal Years Ended Nine Months Ended
---------------------------- -------------------
July 28, July 31, July 31, April 30, April 30,
1996 1997 1998 1998 1999
-------- -------- -------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Basic and diluted loss per
common share:
Net loss.................. $(7,431) $(5,584) $(2,476) $(3,631) $ (359)
Less: Redeemable preferred
stock dividends.......... 636 687 596 580 --
------- ------- ------- ------- ------
Loss applicable to common
stockholders............... $(8,067) $(6,271) $(3,072) $(4,211) $ (359)
======= ======= ======= ======= ======
Weighted average common
shares used in computing
the loss per common share
(in thousands):
Basic and diluted......... 1,628 1,678 2,945 1,779 7,641
======= ======= ======= ======= ======
Basic and diluted loss per
common share............... $ (4.96) $ (3.74) $ (1.04) $ (2.36) $(0.05)
======= ======= ======= ======= ======
</TABLE>

Options to purchase common stock and the assumed exercise of warrants during
the fiscal years ended 1998, 1997 and 1996 and for the nine month periods ended
April 30, 1998 and 1999 have been excluded from the computation of diluted loss
per common share as they were anti-dilutive. For the nine months ended
April 30, 1998, 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>
Javelina Raven
PPH 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>

F-18
<PAGE>

BLUE RHINO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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.

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 $ 7,781
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 8,163
Valuation allowance................................ (4,960) (7,148) (8,095)
------- ------- -------
Net deferred tax assets.............................. $ 4 $ -- $ 68
======= ======= =======
Liability:
Depreciation and amortization...................... $ 4 $ -- $ 68
======= ======= =======
</TABLE>

F-19
<PAGE>

BLUE RHINO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

At July 31, 1998, the Company had a net operating loss carryforward for
federal income tax purposes of approximately $19,900 which is available to
offset future federal taxable income, if any, in varying amounts through 2013.

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 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 $ 4,174 $ 5,694 $13,364
======= ======= ======= =======
Gross profit......................... $ 985 $ 958 $ 1,372 $ 3,532
======= ======= ======= =======
Net income (loss).................... $(1,340) $(1,223) $(1,067) $ 1,154
======= ======= ======= =======
Per share data:
Basic earnings (loss) per common
share............................. $ (0.81) $ (0.83) $ (0.72) $ 0.18
======= ======= ======= =======
Diluted earnings (loss) per common
share............................. $ (0.81) $ (0.83) $ (0.72) $ 0.17
======= ======= ======= =======
</TABLE>

F-20
<PAGE>

BLUE RHINO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

21. Equity Method:

On February 12, 1998, the Company invested $635 in Bison Valve, L.L.C.
("Bison Valve") in the form of a convertible note receivable. 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 accrues interest at 9.5% for four (4) years
after which the principal and accrued interest will be amortized over two (2)
years. Bison Valve was formed to market, produce and sell a specialty valve to
the Company's distributors and third parties. The Company has accounted for its
investment in Bison Valve using the equity method of accounting to reflect the
Company's funding of certain losses incurred by this entity primarily related
to researching, developing, marketing and producing certain propane products.

The financial statements for the year ended July 31, 1998, have been revised
primarily to reflect the application of this equity method of accounting to the
operating results of the investee Bison Valve, L.L.C., net of the allowance
previously recorded of $130. The net effect of the revisions to the 1998
financial statements was an increase in the net loss of $107 or $0.03 per
share.

22. Events Subsequent to the Date of the Independent Auditor's Report
(Unaudited):

The interim consolidated financial data with respect to April 30, 1999 (as
revised) and 1998, have been prepared without audit; however, in the opinion of
management, all adjustments (which included those that are normal and
recurring) necessary to present fairly the consolidated financial position at
April 30, 1999, and the results of operations and cash flows for the nine
months ended April 30, 1999 and 1998, have been made. The results for the nine
months ended April 30, 1999, 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.

