<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1994
REGISTRATION NO. 33-53383
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FERRELLGAS PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 5984
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL 43-167578
JURISDICTION OF CLASSIFICATION CODE NUMBER) (I.R.S. EMPLOYER
INCORPORATION OR IDENTIFICATION NO.)
ORGANIZATION)
----------------
ONE LIBERTY PLAZA LIBERTY, MISSOURI 64068 (816) 792-1600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DANLEY K. SHELDON ONE LIBERTY PLAZA LIBERTY, MISSOURI 64068 (816) 792-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
ANDREWS & KURTH L.L.P. 425 LEXINGTON SULLIVAN & CROMWELL 125 BROAD STREET
AVENUE NEW YORK, NEW YORK 10017 (212) NEW YORK, NEW YORK 10004 (212) 558-
850-2800 ATTENTION: MICHAEL Q. 4000 ATTENTION: ROBERT E. BUCKHOLZ,
ROSENWASSER JR.
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
FERRELLGAS PARTNERS, L.P.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
-------------------------------- ----------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back
of Prospectus............................. Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges.............. Prospectus Summary; Risk
Factors
4. Use of Proceeds............................ Prospectus Summary; Use of
Proceeds
5. Determination of Offering Price............ Underwriting
6. Dilution................................... Dilution
7. Selling Security Holders................... *
8. Plan of Distribution....................... Outside Front Cover Page;
Underwriting
9. Description of Securities to be Registered. Prospectus Summary; Cash
Distribution Policy;
Description of the Common
Units; The Partnership
Agreement; Tax Considerations
10. Interests of Named Experts and Counsel..... *
11. Information with Respect to the Registrant. Outside Front Cover Page;
Prospectus Summary; Selected
Historical and Pro Forma
Consolidated Financial and
Operating Data; Management's
Discussion and Analysis of
Financial Condition and
Results of Operations;
Business; Management;
Conflicts of Interest and
Fiduciary Responsibility;
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... *
</TABLE>
- --------
* Not Applicable
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 9, 1994
13,100,000 COMMON UNITS
REPRESENTING LIMITED PARTNER INTERESTS
LOGO FERRELLGAS PARTNERS, L.P.
OF
FERRELLGAS
----------
The Common Units offered hereby represent limited partner interests in
Ferrellgas Partners, L.P., a Delaware limited partnership (the "Partnership").
The Partnership was recently formed to acquire and operate the propane business
and assets of Ferrellgas, Inc. ("Ferrellgas"), one of the largest retail
marketers of propane in the United States. Ferrellgas will serve as the general
partner (the "General Partner") of the Partnership.
The Partnership will distribute to its partners, on a quarterly basis, 100%
of its Available Cash, which is generally all of the cash receipts of the
Partnership, adjusted for its cash disbursements and net changes in reserves.
During the Subordination Period, which will generally not end prior to August
1, 1999, each holder of Common Units will generally be entitled to receive
quarterly distributions of $0.50 per Common Unit per quarter, or $2.00 per
Common Unit on an annualized basis, before any distributions are made on the
outstanding Subordinated Units of the Partnership.
PURCHASERS OF COMMON UNITS SHOULD CONSIDER EACH OF THE FACTORS DESCRIBED
UNDER "RISK FACTORS" IN EVALUATING AN INVESTMENT IN THE PARTNERSHIP, INCLUDING,
BUT NOT LIMITED TO, THE FOLLOWING:
. FUTURE PARTNERSHIP PERFORMANCE WILL DEPEND UPON THE SUCCESS OF THE
PARTNERSHIP IN MAXIMIZING PROFIT FROM RETAIL PROPANE SALES. PROPANE SALES
ARE AFFECTED BY WEATHER PATTERNS, PRODUCT PRICES AND COMPETITION,
INCLUDING COMPETITION FROM OTHER ENERGY SOURCES.
. CASH DISTRIBUTIONS WILL DEPEND ON FUTURE PARTNERSHIP PERFORMANCE AND WILL
BE AFFECTED BY THE FUNDING OF RESERVES, EXPENDITURES AND OTHER MATTERS
WITHIN THE DISCRETION OF THE GENERAL PARTNER.
. POTENTIAL CONFLICTS OF INTEREST COULD ARISE BETWEEN THE GENERAL PARTNER
AND ITS AFFILIATES, ON THE ONE HAND, AND THE PARTNERSHIP OR ANY PARTNER
THEREOF, ON THE OTHER.
. HOLDERS OF COMMON UNITS WILL HAVE LIMITED VOTING RIGHTS AND THE GENERAL
PARTNER WILL MANAGE AND CONTROL THE PARTNERSHIP.
. THE PARTNERSHIP AGREEMENT LIMITS THE LIABILITY AND MODIFIES THE FIDUCIARY
DUTIES OF THE GENERAL PARTNER; HOLDERS OF COMMON UNITS ARE DEEMED TO HAVE
CONSENTED TO CERTAIN ACTIONS AND CONFLICTS OF INTEREST THAT MIGHT
OTHERWISE BE DEEMED A BREACH OF FIDUCIARY OR OTHER DUTIES UNDER STATE LAW.
. PURCHASERS OF THE COMMON UNITS OFFERED HEREBY WILL EXPERIENCE IMMEDIATE
AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK VALUE PER COMMON UNIT
FROM THE INITIAL PUBLIC OFFERING PRICE.
Prior to this offering there has been no public market for the Common Units.
It is currently estimated that the initial public offering price per Common
Unit will be between $20.50 and $22.25. For the factors considered in
determining the initial public offering price, see "Underwriting." The Common
Units have been approved for listing on The New York Stock Exchange, subject to
official notice of issuance, under the trading symbol "FGP".
(continued on page 3)
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
<TABLE>
<CAPTION>
UNDERWRITING
INITIAL PUBLIC DISCOUNTS AND PROCEEDS TO
OFFERING PRICE COMMISSIONS (1) PARTNERSHIP (2)
-------------- --------------- ---------------
<S> <C> <C> <C>
Per Common Unit.................. $ $ $
Total (3)........................ $ $ $
</TABLE>
- -----
(1) The Partnership, the General Partner and Ferrell Companies, Inc. have
agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting estimated expenses of $ payable by the Partnership.
(3) The Partnership has granted the Underwriters an option for 30 days to
purchase up to an additional 1,965,000 Common Units at the initial public
offering price per unit, less the underwriting discounts and commissions,
solely to cover overallotments. If such option is exercised in full, the
total initial public offering price, underwriting discounts and commissions
and proceeds to the Partnership will be $ , $ , and $ , respectively.
See "Underwriting."
----------
The Common Units offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates representing the Common Units will be ready for delivery in New
York, New York, on or about , 1994.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES
CORPORATION
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
----------
The date of this Prospectus is , 1994.
<PAGE>
[ART]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON UNITS
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
UNTIL , 1994 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN COMMON UNITS, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
(continued from page 1)
The sale of the Common Units offered hereby is subject to, among other
things, completion of the public offering of approximately $250 million of %
Senior Notes due 2001 by the Partnership's subsidiary operating partnership.
The Common Units offered hereby will represent a 42.5% limited partner
interest in the Partnership (47.3% if the Underwriters' overallotment option
is exercised in full). The General Partner and its affiliates will own a 2%
general partner interest in the Partnership, as well as 1,000,000 Common Units
(if the Underwriters' overallotment option is exercised in full, all of such
Common Units will be repurchased and retired by the Partnership) and
16,118,559 subordinated limited partner interests (the "Subordinated Units")
representing an aggregate 55.5% limited partner interest in the Partnership
(50.7% if the Underwriters' overallotment option is exercised in full). The
Common Units and the Subordinated Units are collectively referred to herein as
the "Units." Holders of the Common Units and the Subordinated Units are
collectively referred to herein as "Unitholders."
Distributions of Available Cash by the Partnership will generally be made
98% to the Unitholders and 2% to the General Partner, except that if
distributions of Available Cash exceed certain target levels, an affiliate of
the General Partner will receive a percentage of such excess distributions
that will increase to up to 48% of distributions in excess of the highest
target level. During a specified period (the "Subordination Period"),
distributions of Available Cash on Subordinated Units will generally be
subordinated to distributions on Common Units to the extent necessary to
permit distributions of $0.50 per Common Unit for each full quarter (the
"Minimum Quarterly Distribution"). For the period from the closing of this
offering through October 31, 1994, the Minimum Quarterly Distribution will be
adjusted (either upward or downward) based on the actual length of the period.
The Subordination Period will extend from the closing of this offering until
the first day of any quarter beginning on or after August 1, 1999 in respect
of which (i) distributions of Available Cash on the Common Units and the
Subordinated Units equaled or exceeded the Minimum Quarterly Distribution for
each of the three consecutive four-quarter periods immediately preceding such
date and (ii) the Partnership has invested at least $50 million in
acquisitions and capital additions or improvements made to increase the
operating capacity of the Partnership. A total of 5,372,853 Subordinated Units
held by Ferrellgas and its affiliates will convert into Common Units on the
first day of any quarter beginning on or after August 1, 1997 in respect of
which (i) distributions of Available Cash on the Common Units and the
Subordinated Units equaled or exceeded the Minimum Quarterly Distribution for
each of the two consecutive four-quarter periods immediately preceding such
date and (ii) the operating cash generated by the Partnership in each of such
four-quarter periods equaled or exceeded 125% of the Minimum Quarterly
Distribution on all Common Units and all Subordinated Units. Upon the
expiration of the Subordination Period all remaining Subordinated Units will
convert into Common Units and will thereafter participate pro rata with the
other Common Units in distributions of Available Cash. See "Cash Distribution
Policy--Quarterly Distributions of Available Cash."
The Partnership will furnish to record holders of Common Units (i) within
120 days after the close of each fiscal year of the Partnership, an annual
report containing audited financial statements and a report thereon by its
independent public accountants and (ii) within 90 days after the close of each
fiscal quarter (other than the fourth quarter), a quarterly report containing
unaudited summary financial information. The Partnership will also furnish
each Unitholder with tax information within 90 days after the close of each
calendar year.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY................. 5
Ferrellgas Partners, L.P. ........ 5
Summary Historical and Pro Forma
Consolidated Financial and
Operating Data................... 12
The Offering...................... 14
Risk Factors...................... 21
Summary of Tax Considerations..... 24
RISK FACTORS....................... 27
Risks Inherent in the
Partnership's Business........... 27
Risks Inherent in an Investment in
the Partnership.................. 30
Conflicts of Interest and
Fiduciary Duties................. 32
Tax Considerations................ 35
THE TRANSACTIONS................... 38
USE OF PROCEEDS.................... 40
CAPITALIZATION..................... 41
DILUTION........................... 42
CASH DISTRIBUTION POLICY........... 43
Quarterly Distributions of
Available Cash................... 44
Distributions of Cash from
Operations during Subordination
Period........................... 45
Distributions of Cash from
Operations after Subordination
Period........................... 45
Incentive Distributions--
Hypothetical Annualized Yield.... 45
Distributions of Cash from
Interim Capital Transactions..... 46
Adjustment of Minimum Quarterly
Distribution and Target
Distribution Levels.............. 47
Distributions of Cash Upon
Liquidation...................... 48
Pro Forma Available Cash.......... 49
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND
OPERATING DATA.................... 50
MANAGEMENT'S DISCUSSION AND
ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 52
General........................... 52
Results of Operations............. 53
Liquidity and Capital Resources... 57
Pro Forma Financial Condition..... 58
Tax Audit......................... 61
BUSINESS........................... 62
General........................... 62
Retail Operations................. 62
Industry and Competition.......... 66
Other Operations.................. 67
Employees......................... 68
Governmental Regulation;
Environmental and Safety Matters. 68
Service Marks and Trademarks...... 69
Management Information and Control
Systems.......................... 69
Properties........................ 69
Litigation........................ 70
Transfer of the Partnership
Assets........................... 70
MANAGEMENT......................... 72
Partnership Management............ 72
Directors and Executive Officers
of the General Partner........... 72
Compensation of the General
Partner.......................... 73
Executive Compensation............ 73
Compensation of Directors......... 75
Termination of Employment
Arrangement...................... 75
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Security Ownership of Certain
Beneficial Owners and Management. 76
Certain Relationships and Related
Transactions..................... 76
CONFLICTS OF INTEREST AND FIDUCIARY
RESPONSIBILITY.................... 78
Transactions of the Partnership
with Ferrellgas and its
Affiliates....................... 78
Conflicts of Interest............. 78
DESCRIPTION OF THE COMMON UNITS.... 83
The Units......................... 83
Transfer Agent and Registrar...... 83
Transfer of Units................. 84
THE PARTNERSHIP AGREEMENT.......... 85
Organization and Duration......... 85
Purpose........................... 85
Capital Contributions............. 85
Power of Attorney................. 85
Restrictions on Authority of the
General Partner.................. 86
Withdrawal or Removal of the
General Partner.................. 86
Transfer of General Partner
Interest......................... 87
Reimbursement for Services........ 87
Change of Management Provisions... 88
Status as Limited Partner or
Assignee......................... 88
Non-citizen Assignees; Redemption. 88
Issuance of Additional Securities. 89
Limited Call Right................ 90
Amendment of Partnership
Agreement........................ 90
Meetings; Voting.................. 91
Indemnification................... 92
Limited Liability................. 93
Books and Reports................. 93
Right to Inspect Partnership Books
and Records...................... 94
Termination and Dissolution....... 94
Liquidation and Distribution of
Proceeds......................... 95
Registration Rights............... 95
UNITS ELIGIBLE FOR FUTURE SALE..... 96
TAX CONSIDERATIONS................. 98
Legal Opinions and Advice......... 98
Changes in Federal Income Tax
Laws............................. 98
Partnership Status................ 99
Limited Partner Status............ 100
Tax Consequences of Unit
Ownership........................ 101
Allocation of Partnership Income,
Gain, Loss and Deduction......... 103
Tax Treatment of Operations....... 104
Disposition of Common Units....... 107
Uniformity of Units............... 109
Tax-Exempt Organizations and
Certain Other Investors.......... 110
Administrative Matters............ 111
Other Tax Considerations.......... 114
INVESTMENT IN THE PARTNERSHIP BY
EMPLOYEE BENEFIT PLANS............ 115
UNDERWRITING....................... 116
VALIDITY OF COMMON UNITS........... 117
EXPERTS............................ 118
ADDITIONAL INFORMATION............. 118
INDEX TO FINANCIAL STATEMENTS...... F-1
APPENDIX A--FORM OF AGREEMENT OF
LIMITED PARTNERSHIP OF FERRELLGAS
PARTNERS, L.P..................... A-1
APPENDIX B--FORM OF APPLICATION FOR
TRANSFER OF COMMON UNITS.......... B-1
APPENDIX C--GLOSSARY OF TERMS...... C-1
</TABLE>
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and historical and pro forma financial statements appearing
elsewhere in this Prospectus and should be read only in conjunction with the
entire Prospectus. Unless otherwise specified, the information in this
Prospectus assumes that the Underwriters' overallotment option is not exercised
and that the initial public offering price is $21.375 per Common Unit (the
midpoint of the estimated range). For ease of reference, a glossary of certain
terms used in this Prospectus is included as Appendix C to this Prospectus.
FERRELLGAS PARTNERS, L.P.
Ferrellgas Partners, L.P. (the "Partnership") is a Delaware limited
partnership recently formed to acquire and operate the propane business and
assets of Ferrellgas, Inc. (the "Company" or "Ferrellgas"). Ferrellgas is the
general partner (the "General Partner") of the Partnership and a wholly owned
subsidiary of Ferrell Companies, Inc. ("Ferrell"). Ferrell was founded in 1939
as a single retail propane outlet in Atchison, Kansas, and has grown
principally through the acquisition of retail propane operations throughout the
United States. The Company believes that it is the third largest retail
marketer of propane in the United States, based on gallons sold, serving more
than 600,000 residential, industrial/commercial and agricultural customers in
45 states and the District of Columbia through approximately 416 retail outlets
and 226 satellite locations in 36 states (some outlets serve an interstate
market). The Company's largest market concentrations are in the Midwest, Great
Lakes and Southeast regions of the United States. The Company operates in areas
of strong retail market competition, which has required it to develop and
implement strict capital expenditure and operating standards in its existing
and acquired retail propane operations in order to control operating costs.
This effort has resulted in upgrades in the quality of its field managers, the
application of strong return on asset benchmarks and improved productivity
methodologies.
The Company's retail propane sales volumes were approximately 553 million,
496 million and 482 million gallons during the fiscal years ended July 31,
1993, 1992 and 1991, respectively. Earnings before depreciation, amortization,
interest and taxes ("EBITDA") were $89.4 million, $87.6 million and $99.2
million for the fiscal years ended July 31, 1993, 1992 and 1991, respectively.
EBITDA for the twelve months ended April 30, 1994 was $98.6 million. The
Company's net losses for the fiscal years ended July 31, 1993 and 1992 were
$0.8 million and $11.7 million, respectively, and its net earnings for the
fiscal year ended July 31, 1991 were $2.0 million. Net earnings for the nine
month periods ended April 30, 1994 and 1993 were $19.5 million and $12.8
million, respectively. For a discussion of the seasonality of the Company's
operations, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--General."
BUSINESS STRATEGY
The retail propane industry is a mature one, in which the Company foresees
only limited growth in total demand for the product. Based on information
available from the Energy Information Administration, the Company believes the
overall demand for propane has remained relatively constant over the past
several years, with year to year industry volumes being impacted primarily by
weather patterns. As a result, growth in this industry is accomplished
primarily through acquisitions. Except for a few large competitors, the propane
industry is highly fragmented and principally composed of over 3,000 local and
regional companies. Historically, the Company has been successful in acquiring
independent propane retailers and integrating them into the Company's
operations at what it believes to be attractive returns. In July 1984, the
Company acquired propane operations with annual retail sales volumes of
approximately 33 million gallons at a cost of approximately $13.0 million, and
in December 1986, the Company acquired propane operations with annual retail
sales volumes of approximately 395 million gallons at a cost of approximately
$457.5 million. Since December 1986, and as of April 30, 1994, the Company has
acquired 67 smaller independent propane retailers which the Company
5
<PAGE>
believes were not individually material. These acquisitions have significantly
expanded and diversified the Company's geographic presence and resulted in
greater operating efficiencies and improved operating cash flow.
The Partnership plans to continue to expand its business principally through
acquisitions in areas in close proximity to the Company's existing operations
so that such newly acquired operations can be efficiently combined with
existing operations and savings can be achieved through the elimination of
certain overlapping functions. An additional goal of these acquisitions will be
to improve the operations and profitability of the businesses the Partnership
acquires by integrating them into its established propane supply network and by
improving customer service. The Partnership also plans to pursue acquisitions
which broaden its geographic coverage. The Company has historically increased
its existing customer base and retained the customers of acquired operations
through marketing efforts that focus on providing quality service to customers.
The General Partner believes that there are numerous local retail propane
distribution companies that are possible candidates for acquisition by the
Partnership and that the Partnership's geographic diversity of operations helps
to create many attractive acquisition opportunities for the Partnership.
The General Partner is unable to predict the amount or timing of future
capital expenditures for acquisitions. Prior to the closing of this offering,
however, the Operating Partnership will enter into a bank credit facility (the
"Credit Facility") providing a maximum $185 million commitment for borrowings
and letters of credit. Under the terms of the Credit Facility at least $60
million will be available solely to finance acquisitions and growth capital
expenditures.In addition to borrowings under the Credit Facility, the
Partnership may fund future acquisitions from internal cash flow or the
issuance of additional Partnership interests. Under the instruments governing
the Senior Notes and the Credit Facility, the Partnership is prohibited from
making distributions to its partners and other Restricted Payments (as defined
in such instruments) unless certain specified targets for capital expenditures
and expenditures for permitted acquisitions have been met. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Pro
Forma Financial Condition."
In addition to growth through acquisitions, the General Partner believes that
the Partnership may also achieve growth within its existing propane operations.
Historically, the Company has experienced modest internal growth in its
customer base. As a result of its experience in responding to competition and
in implementing more efficient operating standards, the General Partner
believes that it has positioned the Partnership to be more successful in direct
competition for customers. The Company currently has marketing programs
underway which focus specific resources toward this effort. See "Business--
Retail Operations--Business Strategy."
GENERAL
Propane, a byproduct of natural gas processing and petroleum refining, is a
clean-burning energy source recognized for its transportability and ease of use
relative to alternative forms of stand alone energy sources. In the residential
and commercial markets, propane is primarily used for space heating, water
heating and cooking. In the agricultural market propane is primarily used for
crop drying, space heating, irrigation and weed control. In addition, propane
is used for certain industrial applications, including use as an engine fuel
which is burned in internal combustion engines that power vehicles and
forklifts and as a heating or energy source in manufacturing and drying
processes. Consumption of propane as a heating fuel peaks sharply in winter
months.
The Company sells propane primarily to four specific markets: residential,
industrial/commercial, agricultural and other (principally to other propane
retailers and as an engine fuel). During the fiscal year ended July 31, 1993,
sales to residential customers accounted for 61% of the Company's retail gross
profits, sales to industrial/commercial customers accounted for 26% of the
Company's retail gross profits, sales to agricultural customers accounted for
6% of the Company's retail gross profits
6
<PAGE>
and sales to other customers accounted for 7% of the Company's retail gross
profits. Residential sales have a greater profit margin and a more stable
customer base and tend to be less sensitive to price changes than the other
markets served by the Company. While the propane distribution business is
seasonal in nature and historically sensitive to variations in weather,
management believes that the geographical diversity of the Company's areas of
operations helps to minimize the Company's exposure to regional weather or
economic patterns. Furthermore, long-term historic weather data from the
National Climatic Data Center indicate that average annual temperatures have
remained relatively constant over the last 30 years, with fluctuations
occurring on a year-to-year basis only. In each of the past five fiscal years,
which include the two warmest winters in the United States since 1953, pro
forma Available Cash would have been sufficient to allow the Partnership to
distribute the Minimum Quarterly Distribution on all Common Units assuming
projected pro forma interest expense and capital expenditure levels.
Profits in the retail propane business are primarily based on the cents-per-
gallon difference between the purchase price and the sales price of propane.
The Company generally purchases propane on a short-term basis; therefore, its
supply costs generally fluctuate with market price fluctuations. Should the
wholesale cost of propane decline in the future, the Company believes that the
Partnership's margins on its retail propane distribution business should
increase in the short-term because retail prices tend to change less rapidly
than wholesale prices. Should the wholesale cost of propane increase, for
similar reasons retail margins and profitability would likely be reduced at
least for the short-term until retail prices can be increased. Historically,
the Company has been able to maintain margins on an annual basis following
changes in the wholesale cost of propane. The Company's success in maintaining
its margins is evidenced by the fact that since fiscal 1989 average annual
retail gross margins, measured on a cents-per-gallon basis, have generally
varied by a relatively low percentage. The General Partner is unable to
predict, however, how and to what extent a substantial increase or decrease in
the wholesale cost of propane would affect the Partnership's margins and
profitability.
Propane competes primarily with natural gas, electricity and fuel oil as an
energy source, principally on the basis of price, availability and portability.
Propane serves as an alternative to natural gas in rural and suburban areas
where natural gas is unavailable or portability of product is required. Propane
is generally more expensive than natural gas on an equivalent BTU basis in
locations served by natural gas, although propane is sold in such areas as a
standby fuel for use during peak demand periods and during interruption in
natural gas service. Propane is generally less expensive to use than
electricity for space heating, water heating and cooking. Although propane is
similar to fuel oil in application, market demand and price, propane and fuel
oil have generally developed their own distinct geographic markets, lessening
competition between such fuels.
The retail propane business of the Company consists principally of
transporting propane to its retail distribution outlets and then to tanks
located on its customers' premises. Propane supplies are purchased in the
contract and spot markets, primarily from natural gas processing plants and
major oil companies. In addition, retail propane customers typically lease
their stationary storage tanks from their propane distributors. Approximately
70% of the Company's customers lease their tank from the Company. The lease
terms and, in most states, certain fire safety regulations, restrict the
refilling of a leased tank solely to the propane supplier that owns the tank.
The cost and inconvenience of switching tanks minimizes a customer's tendency
to switch among suppliers of propane on the basis of minor variations in price.
