EXHIBIT 10.3(a)
[LOGO] XXXXXXXX XXXXXXXX
September 16, 1996
Xxxxxxxx XxXxxxxx Associates, Inc.
Xx. Xxxxx X. Xxxxxxxxx Subsidiary of Xxxxxxxx Technology Inc.
V.P. Finance/C.F.O. 0000 Xxxxxxxx Xxxx
Blue Rhino Corporation Xxxxxx, Xxxxxxxx 00000
000 Xxxxxxxxx Xxxxx Xxxxx 000-000-0000 Main
Xxxxxxx-Xxxxx, XX 00000 000-000-0000 Fax
Dear Xx. Xxxxxxxxx:
This letter shall serve as an agreement ("Agreement") between Blue Rhino
Corporation ("Lessee") and Xxxxxxxx/XxXxxxxx Associates, Inc. ("FMA") whereby
FMA agrees to lease to Lessee, and Lessee agrees to lease from FMA, certain
cylinder display racks as more fully described in Exhibit A (the "Equipment").
The essential terms of the leases and/or of this Agreement shall be in
accordance with the following:
1. All Equipment purchased by FMA for the purposes of leasing to Lessee under
this Agreement shall become subject to one or more equipment schedules
("Schedule(s)") which shall describe the Equipment and incorporate the
terms and provisions of FMA's standard form Master Equipment Lease
Agreement (with such changes, if any, thereto as FMA may agree to make)
(the "Master Lease") to be executed by Lessee and delivered to FMA no later
than September 30, 1996.
2. The Equipment will be delivered and installed at Lessee's location(s)
within the continental U.S. during one or more periods of time as set forth
below (each such period of time is referred to as an "In-service Period"):
In-Service Period No. In-Service Period Dates
----------------------- -----------------------
A 09/01/96 - 10/31/96
B 11/01/96 - 01/31/97
C 02/01/97 - 04/30/97
D 05/01/97 - 07/31/97
E 08101/97 - 08/31/97
All items of Equipment to be leased by FMA to Lessee pursuant to a Schedule
must be delivered and accepted by Lessee no later than the date that the
last In-Service Period ends. FMA's obligation to purchase Equipment
pursuant to this Agreement shall cease on August 31, 1997, (unless this
Agreement is extended by mutual agreement of FMA and Lessee in writing)
except for those items of Equipment with a Commencement Date on or before
August 31, 1997.
3. Each Schedule shall provide for a minimum lease term ("Minimum Term") of
forty-eight months beginning the first day of the month after the end of
the applicable In-Service Period and shall provide for forty-eight payments
of monthly rent ("Monthly Rent"). The Monthly Rent shall be determined
using a monthly lease rate factor of .025611, subject to adjustment as set
September 16, 1996
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Blue Rhino Corporation
Page 2
form below, and shall be due monthly in advance commencing on the first day
of the month following the end of the applicable In-Service Period. The
applicable monthly lease rate factor is multiplied by the total cost of the
Equipment resulting in the Monthly Rent (for example, a monthly lease rate
factor of .03 means that 3% of $500,000, a hypothetical Equipment cost,
equals a Monthly Rent of $15,000).
4. Each Schedule shall be generated by FMA promptly following the last day of
the applicable In-Service Period. Lessee agrees to execute and deliver each
Schedule to FMA within 10 days of Lessee's receipt thereof. In addition to
Monthly Rent, each Schedule shall also provide for rent to accrue upon the
installation of each item of Equipment (the "Commencement Date"). Rent
shall accrue from the Commencement Date up to, but not including, the first
day of the month following the applicable In-Service Period ("Interim
Rent"). The parties have agreed that the Commencement Date for all items of
Equipment shall be the mid-point of each applicable In-Service Period, as
follows:
In-Service Period No. Commencement Date
--------------------- -----------------
A 10/01/96
B 12/15/96
C 03/15/97
D 06/15/97
E 08/15/97
Interim Rent shall be calculated on a per diem basis by applying the
monthly lease rate factor to the cost of the particular item of Equipment
multiplied by 1/30 (based on a 30 day month). Interim Rent shall be due
along with the first installment of Monthly Rent.
5. The total net-of-tax cost of the Equipment for all In-Service Periods shall
not exceed $3,000,000. FMA must be satisfied as to the quantity, prices and
location of the Equipment as detailed in vendor invoices and documentation
to be provided by Lessee. Sales/Use tax shall be the responsibility of
Lessee, and shall be invoiced on a monthly basis along with the Monthly
Rent. Lessee shall be responsible for the cost of shipping, insurance,
installation, maintenance and related costs.