The consolidated financial statements of the Company include the accounts of
its affiliate, USA Leasing L.L.C. ("USA Leasing"), formed in October 1998. All
intercompany transactions and balances between the Company and USA Leasing have
been eliminated in consolidation. USA Leasing is owned by four individuals
affiliated with the Company as officers, directors and/or stockholders. As of
April 30, 1999, the Company sold approximately $13,000 of cylinder inventories
to USA Leasing at book value which was funded from borrowings under USA
Leasing's credit facility with NationsBank. Under the terms of this credit
facility, each of the owners of USA Leasing provided a guarantee for 5% of the
total amount outstanding under the credit facility with the remaining 80% being
guaranteed by the Company. As of October 31, 1998, USA Leasing's 60 day credit
facility of $6,500 bore interest at prime rate plus 1.0% and was subsequently
converted to a two year credit facility on December 31, 1998 to borrow up to
$13,000 which bears interest at LIBOR plus 2.25% (the "USA Leasing Credit
Facility"). The USA Leasing Credit Facility is collateralized by a blanket lien
on all of the assets of USA Leasing (primarily cylinders held under operating
lease agreements with a carrying value of approximately $13,000 as of April 30,
1999). In addition, the Company has received a subordinate security interest in
all of USA Leasing's assets as consideration for the Company's guarantee. USA
Leasing has entered into operating lease agreements with the Company's
independent distributors to lease the cylinders at 1% of the initial cylinder
value monthly.

During the three months ended October 31, 1998, the Company recognized,
under the equity method of accounting, a loss of $311 representing the
remaining balance of the Company's loan to Bison Valve, L.L.C.

This charge reflects the Company's funding of certain losses incurred by
this entity primarily related to researching, developing, marketing and
producing certain propane products. In December 1998, the Company signed a
letter of intent to purchase certain assets of Bison Valve (primarily patent
rights and manufacturing equipment) for $1,100 in common stock and warrants to
purchase 100,000 shares of common stock of the

F-21
<PAGE>

BLUE RHINO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)

Company at the market price as defined in the agreement. These assets, once
acquired, will be amortized over their respective useful lives. All adjustments
described in this Note 22 resulted in a decrease in the results of operations
for the three months ended October 31, 1998 of $492 ($0.06 per common share).

In December 1998, the Company entered into a $12,000 credit facility which
includes a $7,000 revolving line of credit and a $5,000 acquisition facility
with NationsBank, N.A. (the "New Bank Credit Facility"). At April 30, 1999, we
had approximately $2,500 outstanding under the New Bank Credit Facility. The
Company's ability to borrow under the New Bank Credit Facility was initially
reduced by an amount equal to the contingent liability under the Company's
guarantee of USA Leasing's credit facility with NationsBank, N.A. The New 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 requirements. On June 14, 1999, the New Bank
Credit Facility was amended to provide $7,390 of credit availability under the
existing $7,000 revolving line of credit and the $5,000 acquisition facility.
This amended agreement provides up to $3,400 of working capital financing,
$2,900 of documentary letters of credit to support the purchase of patio
heaters and $1,090 to finance acquisitions. This amendment waives the provision
under the New Bank Credit Facility which reduced the Company's ability to
borrow by an amount equal to the contingent liability under the Company's
guarantee of the USA Leasing Credit Facility. The amendment also waives the
Company's non-compliance with our debt coverage and cash flow coverage
covenants as of April 30, 1999 which resulted in part from the expenses
incurred and termination of our follow-on offering of common stock and amends
certain other covenants. As we achieve certain performance measures, our
availability under the New Bank Credit Facility will increase. The loans under
the New Bank Credit Facility bear interest at a maximum rate of LIBOR plus
2.25%.

The Company consummated nine acquisitions, for an aggregate purchase price
of approximately $6.5 million for assets including cylinder displays and
cylinder exchange accounts and locations. These acquisitions were funded with
cash provided by operations, the remaining proceeds from the Company's initial
public offering, borrowings under the New Bank Credit Facility and seller
financing. 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 $5,100, which is being amortized on a
straight-line basis over 30 years.

