SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------
FORM 10-Q
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ______________ to ______________
Commission file number 0-27378
NuCo2 Inc.
(Exact Name of Registrant as Specified in Its Charter)
Florida 65-0180800
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2800 SE Market Place, Stuart, FL 34997
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (561) 221-1754
N/A
Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.
Indicate by check /X/ whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at December 31, 1999
Common Stock, $.001 par value 7,216,997 shares
<PAGE>
NuCo2 Inc.
Index Page
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1999 and 3
June 30, 1999
Consolidated Statements of Operations for the Three Months 4
Ended December 31, 1999 and December 31, 1998
Consolidated Statements of Operations for the Six Months 5
Ended December 31, 1999 and December 31, 1998
Consolidated Statement of Shareholders' Equity for the Six 6
Months Ended December 31, 1999
Consolidated Statements of Cash Flows for the Six Months 7
Ended December 31, 1999 and December 31, 1998
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 11
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 16
ABOUT MARKET RISK
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF 17
SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NuCo2 Inc.
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
December 31, 1999 June 30, 1999
----------------- -------------
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 168,081 $ 1,579,191
Trade accounts receivable; net of allowance for doubtful
accounts of $710,549 and $557,592, respectively 6,435,123 6,767,716
Inventories 236,501 213,605
Prepaid expenses and other current assets 1,595,808 593,487
------------- -------------
Total current assets 8,435,513 9,153,999
------------- -------------
Property and equipment, net 104,262,527 99,664,890
------------- -------------
Other assets:
Goodwill, net 21,039,533 21,645,293
Deferred charges, net 2,572,260 2,915,167
Customer lists, net 2,369,947 2,897,638
Restrictive covenants, net 1,750,604 1,928,700
Deferred lease acquisition costs, net 3,428,452 3,236,919
Deposits 307,119 187,595
------------- -------------
31,467,915 32,811,312
------------- -------------
$ 144,165,955 $ 141,630,201
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 41,219 $ 96,748
Accounts payable 8,498,938 6,701,695
Accrued expenses 699,324 747,631
Accrued interest 1,005,518 1,473,704
Accrued payroll 336,698 543,924
Other current liabilities 281,158 45,570
------------- -------------
Total current liabilities 10,862,855 9,609,272
Long-term debt, excluding current maturities 49,097,503 43,615,025
Subordinated debt 38,858,940 38,748,695
Customer deposits 2,158,066 1,924,528
------------- -------------
Total liabilities 100,977,364 93,897,520
------------- -------------
Commitments and contingencies
Shareholders' equity:
Preferred Stock; no par value; 5,000,000 shares authorized;
none issued -- --
Common stock; par value $.001 per share; 30,000,000 authorized;
issued and outstanding 7,216,997 and 7,216,664, respectively 7,217 7,217
Additional paid-in capital 64,833,579 64,831,748
Accumulated deficit (21,652,205) (17,106,284)
------------- -------------
Total shareholders' equity 43,188,591 47,732,681
------------- -------------
$ 144,165,955 $ 141,630,201
============= =============
</TABLE>
3
<PAGE>
NuCo2 Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Net Sales $13,694,356 $11,251,659
Costs and expenses:
Cost of products sold 6,744,946 6,070,491
Selling, general and administrative expenses 2,859,363 2,452,679
Depreciation and amortization 3,813,056 3,095,290
------------ -----------
13,417,365 11,618,460
------------ -----------
Operating Income (loss) 276,991 (366,801)
Interest expense, net 2,442,490 1,822,138
------------ -----------
Net (loss) (2,165,499) (2,188,939)
------------- ------------
Basic and Diluted EPS:
Net (loss) $ (.30) $ (.30)
=========== ===========
Weighted average number of common and common
equivalent shares outstanding
Basic and Diluted 7,216,678 7,216,664
============ ============
</TABLE>
4
<PAGE>
NuCo2 Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Net Sales $27,288,933 $22,115,152
Costs and expenses:
Cost of products sold 13,741,291 11,822,581
Selling, general and administrative expenses 5,788,621 4,898,471
Depreciation and amortization 7,427,691 5,941,009
------------ -----------
26,957,603 22,662,061
------------ -----------
Operating Income (loss) 331,330 (546,909)
Interest expense, net 4,877,251 3,383,121
------------ -----------
Net (loss) $(4,545,921) $(3,930,030)
============ ===========
Basic and Diluted EPS:
Net (loss) $ (.63) $ (.54)
============ ============
Weighted average number of common and common
equivalent shares outstanding
Basic and Diluted 7,216,671 7,216,664
============ ===========
</TABLE>
5
<PAGE>
NuCo2 Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-in Accumulated Shareholders'
Shares Amount Capital Deficit Equity
------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1999 7,216,664 $ 7,217 $ 64,831,748 $(17,106,284) $ 47,732,681
Issuance of 333 shares of Common
Stock - exercise of options 333 - 1,831 - 1,831
Net (loss) - - - (4,545,921) (4,545,921)
--------- ------- ------------ ------------- -------------
Balance, December 31, 1999 7,216,997 $ 7,217 $ 64,833,579 $(21,652,205) $ 43,188,591
========= ======= ============ ============= =============
</TABLE>
6
<PAGE>
NuCo2 Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1999 December 31, 1998*
----------------- -----------------
<S> <C> <C>
Net (loss) $(4,545,921) $ (3,930,030)
Cash flows from operating activities:
Adjustments to reconcile net (loss) to net cash provided
by operating activities:
Depreciation and amortization of property and equipment 5,159,216 4,097,039
Amortization of other assets 2,268,475 1,843,970
Loss on disposal of property and equipment 426,294 343,037
Amortization of original issue discount 110,245 21,429
Changes in operating assets and liabilities:
Decrease (increase) in:
Trade accounts receivable 332,593 (2,170,761)
Inventories (22,897) (12,750)
Prepaid expenses and other current assets (1,002,321) (777,744)
Increase (decrease) in:
Accounts payable 1,797,243 3,392,257
Accrued expenses (48,308) 165,691
Accrued payroll (207,226) (198,643)
Accrued interest (468,185) 110,523
Other current liabilities 235,589 26,187
Customer deposits 233,538 425,887
------------- ------------
Net cash provided by operating activities 4,268,335 3,336,092
------------- ------------
Cash flows from investing activities:
Proceeds from disposal of property and equipment 54,085 65,880
Purchase of property and equipment (10,187,403) (13,086,381)
Acquisition of businesses - 30,500
(Increase) in deposits (119,523) (50,613)
Increase in deferred lease acquisition costs (763,467) (840,799)
-------------- -------------
Net cash (used in) investing activities (11,016,308) (13,881,413)
-------------- -------------
Cash flows from financing activities:
Repayment of long-term debt (73,051) (67,402)
Proceeds from issuance of long-term debt and subordinated debt 5,500,000 10,500,000
Increase in deferred charges (91,917) (52,852)
Exercise of options 1,831 -
-------------- --------------
Net cash provided by financing activities 5,336,863 10,379,746
------------- --------------
Net decrease in cash and cash equivalents (1,411,110) (165,575)
Cash and cash equivalents at the beginning of period 1,579,191 336,510
------------- --------------
Cash and cash equivalents at the end of period $ 168,081 $ 170,935
============= ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 5,238,507 $ 3,283,464
============= ==============
Income taxes $ 0 $ 0
============= ==============
</TABLE>
* Restated to conform to current year's classifications.
