UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRELIMINARY PROXY MATERIALS
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted
[_] Definitive Proxy Statement by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
BLUE RHINO CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
- -------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee
was paid previously. Identify the previous
filing by registration statement number, or the
Form or Schedule and the date of its filing.
1) Amount Previously
Paid:
- -------------------------------------------------------------
2) Form, Schedule or
Registration
Statement No.:
- -------------------------------------------------------------
3) Filing Party:
- -------------------------------------------------------------
4) Date Filed:
LOGO
PRELIMINARY COPY SUBJECT TO COMPLETION,
DATED NOVEMBER 12, 1999
BLUE RHINO CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 21, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
(the "Annual Meeting") of Blue Rhino Corporation (the "Company") which will be
held on Tuesday, December 21, 1999 at the Village Conference Center, 6205 Ramada
Drive, Clemmons, North Carolina, at 10:30 a.m.
At the Annual Meeting, we will report on matters of current interest and
ask stockholders to:
1. Elect three Class B Directors to hold office until the annual meeting
of stockholders for the fiscal year ending July 31, 2002,
2. Authorize the amendment of the Company's Second Amended and Restated
Certificate of Incorporation to reduce the Company's authorized
capital stock from 120,000,000 shares to 45,000,000 shares,
3. Approve the issuance of common stock issuable upon conversion of
convertible notes issued by the Company and the common stock issuable
upon exercise of related warrants,
4. Ratify the adoption of the Blue Rhino Corporation Employee Stock
Purchase Plan,
5. Ratify the appointment of Ernst & Young LLP as the Company's
independent public accountants for the fiscal year ending July 31,
2000, and
6. Transact any other business that may properly come before the Annual
Meeting or any adjournment or postponement of the meeting.
Only stockholders of record at the close of business on the record date of
November 5, 1999 are entitled to vote their shares at the Annual Meeting. A list
of stockholders entitled to vote will be available for inspection during regular
business hours at the executive offices of the Company at 104 Cambridge Plaza
Drive, Winston-Salem, North Carolina 27104 for ten days prior to the Annual
Meeting.
A proxy card is enclosed for the convenience of those stockholders who do
not plan to attend the Annual Meeting in person but desire to have their shares
voted. If you do not plan to attend the Annual Meeting, please complete and
return the proxy card in the envelope provided for that purpose. If you return
your card and later decide to attend the Annual Meeting in person or for any
other reason desire to revoke your proxy, you may do so at any time before your
proxy is voted.
For the Board of Directors
/s/ Billy D. Prim
Billy D. Prim
Chairman of the Board, President
and Chief Executive Officer
Winston-Salem, North Carolina
November __, 1999
BLUE RHINO CORPORATION
104 Cambridge Plaza Drive
Winston-Salem, North Carolina 27104
PROXY STATEMENT FOR
1999 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 21, 1999
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Blue Rhino Corporation (the "Company" or
"Blue Rhino") for use at the Company's Annual Meeting of Stockholders for the
fiscal year ended July 31, 1999 (the "Annual Meeting") to be held on December
21, 1999 at the Village Conference Center, 6205 Ramada Drive, Clemmons, North
Carolina, at 10:30 a.m., or any adjournment or postponement thereof. This proxy
statement and the accompanying materials are being mailed to the Company's
stockholders beginning on or about November __, 1999.
GENERAL
Capital Stock
The Company's authorized capital stock consists of 100,000,000 shares of
common stock having a par value of $0.001 per share ("Common Stock") and
20,000,000 shares of preferred stock having a par value of $0.001 per share
("Preferred Stock"). As of October 31, 1999, there were 8,647,654 shares of
Common Stock outstanding and no shares of Preferred Stock outstanding.
Stockholders Entitled to Vote
Only Common Stockholders of record at the close of business on the record
date of November 5, 1999 are entitled to vote their shares at the Annual Meeting
and at any adjournment or postponement of the meeting. Each outstanding share of
Common Stock is entitled to one vote.
Voting
Holders of a majority of the outstanding shares of Common Stock entitled to
vote at the Annual Meeting who are present in person or represented by proxy
will constitute a quorum to conduct business at the Annual Meeting. The
affirmative vote of holders of a plurality of the shares of Common Stock present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required for the election of directors. For each other matter coming
before the Annual Meeting, the affirmative vote of the holders of a majority of
the shares of Common Stock present in person or represented by proxy and
entitled to vote will be required for approval of such matter. Because
abstentions with respect to any matter are treated as shares present in person
or represented by proxy and entitled to vote for the purposes of determining
whether that matter has been approved by the stockholders, abstentions have the
same effect as negative votes for Proposals 2, 3, 4 and 5 in this proxy
statement. Non-votes by banks, brokerage houses, custodians, nominees and other
fiduciaries and shares as to which proxy authority has been withheld with
respect to any matter are not deemed to be present in person or by proxy for
purposes of determining whether stockholder approval of that matter has been
obtained.
Proxies
If a stockholder properly completes and returns the accompanying proxy
card, the shares represented by the proxy will be voted as the stockholder
directs. IF THE PROXY CARD IS RETURNED BUT NO INSTRUCTIONS ARE GIVEN BY THE
STOCKHOLDER, THE SHARES WILL BE VOTED BY THE PROXY HOLDERS IN ACCORDANCE WITH
THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
A stockholder may revoke a proxy at any time before it is voted by filing a
signed notice of revocation with the Secretary of the Company or by returning a
properly completed proxy card bearing a later date. In addition, a stockholder
may revoke a proxy by attending the Annual Meeting and voting in person.
Solicitation of Proxies
The Company intends to request that banks, brokerage houses, custodians,
nominees and other fiduciaries forward copies of these proxy materials to those
persons for whom they hold shares. In addition to solicitation by mail, certain
officers and employees of the Company, who will receive no compensation for
their services other than their regular salaries, may solicit proxies in person
or by telephone. The cost of preparing, assembling, mailing and soliciting
proxies and other miscellaneous expenses related thereto will be borne by the
Company.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company consists of eight positions divided
into Classes A, B, and C, comprised of three, three and two directors,
respectively, with staggered terms of three years each. Three Class B Directors
have been nominated for election at the Annual Meeting to serve until the annual
stockholders meeting for the fiscal year ending July 31, 2002 or until such time
as their successors are elected and qualified.
Each nominee has consented to being named in this proxy statement and to
serve if elected. If any nominee should become unable to serve as a director
prior to the Annual Meeting, the persons authorized by your proxy will vote for
the election of a substitute nominee recommended by the Board of Directors in
place of that nominee.
The Board of Directors of the Company recommends a vote FOR the election of
the three Class B Director nominees named below. Proxies solicited by the Board
of Directors will be voted FOR this proposal unless instructions are given to
the contrary.
Information Concerning Nominees for Election
Certain information as to each of the three nominees for election as a
Class B Director is set forth in the table below. The information appearing in
the table and certain information regarding beneficial ownership of securities
by such nominees contained in this proxy statement has been furnished to the
Company by the nominees.
Nominee Age Biographical Information
- ------- --- ------------------------
Richard A. Brenner 36 Mr. Brenner has served as a director since
August 1998. Mr. Brenner has been the president
of Amarr Company since July 1993 and has served
on the board of advisors of Wachovia Bank since
1993.
Robert J. Lunn 49 Mr. Lunn is the founder, managing partner and
chief investment officer of Lunn Partners LLC
("Lunn Partners"), a private investment banking
firm established in 1994. Prior to establishing
Lunn Partners, Mr. Lunn was a managing director,
member of the operating committee and head of
the financial services division at Lehman
Brothers Holdings Inc. Mr. Lunn serves as a
director of Shaw Industries Inc.
John H. Muehlstein 44 Mr. Muehlstein has served as a director since
September 1995. Since 1986, Mr. Muehlstein has
been a principal of the law firm of Pedersen &
Houpt, a Professional Corporation, legal counsel
to the Company. Mr. Muehlstein also
2
serves as a director of Einstein/Noah Bagel
Corp., SpinCycle, Inc. and several privately-
held companies.
Information Concerning Continuing Directors
Certain information as to each director who will continue in office is set
forth in the table below. The information appearing in the table and certain
information regarding beneficial ownership of securities by such directors
contained in this proxy statement has been furnished to the Company by the
directors.
Continuing Class A Directors to Serve Until Annual Meeting for the Fiscal Year
ending July 31, 2001
Nominee Age Biographical Information
- ------- --- ------------------------
Billy D. Prim 43 Mr. Prim co-founded the Company in March 1994
and has served as the Company's Chief Executive
Officer and Chairman since the Company's
incorporation and as the Company's President
since January 1996. Mr. Prim also serves as
president and chief executive officer and is a
56% stockholder of American Oil and Gas, Inc.
("American Oil and Gas"), a North Carolina based
holding company. Until April 1995, American Oil
and Gas was a distributor of propane gas, home
heating oil, diesel fuel and kerosene. Mr. Prim
is a director of several privately-held
companies, including Platinum Propane Holding,
L.L.C. ("Platinum Propane") and Ark Holding,
L.L.C. ("Ark"), which represent eight of our
distributors. Mr. Prim is also a director of
Southern Community Bank & Trust and the National
Propane Gas Association.
Andrew J. Filipowski 49 Mr. Filipowski co-founded the Company in March
1994 and has served as our Vice Chairman since
May 1994. Mr. Filipowski is the founder of
divine interVentures, Inc. (formerly Platinum
Venture Partners, Inc.), a venture capital firm
with interests in information technology,
software and software services, and media
related enterprises. Mr. Filipowski was a co-
founder of Platinum technology, Inc. and was its
chairman, president and chief executive officer
from its formation in April 1987 until its sale
to Computer Associates International, Inc. in
March 1999. Mr. Filipowski is also a director of
Platinum Entertainment, Inc., System Software
Associates, Inc. and several privately-held
companies including Platinum Propane and Ark,
which represent eight of our distributors.
Craig J. Duchossois 55 Mr. Duchossois has served as a director since
May 1994. Mr. Duchossois has been the chief
executive officer of Duchossois Industries,
Inc., a privately-held diversified manufacturing
and service company since 1995, and previously
served as its president from 1986 to 1995. Mr.
Duchossois also serves as a director of Platinum
Entertainment, Inc., Bissell, Inc. and LaSalle
Bank, National Association as well as several
privately-held companies.
Continuing Class C Directors to Serve Until Annual Meeting for the Fiscal Year
ending July 31, 2000
Nominee Age Biographical Information
- ------- --- ------------------------
Steven D. Devick 47 Mr. Devick has served as a director since May
1994. Mr. Devick is a co-founder of Platinum
Entertainment, Inc. and has served as its
chairman and chief executive officer since
January 1992 and as its president since January
1996. Mr. Devick is an officer and director of
several privately-held companies.
Mark Castaneda 35 Mr. Castaneda has served as our Chief Financial
Officer since October 1997, as Secretary since
February 1998 and a director since August 1998.
Prior to joining
3
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, 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.
Committees of the Board of Directors
The Board of Directors has standing Executive, Compensation and Audit
Committees. The Board does not have a nominating committee.