During the three months ended April 30, 1999, the Company incurred a one-
time charge of $551 related to offering costs incurred in connection with an
offering of common stock which was terminated in February 1999 due to
unfavorable market conditions.

On November 24, 1998, the Board of Directors approved and on December 22,
1998, the stockholders ratified, an increase in the number of shares reserved
and available for distribution under the Company's 1998 Stock Incentive Plan by
900,000 shares effective December 22, 1998.

F-22
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

Blue Rhino Corporation

Shares of Common Stock

----------------

PROSPECTUS

----------------

, 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 Securities 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............. $ 4,719
Nasdaq listing fee.............................................. 17,500
Blue Sky fees and expenses...................................... 5,000
Printing and engraving expenses................................. 200,000
Legal fees and expenses......................................... 100,000
Accounting fees and expenses.................................... 100,000
Miscellaneous................................................... 9,060
--------
Total....................................................... $435,000
========
</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 individuals may be entitled under the
Charter, the Bylaws, any agreement, any vote of stockholders or disinterested
directors, or otherwise. The Company maintains directors and officers insurance
covering its executive officers and directors.

II-1
<PAGE>

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 16,729 shares of common stock have been exercised and options to
purchase 169,850 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:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement.

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant 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 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 July 19, 1999.

Blue Rhino Corporation

/s/ Billy D. Prim
By: _________________________________
Billy D. Prim

Chairman of the Board, President
and Chief Executive Officer

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 July 19, 1999.

<TABLE>
<CAPTION>
Signature Title
--------- -----

<S> <C>
/s/ Billy D. Prim Billy D. Prim Chairman of the Board,
___________________________________________ President and Chief Executive Officer
Billy D. Prim (Principal Executive 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-4
<PAGE>

EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
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. incorporated by reference to Exhibit 10.1(a) to
Amendment No. 1 to the Company's Registration Statement on Form S-1
dated January 15, 1999.

10.1(b) Security Agreement, dated as of December 31, 1998 between the Company
and NationsBank, N.A. incorporated by reference to Exhibit 10.1(b) to
Amendment No. 1 to the Company's Registration Statement on Form S-1
dated January 15, 1999.

10.1(c) Promissory Note dated December 31, 1998 made by the Company in favor
of NationsBank, N.A. incorporated by reference to Exhibit 10.1(c) to
Amendment No. 1 to the Company's Registration Statement on Form S-1
dated January 15, 1999.

10.1(d) Promissory Note dated December 31, 1998 made by the Company in favor
of NationsBank, N.A. incorporated by reference to Exhibit 10.1(d) to
Amendment No. 1 to the Company's Registration Statement on Form S-1
dated January 15, 1999.

10.1(e) Amendment to Loan Agreement dated June 14, 1999, between the Company
and NationsBank, N.A.

10.2 Note Purchase Agreement, dated as of January 1, 1998, among the
Company and Craig J. Duchossois, Andrew Filipowski, James Liautaud and
Lennard Carlson, 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.

</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
10.9 Amended and Restated Stock Option Plan for Non-employee Directors,
incorporated by reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1 dated January 5, 1998.

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, incorporated by reference to Exhibit
10.14 to the Company's Registration Statement on Form S-1 dated
January 5, 1998.

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, incorporated by reference to Exhibit
10.15(b) to Amendment No. 1 to the Company's Registration Statement
as Form S-1 dated January 15, 1999.

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 Guarantee dated December 31, 1998 made by the Company in
favor of NationsBank, N.A. incorporated by reference to the Company's
Amendment No. 1 to Registration Statement on Form S-1 dated January
15, 1999.

10.17(b) Subordinated Security Agreement dated December 31, 1998 between the
Company and USA Leasing, L.L.C. incorporated by reference to
Amendment No. 1 to the Company's Registration Statement on Form S-1
dated January 15, 1999.