7
<PAGE>
NuCo2 Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q used for quarterly
reports under Section 13 or 15 (d) of the Securities Exchange Act of 1934, and
therefore, do not include all information and footnotes necessary for a fair
presentation of consolidated financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. The
accompanying unaudited consolidated financial statements include the accounts of
NuCo2 Inc. (the "Company") and its wholly-owned subsidiary, NuCo2 Acquisition
Corp. which was formed during the year ended June 30, 1998 to acquire the stock
of Koch Compressed Gases, Inc. in October 1997. All material intercompany
accounts and transactions have been eliminated.
The financial information included in this report has been prepared in
conformity with the accounting principles and methods of applying those
accounting principles, reflected in the consolidated financial statements for
the fiscal year ended June 30, 1999 included in Form 10-K filed with the
Securities and Exchange Commission.
All adjustments necessary for a fair statement of the results for the
interim periods presented have been recorded. This quarterly report on Form 10-Q
should be read in conjunction with the Company's audited financial statements
for the fiscal year ended June 30, 1999. The consolidated results of operations
for the periods presented are not necessarily indicative of the results to be
expected for the full fiscal year.
Note 2. Net Income or Loss per Common Share
In February 1997, the FASB issued Statement 128, "Earnings Per Share".
Statement 128 supersedes APB Opinion No. 15, "Earnings Per Share" and specifies
the computation, presentation and disclosure requirements for earnings per share
("EPS") for entities with publicly held Common Stock or potential Common Stock.
It replaces the presentation of primary EPS with the presentation of basic EPS
and replaces fully diluted EPS with diluted EPS. It also requires dual
presentation of basic and diluted EPS on the face of the statement of operations
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. Statement 128 is effective for
financial statements for both interim and annual periods ending after December
15, 1997.
Incremental shares for stock options and warrants calculated pursuant
to the treasury stock method for the three and six months ended December 31,
1998 were 31,517 and 27,269, respectively. These shares were not included in
diluted EPS because they would have been antidilutive for such periods.
Additionally, options and warrants to purchase 1,073,715 shares, 872,333 shares
and 443,166 shares for $14.64-$17.00 per share, $11.25-$12.50 per share and
$7.00-$11.00 per share, respectively, were outstanding during all or a portion
of the three and six months ended December 31, 1998, but were not included in
the computation of diluted EPS because the exercise price of the options and
warrants was greater than the average market price of the Common Stock.
Incremental shares for stock options and warrants calculated pursuant
to the treasury stock method for the three and six months ended December 31,
1999 were 402,737 and 282,475, respectively. These shares were not included in
diluted EPS because they would have been antidilutive for such periods.
Additionally, options and warrants to purchase 1,043,715 shares, 36,000 shares
and 555,671 shares for $16.40-$17.00 per share, $12.50-$14.64 per share and
$10.25-$11.28 per share, respectively, were outstanding during all or a portion
of the three and six months ended December 31, 1999, but were not included in
the computation of diluted EPS because the exercise price of the options and
warrants was greater than the average market price of the Common Stock.
Note 3. Long-Term Debt
The Company has a $75.0 million amended and restated revolving credit
facility with a syndicate of banks led by SunTrust Bank, South Florida, N.A.
("Amended SunTrust Facility"). The Amended SunTrust Facility amended and
restated the Company's existing $50.0 million revolving credit facility which
had been entered into in October 1997. The Amended SunTrust Facility contains
interest rates and an unused facility fee based on a pricing grid calculated
quarterly on senior funded debt to annualized EBITDA. The Company is entitled to
select the Base Rate or LIBOR, plus applicable margin, for principal drawings
under the Amended SunTrust Facility. The applicable LIBOR margin pursuant to the
pricing grid ranges from
8
<PAGE>
1.75% to 3.5%. The applicable unused facility fee pursuant to the pricing grid
ranges from 0.375% to 0.50%. Interest only is payable periodically until the
expiration of the Amended SunTrust Facility on May 4, 2002; there is, however, a
two year renewal option subject to approval. The Amended SunTrust Facility is
collateralized by substantially all of the assets of the Company. The Company is
precluded from declaring or paying any cash dividends and is required to meet
certain affirmative and negative covenants including, but not limited to,
financial covenants (See Note 7). Pursuant to the Amended SunTrust Facility,
drawings are limited to availability under a formula predicated upon multiples
of EBITDA and gross margin factors.
A total of $48.75 million was outstanding pursuant to the Amended
SunTrust Facility with interest from 9.68% to 10.03% per annum as of December
31, 1999.
As of December 31, 1999, the Company maintained an interest rate swap
transaction (the "Swap") with SunTrust Bank, Atlanta, in the amount of $10.0
million (the "Notional Amount"). The effective date of the Swap is September 2,
1998 and it terminates on September 5, 2000. Pursuant to the Swap, the Company
pays a fixed rate of 6% per annum and receives a LIBOR-based floating rate.
Note 4. Subordinated Debt
Represents unsecured Senior Subordinated Promissory Notes ("Notes")
with interest only at 12% per annum payable semi-annually on April 30 and
October 31, due October 31, 2004. The Notes were sold with detachable seven year
warrants to purchase an aggregate of 655,738 shares of Common Stock at an
exercise price of $16.40 per stock unit. In July 1998, the agreement governing
the Notes was amended to adjust certain financial covenants as of June 30, 1998
and prospectively. In exchange for the amendment, the exercise price for 612,023
warrants was reduced to $12.40 per stock unit. Additionally, NationsBanc
Montgomery Securities, Inc., the placement agent, received a warrant to purchase
an aggregate of 30,000 shares of Common Stock at an exercise price of $14.64 per
share which expires on October 31, 2004.
On May 4, 1999, the Company sold an additional $10.0 million of its
Senior Subordinated Promissory Notes ("Additional Notes"). Except for their
October 31, 2005 maturity date, the Additional Notes are substantially identical
to the Notes. The Additional Notes were sold with detachable 6-1/2 year warrants
to purchase an aggregate of 372,892 shares of Common Stock at an exercise price
of $6.65 per stock unit. In connection with the sale of the Additional Notes,
certain financial covenants governing the Notes and the Additional Notes were
adjusted as of March 31, 1999 and prospectively and the exercise price for
612,023 of the warrants issued in connection with the sale of the Notes was
reduced to $6.65 per stock unit (See Note 7). Additionally, effective May 4,
1999, the interest rate on the original $30.0 million of Notes increased to 14%
per annum until such quarter that a certain financial ratio was met. For the
quarter ended December 31, 1999, the ratio was met and the interest rate on the
Notes was 12% per annum.
Note 5. Stock Option Plan
In 1995, the Company adopted the 1995 Stock Option Plan (the "1995
Plan"). Under the 1995 Plan, the Company has reserved 1,550,000 shares of Common
Stock for employees of the Company. Under the terms of the 1995 Plan, options
granted may be either incentive stock options or non-qualified stock options.
The exercise price of incentive options must be at least equal to 100% of the
fair market value of the Common Stock at the date of the grant, and the exercise
price of non-qualified stock options may not be less than 75% of the fair market
value of the Common Stock at the date of the grant. The maximum term for all
options is 10 years. Options granted to date vest in three to five installments
over periods of three to four and one-half years. As of December 31, 1998 and
1999, options for 307,360 shares and 484,344 shares were exercisable,
respectively.