The Executive Committee, consisting of Messrs. Duchossois, Filipowski and
Prim, makes recommendations to the Board of Directors concerning matters of
strategic planning and operational management of the Company and has the power
to address matters on behalf of the Board of Directors which require attention
between meetings of the Board of Directors. The Compensation Committee,
consisting of Messrs. Brenner and Devick, makes recommendations to the Board of
Directors concerning salaries and incentive compensation for the Company's
directors, officers and employees and administers the Company's stock incentive
and option plans. Prior to September 1997, decisions concerning the compensation
of officers were made by the Board of Directors as a whole. The Audit Committee,
consisting of Messrs. Brenner, Devick and Muehlstein, makes recommendations to
the Board of Directors regarding the selection and retention of independent
accountants, reviews the results and scope of the audit and other accounting-
related services, and reviews and evaluates the Company's internal control
functions.
Meetings
The Board of Directors held eight meetings during fiscal 1999. The
Executive Committee held no meetings, the Compensation and Audit Committees held
three and five meetings, respectively, in fiscal 1999. All members of the Board
of Directors attended at least 75% of all of the Board of Directors meetings and
of all of the meetings held by the committees of which each is a member during
fiscal 1999.
DIRECTOR COMPENSATION
In order to enhance its ability to attract, retain and motivate qualified
non-employee directors, the Company adopted Amended and Restated Stock Option
Plan for Non-Employee Directors (the "Director Option Plan") effective December
30, 1998. The Company has reserved 100,000 shares of Common Stock for issuance
under the plan. Directors receive no cash compensation for their service on the
Board of Directors, although they are reimbursed for all reasonable expenses
incurred in connection with the performance of their duties as directors. The
five non-employee directors serving during fiscal 1999 were entitled to
participate in the Director Option Plan. Until December 1998, the plan provided
that non-employee directors would receive grants of options to purchase up to
4,000 shares of Common Stock, 1,000 shares per quarterly meeting attended, as of
the date of the annual stockholders meeting for the prior fiscal year. As of
December 1998, the grants for the fiscal year then in progress have been made as
of the date of the annual stockholders meeting for the prior fiscal year. In
addition, in December 1998 non-employee directors each received one-time grants
of an option to purchase 4,000 additional shares of Common Stock for fiscal
1999. All options granted for fiscal 1999 and thereafter are subject to
forfeiture for each quarterly meeting missed, 1,000 per meeting, and all are
forfeited if a director fails to attend at least two quarterly meetings in a
fiscal year. The exercise price for all options granted under the plan is the
market value per share of the Common Stock as of the grant date. These options
vest on each of the first three anniversaries of the grant date. Currently,
there are options to purchase 56,000 shares with a weighted average exercise
price of $21.68 per share outstanding under this plan. Options to purchase
18,667 shares will have vested and be exercisable on December 30, 1999.
4
Options granted under the Director Option Plan are not "incentive stock
options," as that term is defined in Section 422(b) of the Internal Revenue
Code of 1986, as amended (the "Code"). The Compensation Committee of the Board
of Directors administers the Director Option Plan and has the power to adjust
the number of shares of Common Stock subject to option grants in case of stock
dividends, stock splits, recapitalizations and other similar events. Each option
granted under the Director Option Plan is exercisable for a period not to exceed
ten years from the date of grant and shall lapse upon expiration of such period.
Options may not be assigned or transferred except by will or operation of the
laws of descent and distribution and each option is exercisable during the
lifetime of the grantee only by such grantee.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company for the fiscal years ended July 31, 1999, 1998 and 1997 to
the Company's Chief Executive Officer and four most highly compensated executive
officers at the end of fiscal 1999 (collectively, the "Named Officers").
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------- ------------
Shares Underlying All Other
Name and Principal Position Year Salary Stock Options Compensation
- --------------------------- ---- -------- ----------------- ------------
Billy D. Prim 1999 $288,923 60,000 --
Chief Executive Officer 1998 218,538 43,312 --
1997 125,250 57,088 --
Mark Castaneda 1999 138,359 36,796 --
Secretary and Chief Financial Officer 1998 78,846(1) 32,561 --
1997 -- -- --
Richard E. Belmont 1999 118,322 24,000 --
Vice President of Marketing 1998 112,708 26,890 --
1997 106,727 1,890 --
Joseph T. Culp 1999 115,174 24,000 --
Vice President of Partner Development 1998 109,710 26,890 --
1997 104,242 1,890 --
Jerald D. Shadley 1999 132,247(2) 24,000 $40,000(3)
Vice President of Sales 1998 -- -- --
1997 -- -- --
- -------------
(1) Mr. Castaneda's salary for fiscal 1998 reflects amounts earned from the
commencement of his employment with the Company in October 1997.
(2) Mr. Shadley's salary for fiscal 1999 reflects amounts earned from the
commencement of his employment with the Company in August 1998.
(3) Mr. Shadley was paid a $40,000 moving allowance in connection with joining
the Company in August 1998.
5
Option Grants
The following table sets forth information on grants of stock options to
the Named Officers pursuant to the 1998 Stock Incentive Plan during fiscal 1999.
Option Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Annual Rates
Number of % of of Stock Price
Securities Total Options Exercise Appreciation for
Underlying Granted to Price Option Term(2)
Options Employees in Per Expiration --------------------
Name Granted(1) Fiscal Year Share Date(1) 5% 10%
---- ---------- ------------- -------- ---------- -------- ----------
Billy D. Prim 50,000 17.27% $13.125 3/31/09 $412,712 $1,045,893
10,000 3.45% 13.125 3/31/09 82,542 209,179
Mark Castaneda 1,796 0.62% 13.00 11/2/08 14,683 37,211
3,433 1.19% 13.00 11/2/08 28,067 71,127
1,567 0.54% 13.125 3/31/09 12,934 32,778
30,000 10.36% 13.125 3/31/09 247,627 627,536
Richard E. Belmont 2,746 0.95% 13.00 11/2/08 22,450 56,893
1,254 0.43% 13.125 3/31/09 10,351 26,231
20,000 6.91% 13.125 3/31/09 165,085 418,357
Joseph T. Culp 2,746 0.95% 13.00 11/2/08 22,450 56,893
1,254 0.43% 13.125 3/31/09 10,351 26,231
20,000 6.91% 13.125 3/31/09 165,085 418,357
Jerald D. Shadley 2,746 0.95% 13.00 11/2/08 22,450 56,893
1,254 0.43% 13.125 3/31/09 10,351 26,231
20,000 6.91% 13.125 3/31/09 165,085 418,357
- -------------
(1) These options have a term of ten years, are nonqualified stock options and
have an exercise price equal to the market value of the Common Stock on the
date of grant. Options which expire on November 2, 2008 were fully vested
and exercisable on November 3, 1999. Options which expire on March 31, 2009
vest 20% on each anniversary of the grant date until fully vested (i.e.,
five years from the grant date) and are exercisable upon vesting. 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 midpoint of the
estimated range of the offering price for the Common Stock per the initial
public offering.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Commission and do not represent the Company's
estimate or projection of the Company's future Common Stock prices.
6
The following table sets forth information with respect to exercised and
unexercised stock options granted under the 1994 Stock Incentive Plan and the
1998 Stock Incentive Plan as of the end of fiscal 1999. Mr. Culp is the only
Named Officer that exercised stock options during fiscal 1999.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Values
Shares Number of Value of Unexercised
Acquired on Value Options In-the-Money Options at
Exercise Realized(1) Held at July 31, 1999 July 31, 1999(2)
----------- ----------- --------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Billy D. Prim....... -- -- 72,181 92,000 $175,990 --
Mark Castaneda...... -- -- 12,561 56,796 22,777 --
Richard E. Belmont.. -- -- 20,122 44,000 68,498 --
Joseph T. Culp...... 15,122 $81,730 5,000 44,000 -- --
Jerald D. Shadley... -- -- 4,000 40,000 -- --
- --------------
(1) Calculated by determining the difference between the market value of the
Common Stock at the exercise date and the exercise price of the Named
Officer's options.
(2) Calculated by determining the difference between the market value of $9.625
per share for the Common Stock underlying the options at July 31, 1999 and
the exercise price of the Named Officer's options.
Compensation Committee Report on Executive Compensation
The Compensation Committee is responsible for the development of the
Company's executive compensation policies and the administration of those
policies. The Compensation Committee evaluates the performance of management and
recommends to the full Board of Directors the salaries and incentive
compensation for executive officers and key employees. In reviewing the
compensation of individual executive officers and employees during fiscal 1999,
the Compensation Committee considered published compensation surveys, the amount
of compensation paid to executive officers at comparable companies in the
consumer product and propane industries, market conditions, the recommendations
of management and the attainment of certain performance goals.
Executive Compensation Policy
The Company's general compensation policy is that total compensation should
vary with the performance of the Company and the individual in attaining certain
financial and non-financial objectives. The Compensation Committee's objectives
include:
. Attracting and retaining talented executives and employees critical to
the long-term success of the Company by offering compensation packages
competitive with those provided by other publicly-held high growth
companies.
. Aligning the interests of the Company's management with the interests
of the Company's stockholders by developing compensation programs that
link compensation directly to increases in stockholder value.
. Maintaining an appropriate balance between base salary and performance-
based compensation, with a higher proportion of compensation being
performance-based as an officer or key employee's level of
responsibility increases.
7
During fiscal 1999, the compensation of an officer or key employee of the
Company was comprised of base salary and options granted under the Company's
1998 Stock Incentive Plan. In addition, all employees of the Company who have
been employed for six months or more are eligible to participate in the
Company's 401(k) plan beginning on the first day of the first fiscal quarter
following the completion of six months of service. Subject to limitations
imposed by the Code, participants in the 401(k) plan may contribute up to 15% of
their total base compensation to the plan. In addition, in fiscal 1999 the
Company initiated a match to an employee's 401(k) contributions in the amount of
$.50 of every $1.00 contributed up to 6% of an employee's salary.
Incentive Cash Bonus
The Company's policy is to pay a cash incentive bonus to certain employees
for attainment of internal revenue and earnings targets. The Compensation
Committee determines and recommends to the Board of Directors a cash incentive
for each of the officers and key employees based revenue and earnings targets,
individual performance, level of responsibility, experience and competitive
factors. The executive officers and key employees did not attain the internal
targets necessary to earn incentive cash bonuses for fiscal 1999.
Base Salary
The Company's policy is to pay base salaries that are generally competitive
with the median base salaries paid by comparable companies in the consumer
product and propane industries. The Compensation Committee determines and
recommends to the Board of Directors a base salary for each of the officers and
key employees based upon individual performance, level of responsibility,
experience and competitive factors. The Compensation Committee did not
commission any formal surveys of executive officer compensation at comparable
companies, but relied on published surveys for indications of salary trends
generally and at growth companies in particular. The Compensation Committee used
all of these factors in recommending base salary levels, but did not assign
specific weight to any particular factor.
1998 Stock Incentive Plan
Granting options under the Company's 1998 Stock Incentive Plan is the
primary method by which the Compensation Committee motivates executive officers
and key employees to meet and surpass performance goals. Stock options are
intended to focus executive officers and key employees on managing the Company
from the perspective of owners with an equity interest and to link their long-
term compensation directly with increases in stockholder value. Options granted
under the 1998 Stock Incentive Plan typically vest 20% on each anniversary of
the grant date and, thus, do not fully vest until five years after the grant
date. Additional options may be granted to executive officers if certain revenue
and earnings targets are met. These options vest in one year plus one day. In
addition, because the exercise price of options granted under the 1998 Stock
Incentive Plan may not be less than the market value of the Common Stock on the
grant date, recipients of option grants receive no compensation unless the price
per share of Common Stock increases after the grant date.