10.17(c) Subordination Agreement dated December 31, 1998 among the Company,
USA Leasing, L.L.C. and NationsBank, N.A. incorporated by reference
to Amendment No. 1 to the Company's Registration Statement on Form S-
1 dated January 15, 1999.

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 10,
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+

27.1 Financial Data Schedule
</TABLE>
- --------

+Previously filed.

II-6

<PAGE>

EXHIBIT 5.1

[PEDERSEN & HOUPT LETTERHEAD]

July 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 its preparation of a Registration Statement
on Form S-1 (the "Registration Statement") and its filing of the Registration
Statement with the Securities and Exchange Commission as Registration No. 333-
65015. The Registration Statement seeks to register under the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
thereunder, the sale of up to 1,400,000 shares (the "Shares") of the Company's
Common Stock, $.001 par value per share ("Common Stock"). You have represented
to us that the Shares will be offered and sold (the "Offering") from time to
time in connection with (i) future acquisitions by the Company of other
businesses, real or personal properties, or securities in business combination
transactions or (ii) the exercise of options to purchase shares of common stock
granted pursuant to the Company's Distributor Option Plan (the "Plan"). 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. The Registration Statement;

2. The Plan;

3. The Company's Second Amended and Restated Certificate of Incorporation;

4. The Company's Amended and Restated Bylaws; and
<PAGE>

July 15, 1999
Page 2

5. Resolutions of the Company's Board of Directors.

We also examined originals or copies of those corporate records of the
Company and agreements, communications and other instruments, certificates of
public officials, certificates of corporate officials and 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 the federal securities laws
of the United States of America.

With respect to the issuance of any Shares, we have assumed that the
issuance of such Shares and the certificates evidencing the same will have been
duly authorized, executed and delivered, against receipt of consideration
approved by the Company which will be no less than the par value thereof.

Based upon the foregoing, and subject to the qualifications and limitations
stated herein, we are of the opinion that when the Registration Statement
becomes effective under the Securities Act, the Shares, will be duly authorized
and 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>

July 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(e)

AMENDMENT TO LOAN AGREEMENT

THIS AMENDMENT TO LOAN AGREEMENT ("Amendment"), dated as of June 14, 1999,
is by and between NATIONSBANK, N.A., a national banking association ("Bank") and
BLUE RHINO CORPORATION, a Delaware corporation ("Borrower").

W I T N E S S E T H :
---------------------

WHEREAS, Bank and Borrower are parties to that certain Loan Agreement dated
December 31, 1998 (the "BR Loan Agreement"), pursuant to which Bank made certain
loans to Borrower, as more fully described therein, including a revolving line
of credit (the "Revolver") in the original principal amount of up to $7,000,000,
and a non-revolving line of credit (the "Acquisition Line") in the principal
amount of up to $5,000,000; and

WHEREAS, on the same date, Bank and USA Leasing, LLC, a Delaware limited
liability company affiliated with Borrower through certain common ownership
("Lessor") entered into a Loan Agreement (the "Lessor Loan Agreement"), pursuant
to which Bank extended a non-revolving line of credit (the "Lease Line") to
Lessor in the principal amount of up to $13,000,000; and

WHEREAS, both the BR Loan Agreement and the Lessor Loan Agreement contained
certain limitations on the amount of credit available under the various loan
facilities (the "Credit Limit"), until such time as certain financial covenants
were satisfied, based on the combined financial performance of Borrower and
Lessor; and

WHEREAS, Borrower has requested that Bank temporarily modify the Credit
Limit to permit Borrower to obtain additional advances under the Revolver and
the Acquisition Line; and

WHEREAS, Borrower has also requested that the Bank agree to modify certain
financial covenants, modify the Borrowing Base, and make certain other changes
in the BR Loan Agreement; and

WHEREAS, the Bank has agreed to make such changes and modifications,
subject to the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the premises, the renewal and extension
of the Loans to Borrower, and other valuable consideration, the parties hereto
agree hereby as follows:

1. Modifications to Revolver. (a) Notwithstanding the provisions of
Section 4 of the BR Loan Agreement imposing the Credit Limit, Bank agrees to
extend credit under the Revolver, subject to certain sublimits (the
"Sublimits"), as follows: (i) up to $3,400,000 to finance Borrower's temporary
working capital needs, and (ii) up to $2,900,000 for issuance of documentary
letters of credit by Bank for the benefit of Borrower, and such standby letters
of credit as may be approved by Bank from time to time. Borrower may borrow,
repay and reborrow, and may obtain letters of credit as needed, from time to
time, provided that the

<PAGE>

maximum principal balance of unpaid advances, and the aggregate amount of
letters of credit issued by Bank, do not exceed the Sublimits described above.
All advances under the Revolver shall also be subject to the Sublimit Borrowing
Base, as set forth herein.

(b) All advances made under the Revolver shall bear interest at the rate
set forth in the BR Loan Agreement, which accrued interest shall be payable
monthly in arrears.

(c) Borrower agrees to pay an issuance fee for each letter of credit
issued Bank under the Revolver, in the amount of (i) three-eighths percent
(3/8%) for documentary letters of credit and (ii) one and one-half percent
(1 1/2%) for standby letters of credit. Borrower shall also pay Bank's standard
processing fees for letters of credit issued by Bank.

(d) The availability fee to be paid by Borrower on the Revolver and the
Acquisition Line shall be in the amount of one-quarter percent (1/4%) of the
average unused amount of such facilities, calculated with reference to the
amount of the Sublimits.

2. Modifications to Acquisition Line. (a) Notwithstanding the
provisions of Section 4 of the BR Loan Agreement imposing the Credit Limit, Bank
agrees to extend credit under the Acquisition Line to Borrower in the principal
amount of up to One Million, Ninety Thousand Dollars ($1,090,000). Borrower may
obtain advances under the Acquisition Line in an aggregate principal amount of
up to $1,090,000. All advances under the Acquisition Line shall also be subject
to the Sublimit Borrowing Base, as set forth herein.

(b) All advances made under the Acquisition Line shall bear interest at
the rate set forth in the BR Loan Agreement, which accrued interest shall be
payable monthly in arrears.

3. Removal of Sublimits. The Sublimits set forth above shall be removed
at such time as the Lease Line has been paid in full, and the commitment of the
Bank pursuant to the Lease Line has been terminated. At such time, credit shall
be available under the Revolver and the Acquisition Line in the amounts and for
the periods set forth in the BR Loan Agreement, as modified herein.

4. Modification of Borrowing Base. The Borrowing Base described in the
BR Loan Agreement and in the Borrowing Base Agreement is hereby modified to
delete all references to Inventory and Equipment. Borrower and Bank shall
execute a new Borrowing Base Agreement, which shall replace the Borrowing Base
Agreement attached to the Loan Agreement as Exhibit A. Additionally, the
Borrowing Base shall apply to all advances under the Acquisition Line, as well
as the Revolver. The aggregate amount of unpaid advances under the Acquisition
Line and the Revolver shall not exceed an amount equal to the lesser of 80% of
the Borrower's Eligible Accounts Receivable (as such term is defined in the
existing Borrowing Base Agreement between Bank and Borrower), or $7,390,000. At
the time Borrower requests any advance under the Revolver or the Acquisition
Line, Borrower shall provide a Borrowing Base certificate, signed by Borrower,
setting forth the value of the Eligible Accounts Receivable, and stating that
the principal amount outstanding on the loans, together with the requested
disbursement, shall not exceed the Borrowing Base.

2
<PAGE>

5. Waivers. (a) Subject to compliance by Borrower with the Sublimits,
Bank agrees to waive the Credit Limit and compliance by the Borrower with the
financial ratio requirements set forth in Section 4 of the BR Loan Agreement and
the Lessor Loan Agreement as a condition of lifting the Credit Limit.