The Company is also engaged in the trading of propane and other natural gas
liquids, chemical feedstocks marketing and wholesale propane marketing. In
fiscal year 1993, the Company's annual wholesale and trading sales volume was
approximately 1.2 billion gallons of propane and other natural gas liquids,
approximately 64% of which was propane. Because the Partnership will possess a
large
7
<PAGE>
distribution system, underground storage capacity and the ability to buy large
volumes of propane, the General Partner believes that the Partnership will be
in a position to achieve product cost savings and avoid shortages during
periods of tight supply to an extent not generally available to other retail
propane distributors.
PARTNERSHIP STRUCTURE AND MANAGEMENT
Ferrellgas will serve as the general partner of the Partnership. Following
this offering the management and employees of Ferrellgas who currently manage
and operate the propane business and assets to be owned by the Partnership will
continue to manage and operate the Partnership's business as officers and
employees of the General Partner. See "Management."
In order to simplify the Partnership's obligations under the laws of several
jurisdictions in which it will conduct business, the Partnership's activities
will be conducted through a subsidiary operating partnership (the "Operating
Partnership"). The Partnership will be the sole limited partner of the
Operating Partnership and the General Partner will serve as general partner of
the Operating Partnership. Unless the context otherwise requires, references
herein to the Partnership include the Partnership and the Operating Partnership
on a combined basis.
The General Partner will receive no management fee in connection with its
management of the Partnership and will receive no remuneration for its services
as general partner of the Partnership other than reimbursement for all direct
and indirect expenses incurred in connection with the Partnership's operations
and all other necessary or appropriate expenses allocable to the Partnership or
otherwise reasonably incurred by the General Partner in connection with the
operation of the Partnership's business. The Partnership Agreement provides
that the General Partner shall determine the fees and expenses that are
allocable to the Partnership in any reasonable manner determined by the General
Partner in its sole discretion. Because of the broad authority granted to the
General Partner to determine the fees and expenses, including compensation of
the General Partner's officers and other employees, allocable to the
Partnership, certain conflicts of interest could arise between the General
Partner and its affiliates, on the one hand, and the Partnership and its
limited partners, on the other, and the limited partners will have no ability
to control the expenses allocated by the General Partner to the Partnership.
The principal executive offices of the Partnership are located at One Liberty
Plaza, Liberty, Missouri 64068, and its telephone number is (816) 792-1600.
The chart on the following page depicts the organization and ownership of the
Partnership and the Operating Partnership after giving effect to the sale of
the Common Units offered hereby (assuming that the Underwriters' overallotment
option is not exercised). The percentages reflected in the following chart
represent the approximate ownership interest in each of the Partnership and the
Operating Partnership, individually. Except in the following chart, the
ownership percentages referred to in this Prospectus reflect the approximate
effective ownership interest of the holder in the Partnership and the Operating
Partnership on a combined basis.
8
<PAGE>
(CHART)
Conflicts of interest may arise between the General Partner and its
affiliates, on the one hand, and the Partnership, the Operating Partnership and
the Unitholders, on the other. Such conflicts could include, without
limitation, conflicts arising from (i) decisions of the General Partner that
affect the amount of Available Cash constituting Cash from Operations, (ii) the
dependence of the Partnership on employees of the General Partner and its
affiliates to conduct the business of the Partnership, (iii) the reimbursement
of the General Partner for expenses incurred by it in connection with the
Partnership's operations, (iv) the General Partner's decision to limit, where
possible, its liability under contractual arrangements entered into by the
Partnership, (v) the inability of the limited partners of the
9
<PAGE>
Partnership to enforce obligations of the General Partner under agreements it
has entered into with the Partnership, (vi) the fact that the agreements and
arrangements between the Partnership and the General Partner and its affiliates
are not and will not be the result of arms-length negotiations, (vii) the right
of the General Partner to call for and purchase Units as provided in the
Partnership Agreement and (viii) the ability of affiliates of the General
Partner to engage in activities that compete with the business of the
Partnership, other than retail propane sales to end users in the continental
United States. The General Partner will have an audit committee consisting of
independent members of its Board of Directors which will be available at the
General Partner's discretion to review matters involving potential conflicts of
interest.
TRANSACTIONS AT CLOSING
Concurrently with the closing of this offering, Ferrellgas will contribute
all of its propane business and assets to the Partnership in exchange for
1,000,000 Common Units, 16,118,559 Subordinated Units and certain rights to
receive incentive distributions (the "Incentive Distribution Rights") if
distributions of Available Cash exceed certain target levels, as well as a 2%
general partner interest in the Partnership and the Operating Partnership, on a
combined basis (see "Cash Distribution Policy--Quarterly Distributions of
Available Cash"). In connection with the contribution of such business and
assets by Ferrellgas, the Operating Partnership will assume substantially all
of the liabilities, whether known or unknown, associated with such business and
assets (other than income tax liabilities). The Operating Partnership intends
to maintain insurance and reserves at levels that it believes will be adequate
to satisfy such liabilities. In addition, the Operating Partnership will assume
the payment obligations of Ferrellgas under its Series A and Series C Floating
Rate Senior Notes due 1996 (the "Existing Floating Rate Notes"), its Series B
and Series D Fixed Rate Senior Notes (the "Existing Fixed Rate Notes" and,
together with the Existing Floating Rate Notes, the "Existing Senior Notes")
and its 11 5/8% Senior Subordinated Debentures (the "Existing Subordinated
Debentures"). All of this long-term debt will be retired with the net proceeds
from the sale by the Partnership of the Common Units offered hereby (estimated
to be approximately $260.3 million at an assumed initial public offering price
of $21.375 per Common Unit) and the net proceeds from the issuance of
approximately $250 million in aggregate principal amount of % Senior Notes due
2001 (the "Senior Notes") to be issued by the Operating Partnership
concurrently with the closing of this offering (estimated to be approximately
$245.3 million). Immediately prior to the closing of this offering, the
Operating Partnership expects to enter into the $185 million Credit Facility.
The Credit Facility will permit borrowings of up to $100 million on a senior
unsecured revolving line of credit basis to fund working capital and general
partnership requirements (of which $50 million will be available to support
letters of credit). In addition, up to $85 million of borrowings will be
permitted on a senior unsecured basis, at least $60 million of which will be
available solely to finance acquisitions and growth capital expenditures.
Ferrellgas will retain and will not contribute to the Partnership
approximately $39 million in cash, approximately $17 million in receivables
from affiliates of its parent, Ferrell, and Class B redeemable common stock of
Ferrell (the "Ferrell Class B Stock") with a book value of approximately $36
million. It is anticipated that following the closing of this offering the
Company will loan approximately $25 million to Ferrell and will dividend to
Ferrell the remainder of the cash, receivables and Ferrell Class B Stock, as
well as the Common Units, Subordinated Units and Incentive Distribution Rights
received by the Company in exchange for the contribution of its propane
business and assets to the Partnership.
Concurrently with the closing of this offering, the Company will consummate a
tender offer and consent solicitation with respect to its Existing Subordinated
Debentures. The consent solicitation is necessary to modify the indenture
related to the Existing Subordinated Debentures in order to permit
10
<PAGE>
the Company to consummate the transactions contemplated by this Prospectus. As
of the date of this Prospectus, all of the outstanding Existing Subordinated
Debentures have been tendered and will be retired by the Operating Partnership,
as described above.
Concurrently with the closing of this offering, the Company will mail to the
holders of the Existing Senior Notes a notice of redemption of all outstanding
Existing Senior Notes, pursuant to the optional redemption provisions of the
indenture governing the Existing Senior Notes (the "Existing Senior Notes
Indenture"). The redemption date will be 30 days after the date of mailing of
such notice. The Existing Senior Notes Indenture provides for a redemption
price equal to 100% of the principal amount plus accrued and unpaid interest,
if any, to the redemption date plus, in the case of the Existing Fixed Rate
Notes, a premium which is based on certain yield information for U.S. Treasury
securities as of three business days prior to the redemption date. The
Operating Partnership will deposit with the trustee on the date of closing of
this offering an amount expected to be more than sufficient to pay the
redemption price. As a result of the transactions contemplated hereby, during
the 30-day period prior to the redemption date, an event of default will exist
under the Existing Senior Notes Indenture. The holders of at least 25% of the
principal amount of Existing Senior Notes, therefore, will be entitled, by
notice to the Company and the trustee, to declare the unpaid principal of, and
accrued and unpaid interest and the applicable premium on, the Existing Senior
Notes to be immediately due and payable. The trustee under the Existing Senior
Notes Indenture has advised the Company that it intends to notify the holders
of the Existing Senior Notes of this right. In the event of such a declaration,
the amount already deposited by the Operating Partnership in payment of the
redemption price would be applied to pay the amount so declared immediately due
and payable. The Partnership will incur an extraordinary loss of approximately
$20.4 million related to the retirement of the Existing Senior Notes,
approximately $31.2 million relating to the Existing Subordinated Debentures
resulting from consent and tender offer fees and approximately $11.2 million
relating to the write-off of unamortized financing costs, all in accordance
with generally accepted accounting principles ("GAAP").
At the closing of this offering, it is anticipated that the Operating
Partnership will borrow approximately $10 million under the Credit Facility
which will enable the Partnership to commence operations with an initial cash
balance of at least $20 million. To the extent that the initial public offering
price per Common Unit is less than $21.375, the Operating Partnership may need
to borrow additional funds under the Credit Facility in order to commence
operations with an initial cash balance of at least $20 million. For a
description of the Credit Facility, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Pro Forma Financial
Condition."
The foregoing description assumes that the Underwriters' overallotment option
is not exercised. If the Underwriters' overallotment option is exercised in
full, the Partnership will issue 1,965,000 additional Common Units. The
Partnership will use the net proceeds from any exercise of the Underwriters'
overallotment option first to repay any amounts borrowed under the Credit
Facility or, if no such borrowings have been made, to establish an initial cash
balance of up to $20 million that will be used for general partnership
purposes. Any remaining net proceeds from the exercise of the Underwriters'
overallotment option will be used by the Partnership to repurchase for
retirement up to 1,000,000 Common Units held by Ferrell at a price per Unit
equal to the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus. Any net proceeds
remaining after such repurchase will be retained by the Partnership for general
partnership purposes.
Immediately following this offering, Ferrellgas will own an effective 2%
general partner interest in the Partnership and the Operating Partnership, on a
combined basis, and Ferrell will own 1,000,000 Common Units (if the
Underwriters' overallotment option is exercised in full, all of such Common
Units will be repurchased and retired by the Partnership) and 16,118,559
Subordinated Units representing an aggregate 55.5% limited partner interest in
the Partnership (50.7% if the Underwriters' overallotment option is exercised
in full) and the Incentive Distribution Rights. See "The Transactions."
11
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth for the periods and the dates indicated,
summary historical financial and operating data for the Company and pro forma
financial and operating data for the Partnership after giving effect to the
transactions contemplated by this Prospectus. The summary historical financial
data for the three years ended July 31, 1993 and the nine-month periods ended
April 30, 1993 and 1994, are derived from the audited and unaudited
consolidated financial statements contained elsewhere in this Prospectus. The
historical financial data for the interim period ended April 30, 1993 and the
Partnership's summary pro forma financial data are derived from unaudited
financial information. The Partnership's summary pro forma financial data
should be read in conjunction with the consolidated financial statements and
the pro forma combined financial statements and notes thereto included
elsewhere in this Prospectus. In addition, the propane business is seasonal in
nature with its peak activity during the winter months. Therefore, the results
for the interim periods are not indicative of the results that can be expected
for a full year. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
PARTNERSHIP
HISTORICAL PRO FORMA
-------------------------------------------------- -----------
YEAR ENDED JULY 31, YEAR ENDED
-------------------------------------------------- JULY 31,
1989 1990 1991 1992 1993 1993
-------- -------- -------- -------- -------- -----------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues......... $409,953 $467,641 $543,933 $501,129 $541,945 $541,945
Depreciation and
amortization.......... 32,528 33,521 36,151 31,196 30,840 30,840
Operating income....... 53,425 54,388 63,045 56,408 58,553 58,053
Interest expense....... 54,572 55,095 60,507 61,219 60,071 29,029
Earnings (loss) from
continuing operations. (1,506) (347) 1,979 (1,700)(1) 109 28,750
Earnings from
continuing operations
per Unit.............. $ 0.93
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital........ $(39,708) $ 50,456 $ 53,403 $ 67,973 $ 74,408
Total assets........... 487,631 554,580 580,260 598,613 573,376
Payable to (receivable
from) parent and
affiliates............ 13,109 10,743 3,763 2,236 (916)
Long-term debt......... 354,626 465,644 466,585 501,614 489,589
Stockholder's equity... 6,616 11,463 21,687 8,808 11,359
OPERATING DATA:
Retail propane sales
volumes (in gallons).. 498,395 499,042 482,211 495,707 553,413 553,413
Capital
expenditures(2):
Maintenance............ $ 7,271 $ 5,428 $ 7,958 $ 10,250 $ 10,527 $ 10,527
Growth................. 10,062 10,447 2,478 3,342 2,851 2,851
Acquisition............ 14,668 18,005 25,305 10,112 897 897
-------- -------- -------- -------- -------- --------
Total................. $ 32,001 $ 33,880 $ 35,741 $ 23,704 $ 14,275 $ 14,275
======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Earnings before
depreciation,
amortization, interest
and taxes(3).......... $ 85,953 $ 87,909 $ 99,196 $ 87,604 $ 89,393 $ 88,893
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
PARTNERSHIP
HISTORICAL PRO FORMA
---------------------------- --------------------
NINE MONTHS ENDED
APRIL 30, NINE MONTHS ENDED
---------------------------- APRIL 30,
1993 1994 1994
------------ ------------ --------------------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues............. $468,302 $450,477 $ 450,477
Depreciation and
amortization.............. 23,238 21,688 21,688
Operating income........... 64,708 75,445 75,070
Interest expense........... 45,056 44,233 21,187
Earnings from continuing
operations................ 12,785 20,356 53,892
Earnings from continuing
operations per Unit....... $ 1.75
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital............ $ 100,645 $104,164 $ 54,304
Total assets............... 602,063 600,113 478,254
Payable to (receivable
from) parent and
affiliates................ 2,076 (3,909) 91
Long-term debt............. 500,227 476,471 267,441
Stockholder's equity....... 21,855 30,848
Partners' capital:
Common unitholders......... 66,067
Subordinated unitholder.... 75,524
General partner............ 2,890
OPERATING DATA:
Retail propane sales
volumes (in gallons)...... 483,489 490,254 490,254
Capital expenditures(2):
Maintenance................ $ 9,232(4) $ 3,377(4) $ 3,377
Growth..................... 2,597 2,568 2,568
Acquisition................ -- 2,472 2,472
------------ ------------ ------------
Total..................... $ 11,829 $ 8,417 $ 8,417
============ ============ ============
SUPPLEMENTAL DATA:
Earnings before
depreciation,
amortization, interest and
taxes(3).................. $ 87,946 $ 97,133 $ 96,758
</TABLE>
- --------
(1) In August 1991, the Company revised the estimated useful lives of storage
tanks from 20 to 30 years in order to more closely reflect the expected
useful lives of these assets. The effect of the change in accounting
estimates resulted in a favorable impact on net loss from continuing
operations of approximately $3.7 million for the fiscal year ended July 31,
1992.
(2) The Company's capital expenditures fall generally into three categories:
(i) maintenance capital expenditures, which include expenditures for repair
and replacement of property, plant and equipment; (ii) growth capital
expenditures, which include expenditures for purchases of new propane tanks
and other equipment to facilitate expansion of the Company's retail
customer base; and (iii) acquisition capital expenditures, which include
expenditures related to the acquisition of retail propane operations.
Acquisition capital expenditures include a portion of the purchase price
allocated to intangibles associated with the acquired businesses.
(3) EBITDA is calculated as operating income plus depreciation and
amortization. EBITDA is not intended to represent cash flow and does not
represent the measure of cash available for distribution. EBITDA is a non-
GAAP measure, but provides additional information for evaluating the
Partnership's ability to make the Minimum Quarterly Distribution. In
addition, EBITDA is not intended as an alternative to earnings from
continuing operations or net income.
(4) The decrease in maintenance capital expenditures from the nine months ended
April 30, 1993 to the nine months ended April 30, 1994 is primarily due to
the purchase of the Company's corporate headquarters in Liberty, Missouri
for its fair market value of $4.1 million in the first nine months of
fiscal 1993.
13
<PAGE>
THE OFFERING
Securities offered.......... 13,100,000 Common Units (15,065,000 Common
Units if the Underwriters' overallotment op-
tion is exercised in full).
Units to be outstanding
after this offering........
14,100,000 Common Units representing a 45.7%
limited partner interest in the Partnership
and 16,118,559 Subordinated Units representing
a 52.3% limited partner interest in the Part-
nership. If the Underwriters' overallotment
option is exercised in full, 1,965,000 addi-
tional Common Units will be issued by the
Partnership and all of the 1,000,000 Common
Units owned by Ferrell will be repurchased by
the Partnership, resulting in 15,065,000 Com-
mon Units and 16,118,559 Subordinated Units
outstanding, representing a 47.3% and 50.7%
limited partner interest in the Partnership,
respectively.
Distributions of Available The Partnership will distribute 100% of its
Cash....................... Available Cash within 45 days after the end of
each January, April, July and October to
Unitholders of record on the applicable record
date and to the General Partner. "Available
Cash" will consist generally of all of the
cash receipts of the Partnership adjusted for
its cash disbursements and net changes in re-
serves. The full definition of Available Cash
is set forth in the Partnership Agreement, the
form of which is included in this Prospectus
as Appendix A. The General Partner has discre-
tion in making cash disbursements and estab-
lishing reserves, thereby affecting the amount
of Available Cash. See "Cash Distribution Pol-
icy." Available Cash will generally be dis-
tributed 98% to the Unitholders and 2% to the
General Partner, except that if distributions
of Available Cash exceed certain target lev-
els, an affiliate of the General Partner will
receive a percentage of such excess distribu-
tions that will increase to up to 48% of dis-
tributions in excess of the highest target
level. See "Cash Distribution Policy--Quar-
terly Distributions of Available Cash--Incen-
tive Distributions--Hypothetical Annualized
Yield."
Distributions to With respect to each quarter during the Subor-
Unitholders................ dination Period, which will generally not end
earlier than August 1, 1999, the Common
Unitholders will generally have the right to
receive the Minimum Quarterly Distribution of
$0.50 per Common Unit, plus any arrearages in
the distribution of the Minimum Quarterly Dis-
tribution on the Common Units for prior quar-
ters, before any distributions of Available
Cash are made to the Subordinated
14
<PAGE>
Unitholders. For the period from the closing
of this offering through October 31, 1994, the
Minimum Quarterly Distribution will be ad-
justed (either upward or downward) based on
the actual length of the period. Subordinated
Units will not accrue distribution arrearages.
Upon the expiration of the Subordination Peri-
od, Common Units will no longer accrue distri-
bution arrearages.
Subordination Period;
Conversion of Subordinated
Units......................
The Subordination Period will extend from the
closing of this offering until the first day
of any quarter beginning on or after August 1,
1999 in respect of which (i) distributions of
Available Cash on the Common Units and the
Subordinated Units equaled or exceeded the
Minimum Quarterly Distribution for each of the
three consecutive four-quarter periods immedi-
ately preceding such date and (ii) the Part-
nership has invested at least $50 million in
acquisitions and capital additions or improve-
ments made to increase the operating capacity
of the Partnership. A total of 5,372,853 Sub-
ordinated Units held by Ferrellgas and its af-
filiates will convert into Common Units on the
first day of any quarter beginning on or after
August 1, 1997 in respect of which (i) distri-
butions of Available Cash on the Common Units
and the Subordinated Units equaled or exceeded
the Minimum Quarterly Distribution for each of
the two consecutive four-quarter periods imme-
diately preceding such date and (ii) the oper-
ating cash generated by the Partnership in
each of such four-quarter periods equaled or
exceeded 125% of the Minimum Quarterly Distri-
bution on all Common Units and all Subordi-
nated Units. Upon the expiration of the Subor-
dination Period, all remaining Subordinated
Units will convert into Common Units. The
Partnership Agreement also provides that if
the General Partner is removed other than for
cause, the Subordination Period will end and
all outstanding Subordinated Units will con-
vert into Common Units. See "Cash Distribution
Policy--Quarterly Distributions of Available
Cash" and "The Partnership Agreement--Change
of Management Provisions."
Incentive distributions..... As an incentive, if quarterly distributions of
Available Cash exceed certain specified target
levels an affiliate of the General Partner
will receive 13%, then 23% and then 48% of
distributions of Available Cash in excess of
such target levels. The target levels are
based on the amounts of Available Cash dis-
tributed, and incentive distributions will not
be made unless the Unitholders have received
distributions at specified levels above the
Minimum Quarterly Distribution. The rights to
receive incentive distributions are referred
to as "Incentive Distribution Rights." See
"Cash Distribution Policy--Quarterly Distribu-
tions of Available Cash."
15
<PAGE>
Adjustment of Minimum
Quarterly Distribution and
target distribution
levels.....................
The Minimum Quarterly Distribution and the tar-
get distribution levels for the incentive dis-
tributions are subject to downward adjustments
in the event that Unitholders receive distri-
butions of Cash from Interim Capital Transac-
tions, as defined in the glossary (which gen-
erally include transactions such as
borrowings, refinancings, sales of securities
or sales or other dispositions of assets con-
stituting a return of capital under the Part-
nership Agreement, as distinguished from cash
from Partnership operations), or in the event
legislation is enacted or existing law is mod-
ified or interpreted in a manner that causes
the Partnership to be treated as an associa-
tion taxable as a corporation or otherwise
taxable as an entity for federal, state or lo-
cal income tax purposes. If the Unitholders
receive a full return of capital as a result
of distributions of Cash from Interim Capital
Transactions, the distributions payable to the
holders of the Incentive Distribution Rights
will increase to 48% of all amounts distrib-
uted thereafter. See "Cash Distribution Poli-
cy--Quarterly Distributions of Available
Cash--Distributions of Cash from Interim Capi-
tal Transactions" and "--Adjustment of Minimum
Quarterly Distribution and Target Distribution
Levels."
Potential for significant
additional dilution in the
future................
The Partnership Agreement authorizes the Gen-
eral Partner to cause the Partnership to issue
an unlimited number of additional limited
partner interests and other equity securities
of the Partnership for such consideration and
on such terms and conditions as shall be es-
tablished by the General Partner in its sole
discretion, without the approval of the
Unitholders, with certain exceptions, includ-
ing the following: prior to the end of the
Subordination Period, the Partnership may not
issue equity securities of the Partnership
ranking prior or senior to the Common Units or
an aggregate of more than 7,000,000 additional
Common Units (excluding Common Units issued
upon the exercise of the Underwriters'
overallotment option and Common Units issued
upon conversion of Subordinated Units) or an
equivalent amount of securities ranking on a
parity with the Common Units, in either case
without the approval of the holders of at
least 66 2/3% of the outstanding Common Units;
provided, however, that the Partnership may
also issue an unlimited number of additional
Common Units or parity securities prior to the
end of the Subordination Period and without
the approval of the Unitholders if (a) such
issuance occurs in connection with or (b) such
issuance occurs within 270 days of, and the
net proceeds from such issuance are used to
16
<PAGE>
repay debt incurred in connection with, a
transaction in which the Partnership acquires
(through an asset acquisition, merger, stock
acquisition or other form of investment) con-
trol over assets and properties that would
have, if acquired by the Partnership as of the
date that is one year prior to the first day
of the quarter in which such transaction is to
be consummated, resulted in an increase in (i)
the amount of Acquisition Pro Forma Available
Cash constituting Cash from Operations (as de-
fined in the glossary) generated by the Part-
nership on a per-Unit basis for all outstand-
ing Units with respect to each of the four
most recently completed quarters over (ii) the
actual amount of Available Cash constituting
Cash from Operations generated by the Partner-
ship on a per-Unit basis for all outstanding
Units with respect to each of such four quar-
ters. After the end of the Subordination Peri-
od, there is no restriction under the Partner-
ship Agreement on the ability of the Partner-
ship to issue additional limited or general
partner interests junior to, on a parity with
or senior to the Common Units. See "Risk Fac-
tors--Risks Inherent in an Investment in the
Partnership--The Partnership May Issue Addi-
tional Units, Diluting Existing Unitholders'
Interests."
