Investment Agreement

INVESTMENT AGREEMENT


BY AND AMONG


BLUE RHINO CORPORATION


USA LEASING, L.L.C.


RHINO SERVICES, L.L.C.


CPD ASSOCIATES, INC.


QUICKSHIP, INC.


UNIFLAME CORPORATION


AND


ALLIED CAPITAL CORPORATION


JUNE 15, 2001


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$15,000,000 Senior Subordinated Debentures
due August 31, 2006 of Blue Rhino Corporation and its subsidiaries


Warrant to purchase 1,372,071 shares
of Common Stock of Blue Rhino Corporation


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TABLE OF CONTENTS


Page
---- ARTICLE I. - DEFINITIONS..........................................................................................1


SECTION 1.1 DEFINED TERMS...............................................................................1
SECTION 1.2 TERMS GENERALLY............................................................................17


ARTICLE II. - THE INVESTMENT.....................................................................................17


SECTION 2.1 FUNDING....................................................................................17
SECTION 2.2 SENIOR DEBT................................................................................17
SECTION 2.3 REPAYMENT OF DEBENTURES....................................................................17
SECTION 2.4 INTEREST ON DEBENTURES.....................................................................17
SECTION 2.5 DEFAULT INTEREST...........................................................................17
SECTION 2.6 PREPAYMENT.................................................................................17
SECTION 2.7 MANDATORY PREPAYMENT OF THE DEBENTURES.....................................................18
SECTION 2.8 PAYMENTS...................................................................................18
SECTION 2.9 TAXES......................................................................................19
SECTION 2.10 USE OF PROCEEDS............................................................................20
SECTION 2.11 WARRANT....................................................................................20


ARTICLE III. - CONDITIONS........................................................................................20


SECTION 3.1 CONDITIONS TO CLOSING......................................................................20


ARTICLE IV. - REPRESENTATIONS AND WARRANTIES.....................................................................22


SECTION 4.1 ORGANIZATION...............................................................................22
SECTION 4.2 AUTHORIZATION..............................................................................22
SECTION 4.3 ENFORCEABILITY.............................................................................23
SECTION 4.4 GOVERNMENTAL APPROVALS.....................................................................23
SECTION 4.5 BORROWERS' BUSINESS........................................................................23
SECTION 4.6 FINANCIAL CONDITION........................................................................23
SECTION 4.7 INDEBTEDNESS...............................................................................24
SECTION 4.8 WARRANT SHARES.............................................................................24
SECTION 4.9 OWNERSHIP AND CONTROL......................................................................24
SECTION 4.10 NO MATERIAL ADVERSE CHANGE.................................................................25
SECTION 4.11 TITLE TO PROPERTIES; POSSESSION UNDER LEASES...............................................25
SECTION 4.12 LITIGATION; COMPLIANCE WITH LAWS...........................................................26
SECTION 4.13 CONTRACTS, ETC.............................................................................26
SECTION 4.14 NO SIDE AGREEMENT; AFFILIATE TRANSACTIONS..................................................27
SECTION 4.15 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT.................................27
SECTION 4.16 USE OF PROCEEDS............................................................................27
SECTION 4.17 TAX RETURNS................................................................................27
SECTION 4.18 NO UNTRUE STATEMENTS OR MATERIAL OMISSIONS; PUBLIC DISCLOSURE..............................27
SECTION 4.19 EMPLOYEE BENEFIT MATTERS...................................................................27
SECTION 4.20 ENVIRONMENTAL MATTERS......................................................................28
SECTION 4.21 LABOR MATTERS..............................................................................29
SECTION 4.22 EMPLOYEES..................................................................................29
SECTION 4.23 SOLVENCY...................................................................................29
SECTION 4.24 LICENSES...................................................................................30
SECTION 4.25 BROKERS....................................................................................30
SECTION 4.26 INTELLECTUAL PROPERTY......................................................................30
SECTION 4.27 INSURANCE..................................................................................30