(b) Compliance with the debt to Tangible Net Worth covenant found in
Section 7 (A) (ii) is waived for the Borrower's fiscal quarter ending April 30,
1999.

(c) Compliance with the EBITDA covenant found in Section 7 (A) (iv) is
waived for the Borrower's fiscal quarter ending April 30, 1999.

6. Amendments. (a) Section 7 (A) (iii) of the BR Loan Agreement is hereby
amended to change the Current Ratio requirement to not less than 1.0 to one.

(b) Section 7 (B) (ii) of the BR Loan Agreement is hereby amended by
replacing the figure "30 days" with the figure "45 days."

7. Payment of Expenses. Borrower agrees to pay, or reimburse the Bank for
payment of, all of the Bank's costs and expenses incurred in connection with
this Amendment, including the fees and out-of-pocket expenses of the Bank's
counsel, and all costs of inspections, surveys, appraisals, environmental
inspections or other matters.

8. Representations and Warranties. Borrower represents and warrants to
the Bank as follows:

(a) Power and Authority: Enforceability. Borrower has the power and
authority to execute and deliver this Amendment and to perform the terms
and conditions of the BR Loan Agreement and the other Loan Documents (as
defined in the BR Loan Agreement), as amended and modified by this
Amendment. The execution and delivery of this Amendment by Borrower and the
performance of the BR Loan Agreement and the other Loan Documents, as
amended and modified by this Amendment, do not and will not violate any
law, rule or regulation, or constitute a breach of the articles of
incorporation, bylaws or corporate resolutions of Borrower or any agreement
to which the Borrower is a party or by which its assets are bound. The BR
Loan Agreement and the other Loan Documents, as amended and modified by
this Amendment, constitute legal, valid and binding obligations of
Borrower, enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency, reorganization, and similar laws and other law
generally affecting the enforceability of creditors' rights and to general
principles of equity.

(b) No Default. Upon the execution and delivery of this Amendment by
the Borrower, Borrower will not be in default in the performance,
observance or fulfillment of any of the obligations, covenants or
conditions contained in the BR Loan Agreement or the other Loan Documents,
as amended and modified by this Amendment, or any other agreement or
instrument to which it is a party.

3
<PAGE>

(c) Representations. The representations and the information
furnished by Borrower to Bank with regard to this Amendment are and shall
continue to be true and not misleading in all material respects. In
addition, the representations and warranties of Borrower to Bank contained
herein, in the BR Loan Agreement, in the other Loan Documents and in any
other document or instrument executed or delivered by Borrower in
connection therewith, are and shall continue to be true and not misleading
in all material respects, except as otherwise disclosed in writing to the
Bank and approved by Bank prior to the date hereof.

9. Covenants. Borrower covenants and agrees that, unless Bank shall
otherwise consent in writing, Borrower shall:

(a) Compliance with Covenants. Continue to comply with all of the
terms, covenants and agreements contained in the BR Loan Agreement and the
other Loan Documents, as amended and modified by this Amendment.

(b) Further Assurances. Execute and deliver such further instruments,
and take such further action as Bank may reasonably request, in each case
to further effect the purposes of the BR Loan Agreement and the other Loan
Documents, as modified by this Amendment.

10. Ratification. Except as expressly amended hereby, the BR Loan
Agreement shall be and remain in full force and effect in accordance with its
terms. Borrower stipulates and agrees that there exists no defense, claim of
setoff, or claim in avoidance of any of its liabilities or obligations under or
pursuant to the BR Loan Agreement, as so amended.

11. Miscellaneous.
--------------

(a) All references to the "BR Loan Agreement" in the BR Loan
Agreement shall hereafter mean and refer to the BR Loan Agreement as
amended hereby.

(b) All references to the "Loan Agreement" in the other Loan
Documents shall hereafter mean and refer to the BR Loan Agreement as
amended hereby.