The following table summarizes the transactions pursuant to the 1995
Plan.
<TABLE>
<CAPTION>
Weighted-Average
Shares Exercise Price Exercise Price
------ -------------- --------------
<S> <C> <C> <C>
Outstanding at June 30, 1998 610,926 $9-$11.28 $10.61
Granted 214,500 $5.50-$7 $5.74
Expired or canceled 21,200 $9-$11.25 $10.40
------- ------------ ------
Outstanding at June 30, 1999 804,226 $5.50-$11.28 $9.32
Granted 0 0 0
Expired or canceled 23,179 $5.50-$11.25 $10.11
Exercised 333 $5.50 $5.50
------- ------------ ------
Outstanding at December 31, 1999 780,714 $5.50-$11.28 $9.30
======= ============ ======
</TABLE>
9
<PAGE>
In 1995, the Company adopted the Directors' Stock Option Plan (the
"Directors' Plan"). Under the Directors' Plan, the Company has reserved 60,000
shares of Common Stock. Under the terms of the Directors' Plan each non-employee
director receives options for 6,000 shares of Common Stock on the date of his or
her first election to the board of directors. In addition, on the third
anniversary of each director's first election to the Board, and on each three
year anniversary thereafter, each non-employee director receives an additional
option to purchase 6,000 shares of Common Stock. The exercise price per share
for all options granted under the Directors' Plan will be equal to the fair
market value of the Common Stock at the date of grant. All options vest in three
equal annual installments beginning on the first anniversary of the date of
grant. The maximum term for all options is ten years. As of December 31, 1998
and 1999, options to purchase 14,000 shares and 12,000 shares were exercisable
and options for 32,000 and 36,000 shares, respectively, were outstanding.
Note 6. Operating Leases
The Company entered into 20 operating leases from July 1 through
December 31, 1999. One lease was for a warehouse facility with aggregate annual
rental of approximately $4,000 expiring in 2002. Nineteen leases were for trucks
with aggregate annual rentals of approximately $217,000 expiring at various
dates through 2005.
Note 7. Subsequent Events
In January and February 2000, the agreements governing the 12% Senior
Subordinated Promissory Notes and the Amended SunTrust Facility, respectively,
were amended to adjust certain financial covenants for the quarter ending
December 31, 1999 and prospectively.
10
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, OUR EXPANSION INTO NEW MARKETS, COMPETITION,
TECHNOLOGICAL ADVANCES, YEAR 2000 ISSUES AND AVAILABILITY OF MANAGERIAL
PERSONNEL.
Overview
We are the largest supplier in the United States of bulk CO2 systems
and bulk CO2 for carbonating and dispensing fountain beverages. We currently
operate a national network of 89 service locations in 44 states servicing
approximately 69,000 bulk and high pressure customers. Over 97% of fountain
beverage users in the Continental United States are within our current service
area.
Growth in our customer base has averaged 78% annually. Our rapid
growth has been due to a combination of internal growth and over 30
acquisitions. Today, the majority of our growth is driven by the conversion of
high pressure CO2 users to bulk CO2 systems. Our success in conversions is
demonstrated in the Florida market where we continue to rapidly add new bulk CO2
system installations, even after actively marketing in the state since 1990.
Substantially all of our revenues have been derived from the rental of
bulk CO2 systems installed at customers' sites, the sale of CO2 and high
pressure cylinder revenues. Revenues have grown from $812,000 in fiscal 1991 to
$47.1 million in fiscal 1999, an average increase of 68% annually. We believe
that our revenue base is stable due to the existence of long-term contracts with
our customers which generally roll-over without a significant portion expiring
without renewal in any one year. In each of fiscal 1997, 1998 and 1999, less
than 5% of our bulk CO2 systems in service experienced service termination.
Service termination is typically caused by restaurant closure. Affected bulk CO2
systems are either removed and reconditioned, or left in place when prospects
for a new restaurant at the same location appear likely. Revenue growth is
largely dependent on both (1) the rate of new bulk CO2 system installations and
(2) the growth in bulk CO2 sales at (i) customers on rental plus per pound
charge contracts and (ii) customers that own their own bulk CO2 systems. During
the second quarter of fiscal 2000, our customer base increased by approximately
2,000 new accounts.
Cost of products sold is comprised of purchased CO2 and labor, vehicle
and service location costs associated with the storage and delivery of CO2 to
customers. Selling, general and administrative expenses consist of salaries,
dispatch and communications costs, and expenses associated with marketing,
administration, accounting and employee training. Consistent with the capital
intensive nature of our business, we incur significant depreciation and
amortization expenses. These stem from the depreciation of our bulk CO2 systems;
depreciation and amortization of bulk CO2 system installation costs;
amortization of sales commissions; and amortization of goodwill, deferred
financing costs and other intangible assets.
With respect to bulk CO2 systems, we only capitalize costs that are
associated with specific successful placements of such systems with customers
under noncancelable contracts and which would not be incurred but for a
successful placement. All other service, marketing and administrative costs are
expensed as incurred.
Since 1990, we have devoted significant resources to building a sales
and marketing organization, adding administrative personnel and developing a
national infrastructure to support the rapid growth in the number of our
installed base of bulk CO2 systems. The cost of this expansion and the
significant depreciation expense of our installed network have resulted in
significant operating losses to date and accumulated net losses of $21.7 million
at December 31, 1999.
We believe that our future revenue growth, gains in gross margin and
profitability will be dependent upon increases in route density and the
expansion and penetration of bulk CO2 system installations in existing and new
market regions resulting from successful ongoing marketing.
Our experience has been that gross margins at service locations have
generally increased with the length of time that the service location is in
operation. Gross margins in our mature markets are generally in the 55% to 65%
range. As of December 31, 1999, 51% of our stationary service locations were
open over three years, 28% were open two to three
11
<PAGE>
years, 19% were open one to two years and 2% were open under one year. For the
three months ended December 31, 1999 and 1998, depots open over three years
averaged a 57% gross margin and a 53% gross margin, respectively, depots open
two to three years averaged a 47% gross margin and a 36% gross margin,
respectively, and depots open one to two years averaged a 42% gross margin and a
19% gross margin, respectively. For the three months ended December 31, 1999,
the depot open under one year had a 44% gross margin. Additionally, we operate
20 mobile service locations with an average 43% gross margin for the quarter
ended December 31, 1999 compared to eight mobile service locations with an
average gross margin of 19% for the quarter ended December 31, 1998. Same store
sales for depots open one to three years increased by 28%. New service locations
typically operate at low or negative gross margins in the early stages and
detract from our highly profitable service locations in mature markets.
Increases in gross margins at service locations are generally related to
increases in the number of customers serviced. New accounts are being added to
newer depots for which there is substantial excess capacity, and therefore,
relatively little additional cost is incurred to service new customers. New
multi-unit placement agreements combined with single-unit placements will help
us in achieving route density. As our customer base increases, we anticipate
that our financial performance on a sequential basis will improve at an
accelerated rate. Our route density is highest at our oldest depots and is less
developed in the other areas where we presently have operations.