6. Lessee shall provide FMA with Lessee's purchase orders for the Equipment
along with an assignment of Lessee's purchase rights. Lessee shall direct
the vendor to invoice FMA for the purchase price of the Equipment. Promptly
following the delivery and acceptance of the Equipment by Lessee, Lessee
shall deliver to FMA a certificate of delivery and acceptance in a form
approved by FMA ("Certificate"). The Certificate must set forth the
Commencement Date. At such time as FMA has received a copy of the purchase
order, a vendor invoice and the Certificate, FMA shall pay the vendor the
purchase price of the Equipment. Upon FMA's payment to the vendor, Lessee's
obligation to lease the Equipment from FMA in accordance with this
Agreement shall be absolute and unconditional.
7. If for any reason Lessee fails to execute and deliver the Master Lease or
any Schedule to FMA as required herein, or if Lessee fails to fulfill any
term or condition required to be fulfilled
September 16, 1996
Xx. Xxxxx X. Xxxxxxxxx
Blue Rhino Corporation
Page 3
pursuant to this Agreement and any applicable Schedule, FMA may terminate
its obligations to acquire and/or lease the Equipment with respect to the
applicable Schedule and Lessee shall, upon demand, pay to FMA an amount
equal to the full amount of all payments made by FMA to the vendors of the
Equipment (and the sale price of any Equipment supplied by FMA) and any
taxes or other amounts paid by FMA, together with interest thereon at a
rate equal to the Prime Rate (i.e., the per annum interest rate as
published in The Wall Street Journal calculated on the basis of a 360-day
year and 30-day month) from time to time in effect plus 4%, at which time
title to the Equipment will be transferred to Lessee on an as-is, where-is
basis free and clear of all liens and encumbrances created by or arising
through FMA.
8. Each Schedule shall contain the following provisions:
(a) "Provided Lessee is not in default of any condition of this Lease and
with 90 days prior written notice, FMA agrees to sell the Equipment
described herein to Lessee, at Lessee's option, free and clear of all
liens and encumbrances for a price equal to 15.3664% of the original
Equipment cost, plus any applicable sales taxes. This purchase option
may not be exercised prior to the expiration of the Minimum Term as
set forth herein."; and
(b) "Provided Lessee is not in default of any condition of this Lease and
with 90 days prior written notice, FMA herein grants Lessee the option
to return the Equipment described herein and terminate this Lease
Schedule at the end of 36 full months of the Minimum Term. The payment
to be made by Lessee upon such termination shall be an amount equal to
15.2144% of the original Equipment cost and shall be in addition to
any rental payments due prior to and including the month of
termination."
9. The obligations of FMA hereunder are contingent upon (i) the proper
execution by Lessee and receipt by FMA of this Agreement by September 20,
1996, and (ii) the completion of a Due Diligence audit by FMA prior to
FMA's purchase of any Equipment pursuant hereto, the results of which
shall be acceptable to FMA in its sole and absolute discretion. The Due
Diligence audit shall include, without limitation, a review of Lessee's
physical operations and facilities; a review of Lessee's corporate records
including articles of incorporation, by-laws, stock options, employment
agreements and other matters pertaining to Lessee's organization; a review
of all agreements pertaining to Lessee's business operations such as
agreements with distributors and customers; and a review of Lessee's
financial operations and systems including a review of Lessee's accounts
receivable agings, collection practices and procedures, payables, etc. It
is agreed that the costs associated with performing such Due Diligence
shall be paid by Lessee in an amount not to exceed $10,000.
In addition, assuming that FMA is satisfied with the results of its Due
Diligence audit and the parties begin processing lease transactions
pursuant hereto, it is agreed that the obligations of FMA to continue to
purchase Equipment pursuant to this Agreement on an on-going basis shall be
subject to the following conditions: (i) that Lessee shall provide a
standard monthly financial reporting package to FMA within 10 business days
following the end of each calendar month and a weekly cash report within 2
business days after the end of each week which shall be in a form
acceptable to FMA; (ii) that at the end of each week, Lessee shall
September 16, 1996
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Blue Rhino Corporation
Page 4
have a cash balance equal to or greater than $300,000 (iii) no event shall
occur (and Lessee shall provide written notice to FMA within 5 business
days after occurrence) which adversely affects the business or financial
condition of Lessee (as, by way of example and not as a limitation, the
termination of any significant account or the termination of a significant
distributor relationship or Lessee's default under any agreement between
Lessee and any third party which, in the reasonable opinion of FMA, may
have a material affect on Lessee's business or financial condition).