Limited call right.......... If at any time the General Partner and its af-
filiates own 80% or more of the issued and
outstanding limited partner interests of any
class, the General Partner may purchase, or
assign to its affiliates or the Partnership
its right to purchase, all, but not less than
all, of the remaining lim-ited partner inter-
ests of such class at a purchase price equal
to the higher of the Current Market Price (the
20 trading day average of the closing prices
on The New York Stock Exchange ("NYSE") ending
three days prior to the call date) and the
highest cash price paid by the General Partner
or any of its affiliates for any limited part-
ner interests of such class within the previ-
ous 90 days. As a consequence, a holder of
such limited partner interests may have his
interests purchased from him even though he
may not desire to sell them, or the price paid
may be less than the amount the holder would
desire to receive upon the sale of his limited
partner interests. See "The Partnership Agree-
ment--Limited Call Right."
Limited voting rights....... Unitholders will not have voting rights except
with respect to the following matters, for
which the Partnership Agreement requires the
approval of at least a majority (and in cer-
tain cases a greater percentage) of the out-
standing Units (excluding in some cases Units
held by the General Partner and its affili-
ates): a sale or exchange of all or substan-
tially all of the Partnership's assets, the
withdrawal or removal of the General Partner,
the election of
17
<PAGE>
a successor General Partner, a dissolution and
plan of liquidation or reconstitution of the
Partnership, a merger of the Partnership, is-
suance of Units in certain circumstances, ap-
proval of certain actions of the General Part-
ner (including the transfer by the General
Partner of its general partner interest under
certain circumstances) and certain amendments
to the Partnership Agreement, including any
amendment that would cause the Partnership to
be treated as an association taxable as a cor-
poration. Subordinated Units will generally
vote as a single class with the Common Units,
although Units owned by the General Partner
and its affiliates are not permitted to vote
on certain issues (such as, the withdrawal of
the General Partner, the approval of certain
amendments to the Partnership Agreement and
the taking of actions that would change the
tax status of the Partnership). See "The Part-
nership Agreement--Restrictions on Authority
of the General Partner," "--Amendment of Part-
nership Agreement," "--Meetings; Voting" and
"--Termination and Dissolution."
Inability to remove general
partner without consent of
Ferrell............... Subject to certain conditions, the General
Partner may be removed upon the approval of
the holders of at least 66 2/3% of the out-
standing Units. A meeting of the holders of
the Common Units may be called only by the
General Partner or by the holders of 20% or
more of the outstanding Common Units.
Ferrell's ownership of Units representing an
aggregate 55.5% limited partner interest
(50.7% if the Underwriters' overallotment op-
tion is exercised in full) upon the closing of
this offering effectively precludes any vote
to remove Ferrellgas as general partner with-
out the consent of Ferrell. See "The Partner-
ship Agreement-- Withdrawal or Removal of the
General Partner" and "-- Meetings; Voting."
Change of management
provisions................. Any person or group (other than Ferrellgas or
its affiliates) that acquires beneficial own-
ership of 20% or more of the Common Units will
lose its voting rights with respect to all of
its Common Units. In addition, if Ferrellgas
is removed as the general partner of the Part-
nership other than for cause, the Subordina-
tion Period will end, and the Subordinated
Units will immediately convert into Common
Units; in such event Ferrell, as a holder of
Common Units issued upon conversion of Subor-
dinated Units, would participate in any dis-
tributions, including distributions in respect
of arrearages in the Minimum Quarterly Distri-
bution, pro rata with other holders of Common
Units. These provisions are intended to dis-
courage a per-
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<PAGE>
son or group from attempting to remove
Ferrellgas as general partner of the Partner-
ship or otherwise change management of the
Partnership. The effect of these provisions
may be to diminish the price at which the Com-
mon Units will trade under certain circum-
stances. For example, the provisions may make
it unlikely that a third party, in an effort
to remove the General Partner and take over
the management of the Partnership, would make
a tender offer for the Common Units at a price
above their trading market price. See "The
Partnership Agreement--Change of Management
Provisions."
Lack of preemptive rights
of Unitholders.............
The holders of Common Units will not have pre-
emptive rights to acquire additional Common
Units or other partnership interests that may
be issued by the Partnership. See "Risk Fac-
tors--Risks Inherent in an Investment in the
Partnership--The Partnership May Issue Addi-
tional Units, Diluting Existing Unitholders
Interests." Ferrellgas and its affiliates,
however, will have certain rights to acquire
interests in the Partnership in order to main-
tain their percentage interests in the Part-
nership. See "The Partnership Agreement--Issu-
ance of Additional Securities."
Lack of dissenters' rights.. The Common Unitholders are not entitled to dis-
senters' rights of appraisal under the Part-
nership Agreement or applicable Delaware law
in the event of a merger or consolidation of
the Partnership, a sale of substantially all
of the Partnership's assets or any other
event.
Transfer restrictions....... All purchasers of Common Units in this offering
and purchasers of Common Units in the open
market who wish to become Common Unitholders
of record must deliver an executed transfer
application (the "Transfer Application," the
form of which is included in this Prospectus
as Appendix B) before the transfer of such
Common Units will be registered and before
cash distributions and federal income tax al-
locations will be made to the transferee. Any
such transferee who signs a Transfer Applica-
tion will be entitled to cash distributions
and federal income tax allocations without the
necessity of any consent of the General Part-
ner. Persons purchasing Common Units who do
not deliver an executed Transfer Application
will acquire no rights in such Common Units
other than the right to resell such Common
Units. See "Description of the Common Units--
Transfer of Units."
Liquidation preference......
In the event of any liquidation of the Partner-
ship during the Subordination Period, the out-
standing Common Units generally will be enti-
tled to receive a distribution out of the net
assets of the Partnership in preference to
liquidat-
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<PAGE>
ing distributions on the Subordinated Units.
Following conversion of the Subordinated Units
into Common Units, all Units will be treated
the same upon liquidation of the Partnership.
See "Cash Distribution Policy--Distributions
of Cash Upon Liquidation."
Use of proceeds............. The net proceeds from the sale of the Common
Units (estimated to be approximately $260.3
million after deducting the underwriting dis-
count and expenses of this offering) will be
used by the Partnership to repay indebtedness.
The Partnership will use the net proceeds from
any exercise of the Underwriters' overallotment
option first to repay any amounts borrowed
under the Credit Facility or, if no such
borrowings have been made, to establish an
initial cash balance of up to $20 million that
will be used for general partnership purposes.
Any remaining net proceeds from the exercise of
the Underwrit-ers' overallotment option will be
used by the Partnership to repurchase up to
1,000,000 Com-mon Units held by Ferrell at a
price per Unit equal to the initial public
offering price less the underwriting discounts
and commissions set forth on the cover page of
this Prospectus. Any net proceeds remaining
after such repurchase will be retained by the
Partnership for general partnership purposes.
See "Use of Proceeds."
Listing.....................
The Common Units have been approved for listing
on the NYSE, subject to official notice of is-
suance.
FGP
NYSE symbol............
20
<PAGE>
RISK FACTORS
Limited partner interests are inherently different from capital stock of a
corporation, although many of the business risks to which the Partnership will
be subject are similar to those that would be faced by a corporation engaged in
a similar business. Prospective purchasers of the Common Units should consider
the following factors in evaluating an investment in the Common Units:
RISKS INHERENT IN THE PARTNERSHIP'S BUSINESS
The following risk factors may adversely affect the profitability, cash flow
and results of operations of the Partnership, thereby affecting the ability of
the Partnership to make cash distributions on the Common Units.
. Partnership profitability will depend in part on the volumes of propane
the Partnership markets. Demand for propane is affected by weather
patterns, product prices and competition, including competition from
other energy sources.
. Rapid increases in the wholesale price of propane may reduce margins on
retail sales. The Partnership intends to engage in the brokerage and
trading of propane in order to help insure propane supplies. Trading
losses may have an adverse impact on the amount of Available Cash
available for distribution to holders of Common Units. Personnel
responsible for trading activities have an average of over 10 years of
trading experience with the Company.
. Partnership profitability may be affected by competition. There is
intense competition among all participants in the retail propane business
for customers. Moreover, many retail customers tend to develop long-term
relationships with propane suppliers and, therefore, it may be difficult
to obtain new customers other than through the acquisition of other
retail propane businesses. Further, the retail propane industry is a
mature one, in which the Company foresees only limited growth in total
demand for the product. See "Business--Industry and Competition--
Competition."
. The Partnership will transport combustible petroleum products and its
activities will be subject to certain operational hazards, including
explosion and resulting personal injury. Although the Partnership will
carry insurance with respect to certain casualty occurrences, a casualty
occurrence might result in the loss of equipment or life, as well as
injury and extensive property damage. See "Business--Government
Regulation, Environmental and Safety Matters." The General Partner will
neither guarantee nor indemnify the Partnership against any claims,
whether known or unknown, or contingent liabilities.
. The Partnership will incur indebtedness concurrently with the offering
made hereby. As a result, the Partnership will be significantly leveraged
and will have indebtedness that is substantial in relation to its
partners' equity. Such indebtedness may limit the Partnership's ability
to obtain additional borrowings or to issue additional partnership
interests on favorable terms. The Senior Notes and the Credit Facility
include limitations on the ability of the Operating Partnership to
distribute cash to the Partnership and to incur additional indebtedness.
Payment of principal and interest on such indebtedness, as well as
compliance with the requirements and covenants of such indebtedness, may
limit the Partnership's ability to make distributions to Unitholders.
RISKS INHERENT IN AN INVESTMENT IN THE PARTNERSHIP
The following risk factors may adversely affect the rights of a holder of
Common Units.
. Cash distributions are not guaranteed and may fluctuate based upon the
Partnership's performance. Although the Partnership will distribute 100%
of its Available Cash, as defined in the Partnership Agreement, there can
be no assurance regarding the amounts of Available Cash to be generated
by the Partnership. The General Partner may establish reserves that
21
<PAGE>
reduce the amount of Available Cash available for distribution. Because
the business of the Partnership will be seasonal, the General Partner
anticipates that it may make additions to reserves during the
Partnership's second and third fiscal quarters in order to fund operating
expenses, interest payments and cash distributions to partners with
respect to the first and fourth fiscal quarters. Although the General
Partner is unable to anticipate the amount of such reserves, its ability
to establish reserves enables it to control the amount of Available Cash
distributed by the Partnership. Because the Partnership may establish
reserves when it is profitable and borrow to make distributions if it does
not generate a profit, cash distributions may not be directly connected
with the Partnership's profitability.
. The Senior Notes provide that if the General Partner is no longer
controlled by James E. Ferrell or his affiliates, except in certain
limited circumstances, the holders of the Senior Notes have the right to
require the Operating Partnership to repurchase any or all of the
outstanding Senior Notes. The Credit Facility also has a change of
control provision which, if triggered, requires the Operating Partnership
to repay all outstanding amounts under the Credit Facility.
. Voting rights of the holders of Common Units are limited. As a result of
such limited voting rights, holders of Common Units will not have the
ability to participate in Partnership governance to the same degree as
holders of capital stock in a corporation.
. The General Partner will manage and operate the Partnership, and holders
of Common Units will have no right to participate in such management and
operation. Holders of Common Units will have no right to elect the
General Partner on an annual or other continuing basis. The control
exercised by the General Partner may make it more difficult for others to
gain control or influence the activities of the Partnership.
. Purchasers of Common Units in this offering will experience substantial
and immediate dilution in the net tangible book value per Common Unit
from the initial public offering price.
. The Partnership may issue additional Units and other interests in the
Partnership, diluting existing Unitholders' interests.
. The Partnership Agreement contains certain change of management
provisions that are intended to discourage a person or group from
attempting to remove Ferrellgas as general partner or otherwise change
management of the Partnership.
. Prior to this offering there has been no public market for the Common
Units. The initial public offering price for the Common Units will be
determined through negotiations among the General Partner and the
representatives of the Underwriters.
. The holders of the Common Units have not been represented by counsel in
connection with this offering, including the preparation of the
Partnership Agreement or the other agreements referred to herein.
CONFLICTS OF INTEREST AND FIDUCIARY DUTIES
. The General Partner and its affiliates may have conflicts of interest
with the Partnership and the holders of Common Units. The Partnership
Agreement permits the General Partner to consider, in resolving conflicts
of interest, the interests of other parties (including Ferrellgas and its
affiliates) in addition to the interests of the Unitholders.
. The Partnership Agreement limits the liability and modifies the fiduciary
duties under Delaware law of the General Partner to the Partnership and
the Unitholders. Holders of Common Units are deemed to have consented to
certain actions that might otherwise be deemed conflicts of interest or a
breach of fiduciary duty.
22
<PAGE>
. The Partnership Agreement permits affiliates of the General Partner to
engage in any activities except for the retail sale of propane to end
users in the continental United States. The General Partner's affiliates
may compete with the Partnership in other propane related activities,
such as trading, transportation, storage and wholesale distribution of
propane. Although the Partnership Agreement does not restrict the ability
of affiliates of the General Partner to trade propane or other natural
gas liquids in competition with the Partnership, they do not intend to
engage in such trading except in association with the conduct of their
other permitted activities.
TAX CONSIDERATIONS
. The availability to a Unitholder of federal income tax benefits of an
investment in the Partnership depends, in large part, on the
classification of the Partnership as a partnership for federal income tax
purposes. Based on certain representations by the General Partner,
Andrews & Kurth L.L.P., special counsel to the General Partner and the
Partnership, is of the opinion that, under current law, the Partnership
will be classified as a partnership for federal income tax purposes.
. No ruling has been requested from the Internal Revenue Service (the
"IRS") with respect to classification of the Partnership as a partnership
for federal income tax purposes or any other matter affecting the
Partnership.
. In connection with the formation of the Partnership, the General Partner
will contribute certain customer relationships to the Partnership. The
General Partner intends to treat such customer relationships as
amortizable assets of the Partnership for federal income tax purposes.
The IRS has challenged the Company's amortization of customer
relationships and it is possible that the IRS will challenge the
amortization of customer relationships by the Partnership. If the IRS
were to successfully challenge the amortization of customer relationships
by the Partnership, the amount of amortization available to a Unitholder
and, therefore, the after tax return of a Unitholder with respect to his
investment in the Partnership, could be adversely affected, although the
Partnership does not believe the impact of such effect would be material.
. In the case of taxpayers subject to the passive loss rules, losses
generated by the Partnership, if any, will only be available to offset
future income generated by the Partnership and cannot be used to offset
income from other activities, including passive activities or
investments.
. A Unitholder will be required to pay income taxes on his allocable share
of the Partnership's income, whether or not he receives cash
distributions from the Partnership.
. Investment in Units by certain tax-exempt entities, regulated investment
companies and foreign persons raises issues unique to such persons.
. A Unitholder who disposes of Units following the close of the
Partnership's taxable year but before the close of the Unitholder's
taxable year may be required to report in income for his taxable year his
distributive share of more than one year of Partnership income, gain,
loss and deduction.
. The Partnership has been registered with the IRS as a "tax shelter." No
assurance can be given that the Partnership will not be audited by the
IRS or that tax adjustments will not be made.
See "Risk Factors," "Conflicts of Interest and Fiduciary Responsibility,"
"Description of the Common Units," "The Partnership Agreement" and "Tax
Considerations" for a more detailed description of these and other risk factors
and conflicts of interest which should be considered in evaluating an
investment in the Common Units.
23
<PAGE>
SUMMARY OF TAX CONSIDERATIONS
The tax consequences of an investment in the Partnership to a particular
investor will depend in part on the investor's own tax circumstances. Each
prospective investor should consult his own tax advisor about the federal,
state and local tax consequences of an investment in Common Units.
The following is a brief summary of certain expected tax consequences of
acquiring, owning and disposing of Common Units. The following discussion,
insofar as it relates to federal income tax laws, is based in part upon the
opinion of Andrews & Kurth L.L.P., special counsel to the General Partner and
the Partnership, described in "Tax Considerations." This summary is qualified
by the discussion in "Tax Considerations," particularly the qualifications on
the opinions of counsel described therein.
PARTNERSHIP STATUS
In the opinion of Andrews & Kurth L.L.P., the Partnership will be classified
for federal income tax purposes as a partnership, and the beneficial owners of
Common Units will be considered partners in the Partnership. Accordingly, the
Partnership will pay no federal income taxes, and a Common Unitholder will be
required to report in his federal income tax return his share of the
Partnership's income, gains, losses, deductions and credits. In general, cash
distributions to a Common Unitholder will be taxable only if, and to the extent
that, they exceed such Unitholder's tax basis in his Common Units.
TREATMENT OF PARTNERSHIP DISTRIBUTIONS
In general, annual income and loss of the Partnership will be allocated to
the General Partner and the Unitholders for each taxable year in accordance
with their respective percentage interests in the Partnership, as determined
annually and prorated on a monthly basis and subsequently apportioned among the
General Partner and the Unitholders of record as of the opening of the first
business day of the month to which they relate, even though Unitholders may
dispose of their Units during the month in question. A Unitholder will be
required to take into account, in determining his federal income tax liability,
his share of income generated by the Partnership for each taxable year of the
Partnership ending within or with the taxable year of the Unitholder's whether
or not cash distributions are made to him. As a consequence, a Unitholder's
share of taxable income of the Partnership (and possibly the income tax payable
by him with respect to such income) may exceed the cash, if any, actually
distributed to such Unitholder.
RATIO OF TAXABLE INCOME TO DISTRIBUTION
The General Partner estimates that a purchaser of Common Units in this
offering (i) who holds such Common Units through the record date for the
quarter ended July 31, 1995 will be allocated an amount of federal taxable
income for such period that will be approximately 10% of cash distributed with
respect to such period and (ii) who holds such Common Units through the record
date for the quarter ended July 31, 1999 will be allocated, on a cumulative
basis, no net federal taxable income for such period. The General Partner
anticipates that after July 31, 1999 taxable income allocated to Unitholders
will increase from year to year and will constitute a significantly higher
percentage of cash distributed to Unitholders. These estimates are based upon
the assumption that the gross income from operations will approximate an amount
required to make the Minimum Quarterly Distribution and other assumptions with
respect to capital expenditures, cash flow and anticipated cash distributions.
These estimates and assumptions are subject to, among other things, numerous
business, economic, competitive and political uncertainties beyond the control
of the General Partner. Further, the estimates are based on current tax law and
certain tax reporting positions that the General Partner intends to adopt and
with
24
<PAGE>
which the IRS could disagree. Accordingly, no assurance can be given that the
estimates will prove to be correct. The actual percentages could be higher or
lower than as described and such differences could be material. See "Tax
Considerations--Tax Consequences of Unit Ownership--Ratio of Taxable Income to
Distributions."
BASIS OF COMMON UNITS
A Unitholder's initial tax basis for a Unit will be the amount paid for the
Unit. A Unitholder's basis is generally increased by his share of Partnership
income and decreased by his share of Partnership losses and distributions.
LIMITATIONS ON DEDUCTIBILITY OF PARTNERSHIP LOSSES
A Unitholder may deduct his share of Partnership losses only to the extent
the losses do not exceed the basis in his Units or, in the case of taxpayers
subject to the "at risk" rules, the amount the Unitholder is at risk with
respect to the Partnership's activities, if less than such basis. Further, in
the case of taxpayers subject to the passive loss rules, under the passive loss
limitations, Partnership losses, if any, will only be available to offset
future income generated by the Partnership and cannot be used to offset income
from other activities including passive activities or investments. Any losses
unused by virtue of the passive loss rules may be deducted when the Unitholder
disposes of all of his Units in a fully taxable transaction with an unrelated
party.
SECTION 754 ELECTION
The Partnership intends to make the election provided for by Section 754 of
the Internal Revenue Code of 1986, as amended (the "Code"), which will
generally permit a Unitholder to calculate income and deductions by reference
to the portion of his purchase price attributable to each asset of the
Partnership.
DISPOSITION OF COMMON UNITS
A Unitholder who sells Common Units will recognize gain or loss equal to the
difference between the amount realized (including his share of Partnership
nonrecourse debt) and his adjusted basis in such Common Units. A portion of the
amount realized (whether or not representing gain) may be ordinary income.
OTHER TAX CONSIDERATIONS
In addition to federal income taxes, Unitholders may be subject to other
taxes, such as state and local income taxes, unincorporated business taxes, and
estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which a Unitholder resides or in which the Partnership does
business or owns property. A Unitholder will likely be required to file state
income tax returns and to pay taxes in various states and may be subject to
penalties for failure to comply with such requirements. The General Partner
anticipates that a substantial portion of the Partnership's income will be
generated in six states: Georgia, Kentucky, Michigan, Missouri, Ohio and Texas.
Based on the Company's income apportionment for fiscal year 1992 for state
income tax purposes, the General Partner estimates that no other state will
account for more than 4% of the Partnership's income. Of the six states in
which the General Partner anticipates that a substantial portion of the
Partnership's income will be generated, only Texas does not currently impose a
personal income tax. Some of the states may require the Partnership to withhold
a percentage of income from amounts to be distributed to a Unitholder who is
not a resident of the state.
It is the responsibility of each prospective Unitholder to investigate the
legal and tax consequences, under the laws of pertinent states and localities
of his investment in the Partnership.
25
<PAGE>
Accordingly, each prospective Unitholder should consult, and must depend upon,
his own tax counsel or other advisor with regard to those matters. Further, it
is the responsibility of each Unitholder to file all federal, state and local
tax returns that may be required of such Unitholder. Andrews & Kurth L.L.P. has
not rendered an opinion on the state and local tax consequences of an
investment in the Partnership.
OWNERSHIP OF COMMON UNITS BY TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER
INVESTORS
An investment in Units by tax-exempt organizations (including individual
retirement accounts and other retirement plans), regulated investment companies
and foreign persons raises issues unique to such persons. Virtually all of the
income derived by a Unitholder which is a tax-exempt organization will be
unrelated business taxable income, and thus will be taxable to such Unitholder;
no significant amount of the Partnerships gross income will be qualifying
income for purposes of determining whether a Unitholder will qualify as a
regulated investment company; and a Unitholder who is a nonresident alien,
foreign corporation or other foreign person will be regarded as being engaged
in a trade or business in the United States as a result of ownership of a Unit
and thus will be required to file federal income tax returns and to pay tax on
such Unitholder's share of Partnership taxable income. See "Tax
Considerations--Tax-Exempt Organizations and Certain Other Investors."
TAX SHELTER REGISTRATION
The Code generally requires that "tax shelters" be registered with the
Secretary of the Treasury. The investment objectives of the Partnership are to
operate the Partnership at a profit and to make cash distributions to its
partners. Nevertheless, the Partnership has registered as a tax shelter with
the IRS. ISSUANCE OF THE REGISTRATION NUMBER DOES NOT INDICATE THAT AN
INVESTMENT IN THE PARTNERSHIP OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED,
EXAMINED OR APPROVED BY THE IRS. See "Tax Considerations--Administrative
Matters--Registration as a Tax Shelter."
26
<PAGE>
RISK FACTORS
A prospective investor should carefully consider the following investment
considerations and risks, as well as the other information set forth in this
Prospectus, before making a decision to invest in the Common Units:
RISKS INHERENT IN THE PARTNERSHIP'S BUSINESS
WEATHER CONDITIONS AFFECT THE DEMAND FOR PROPANE
National weather conditions can have a substantial impact on the demand for
propane and, therefore, the results of operations of the Partnership. In
particular, the demand for propane by residential customers is affected by
weather, with peak sales typically occurring during the winter months. Average
winter temperatures as measured by degree days across the Company's operating
areas in fiscal 1991, 1992 and 1993 were warmer than historical standards,
thus lowering demand for propane. Average winter temperatures as measured by
degree days across the Company's operating areas in fiscal 1994 to date have
been slightly colder than historical averages. There can be no assurance that
average temperatures in future years will be close to the historical average.
Agricultural demand is also affected by weather. Wet weather during harvest
season causes an increase in propane used for crop drying and dry weather
during the growing season causes an increase in propane used for irrigation.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
THE RETAIL PROPANE INDUSTRY IS A MATURE ONE
The retail propane industry is a mature one, with only limited growth in
total demand for the product foreseen (the exception being in the case of
motor fuel applications which is being driven by recent environmental
legislation, but for which the opportunity cannot be estimated). Based on
information available from the Energy Information Administration, the Company
believes the overall demand for propane has remained relatively constant over
the past several years, with year to year industry volumes being impacted
primarily by weather patterns. Therefore, the Partnership's ability to grow
within the industry is dependent on the success of its marketing efforts to
acquire new customers and on its ability to acquire other retail distributors.