We believe that optimal route density is achieved at over 400 accounts
serviced per bulk CO2 truck and we typically employ targeted sales efforts to
build density within an existing delivery route. We maintain a "hub and spoke"
route structure and establish additional stationary bulk CO2 service locations
as a service area expands through geographic growth. Our entry into many states
was accomplished largely through business acquisitions with thinly developed
route networks. We expect to benefit from route efficiencies and other economies
of scale as we build our customer base in these states through intensive
marketing initiatives. Greater scale may also lead to better vehicle and fixed
asset utilization as well as the ability to spread fixed marketing and
administrative costs over a broader revenue base.
We believe that earnings before interest, taxes, depreciation and
amortization ("EBITDA") is the principal financial measure by which we should be
measured as we continue to achieve national market presence and build route
density. Our revolving credit facility utilizes EBITDA for its calculation of
financial leverage, affecting the amount of funds available to us to borrow.
Information regarding EBITDA is presented because of its use by certain
investors as one measure of a corporation's ability to generate cash flow.
EBITDA should not be considered as an alternative to, or more meaningful than,
operating income or cash flows from operating activities as an indicator of a
corporation's operating performance. EBITDA excludes significant costs of doing
business and should not be considered in isolation from GAAP measures. EBITDA
has grown from $15,000 in fiscal 1991 to $11.3 million in fiscal 1999, an
average increase of 72% annually from fiscal 1994 to fiscal 1999. For the three
months ended December 31, 1999, EBITDA was $4.1 million, or $16.4 million
annualized, the highest for any quarter in our history.
Results of Operations
The following table sets forth, for the periods indicated, the
percentage relationship which various items bear to net sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
Income Statement Data:
<S> <C> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0% 100.0%
Cost of products sold............................... 49.3 54.0 50.4 53.5
Selling, general and administrative expenses 20.9 21.8 21.2 22.1
Depreciation and amortization....................... 27.8 27.5 27.2 26.9
--------- -------- -------- ---------
Operating income (loss)............................. 2.0 (3.3) 1.2 (2.5)
--------- -------- -------- ---------
Interest expense, net............................... 17.8 16.2 17.9 15.3
--------- ------- ------- ---------
Net loss............................................ (15.8) (19.5) (16.7) (17.8)
======== ======== ======= =========
Other Data:
Operating income before depreciation and amortization
(EBITDA)............................................ 29.9% 24.2% 28.4% 24.4%
======== ======= ======= ==========
</TABLE>
12
<PAGE>
Three Months Ended December 31, 1999 Compared to Three Months Ended December 31,
1998
Net Sales
Net sales increased by $2.4 million, or 21.7%, from $11.3 million in
the 1998 period to $13.7 million in the 1999 period. The increase in net sales
was primarily due to internal growth in the number of Company owned and customer
owned bulk CO2 systems serviced. At December 31, 1999, there were approximately
53,000 Company owned and 9,000 customer owned bulk CO2 systems in service, an
increase of 10,000, or 19.3%, over the approximately 43,000 Company owned and
9,000 customer owned bulk CO2 systems in service at December 31, 1998.
Costs of Products Sold
Cost of products sold increased by $674,000, from $6.1 million in the
1998 period to $6.7 million in the 1999 period and decreased as a percentage of
net sales from 54.0% to 49.3%. The dollar increase is attributable to our
continued growth. The percentage decrease is attributable to a decrease in fully
loaded route drivers. Fully loaded route drivers increased by $206,000 from $2.1
million in the 1998 period to $2.3 million in the 1999 period and decreased as a
percentage of net sales from 18.7% to 16.9%. Overtime, expressed as a percentage
of net sales, was 3.0% in the 1998 period and 1.9% in the 1999 period. The
overtime percentage decrease is attributable to a proactive approach to overtime
management enabled by new software. Fully loaded auto and truck expense
increased by $119,000 from $1.0 million in the 1998 period to $1.2 million in
the 1999 period and decreased as a percentage of net sales from 9.3% to 8.5%.
Depot expenses decreased as a percentage of net sales from 5.3% in the 1998
period to 4.1% in the 1999 period. We operated 69 depots at December 31, 1999
and December 31, 1998. When we open new service locations and expand into new
markets, higher costs expressed as a percentage of net sales are incurred until
route density is achieved. At December 31, 1999, we serviced over 400 bulk CO2
customers per delivery vehicle from 39% of our depots.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $407,000 from
$2.5 million in the 1998 period to $2.9 million in the 1999 period and decreased
as a percentage of net sales from 21.8% to 20.9%. The dollar increase is
primarily attributable to growth in the number of marketing and administrative
personnel and their associated expenses. The percentage decrease is attributable
to economies of scale. At December 31, 1998, we had operations in 44 states and
employed 162 marketing and administrative personnel and at December 31, 1999, we
had operations in 44 states and employed 181 marketing and administrative
personnel.
Depreciation and Amortization
Depreciation and amortization increased by $718,000 from $3.1 million
in the 1998 period to $3.8 million in the 1999 period. As a percentage of net
sales, such expenses increased from 27.5% in the 1998 period to 27.8% in the
1999 period. Depreciation expense increased by $503,000 from $2.2 million in the
1998 period to $2.7 million in the 1999 period principally due to the increase
in bulk CO2 systems leased to customers. As a percentage of net sales,
depreciation expense increased from 19.2% in the 1998 period to 19.4% in the
1999 period. Amortization expense increased by $215,000 from $936,000 in the
1998 period to $1.2 million in the 1999 period primarily due to amortization
related to deferred charges and deferred lease acquisition costs. As a
percentage of net sales, amortization expense increased from 8.3% to 8.4%.
Operating Income
For the reasons described above, operating income was $277,000, or 2.0%
of net sales, in the 1999 period, compared to an operating loss of ($367,000),
or (3.3%) of net sales, in the 1998 period.
Interest Expense
Net interest expense increased by $620,000 from $1.8 million in the
1998 period to $2.4 million in the 1999 period and increased as a percentage of
net sales from 16.2% to 17.8%. This increase is primarily attributable to
increased level of long-term debt and subordinated debt in the 1999 period as
compared to the 1998 period.
Net Loss
For the reasons described above, net loss decreased by $23,000, or
1.1%, in the 1998 period compared to the 1999 period. No provision for income
tax expense in either the 1998 period or the 1999 period has been made due to
historical net losses.
13
<PAGE>
EBITDA
For the reasons described above, EBITDA, representing operating income
plus depreciation and amortization, increased by $1.4 million, or 49.9%, from
$2.7 million in the 1998 period to $4.1 million in the 1999 period and increased
as a percentage of net sales from 24.2% to 29.9%, respectively.
Six Months Ended December 31, 1999 Compared to Six Months Ended December 31,
1998
Net Sales
Net sales increased by $5.2 million, or 23.4%, from $22.1 million in
the 1998 period to $27.3 million in the 1999 period. The increase in net sales
was primarily due to internal growth in the number of Company owned and customer
owned bulk CO2 systems serviced. At December 31, 1999, there were approximately
53,000 Company owned and 9,000 customer owned bulk CO2 systems in service, an
increase of 10,000, or 19.3%, over the approximately 43,000 Company owned and
9,000 customer owned bulk CO2 systems in service at December 31, 1998.