ARTICLE V. - INVESTOR REPRESENTATIONS............................................................................30


SECTION 5.1 INVESTMENT.................................................................................30


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SECTION 5.2 AUTHORITY..................................................................................30
SECTION 5.3 EXPERIENCE.................................................................................30
SECTION 5.4 ACCREDITED INVESTOR........................................................................30


ARTICLE VI. - AFFIRMATIVE COVENANTS..............................................................................31


SECTION 6.1 EXISTENCE; BUSINESS AND PROPERTIES.........................................................31
SECTION 6.2 INSURANCE..................................................................................31
SECTION 6.3 OBLIGATIONS AND TAXES......................................................................31
SECTION 6.4 FINANCIAL STATEMENTS; REPORTS, ETC.........................................................32
SECTION 6.5 LITIGATION AND OTHER NOTICES...............................................................33
SECTION 6.6 EMPLOYEE BENEFITS..........................................................................33
SECTION 6.7 MAINTAINING RECORDS; ACCESS TO PROPERTIES AND INSPECTIONS..................................34
SECTION 6.8 COMPLIANCE WITH LAWS.......................................................................34
SECTION 6.9 PREPARATION OF ENVIRONMENTAL REPORTS.......................................................34
SECTION 6.10 FURTHER ASSURANCES.........................................................................35
SECTION 6.11 MAINTENANCE OF OFFICE OR AGENCY............................................................35
SECTION 6.12 FINANCIAL RATIOS AND COVENANTS.............................................................35
SECTION 6.13 FUTURE FINANCINGS..........................................................................36
SECTION 6.14 OBSERVATION RIGHTS.........................................................................37
SECTION 6.15 RESERVATION OF WARRANT SHARES..............................................................37
SECTION 6.16 REPLACEMENT OF WARRANT.....................................................................38
SECTION 6.17 HEDGING....................................................................................38


ARTICLE VII. - NEGATIVE COVENANTS................................................................................38


SECTION 7.1 INDEBTEDNESS...............................................................................38
SECTION 7.2 LIENS......................................................................................40
SECTION 7.3 SALE AND LEASE-BACK TRANSACTIONS...........................................................41
SECTION 7.4 INVESTMENTS................................................................................41
SECTION 7.5 MERGERS, CONSOLIDATIONS, SALES OF ASSETS, ACT OF DISSOLUTION...............................42
SECTION 7.6 DIVIDENDS AND DISTRIBUTIONS................................................................43
SECTION 7.7 TRANSACTIONS WITH AFFILIATES...............................................................43
SECTION 7.8 BUSINESS OF CREDIT PARTIES AND SUBSIDIARIES................................................43
SECTION 7.9 INVESTMENT COMPANY ACT.....................................................................44
SECTION 7.10 ACQUISITIONS...............................................................................44
SECTION 7.11 EMPLOYEE COMPENSATION......................................................................44
SECTION 7.12 PREPAYMENTS................................................................................44
SECTION 7.14 FISCAL YEARS...............................................................................44
SECTION 7.15 STAY, EXTENSION AND USURY LAWS.............................................................44
SECTION 7.16 INCONSISTENT AGREEMENTS; CHARTER AMENDMENTS................................................45


ARTICLE VIII. - EVENTS OF DEFAULT AND REMEDIES...................................................................45


SECTION 8.1 EVENTS OF DEFAULT..........................................................................45
SECTION 8.2 WAIVERS....................................................................................47
SECTION 8.3 ENFORCEMENT ACTIONS........................................................................47
SECTION 8.4 COSTS......................................................................................47
SECTION 8.5 SET-OFF....................................................................................47
SECTION 8.6 REMEDIES NON-EXCLUSIVE.....................................................................48