THE PARTNERSHIP WILL BE SUBJECT TO PRICING AND INVENTORY RISK
An important element of the Company's high retention of retail customers has
been its ability to deliver propane during periods of extreme demand. To help
insure this capability, the Partnership intends to continue engaging in the
brokerage and trading of propane and other natural gas liquids historically
performed by the Company. If the Partnership sustains material losses from its
trading activities, the amount of Available Cash constituting Cash from
Operations available for distribution to the holders of Common Units may be
reduced. The Company has sought to minimize its trading risks through the
enforcement of trading policies, which include total inventory limits and loss
limits. The Partnership intends to continue these policies. Personnel
responsible for trading activities have an average of over 10 years of trading
experience with the Company. See "Business--Other Operations." In addition,
depending on inventory and price outlooks, the Partnership may purchase and
store propane or other natural gas liquids. This activity may subject the
Partnership to losses if the prices of propane or such other natural gas
liquids decline prior to their sale by the Partnership. The Partnership may be
unable to pass rapid increases in the wholesale cost of propane on to its
retail customers, reducing margins on retail sales. In the long term, however,
margins generally have not been materially impacted by rapid increases in the
wholesale cost of propane, as the Company has generally been able to
eventually pass on increases to its retail customers. There can be no
assurance as to whether the Partnership will be able to pass on such costs in
the future.
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<PAGE>
THE RETAIL PROPANE BUSINESS EXPERIENCES COMPETITION FROM OTHER ENERGY SOURCES
AND WITHIN THE INDUSTRY
The Partnership will compete for customers against suppliers of natural gas,
electricity and fuel oil. Because of the significant cost advantage of natural
gas over propane, propane is generally not competitive with natural gas in
those areas where natural gas is readily available. The expansion of the
nation's natural gas distribution systems has resulted in the availability of
natural gas in many areas that previously depended upon propane. Propane is
generally less expensive to use than electricity for space heating, water
heating and cooking and competes effectively with electricity in those parts
of the country where propane is cheaper than electricity on an equivalent BTU
basis. Although propane is similar to fuel oil in application, market demand
and price, propane and fuel oil have generally developed their own distinct
geographic markets. In addition, given the cost of conversion from fuel oil to
propane, potential customers of propane generally will only switch from fuel
oil if there is a significant price advantage with propane.
Long-standing customer relationships are also typical to the retail propane
industry. Retail propane customers generally lease their storage tanks from
their suppliers. The lease terms and, in most states, certain fire safety
regulations, restrict the refilling of a leased tank solely to the propane
supplier that owns the tank. The cost and inconvenience of switching tanks
minimizes a customer's tendency to switch among suppliers of propane on the
basis of minor variations in price. As a result, the Partnership may
experience difficulty in acquiring new retail customers in areas where there
are existing relationships between potential customers and other propane
distributors.
PARTNERSHIP OPERATIONS ARE SUBJECT TO OPERATING RISKS
The Partnership's operations will be subject to all operating hazards and
risks normally incidental to handling, storing, transporting and otherwise
providing for use by consumers of combustible liquids such as propane. As a
result, the Company is, and the Partnership will be, a defendant in various
legal proceedings and litigation arising in the ordinary course of business.
The Partnership will maintain insurance policies with insurers in such amounts
and with such coverages and deductibles as the General Partner believes are
reasonable and prudent. However, there can be no assurance that such insurance
will be adequate to protect the Partnership from all material expenses related
to potential future claims for personal and property damage or that such
levels of insurance will be available in the future at economical prices.
After taking into account the pending and threatened matters against the
Company that will be assumed by the Partnership and the insurance coverage and
reserves to be maintained by the Partnership, the General Partner is of the
opinion that there are no known contingent claims or uninsured claims that are
likely to have a material adverse effect on the results of operations or
financial condition of the Partnership. See "Business--Litigation." The
General Partner will neither guarantee nor indemnify the Partnership against
any claims, whether known or unknown, or contingent liabilities. The
occurrence of an event not fully covered by insurance, or the occurrence of a
large number of claims that are self-insured, may have a material adverse
effect on the results of operations or financial position of the Partnership.
THE PARTNERSHIP MAY NOT BE SUCCESSFUL IN MAKING ACQUISITIONS
The Company has historically expanded its business through acquisitions. The
Partnership intends to consider and evaluate opportunities for growth through
acquisitions in its industry, although it currently has no material
acquisitions under consideration. There can be no assurance that the
Partnership will find attractive acquisition candidates in the future, or that
the Partnership will be able to acquire such candidates on economically
acceptable terms.
THE OPERATING PARTNERSHIP WILL INCUR SUBSTANTIAL INDEBTEDNESS; SUCH
INDEBTEDNESS MAY LIMIT THE PARTNERSHIP'S ABILITY TO MAKE DISTRIBUTIONS
Upon the closing of the transactions contemplated by this Prospectus, it is
anticipated that the Operating Partnership will be liable for approximately
$263.9 million in indebtedness. As a result, the Partnership will be highly
leveraged and will have indebtedness that is substantial in relation to its
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<PAGE>
partners' equity. The ability of the Operating Partnership to make principal
and interest payments will depend on future performance, which performance is
subject to many factors, some of which will be outside the Operating
Partnership's control. In addition, such indebtedness will contain restrictive
covenants which limit the ability of the Operating Partnership to distribute
cash to the Partnership and to incur additional indebtedness. Payment of
principal and interest on such indebtedness, as well as compliance with the
requirements and covenants of such indebtedness, may limit the Partnership's
ability to make distributions to Unitholders.
The Partnership's pro forma combined financial statements assume that the
Operating Partnership will issue $250 million of Senior Notes with a fixed
interest rate of 9.75%. It is possible, however, that a portion of the Senior
Notes, not anticipated to be in excess of $50 million will be issued with a
floating rate of interest. In such event, the Operating Partnership would be
subject to increases in the rate of interest which, if material, could
adversely impact the Partnership's ability to distribute the Minimum Quarterly
Distribution to Unitholders. In order to mitigate the risk of such interest
rate increases, the General Partner intends, if possible, to cause the
Operating Partnership to enter into appropriate interest rate protection
arrangements with respect to all or a portion of the Senior Notes bearing
interest at a floating rate. There can be no assurance, however, as to whether
the Operating Partnership will be able to enter into such arrangements or
whether such arrangements will be on terms satisfactory to the Operating
Partnership.
THE PARTNERSHIP MAY HAVE TO REFINANCE ITS INDEBTEDNESS; THE PARTNERSHIP'S
INDEBTEDNESS MUST BE REPAID UPON THE OCCURRENCE OF CERTAIN CHANGE OF CONTROL
EVENTS
The Senior Notes to be issued by the Operating Partnership concurrently with
the offering made hereby will not contain any sinking fund provision and such
indebtedness will be due in full in 2001. In addition, the Senior Notes provide
that upon the occurrence of certain change of control events (including the
failure by James E. Ferrell and certain affiliates to control the General
Partner, the removal of the General Partner as the general partner of the
Operating Partnership, the liquidation or dissolution of the Operating
Partnership or the General Partner or the transfer of all or substantially all
the assets of the Operating Partnership to an entity not controlled by James E.
Ferrell and certain affiliates), the holders of the Senior Notes have the right
to require the Operating Partnership to repurchase any or all of the
outstanding Senior Notes at 101% of the aggregate principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase. The Credit
Facility also contains a provision requiring the Operating Partnership to repay
all outstanding amounts under the Credit Facility within 30 days after the
occurrence of certain change of control events similar to those contained in
the Indenture. In the case of the Credit Facility, however, there is an
additional limitation in that the failure of James E. Ferrell or his affiliates
to own at least 20% of the outstanding equity of the Partnership also
constitutes a change of control. While it is the present intention of the
General Partner to refinance such indebtedness when it becomes due, there can
be no assurance that the Operating Partnership will be able to refinance the
Senior Notes or the Credit Facility at such time. If the Partnership is unable
to refinance such indebtedness when it becomes due or in connection with a
requirement to repurchase or a default under such indebtedness, there can be no
assurance that the Operating Partnership will be able to repay amounts
outstanding under the Credit Facility or repurchase the Senior Notes at such
time. The Partnership can make no assurance regarding the future affiliation of
Mr. Ferrell with the General Partner. However, Mr. Ferrell, who has been
associated with the Company for nearly 30 years and who will indirectly own
approximately 57.5% of the Partnership, has indicated to the General Partner
that he intends to refrain from taking any action that would trigger the change
of control provisions of the Senior Notes or the Credit Facility while such
provisions remain in effect.
ENERGY EFFICIENCY AND TECHNOLOGY TRENDS MAY AFFECT DEMAND FOR PROPANE
Retail customers primarily use propane as a heating fuel. Increased
technological advances in energy efficiency, including the development of more
efficient heating devices, has slowed the growth of demand for propane by
retail gas customers. The Partnership is unable to predict the effect that any
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technological advances in energy efficiency, conservation, energy generation
or other devices might have on the Partnership's operations.
THE PARTNERSHIP WILL BE DEPENDENT UPON KEY PERSONNEL OF THE GENERAL PARTNER
The Company believes its success has been, and the Partnership's success
will be, dependent to a significant extent upon the efforts and abilities of
its senior management team, in particular James E. Ferrell, President and
Chairman of the Board of the Company. The failure of the General Partner to
retain Mr. Ferrell and other executive officers could adversely affect the
Partnership's operations. Mr. Ferrell, who has been associated with the
Company for nearly 30 years and who will indirectly own approximately 57.5% of
the Partnership, has indicated to the Company that he intends to continue as
chief executive officer of the General Partner.
RISKS INHERENT IN AN INVESTMENT IN THE PARTNERSHIP
CASH DISTRIBUTIONS ARE NOT GUARANTEED AND MAY FLUCTUATE WITH PARTNERSHIP
PERFORMANCE
Although the Partnership will distribute 100% of its Available Cash, as
defined in the Partnership Agreement, there can be no assurance regarding the
amounts of Available Cash to be generated by the Partnership. The actual
amounts of Available Cash will depend upon numerous factors, including
profitability, the availability and cost of acquisitions (including related
debt service payments), fluctuations in working capital and other factors
beyond the control of the General Partner. Cash distributions are not
guaranteed and may fluctuate with Partnership performance. The Partnership
Agreement gives the General Partner discretion in establishing reserves for
the proper conduct of its business. These reserves will impact the amount of
Available Cash available for distribution. As a result, there can be no
assurance regarding the actual levels of cash distributions by the
Partnership.
VOTING RIGHTS OF THE HOLDERS OF COMMON UNITS ARE LIMITED
Unlike the holders of common stock in a corporation, holders of outstanding
Units will have only limited voting rights on matters affecting the
Partnership's business. As a result of such limited voting rights, holders of
Common Units will not have the ability to participate in Partnership
governance to the same degree as holders of common stock in a corporation. See
"The Partnership Agreement--Restrictions on Authority of the General Partner,"
"--Withdrawal or Removal of the General Partner," "--Issuance of Additional
Securities," "--Meetings; Voting" and "--Termination and Dissolution."
THE GENERAL PARTNER MAY NOT BE REMOVED WITHOUT THE CONSENT OF FERRELL;
WITHDRAWAL OF THE GENERAL PARTNER; AMENDMENT OF PARTNERSHIP AGREEMENT
The General Partner may not be removed as general partner of the Partnership
except upon approval by the affirmative vote of holders of not less than 66
2/3% of the outstanding Units (including for purposes of such determination
Units owned by the General Partner and its affiliates), subject to the
satisfaction of certain conditions. Upon the closing of this offering and
following a dividend of Units by Ferrellgas to its parent, Ferrell will own
Units representing an aggregate 55.5% limited partner interest in the
Partnership (50.7% if the Underwriter's overallotment option is exercised in
full). Consequently, Ferrell's percentage ownership of limited partner
interests, even if the Underwriters' overallotment option is exercised in
full, will effectively preclude the removal of the General Partner without the
consent of Ferrell. In addition, the General Partner has agreed not to
voluntarily withdraw as general partner prior to July 31, 2004, without the
approval of holders of at least 66 2/3% of the outstanding Units (excluding
for purposes of such determination Units held by the General Partner and its
affiliates). On or after July 31, 2004, the General Partner may withdraw as
general partner by giving 90 days' written notice (without first obtaining
approval from the Unitholders), and such withdrawal will not constitute a
violation of the Partnership Agreement. See "Partnership Agreement--Withdrawal
or Removal of the General Partner."
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Amendments to the Partnership Agreement may be proposed only by or with the
consent of the General Partner. With the exception of certain specified
amendments (including, without limitation, certain amendments that may be
adopted solely by the General Partner), proposed amendments must be approved by
holders of at least 66 2/3% of the outstanding Units during the Subordination
Period and a majority of the outstanding Units thereafter. The authority of the
General Partner to propose or consent to amendments, coupled with Ferrell's
percentage ownership of limited partner interests upon the closing of this
offering, will effectively preclude the adoption of such amendments without the
approval of the General Partner and its affiliates. See "The Partnership
Agreement--Amendment of Partnership Agreement."
THE GENERAL PARTNER WILL MANAGE AND OPERATE THE PARTNERSHIP
The General Partner will manage and operate the Partnership. Holders of
Common Units will have no right to elect the General Partner on an annual or
other continuing basis, and the General Partner generally may not be removed
except pursuant to the vote of the holders of not less than 66 2/3% of the
outstanding Units. As a result, holders of Common Units will have limited say
in matters affecting the operation of the Partnership and, if such holders are
in disagreement with the decisions of the General Partner, they may remove the
General Partner only as provided in the Partnership Agreement. The control
exercised by the General Partner may make it more difficult for others to
attempt to gain control or influence the activities of the Partnership. See
"Management."
DILUTION
Purchasers of Common Units in this offering will experience substantial and
immediate dilution in the net tangible book value per Common Unit for financial
accounting purposes. See "Dilution."
THE PARTNERSHIP MAY ISSUE ADDITIONAL UNITS, DILUTING EXISTING UNITHOLDER'S
INTERESTS
During the Subordination Period the Partnership may issue up to 7.0 million
Common Units (excluding Common Units issued in connection with the exercise of
the Underwriters' overallotment option or upon conversion of Subordinated Units
into Common Units) or an equivalent number of securities ranking on a parity
with the Common Units and an unlimited number of partnership interests junior
to the Common Units without a Unitholder vote. The Partnership may also issue
additional Common Units during the Subordination Period in connection with
acquisitions if certain cash flow criteria are met. See "The Partnership
Agreement--Issuance of Additional Securities." The effect of any such issuance
may be to dilute the interests of holders of Units in distributions by the
Partnership.
After the Subordination Period the Partnership Agreement authorizes the
General Partner to cause the Partnership to issue an unlimited number of
additional general and limited partner interests and other equity securities of
the Partnership for such consideration and on such terms and conditions as
shall be established by the General Partner in its sole discretion without the
approval of any Unitholders.
The General Partner will have the right, which it may from time to time
assign in whole or in part to any of its affiliates, to purchase Common Units,
Subordinated Units, Incentive Distribution Rights or other equity securities of
the Partnership from the Partnership whenever, and on the same terms that, the
Partnership issues such securities or rights to persons other than the General
Partner and its affiliates, to the extent necessary to maintain the percentage
interest of the General Partner and its affiliates in the Partnership that
existed immediately prior to each such issuance. See "The Partnership
Agreement--Issuance of Additional Securities."
THE GENERAL PARTNER WILL HAVE LIMITED CALL RIGHTS WITH RESPECT TO THE COMMON
UNITS
In the event that 20% or less of the then issued and outstanding Common Units
are held by persons other than the General Partner and its affiliates, the
General Partner will have the right to
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acquire all, but not less than all, of the remaining Common Units held by such
unaffiliated persons. The purchase price will be the greater of (a) the highest
cash price paid by the General Partner or any of its affiliates for any Common
Unit purchased within 90 days preceding the date on which the General Partner
first mails to Unitholders written notice of its election to call outstanding
Common Units and (b)(i) the average of the closing prices of the Common Units
on the NYSE for the 20 trading days ending three days prior to the date on
which such notice is first mailed or (ii) if the Common Units are not listed
for trading on an exchange or quoted by NASDAQ, an amount equal to the fair
market value of the Common Units on the date such notice is first mailed, as
determined by the General Partner using any reasonable method of valuation. As
a consequence of the General Partner's right to purchase outstanding Common
Units, a Unitholder may have his Common Units purchased from him even though he
may not desire to sell them, or the price paid may be less than the amount the
Unitholder would desire to receive upon the sale of his Common Units. See "The
Partnership Agreement--Limited Call Right."
CHANGE OF MANAGEMENT PROVISIONS
The Partnership Agreement contains certain provisions that are intended to
discourage a person or group from attempting to remove Ferrellgas as general
partner or otherwise change management of the Partnership. If any person or
group other than Ferrellgas or its affiliates acquires beneficial ownership of
20% or more of the Common Units, such person or group will lose its voting
rights with respect to all of its Common Units. In addition, if Ferrellgas is
removed as general partner other than for cause the Subordination Period will
end, and any Subordinated Units held by Ferrellgas and its affiliates will
immediately convert into Common Units. As a result, Ferrellgas and such
affiliates, as the holders of Common Units, would participate in any
distributions, including distributions in respect of arrearages in the Minimum
Quarterly Distribution, pro rata with other holders of Common Units.
NO PRIOR PUBLIC MARKET FOR COMMON UNITS; THE COMMON UNIT PRICE WILL BE
DETERMINED THROUGH NEGOTIATIONS
Prior to this offering there has been no public market for the Common Units.
The initial public offering price of the Common Units will be determined
through negotiations among the General Partner
and the representatives of the Underwriters. For a description of the factors
to be considered in determining the initial public offering price, see
"Underwriting." No assurance can be given as to the market prices at which the
Common Units will trade. The Common Units have been approved for listing on the
NYSE, subject to official notice of issuance.
UNITHOLDERS HAVE NOT BEEN REPRESENTED BY ATTORNEYS AND ACCOUNTANTS
As is customary in public securities offerings, the holders of the Common
Units have not been represented by counsel in connection with this offering,
including the preparation of the Partnership Agreement or the other agreements
referred to herein. As a result, counsel whose duty is to represent the
interests of the holders of Common Units has not participated in the
transaction.
CONFLICTS OF INTEREST AND FIDUCIARY DUTIES
THE GENERAL PARTNER AND ITS AFFILIATES MAY HAVE CONFLICTS OF INTEREST WITH THE
PARTNERSHIP AND THE HOLDERS OF THE COMMON UNITS
Potential conflicts of interest could arise as a result of the relationships
between the Partnership, on the one hand, and Ferrellgas and its affiliates, on
the other. The directors and officers of Ferrellgas have fiduciary duties to
manage Ferrellgas in a manner beneficial to the shareholders of Ferrellgas. At
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the same time, Ferrellgas, as general partner, has fiduciary duties to manage
the Partnership in a manner beneficial to the Partnership and the Unitholders.
The Partnership Agreement permits the General Partner to consider, in resolving
conflicts of interest, the interests of other parties in addition to the
interests of the Unitholders, thereby limiting the General Partner's fiduciary
duty to the Unitholders. The duties of Ferrellgas, as general partner, to the
Partnership and the Unitholders, therefore, may come into conflict with the
duties of the directors and officers of Ferrellgas to its sole shareholder,
Ferrell.
Such conflicts of interest might arise in the following situations, among
others:
(i) Decisions of the General Partner with respect to the amount and
timing of cash expenditures, borrowings, issuances of additional Units and
reserves in any quarter will affect whether or the extent to which there is
sufficient Available Cash constituting Cash from Operations to meet the
Minimum Quarterly Distribution on all Units in a given quarter, make
distributions with respect to the Incentive Distribution Rights, or hasten
the expiration of the Subordination Period or the conversion of
Subordinated Units into Common Units. Although the General Partner
generally must act as a fiduciary to the Partnership and the Unitholders,
the Partnership Agreement provides that it will not constitute a breach of
fiduciary duty if Partnership borrowings are effected that have such
results.
(ii) The Partnership will not have any employees and will rely solely on
employees of the General Partner and its affiliates.
(iii) Under the terms of the Partnership Agreement, the Partnership will
reimburse the General Partner and its affiliates for costs incurred in
managing and operating the Partnership, including costs incurred in
rendering corporate staff and support services to the Partnership.
(iv) Whenever possible, the General Partner intends to limit the
Partnership's liability under contractual arrangements to all or particular
assets of the Partnership, with the other party thereto to have no recourse
against the General Partner or its assets. The Partnership Agreement
provides that any action by the General Partner in so limiting the
liability of the General Partner or that of the Partnership will not be
deemed to be a breach of the General Partner's fiduciary duties, even if
the Partnership could have obtained more favorable terms without such
limitation on liability.
(v) The agreements between the Partnership and Ferrellgas and its
affiliates do not grant to the holders of Common Units, separate and apart
from the Partnership, the right to enforce the obligations of Ferrellgas
and such affiliates in favor of the Partnership. Therefore, Ferrellgas, in
its capacity as the general partner of the Partnership, will be primarily
responsible for enforcing such obligations.
(vi) Under the terms of the Partnership Agreement, the General Partner is
not restricted from causing the Partnership to pay the General Partner or
its affiliates for any services rendered on terms that are fair and
reasonable to the Partnership or entering into additional contractual
arrangements with any of such entities on behalf of the Partnership.
Neither the Partnership Agreement nor any of the other agreements,
contracts and arrangements between the Partnership, on the one hand, and
the General Partner and its affiliates, on the other, are or will be the
result of arms-length negotiations.
(vii) The Partnership Agreement provides that it will not constitute a
breach of fiduciary duty if the General Partner exercises its right to call
for and purchase Units as provided in the Partnership Agreement or assigns
such right to one of its affiliates or to the Partnership.
(viii) The Partnership Agreement provides that it will not constitute a
breach of the General Partner's fiduciary duties to the Partnership or the
Unitholders for affiliates of the General Partner to engage in certain
activities of the type conducted by the Partnership, other than retail
propane sales to end users in the continental United States, even if in
direct competition with the Partnership, and the General Partner and such
affiliates have no obligation to present business
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opportunities to the Partnership. The fiduciary obligations of general
partners is a developing area of the law. The provisions of the Delaware
Revised Uniform Limited Partnership Act (the "Delaware Act") that allow the
fiduciary duties of a general partner to be waived or restricted by a
partnership agreement have not been tested in a court of law, and the
General Partner has not obtained an opinion of counsel covering the
provisions set forth in the Partnership Agreement that purport to waive or
restrict the fiduciary duties of the General Partner.
The General Partner may retain separate counsel for the Partnership or the
Unitholders in the event of a conflict of interest arising between the General
Partner and its affiliates, on the one hand, and the Partnership or the
Unitholders, on the other, after the sale of the Common Units offered hereby,
depending on the nature of such conflict, but it does not intend to do so in
most cases. The attorneys, independent public accountants and others who have
performed services for the Partnership in connection with this offering have
been retained by the General Partner, its affiliates and the Partnership and
have not been retained to act for the holders of Common Units. They may
continue to be retained by the General Partner, its affiliates and the
Partnership after this offering. Attorneys, independent public accountants and
others who will perform services for the Partnership in the future will be
selected by the General Partner or the Audit Committee and may also perform
services for the General Partner and its affiliates. For a description of the
Audit Committee, see "Management."
The General Partner has agreed not to voluntarily withdraw as general partner
prior to July 31, 2004, without the approval of holders of record of at least
66 2/3% of the outstanding Units (excluding for purposes of such determination
Units held by the General Partner and its affiliates) and not to sell its
general partner interest (other than to an affiliate and under certain other
limited circumstances) prior to July 31, 2004, without the approval of holders
of record of at least a majority of the outstanding Units (excluding for
purposes of such determination Units owned by the General Partner and its
affiliates). Ferrell may, however, dispose of the capital stock of the General
Partner without the consent of the Unitholders. If the capital stock of the
General Partner is transferred to a third party, but no transfer is made of its
general partner interest in the Partnership, the General Partner will remain
bound by the Partnership Agreement. If, through share ownership or otherwise,
persons not now affiliated with the General Partner were to acquire its general
partner interest in the Partnership or effective control of the General
Partner, management of the Partnership and resolutions of conflicts of
interest, such as those described above, could change substantially.
THE PARTNERSHIP AGREEMENT LIMITS THE LIABILITY AND MODIFIES THE FIDUCIARY
DUTIES UNDER DELAWARE LAW OF THE GENERAL PARTNER TO THE PARTNERSHIP AND THE
HOLDERS OF UNITS; HOLDERS OF COMMON UNITS ARE DEEMED TO HAVE CONSENTED TO
CERTAIN ACTIONS THAT MIGHT BE DEEMED CONFLICTS OF INTEREST.