Cost of Products Sold
Cost of products sold increased by $1.9 million, from $11.8 million in
the 1998 period to $13.7 million in the 1999 period and decreased as a
percentage of net sales from 53.5% to 50.4%. The dollar increase is attributable
to our continued growth. The percentage decrease is attributable to a decrease
in fully loaded route drivers. Fully loaded route drivers increased by $541,000
from $4.1 million in the 1998 period to $4.6 million in the 1999 period and
decreased as a percentage of net sales from 18.6% to 17.0%. Overtime, expressed
as a percentage of net sales, was 3.1% in the 1998 period and 1.8% in the 1999
period. The overtime percentage decrease is attributable to a proactive approach
to overtime management enabled by new software. We operated 69 depots at
December 31, 1999 and December 31, 1998. When we open new service locations and
expand into new markets, higher costs expressed as a percentage of net sales are
incurred until route density is achieved.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $890,000 from
$4.9 million in the 1998 period to $5.8 million in the 1999 period and decreased
as a percentage of net sales from 22.1% to 21.2%. The dollar increase is
primarily attributable to growth in the number of marketing and administrative
employees and their associated expenses. The percentage decrease is attributable
to economies of scale. At December 31, 1998, we had operations in 44 states and
employed 162 marketing and administrative personnel and at December 31, 1999, we
had operations in 44 states and employed 181 marketing and administrative
personnel.
Depreciation and Amortization
Depreciation and amortization increased by $1.5 million from $5.9
million in the 1998 period to $7.4 million in the 1999 period. As a percentage
of net sales, such expenses increased from 26.9% in the 1998 period to 27.2% in
the 1999 period. Depreciation expense increased by $1.1 million from $4.1
million in the 1998 period to $5.2 million in the 1999 period principally due to
the increase in bulk CO2 systems leased to customers. As a percentage of net
sales, depreciation expense increased from 18.5% in the 1998 period to 18.9% in
the 1999 period. Amortization expense increased by $425,000 from $1.9 million in
the 1998 period to $2.3 million in the 1999 period primarily due to amortization
related to deferred charges and deferred lease acquisition costs. As a
percentage of net sales, amortization expense remained at 8.3%.
Operating Income
For the reasons described above, operating income was $331,000, or 1.2%
of net sales, in the 1999 period, compared to an operating loss of ($547,000),
or (2.5%) of net sales, in the 1998 period.
14
<PAGE>
Interest Expense
Net interest expense increased by $1.5 million from $3.4 million in the
1998 period to $4.9 million in the 1999 period and increased as a percentage of
net sales from 15.3% to 17.9%. This increase is attributable to the increased
level of long-term debt and subordinated debt in the 1999 period as compared to
the 1998 period.
Net Loss
For the reasons described above, net loss increased by $616,000, or
15.7%, from $3.9 million in the 1998 period to $4.5 million in the 1999 period.
No provision for income tax expense in either the 1998 period or the 1999 period
has been made due to historical net losses.
EBITDA
For the reasons described above, EBITDA, representing operating income
plus depreciation and amortization, increased by $2.4 million, or 43.8%, from
$5.4 million in the 1998 period to $7.8 million in the 1999 period and increased
as a percentage of net sales from 24.4% to 28.4%, respectively.
Liquidity and Capital Resources
Our cash requirements consist principally of (1) capital expenditures
associated with purchasing and placing new bulk CO2 systems into service at
customers' sites; (2) payments of interest on outstanding indebtedness; and (3)
working capital. Whenever possible, we seek to obtain the use of vehicles, land,
buildings, and other office and service equipment under operating leases as a
means of conserving capital. As of December 31, 1999, we anticipated making cash
capital expenditures of at least $10.0 million to $20.0 million during the
remaining six months of fiscal 2000, primarily for purchases of bulk CO2 systems
that we expect to place into service. Once bulk CO2 systems are placed into
service, we generally experience positive cash flows on a per-unit basis, as
there are minimal additional capital expenditures required for ordinary
operations. In addition to capital expenditures related to internal growth, we
review opportunities to acquire bulk CO2 service businesses, and may require
cash in an amount dictated by the scale and terms of any such transactions
successfully concluded.
During fiscal 1999, our capital resources included cash flows from
operations, available borrowing capacity under our credit facility and proceeds
from the sale of our 12% Senior Subordinated Promissory Notes due 2005 (the
"2005 Notes").
On May 4, 1999, we entered into a $75.0 million amended and restated
revolving credit facility with a syndicate of banks led by SunTrust Bank, South
Florida, National Association ("Amended SunTrust Facility"). The Amended
SunTrust Facility contains interest rates and an unused facility fee based on a
pricing grid calculated quarterly on senior funded debt to annualized EBITDA. We
are entitled to select the Base Rate or LIBOR, plus applicable margin, for
principal drawings under the Amended SunTrust Facility. The applicable LIBOR
margin pursuant to the pricing grid ranges from 1.75% to 3.5%, the applicable
unused facility fee pursuant to the pricing grid ranges from 0.375% to 0.50% and
the applicable Base Rate margin pursuant to the pricing grid ranges from 0.25%
to 2.00%. Interest only is payable periodically until the expiration of the
Amended SunTrust Facility. The Amended SunTrust Facility expires May 4, 2002,
however, it contains a two year renewal option subject to approval.
Additionally, it is collateralized by substantially all of our assets. Drawings
pursuant to the Amended SunTrust Facility are limited to availability under a
formula predicated upon multiples of EBITDA and gross margin factors. We are
precluded from declaring or paying any cash dividends and are required to meet
certain affirmative and negative covenants, including but not limited to
financial covenants.
Simultaneously with the Amended SunTrust Facility, we sold $10.0
million of our 2005 Notes. Except for their October 31, 2005 maturity date, the
2005 Notes are substantially identical to our 12% Senior Subordinated Promissory
Notes due 2004 (the "2004 Notes"). The 2005 Notes were sold with detachable
6-1/2 year warrants to purchase an aggregate of 372,892 shares of our Common
Stock at an exercise price of $6.65 per stock unit. In connection with the sale
of the 2005 Notes, certain financial covenants governing the 2004 Notes and the
2005 Notes were adjusted as of March 31, 1999 and prospectively and the exercise
price for 612,023 warrants issued in connection with the sale of the 2004 Notes
was reduced to $6.65 per stock unit.
In January and February 2000, the agreements governing the 12% Senior
Subordinated Promissory Notes and the Amended SunTrust Facility, respectively,
were amended to adjust certain financial covenants for the quarter ending
December 31, 1999 and prospectively.
15
<PAGE>
During the six months ended December 31, 1999, our capital resources
included cash flows from operations and available borrowing capacity under the
Amended SunTrust Facility. As of December 31, 1999, a total of $48.75 million
was outstanding under the Amended SunTrust Facility with interest at three
hundred fifty basis points above the applicable London InterBank Offering Rate
("LIBOR") (9.68% to 10.03% at December 31, 1999).
We believe that cash flows from operations and available borrowings
under the Amended SunTrust Facility will be sufficient to fund proposed
operations for at least the next twelve months.
Working Capital. At June 30, 1999, we had negative working capital of
$455,000. At December 31, 1999, we had negative working capital of $2.4 million.
Cash Flows from Operating Activities. For the six months ended December
31, 1998 and December 31, 1999, net cash provided by operating activities was
$3.3 million and $4.3 million, respectively. The increase from the 1998 period
to the 1999 period of $932,000 is primarily due to an increase in the net loss
of $616,000 while depreciation and amortization increased by $1.5 million from
the 1998 period to the 1999 period and a $2.1 million increase in accounts
receivable in the 1998 period compared to a decrease of $333,000 in the 1999
period.