ARTICLE IX. - MISCELLANEOUS......................................................................................48


SECTION 9.1 NOTICES....................................................................................48
SECTION 9.2 SURVIVAL OF AGREEMENT......................................................................48
SECTION 9.3 BINDING EFFECT.............................................................................49
SECTION 9.4 SUCCESSORS AND ASSIGNS.....................................................................49
SECTION 9.5 EXPENSES; INDEMNITY........................................................................49
SECTION 9.6 WAIVER OF CONSEQUENTIAL AND PUNITIVE DAMAGES...............................................50
SECTION 9.7 APPLICABLE LAW.............................................................................50
SECTION 9.8 WAIVERS; AMENDMENTS........................................................................50


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SECTION 9.9 INTEREST RATE LIMITATION...................................................................51
SECTION 9.10 ENTIRE AGREEMENT...........................................................................51
SECTION 9.11 WAIVER OF JURY TRIAL.......................................................................51
SECTION 9.12 SEVERABILITY...............................................................................51
SECTION 9.13 COUNTERPARTS...............................................................................52
SECTION 9.14 HEADING....................................................................................52
SECTION 9.15 JURISDICTION; CONSENT TO SERVICE OF PROCESS................................................52
SECTION 9.16 CONSENTS AND APPROVALS; DEFAULTS...........................................................52
SECTION 9.17 RELATIONSHIP OF THE PARTIES; ADVICE OF COUNSEL.............................................53
SECTION 9.18 REGULATION FD..............................................................................53
SECTION 9.19 REGISTRATION AND TRANSFER OF DEBENTURES....................................................54
SECTION 9.20 NO SHORTING PROVISIONS.....................................................................55


EXHIBITS AND SCHEDULES


SCHEDULE 4.4 GOVERNMENTAL APPROVALS
SCHEDULE 4.5 BORROWERS' BUSINESS
SCHEDULE 4.7 INDEBTEDNESS
SCHEDULE 4.9 OWNERSHIP AND CONTROL
SCHEDULE 4.10 MATERIAL ADVERSE CHANGES
SCHEDULE 4.11 LEASES
SCHEDULE 4.12 LITIGATION
SCHEDULE 4.13 CONTRACTS
SCHEDULE 4.14 AFFILIATE TRANSACTIONS
SCHEDULE 4.19 EMPLOYEE BENEFIT MATTERS
SCHEDULE 4.21 LABOR MATTERS
SCHEDULE 4.22 EMPLOYEES
SCHEDULE 4.26 INTELLECTUAL PROPERTY
SCHEDULE 4.27 INSURANCE
SCHEDULE 7.2 LIENS


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INVESTMENT AGREEMENT


THIS INVESTMENT AGREEMENT (this "Agreement") is made as of June 15, 2001 by and among: (i) Blue Rhino Corporation, a Delaware corporation (the "Company"), (ii) USA Leasing, L.L.C., a Delaware limited liability company, Rhino Services, L.L.C., a Delaware limited liability company, CPD Associates, Inc., a North Carolina corporation, Quickship, Inc., a Delaware corporation, and Uniflame Corporation, a Delaware corporation (collectively with the Company, the "Borrowers"); and (iii) Allied Capital Corporation, a Maryland corporation ("Allied").


RECITALS:


A. The Company has requested that Allied invest in the Borrowers the aggregate sum of Fifteen Million Dollars ($15,000,000) in exchange for the Debentures and Warrant. Allied is willing to make such investment in the Borrowers on the terms and conditions set forth herein.


B. The parties wish to set forth herein their understandings and agreements pertaining to this transaction.


NOW, THEREFORE, in consideration of the foregoing Recitals and the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Allied and its successors and assigns with respect to its interest in all or any part of any of the Debentures, Warrant or Warrant Shares (as these terms are hereinafter defined) (individually, a "Holder" and collectively, the "Holders"), the Borrowers jointly and severally hereby agree as follows:


ARTICLE I.
DEFINITIONS


SECTION 1.1 Defined Terms. As used in this Agreement, the following terms have the meanings specified below:


"Act of Bankruptcy," when used in reference to any Person, means the occurrence of any of the following with respect to such Person: (i) such Person shall have made an assignment for the benefit of his or its creditors; (ii) such Person shall have admitted in writing his or its inability to pay his or its debts as they become due; (iii) such Person shall have filed a voluntary petition in bankruptcy; (iv) such Person shall have been adjudicated a bankrupt or insolvent; (v) such Person shall have filed any petition or answer seeking for himself or itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future Applicable Law pertinent to such circumstances; (vi) such Person shall have filed or shall file any answer admitting or not contesting the material allegations of a


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bankruptcy, insolvency or similar petition filed against such Person; (vii) such Person shall have sought or consented to, or acquiesced in, the appointment of any trustee, receiver, or liquidator of such Person or of all or any substantial part of the properties of such Person; (viii) 60 days shall have elapsed after the commencement of an action against such Person seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future Applicable Law without such action having been dismissed or without all orders or proceedings thereunder affecting the operations or the business of such Person having been stayed, or if a stay of any such order or proceedings shall thereafter be set aside and the action setting it aside shall not be timely appealed; or (ix) 60 days shall have expired after the appointment, without the consent or acquiescence of such Person of any trustee, receiver or liquidator of such Person or of all or any substantial part of the assets and properties of such Person without such appointment having been vacated.


"Act of Dissolution," when used in reference to any Person (other than an individual), shall mean the occurrence of any action initiating, or any event that results in, the dissolution, liquidation, winding-up or termination of such Person.


"Affiliate" means, when used with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Affiliate" shall also mean any beneficial owner of Capital Stock representing 10% or more of the total voting power of the voting Capital Stock (on a fully diluted basis) of the Company or any of its Subsidiaries (whether or not currently exercisable) and any Person who would be an Affiliate of such beneficial owner pursuant to the first sentence hereof.


"Applicable Law(s)" when used in the singular, shall mean any applicable federal, state or local law, ordinance, order, regulation, rule or requirement of any governmental or quasi-governmental agency, instrumentality, board, commission, bureau or other authority having jurisdiction, and, when used in the plural, shall mean all such applicable federal, state and local laws, ordinances, orders, regulations, rules and requirements.


"Approval" has the meaning specified in Section 9.16(a).


"Asset Disposition" means any sale, lease (other than operating leases entered into in the ordinary course of business), transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any of its Subsidiaries, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of this definition as a "disposition") of any assets of the Company or any of its Subsidiaries other than (a) the sale or other disposition of obsolete, uneconomical, negligible, worn-out or surplus assets in the ordinary course of business and in a commercially reasonable manner (including but not limited to equipment and intellectual property) so long as the proceeds from such sale or other disposition are applied to replace or upgrade the assets of the Company or its Subsidiaries or to repay the Senior Debt or amounts outstanding under the Debentures, (b) the sale of Inventory in the ordinary course of business for fair value and on an arms'-length basis, (c) the sale, lease, transfer or other disposition of assets in connection with a Permitted Reorganization; (d) the sale, lease transfer or other disposition of assets from the Company or any of its Subsidiaries to any Credit Party; or (e) the sale, lease, transfer or other disposition of assets in any Fiscal Year having a value, in the aggregate with all other assets (except assets which are excluded under


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clauses (a) through (d) above) sold, leased, transferred or disposed of during such Fiscal Year, not to exceed $200,000.


"Audited Financials" has the meaning specified in Section 4.6(a).


"Borrowers' Business" means the (i) the business engaged in by the Company and its Subsidiaries as of the Closing Date and similar and related businesses (as described on Schedule 4.5) and (ii) such other lines of business as may otherwise be consented to by an Approval by the Holders of the Debentures.


"Business Day" means any day other than a Saturday, Sunday or day on which banks in Washington, D.C. are authorized or required by law to close.