Certain provisions of the Partnership Agreement contain exculpatory language
purporting to limit the liability of the General Partner to the Partnership and
the Unitholders. For example, the Partnership Agreement provides as follows:
(i) Borrowings by the Partnership or the approval thereof by the General
Partner shall not constitute a breach of any duty of the General Partner to
the Partnership or the Unitholders whether or not the purpose or effect
thereof is to permit distributions on the Units (and possibly avoiding
subordination of distributions on the Subordinated Units or hastening the
expiration of the Subordination Period or the conversion of Subordinated
Units into Common Units) or to increase distributions with respect to the
Incentive Distribution Rights.
(ii) Any actions taken by the General Partner consistent with the
standards of reasonable discretion set forth in the definitions of
Available Cash and Cash from Operations will be deemed not to breach any
duty of the General Partner to the Partnership or to the Unitholders.
(iii) In the absence of bad faith by the General Partner, the resolution
of any conflicts of interest by the General Partner will not constitute a
breach of the Partnership Agreement or a
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breach of any standard of care or duty. See "Conflicts of Interest and
Fiduciary Responsibility-- Conflicts of Interest--Fiduciary Duties of the
General Partner."
(iv) With certain limited exceptions, it will not constitute a breach of
the General Partner's fiduciary duties to the Partnership or the
Unitholders for affiliates of the General Partner to engage in certain
activities of the type conducted by the Partnership, even if in direct
competition with the Partnership.
Provisions of the Partnership Agreement purport to limit the liability of the
General Partner to the Partnership and the Unitholders. Such provisions also
purport to modify the fiduciary duty standards to which the General Partner
would otherwise be subject under Delaware law, under which a general partner
owes its limited partners the highest duties of good faith, fairness and
loyalty. Such duty of loyalty would generally prohibit a general partner of a
Delaware limited partnership from taking any action or engaging in any
transaction as to which it has a conflict of interest. The Partnership
Agreement permits the General Partner to exercise the discretion and authority
granted to it thereunder in the management of the Partnership and the conduct
of its operations, so long as its actions are in, or not inconsistent with, the
best interests of the Partnership. In addition, the Partnership Agreement
provides that a purchaser of Common Units is deemed to have consented to
certain conflicts of interest and actions of the General Partner and its
affiliates that might otherwise be prohibited, including engaging in certain
activities of the type conducted by the Partnership, even in direct competition
with the Partnership, and the establishment of certain contractual arrangements
between the General Partner or its affiliates and the Partnership, and a
purchaser of Common Units is also deemed to have agreed that such conflicts of
interest and actions do not constitute a breach by the General Partner of any
duty stated or implied by law or equity. In addition, the Partnership Agreement
limits the liability of the General Partner for monetary damages by providing
that the General Partner and its officers and directors will not be liable for
monetary damages to the Partnership, the limited partners or assignees for
errors of judgment or for any actual omissions if such General Partner and
other persons acted in good faith. The Partnership Agreement also provides for
conflicts of interest between the General Partner or its affiliates, on the one
hand, and the Partnership or the Unitholders, on the other, to be resolved by
the General Partner. The General Partner will not be in breach of its
obligations under the Partnership Agreement or its duties to the Partnership or
the Unitholders if the resolution of such conflict is fair and reasonable to
the Partnership. In resolving such conflict, the General Partner may consider
the relative interests of the parties involved in such conflict in addition to
the Partnership. For
a more detailed description of the factors that may be considered by the
General Partner when resolving a conflict of interest and the circumstances
under which a resolution will be deemed to be fair and reasonable to the
Partnership, see "Conflicts of Interest and Fiduciary Responsibility--Conflicts
of Interest--Fiduciary Duties of the General Partner." Such modifications of
state law standards of fiduciary duty may significantly limit a Unitholder's
ability to successfully challenge the actions of the General Partner as being
in breach of what would otherwise have been a fiduciary duty, but these
modifications are believed to be necessary and appropriate to enable the
General Partner to serve as the general partner of the Partnership without
undue risk of liability.
TAX CONSIDERATIONS
For a general discussion of the expected federal income tax consequences of
acquiring, owning and disposing of Units, see "Tax Considerations."
TAX TREATMENT IS DEPENDENT ON PARTNERSHIP STATUS
The availability to a Unitholder of the federal income tax benefits of an
investment in the Partnership depends, in large part, on the classification of
the Partnership as a partnership for federal income tax
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purposes. Based on certain representations by the General Partner, Andrews &
Kurth L.L.P., special counsel to the General Partner and the Partnership, is of
the opinion that, under current law, the Partnership will be classified as a
partnership for federal income tax purposes. However, no ruling from the IRS as
to such status has been or will be requested, and the opinion of counsel is not
binding on the IRS. Moreover, in order for the Partnership to continue to be
classified as a partnership for federal income tax purposes, at least 90% of
the Partnership's gross income for each taxable year must consist of qualifying
income. See "Tax Considerations--Partnership Status."
If the Partnership were classified as an association taxable as a corporation
for federal income tax purposes, the Partnership would pay tax on its income at
corporate rates, distributions would generally be taxed to the Unitholders as
corporate distributions, and no income, gain, losses, deductions or credits
would flow through to the Unitholders. Because a tax would be imposed upon the
Partnership as an entity, the cash available for distribution to the
Unitholders would be substantially reduced. Treatment of the Partnership as an
association taxable as a corporation or otherwise as a taxable entity would
result in a material reduction in the anticipated cash flow and after-tax
return to the Unitholders. See "Tax Considerations--Partnership Status."
There can be no assurance that the law will not be changed so as to cause the
Partnership to be treated as an association taxable as a corporation for
federal income tax purposes or otherwise to be subject to entity-level
taxation. The Partnership Agreement provides that, if a law is enacted or
existing law is modified or interpreted in a manner that subjects the
Partnership to taxation as a corporation or otherwise subjects the Partnership
to entity level taxation for federal, state or local income tax purposes,
certain provisions of the Partnership Agreement relating to the subordination
of distributions on Subordinated Units and to the Incentive Distribution Rights
will be subject to change, including a decrease in the amount of the Minimum
Quarterly Distribution to reflect the impact of such law on the Partnership.
See "Cash Distribution Policy."
NO IRS RULING WITH RESPECT TO TAX CONSEQUENCES
No ruling has been requested from the IRS with respect to classification of
the Partnership as a partnership for federal income tax purposes or any other
matter affecting the Partnership. Accordingly, the IRS may adopt positions that
differ from counsel's conclusions expressed herein. It may be necessary to
resort to administrative or court proceedings in an effort to sustain some or
all of counsel's conclusions, and some or all of such conclusions ultimately
may not be sustained. The costs of any contest with the IRS will be borne
directly or indirectly by some or all of the Unitholders and the General
Partner.
AMORTIZATION OF CUSTOMER RELATIONSHIPS
In connection with the formation of the Partnership, the General Partner will
contribute certain customer relationships to the Partnership. The General
Partner intends to treat such customer relationships as amortizable assets of
the Partnership for federal income tax purposes. The IRS has challenged the
Company's amortization of customer relationships and it is possible that the
IRS will challenge the amortization of customer relationships by the
Partnership. If the IRS were to successfully challenge the amortization of
customer relationships by the Partnership, the amount of amortization available
to a Unitholder and, therefore, the after tax return of a Unitholder with
respect to his investment in the Partnership, could be adversely affected,
although the Partnership does not believe the impact of such effect would be
material.
DEDUCTIBILITY OF LOSSES
In the case of taxpayers subject to the passive loss rules, losses generated
by the Partnership, if any, will only be available to offset future income
generated by the Partnership and cannot be used to
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offset income from other activities, including passive activities or
investments. Unused losses may be deducted when the Unitholder disposes of all
of his Units in a fully taxable transaction with an unrelated party. Net
passive income from the Partnership may be offset by a Unitholder's unused
Partnership losses carried over from prior years, but not by losses from other
passive activities, including losses from other publicly traded partnerships.
See "Tax Considerations--Tax Consequences of Unit Ownership--Limitations on
Deductibility of Partnership Losses."
TAX LIABILITY EXCEEDING CASH DISTRIBUTIONS OR PROCEEDS FROM DISPOSITIONS OF
UNITS
A Unitholder will be required to pay federal income tax and, in certain
cases, state and local income taxes on his allocable share of the
Partnership's income, whether or not he receives cash distributions from the
Partnership. No assurance can be given that a Unitholder will receive cash
distributions equal to his allocable share of taxable income from the
Partnership. Further, a Unitholder may incur tax liability, in excess of the
amount of cash received, upon the sale of his Units. See "Tax Considerations--
Other Tax Considerations" for a discussion of certain state and local tax
considerations that may be relevant to prospective Unitholders.
BUNCHING OF INCOME
Each Unitholder will be required to include in income his allocable share of
Partnership income, gain, loss and deduction for the fiscal year of the
Partnership ending within or with the taxable year of the Unitholder. In
addition, a Unitholder who disposes of Units following the close of the
Partnership's taxable year but before the close of the Unitholder's taxable
year must include his allocable share of Partnership income, gain, loss and
deduction in income for the Unitholder's taxable year with the result that the
Unitholder will be required to report in income for his taxable year his
distributive share of more than one year of Partnership income, gain, loss and
deduction. For example, a Unitholder reporting on a calendar year basis who
acquires Common Units in the offering made hereby and who disposes of such
Common Units after July 31, 1995 but before December 31, 1995 will be required
to include in his 1995 taxable income his allocable share of Partnership
income for the Partnership's fiscal year ending July 31, 1995, plus his
allocable share of Partnership income for the period beginning August 1, 1995
and ending on the date such Common Units are disposed. See "Tax
Considerations--Disposition of Common Units--Allocations Between Transferors
and Transferees."
The Partnership may be required at some future date to adopt a taxable year
ending December 31, rather than its current taxable year ending July 31. In
that event, a Unitholder may be required to include in income for his taxable
year his distributive share of more than one year of Partnership income, gain,
loss and deduction. See "Tax Considerations--Tax Treatment of Operations--
Accounting Method and Taxable Year."
OWNERSHIP OF UNITS BY TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER INVESTORS
Investment in Units by certain tax-exempt entities, regulated investment
companies and foreign persons raises issues unique to such persons. See "Tax
Considerations--Tax-Exempt Organizations and Certain Other Investors."
TAX SHELTER REGISTRATION; POTENTIAL IRS AUDIT
The Partnership has been registered with the IRS as a "tax shelter." No
assurance can be given that the Partnership will not be audited by the IRS or
that tax adjustments will not be made. The rights of a Unitholder owning less
than a 1% profit interest in the Partnership to participate in the income tax
audit process are very limited. Further, any adjustments in the Partnership's
returns will lead to adjustments in the Unitholders' returns and may lead to
audits of Unitholders' returns and adjustments of items unrelated to the
Partnership. Each Unitholder would bear the cost of any expenses incurred in
connection with an examination of such Unitholders' personal tax return.
37
<PAGE>
THE TRANSACTIONS
Concurrently with the closing of this offering, Ferrellgas will contribute
all of its propane business and assets to the Partnership in exchange for
1,000,000 Common Units, 16,118,559 Subordinated Units and the Incentive
Distribution Rights, as well as a 2% general partner interest in the
Partnership and the Operating Partnership, on a combined basis. In connection
with the contribution of such business and assets by Ferrellgas, the Operating
Partnership will assume substantially all of the liabilities, whether known or
unknown, associated with such business and assets (other than income tax
liabilities). The Operating Partnership intends to maintain insurance and
reserves at levels that it believes will be adequate to satisfy such
liabilities. In addition, the Operating Partnership will assume the payment
obligations of Ferrellgas under (i) $50 million of Existing Floating Rate
Notes (bearing interest at 5.5% per annum at April 30, 1994), (ii) $177.6
million of Existing Fixed Rate Notes bearing interest at 12% per annum and
(iii) $246.4 million of Existing Subordinated Debentures bearing interest at
11 5/8% per annum. All of this long-term debt will be retired with the net
proceeds from the sale by the Partnership of the Common Units offered hereby
(estimated to be approximately $260.3 million at an assumed initial public
offering price of $21.375 per Common Unit) and the net proceeds from the
issuance of approximately $250 million in aggregate principal amount of Senior
Notes to be issued by the Operating Partnership concurrently with the closing
of this offering (estimated to be approximately $245.3 million). Immediately
prior to the closing of this offering, the Operating Partnership expects to
enter into the $185 million Credit Facility. The Credit Facility will permit
borrowings of up to $100 million on a senior unsecured basis to fund working
capital and general partnership requirements (of which $50 million will be
available to support letters of credit). In addition, up to $85 million of
borrowings will be permitted on a senior unsecured basis, at least $60 million
of which will be available solely to finance acquisitions and growth capital
expenditures.
Ferrellgas will retain and will not contribute to the Partnership
approximately $39 million in cash, approximately $17 million in receivables
from affiliates of Ferrell and Ferrell Class B Stock with a book value of
approximately $36 million. It is anticipated that following the closing of
this offering the Company will loan approximately $25 million to Ferrell and
will dividend to Ferrell the remainder of the cash, receivables and Ferrell
Class B Stock, as well as the Common Units, Subordinated Units and Incentive
Distribution Rights received by the Company in exchange for the contribution
of its propane business and assets to the Partnership.
Concurrently with the closing of this offering, the Company will consummate
a tender offer and consent solicitation with respect to its Existing
Subordinated Debentures. The consent solicitation is necessary to modify the
indenture related to the Existing Subordinated Debentures in order to permit
the Company to consummate the transactions contemplated by this Prospectus. As
of the date of this Prospectus, all of the outstanding Existing Subordinated
Debentures have been tendered and will be retired by the Operating
Partnership, as described above.
Concurrently with the closing of this offering, the Company will mail to the
holders of the Existing Senior Notes a notice of redemption of all outstanding
Existing Senior Notes, pursuant to the optional redemption provisions of the
Existing Senior Notes Indenture. The redemption date will be 30 days after the
date of mailing of such notice. The Existing Senior Notes Indenture provides
for a redemption price equal to 100% of the principal amount plus accrued and
unpaid interest, if any, to the redemption date plus, in the case of the
Existing Fixed Rate Notes, a premium which is based on certain yield
information for U.S. Treasury securities as of three business days prior to
the redemption date. The Operating Partnership will deposit with the trustee
on the date of closing of this offering an amount expected to be more than
sufficient to pay the redemption price. As a result of the transactions
contemplated hereby, during the 30-day period prior to the redemption date, an
event of default will exist under the Existing Senior Notes Indenture. The
holders of at least 25% of the principal amount of Existing Senior Notes,
therefore, will be entitled, by notice to the Company and the trustee, to
declare
38
<PAGE>
the unpaid principal of, and accrued and unpaid interest and the applicable
premium on, the Existing Senior Notes to be immediately due and payable. The
trustee under the Existing Senior Notes Indenture has advised the Company that
it intends to notify the holders of the Existing Senior Notes of this right.
In the event of such a declaration, the amount already deposited by the
Operating Partnership in payment of the redemption price would be applied to
pay the amount so declared immediately due and payable. The Partnership will
incur an extraordinary loss of approximately $20.4 million related to the
retirement of the Existing Senior Notes, approximately $31.2 million relating
to the Existing Subordinated Debentures resulting from consent and tender
offer fees and approximately $11.2 million relating to the write off of
unamortized financing costs, all in accordance with GAAP.
At the closing of this offering, it is anticipated that the Operating
Partnership will borrow approximately $10 million under the Credit Facility
which will enable the Partnership to commence operations with an initial cash
balance of at least $20 million. To the extent that the initial public
offering price per Common Unit is less than $21.375, the Operating Partnership
may need to borrow additional funds under the Credit Facility in order to
commence operations with an initial cash balance of at least $20 million. For
a description of the Credit Facility, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Pro Forma Financial
Condition."
The foregoing description assumes that the Underwriters' overallotment
option is not exercised. If the Underwriters' overallotment option is
exercised in full, the Partnership will issue 1,965,000 additional Common
Units. The Partnership will use the net proceeds from any exercise of the
Underwriters' overallotment option first to repay any amounts borrowed under
the Credit Facility or, if no such borrowings have been made, to establish an
initial cash balance of up to $20 million. Any remaining net proceeds from the
exercise of the Underwriters' overallotment option will be used by the
Partnership to repurchase for retirement up to 1,000,000 Common Units held by
Ferrell at a price per Unit equal to the initial public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. Any net proceeds remaining after such repurchase will be retained
by the Partnership for general partnership purposes.
Immediately following this offering, Ferrellgas will own an effective 2%
general partner interest in the Partnership and the Operating Partnership, on
a combined basis, and Ferrell will own 1,000,000 Common Units (if the
Underwriters' overallotment option is exercised in full all of such Common
Units will be repurchased and retired by the Partnership) and 16,118,559
Subordinated Units representing an aggregate 55.5% limited partner interest in
the Partnership (50.7% if the Underwriters' overallotment option is exercised
in full) and the Incentive Distribution Rights.
39
<PAGE>
USE OF PROCEEDS
The net proceeds to the Partnership from the sale of the Common Units
offered hereby are estimated to be approximately $260.3 million after
deducting the underwriting discount and the expenses of this offering
(assuming an initial public offering price of $21.375 per Common Unit.) The
net proceeds of this offering, together with the net proceeds from the
issuance of approximately $250 million in aggregate principal amount of the
Senior Notes (estimated to be approximately $245.3 million), will be used by
the Partnership to repay indebtedness of Ferrellgas. The indebtedness to be
repaid consists of $50 million of Existing Floating Rate Notes, which have a
floating rate of interest (5.5% per annum at April 30, 1994) and mature in
August 1996, $177.6 million of Existing Fixed Rate Notes, which have an
interest rate of 12% per annum and mature in August 1996, and up to $246.4
million of Existing Subordinated Debentures, which have an interest rate of 11
5/8% and mature in December 2003. See "Capitalization." If the Underwriters'
overallotment option is exercised in full, the estimated additional net
proceeds to the Partnership will be approximately $39.3 million. The
Partnership will use the net proceeds from any exercise of the Underwriters'
overallotment option first to repay any amounts borrowed under the Credit
Facility (anticipated to be approximately $10 million) to enable the
Partnership to commence operations with an initial cash balance of at least
$20 million or, if no such borrowings have been made, to establish an initial
cash balance of up to $20 million that will be used for general partnership
purposes. See "The Transactions." Any remaining net proceeds from the exercise
of the Underwriters' overallotment option will be used by the Partnership to
repurchase for retirement up to 1,000,000 Common Units held by Ferrell at a
price per Unit equal to the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. Any net proceeds remaining after such repurchase will be retained
by the Partnership for general partnership purposes.
40
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the consolidated capitalization of
Ferrellgas at April 30, 1994, (ii) the pro forma adjustments required to
reflect the transactions to be consummated at the closing of this offering,
including the issuance of Common Units pursuant to the offering made hereby at
an assumed offering price of $21.375 per Common Unit, and (iii) the combined
pro forma capitalization of the Partnership at such date after giving effect
thereto. The table should be read in conjunction with the historical and pro
forma consolidated financial statements and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
APRIL 30, 1994
---------------------------------------
FERRELLGAS PRO FORMA PARTNERSHIP
HISTORICAL ADJUSTMENTS(1) PRO FORMA
---------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt, including current
portion of long-term
debt................................... $ 1,486 $ -- $ 1,486
======== ========= ========
Long-term debt:
Senior Notes, interest at %, due in
2001................................. $ $ 250,000 (2) $250,000
Existing floating rate notes, interest
at applicable LIBOR rate plus 2.25%
(5.5% at April 30,1994), due in
August 1996.......................... 50,000 (50,000)
Existing fixed rate notes, interest at
12%, due in August 1996.............. 177,600 (177,600)
Existing subordinated debentures,
interest at 11 5/8%, due in December
2003................................. 246,430 (246,430)
Other long-term debt.................. 2,441 15,000 (3) 17,441
-------- --------- --------
Total long-term debt................ 476,471 (209,030) 267,441
-------- --------- --------
Stockholder's equity.................... 30,848 (30,848)
Partners' capital:
Common Unitholders.................... 66,067 (4) 66,067
Subordinated Unitholder............... 75,524 75,524
General Partner....................... 2,890 2,890
-------- --------- --------
Total stockholder's equity/partners'
capital............................ 30,848 113,633 144,481
-------- --------- --------
Total capitalization................ $507,319 $ (95,397) $411,922
======== ========= ========
</TABLE>
- -------
(1) Reflects the conveyance of the assets of Ferrellgas to the Partnership in
return for the assumption of liabilities and the issuance of 1,000,000
Common Units, 16,118,559 Subordinated Units, the Incentive Distribution
Rights and general partner interests in the Partnership and the Operating
Partnership equal to 2% of the total partners' capital. Ferrellgas will
make a dividend of such Common Units, Subordinated Units and Incentive
Distribution Rights to its parent, Ferrell.
(2) The Partnership's pro forma combined financial statements assume that the
Operating Partnership will issue $250 million of Senior Notes with a fixed
interest rate of 9.75%. It is possible, however, that a portion of the
Senior Notes, not anticipated to be in excess of $50 million, will bear
interest at a floating rate.
(3) Represents borrowings at April 30, 1994 under the Credit Facility to
enable the Partnership to commence operations with an initial cash balance
of $20 million. Assuming a closing date of June 30, 1994, the Partnership
anticipates it will borrow approximately $10 million under the Credit
Facility. Actual borrowings under the Credit Facility at the closing of
this offering will depend upon the Partnership's cash balances at such
time, the initial offering price per Common Unit and the timing of any
exercise of the Underwriters' overallotment option.
(4) Includes $61.4 million representing limited partnership capital resulting
from the issuance of 13,100,000 Common Units offered hereby. Such limited
partnership capital is less than the estimated net proceeds of the
offering of $260.3 million due to the assets and liabilities contributed
by Ferrellgas to the Partnership being recorded at historical cost by the
Partnership, rather than fair value, in accordance with generally accepted
accounting principles. Total capital of the Partnership is allocated to
the limited partners based on their relative limited partner unit
ownership percentage.
Concurrent with the consummation of the transactions contemplated hereby,
the Operating Partnership will issue $250 million in aggregate principal
amount of the Senior Notes in a registered public offering. It is anticipated
that the Operating Partnership will also enter into the Credit Facility in the
amount of $185 million. For a discussion of the Senior Notes and the Credit
Facility and other capital resources and liquidity of the Partnership, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Pro Forma Financial Condition."
41
<PAGE>
DILUTION
On a pro forma basis as of April 30, 1994, after giving effect to the
transactions contemplated by this Prospectus, the net tangible book value per
Common Unit was $2.559. Assuming an initial public offering price per Common
Unit of $21.375, purchasers of Common Units in this offering will suffer
substantial and immediate dilution in net tangible book value per Common Unit
for financial accounting purposes, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Initial public offering price per Common Unit.............. $21.375
Net tangible book value per Unit before the offering
(1)(2).................................................... $(6.765)
Increase in book value per Unit attributable to new
investors................................................. 9.324
-------
Less: Pro forma net tangible book value per Unit after the
offering (2)(3)........................................... 2.559
-------
Immediate dilution in net tangible book value per Common
Unit
to new investors.......................................... $18.816
=======
</TABLE>
- --------
(1) Determined by dividing the number of Units (1,000,000 Common Units and
16,118,559 Subordinated Units) assumed to be issued to Ferrellgas for its
contribution of assets and liabilities to the Partnership into the net
tangible book value allocable to such Units.
(2) The net tangible book value does not include intangible assets contributed
to the Partnership with a book value of $65.6 million.
(3) Determined by dividing the total number of Units (14,100,000 Common Units
and 16,118,559 Subordinated Units) assumed to be outstanding after the
offering made hereby, into the pro forma tangible net worth of the
Partnership allocable to such Units, after giving effect to the
application of the net proceeds of this offering (assuming the
Underwriters' overallotment option is not exercised).