10. In consideration of FMA's entering into this Agreement, and as a condition
to FMA's obligations hereunder, Lessee shall issue warrants to acquire
common stock of Blue Rhino Corporation as outlined in the term sheet
attached hereto as Exhibit B.
11. FMA agrees to review the results of Lessee's performance and financial
condition as of July 31, 1997 for the purpose of determining whether or
not FMA will thereafter continue to purchase equipment and enter into lease
transactions with Lessee, it being the intent that if Lessee has reached or
exceeded the performance as outlined and anticipated in its 1997 Business
Plan (as presented to FMA as of the date hereof) as of July 31, 1997, the
parties will negotiate in good faith toward continuing the relationship set
forth herein on terms acceptable to both parties.
12. It is acknowledged and agreed that FMA intends to assign this Agreement and
the Master Lease and Schedules, including, without limitation, all of FMA's
rights hereunder with respect to the warrants to be provided by Lessee
pursuant hereto, to Xxxxxxxx Technology/Xxxx Partners Venture Leasing, L.P.
("FT/LP") after FT/LP has been formed.
Upon your signature below, and upon the signature of a duly authorized officer
of FMA in the space set forth below acknowledging FMA's acceptance and agreement
hereto, this letter shall become a legally binding agreement on the terms and
conditions set forth herein. The undersigned represents that he/she is duly
authorized to execute this agreement on behalf of Lessee.
ACCEPTED AND AGREED:
Blue Rhino Corporation
Inc.
By: /s/ Xxxxx Xxxxxxxxx
-------------------
Name: Xxxxx Xxxxxxxxx
Title: VP Finance and Administration
Xxxxxxxx/XxXxxxxx Associates, Inc.
By: /s/ Xxxxxx Xxxxxx
-------------------
Name: Xxxxxx Xxxxxx
Title: Senior Vice President - Finance
and Administration
Exhibit A
Equipment Description
The Equipment shall consist of 18" steel display racks as shown below having a
cost of approximately $265.00 each (and such other equipment as may be
acceptable to FMA).
18 Display
Width: 46"
Height: 66"
[photo] Depth: 30"
Display Weight: 250 lbs.
Shipping Weight: 280 lbs.
No. of Doors: 1 [photo]
Exhibit B
Term Sheet - Warrants
As consideration for Xxxxxxxx/XxXxxxxx Associates, Inc. (herein, with its
assigns, called the "Holders") entering into lease transactions with Lessee
pursuant to this Agreement, Lessee shall enter into a Warrant Purchase Agreement
with the Holders within 30 days after the date of this Agreement (the "Warrant
Purchase Agreement" or "WPA") in form and substance acceptable to the Holders
and Lessee, whereby Lessee shall grant to the Holders, warrants to purchase
stock of Lessee ("Warrants") in accordance with the following terms:
A. The WPA shall grant the Holders the right to purchase three million shares
of common stock, which is approximately 5% of the total common shares and
equivalents outstanding. The purchase price of such shares shall be $1.00
per share.
At the option of the Holders, the Holders may convert the Warrants into a
reduced number of shares of common stock equal to the number of Warrants
multiplied by a fraction the numerator of which is the profit spread and
the denominator of which is the current market price.
B. The WPA shall provide that the Warrants will be protected against dilution
including dilution caused by issuance of new shares or warrants below the
exercise price.
The Warrants shall provide that the Holders will receive a pro rata share
(i.e., 5%) of all dividends paid to the holders of common shares and
equivalents.
C. The exercise period for the Warrants shall be ten years after issuance
thereof and the Warrants shall be fully vested at the time of issuance
thereof.
D. The Warrants shall be fully assignable, subject only to such restrictions
as may be imposed by applicable securities laws.
E. The WPA shall require that the Holders be provided with monthly financial
statements and audited annual financial statements and that the Holders
shall have access to such other financial information as the Holders may
reasonably request from time to time. The WPA shall also provide that the
members of Lessee's management shall meet with the Holders periodically to
discuss such matters as the Holders deem of interest such as Lessee's
business plans, results, stock offerings, etc.
F. The WPA shall provide the Holders with the same identical registration
rights as are currently held by the holders of Series A Preferred Shares of
Lessee as set forth and defined in The Blue Rhino Corporation Registration
Rights Agreement dated as of December 1, 1994, as amended by that certain
First Amendment thereto dated May 10, 1995 and by that certain Second
Amendment thereto dated October 11, 1995. Lessee shall take all steps
necessary in order to fully accomplish the foregoing including amending
said Registration Rights Agreement to include the Holders.
G. The WPA shall provide that Lessee shall bear all expenses associated with
the issuance and maintenance of the Warrants, and that the WPA and all
Warrants conform to all applicable state and federal securities laws.