In determining the stock option grants to individual executive officers,
the Compensation Committee employs various factors including whether Company-
wide revenue targets and individual performance targets are achieved. The
Company's revenues increased approximately 92.5% from $27.4 million in fiscal
1998 to $53.8 million in fiscal 1999 and nearly all of the Company's internal
revenue targets were achieved. Individual performance targets are established
for each executive officer on a quarterly and annual basis. Each executive
officer's performance targets vary depending upon the officer's position.
Individual performance targets included increases in the Company's revenue and
number of retail locations being serviced.
The most significant factor influencing the Compensation Committee's
determination of performance compensation in this fiscal year was management's
commitment to increase penetration of existing retail accounts and add new
retail accounts through acquisitions and otherwise. In fiscal 1999, the
Company's installed locations nearly doubled from 9,500 to 18,500 at year end
1999. Based upon their position and level of responsibility within the Company,
the Named Officers were granted options for a total of 168,796 shares of Common
Stock in fiscal 1999.
8
Compensation of Chief Executive Officer
The Compensation Committee determines the compensation of Mr. Prim, the
Company's President and Chief Executive Officer, based on the same criteria
applicable to the Company's other executive officers. The Compensation Committee
believes Mr. Prim's current base salary of $350,000 is in line with the median
salaries of other chief executive officers in the consumer product and propane
industries. Pursuant to the Committee's recommendations, Mr. Prim was granted
options for 10,000 shares of Common Stock in November 1998 which were fully
vested as of November 2, 1999 and 50,000 shares of Common Stock in March 1999
which vest over five years. Mr. Prim's leadership was essential to the Company's
successful expansion of retail locations and the attainment of certain internal
performance targets. The Compensation Committee also considered significant Mr.
Prim's role in identifying and negotiating the Company's 16 acquisitions during
fiscal 1999, as well as his oversight of the integration of the acquired
businesses into the Company's operations.
Employment Agreement
The Compensation Committee commissioned a report on chief executive
compensation in October 1998. The findings of the report indicated that Mr.
Prim's compensation was in line with companies of similar size in similar
industries and also indicated that employment contracts are standard for chief
executives. Based on this report, the Company entered into an employment
agreement with Mr. Prim on May 31, 1999. The agreement has a rolling five year
term beginning as of January 1, 1999. Upon 90 days notice by either the Company
or Mr. Prim, the term will thereafter continue for five years from the end of
the notice period. The agreement provides for a minimum base salary of $350,000
during the term of the agreement, with cost of living adjustments, and
discretionary cash and/or incentive bonuses and stock option grants at the
discretion of the Compensation Committee. Mr. Prim's base salary in calendar
1999 is $350,000. In addition to those perquisites provided to other executives
of the Company, the agreement also provides for health benefits, split dollar
life insurance, club memberships and an automobile during the term of the
agreement.
Upon termination of Mr. Prim's employment for any reason, he shall be
entitled to receive his then current base compensation through the last day of
the calendar month in which the termination date occurs. Upon termination of Mr.
Prim other than for "cause," as defined in the agreement, or Mr. Prim's election
to terminate his relationship with the Company because of a material change in
his position and/or duties, or within 12 months of a change in control of the
Company, or an action by either party to exercise the 90 day notice provision,
he (or his spouse in the event of his death) shall be entitled to receive his
base salary, with annual cost of living adjustments, for five years following
his termination date. For the ten years following the five years of continuing
base salary, Mr. Prim (or his spouse) shall be entitled to receive retirement
benefit payments, payable in accordance with the Company's ordinary payroll, in
the amount of 70% of his base salary in the fifth year of continuing payments.
Following termination other than for "cause," the Company shall use its best
efforts to provide Mr. Prim and his dependents with coverage under the Company's
health care plans until the earlier of his death or the month in which the last
retirement benefit payment is made. Such health care coverage shall be at no
cost to Mr. Prim unless the premiums exceed the then highest premium payable by
an employee of the Company.
For two years following the termination of his employment, Mr. Prim is
subject to a non-competition and non-solicitation agreement. Failure to comply
with these provisions will result in cessation of any post-termination payments
to or benefits for Mr. Prim or his dependents.
Section 162(m)
Under Section 162(m) of the Code, federal income tax deductions of publicly
traded companies may be limited to the extent total compensation (including base
salary, annual bonus, restricted stock awards, stock options exercises and
nonqualified benefits) for certain executive officers exceeds $1.0 million in
any one year. Currently, none of the Company's executive officers receive annual
compensation in excess of $1.0 million. However, if an executive officer were to
receive compensation in excess of $1.0 million, the Compensation Committee
expects to structure such compensation to meet the requirements of Section
162(m) and preserve the Company's federal income tax deduction.
9
Each current member of the Compensation Committee approved the foregoing
report. Mr. Duchossois, a member of the Compensation Committee during fiscal
1999, resigned from the Compensation Committee in November 1998. Mr. Duchossois
resigned from the Compensation Committee in order for the composition of the
committee to meet independence standards imposed by the Company's listing
agreement with The Nasdaq Stock Market. Mr. Duchossois therefore did
not participate in the preparation of this report.
COMPENSATION COMMITTEE
/s/ Richard A. Brenner
/s/ Steven D. Devick
Compensation Committee Interlocks and Insider Participation
During fiscal 1999, Messrs. Brenner, Devick and Duchossois served on the
Compensation Committee of the Board of Directors. Mr. Duchossois resigned from
the committee in November 1998. In October 1998, the Company sold substantially
all of its grill cylinders to USA Leasing, L.L.C. ("USA Leasing") for
approximately $6.5 million. Mr. Duchossois previously owned approximately 25% of
the membership interests in USA Leasing. Prior to their sale to USA Leasing, the
Company either leased the grill cylinders to its distributors or charged
distributors a fee for their use of the cylinders. USA Leasing has entered into
leases with Blue Rhino's distributors on substantially the same terms as the
Company previously leased cylinders to its distributors. In July 1999, the
Company purchased 100% of the membership interests in USA Leasing for
consideration consisting solely of an increase in the amount of USA Leasing's
bank debt which the Company guarantees from 80% to 100%. Mr. Duchossois received
no distribution from USA Leasing on behalf of his interest in USA Leasing.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Company's
Common Stock for the period May 19, 1998, the first date on which the Common
Stock was traded, through July 31, 1999 with (1) the cumulative total return of
the Nasdaq Composite Index for The Nasdaq Stock Market for the same period and
(2) the cumulative total return of an index of peer group companies for the same
period. The following emerging consumer product and consumer service companies
have been included in the peer group index: Central Garden and Pet Company,
Glacier Water Services, Inc., Service Experts, Inc., U.S.A. Floral Products,
Inc. and NuCo2, Inc. The graph assumes $100 was invested on May 19, 1998 in the
Company's Common Stock and in the stock represented by the two indexes, and that
all dividends paid, if any, were reinvested. The stock price performance of the
Company's Common Stock reflected in the following graph is not necessarily
indicative of future performance.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG BLUE RHINO CORPORATION,
THE PEER GROUP AND THE NASDAQ COMPOSITE INDEX
[GRAPH APPEARS HERE]
Measurement Period NASDAQ
(Fiscal Year Covered) BLUE RHINO PEER GROUP COMPOSITE INDEX
- ------------------- ------------ ----------- ---------------
Measurement Pt-
/ / $ $ $
IPO 05/19/1998 $100 $100 $100
FYE 07/31/1998 $123 $ 85 $101
FYE 10/31/1998 $ 94 $ 71 $ 96
FYE 01/31/1999 $148 $ 72 $136
FYE 04/30/1999 $111 $ 50 $137
FYE 07/31/1999 $ 74 $ 43 $143
10
COMMON STOCK OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of October 31, 1999 by (1) each
person known by the Company to own beneficially more than 5% of the Common
Stock, (2) each director of the Company, (3) each director nominee, (4) each
Named Officer and (5) all executive officers, directors and director nominees as
a group.
Amount and
Nature of Percent of
Beneficial Common
Name and Address Ownership (1) Stock
- ---------------- -------------- ----------
Andrew J. Filipowski(2)
1815 South Meyers Road
Oakbrook Terrace, IL 60181........................................ 1,919,279 21.9%
Billy D. Prim(3)
104 Cambridge Plaza Drive
Winston-Salem, NC 27104........................................... 1,377,181 15.7%
Craig J. Duchossois(4)
845 Larch Avenue
Elmhurst, IL 60126................................................ 653,659 7.5%
Richard E. Belmont(5)
104 Cambridge Plaza Drive
Winston-Salem, NC 27104........................................... 22,868 *
Richard A. Brenner(6)
464 Sheffield Drive
Winston-Salem, NC 27104........................................... 29,636 *
Joseph T. Culp(7)
104 Cambridge Plaza Drive
Winston-Salem, NC 27104........................................... 22,868 *
Mark Castaneda(8)
104 Cambridge Plaza Drive
Winston-Salem, NC 27104........................................... 19,676 *
John H. Muehlstein(9)
161 North Clark Street, Suite 3100
Chicago, IL 60601................................................. 7,781 *
Steven D. Devick(10)
2001 Butterfield Road, Suite 1400
Downers Grove, IL 60515........................................... 359,551 4.2%
Jerald R. Shadley(11)
104 Cambridge Plaza Drive
Winston-Salem, NC 27104........................................... 16,471 *
Robert J. Lunn(12)
209 South LaSalle Street
Chicago, Illinois 60604........................................... 91,524 1.1%
Directors, director nominees and executive officers as a group (13 3,993,705 44.0%
individuals)
11
5% or more stockholders
SAFECO Corporation
4333 Brooklyn Avenue NE
Seattle Washington 98185 (13)..................................... 796,200 9.2%
- -------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "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) Includes 1,247,659 shares of Common Stock owned by Mr. Filipowski, 47,457
shares issuable upon the exercise of a warrant issued to Mr. Filipowski in
September 1999, 36,546 shares of Common Stock issuable upon the exercise of
a warrant issued to Mr. Filipowski in January 1998, 18,903 shares of Common
Stock issuable upon the exercise of vested options held by Mr. Filipowski,
1,333 shares of Common Stock issuable upon the exercise of options held by
Mr. Filipowski which will vest under the Director Option Plan on December
21, 1999 and 2,667 shares of Common Stock which will vest under the
Director Option Plan on December 30, 1999, 216,127 shares of Common Stock
owned by American Oil and Gas, of which Mr. Filipowski owns 44% of the
issued and outstanding shares, 333,466 shares of Common Stock owned by
Platinum Venture Partners I, L.P. ("PVP"), the general partner of which is
divine interVentures, Inc., formerly known as Platinum Venture Partners,
Inc. ("divine interVentures"), of which Mr. Filipowski owns 22.5% of the
shares, 1,890 shares of Common Stock beneficially owned by Jennifer R.
Filipowski, 1,890 shares of Common Stock beneficially owned by Mr.
Filipowski as trustee on behalf of the Andrew E. Filipowski Trust, 1,890
shares of Common Stock beneficially owned by Veronica Filipowski as trustee
on behalf of the Alexandra Filipowski Trust, 1,890 shares of Common Stock
beneficially owned by Veronica Filipowski as trustee on behalf of the James
Meadows Trust and 7,561 shares of Common Stock beneficially owned by
Veronica Filipowski.