Cash Flows from Investing Activities. For the six months ended December
31, 1998 and December 31, 1999, net cash used in investing activities was $13.9
million and $11.0 million, respectively. These investing activities were
primarily attributable to the installation and direct placement costs and
acquisition of bulk CO2 systems.
Cash Flows from Financing Activities. For the six months ended December
31, 1998 and December 31, 1999, cash flows provided by financing activities were
$10.4 million and $5.3 million, respectively. For the six months ended December
31, 1998 and December 31, 1999, net cash provided by financing activities was
primarily from the issuance of long-term debt.
Year 2000
Our computer and other business operating systems were unaffected by
the "Year 2000" problem, having successfully rolled over from 1999 to 2000. We
are also unaware of any Year 2000 issues affecting any of our significant
business partners, suppliers or customers.
Inflation
The modest levels of inflation in the general economy have not affected
our results of operations. Additionally, our customer contracts generally
provide for annual increases in the monthly rental rate based on increases in
the consumer price index. We believe that inflation will not have a material
adverse effect on our future results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As discussed under "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" above, as
of December 31, 1999, a total of $48.75 million was outstanding under the
Amended SunTrust Facility with interest at three hundred fifty basis points
above the applicable 90 day LIBOR rate (9.68% to 10.03% at December 31, 1999).
Based upon $48.75 million outstanding under the Amended SunTrust Facility at
December 31, 1999, our annual interest cost under the Amended SunTrust Facility
would increase by $488,000 for each one percent increase in LIBOR (i.e., from
8.0% to 9.0%).
In order to reduce our exposure to increases in LIBOR, and consequently
to increases in interest payments, on June 9, 1998 we entered into an interest
rate swap transaction (the "Swap") with SunTrust Bank, Atlanta, in the amount of
$10.0 million (the "Notional Amount"). The effective date of the Swap is
September 2, 1998 and it terminates on September 5, 2000. Pursuant to the Swap,
we pay a fixed interest rate of 6% per annum and receive a LIBOR-based floating
rate. The effect of the Swap is to neutralize any changes in LIBOR on the
Notional Amount. If LIBOR decreases below 6% during the period the Swap is in
effect, interest payments by us on the Notional Amount will be greater than if
we had not entered into the Swap, since by exchanging LIBOR for a fixed interest
rate, we would not benefit from falling interest rates on LIBOR, a variable
interest rate. We do not enter into speculative derivative transactions or
leveraged swap transactions.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) Our Annual meeting of Shareholders was held on December 2,
1999 (the "Annual Meeting").
(b) Edward M. Sellian, Robert Ranieri, Craig L. Burr, Robert L.
Frome, John A. Kerney, Daniel Raynor and Richard D. Waters, Jr. were elected as
directors to serve until the next annual meeting of the shareholders or until
their successors are elected and qualified. No other director's term of office
continued after the Annual Meeting.
(c)(1) Election of Directors:
Number of Number of
Votes For Votes Against
Edward M. Sellian 6,586,057 165,985
Robert Ranieri 6,587,607 164,435
Craig L. Burr 6,585,957 166,085
Robert L. Frome 6,587,407 164,635
John A. Kerney 6,586,257 165,785
Daniel Raynor 6,584,457 167,585
Richard D. Waters, Jr. 6,583,317 168,725
(2) Amendment of 1995 Stock Option Plan
<TABLE>
<CAPTION>
Number of Number of Number of Number of
Votes For Votes Against Votes Abstaining Non-Votes
--------- ------------- ---------------- ---------
<S> <C> <C> <C> <C>
3,295,366 999,457 45,595 2,411,624
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10.1 -Second Amendment and Waiver to Amended and Restated
Revolving Credit Agreement dated as of February ___, 2000 by and
among the Company, SunTrust Bank, Bank Austria Creditanstalt
Corporate Finance, Inc., The Provident Bank, Bank Leumi-Le-Israel
B.M., IBJ Whitehall Business Credit Corporation and Hamilton Bank.
10.2 - Amendment No. 4 to Senior Subordinated Note Purchase
Agreement dated as of January ___, 2000 between the Company, NuCo2
Acquisition Corp., Koch Compressed Gases, Inc. and Chase Equity
Associates, LLC, DK Acquisition Partners, L.P., Empire Insurance
Company, ORIX USA Corporation, PaineWebber High Income Fund and
SunTrust Banks, Inc.
27 - Financial Data Schedule.
(b) Reports on Form 8-K.
(1) No reports on Form 8-K were filed during the quarter
ended December 31, 1999.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NuCo2 Inc.
Dated: February 11, 2000 By: /s/ Joann Sabatino
--------------------------------
Joann Sabatino
Chief Financial Officer
18
SECOND AMENDMENT AND WAIVER TO AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDMENT AND WAIVER TO AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT (this "Amendment") made as of February __, 2000 by
and among NUCO2 INC., a Florida corporation (the "Company"), SUNTRUST BANK, a
Georgia banking corporation (formerly named SunTrust Bank, South Florida,
National Association, a national banking association) ("SunTrust"), BANK AUSTRIA
CREDITANSTALT CORPORATE FINANCE, INC., a Delaware corporation (the
"Documentation Agent"), THE PROVIDENT BANK, an Ohio banking corporation, BANK
LEUMI LE-ISRAEL B.M., Miami Agency, IBJ WHITEHALL BUSINESS CREDIT CORPORATION, a
New York corporation, HAMILTON BANK, N.A., a national banking association, and
any other banks or other lending institutions that are or will become parties to
this Agreement (collectively, the "Lenders" and each individually, a "Lender"),
and SUNTRUST BANK, a Georgia banking corporation (formerly named SunTrust Bank,
South Florida, National Association, a national banking association), as agent
for the Lenders.
PRELIMINARY STATEMENTS:
The Company, Agent and the Lenders are parties to that certain Amended
and Restated Revolving Credit Agreement dated as of May 4, 1999 and as amended
by that certain First Amendment to Amended and Restated Revolving Credit
Agreement dated as of June 16, 1999 (the "Credit Agreement"; capitalized terms
used herein and not defined herein shall have the meanings assigned to them in
the Credit Agreement), pursuant to which the Lenders made and continue to make
certain financial accommodations to the Company;
The Company has requested, and the Lenders have agreed, to amend
certain financial covenants and to make certain other amendments on the terms
and subject to the conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:
1. Amendments to Credit Agreement.
a. Section 1.01 of the Credit Agreement is hereby amended by replacing the
definition of "Agent" in its entirety with the following definition:
"Agent" shall mean SunTrust Bank, a Georgia banking
corporation (formerly named SunTrust Bank, South Florida, National Association,
a national banking association) as agent for the Lenders hereunder and under the
other Loan Documents, and each successor agent.
b. Section 7.02 of the Credit Agreement is hereby amended by replacing
such Section 7.02 in its entirety with the following:
SECTION 7.02 Interest Coverage Ratio. The Company shall not
permit the Interest Coverage Ratio as of the last day of any fiscal
quarter of the Company to be less than (i) 1.50 to 1.00 for the period
beginning October 1, 1999 through and including December 31, 1999; (ii)
1.65 to 1.00 for the period beginning January 1, 2000 through and
including March 31, 2000; (iii) 1.80 to 1.00 for the period beginning
April 1, 2000 through and including June 30, 2000; (iv) 2.00 to 1.00
for the period beginning July 1, 2000 through and including September
30, 2000; (v) 2.15 to 1.00 for the period beginning October 1, 2000
through and including December 31, 2000; (vi) 2.35 to 1.00 for the
period beginning January 1, 2001 through and including March 31, 2001;
(vii) 2.45 to 1.00 for the period beginning April 1, 2001 through and
including June 30, 2001; and (viii) 2.75 to 1.00 thereafter.
c. Section 7.04 of the Credit Agreement is hereby amended by replacing
such Section 7.04 in its entirety with the following:
<PAGE>
SECTION 7.04 Minimum Net Worth. The Company shall at all times maintain
its Net Worth greater than the Minimum Net Worth, equal to (i) $40,000,000, plus
(ii) fifty percent (50%) of the cumulative Consolidated Net Income for each
fiscal quarter beginning after the fiscal quarter ending on March 31, 2000
(specifically not including any Consolidated Net Loss for any fiscal quarter),
plus (iii) the cumulative net proceeds of all equity offerings made by the
Company after the Closing Date.