The following table sets forth the number of Units issued by the Partnership
and the total consideration to the Partnership contributed by the General
Partner and by purchasers of Common Units in this offering (assuming an
initial public offering price per Common Unit of $21.375) upon the
consummation of the transactions contemplated by this Prospectus:
<TABLE>
<CAPTION>
UNITS ACQUIRED TOTAL CONSIDERATION
--------------------- ------------------------
NUMBER PERCENT AMOUNT PERCENT
---------- ------- ------------ -------
<S> <C> <C> <C> <C>
General Partner................. 17,118,559(1) 57.5% $(52,595,000)(2) (23.1)%
New investors................... 13,100,000 42.5 280,013,000 123.1
---------- ----- ------------ -----
Total......................... 30,218,559 100.0% $227,418,000 100.0 %
========== ===== ============ =====
</TABLE>
- --------
(1) Upon the consummation of the transactions contemplated by this Prospectus
and assuming the Underwriters' overallotment option is not exercised, the
General Partner and its affiliates will own 1,000,000 Common Units,
16,118,559 Subordinated Units, Incentive Distribution Rights and an
effective 2% general partner interest in the Partnership and the Operating
Partnership on a combined basis. The Common Units and Subordinated Units
generally vote as one class on matters presented to the limited partners,
although Units owned by the General Partner or its affiliates may not vote
with respect to certain matters during the Subordination Period and Common
Units vote as a separate class with respect to certain other matters. See
"The Partnership Agreement."
(2) Total consideration for the General Partner represents the net assets and
liabilities contributed by Ferrellgas at April 30, 1994. The assets and
liabilities contributed by Ferrellgas to the Partnership will be recorded
at historical cost rather than fair value by the Partnership in accordance
with generally accepted accounting principles. Such amount includes $65.6
million, representing intangible assets contributed to the Partnership.
42
<PAGE>
CASH DISTRIBUTION POLICY
A principal objective of the Partnership is to generate cash from
Partnership operations and to distribute Available Cash to its partners in the
manner described herein. "Available Cash" is defined in the glossary and
generally means, with respect to any fiscal quarter of the Partnership, the
sum of all of the cash received by the Partnership from all sources plus
reductions to reserves less all of its cash disbursements and net additions to
reserves.
The General Partner's decisions regarding amounts to be placed in or
released from reserves will have a direct impact on the amount of Available
Cash because increases and decreases in reserves are taken into account in
computing Available Cash. The General Partner may, in its reasonable
discretion (subject to certain limits), determine the amounts to be placed in
or released from reserves each quarter.
Cash distributions will be characterized as either distributions of Cash
from Operations or Cash from Interim Capital Transactions. This distinction
affects the amounts distributed to Unitholders relative to the General
Partner, and under certain circumstances it determines whether holders of
Subordinated Units receive any distributions. See "--Quarterly Distributions
of Available Cash."
Cash from Operations is defined in the glossary and generally refers to the
cash balance of the Partnership on the date the Partnership commences
operations, plus all cash generated by the operations of the Partnership's
business, after deducting related cash expenditures, reserves, debt service
and certain other items.
Cash from Interim Capital Transactions is also defined in the glossary and
will generally be generated only by borrowings (other than for working capital
purposes), sales of debt and equity securities and sales or other dispositions
of assets for cash (other than inventory, accounts receivable and other
current assets and assets disposed of in the ordinary course of business).
To avoid the difficulty of trying to determine whether Available Cash
distributed by the Partnership is Cash from Operations or Cash from Interim
Capital Transactions, all Available Cash distributed by the Partnership from
any source will be treated as Cash from Operations until the sum of all
Available Cash distributed as Cash from Operations equals the cumulative
amount of Cash from Operations actually generated from the date the
Partnership commenced operations through the end of the quarter prior to such
distribution. Any excess Available Cash (irrespective of its source) will be
deemed to be Cash from Interim Capital Transactions and distributed
accordingly.
If Cash from Interim Capital Transactions is distributed in respect of each
Common Unit in an aggregate amount per Unit equal to the initial public
offering price of the Common Units (the "Initial Unit Price"), the distinction
between Cash from Operations and Cash from Interim Capital Transactions will
cease, and both types of Available Cash will be treated as Cash from
Operations. The General Partner does not anticipate that there will be
significant amounts of Cash from Interim Capital Transactions distributed.
The Subordinated Units and Incentive Distribution Rights are separate
classes of interests in the Partnership, and the rights of holders of such
interests to participate in distributions to limited partners differ from the
rights of the holders of Common Units. For any given quarter, Available Cash
will be distributed to the General Partner and to the holders of Common Units,
and it may also be distributed to the holders of Subordinated Units and to the
holders of the Incentive Distribution Rights depending upon the amount of
Available Cash for the quarter, amounts distributed in prior quarters, whether
or not the Subordination Period has ended and other factors discussed below.
43
<PAGE>
The discussion below indicates the percentages of cash distributions
required to be made to the General Partner and the Common Unitholders and the
circumstances under which holders of Subordinated Units and holders of
Incentive Distribution Rights are entitled to cash distributions and the
amounts thereof. In the following general discussion of how Available Cash is
distributed, references to Available Cash, unless otherwise stated, mean
Available Cash that constitutes Cash from Operations. For a discussion of
Available Cash constituting Cash from Operations available for distributions
with respect to the Units on a pro forma basis, see "--Pro Forma Available
Cash."
QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
The Partnership will make distributions to its partners with respect to each
fiscal quarter of the Partnership prior to liquidation in an amount equal to
100% of its Available Cash for such quarter. Distributions will be made within
45 days after the end of each January, April, July and October. With respect
to each quarter during the Subordination Period, to the extent there is
sufficient Available Cash, the holders of Common Units will have the right to
receive the Minimum Quarterly Distribution ($0.50 per Unit), plus any Common
Unit Arrearages, prior to any distribution of Available Cash to the holders of
Subordinated Units. The terms "Subordination Period" and "Common Unit
Arrearages" are defined in the glossary. Common Units will not accrue
arrearages for any quarter after the Subordination Period, and Subordinated
Units will not accrue any arrearages with respect to distributions for any
quarter.
The Subordination Period will extend from the closing of this offering until
the first day of any quarter beginning on or after August 1, 1999 in respect
of which (i) distributions of Available Cash on the Common Units and the
Subordinated Units equaled or exceeded the Minimum Quarterly Distribution for
each of the three consecutive four-quarter periods immediately preceding such
date (excluding any such Available Cash that is attributable to net increases
in working capital borrowings, net decreases in reserves and any positive
balance in Cash from Operations at the beginning of such four-quarter periods)
and (ii) the Partnership has invested at least $50 million in acquisitions and
capital additions or improvements made to increase the operating capacity of
the Partnership. The Partnership Agreement contains provisions intended to
discourage a person or group from attempting to remove the General Partner as
general partner of the Partnership or otherwise change management of the
Partnership. Among them is the provision that if the General Partner is
removed other than for cause, the Subordination Period will end. See "The
Partnership Agreement--Change of Management Provisions." Upon the expiration
of the Subordination Period, the Common Units will no longer accrue
distribution arrearages and the holders of Subordinated Units will participate
pro rata with the holders of Common Units in distributions of Available Cash
up to the Minimum Quarterly Distribution.
A total of 5,372,853 Subordinated Units held by Ferrellgas and its
affiliates will convert into Common Units on the first day of any quarter
beginning on or after August 1, 1997 in respect of which (i) distributions of
Available Cash on the Common Units and the Subordinated Units equaled or
exceeded the Minimum Quarterly Distribution for each of the two consecutive
four-quarter periods immediately preceding such date and (ii) the operating
cash generated by the Partnership in each of such four-quarter periods equaled
or exceeded 125% of the Minimum Quarterly Distribution on all Common Units and
all Subordinated Units (excluding in each case any such Available Cash that is
attributable to net increases in working capital borrowings, net decreases in
reserves and any positive balance in Cash from Operations at the beginning of
such four-quarter periods and including for purposes of (ii) above any net
increases in reserves to provide funds for distributions with respect to Units
and any general partner interests). Upon the expiration of the Subordination
Period all remaining Subordinated Units will convert into Common Units. In
addition, in the event that the General Partner is removed other than for
cause, the Subordinated Units will convert into Common Units and will
therefore participate in distributions in respect of Common Unit Arrearages,
if any. See "The Partnership Agreement--Withdrawal or Removal of the General
Partner."
44
<PAGE>
DISTRIBUTIONS OF CASH FROM OPERATIONS DURING SUBORDINATION PERIOD
Distributions by the Partnership of Available Cash constituting Cash from
Operations with respect to any quarter during the Subordination Period will be
made in the following manner:
first, 98% to the Common Unitholders, pro rata, and 2% to the General
Partner, until there has been distributed in respect of each Common Unit an
amount equal to the Minimum Quarterly Distribution for such quarter;
second, 98% to the Common Unitholders, pro rata, and 2% to the General
Partner, until there has been distributed in respect of each Common Unit an
amount equal to any cumulative Common Unit Arrearages on each Common Unit
with respect to any prior quarter;
third, 98% to the Subordinated Unitholders, pro rata, and 2% to the
General Partner, until there has been distributed in respect of each
Subordinated Unit an amount equal to the Minimum Quarterly Distribution for
such quarter; and
thereafter, in the manner described in "--Incentive Distributions--
Hypothetical Annualized Yield" below.
The Minimum Quarterly Distribution is subject to adjustment as described
below under "--Distributions of Cash from Interim Capital Transactions" and
"--Adjustment of Minimum Quarterly Distribution and Target Distribution
Levels."
The above references to the 2% of Available Cash constituting Cash from
Operations distributed to the General Partner are references to the amount of
the General Partner's percentage interest in distributions from the
Partnership and the Operating Partnership on a combined basis. The General
Partner will own a 1% general partner interest in the Partnership and a
1.0101% general partner interest in the Operating Partnership. Other
references in this Prospectus to the General Partner's 2% interest or to
distributions of 2% of Available Cash are also references to the amount of the
General Partner's combined percentage interest in the Partnership and the
Operating Partnership.
DISTRIBUTIONS OF CASH FROM OPERATIONS AFTER SUBORDINATION PERIOD
Distributions by the Partnership of Available Cash constituting Cash from
Operations with respect to any quarter after the Subordination Period will be
made in the following manner:
first, 98% to all Unitholders, pro rata, and 2% to the General Partner,
until there has been distributed in respect of each Unit an amount equal to
the Minimum Quarterly Distribution for such quarter; and
thereafter, in the manner described in "--Incentive Distributions--
Hypothetical Annualized Yield" below.
INCENTIVE DISTRIBUTIONS--HYPOTHETICAL ANNUALIZED YIELD
For any quarter for which Available Cash is distributed in respect of both
the Common Units and the Subordinated Units in an amount equal to the Minimum
Quarterly Distribution and Available Cash has been distributed on outstanding
Common Units in such amount as may be necessary to eliminate any Common Unit
Arrearages, then any additional Available Cash will be distributed among the
Unitholders, the General Partner and the holders of the Incentive Distribution
Rights in the following manner:
first, 98% to all Unitholders, pro rata, and 2% to the General Partner,
until the Unitholders have received (in addition to any distributions to
Common Unitholders with respect to Common Unit Arrearages) a total of $0.55
for such quarter in respect of each Unit (the "First Target Distribution");
second, 85% to all Unitholders, pro rata, 13% to the holders of the
Incentive Distribution Rights, pro rata, and 2% to the General Partner, until
the Unitholders have received (in addition to any distributions to Common
Unitholders with respect to Common Unit Arrearages) a total of $0.63 for such
quarter in respect of each Unit (the "Second Target Distribution");
45
<PAGE>
third, 75% to all Unitholders, pro rata, 23% to the holders of the
Incentive Distribution Rights, pro rata, and 2% to the General Partner,
until the Unitholders have received (in addition to any distributions to
Common Unitholders with respect to Common Unit Arrearages) a total of $0.82
for such quarter in respect of each Unit (the "Third Target Distribution");
and
fourth, 50% to all Unitholders, pro rata, 48% to the holders of the
Incentive Distribution Rights, pro rata, and 2% to the General Partner.
The following table illustrates the percentage allocation of any such
additional Available Cash among the Unitholders, the General Partner and the
holders of the Incentive Distribution Rights up to the various target
distribution levels and a hypothetical annualized percentage yield to be
realized by a Unitholder at each different level of allocation between the
Unitholders, the General Partner and the holders of the Incentive Distribution
Rights. For purposes of the following table, the annualized percentage yield
is calculated on a hypothetical basis as the annual pretax yield on an
investment in a Common Unit during the first year following the investment
assuming that (i) the Common Unit was purchased at an amount equal to the
assumed initial public offering price of $21.375 per Unit, which is the mid-
point of the range of the estimated initial public offering price, and (ii)
the Partnership distributed each quarter during the first year following the
investment the amount set forth under the column "Quarterly Distribution
Amount." The calculations are also based on the assumption that the quarterly
distribution amounts shown do not include any Common Unit Arrearages. The
amounts set forth under "Marginal Percentage Interest in Distributions" are
the percentage interests of the Unitholders, the General Partner and the
holders of the Incentive Distribution Rights in any Available Cash distributed
over and above the quarterly distribution amount shown, until Available Cash
reaches the next target distribution level, if any. The percentage interests
shown for the Unitholders and the General Partner for the Minimum Quarterly
Distribution are also applicable to quarterly distribution amounts that are
less than the Minimum Quarterly Distribution.
<TABLE>
<CAPTION>
MARGINAL PERCENTAGE
INTEREST IN
DISTRIBUTIONS
--------------------------------
HOLDERS OF
QUARTERLY HYPOTHETICAL INCENTIVE
DISTRIBUTION ANNUALIZED DISTRIBUTION GENERAL
AMOUNT YIELD UNITHOLDERS RIGHTS PARTNER
------------ ------------ ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
Minimum Quarterly
Distribution........... $0.50 9.357% 98% 0% 2%
First Target
Distribution........... $0.55 10.292% 98% 0% 2%
Second Target
Distribution........... $0.63 11.789% 85% 13% 2%
Third Target
Distribution........... $0.82 15.345% 75% 23% 2%
Thereafter.............. -- -- 50% 48% 2%
</TABLE>
The General Partner expects to make distributions of all Available Cash
within 45 days after the end of each fiscal quarter ending January, April,
July and October to holders of record on the applicable record date, which
will generally be between 30 and 35 days after such quarter. The first
distribution for the period from the closing of this offering through October
31, 1994, is expected to be made on or before December 15, 1994, to holders of
record on or about November 30, 1994. The Minimum Quarterly Distribution and
First, Second and Third Target Distribution levels with respect to the period
from the closing of this offering through October 31, 1994, will be adjusted
(either upward or downward) to reflect the actual number of days in such
period. The Minimum Quarterly Distribution and First, Second and Third Target
Distribution levels are also subject to certain other adjustments as described
below under "--Distribution of Cash from Interim Capital Transactions" and "--
Adjustment of Minimum Quarterly Distribution and Target Distribution Levels."
DISTRIBUTIONS OF CASH FROM INTERIM CAPITAL TRANSACTIONS
Distributions by the Partnership of Available Cash that constitutes Cash
from Interim Capital Transactions will be made 98% to all Unitholders, pro
rata, and 2% to the General Partner, until the Partnership shall have
distributed, in respect of each Unit, Available Cash constituting Cash from
46
<PAGE>
Interim Capital Transactions in an aggregate amount per Unit equal to the
Initial Unit Price. Thereafter, all distributions that constitute Cash from
Interim Capital Transactions will be distributed as if they were Cash from
Operations.
As Cash from Interim Capital Transactions is distributed, it is treated as
if it were a repayment of the Initial Unit Price. To reflect such repayment,
the Minimum Quarterly Distribution and First, Second and Third Target
Distribution levels will be adjusted downward by multiplying each amount by a
fraction, the numerator of which is the Unrecovered Initial Unit Price (as
defined in the glossary) immediately after giving effect to such repayment and
the denominator of which is the Unrecovered Initial Unit Price immediately
prior to such repayment.
When "payback" of the Initial Unit Price has occurred, i.e., when the
Unrecovered Initial Unit Price is zero, then in effect the Minimum Quarterly
Distribution and the First, Second and Third Target Distribution levels each
will have been reduced to zero. Thereafter, all distributions of Available
Cash from all sources will be treated as if they were Cash from Operations
and, because the Minimum Quarterly Distribution and the First, Second and
Third Target Distributions will have been reduced to zero, the holders of the
Incentive Distribution Rights will be entitled to receive 48% of all
distributions of Available Cash after distributions in respect of Common Unit
Arrearages.
Distributions of Cash from Interim Capital Transactions will not reduce the
Minimum Quarterly Distribution for the quarter with respect to which they are
distributed.
ADJUSTMENT OF MINIMUM QUARTERLY DISTRIBUTION AND TARGET DISTRIBUTION LEVELS
The Minimum Quarterly Distribution, the First, Second and Third Target
Distribution levels and the Unrecovered Initial Unit Price will be
proportionately adjusted upward or downward, as appropriate, in the event of
any combination or subdivision of Common Units (whether effected by a
distribution payable in Common Units or otherwise), but not by reason of the
issuance of additional Common Units for cash or property. For example, in the
event of a two-for-one split of the Common Units (assuming no prior
adjustments), the Minimum Quarterly Distribution and the First, Second and
Third Target Distribution levels would each be reduced to 50% of its initial
level.
In addition, as noted above under "--Quarterly Distributions of Available
Cash--Distributions of Cash from Interim Capital Transactions," if a
distribution is made of Available Cash constituting Cash from Interim Capital
Transactions, the Minimum Quarterly Distribution and the First, Second and
Third Target Distribution levels will be adjusted downward proportionately, by
multiplying each such amount, as the same may have been previously adjusted,
by a fraction, the numerator of which is the Unrecovered Initial Unit Price
immediately after giving effect to such distribution and the denominator of
which is the Unrecovered Initial Unit Price immediately prior to such
distribution. For example, assuming the Unrecovered Initial Unit Price is
$21.375 per Unit and if Cash from Interim Capital Transactions of $10.6875 per
Unit is distributed to Unitholders (assuming no prior adjustments), then the
amount of the Minimum Quarterly Distribution and the First, Second and Third
Target Distribution levels would each be reduced to 50% of its initial level.
If and when the Unrecovered Initial Unit Price is zero, the Minimum Quarterly
Distribution and the First, Second and Third Target Distribution levels each
will have been reduced to zero, and the holders of the Incentive Distribution
Rights will be entitled to receive 48% of all distributions of Available Cash
after distributions in respect of Common Unit Arrearages.
The Minimum Quarterly Distribution and First, Second and Third Target
Distribution levels may also be adjusted if legislation is enacted or if
existing law is modified or interpreted in a manner that causes the
Partnership to become taxable as a corporation or otherwise subjects the
Partnership to taxation as an entity for federal, state or local income tax
purposes. In such event, the Minimum Quarterly Distribution and First, Second,
and Third Target Distribution levels for each quarter thereafter would be
reduced to an amount equal to the product of (i) each of the Minimum Quarterly
Distribution and First, Second and Third Target Distribution levels multiplied
by (ii) one minus the sum of (x) the
47
<PAGE>
maximum marginal federal income tax rate to which the Partnership is subject
as an entity plus (y) any increase that results from such legislation in the
effective overall state and local income tax rate to which the Partnership is
subject as an entity for the taxable year in which such quarter occurs (after
taking into account the benefit of any deduction allowable for federal income
tax purposes with respect to the payment of state and local income taxes). For
example, assuming the Partnership was not previously subject to state and
local income tax, if the Partnership were to become taxable as an entity for
federal income tax purposes and the Partnership became subject to a maximum
marginal federal, and effective state and local, income tax rate of 38%, then
the Minimum Quarterly Distribution and the First, Second and Third Target
Distribution levels would each be reduced to 62% of the amount thereof
immediately prior to such adjustment.
DISTRIBUTIONS OF CASH UPON LIQUIDATION
Following the commencement of the dissolution and liquidation of the
Partnership, assets will be sold or otherwise disposed of and the partners'
capital account balances will be adjusted to reflect any resulting gain or
loss. The proceeds of such liquidation will, first, be applied to the payment
of creditors of the Partnership in the order of priority provided in the
Partnership Agreement and by law and, thereafter, be distributed to the
Unitholders, the General Partner and the holders of the Incentive Distribution
Rights in accordance with their respective capital account balances, as so
adjusted.
Partners are entitled to liquidation distributions in accordance with
capital account balances. Although operating losses are allocated to all
Unitholders pro rata, the allocations of gains and losses attributable to
liquidation are intended to entitle the holders of outstanding Common Units to
a preference over the holders of outstanding Subordinated Units upon the
liquidation of the Partnership, to the extent of the Unrecovered Initial Unit
Price plus any Common Unit Arrearages. However, no assurance can be given that
the gain or loss upon liquidation of the Partnership will be sufficient to
achieve this result. The manner of such adjustment is as provided in the
Partnership Agreement, the form of which is included as Appendix A to this
Prospectus. Any gain (or unrealized gain attributable to assets distributed in
kind) will be allocated to the partners as follows:
first, to the General Partner and the holders of Units that have negative
balances in their capital accounts to the extent of and in proportion to
such negative balance;
second, 98% to the holders of Common Units, pro rata, and 2% to the
General Partner, until the capital account for each Common Unit is equal to
the Unrecovered Initial Unit Price in respect of such Common Unit plus any
Common Unit Arrearages in respect of such Common Units;
third, 98% to the holders of Subordinated Units, pro rata, and 2% to the
General Partner, until the capital account for each Subordinated Unit is
equal to the Unrecovered Subordinated Unit Capital (as defined in the
glossary) in respect of a Subordinated Unit;
fourth, 98% to all Unitholders, pro rata, and 2% to the General Partner,
until there has been allocated under this clause fourth an amount per Unit
equal to (a) the excess of the First Target Distribution per Unit over the
Minimum Quarterly Distribution per Unit for each quarter of the
Partnership's existence, less (b) the amount per Unit of any distributions
of Available Cash constituting Cash from Operations in excess of the
Minimum Quarterly Distribution per Unit that was distributed 98% to the
Unitholders, pro rata, and 2% to the General Partner, for any quarter of
the Partnership's existence;
fifth, 85% to all Unitholders, pro rata, 13% to the holders of the
Incentive Distribution Rights, pro rata, and 2% to the General Partner,
until there has been allocated under this clause fifth an amount per Unit
equal to (a) the excess of the Second Target Distribution per Unit over the
First Target Distribution per Unit for each quarter of the Partnership's
existence, less (b) the amount per Unit of any distributions of Available
Cash constituting Cash from Operations in excess of the First Target
Distribution per Unit that was distributed 85% to the Unitholders, pro
rata, 13% to the holders of the Incentive Distribution Rights, pro rata,
and 2% to the General Partner, for any quarter of the Partnership's
existence;
48
<PAGE>
sixth, 75% to all Unitholders, pro rata, 23% to the holders of the
Incentive Distribution Rights, pro rata, and 2% to the General Partner,
until there has been allocated under this clause sixth an amount per Unit
equal to (a) the excess of the Third Target Distribution per Unit over the
Second Target Distribution per unit for each quarter of the Partnership's
existence, less (b) the amount per Unit of any distributions of Available
Cash constituting Cash from Operations in excess of the Second Target
Distribution per Unit that was distributed 75% to the Unitholders, pro
rata, 23% to the holders of the Incentive Distribution Rights, pro rata,
and 2% to the General Partner, for any quarter of the Partnership's
existence; and
thereafter, 50% to all Unitholders, pro rata, 48% to the holders of the
Incentive Distribution Rights, pro rata, and 2% to the General Partner.
Any loss or unrealized loss will be allocated to the General Partner and the
Unitholders as follows: first, 98% to the Subordinated Unitholders in
proportion to the positive balances in their respective capital accounts, and
2% to the General Partner, until the positive balances in such Subordinated
Unitholders' respective capital accounts have been reduced to zero, second,
98% to the Common Unitholders in proportion to the positive balances in their
respective capital accounts, and 2% to the General Partner, until the positive
balances in such Common Unitholders' respective capital accounts have been
reduced to zero; and thereafter, to the General Partner.
PRO FORMA AVAILABLE CASH
On a pro forma basis, Available Cash constituting Cash from Operations for
the fiscal year ended July 31, 1993 and the nine months ended April 30, 1994
(calculated using actual net cash flows for such fiscal year and nine-month
period, adjusted for changes in working capital and assuming the Credit
Facility was in place during such fiscal year and nine-month period) would
have been sufficient to allow the Partnership to distribute the Minimum
Quarterly Distribution on all of the Common Units and approximately 90% of the
Minimum Quarterly Distribution on all of the Subordinated Units with respect
to such fiscal year and to distribute the Minimum Quarterly Distribution on
all of the Common Units and all of the Subordinated Units with respect to such
nine-month period. If the transactions to be consummated at the closing of
this offering had been completed on August 1, 1993, the Company believes that
pro forma Available Cash constituting Cash from Operations for the fiscal year
ending July 31, 1994 (calculated using actual net cash flows for the nine
months ended April 30, 1994, adjusted for changes in working capital and
assuming the Credit Facility was in place during such fiscal year), would be
sufficient to allow the Partnership to distribute the Minimum Quarterly
Distribution on all of the Common Units and all of the Subordinated Units with
respect to such fiscal year.