(3) Includes 1,030,076 shares of Common Stock held by Mr. Prim, 47,457 shares
issuable upon the exercise of a warrant issued to Mr. Prim in September
1999, 72,180 shares of Common Stock issuable upon the exercise of vested
options held by Mr. Prim, 216,127 shares of Common Stock owned by American
Oil and Gas, of which Mr. Prim owns 56% of the issued and outstanding
shares, 7,561 shares of Common Stock beneficially owned by Debbie W. Prim,
1,890 shares of Common Stock beneficially owned by Debbie W. Prim as
trustee on behalf of Sarcanda Westmoreland and 1,890 shares of Common Stock
beneficially owned by Debbie W. Prim as trustee on behalf of Anthony G.
Westmoreland.
(4) Includes 482,147 shares of Common Stock beneficially owned by the Craig J.
Duchossois Revocable Trust (the "C. Duchossois Trust"), 47,457 shares
issuable upon the exercise of a warrant issued to the C. Duchossois Trust
in September 1999, 36,546 shares of Common Stock issuable upon exercise of
a warrant issued to the C. Duchossois Trust in January 1998, 2,500 shares
of Common Stock beneficially owned by R. Bruce Duchossois over which Craig
J. Duchossois has voting and investment control, 3,781 shares of Common
Stock issuable upon the exercise of vested options held by Mr. Duchossois,
1,333 shares of Common Stock issuable upon the exercise of options held by
Mr. Duchossois which will vest under the Director Option Plan on December
21, 1999 and 2,667 shares of Common Stock which will vest under the
Director Option Plan on December 30, 1999 and 77,228 shares of Common
Stock beneficially owned by the Kimberly Family Discretionary Trust over
which Mr. Duchossois has voting and investment control.
(5) Represents shares of Common Stock issuable upon the exercise of vested
options.
12
(6) Includes 22,224 shares of Common Stock, 4,745 shares issuable upon the
exercise of a warrant issued in September 1999 and 2,667 shares of Common
Stock issuable upon the exercise of options which will vest under the
Director Option Plan on December 30, 1999 held by Mr. Brenner.
(7) Includes 15,122 shares of Common Stock owned by Mr. Culp and 7,746 shares
of Common Stock issuable upon the exercise of vested options held by Mr.
Culp.
(8) Includes 2,850 shares of Common Stock, 472 shares of Common Stock issuable
upon the exercise of a warrant issued in September 1999 and 16,354 shares
of Common Stock issuable upon the exercise of vested options held by Mr.
Castaneda.
(9) Represents 3,781 shares of Common Stock issuable upon the exercise of
vested options and 1,333 shares of Common Stock issuable upon the exercise
of options which will vest under the Director Option Plan on December 21,
1999 and 2,667 shares of Common Stock which will vest under the Director
Option Plan on December 30, 1999 held by Mr. Muehlstein.
(10) Includes 13,559 shares of Common Stock held by Mr. Devick, 4,745 shares of
Common Stock issuable upon the exercise of a warrant issued to Mr. Devick
in September 1999, 3,781 shares issuable upon the exercise of vested
options held by Mr. Devick, 1,333 shares of Common Stock issuable upon the
exercise of options held by Mr. Devick which will vest under the Director
Option Plan on December 21, 1999 and 2,667 shares of Common Stock which
will vest under the Director Option Plan on December 30, 1999 and 333,466
shares owned beneficially by PVP.
(11) Includes 2,000 shares owned by Mr. Shadley, 6,746 shares of Common Stock
issuable upon the exercise of vested options held by Mr. Shadley, 3,500
shares held jointly by Jerald and Sidney Shadley and 1,225 shares issuable
upon the exercise of warrants issued in September 1999 held jointly by
Jerald and Sidney Shadley.
(12) Includes 33,898 shares of Common Stock and 11,864 shares issuable upon the
exercise of a warrant issued in September 1999 held by Lunn Partners
Multiple Opportunities Portfolio, L.P. (the "Lunn Multiple Opportunities
Portfolio") and 33,898 shares of Common Stock and 11,864 shares issuable
upon the exercise of a warrant issued in September 1999 held by Lunn
Partners Small Cap Value Equity Fund, L.P. (the "Lunn Small Cap Fund").
Lunn Partners is the general partner of the Lunn Multiple Opportunities
Portfolio and Lunn Small Cap Fund. Mr. Lunn is the managing partner of Lunn
Partners and has shared voting and investment power with respect to the
shares held by the Lunn Multiple Opportunities Portfolio and Lunn Small Cap
Fund.
(13) Derived from a Schedule 13G dated September 8, 1999 and jointly furnished
to the Company by SAFECO Corporation, SAFECO Asset Management Company and
SAFECO Common Stock Trust. The Schedule 13G indicates that the SAFECO
Common Stock Trust has shared voting and dispositive power over 623,600 of
these shares and that SAFECO Corporation and SAFECO Asset Management
Company have shared voting and dispositive power over all 796,200 of these
shares including those beneficially owned by the SAFECO Common Stock Trust.
SAFECO Corporation and SAFECO Asset Management Company have disclaimed any
beneficial ownership of these shares.
CERTAIN TRANSACTIONS
Since March 1994, the Company has leased its offices in Winston-Salem,
North Carolina from Rhino Real Estate, L.L.C., an entity majority owned by
Messrs. Filipowski and Prim. Pursuant to the terms of the lease, the Company
pays annual rent of $213,000, plus its allocable share of all taxes, utilities
and maintenance. The lease terminates on December 31, 2001 and includes an
option to renew for an additional three year term.
Since March 1997, Platinum Propane and its subsidiaries have acted as the
Company's distributors for North Carolina, South Carolina, Georgia, Florida,
parts of Virginia and Tennessee, and the Los Angeles, California and Chicago,
Illinois territories. Until August 1999, Messrs. Prim and Filipowski owned
approximately 40% of the membership interests in Platinum Propane, a holding
company for five of the Company's distributors. The terms of the distribution
agreements are substantially the same as those negotiated with other Blue Rhino
distributors. In fiscal 1999, Platinum Propane received approximately $11.3
million from the Company on behalf of cylinder distribution services performed
by its subsidiaries. The Company has also entered into cylinder display
operating leases with Platinum Propane requiring lease payments of approximately
$32,000 per month as of July 31, 1999.
13
The Company entered into distribution agreements in February 1998 with
Caribou Propane and Javelina Propane to service its Pacific Northwest and
Phoenix markets, respectively, and in May 1998 with Raven Propane to service its
Philadelphia/New Jersey markets. Until August 1999, Messrs. Prim and Filipowski
owned 45% of the membership interests in Ark, the holding company for Caribou
Propane, Javelina Propane and Raven Propane. The terms of the distribution
agreements are substantially the same as those negotiated with other Blue Rhino
distributors. In fiscal 1999, Ark received approximately $2.1 million from the
Company on behalf of cylinder distribution services performed by its
subsidiaries. The Company has also entered into cylinder display operating
leases with Ark requiring lease payments of approximately $6,300 per month as of
July 31, 1999. In August 1999, Messrs. Prim and Filipowski sold their interests
in Platinum Propane and Ark to a third party.
In October 1998, the Company sold substantially all of its grill cylinders
to USA Leasing for approximately $6.5 million. Messrs. Prim, Filipowski and
Duchossois along with Mr. Peer Pedersen, a stockholder, owned 100% of the
membership interests in USA Leasing. Prior to selling the grill cylinders to USA
Leasing, the Company owned the cylinders and leased them to its distributors or
charged its distributors a fee for use of the cylinders. USA Leasing has entered
leases with Blue Rhino's distributors on substantially the same terms as those
on which the Company previously leased cylinders to its distributors. In July
1999, the Company purchased 100% of the membership interests in USA Leasing for
consideration consisting solely of an increase in the amount of USA Leasing's
bank debt which the Company guarantees from 80% to 100%. Messrs. Prim,
Filipowski and Duchossois received no distribution from USA Leasing on behalf of
their interest in USA Leasing.
In September 1999, the Company completed two private placements raising an
aggregate of $14.2 million in new capital. Among the participants in one of the
private placements were the following directors and executive officers: Messrs.
Prim, Duchossois, Filipowski, Castaneda, Devick, Brenner and Shadley, who in the
aggregate purchased 438,747 of the 981,119 units sold. In addition, two
investment partnerships of which Mr. Lunn, a director nominee, is the chief
investment officer, purchased a total of 67,696 units. The units sold consisted
of one share of Common Stock and one warrant to purchase 0.35 shares of Common
Stock. The price per unit was $7.375, which was the closing price of our Common
Stock on September 3, 1999, the final trading day prior to the consummation of
the offering. The warrants may be exercised at a price equal to $8.48 per share
at any time prior to September 7, 2004. Lunn Partners, of which Mr. Lunn is the
managing partner, received a placement fee in the amount of $120,000 in
connection with the purchase of these units by persons other than officers and
directors of the Company.
Mr. Muehlstein, a director of the Company, is also a principal in the firm
of Pedersen & Houpt, a Professional Corporation, legal counsel to the Company.
The Company believes that the foregoing transactions with directors,
officers, stockholders and other affiliates were completed on terms as favorable
to the Company as could have been obtained from unaffiliated third parties. The
Company has adopted a policy that it will not enter into any material
transaction in which a Company director, officer or stockholder has a direct or
indirect financial interest, unless the transaction is determined by the
Company's Board of Directors to be fair as to the Company or is approved by a
majority of the Company's disinterested directors or by the Company's
stockholders.
PROPOSAL 2
APPROVAL OF AMENDMENT OF
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors, subject to the approval of the Company's
stockholders, has adopted resolutions approving an amendment to the Company's
Second Amended and Restated Certificate of Incorporation ("Certificate") to
reduce the number of the Company's authorized shares of capital stock from
120,000,000 shares to 45,000,000 shares. Reducing the number of the Company's
authorized shares of capital stock to 45,000,000 will reduce the Company's
annual franchise tax payable to the State of Delaware by approximately $75,000.
If this amendment to the Certificate is approved, the Company's authorized
shares of Common Stock will be reduced from 100,000,000 to 37,500,000 and
14
authorized shares of Preferred Stock will be reduced from 20,000,000 to
7,500,000. Approval of this amendment to the Certificate will in no way alter or
amend other provisions or requirements of the Certificate.
The Board of Directors of the Company unanimously recommends a vote FOR the
amendment of the Certificate to reduce the number of the Company's authorized
shares of capital stock. Proxies solicited by the Board of Directors will be
voted FOR amendment of the Certificate unless a vote against this proposal or
abstention is specifically indicated.
PROPOSAL 3
APPROVE THE ISSUANCE OF THE SHARES OF COMMON STOCK UPON CONVERSION OF
CONVERTIBLE NOTES AND RELATED WARRANTS
On September 22, 1999, the Company entered into an agreement with two
institutional investors (the "Investors") to issue $7,000,000 of 5% Convertible
Notes (the "Convertible Notes") and warrants to purchase Common Stock (the
"Warrants") in a private placement (the "Convertible Note Offering"). The
Company will use the net proceeds from the Convertible Note Offering to reduce
indebtedness and acquire assets and for working capital and general corporate
purposes.
Summary of Convertible Note Offering Terms
The following is a summary of the material terms of the Convertible Note
Offering, which terms are qualified by reference to the full text of the
underlying documents which are exhibits to the Company's Form 8-K filed on
September 23, 1999 (the "Form 8-K"). The underlying documents for the
Convertible Note Offering are a securities purchase agreement ("Securities
Purchase Agreement"), a registration rights agreement and a form of warrant by
and between the Company and the Investors and two Convertible Notes made by the
Company, all filed as exhibits to the Form 8-K. All capitalized terms used but
otherwise not defined herein have the meanings ascribed to those terms in the
transaction documents.