2. Waiver.
a. The Company has informed the Agent and the Required Lenders that the
Company has not been in compliance with certain provisions of the Credit
Agreement. Therefore, as requested by the Company, the Required Lenders hereby
waive any Default or Event of Default arising under Section 8.01(d) of the
Credit Agreement caused by any such failure of the Company to comply with the
financial covenant with respect to Minimum Net Worth set forth in Section 7.04
of the Credit Agreement, for the period from October 1, 1999 through February
___, 2000, for this one time only, and no future waiver shall be construed by
the waiver hereby given.
3. Other Agreements.
a. The Company hereby affirms that each of the representations and
warranties of the Company contained in the Credit Agreement and in any other
Loan Documents (except to the extent that any such representation or warranty
expressly relates solely to an earlier date and for changes therein permitted or
contemplated by the Credit Agreement) is correct in all material respects on and
as of the date hereof and after giving effect to this Amendment. In addition,
with respect to this Amendment, Company warrants and represents that the
execution, delivery and performance by Company of this Amendment (i) are within
the Company's corporate power; (ii) have been duly authorized by all necessary
or proper corporate action; (iii) are not in contravention of any provision of
the Company's certificate of incorporation or bylaws; (iv) will not violate any
law or regulation, or any order or decree of any Governmental Authority; (v)
will not conflict with or result in the breach or termination of, constitute a
default under or accelerate any performance required by, any indenture,
mortgage, deed of trust, lease, agreement or other instrument to which the
Company is a party or by which the Company or any of its property is bound; (vi)
will not result in the creation or imposition of any Lien upon any of the
property of the Company other than those in favor of the Agent for the benefit
of the Lenders, all pursuant to the Loan Documents; and (vii) do not require the
consent or approval of any Governmental Authority. Company further represents
and warrants that this Amendment has been duly executed and delivered for the
benefit of or on behalf of the Company and constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
b. As amended hereby, all terms of the Credit Agreement and the other Loan
Documents shall be and remain in full force and effect and shall constitute the
legal, valid, binding and enforceable obligations of the Company to the Agent
and the Lenders. To the extent any terms and conditions in any other Loan
Documents shall contradict or be in conflict with any terms or conditions of the
Credit Agreement, after giving effect to this Amendment, such terms and
conditions are hereby deemed modified and amended accordingly to reflect the
terms and conditions of the Credit Agreement as modified and amended hereby.
c. The Company hereby restates, ratifies and reaffirms each and every term
and condition set forth in the Credit Agreement and the other Loan Documents,
effective as of the date hereof, and represents that, after giving effect to
this Amendment, no Default or Event of Default has occurred and is continuing as
of the date hereof.
d. The Company agrees to pay on demand all costs and expenses of the Agent
in connection with the preparation, execution, delivery and enforcement of this
Amendment, the closing hereof, and any other transactions contemplated hereby,
including the fees and out-of-pocket expenses of the Company's counsel.
e. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAWS OF CONFLICTS), OF THE STATE OF FLORIDA AND
ALL APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
(Remainder of Page Intentionally Left Blank)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed under seal by their respective officers thereunto duly authorized,
as of the date first above written.
NUCO2 INC.,
a Florida corporation
By:/s/ Joann Sabatino
-------------------------------------
Joann Sabatino
Chief Financial Officer and Treasurer
Attest: /s/ Eric M. Wechsler
--------------------------------
Eric M. Wechsler
General Counsel and Secretary
<PAGE>
SUNTRUST BANK
individually and as Agent
By:/s/ Russell E. Burnette
-------------------------------------
Russell E. Burnette
Vice President
<PAGE>
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.,
individually and as Documentation Agent
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
<PAGE>
BANK-LEUMI LE-ISRAEL B.M.,
MIAMI AGENCY
By: /s/ Stephen Hanas
------------------------------------
Name: Stephen Hanas
Title: Vice President
<PAGE>
THE PROVIDENT BANK
By: /s/ Nick Jevic
------------------------------------
Name: Nick Jevic
Title: Vice President
<PAGE>
IBJ WHITEHALL BUSINESS CREDIT
CORPORATION
By:/s/ John C. Williams
-------------------------------------
Name: John C. Williams
Title: Vice President
<PAGE>
HAMILTON BANK, N.A.
By: /s/ Roberto Munoz
------------------------------------
Name: Roberto Munoz
Title: Vice President
By: /s/ Hector F. Ramirez
------------------------------------
Name: Hector F. Ramirez
Title: Senior Vice President
17
<PAGE>
ACKNOWLEDGMENT OF GUARANTORS
Each of the Guarantors acknowledges and agrees to the terms of the
foregoing Second Amendment to Amended and Restated Revolving Credit Agreement,
and further acknowledges and agrees that (i) all of the obligations of the
Company shall continue to constitute "Guaranteed Obligations" covered by the
Amended and Restated Guaranty Agreement dated as of May 4, 1999 executed by the
undersigned, and (ii) the Amended and Restated Guaranty Agreement is and shall
remain in full force and effect on and after the date hereof, and (iii) the
foregoing agreement shall in no way release, discharge, or otherwise limit the
obligations of such Guarantor under the Amended and Restated Guaranty Agreement.
This Acknowledgment of Guarantors is made and delivered as of February
___, 2000.
GUARANTORS:
NUCO2 ACQUISITION CORP.,
a Florida corporation
By: /s/ Eric M. Wechsler
---------------------------------
Name: Eric M. Wechsler
Title: Vice President
[CORPORATE SEAL]
KOCH COMPRESSED GASES, INC.,
a New Jersey corporation
By: /s/ Eric M. Wechsler
---------------------------------
Name: Eric M. Wechsler
Title: Vice President
[CORPORATE SEAL]
[EXECUTION COPY]
AMENDMENT NO. 4
AMENDMENT NO. 4 dated as of January [__], 2000 to the Note Purchase
Agreement referred to below, between:
NUCO2 INC., a corporation duly organized and validly existing under the
laws of the State of Florida (the "Company");
each of the Subsidiaries of the Company appearing under the caption
"SUBSIDIARY GUARANTORS" on the signature pages hereto (each a "Subsidiary
Guarantor" and, collectively, the "Subsidiary Guarantors"; and, together with
the Company, the "Obligors"); and
each of the Investors appearing under the caption "INVESTORS" on the
signature pages hereto (each, an "Investor", and collectively, the "Investors").