"Capital Expenditures" means, with respect to any Person and for any period, the aggregate of all expenditures made by such Person or any of its Subsidiaries during such period that, in conformity with GAAP on a Consolidated basis and without duplication, are required to be included in or reflected on the Consolidated balance sheet as a capital asset of such Person or such Subsidiary; provided, however, that Capital Expenditures shall not include (a) equipment which is purchased with the trade-in of existing equipment owned by the Company or any Subsidiary to the extent of the trade-in credit with respect to the equipment being traded in at such time, (b) expenditures of proceeds of insurance settlements, condemnation awards and other settlements in respect of lost, destroyed, damaged or condemned assets, equipment or other property to the extent such expenditures are made to replace or repair such lost, destroyed, damaged or condemned assets, equipment or other property or otherwise to acquire assets or properties useful in the business of the Company and its Subsidiaries within six (6) months of receipt of such proceeds, (c) expenditures to replace assets sold, transferred or otherwise disposed of in accordance with this Agreement to the extent of the sales price of such assets sold and to the extent replaced within six (6) months of receipt of such sales price or (d) assets acquired in connection with a Permitted Acquisition.


"Capital Lease" means any lease of (or other arrangement conveying the right to use) real or personal property, the obligations of the lessee in respect of which are required in accordance with GAAP to be capitalized on the balance sheet of the lessee.


"Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof which obligations are required to be classified and accounted for as Capital Leases on a balance sheet of such Person under GAAP, and the amount of such obligations is the capitalized amount thereof determined in accordance with GAAP.


"Capital Stock" of any Person means any and all shares, interests, participation or other equivalents (however designated) of capital stock of such Person (if such Person is a corporation), any and all equivalent ownership interests in such Person (if such Person is other than a corporation), any securities convertible into or exchangeable for any of the foregoing and any and all warrants or options to purchase any of the foregoing.


"Cash Equivalents" means (i) securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality thereof having maturities of


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not more than 90 days from the date of acquisition; (ii) time deposits, certificates of deposit and banker's acceptances of any domestic commercial bank having capital and surplus in excess of $200,000,000 having maturities of not more than 90 days from the date of acquisition; (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) and entered into with any bank meeting the qualifications specified in clause (ii) above; (iv) commercial paper having, at the time of acquisition thereof, the highest credit rating obtainable from Standard & Poor's Ratings Services or Moody's Investors Service, Inc. and maturing within ninety days after the date of acquisition; and (v) money market funds which invest at least 90% of their assets in the types of securities or instruments described in clauses (i), (ii), (iii) and (iv) above.


"CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time.


"Change of Control" means one or more transactions resulting in (a) the liquidation, dissolution or winding up of the Company, (b) the Transfer of all or substantially all of the assets of the Company (excluding Transfers expressly permitted under this Agreement), (c) a merger or consolidation of the Company with another Person (other than another Borrower) where the Company is not the surviving or successor entity; (d) one or more Persons (other than the shareholders of the Company that are existing as of the date hereof) either (i) owning in the aggregate in excess of 35% of the then outstanding Capital Stock of the Company or (ii) being able to elect a majority of the Company's board of directors or otherwise to exercise, directly or indirectly, a controlling influence over the management or policies of the Company, (f) the Company shall cease to own 100% of the Capital Stock of each of the other Credit Parties, or (g) a Transfer by Billy D. Prim or his Permitted Transferees (as defined herein) of more than 10.0% of the Common Stock of the Company owned or Controlled by Billy D. Prim as of the date hereof, other than a Transfer by Billy D. Prim to a successor on death or to his spouse, lineal descendants, father, mother, grandfather, grandmother, brother(s) or sister(s), a trust exclusively for the benefit thereof or a partnership or other entity that is exclusively owned by Billy D. Prim and/or one or more of the foregoing persons (each, a "Permitted Transferee"). A Permitted Reorganization shall not constitute a Change of Control.


"Charges" has the meaning specified in Section 9.9.


"Closing" means the consummation of the Transaction.


"Closing Date" means the date of this Agreement.


"Code" means the Internal Revenue Code of 1986 and the regulations thereunder, as amended or otherwise modified from time to time.


"Commo ...