The Initial Closing
At the initial closing (the "Initial Closing"), the Investors purchased
Convertible Notes in the aggregate principal amount of $7.0 million. The Company
also issued to the Investors Warrants to purchase in the aggregate 332,203
shares of Common Stock. The Warrants are exercisable until September 23, 2004 at
an exercise price of $8.48 per share.
Additional Closings
In the future, the Company may also require the Investors to purchase, in
up to two additional closings, Convertible Notes in an amount equal in the
aggregate to at least $1.0 million but not more than $4.9 million if certain
conditions are met. The Investors' obligation to purchase additional Convertible
Notes is conditioned upon:
. the effectiveness of a registration statement with the Commission
covering the resale of the shares of Common Stock issuable upon
conversion or exercise of the Convertible Notes and the Warrants
issued at the Initial Closing and shares to be issued upon the
conversion of any notes or exercise of warrants issued at any
subsequent closing,
. the Company's Common Stock is listed on the National Market System of
The Nasdaq Stock Market ("Nasdaq") or the New York Stock Exchange (the
"NYSE"),
15
. the Company shall not have consummated a change of control or
defaulted under the terms of the Securities Purchase Agreement or
Convertible Notes,
. the stock price of the Common Stock shall be at least $8.50 per share
(adjusted for stock splits, combinations and recapitalizations
effected after the Initial Closing date),
. the Company shall have converted at least $1.75 million of the balance
of the initial Convertible Notes into Common Stock,
. the Company shall have received stockholder approval of the issuance
of the Common Stock issuable upon the conversion of the Convertible
Notes and exercise of the Warrants as required and
. the satisfaction of certain other terms and conditions, all as more
fully set forth in the Securities Purchase Agreement.
Conversion
The principal and accrued interest on the Convertible Notes is convertible,
in whole or in part, by dividing the amount to be converted by the lesser of (i)
a "fixed conversion price" or (ii) a "variable conversion price." The fixed
conversion price shall equal $20.00 per share. The variable conversion price
shall equal 95% of the dollar volume-weighted average price for the Common Stock
on Nasdaq (as reported by Bloomberg Financial Markets through its "Volume at
Price" function) on the conversion date (the "Variable Conversion Price"). For a
period of 18 months, the Convertible Notes may not be converted unless the
Company, subject to certain exceptions, requires conversion, or:
. the Common Stock is not listed or quoted on Nasdaq or NYSE, or has
been suspended from trading for more than one day,
. a Change of Control or Triggering Event or Event of Default shall have
occurred or be pending,
. the Company issues or sells or is deemed to have issued or sold any
Convertible Securities that are convertible into or exercisable or
exchangeable for shares of Common Stock at a variable price,
. the Company fails to pay any redemption amount or issue any shares
upon a conversion of the Convertible Notes or exercise of the
Warrants,
. the Company issues additional shares of Common Stock or securities
convertible into Common Stock other than (i) up to 500,000 shares
issuable in connection with acquisitions at a value per share equal or
greater than the market price of the Common Stock, (ii) shares
issuable upon the exercise of employee, director and distributor
options and outstanding warrants or
. with respect to the conversion of up to 25% of the total amount
outstanding on the Convertible Notes, if on or after December 23, 2000
at least 75% of the aggregate original principal amounts of all
Convertible Notes remains outstanding.
Upon the occurrence of any events in the bullets above, the holders of
the Convertible Notes may elect to convert all or any portion of the Convertible
Notes into Common Stock. "Triggering Events" include the Company's:
. failure to register the shares issuable upon conversion of the
Convertible Notes or Warrants on or before February 25, 2000;
. failure to maintain the effectiveness of such registration statement,
16
. the Common Stock not being listed or quoted on Nasdaq or the NYSE,
. failure to issue any Common Stock upon conversion as required,
. inability to issue any shares of Common Stock as a result of
restrictions on the issuance of shares under Nasdaq rules or
. failure to obtain the consent of its stockholders to the issuance of
Common Stock upon conversion of the Convertible Notes and Warrants
before January 31, 2000.
Upon the occurrence of a Triggering Event, the holders of Convertible Notes
could require the Company to convert the balance of their Convertible Notes into
Common Stock or to redeem all of the remaining principal and interest at a price
equal to 120% of the outstanding balance. In the event that the Company or its
transfer agent does not timely effect a conversion of the Convertible Notes, the
Company is subject to certain liquidated damage penalties including reductions
in the Variable Conversion Price, adjustments to the applicable fixed conversion
price and certain other penalties as more fully described in the Convertible
Notes.
The holders of the Convertible Notes are prohibited from converting their
notes if, after giving effect to such conversion, the holder would beneficially
own at the time of conversion in excess of 4.99% of the outstanding shares of
Common Stock of the Company following such conversion. In addition, the
Convertible Notes are subordinate subject to certain exceptions, to up to $25.0
million of the Company's bank indebtedness.
Interest
The outstanding principal balance on the Convertible Notes bears interest
at 5% per annum. Interest accrues until paid in full. After and during the
continuance of an event of default, the Convertible Notes bear a default rate of
interest equal to 18%.
Registration of Shares; Possible Adjustment of Conversion Price and Exercise
Price
The Company is required to register with the Commission the resale of at
least 200% of the number of shares of Common Stock issuable upon conversion of
the Convertible Notes and exercise of the Warrants. The number of shares is
based on the Conversion Price at the time of the filing of the registration
statement. The Company has agreed to use its best efforts to file the initial
registration statement as soon as possible but no later than November 21, 1999
and have the registration statement declared effective by the Commission no
later than February 4, 2000. In addition, during the period the registration
statement is effective, the Company has agreed that the resale of at least 150%
of the shares issuable upon conversion of the Convertible Notes and the resale
of at least 100% of the shares of Common Stock issuable upon exercise of the
Warrants will remain registered under the registration statement.
Other Terms
The transaction documents relating to the Convertible Notes also contain
certain other representations, warranties, agreements and indemnification
obligations of the Company. The operative agreements also contain (i) a right of
first refusal in favor of the investors which applies to certain private equity
financings by the Company and (ii) prohibit the Company from entering into
certain related party transactions. The Convertible Notes and Warrants are also
subject to anti-dilution provisions which are triggered in the event of certain
stock splits, recapitalizations or other dilutive transactions, as well as
issuances of Common Stock at a price below the market price or the fixed
conversion price in effect, or the issuance of warrants, options, rights, or
convertible securities which have an exercise price or conversion price less
than the market price on the date of issuance or the fixed conversion price,
other than for certain previously outstanding securities and certain excluded
securities. In the event that the Company issues securities in the future which
have a conversion price or exercise price which varies with the market price and
the terms of such variable price are more favorable than the Variable Conversion
Price in the Convertible Notes, the purchasers may elect to substitute the more
favorable variable price when making conversions of the Convertible Notes.
17
Warrants
The Company issued to the Investors Warrants to purchase in the aggregate
332,203 shares of Common Stock at an exercise price of $8.48 per share. The
Warrants expire on September 23, 2004 and are subject to certain anti-dilution
provisions in the event the Company sells Common Stock or securities convertible
or exercisable into Common Stock at a price less than the exercise price of such
Warrants or the market price of the Common Stock. In connection with any
additional closings of the Convertible Notes, the Company is obligated to issue
warrants to purchase Common Stock, exercisable for five years, which at the time
of issuance has a market value (as determined using the average of the closing
share price for the ten days prior to such additional closing) equal to 35% of
the principal value of the Convertible Notes.
Nasdaq Rules and Stockholder Approval
Under Nasdaq Rule 4460, as a condition of listing on Nasdaq, the Company
must obtain stockholder approval of the Company's sale or issuance in a
transaction other than a public offering at a price less than the greater of
book or market value of Common Stock (or securities convertible into Common
Stock) equal to 20% or more of the outstanding Common Stock before the sale or
issuance. In addition, Rule 4460 requires stockholder approval in connection
with issuances which will result in a change of control of the issuer. Although
the Company does not believe that the issuance of the Convertible Notes and
warrants issued in the Convertible Note Offering constitutes a change in
control, the Company is seeking stockholder approval of the issuance of the
shares issuable upon the conversion of the Convertible Notes or exercise of the
warrants in the event these actions result in any change of control. Further,
the Company is obligated under the transaction documents with the Investors to
use its best efforts to obtain stockholder approval of these issuance of shares
at the Annual Meeting.
We cannot determine the exact number of shares of Common Stock issuable
upon conversion of the Convertible Notes issued (and to be issued at the
additional closings, if any, as more fully described below) because the
applicable conversion price is a function of the market price for the Common
Stock. Therefore, if the price of the Common Stock rises, fewer shares must be
issued upon conversion, and if the price of the Common Stock falls, more shares
must be issued upon conversion. If the market price of the Common Stock were to
fall below approximately $4.26 per share, the total number of shares issuable
upon the conversion of the Convertible Notes would be in excess of 20% of the
total shares outstanding prior to the Convertible Note Offering. In order to
assure continued compliance with the Nasdaq rules, the terms of the Convertible
Notes and the related Warrants provide that shares of Common Stock issuable upon
conversion of the Convertible Notes may not be issued if such issuance would
violate Nasdaq rules (i.e., issuances of Common Stock in excess of approximately
1,729,530 shares without stockholder approval). However, the terms of the
Convertible Notes and related Warrants also grant the holders the right to
require the Company to redeem the Convertible Notes. See "Summary of Convertible
Note Offering Terms" and "Consequences if Stockholder Approval Not Obtained"
above.
Consequences if Stockholder Approval Not Obtained
If the stockholder approval sought hereby is not obtained the Company will
be prohibited under the terms of its listing agreement with Nasdaq from issuing
more than an aggregate of approximately 1,729,530 shares of Common Stock upon
conversion of the Convertible Notes. If the operation of the Nasdaq Rule 4460
prohibits the Company from issuing any shares upon the conversion of the
Convertible Notes or exercise of the Warrants, the Company could be required by
the holders to redeem the portion of the Convertible Notes which could not be
converted into Common Stock at a price equal to the greater of (i) 120% of value
of the balance to be redeemed or (ii) the product of (a) the balance to be
redeemed divided by the Conversion Price in effect on the date a notice of
redemption is delivered by the holders and (b) the Conversion Price in effect on
the trading day immediately preceding the Triggering Event which enabled the
holder to request redemption. If the Company is unable to redeem the Convertible
Notes submitted for redemption within five business days, the Company must pay
interest on the balance of the unredeemed notes at 1.5% per month. In addition,
the holders are also entitled to void their redemption notices and receive a
reset of their applicable Fixed Conversion Price, as more fully set forth in the
Convertible Notes.
18
The Board of Directors recommends a vote FOR the issuance of shares upon
conversion of the Convertible Notes and Warrants. Proxies solicited by the Board
of Directors will be voted FOR the issuance of shares upon conversion of the
Convertible Notes and Warrants unless a vote against this proposal or abstention
is specifically indicated.
PROPOSAL 4
EMPLOYEE STOCK PURCHASE PLAN
On November 9, 1999, the Board of Directors adopted the Blue Rhino
Corporation Employee Stock Purchase Plan (the "Stock Purchase Plan") and
reserved 300,000 shares of the Company's Common Stock for issuance thereunder,
subject to stockholder approval.