Based on the assumptions discussed below, the General Partner believes that
the Partnership will generate Available Cash constituting Cash from Operations
sufficient to allow the Partnership to distribute at least the Minimum
Quarterly Distribution on all of the Common Units and all of the Subordinated
Units with respect to each full fiscal quarter through the quarter ending July
31, 1995, although no assurance can be given respecting such distributions.
This belief is based on the General Partner's opinions regarding the future
business prospects of the Partnership, the assumption that normal weather
patterns will be experienced and on other assumptions that the General Partner
believes are reasonable. The General Partner's estimates of Available Cash
constituting Cash from Operations are based upon a number of assumptions
beyond the control of the General Partner and which cannot be predicted with
certainty, including assumptions concerning weather, market and economic
conditions and other factors, such as estimates of propane prices and retail
gross margins. See "Risk Factors." If the General Partners assumptions prove
to be incorrect, Available Cash constituting Cash from Operations generated by
the Partnership could be insufficient to permit the Partnership to make the
distributions estimated as described above. Accordingly, no assurance can be
given that distributions at those levels will be made.
49
<PAGE>
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth for the periods and the dates indicated,
selected historical financial and operating data for the Company and selected
pro forma financial and operating data for the Partnership after giving effect
to the transactions contemplated by this Prospectus. The selected historical
income statement and balance sheet data of the Company for the five years
ended July 31, 1993, and for the nine months ended April 30, 1994 is derived
from financial statements which have been audited by Deloitte & Touche,
independent auditors, certain of which appear elsewhere in this Prospectus.
The historical financial data for the nine-month period ended April 30, 1993,
has been derived from the unaudited financial statements appearing herein,
and, in the opinion of management of the Company, contain all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the Company's results of operation and financial condition.
The Partnership's selected pro forma financial data should be read in
conjunction with such consolidated financial statements and the pro forma
combined financial information and notes thereto included elsewhere in this
Prospectus. The propane industry is seasonal in nature with its peak activity
during the winter months. Therefore, the results for the interim period are
not indicative of the results that can be expected for a full fiscal year. The
following should be read in conjunction with the Financial Statements and
Notes to Financial Statements contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PARTNERSHIP
HISTORICAL PRO FORMA
-------------------------------------------------- -----------
YEAR ENDED JULY 31, YEAR ENDED
-------------------------------------------------- JULY 31,
1989 1990 1991 1992 1993 1993
-------- -------- -------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues........... $409,953 $467,641 $543,933 $501,129 $541,945 $541,945
Depreciation and
amortization............ 32,528 33,521 36,151 31,196 30,840 30,840
Operating income......... 53,425 54,388 63,045 56,408 58,553 58,053
Interest expense......... 54,572 55,095 60,507 61,219 60,071 29,029
Earnings (loss) from
continuing operations... (1,506) (347) 1,979 (1,700)(1) 109 28,750
Earnings from continuing
operations per Unit..... $ 0.93
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital.......... $(39,708) $ 50,456 $ 53,403 $ 67,973 $ 74,408
Total assets............. 487,631 554,580 580,260 598,613 573,376
Payable to (receivable
from) parent and
affiliates.............. 13,109 10,743 3,763 2,236 (916)
Long-term debt........... 354,626 465,644 466,585 501,614 489,589
Stockholder's equity..... 6,616 11,463 21,687 8,808 11,359
OPERATING DATA:
Retail propane sales
volumes (in gallons).... 498,395 499,042 482,211 495,707 553,413 553,413
Capital expenditures(2):
Maintenance.............. $ 7,271 $ 5,428 $ 7,958 $ 10,250 $ 10,527 $ 10,527
Growth................... 10,062 10,447 2,478 3,342 2,851 2,851
Acquisition.............. 14,668 18,005 25,305 10,112 897 897
-------- -------- -------- -------- -------- --------
Total................... $ 32,001 $ 33,880 $ 35,741 $ 23,704 $ 14,275 $ 14,275
======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
Earnings before
depreciation,
amortization, interest
and taxes(3)............ $ 85,953 $ 87,909 $ 99,196 $ 87,604 $ 89,393 $ 88,893
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
PARTNERSHIP
HISTORICAL PRO FORMA
---------------------------- ----------------
NINE MONTHS ENDED NINE MONTHS
APRIL 30, ENDED
---------------------------- APRIL 30,
1993 1994 1994
------------ ------------ ----------------
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues................. $468,302 $450,477 $ 450,477
Depreciation and amortization.. 23,238 21,688 21,688
Operating income............... 64,708 75,445 75,070
Interest expense............... 45,056 44,233 21,187
Earnings from continuing
operations.................... 12,785 20,356 53,892
Earnings from continuing
operations per Unit........... $ 1.75
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital................ $ 100,645 $104,164 $ 54,304
Total assets................... 602,063 600,113 478,254
Payable to (receivable from)
parent and affiliates......... 2,076 (3,909) 91
Long-term debt................. 500,227 476,471 267,441
Stockholder's equity........... 21,855 30,848
Partners' capital:
Common unitholders............. 66,067
Subordinated unitholder........ 75,524
General partner................ 2,890
OPERATING DATA:
Retail propane sales volumes
(in gallons).................. 483,489 490,254 490,254
Capital expenditures(2):
Maintenance.................... $ 9,232(4) $ 3,377(4) $ 3,377
Growth......................... 2,597 2,568 2,568
Acquisition.................... -- 2,472 2,472
------------ ------------ ------------
Total......................... $ 11,829 $ 8,417 $ 8,417
============ ============ ============
SUPPLEMENTAL DATA:
Earnings before depreciation,
amortization, interest and
taxes(3)...................... $ 87,946 $ 97,133 $ 96,758
</TABLE>
- --------
(1) In August 1991, the Company revised the estimated useful lives of storage
tanks from 20 to 30 years in order to more closely reflect expected useful
lives of the assets. The effect of the change in accounting estimates
resulted in a favorable impact on net loss from continuing operations of
approximately $3.7 million for the fiscal year ended July 31, 1992.
(2) The Company's capital expenditures fall generally into three categories:
(i) maintenance capital expenditures, which include expenditures for
repair and replacement of property, plant and equipment; (ii) growth
capital expenditures, which include expenditures for purchases of new
propane tanks and other equipment to facilitate expansion of the Company's
retail customer base; and (iii) acquisition capital expenditures, which
include expenditures related to the acquisition of retail propane
operations. Acquisition capital expenditures include a portion of the
purchase price allocated to intangibles associated with the acquired
businesses.
(3) EBITDA is calculated as operating income plus depreciation and
amortization. EBITDA is not intended to represent cash flow and does not
represent the measure of cash available for distribution. EBITDA is a non-
GAAP measure, but provides additional information for evaluating the
Partnership's ability to make the Minimum Quarterly Distribution. In
addition, EBITDA is not intended as an alternative to earnings from
continuing operations or net income.
(4) The decrease in maintenance capital expenditures from the nine months
ended April 30, 1993 to the nine months ended April 30, 1994 is primarily
due to the purchase of the Company's corporate headquarters in Liberty,
Missouri for its fair market value of $4.1 million in the first nine
months of fiscal 1993.
51
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the historical and pro forma financial
condition and results of operations of the Company and the Partnership. The
discussion should be read in conjunction with the historical and pro forma
consolidated financial statements and the notes thereto included elsewhere in
this Prospectus.
GENERAL
The Partnership was recently formed to acquire and operate the business and
assets of the Company. The Company is engaged in the sale, distribution,
marketing and trading of propane and other natural gas liquids. The Company's
revenue is derived primarily from the retail propane marketing business. The
Company believes it is the third largest retail marketer of propane in the
United States, based on gallons sold, serving more than 600,000 residential,
industrial/commercial and agricultural customers in 45 states and the District
of Columbia through approximately 416 retail outlets and 226 satellite
locations. The Company's annual retail propane sales volume was approximately
553 million, 496 million and 482 million gallons during the fiscal years ended
July 31, 1993, 1992 and 1991, respectively.
The retail propane business of the Company consists principally of
transporting propane purchased in the contract and spot markets, primarily
from major oil companies, to its retail distribution outlets and then to tanks
located on the customers' premises as well as to portable propane cylinders.
In the residential and commercial markets, propane is primarily used for space
heating, water heating and cooking. In the agricultural market propane is
primarily used for crop drying, space heating, irrigation and weed control. In
addition, propane is used for certain industrial applications, including use
as an engine fuel which is burned in internal combustion engines that power
vehicles and forklifts and as a heating or energy source in manufacturing and
drying processes.
The retail market for propane is seasonal because of its primary use for
heating in residential and commercial buildings. In addition, sales volumes
have traditionally been affected by various factors, including competitive
conditions, demand for product, variations in weather and fluctuations in
propane prices. The Company's results for its first fiscal quarter (August,
September and October) and fourth fiscal quarter (May, June and July) are
typically lower than the second and third fiscal quarters, primarily as a
result of warmer weather in its first and fourth fiscal quarters. The
following tables set forth historical unaudited revenues and operating income
for the Company for the period from August 1, 1991 to July 31, 1993, for each
quarter in fiscal years 1992 and 1993:
QUARTERLY REVENUES
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
1992 % 1993 %
----------- ----- ----------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Quarter ended:
October 31................................ $114,263 22.8 $116,497 21.5
January 31................................ 193,652 38.6 191,499 35.3
April 30.................................. 122,658 24.5 160,306 29.6
July 31................................... 70,556 14.1 73,643 13.6
-------- ----- -------- -----
Total................................... $501,129 100.0 $541,945 100.0
======== ===== ======== =====
</TABLE>
52
<PAGE>
QUARTERLY OPERATING INCOME
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
1992 % 1993 %
----------- ----- ----------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Quarter ended:
October 31.............................. $ 5,488 9.7 $ 3,823 6.5
January 31.............................. 39,194 69.5 39,186 66.9
April 30................................ 16,777 29.7 21,699 37.1
July 31................................. (5,051) (8.9) (6,155) (10.5)
------- ----- ------- -----
Total................................. $56,408 100.0 $58,553 100.0
======= ===== ======= =====
</TABLE>
The Company is also engaged in the trading of propane and other natural gas
liquids, chemical feedstocks marketing and wholesale propane marketing.
Through its natural gas liquids trading operations and wholesale marketing,
the Company has become one of the largest independent traders of propane and
natural gas liquids in the United States. In fiscal year 1993, the Company's
annual wholesale and trading sales volume was approximately 1.2 billion
gallons of propane and other natural gas liquids, approximately 64% of which
was propane. This volume, when combined with the Company's retail volume,
makes the Company one of the largest purchasers of propane, which the General
Partner believes will help assure the Partnership favorable prices and supply
of propane during times of increased demand. For the fiscal years ended July
31, 1993, 1992 and 1991, the Company had net revenues of $6.7 million, $4.9
million and $9.9 million, respectively, from its trading activities.
RESULTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 1994 VERSUS APRIL 30, 1993
Total Revenues. Total revenues decreased 3.8% to $450,477,000 as compared
with $468,302,000 for the prior year period. The overall decrease was
attributable to revenues from other operations (net trading operations,
wholesale propane marketing and chemical feedstocks marketing) decreasing
23.1% to $56,237,000, and revenues from retail operations decreasing 0.2% to
$394,240,000.
The decrease in revenues from other operations was primarily due to higher
sales of chemical feedstocks in the prior period resulting from sales of
chemical feedstocks that were designated for storage but were sold due to
storage limitations. Additional decreases were the result of lower product
costs for chemical feedstocks and wholesale propane marketing and decreased
net trading results due to reduced market volatility relative to the prior
period.
The decrease in revenues from retail operations was primarily due to a
decrease in selling price partially offset by an increase in sales volume due
to cooler temperatures than those which existed in the prior period. The
volume of gallons sold, excluding acquisitions, increased revenues by
$3,339,000. Fiscal year 1994 and 1993 acquisitions increased revenues in the
nine months ended April 30, 1994 by $1,659,000. These increases were offset by
a $6,775,000 decrease in sales price due to lower product costs.
Gross Profit. Gross profit increased 4.5% to $221,151,000 as compared with
$211,566,000 for the prior period, primarily due to an increase in retail
operations gross profit. Retail operations results improved due to increased
sales volume as discussed previously and to margin increases as a result of
favorable changes in the competitive pressures of the industry and to normal
fluctuations in the Company's product mix.
Operating Expenses. Operating expenses increased 0.1% to $112,687,000 as
compared with $112,553,000, for the prior period, primarily due to (i) an
increase in incentive compensation expense, and (ii) an increase in overtime,
variable labor and vehicle expenses due to increased sales volume. These
increases were primarily offset by a decrease in general liability and workers
compensation expense due to improved claims administration and decreased sales
and use tax audit assessments.
General and Administrative Expenses. General and administrative expenses
increased 10.1% to $8,128,000 as compared with $7,385,000 for the prior period
due to increased incentive compensation
53
<PAGE>
expense. This increase was partially offset by a reduction in facilities rent
expense in the second and third quarters of fiscal year 1993 due to the
purchase of the Liberty, Missouri, corporate offices.
Depreciation and Amortization. Depreciation expense decreased 6.7% to
$21,688,000 as compared with $23,238,000 for the prior period due primarily to
extending the use of the Company's vehicles beyond the depreciable life and to
the reduction in the number of Company owned vehicles.
Net Interest Expense. Net interest expense decreased 3.0% to $41,442,000 as
compared with $42,723,000 for the prior period due to the reacquisition of
$11,900,000 and $10,500,000 of senior notes in the third quarter of fiscal
1994 and in the fourth quarter of fiscal year 1993, respectively, offset by
increased non-cash amortization of financing costs.
Net Earnings. Net earnings increased 52.4% to $19,489,000 as compared with
$12,785,000 for the prior period primarily due to the increase in retail
operations sales volume and margins offset by increased operating and general
and administrative expenses and the fiscal 1994 extraordinary loss from early
extinguishment of debt.
FISCAL YEAR ENDED JULY 31, 1993 VERSUS JULY 31, 1992
Total Revenues. Total revenues increased 8.1% to $541,945,000 as compared
with $501,129,000 for the prior year. This increase was attributable to an
increase in revenues from retail operations of 10.6% to $451,966,000 partially
offset by a decrease in revenues from other operations (net trading
operations, chemical feedstocks marketing and wholesale propane marketing) of
2.6% to $89,979,000.
The increase in revenues attributable to retail operations resulted from
increased sales volume. The sales volume increase was mainly due to a surge in
agricultural business from crop drying in farm belt states and cooler
temperatures than those which existed in the prior year. The volume of gallons
sold, excluding the effects of acquisitions, increased revenues by
$42,648,000. This increase was offset by a decrease in selling price which
reduced revenues by $3,326,000. Acquisitions completed in fiscal 1993 and 1992
increased revenues by $3,172,000.
Total revenues attributable to other operations decreased as compared with
the prior year. Wholesale propane marketing revenues decreased as a result of
a change in focus and marketing strategy. This decrease was offset by an
increase in net trading operations as a result of increased market volatility
relative to the prior year.
Gross Profit. Gross profit increased 4.3% to $243,912,000 as compared with
$233,850,000 for the prior year. The increase was primarily due to an increase
in retail operations' sales volume and an increase in net trading and
wholesale marketing operating results. These increases were offset by a
decrease in retail operations' margins due to competitive pricing pressures in
the industry.
Operating Expenses. Operating expenses increased 4.1% to $139,617,000 as
compared with $134,165,000 for the prior year, due to (i) an increase in
personnel costs from increased sales volume and accrued incentive compensation
expense, (ii) an increase in vehicle expenses from increased sales volume,
(iii) an increase in other expenses from sales and use tax assessments on
prior year purchases and leases, and (iv) general increases in the cost of
doing business. These increases were partially offset by a decrease in general
liability expense due to improved claims administration and to a decrease in
bad debt expense due to improved credit and collections administration.
Depreciation and Amortization. Depreciation and amortization expense
decreased 1.1% to $30,840,000 as compared with $31,196,000 for the prior year
due to retirements and fully depreciated assets.
General and Administrative Expenses. General and administrative expenses
increased 33.3% to $10,079,000 as compared with $7,561,000 for the prior year
period due to an increase in compensation expense related to the long-term
incentive plan and an increase in non-capitalized software maintenance costs.
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<PAGE>
Net Interest Expense. Net interest expense of $56,805,000 remained
essentially unchanged as compared with $56,818,000 for the prior year.
Decreases in interest expense due to lower effective interest rates were
offset by a decrease in interest income as a result of lower interest rates on
short-term investments.
Extraordinary Loss. The extraordinary loss of $886,000, net of $543,000
income tax benefit, was due to the early extinguishment of $10,500,000 of the
senior notes as discussed in the notes to the consolidated financial
statements.
Net Loss. Net loss decreased to $777,000 as compared with a loss of
$11,679,000 for the prior year due to a $9,093,000 decrease in the
extraordinary loss from the early extinguishment of debt and to an increase in
net operating results.
FISCAL YEAR ENDED JULY 31, 1992 VERSUS JULY 31, 1991
Total Revenues. Total revenues decreased 7.9% to $501,129,000 as compared
with $543,933,000 for the prior year. This decrease was attributable to a
decrease in revenues from retail operations of 8.1% to $408,781,000 and a
decrease in revenues from other operations (net trading operations, chemical
feedstocks marketing and wholesale propane marketing) of 6.8% to $92,348,000.
The decrease in revenues attributable to retail operations resulted mainly
from a decrease in selling price related to the end of the Persian Gulf crisis
and to competitive pressures within the industry. In fiscal 1991, selling
prices were increased in response to product cost increases brought about by
the Persian Gulf crisis. The volume of gallons sold, excluding the effects of
acquisitions, decreased due to temperatures being warmer than normal and
warmer than the prior year in the primary heating months, along with
competitive pressures within the industry. The decrease in selling price and
volumes reduced total revenues by $45,080,000 and $1,727,000, respectively.
Acquisitions in fiscal 1991 and 1992 increased fiscal 1992 revenues by
$10,120,000.
The decrease in revenues attributable to other operations resulted from
declines in net trading operations and wholesale propane marketing revenues
offset by an increase in revenues from chemical feedstocks marketing. Net
trading operations decreased due to a less volatile market than that which
existed in fiscal 1991 during the Persian Gulf crisis. Wholesale propane
marketing revenues decreased as a result of changes in marketing strategy and
focus of the business and a decrease in selling price and volumes for the
reasons noted above for retail operations. Chemical feedstocks marketing
revenues increased due to additional emphasis on butane sales.
Gross Profit. Gross profit decreased 4.9% to $233,850,000 as compared with
$245,965,000 for the prior year. Approximately half of the decrease was
attributable to retail operations as a result of competitive pressures in the
industry and warmer than normal and warmer than prior year temperatures in the
primary heating months. The remaining decrease was attributable to net trading
operations and wholesale propane marketing.
Operating Expenses. Operating expenses increased 3.5% to $134,165,000 as
compared with $129,684,000 for the prior year. This increase was primarily due
to an increase in payroll expenses, general liability and workers'
compensation insurance and an increase in expenses due to acquisitions in
fiscal 1992 and 1991. These increases were partially offset by a reduction in
incentive compensation expense.
Depreciation and Amortization. Depreciation and amortization expense
decreased 13.7% to $31,196,000 as compared with $36,151,000 for the prior year
due primarily to a change in the useful lives of certain assets as discussed
in the notes to the consolidated financial statements. The change was based on
the expected useful lives of the assets and industry practice.
General and Administrative Expenses. General and administrative expenses
decreased 41.6% to $7,561,000 as compared with $12,953,000 for the prior year
due primarily to a reversal of expense previously provided related to the
long-term incentive plan and the elimination of certain management positions.
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Net Interest Expense. Net interest expense increased 0.3% to $56,818,000 as
compared with $56,666,000 for the prior year. In connection with the
refinancing of the subordinated debt (as discussed in Note F to the notes to
the consolidated financial statements) the Company borrowed an additional
$40,000,000. The impact of this additional borrowing on interest expense was
offset by a lower effective interest rate on the new subordinated debt and the
investment of the excess cash proceeds from the refinancing.
Extraordinary Loss. The extraordinary loss of $9,979,000, net of income tax
benefit, was due to the refinancing of the subordinated debt as discussed in
the notes to the consolidated financial statements.
Net Earnings (Loss). Net earnings decreased to a net loss of $11,679,000 as
compared with net earnings of $1,979,000 for the prior year due primarily to
the decrease in gross profit and the extraordinary loss on the refinancing of
subordinated debt.
FISCAL YEAR ENDED JULY 31, 1991 VERSUS JULY 31, 1990
Total Revenues. Total revenues increased 16.3% to $543,933,000 as compared
with $467,641,000 for the prior year. This increase was attributable to (i) an
increase in revenues from retail operations of 12.6% to $444,886,000 and (ii)
an increase in revenues from other operations (wholesale propane marketing,
chemical feedstocks marketing and net trading operations) of 36.3% to
$99,047,000.
The increase in revenues from retail operations resulted primarily from an
increase in selling prices in response to an increase in product costs brought
about by the Persian Gulf crisis. Selling prices were increased in order to
maintain normal operating margins. Increased retail selling prices resulted in
a $62,505,000 revenue variance. The acquisitions of retail propane businesses
increased revenues by approximately $18,484,000. A reduction in residential,
motor fuel applications and reseller sales volumes decreased revenues
approximately $30,236,000. Retail operations volumes decreased 3.4% compared
to the prior year due to temperatures being warmer than the prior year and
warmer than normal in addition to customers requesting smaller volume
deliveries while propane selling prices remained high.
The increase in revenues from other operations resulted from increases in
all areas of other operations. Wholesale propane and chemical feedstocks
marketing revenues increased due primarily to an increase in selling prices in
response to increased product costs as noted above. Net trading operations
revenues increased due to increased volatility in the market generating a
larger volume of trades. Other operations volumes increased 35.2% compared to
the prior year.
Gross Profit. Gross profit increased 10.4% to $245,965,000 as compared with
$222,834,000 for the prior year. This increase was attributed to the
acquisitions of retail propane businesses in fiscal year 1991 and 1990 and an
increase in retail operations margins. Retail margins from existing business
increased to cover the increased costs of product delivery resulting from
smaller volume deliveries and increased carrying costs involved with higher
inventory and receivables balance. Also, gross profit for fiscal year 1990 was
adversely impacted by high product costs from inventory purchased in January
1990. Gross profit from other operations also increased primarily due to
increased wholesale propane marketing margins resulting from focusing
marketing efforts on higher margin sales and increased net trading operations
volume and margins resulting from the volatile propane market.
Operating Expenses. Operating expenses increased 13.1% to $129,684,000 as
compared with $114,639,000 for the prior period primarily due to (i) an
increase in full time payroll, incentive compensation expense and the related
payroll taxes as a result of increased retail operations margins and other
operations, (ii) an increase in vehicle expenses and in plant and office
expenses primarily from increases in vehicle fuel costs and customers
requesting more frequent, smaller volume deliveries and (iii) acquisitions of
retail propane businesses during fiscal year 1991 and 1990.
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<PAGE>
General and Administrative Expenses. General and administrative expenses
decreased 19.6% to $12,953,000 as compared with $16,113,000 for the prior
period. A cost reduction program which was implemented March 1990 included
reductions of staff in non-critical areas and cuts in non-essential projects.
The results of this program and a reversal of expense previously provided
related to the long-term incentive plan contributed to the general and
administrative expense decrease.
Net Interest Expense. Net interest expense increased 6.0% to $56,666,000 as
compared with $53,463,000 due to the issuance of senior notes in July of 1990.
The excess cash proceeds from the issuance of the senior notes were invested
to offset interest expense incurred.
Net Earnings (Loss). Net earnings increased to $1,979,000 as compared with a
net loss of $3,814,000 for the prior period due to the increase in gross
profit which was offset partially by an increase in operating expenses and net
interest expense. Also in 1990, earnings were unfavorably impacted by an
extraordinary loss from refinancing of debt.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended April 30, 1994 and the twelve months ended July
31, 1993, the Company's operating cash flow provided from operations (as
measured by operating income before depreciation and amortization, interest
and taxes) was sufficient to (i) make interest payments and required
reductions to existing debt and (ii) make purchases of property, plant and
equipment.