WHEREAS, the Obligors and the Investors are party to a Senior
Subordinated Note Purchase Agreement dated as of October 31, 1997 (as heretofore
modified and supplemented and in effect on the date hereof, the "Note Purchase
Agreement"), pursuant to which the Company issued (or will issue) its 12% Senior
Subordinated Notes in an aggregate principal amount of up to $45,000,000 to the
Investors; and
WHEREAS, the parties to the Note Purchase Agreement wish to amend the
Note Purchase Agreement to make certain modifications thereto;
Accordingly, the parties hereto hereby agree as follows:
Section 1. Definitions. Except as otherwise defined in this Amendment
No. 4, terms defined in the Note Purchase Agreement are used herein as defined
therein.
Section 2. Amendments to Note Purchase Agreement. Subject to the
satisfaction of the conditions precedent specified in Section 4 below, but
effective as of the date hereof, the Note Purchase Agreement shall be amended as
follows:
A. References in the Note Purchase Agreement to "this Agreement" (and
indirect references such as "hereunder", "hereby", "herein" and "hereof") shall
be deemed to be references to the Note Purchase Agreement as amended hereby.
B. Section 8.09 of the Note Purchase Agreement shall be amended in its
entirety to read as follows:
................"SECTION 8.09 Financial Covenants.
(a) Interest Coverage Ratio. The Company will not permit the Interest
Coverage Ratio to be less than the following respective ratios as at the last
day of each fiscal quarter during the following respective periods:
Period Ratio
From April 1, 1999
through March 31, 2000 1.25 to 1.00
From April 1, 2000
through June 30, 2000 1.50 to 1.00
From July 1, 2000
through September 30, 2000 1.65 to 1.00
From October 1, 2000
through December 31, 2000 1.75 to 1.00
<PAGE>
From January 1, 2001
through March 31, 2001 2.00 to 1.00
From April 1, 2001
through June 30, 2001 2.25 to 1.00
From July 1, 2001
through September 30, 2001 2.40 to 1.00
From October 1, 2001
and at all times thereafter 2.50 to 1.00
(b) Total Net Funded Debt Coverage Ratio. The Company will not permit
the Total Net Funded Debt Coverage Ratio to exceed the following respective
ratios at any time during the following respective periods:
Period Ratio
From October 1, 1999
through December 31, 1999 5.50 to 1.00
From January 1, 2000
through March 31, 2000 5.00 to 1.00
From April 1, 2000
and at all times thereafter 4.50 to 1.00
(c) Minimum Net Worth. The Company shall at all times maintain
Consolidated Net Worth of not less than the sum of (a) $37,5000,000, (b) plus
50% of the cumulative Consolidated Net Income for each fiscal quarter ending on
or after December 31, 1997 (but specifically not including any Consolidated Net
Loss for any such fiscal quarter) plus (c) the cumulative net proceeds of all
equity offerings (if any) made by the Company for each fiscal quarter ending on
or after September 30, 1997."
Section 3. Representations and Warranties. The Company represents and
warrants to the Investors that: (i) the representations and warranties set forth
in Article VI of the Note Purchase Agreement (as amended hereby) are true and
complete on the date hereof as if made on and as of the date hereof and as if
each reference in said Article VI to "this Agreement" (or words of similar
import) referred to the Note Purchase Agreement as amended by this Amendment No.
4 (except that (x) certain of the indebtedness listed in Schedule 6.12 to the
Note Purchase Agreement has been paid off by the Company, (y) the number of
validly issued and outstanding shares of common stock, par value $0.001 per
share, referred to in Section 6.13 of the Note Purchase Agreement is 7,216,997
and (z) the number of outstanding options granted under the Company's stock
option plans has changed); and (ii) no Default has occurred and is continuing.
Section 4. Conditions Precedent. As provided in Section 2 above, the
amendments to the Note Purchase Agreement set forth in said Section 2 shall
become effective, as of the date hereof, upon the satisfaction of the following
conditions:
(a) Amendment No. 4. The execution and delivery of one or more
counterparts of this Amendment No. 4 by the Obligors and the Required Investors,
and receipt by the Investors of evidence that the lenders party to the Senior
Credit Agreement shall have approved this Amendment No. 4.
(b) Second Amendment to Senior Credit Agreement. Receipt by
the Investors of a copy of the Second Amendment to the Senior Credit Agreement
as executed by the parties thereto.
(c) Other Documents. Receipt by the Investors of such other
documents as any Investor or special New York counsel to the Investors may
reasonably request.
Section 5. Miscellaneous. Except as herein provided, the Note Purchase
Agreement shall remain unchanged and in full force and effect. This Amendment
No. 4 may be executed in any number of counterparts, all of which taken together
<PAGE>
shall constitute one and the same amendatory instrument and any of the parties
hereto may execute this Amendment No. 4 by signing any such counterpart. This
Amendment No. 4 shall be governed by, and construed in accordance with, the law
of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 4
to be duly executed and delivered as of the day and year first above written.
NUCO2 INC.
By: /s/ Joann Sabatino
---------------------------------
Title: Chief Financial Officer
and Treasurer
SUBSIDIARY GUARANTORS
NUCO2 ACQUISITION CORP.
By: /s/ Eric M. Wechsler
---------------------------------
Title: Vice President
KOCH COMPRESSED GASES, INC.
By: /s/ Eric M. Wechsler
---------------------------------
Title: Vice President
<PAGE>
INVESTORS
CHASE EQUITY ASSOCIATES, LLC
(f/k/a Chase Equity Associates L.P.)
By Chase Capital Partners,
its Manager
By: /s/ Richard D. Waters
-------------------------
Title: General Partner
DK ACQUISITION PARTNERS, L.P.
By M.H. Davidson & Co.,
its general partner
By_________________________
Title:
EMPIRE INSURANCE COMPANY,
as executed on their behalf
by their Investment Manager,
Cohanzick Management, L.L.C.
By_________________________
Title:
ORIX USA CORPORATION
By_________________________
Title:
<PAGE>
PAINEWEBBER HIGH INCOME FUND,
a series of PaineWebber Managed Investments Trust
By_________________________
Title:
SUNTRUST BANKS, INC.
By: /s/ Robert Dudiak
---------------------
Title: Group Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the NuCo2
Inc. Consolidated Financial Statements as of December 31, 1999 and is qualified
in its entirety by reference to such Consolidated Financial Statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1999
<CASH> 168,081
<SECURITIES> 0
<RECEIVABLES> 6,435,123
<ALLOWANCES> 710,549
<INVENTORY> 236,501
<CURRENT-ASSETS> 8,435,513
<PP&E> 129,791,232
<DEPRECIATION> 25,528,705
<TOTAL-ASSETS> 144,165,955
<CURRENT-LIABILITIES> 10,862,855
<BONDS> 0
<COMMON> 7,217
0
0
<OTHER-SE> 43,181,374
<TOTAL-LIABILITY-AND-EQUITY> 144,165,955
<SALES> 27,288,933
<TOTAL-REVENUES> 27,288,933
<CGS> 13,741,291
<TOTAL-COSTS> 26,957,603
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,877,251
<INCOME-PRETAX> (4,545,921)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,545,921)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,545,921)
<EPS-BASIC> (0.63)
<EPS-DILUTED> (0.63)
</TABLE>