(c) In the event of any conflict between the terms of this Amendment
and the Loan Documents, the terms of this Amendment shall control and
govern.

(d) All captioned terms used herein that are not otherwise defined
shall have the meanings ascribed to such terms in the Loan Agreement.

12. Counterparts. This Amendment may be executed in separate counterparts,
and said counterparts taken together shall be deemed to constitute one and the
same instrument. An executed copy of this Amendment delivered by telecopier
shall have the same effect as an originally executed copy of this Amendment.

4
<PAGE>

13. NO ORAL AGREEMENT. THIS WRITTEN AMENDMENT 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.

IN WITNESS WHEREOF, the parties hereto have executed the foregoing
Amendment to Loan Agreement as of the date first above written.

BORROWER:
---------

BLUE RHINO CORPORATION
ATTEST:
By: /s/ Mark Castaneda
--------------------------
Title: CFO
-----------------------

/s/ Kurt Gehsmann
- ---------------------------
ASST. SECRETARY
[Corporate Seal]

BANK
----

NATIONSBANK, N.A.

By: /s/ J. Thomas Johnson, Jr.
---------------------------
Title: Sr. Vice President
------------------------

<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 July 16,
1999.

/s/ Pedersen & Houpt, P.C.
----------------------------------
Pedersen & Houpt, P.C.

Chicago, Illinois
July 16, 1999

<PAGE>

Exhibit 23.2

Amendment No. 1

Consent of Independent Accountants

We consent to the inclusion in this Registration Statement on Form S-1
(File No. 333-65015) of our report dated September 22, 1998, except for the
information in Note 21 for which the date is February 8, 1999 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".

PricewaterhouseCoopers LLP
Greensboro, North Carolina
July 16, 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 Attitude Study performed on behalf of the Barbecue Industry
Association in Amendment No. 1 to the Registration Statement on Form S-1 of Blue
Rhino Corporation, as filed with the Securities and Exchange Commission.

Barbecue Industry Association of America

By: /s/ William Neal
-------------------------
Name: William Neal
-----------------------
Title: Chairman
----------------------

Barbecue Industry Association of America
Greenville, Tennessee
July 16, 1998

<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 APRIL 30, 1999 (UNAUDITED) AND CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE FISCAL YEAR ENDED JULY 31, 1998 (AUDITED) AND NINE MONTHS
ENDED APRIL 30, 1999 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JUL-31-1998 JUL-31-1999
<PERIOD-START> AUG-01-1997 AUG-01-1998
<PERIOD-END> JUL-31-1998 APR-30-1999
<CASH> 5,908 563
<SECURITIES> 0 0
<RECEIVABLES> 8,035 8,224<F1>
<ALLOWANCES> 134 0
<INVENTORY> 2,377 162
<CURRENT-ASSETS> 17,213 11,265
<PP&E> 10,750 14,428<F1>
<DEPRECIATION> 2,245 0
<TOTAL-ASSETS> 30,470 49,534
<CURRENT-LIABILITIES> 5,394 8,756
<BONDS> 104 0
0 0
0 0
<COMMON> 8 8
<OTHER-SE> 24,808 24,761
<TOTAL-LIABILITY-AND-EQUITY> 30,470 49,534
<SALES> 27,372 29,184
<TOTAL-REVENUES> 27,372 30,552
<CGS> 20,525 22,317
<TOTAL-COSTS> 20,525 30,089
<OTHER-EXPENSES> 7,526 731
<LOSS-PROVISION> 324 0
<INTEREST-EXPENSE> 1,707 91
<INCOME-PRETAX> (2,476) (359)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,476) (359)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,476) (359)
<EPS-BASIC> (1.04) (0.05)
<EPS-DILUTED> (1.04) (0.05)
<FN>
<F1> RECEIVABLES AND PP&E FOR THE NINE MONTHS ENDED APRIL 30, 1999 ARE PRESENTED
NET OF ALLOWANCES AND ACCUMULATED DEPRECIATION.
</FN>

</TABLE>