Summary of the Stock Purchase Plan
The full text of the plan is set forth as Appendix A hereto, and readers
are urged to refer to it for a complete description of the proposed Stock
Purchase Plan. The summary of the Stock Purchase Plan which follows is qualified
entirely by such reference.
General. The purpose of the Stock Purchase Plan is to provide eligible
employees of the Company and its subsidiaries with an opportunity to purchase
Common Stock through payroll deductions at a discount to the market price.
Administration. The Stock Purchase Plan shall be administered by the Board
of Directors or the Compensation Committee.
Eligibility. Each employee who shall have completed 90 consecutive days of
employment with the Company prior to the commencement of any of the five annual
Offerings (as defined below), or any designated subsidiary of the Company, and
who is customarily employed by the Company or a subsidiary at least 20 hours per
week and more than five months in any calendar year is eligible to participate
in the Stock Purchase Plan; provided, however, that no employee may participate
in the plan (i) to the extent that, immediately after the grant, such employee
would own 5% or more of either the voting power or value of the stock of the
Company or of any subsidiary or (ii) to the extent that the participant's rights
to purchase stock under the plan accrue at a rate which exceeds $25,000 worth
of stock (determined by the fair market value of the shares at the time such
right is granted) for each calendar year. Eligible employees may become
participants in the Stock Purchase Plan by delivering to the Company a
subscription agreement authorizing payroll deductions at least seven days prior
to the beginning of any Offering. As of October 31, 1999, approximately 65
Company employees would be eligible to participate in the Plan.
Participation in an Offering. If approved by the stockholders, the Stock
Purchase Plan will be operated with a new offering period commencing every
calendar year (each, an "Offering"). The first Offering under the plan will
commence on January 1, 2000. Common Stock shall be purchased under the plan on
the last day of every Purchase Period (March 31, June 30, September 30 and
December 31) unless the participant timely notifies the Company of his desire to
withdraw from the plan or terminates employment before the end of the Purchase
Period. To participate in the plan, eligible employees must authorize the
Company to make payroll deductions of amounts between 1% and 15% of a
participant's compensation. Once an employee becomes a participant in the plan,
the employee will automatically participate in each successive Offering until
such time as the employee withdraws from the plan or the employee's employment
with the Company or a subsidiary terminates. At the beginning of each Offering,
each eligible employee who elects to participate is automatically granted the
right to purchase shares of Common Stock to the extent of their payroll
deductions during the Offering Period divided by the applicable purchase price.
The right to purchase shares of Common Stock is automatically exercised at the
end of each Purchase Period to the extent of the payroll deductions accumulated
during such Purchase Period.
Purchase Price, Shares Purchased. Shares of Common Stock may be purchased
under the Stock Purchase Plan at a price equal to 85% of the lesser of the fair
market value of the Common Stock on the first day of the Offering
19
or the last day of the Purchase Period. The "fair market value" of the Common
Stock on any relevant date will be the last sale price for the Common Stock as
reported on Nasdaq. The number of shares of Common Stock a participant purchases
in each Purchase Period is determined by dividing the total amount of payroll
deductions withheld from the participant's compensation during that Purchase
Period by the applicable purchase price.
Termination of Employment. Termination of a participant's employment for
any reason, including disability or death, or the failure of the participant to
remain in the continuous scheduled employ of the Company or a designated
subsidiary for at least 20 hours per week, cancels his participation in the plan
immediately. In such event, the payroll deductions credited to the participant's
account will be returned to the participant or, in the case of death, to the
person or persons entitled thereto as provided in the plan.
Adjustment Upon Change in Capitalization, Change in Control. In the event
that the Common Stock is changed by reason of any stock split, reverse stock
split, stock dividend, combination, reclassification or other change in the
capital structure of the Company effected without the receipt of consideration,
appropriate proportional adjustments shall be made in the number and class of
shares of stock subject to the plan, the number and class of shares of stock
subject to rights outstanding under the plan, and the exercise price of any such
outstanding rights. Any such adjustment shall be made by the Board or the
Compensation Committee, whose determination shall be conclusive. Notwithstanding
the above, in connection with the Company's merger with or acquisition of all or
substantially all of the Company's assets by another corporation, the Board
shall take all reasonable steps to cause the successor corporation to assume or
substitute outstanding rights under the plan. If such rights are not assumed or
substituted, then any Purchase Period then in progress shall be shortened to
provide for a new exercise date and the Board or the Compensation Committee
shall notify each participant that his or her right shall be exercised
automatically on the new exercise date, unless prior to such date the
participant has withdrawn from the Offering.
Amendment and Termination of the Stock Purchase Plan. The Board or the
Compensation Committee may at any time terminate or amend the plan; provided,
however, that the Board shall not, without the approval of the stockholders,
alter (i) the aggregate number of shares of Common Stock which may be issued
under the plan (except for adjustments upon a change in capitalization, change
in control, etc.), or (ii) the class of employees eligible to participate in the
plan (other than to designate that employees of additional subsidiaries shall be
eligible to participate in the plan); and provided further, however, that no
termination, modification, or amendment of the plan may, without the consent of
an employee then having a right under the plan to purchase shares of Common
Stock, adversely affect the rights of such employee under such option. If not
terminated earlier by the Board or the Compensation Committee, the plan will
terminate on the earlier of December 31, 2004 or such date on which all shares
of Common Stock which have been reserved under the plan have been purchased.
Withdrawal. Generally, a participant may withdraw from an Offering at any
time without affecting his eligibility to participate in future Offerings.
However, once a participant withdraws from a particular Offering, that
participant may not participate again in the same Offering. Upon processing of
any written notice of withdrawal, no further payroll deductions will be made
from the participant's compensation during such Purchase Period or thereafter,
unless and until such participant elects to participate in a subsequent
Offering. Such participant's payroll deductions accumulated prior to processing
of such notice of withdrawal shall be, at the participant's option, applied
toward purchasing full shares of Common Stock in the then current Purchase
Period or shall be paid to the participant promptly after the Company's receipt
of the participant's notice of withdrawal, and no further payroll deductions
will be made from the participant's pay during such Purchase Period. Any cash
balance remaining after the purchase of shares in such Offering after the
participant's withdrawal from the plan shall be refunded promptly to such
participant. Except in the event of termination of their employment, executive
officers of the Company may not under any circumstances withdraw from the Stock
Purchase Plan during an Offering.
Plan Benefits. Because levels of participation, rates of deferral and the
eventual purchase price are not presently known, the future benefits to be
distributed under the plan are not determinable at this time. All of the
Company's Named Officers other than Mr. Prim are presently eligible to
participate in the plan.
Federal Tax Information for Stock Purchase Plan. The plan, and the right of
participants to make purchases thereunder, is intended to qualify under the
provisions of Sections 421 and 423 of the Code. Under these provisions, no
income will be taxable to a participant until the shares purchased under the
plan are sold or otherwise disposed of.
20
Upon sale or other disposition of the shares, the participant will generally be
subject to tax and the amount of the tax will depend upon the holding period. If
the shares are sold or otherwise disposed of more than two years from the first
day of the Offering Period and more than one year from the date of transfer of
the stock to the participant, then the participant will recognize ordinary
income measured as the lesser of (i) the excess of the fair market value of the
shares at the time of such sale or disposition over the purchase price or (ii)
an amount equal to 15% of the fair market value of the shares as of the first
day of the Offering Period. Any additional gain will be treated as long-term
capital gain. If the shares are sold or otherwise disposed of before the
expiration of this holding period, the participant will recognize ordinary
income generally measured as the excess of the fair market value of the shares
on the date the shares are purchased over the purchase price. Any additional
gain or loss on such sale or disposition will be long-term or short-term capital
gain or loss, depending on the holding period. The Company is not entitled to a
deduction for amounts taxed as ordinary income or capital gain to a participant
except to the extent ordinary income is recognized by participants upon a sale
or disposition of shares prior to the expiration of the holding period(s)
described above.
The foregoing is only a summary of the effect of federal income taxation
upon the participant and the Company with respect to the shares purchased under
the Stock Purchase Plan. Reference should be made to the applicable provisions
of the Code. In addition, the summary does not discuss the tax consequences of a
participant's death or the income tax laws of any state or foreign country in
which the participant may reside.
The Board of Directors recommends a vote FOR adoption of the Stock Purchase
Plan. Proxies solicited by the Board of Directors will be voted FOR adoption of
the Stock Purchase Plan unless a vote against the proposal or an abstention is
specifically indicated.
PROPOSAL 5
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee recommended and the Board of Directors approved the
engagement of Ernst & Young, LLC ("Ernst & Young") as the independent auditors
of the Company for the fiscal year ending July 31, 2000. Ernst & Young,
independent certified public accountants, has reviewed the financial statements
of the Company since the fiscal quarter ended April 30, 1999 and audited the
Company's financial statements for the fiscal year ended July 31, 1999. A
representative of Ernst & Young is expected to be present at the Annual Meeting
and will have the opportunity to make a statement if he or she chooses to do so.
The representative will also be available to respond to appropriate questions
from stockholders.
Although stockholder approval of the engagement is not required by law, the
Board of Directors desires to solicit such approval. If the appointment of Ernst
& Young is not approved by a majority of the shares represented at the Annual
Meeting, the Board of Directors will consider the appointment of other
independent auditors for fiscal 2000.
Effective February 19, 1999, the Company severed its relationship with its
independent accountants, PricewaterhouseCoopers LLP ("PwC"). The action was
recommended and approved by the Audit Committee of the Company.
PwC's report on the Company's financial statements for the fiscal year
ended July 31, 1998 contained no adverse opinion or disclaimer of opinion, and
was not qualified or modified as to uncertainty, audit scope or accounting
principles.
During fiscal 1998 and the subsequent interim periods preceding February
19, 1999, there were no disagreements between the Company and PwC on any matters
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of PwC, would have caused it to make a reference to the subject
matter of the disagreements in connection with its reports on the financial
statements.
During the interim fiscal period ending January 31, 1999, PwC notified the
Company that they were reviewing the appropriate accounting treatment for two
items at the time of their dismissal which, depending on the results of the
21
review that was not completed, may have had a material impact on the fairness or
reliability of financial statements covering the fiscal periods ending January
31, 1999 and thereafter. The first item involved the estimated useful life of
propane cylinders acquired by USA Leasing, whose financial statements have been
consolidated with those of the Company. The second item involved the appropriate
accounting for certain acquisition costs related to customer accounts. The
Company's Audit Committee did not discuss the subject matter of either of these
issues with PwC and the Company has authorized PwC to respond fully to any
inquiries which the successor accountants may have had with respect to these
issues.
The Company has previously provided a copy of this disclosure to PwC in
compliance with the provisions of Item 304(a)(3) of Regulation S-K of the
Securities Act.
The Board of Directors of the Company recommends a vote FOR the appointment
of Ernst & Young as independent auditors for the fiscal year ending July 31,
2000. Proxies solicited by the Board of Directors will be voted FOR ratification
of the appointment unless a vote against this proposal or abstention is
specifically indicated.
STOCKHOLDER PROPOSALS
Under the Company's By-laws, any stockholder who intends to present any
matter of business to be considered and voted upon at the annual meeting of
stockholders for the fiscal year ending July 31, 2000 must provide timely
written notice of the stockholder's intent to the Secretary of the Company.
Pursuant to applicable rules under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), some stockholder proposals may be eligible for
inclusion in the Company's proxy statement for the fiscal year ending July 31,
2000. Any such stockholder proposals must be submitted in writing to the
Secretary of the Company not later than July __, 2000. Stockholders interested
in submitting such a proposal are advised to contact knowledgeable counsel with
regards to the detailed requirements of such securities rules.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons beneficially owning more than 10% of the
Company's outstanding Common Stock to file periodic reports of stock ownership
and stock transactions with the Commission. Based solely on a review of copies
of these reports, the Company believes all of these reports were filed in a
timely manner except as set forth below. Messrs. Shadley and Thomas Ferrell, two
of our vice presidents, inadvertently failed to timely file Form 3's within ten
days of their appointment as executive officers of the Company in August 1998
and November 1998, respectively, and Mr. Brenner inadvertently failed to timely
file a Form 3 within ten days of his appointment to the Board of Directors in
August 1998. Messrs. Devick, Duchossois, Filipowski and Prim failed to timely
file a Form 4 in connection with the distribution of shares of Common Stock held
by Platinum Propane to its members in March 1999. Messrs. Filipowski and
Castaneda failed to timely file a Form 4 in connection with the purchase of
Common Stock in October 1998 and March 1999, respectively. Mr. Culp failed to
timely file a Form 4 in connection with the exercise of options to purchase
Common Stock in June 1999.
ADDITIONAL INFORMATION
The Company's 1999 Annual Report furnished to all stockholders of record on
November 5, 1999 included a copy of its annual report on Form 10-K as filed with
the Commission for the fiscal year ended July 31, 1999. However, upon written
request by a stockholder of record on November 5, 1999, the Company will provide
without charge an additional copy of its annual report on Form 10-K for the
fiscal year ended July 31, 1999. Requests should be directed to Mark Castaneda,
the Secretary of the Company, at 104 Cambridge Plaza Drive, Winston-Salem, North
Carolina 27104.
22
OTHER MATTERS
As of the date of this proxy statement, the Board of Directors knows of no
other business to come before the Annual Meeting for consideration by the
Company's stockholders. If any other business properly comes before the meeting,
the persons named as proxies in the accompanying proxy card will vote the shares
represented by the proxy in accordance with their best judgment.
By Order of the Board of Directors
Mark Castaneda
Secretary
Winston-Salem, North Carolina
November __, 1999
23
BLUE RHINO CORPORATION EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
INTRODUCTION
1.01 Purpose. The Blue Rhino Corporation Employee Stock Purchase Plan
(the "Plan") is intended to provide eligible employees of Blue Rhino Corporation
(the "Company") and its Eligible Subsidiary Corporations (as defined below) with
an opportunity to purchase shares of the Common Stock of the Company through
payroll deductions at a discount to the market price of the Common Stock.
1.02 Rules of Interpretation. It is the intention of the Company to have
the Plan qualify as an "employee stock purchase plan" under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the
Plan shall be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
ARTICLE II
DEFINITIONS
2.01 "Board" shall mean the Board of Directors of the Company.
2.02 "Compensation" shall mean the gross cash compensation (including,
wage, salary and overtime earnings) paid by the Company or any Eligible
Subsidiary Corporation to a participant in accordance with the terms of
employment, but excluding all bonus payments, expense allowances and
compensation paid in a form other than cash.
2.03 "Committee" shall mean the committee described in Article X.
2.04 "Common Stock" means the $.001 par value common stock of the
Company.
2.05 "Eligible Subsidiary Corporation" shall mean each Subsidiary
Corporation, the employees of which are designated by the Board or the Committee
to participate in the Plan.
2.06 "Employee" shall mean any person employed by the Company or any
Eligible Subsidiary Corporation, including any full-time, part-time or temporary
employee who is scheduled to work more than twenty (20) hours per week for at
least five (5) months in any calendar year.
2.07 "Exercise Date" shall mean March 31, June 30, September 30 or
December 31.
2.08 "Plan Representative" shall mean any person designated from time to
time by the
Board or the Committee to receive certain notices from Employees and take
certain other administrative actions relating to participation in the Plan.
2.09 "Purchase Period" shall mean the calendar quarters during each
Offering (as such term is defined in Section 4.02 hereof). The first Purchase
Period will begin on January 1, 2000 and end on March 31, 2000.
2.10 "Subsidiary Corporation" shall mean a corporation, partnership,
limited liability company or other entity, domestic or foreign, of which not
less than 50% of the voting interests are held by the Company or a Subsidiary
Corporation, whether or not such entity now exists or is hereafter organized or
acquired by the Company or a Subsidiary Corporation.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.01 Initial Eligibility. Each Employee who shall have completed ninety
(90) consecutive days of employment with the Company or any Eligible Subsidiary
Corporation prior to any Offering Commencement Date (as defined in Section 4.02
below) and who is still employed by the Company or any Eligible Subsidiary
Corporation on the applicable Offering Commencement Date shall be eligible to
participate in the Plan. Persons who are not Employees shall not be eligible to
participate in the Plan.
3.02 Restrictions on Participation. Notwithstanding any provision of the
Plan to the contrary, no Employee shall be granted a right to purchase shares
of the Common Stock under the Plan:
(a) if, immediately after the grant, such Employee would own stock
and/or hold outstanding rights to purchase stock possessing 5% or more of the
total combined voting power or value of all classes of stock of the Company (or
any Eligible Subsidiary Corporation); or
(b) which permits such Employee's rights to purchase Common Stock
under all employee stock purchase plans of the Company to accrue at a rate which
exceeds $25,000 of fair market value of the Common Stock (determined at the time
such option is granted) for each calendar year in which such rights to purchase
Common Stock under the Plan are outstanding at any time.
3.03 Commencement of Participation. An eligible Employee may become a
participant by completing a subscription agreement authorizing payroll
deductions in the form attached hereto as Exhibit A (the "Subscription
Agreement") and by filing the completed Subscription Agreement with the Plan
Representative no later than seven (7) days prior to the next Offering
Commencement Date. Payroll deductions for a participant shall commence on the
payroll period coincident with or immediately following the Offering
Commencement after the Employee's authorization for payroll deductions becomes
effective and shall continue until the
-2-
termination of the Plan or the participant's earlier termination of
participation in the Plan pursuant to Article VIII below.
ARTICLE IV
STOCK SUBJECT TO THE PLAN AND OFFERINGS
4.01 Stock Subject to the Plan. Subject to the provisions of Section
11.04 of the Plan, the Company's Board of Directors shall initially reserve an
aggregate of three hundred thousand (300,000) shares of Common Stock for
purchase by participants under the Plan, which shares shall be authorized but
unissued shares of Common Stock.
4.02 Offerings. The Plan will be implemented with five (5) annual
offerings of the Company's Common Stock (the "Offering(s)"). The first Offering
will begin on January 1, 2000 and the last Offering will begin on January 1,
2004 and end on December 31, 2004. The first day of each Offering shall be
deemed the "Offering Commencement Date" and the last day the "Offering
Termination Date" for such Offering. The Board or the Committee shall have the
power to change the duration of any Offering (including the Offering
Commencement Dates thereof) with respect to future Offerings without stockholder
approval if such change is announced at least five (5) days prior to the
scheduled beginning of the first Offering to be affected thereafter.
4.03 Shares Available During Offerings. The Board or the Committee, in
its sole discretion, shall have the right to determine whether participants will
be allowed to purchase all or a specific portion of the amount of shares of
Common Stock reserved for purchase by participants under the Plan in accordance
with Section 4.01 hereof during each Offering. Any shares of Common Stock which
are not purchased during an Offering shall be available for purchase by
participants in subsequent Offerings.
ARTICLE V
PAYROLL DEDUCTIONS
5.01 Amount of Deduction. The Subscription Agreement will permit a
participant to elect payroll deductions of one percent (1%) through fifteen
percent (15%) of such participant's Compensation for each pay period during an
Offering. In the case of a part-time hourly Employee, such Employee's
Compensation during an Offering shall be determined by multiplying such
Employee's hourly rate of pay in effect on the Offering Commencement Date by the
number of regularly scheduled hours of work for such Employee during such
Offering.
5.02 Accounting for Payroll Deductions. The Plan Representative shall
keep records to account for the amount of payroll deductions made by the
participants during each Offering. Notwithstanding the foregoing, neither the
Committee nor the Company shall be obligated to
-3-
segregate such payroll deductions and participants shall not be entitled to
receive interest on payroll deductions made by the participants during each
Offering.
5.03 Changes in Payroll Deductions. A participant may discontinue his
participation in the Plan as provided in Article VIII, but no other change can
be made during an Offering and, specifically, a participant may not alter the
amount of his payroll deductions during any Offering.
ARTICLE VI
GRANTING OF PURCHASE RIGHTS
6.01 Number of Shares Attributable to Purchase Rights. On each Offering
Commencement Date, a participating Employee shall be deemed to have been granted
a right to purchase a number of shares of Common Stock equal to: (i) that
percentage of Compensation which the participant has elected to be withheld in
accordance with Section 5.01 multiplied by (ii) the Compensation to be earned by
the participant during the Offering divided by (iii) the Purchase Price (as
defined below).
6.02 Purchase Price. The price of Common Stock purchased with payroll
deductions made during any Purchase Period (the "Purchase Price") for a
participant therein shall be the lower of:
(a) 85% of the last sale price of the Common Stock on the Offering
Commencement Date for such Offering or the nearest prior business day on which
trading occurred on The Nasdaq Stock Market; or
(b) 85% of the last sale price on the applicable Exercise Date for
such Purchase Period or the nearest prior business day on which trading occurred
on The Nasdaq Stock Market.
If the Common Stock of the Company is not admitted to trading on any of the
aforesaid dates for which last sale prices of the Common Stock are to be
determined, then reference shall be made to the fair market value of the Common
Stock on each such date, as determined on such basis as shall be established or
specified for the purpose by the Board or the Committee.
ARTICLE VII
EXERCISE OF PURCHASE RIGHTS
7.01 Automatic Exercise. Unless a participant withdraws from the Plan as
provided in Section 8.02 hereof, the participant's right to purchase shares of
Common Stock shall be exercised automatically on each Exercise Date, and the
maximum number of whole shares of Common Stock subject to the purchase right
shall be purchased for such participant at the applicable
-4-
Purchase Price with the accumulated payroll deductions made by the participant
during the Purchase Period. If the number of shares of Common Stock to be
purchased by participants on a given Exercise Date exceeds the number of shares
of Common Stock then available under the Plan as set forth in Section 4.01
hereof, the Board or the Committee shall make a pro rata allocation of the
shares of Common Stock remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be equitable and the
balance of payroll deductions credited to the account of the participants under
the Plan shall be returned to the participants as promptly as possible.
7.02 Fractional Shares. Fractional shares of Common Stock will not be
issued under the Plan. Except as otherwise provided in Article VIII below, any
accumulated payroll deductions which would have been used to purchase fractional
shares will be used for the purchase of Common Stock on the next following
Exercise Date.
7.03 Exercise of Purchase Rights. Purchase rights held by each
participant shal1 be exercisable only by such participant.
7.04 Delivery of Stock. As promptly as practicable after each Exercise
Date, the Company will deliver to each participant the shares of Common Stock
purchased upon exercise of such participant's purchase rights in accordance with
the participant's instructions contained in the Subscription Agreement. The
Company may deliver such shares in certificated or book entry form, at the
Company's sole election.
7.05 Stock Transfer Restrictions. The Plan is intended to satisfy the
requirements of Section 423 of the Code. A participant will not obtain the
benefits of Section 423 of the Code if such participant disposes of shares of
Common Stock acquired pursuant to the Plan within two (2) years from any
Offering Commencement Date or within one (1) year from the date such Common
Stock is purchased by the participant, whichever is later.
ARTICLE VIII
TERMINATION OF PARTICIPATION
8.01 In General. After a participant makes an election to participate in
an Offering, payroll deductions will be made from the participant's Compensation
for all subsequent Offerings unless the participant submits a revised
Subscription Agreement to cease participation in the Plan to the Plan
Representative no later than seven (7) days prior to any subsequent Offering
Commencement Date. If a participant chooses to cease participation in the Plan,
such participant may elect to resume participation in the Plan for subsequent
Offerings by providing a new Subscription Agreement to the Plan Representative
pursuant to Section 3.03 above.
8.02 Withdrawal During an Offering. Except for any officer of the
Company who is subject to the reporting requirement of Section 16(a) of the
Securities Exchange Act of 1934, as amended (an "Insider"), a participant may
stop participating in the Plan during an Offering by
-5-
giving written notice to the Plan Representative in the form attached hereto as
Exhibit B (a "Notice of Withdrawal"). Upon processing by the Plan Representative
of any such Notice of Withdrawal, no further payroll deductions will be made
from the participant's Compensation during such Offering or thereafter unless
and until such participant elects to resume participation in the Plan by
providing a new Subscription Agreement to the Plan Representative pursuant to
Section 3.03 above. Such participant's payroll deductions accumulated prior to
processing of such notice shall, at the participant's option, be applied toward
purchasing full shares of Common Stock on the next Exercise Date as provided in
Section 7.01 above or paid to the participant promptly after receipt by the Plan
Representative of the participant's Notice of Withdrawal. Any cash balance
remaining after the purchase of shares of Common Stock on the next Exercise Date
shall be refunded promptly to such participant. Insiders may not make
withdrawals pursuant to this Section 8.02 for so long as they remain Insiders. A
participant's withdrawal from any Offering will not have any effect upon such
participant's eligibility to participate in any succeeding Offering or in any
similar plan which may hereafter be adopted by the Company and for which such
participant is otherwise eligible.
8.03 Termination of Employment. Upon termination of a participant's
employment with the Company or any Eligible Subsidiary Corporation (as the case
may be) for any reason, including retirement or death, the participant's payroll
deductions accumulated prior to such termination, if any, shall be refunded to
the participant, or, in the case of participant's death, to the person or
persons entitled thereto under Section 11.01, and the participant's
participation in the Plan shall be deemed to be terminated.
ARTICLE IX
STOCK
9.01 Participant's Interest in Stock Attributable to Purchase Rights. No
participant will have any interest in shares of Common Stock covered by any
right to purchase Common Stock under the Plan held by such participant until
such purchase right has been exercised as provided in Section 7.01 above.
9.02 Registration of Stock. Shares of Common Stock purchased by a
participant under the Plan will be registered in the name of the participant,
or, if the participant so directs in the Subscription Agreement delivered to the
Plan Representative prior to the Offering Termination Date applicable thereto,
in the names of the participant and the participant's spouse, as joint tenants
with rights of survivorship or as tenants by the entireties, to the extent
permitted by applicable law.
9.03 Restrictions on Exercise. The Board may, in its discretion, require
as conditions to the issuance of any right to purchase Common Stock under the
Plan that the shares of Common Stock reserved for issuance upon the exercise of
such purchase right shall have been duly listed, upon official notice of
issuance, upon a stock exchange or market, and that either:
-6-
(a) a registration statement under the Securities Act of 1933, as
amended, with respect to said shares shall be effective, or
(b) the participant shall have represented at the time of
purchase, in form and substance satisfactory to the Company, that it will be the
participant's intention to purchase the shares for investment and not for resale
or distribution.
ARTICLE X
ADMINISTRATION
10.01 Appointment of Committee. The Plan shall be administered by the
Compensation Committee of the Board (the "Committee"), or in the absence of such
Committee, by the Board.
10.02 Authority of the Board or the Committee. Subject to the express
provisions of the Plan, the Board or the Committee shall have plenary authority
in its discretion to interpret and construe any and all provisions of the Plan,
to adopt, amend, suspend or waive rules and regulations for administering the
Plan, appoint agents as it shall deem appropriate for the proper administration
of the Plan, and to make all other determinations deemed necessary or advisable
for administering the Plan. The determination of the Board or the Committee with
respect to the foregoing matters shall be conclusive.
ARTICLE XI
MISCELLANEOUS
11.01 Designation of Beneficiary. A participant may file with the Plan
Representative a written designation of a beneficiary who is to receive any
shares of Common Stock and/or cash under the Plan upon the participant's death.
Such designation of beneficiary may be changed by the participant at any time by
submitting a new Subscription Agreement to the Plan Representative. Upon the
death of a participant and receipt by the Company of proof of identity and
existence at the participant's death of a beneficiary validly designated by the
participant under the Plan, the Company shall deliver any shares of Common Stock
and/or cash credited to the participant's account to such beneficiary. In the
event of the death of a participant lacking a beneficiary validly designated
under the Plan who is living at the time of such participant's death, the
Company shall deliver such cash and/or Common Stock to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such cash and/or Common Stock to the spouse or to
any one or more dependents of the participant, in each case without any further
liability of the Company whatsoever under or relating to the Plan. No
beneficiary shall, prior to the death of the participant by whom he or she has
been designated, acquire any interest in the cash and/or shares of Common Stock
credited to the participant under the Plan.
-7-
11.02 Transferability. Participants may not assign, transfer, pledge or
otherwise dispose of any right to purchase Common Stock under the Plan or to
receive Common Stock upon the exercise of such purchase rights under the Plan
other than by will or the laws of descent and distribution. Any such attempted
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may, in its discretion, treat such act as an election to
withdraw from participation in the Plan in accordance with Section 8.02.
11.03 Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose.
11.04 Adjustment Upon Changes in Capitalization.
(a) If, while any rights to purchase Common Stock are outstanding
under the Plan, the outstanding shares of Common Stock of the Company have
increased, decreased, changed into, or been exchanged for a different number or
kind of shares or securities of the Company through any reorganization, merger,
recapitalization, reclassification, stock split, reverse stock split or similar
transaction, appropriate and proportionate adjustments may be made by the
Committee, in its sole discretion, in the number and/or kind of shares which are
subject to purchase under outstanding purchase rights and in the Purchase Price
applicable to such outstanding rights to purchase Common Stock under the Plan.
In addition, in any such event, the number and/or kind of shares which may be
offered in the Offerings described in Article IV hereof shall also be
proportionately adjusted.
(b) Upon the dissolution or liquidation of the Company, or upon a
reorganization merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all of the property or capital stock of the
Company to another corporation, the Board shall take all reasonable steps to
cause the successor corporation to assume the Plan and substitute new purchase
rights of the successor employer corporation or a parent or subsidiary thereof
for such rights to purchase Common Stock granted hereunder with appropriate
adjustment as to the number and kinds of shares attributable to such purchase
rights and the exercise price of such purchase rights. If the Plan is not
assumed by the successor corporation as set forth above, then any Purchase
Period then in progress shall be shortened to provide for a new Exercise Date
for the rights to purchase Common Stock granted hereunder during such Offering
and the Board shall notify each participant that the participant's purchase
rights shall be exercised automatically on the new Exercise Date, unless prior
to such date the participant has withdrawn from the Offering.
11.05 Amendment and Termination. The Board shall have complete power and
authority to terminate or amend the Plan; provided, however, that the Board
shall not, without the approval of the shareholders of the Company, alter (i)
the aggregate number of shares of Common Stock which may be issued under the
Plan (except pursuant to Section 11.04 above), or (ii) the class of employees
eligible to receive rights to purchase Common Stock under the Plan, other than
to designate additional Subsidiary Corporations as Eligible Subsidiary
Corporations; and provided further, however, that no termination, modification,
or amendment of the Plan may, without the consent of an Employee then having
rights to purchase Common Stock under the Plan adversely affect the rights of
such Employee under such purchase right. Notwithstanding the foregoing,
-8-
the Plan shall terminate on the earlier of (i) such time as all of the shares of
Common Stock which have been reserved under the Plan pursuant to Section 4.01
hereof have been purchased or (ii) December 31, 2004.
11.06 Effective Date. The Plan shall become effective as of January 1,
2000 subject to approval by the holders of a majority of the shares of Common
Stock present or represented at any special or annual meeting of the
shareholders of the Company duly held within twelve (12) months after adoption
of the Plan by the Board. If the Plan is not so approved, the Plan shall not
become effective.
11.07 No Employment Rights. The Plan does not, directly or indirectly,
create in any person any right with respect to continuation of employment by the
Company or any Subsidiary Corporation, and it shall not be deemed to interfere
in any way with the Company's or any Subsidiary Corporation's right to
terminate, or otherwise modify, any employee's employment at any time.
11.08 Effect of Plan. The provisions of the Plan shall, in accordance
with its terms, be binding upon, and inure to the benefit of, all successors of
each Employee participating in the Plan, including, without limitation, such
Employee's estate and the executors, administrators or trustees thereof, heirs
and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Employee.
11.09 Governing Law. The laws of the State of North Carolina will govern
all matters relating to this Plan except to the extent superseded by the federal
laws of the United States.
-9-
Blue Rhino Corporation This Proxy is Solicited on Behalf of the Board
104 Cambridge Plaza Drive of Directors
Winston-Salem, NC 27104
The undersigned hereby appoints Billy Prim and Mark
Castaneda as Proxies, each with the power to appoint
his substitute, and hereby authorizes them to
represent and to vote, as designated below, all the
shares of Common Stock of Blue Rhino Corporation held
on record by the undersigned on November 5, 1999, at
the Annual Meeting of stockholders to be held on
December 21, 1999 or any adjournment thereof.
1. ELECTION OF DIRECTORS: [_] FOR all nominees listed below [_] WITHHOLD AUTHORITY to
(except as marked to the contrary below) vote for all nominees listed below
John H. Muehlstein Richard A. Brenner Robert J. Lunn
(INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's name in
the space provide below)
----------------------------------------------------------------------------------------------------
2. PROPOSAL TO REDUCE the authorized capital stock of the Company from
120,000,000 shares to 45,000,000 shares:
[_] FOR [_] AGAINST [_] ABSTAIN
3. PROPOSAL TO APPROVE THE ISSUANCE of common stock upon the conversion of
convertible notes and related warrants:
[_] FOR [_] AGAINST [_] ABSTAIN
4. PROPOSAL TO RATIFY THE ADOPTION of the Blue Rhino Corporation Employee
Stock Purchase Plan:
[_] FOR [_] AGAINST [_] ABSTAIN
5. PROPOSAL TO RATIFY THE APPOINTMENT of Ernst & Young LLP as the Company's
independent public accountants for the fiscal year ending July 31, 2000:
[_] FOR [_] AGAINST [_] ABSTAIN
This Proxy will be voted as directed, but if no instructions are specified, this
Proxy will be voted for each of the proposals stated. If any other business is
presented at the Annual Meeting, this Proxy will be voted by those named in this
Proxy in their best judgment. At the present time, the Board of Directors knows
of no other business to be presented at the meeting.
Dated: 1999
-----------------------------,
----------------------------------------
Signature
----------------------------------------
Signature if held jointly
Please sign exactly as your name appears above. If shares are held jointly, each
holder should sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such. If a corporation, please sign in
full corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS PROXY CARD
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.