Cash Flows from Operating Activities. Cash provided by operating activities
increased to $58,246,000 for the nine months ended April 30, 1994, as compared
with $46,951,000 for the prior period. This increase was primarily
attributable to an increase in net earnings and accounts payable, which were
offset by increases in inventory and accounts and notes receivable. Cash
provided by operating activities increased to $36,961,000 for the twelve
months ended July 31, 1993, as compared with $22,965,000 for the prior period.
This increase was primarily attributable to an increase in earnings and a
decrease in inventory purchases in anticipation of future propane
requirements, offset by a decrease in accounts payable.
Cash Flows From Investing Activities. During the nine months ended April 30,
1994, the Company made aggregate expenditures for intangible assets and
property, plant and equipment of $8,417,000. During the twelve months ended
July 31, 1993, the Company made aggregate expenditures for intangible assets
and property, plant and equipment of $14,275,000. Total capital expenditures
are essentially governed by the cash interest coverage ratio covenants
contained in the various debt agreements. These covenants limited capital
expenditures depending upon the amount of cash flow and cash interest expense
of the Company.
The Company maintains its vehicle and transportation equipment fleet by
leasing light and medium duty trucks and tractors. The Company believes
vehicle leasing is a cost effective method for financing transportation
equipment. Capital requirements for repair and maintenance of property, plant
and equipment are relatively low since technological change is limited and the
useful lives of propane tanks and cylinders, the Company's principal physical
assets, are generally long.
The Company invested in U.S. Treasury Bills and U.S. government obligations
with remaining maturities, as of April 30, 1994, ranging from four to ten
months. These investments are presented as short-term investments in the
Company's consolidated financial statements.
Cash Flows From Financing Activities. The Company currently has a $50
million bank credit facility which terminates July 31, 1995. The facility
provides for a working capital facility and a letter of credit facility. At
April 30, 1994, there were no borrowings outstanding under the working capital
facility
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and letters of credit outstanding under the letter of credit facility, which
are used primarily to secure obligations under certain insurance and leasing
arrangements, totaled $32,778,000, resulting in an available bank credit
facility of $17,222,000. The Company does not have any significant commitments
for fixed asset acquisitions, unusual working capital commitments or contingent
liabilities which might materially affect short-term liquidity.
Effects of Inflation. In the past the Company has been able to adjust its
sales price of product in response to market demand, cost of product,
competitive factors and other industry trends. Consequently, changing prices as
a result of inflationary pressures have not had a material adverse effect on
profitability although revenues may be affected. Inflation has not materially
impacted the results of operations and the Company does not believe normal
inflationary pressures will have a material adverse effect on the profitability
of the Partnership in the future.
Adoption of New Accounting Standards. The Company provides postretirement
medical benefits to a closed group of approximately 400 retired employees and
their spouses. The plan requires the Company to provide primary medical
benefits to the participants until age 65, at which time the Company only pays
a fixed amount of $55 per month per participant for medical benefits. Effective
August 1, 1993, the Company adopted Statement of Financial Accounting Standards
No. 106--Employers' Accounting for Postretirement Benefits Other Than Pensions
which requires accrual of postretirement benefits (such as health care
benefits) during the years an employee provides services. The Company elected
to amortize the postretirement benefit obligation over a period not to exceed
the average remaining life expectancy of the plan participants (since all of
the plan participants are retired). The cumulative effect as of August 1, 1993,
and impact for the nine months ended April 30, 1994, of adopting this statement
was not material to the financial statements of the Company. See Note L to the
consolidated financial statements.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 112--Employers' Accounting For Postemployment Benefits
which is effective for fiscal years beginning after December 15, 1993. This
statement requires that employers recognize over the service lives of employees
the costs of postemployment benefits if certain conditions are met. The General
Partner does not believe that adoption of the statement will have a material
impact on the results of operations or financial condition of the Partnership.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 115--Accounting for Certain Investments in Debt and
Equity Securities, which is effective for fiscal years beginning after December
15, 1993. The statement addresses the accounting and reporting for certain
investments in debt and equity securities and expands the use of fair value
accounting for those securities but retains the use of the amortized cost
method for investments that the Company has the positive intent and ability to
hold to maturity. The General Partner does not believe that the adoption of
this statement will have a material effect on the results of operations or
financial condition of the Partnership.
PRO FORMA FINANCIAL CONDITION
The ability of the Partnership to satisfy its obligations will be dependent
upon future performance, which will be subject to prevailing economic
conditions and to financial, business and weather conditions and other factors,
many of which are beyond its control. For the fiscal year ending July 31, 1995,
the General Partner believes that the Partnership will generate sufficient
Available Cash constituting Cash from Operations to meet its obligations and
enable it to distribute the Minimum Quarterly Distribution on all Common Units
and Subordinated Units. See "Cash Distribution Policy--
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<PAGE>
Pro Forma Available Cash." Future capital needs of the Partnership are
expected to be provided by future operations, existing cash balances and the
working capital facility. The Partnership may incur additional indebtedness or
issue additional Units in order to fund possible future acquisitions.
Concurrent with the closing of the sale of the Common Units offered hereby,
the Operating Partnership will sell in a registered public offering
approximately $250 million aggregate principal amount of Senior Notes, the net
proceeds of which, along with the estimated $260.3 million net proceeds of the
offering of Common Units, will be used to retire substantially all of the
approximately $481.5 million of indebtedness of the Company to be assumed by
the Operating Partnership. The sale of the Common Units offered hereby is
subject to, among other things, the sale of the Senior Notes. Upon the
consummation of the transactions contemplated by this Prospectus, the
Partnership will have total indebtedness of approximately $263.9 million. See
"The Transactions."
The Senior Notes. The following is a summary of the terms of the Senior
Notes, which will be issued pursuant to an Indenture (the "Indenture"), the
form of which is filed as an exhibit to the registration statement of which
this Prospectus is a part. The Senior Notes will be unsecured general
obligations of the Operating Partnership and will be recourse to the General
Partner in its capacity as the general partner of the Operating Partnership.
The Senior Notes will bear interest from the date of issuance at the rate of
% per annum, payable semi-annually in arrears. The Senior Notes will mature
on , 2001 and will not require any mandatory redemption or sinking fund
payment prior to maturity. The Senior Notes are redeemable at the option of
the Operating Partnership, in whole or in part, at any time on or after ,
1998 at redemption prices specified in the Indenture, plus accrued and unpaid
interest to the date of redemption. Upon the occurrence of certain events
constituting a "Change of Control" (as defined in the Indenture), including if
James E. Ferrell or his affiliates do not control the General Partner, other
than in certain limited circumstances, holders of the Senior Notes will have
the right to require the Operating Partnership to purchase each such holder's
Senior Notes, in whole or in part, at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
purchase.
The Indenture will contain customary covenants applicable to the Operating
Partnership and its subsidiaries, including limitations on the ability of the
Operating Partnership and its subsidiaries to, among other things, incur
additional indebtedness (other than certain permitted indebtedness) and issue
preferred interests, create liens, incur dividend and other payment
restrictions affecting subsidiaries, enter into mergers, consolidations or
sales of all or substantially all assets, make asset sales and enter into
transactions with affiliates. Under the Indenture, the Operating Partnership
will be permitted to make cash distributions in an amount in such fiscal
quarter not to exceed Available Cash (as defined in the Indenture) of the
Operating Partnership for the immediately preceding fiscal quarter plus the
amount of any Available Cash of the Operating Partnership for the first 45
days of such fiscal quarter so long as the amount of such Available Cash so
included does not exceed the amount of unused available working capital
indebtedness that the Operating Partnership could have incurred on the last
day of the immediately preceding fiscal quarter; provided, however, that the
Operating Partnership will be prohibited from making any distribution to the
Partnership (i) if a default or event of default exists or would exist upon
making such distribution, (ii) if the Operating Partnership's Fixed Charge
Coverage Ratio for the preceding four fiscal quarters does not exceed 2.25 to
1 after giving effect to such distribution or (iii) unless the Operating
Partnership or any of its subsidiaries shall have (a) acquired, improved or
repaired property, plant or equipment which is accounted for as a capital
expenditure in accordance with GAAP or (b) acquired, through merger or
otherwise, all or substantially all of the outstanding stock or other capital
interests, or all or substantially all of the assets, of any entity engaged in
the business in which the Operating Partnership is engaged on the date of the
Indenture (each of the transactions referred to in clauses (a) and (b) above,
a "Capital Investment") for Aggregate Consideration since the date of the
Indenture which, when added to all cash reserves established and funded by the
Operating Partnership (the proceeds of which shall be used solely for Capital
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Investments), is no less than the amounts set forth in the table below, if
such distribution is made in the 12-month period beginning August 1 of the
years indicated.
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------------
<S> <C>
1994 $ 0
1995............................ $ 15 million
1996............................ $ 30 million
1997............................ $ 45 million
1998............................ $ 70 million
1999............................ $ 95 million
2000............................ $120 million
</TABLE>
For purposes of the foregoing, "Aggregate Consideration" with respect to
Capital Investments shall mean at any date all cash paid in connection with
all Capital Investments consummated on or prior to such date, the fair market
value of all partnership interests of the Partnership or the Operating
Partnership (determined by the General Partner in good faith with reference
to, among other things, the trading price of such partnership interests, if
then traded on any national securities exchange or automated quotation system)
constituting all or a portion of the purchase price for all Capital
Investments consummated on or prior to such date and the aggregate principal
amount of all indebtedness incurred or assumed by the Operating Partnership in
connection with all Capital Investments consummated on or prior to such date.
As of April 30, 1994 the Fixed Charge Coverage Ratio for the preceding four
fiscal quarters was 3.4 to 1 on a pro forma basis. The payment restrictions in
the Indenture are not anticipated to preclude the Partnership from making
distributions of at least the Minimum Quarterly Distribution on all Common
Units in each quarter during the Subordination Period.
Credit Facility. Immediately prior to the closing of this offering, the
Operating Partnership expects to enter into a $185 million Credit Facility
with Bank of America National Trust & Savings Association ("BofA"), a portion
of which will be syndicated to a group of financial institutions (together
with BofA, the "Banks"). The form of the loan agreement which will govern the
Credit Facility is filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The Credit Facility will permit borrowings of up to
$100 million on a senior unsecured revolving line of credit basis (the
"Working Capital Facility") and up to $85 million on a senior unsecured basis
(the "Expansion Facility").
The Credit Facility will be committed for up to a three-year period, at
which time the Working Capital Facility will expire. The Expansion Facility
may be converted, at the option of the Operating Partnership, to a three year
term loan at the end of the initial three-year period. Under the Working
Capital Facility, up to $100 million will be available to fund working capital
and general partnership requirements (of which up to $50 million will be
available to support letters of credit). Under the Expansion Facility, up to
$25 million will be available to retire existing indebtedness of the General
Partner which will be assumed by the Operating Partnership, and up to $60
million (plus any unused amount from the retirement of the existing assumed
indebtedness and any amount repaid with the proceeds from the exercise of the
Underwriters' overallotment option) will be available solely to finance
acquisitions and for growth capital expenditures.
At the Operating Partnership's option, borrowings under the Credit Facility
may bear interest either at the Base Rate (i.e., the higher of the Federal
funds rate plus 1/2% per annum or BofA's reference rate) or the London
Interbank Offered Rate, in each case plus the applicable margin. The
applicable margin will vary from 62.5 basis points to 125 basis points for
LIBOR and between zero basis points and 25 basis points for the Base Rate,
depending upon the Operating Partnership's "Leverage Ratio," which is defined
generally as the ratio of all debt for borrowed money to EBITDA. At the time
of the closing of the Credit Facility, the Operating Partnership anticipates
that, based upon the then applicable Leverage Ratio, its applicable LIBOR
margin will be 112.5 basis points and its applicable Base Rate margin will be
12.5 basis points. There can be no guarantee that the Operating Partnership
will be able to continue to maintain the Leverage Ratio which it anticipates
will exist at closing.
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The loan agreement for the Credit Facility will contain restrictive covenants
substantially similar to those for the Senior Notes including restrictions on
the Operating Partnership's ability to make cash distributions, the requirement
that the Operating Partnership make "Capital Reinvestments" as described under
"--The Senior Notes" and the requirement that the Operating Partnership repay
all outstanding amounts under the Credit Facility within 30 days after the
occurrence of a change of control. See "--The Senior Notes." In the case of the
Credit Facility, however, there is an additional limitation in that the
occurrence of any transaction which results in James E. Ferrell and his
affiliates beneficially owning less than 20% of the equity interests of the
Partnership will constitute a "change of control," requiring repayment of the
Credit Facility. The Credit Facility also includes certain additional covenants
and restrictions relating to the activities of the Operating Partnership which
are customary for similar credit facilities and are not expected to affect
materially and adversely the conduct of the Partnership's business as described
in this Prospectus.
In connection with the transactions to be consummated at the closing of the
offering made hereby, the Partnership may borrow up to $25 million under the
Expansion Facility. Assuming a closing date of June 30, 1994, the Partnership
estimates that it will borrow approximately $10 million to enable the
Partnership to commence operations with an initial cash balance of at least $20
million. Actual borrowings under the Credit Facility at the closing of this
offering will depend upon the Partnership's cash balances at such time, the
initial offering price per Common Unit and the timing of any exercise of the
Underwriters' overallotment option. If the Underwriters' overallotment option
is exercised subsequent to the closing, the Partnership will use the net
proceeds therefrom first to repay any amounts borrowed under the Expansion
Facility.
The closing of the Credit Facility is conditioned upon, among other things,
the successful public offering of the Common Units and the Senior Notes, the
cancellation of Ferrellgas' current $50 million revolving credit facility and
there having been no material adverse change in the financial markets in
general or the financial condition of Ferrellgas, Inc. or the Operating
Partnership prior to the closing of the Credit Facility.
TAX AUDIT
The IRS has examined Ferrell's consolidated income tax returns for the years
ended July 31, 1987 and 1986, and has proposed to disallow $90 million of
deductions for amortization of customer relationships taken or to be taken on
Ferrell's consolidated income tax returns. On April 20, 1993, the United States
Supreme Court held in Newark Morning Ledger v. United States that a taxpayer
may amortize customer-based intangibles if that taxpayer can prove such
intangibles are capable of being valued and the value diminishes over time. The
Company contends it has met this burden of proof and feels this recent Supreme
Court decision supports the positions taken during the Company's allocation of
purchase price to customer relationships.
The Company was originally made aware of the audit based on a letter received
from the IRS dated April 24, 1989. The Company received a closing conference
letter of the proposed adjustments on December 6, 1990, and finally, a 60-day
letter to act dated August 5, 1991. The 60-day letter has been extended through
December 31, 1994.
The Company intends to vigorously defend against these proposed adjustments
and is in the process of protesting these adjustments through the appeals
process of the IRS. At this time, it is not possible to determine the ultimate
resolution of this matter.
In connection with the formation of the Partnership, the Company will
contribute the customer relationships that are the subject of the IRS audit
together with additional customer relationships to the Partnership. The General
Partner intends to treat such customer relationships as amortizable assets of
the Partnership for federal income tax purposes. It is possible that the IRS
will challenge that treatment. If the IRS were to successfully challenge the
amortization of customer relationships by the Partnership, the amount of
amortization available to a Unitholder and, therefore, the after tax return of
a Unitholder with respect to his investment in the Partnership could be
adversely affected, although the Partnership does not believe the impact of
such effect will be material. See "Tax Considerations--Tax Consequences of Unit
Ownership--Ratio of Taxable Income to Distributions."
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<PAGE>
BUSINESS
GENERAL
The Partnership will be engaged in the sale, distribution, marketing and
trading of propane and other natural gas liquids. The discussion that follows
focuses on the Company's retail operations and its other operations, which
consist of propane and natural gas liquids trading operations, chemical
feedstocks marketing and wholesale propane marketing, all of which will be
conveyed to the Partnership. The Company believes it is the third largest
retail marketer of propane in the United States (as measured by gallons sold),
serving approximately 600,000 residential, commercial, agricultural and
industrial customers in 45 states and the District of Columbia through
approximately 416 retail outlets with 226 satellite locations in 36 states
(some outlets serve interstate markets). For the fiscal years ended July 31,
1993, 1992 and 1991, the Company's annual retail propane sales volumes were
approximately 553 million, 496 million and 482 million gallons, respectively.
EBITDA was $89.4 million, $87.6 million and $99.2 million for the fiscal years
ended July 31, 1993, 1992 and 1991, respectively. EBITDA for the twelve months
ended April 30, 1994 was $98.6 million. The Company's net losses for the
fiscal years ended July 31, 1993 and 1992 were $0.8 million and $11.7 million,
respectively, and its net earnings for the fiscal year ended July 31, 1991
were $2.0 million. Net earnings for the nine month periods ended April 30,
1994 and 1993 were $19.5 million and $12.8 million, respectively. The retail
propane business of the Company consists principally of transporting propane
purchased through various suppliers to its retail distribution outlets, then
to tanks located on its customers' premises, as well as to portable propane
cylinders. The Company also believes it is a leading natural gas liquids
trading company. The Company's annual propane and natural gas liquids trading,
chemical feedstocks and wholesale propane sales volumes were approximately 1.2
billion, 1.3 billion and 1.1 billion gallons during the fiscal years ended
July 31, 1993, 1992 and 1991, respectively.
RETAIL OPERATIONS
FORMATION
Ferrell, the parent of the Company, was founded in 1939 as a single retail
propane outlet in Atchison, Kansas and was incorporated in 1954. In 1984, a
subsidiary was formed under the name Ferrellgas, Inc. to operate the retail
propane business previously conducted by Ferrell. Ferrell is owned by James E.
Ferrell and his family. The Company's initial growth was largely the result of
small acquisitions in the rural areas of eastern Kansas, northern and central
Missouri, Iowa, Western Illinois, Southern Minnesota, South Dakota and Texas.
In July 1984, the Company acquired propane operations with annual retail sales
volumes of approximately 33 million gallons and in December 1986, the Company
acquired propane operations with annual retail sales volumes of approximately
395 million gallons. These major acquisitions and many other smaller
acquisitions have significantly expanded and diversified the Company's
geographic coverage and resulted in greater operating efficiencies and
improved operating cash flow.
BUSINESS STRATEGY
The Partnership's business strategy will be to continue the Company's
historical focus on residential and commercial retail propane operations and
to expand its operations through strategic acquisitions of smaller retail
propane operations located throughout the United States and through increased
competitiveness and efforts to acquire new customers. The propane industry is
relatively fragmented, with the ten largest retail distributors possessing
less than 35% of the total retail propane market and much of the industry
consisting of over 3,000 local or regional companies. The Company's retail
operations account for approximately 6% of the retail propane purchased in the
United States, as measured by gallons sold. Since 1986, and as of April 30,
1994, the Company has acquired 67 smaller independent propane retailers which
the Company believes were not individually material. For the fiscal years
ended July 31, 1989 to 1993 the Company spent approximately $14.7 million,
$18.0 million, $25.3 million, $10.1 million and $0.9 million, respectively,
for acquisitions of operations with annual retail sales of approximately 7.3
million, 11.3 million, 18.0 million, 8.6 million and 0.7 million gallons of
propane, respectively. The General Partner believes that approximately $7.5
million of capital expenditures will
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be required on an annual basis to maintain the current business to be acquired
by the Partnership and that approximately $2.5 million in additional capital
expenditures will be required on an annual basis to sustain the modest level
of growth historically experienced by the business to be acquired.
The Partnership intends to initially concentrate its acquisition activities
in geographical areas in close proximity to the Company's existing operations
to acquire propane retailers that can be efficiently combined with such
operations to provide an attractive return on the Partnership's investment
after taking into account the efficiencies which may result from such
combination. The Partnership will, however, also pursue acquisitions which
broaden its geographic coverage. The Partnership's goal in any acquisition
will be to improve the operations and profitability of these smaller companies
by integrating them into the Partnership's established supply network and by
improving customer service. The Company has achieved significant
administrative and operating efficiencies and improved operating cash flow in
connection with its substantial acquisitions in July 1984 and December 1986,
as well as its recent acquisitions of smaller retail propane distribution
companies. The Company regularly evaluates a number of propane distribution
companies which may be candidates for acquisition. The General Partner
believes that there are numerous local retail propane distribution companies
that are possible candidates for acquisition by the Partnership and that the
Partnership's geographic diversity of operations helps to create many
attractive acquisition opportunities for the Partnership. The Partnership
intends to fund acquisitions through internal cash flow, external borrowings
or the issuance of additional Partnership interests. The Partnership's ability
to accomplish these goals will be subject to the continued availability of
acquisition candidates at prices attractive to the Partnership. There is no
assurance the Partnership will be successful in increasing the level of
acquisitions or that any acquisitions that are made will prove beneficial to
the Partnership.
In addition to growth through acquisitions, the Company believes that it can
be successful in competing for new customers. Since 1989, the Company has
experienced modest internal growth in its customer base. During that same
period of time the quality of field management has been improved and
improvements in operating efficiencies have been implemented. The residential
and commercial retail propane distribution business has been characterized by
a relatively stable customer base, primarily due to the expense of switching
to alternative fuels, as well as the quality of service and personal
relations. In addition, since safety regulations adopted in most states in
which the Company operates prohibit propane retailers from filling tanks owned
by other retailers, customers that lease tanks generally develop long-term
relationships with their suppliers. The cost and inconvenience of switching
tanks minimizes a customer's tendency to switch among suppliers of propane and
among alternative fuels on the basis of minor variations in price. Based on
its market surveys, the Company believes that within the retail propane
industry approximately 12% of all residential propane users switch suppliers
annually. The Partnership's aim will be to minimize losses of existing
customers while attracting as many new customers as possible. To achieve this
objective extensive market research was conducted by the Company to determine
the critical factors that cause customers to value their propane supplier.
Based upon the results of such surveys, the Company has designed and
implemented a monthly process of assessing customer satisfaction in each of
its local retail markets. The Company believes that these surveys give it an
advantage over its competitors, none of whom it is believed conduct comparable
surveys. By highlighting specific areas of customer satisfaction, the Company
believes that it can move quickly to both retain existing customers who are at
risk, and gain new customers. Specific measures have been and are continuing
to be designed to take advantage of the information gained regarding customer
satisfaction. The Company has also begun the process of upgrading computer
equipment and software in order to improve customer service and achieve
efficiencies that enable local market personnel to direct more efforts towards
sales activities.
Approximately 70% of the Company's customers lease their tanks from the
Company, as compared to approximately 60% of all propane customers nationwide.
The Company believes there is a significant growth opportunity in marketing to
the 40% of propane users that own their own tank. As a result, the Company has
directly sought to identify locations where it can achieve rapid growth by
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marketing more effectively to these potential customers. The Company believes
that since the commencement of this effort in August 1992, it has added
thousands of new customers that own their own tank. For both customers who
lease their tank, and customers that own their tank, the Partnership's
continued ability to deliver propane to customers when needed and during
periods of extreme demand, especially in remote areas and during inclement
weather, will be critical to maintaining margins, maintaining the loyalty of
its retail customers and expanding its customer base.
MARKETING
Natural gas liquids are derived from petroleum products and sold in
compressed or liquefied form. Propane, the predominant type of natural gas
liquid, is typically extracted from natural gas or separated during crude oil
refining. Although propane is gaseous at normal pressures, it is compressed
into liquid form at relatively low pressures for storage and transportation.
Propane is a clean-burning energy source, recognized for its transportability
and ease of use relative to alternative forms of stand alone energy sources.
The retail propane marketing business generally involves large numbers of
small volume deliveries averaging approximately 200 gallons each. The market
areas are generally rural but also include suburban areas where natural gas
service is not available. In the residential and commercial markets, propane
is primarily used for space heating, water heating and cooking. In the
agricultural market propane is primarily used for crop drying, space heating,
irrigation and weed control. In addition, propane is used for certain
industrial applications, including use as engine fuel, which is burned in
internal combustion engines that power vehicles and forklifts and as a heating
or energy source in manufacturing and drying processes.
Profits in the retail propane business are primarily based on the cents-per-
gallon difference between the purchase price and the sales price of propane.
The Company generally purchases propane on a short-term basis; therefore, its
supply costs fluctuate with market price fluctuations. Should wholesale
propane prices decline in the future, the Company believes that the
Partnership's margins on its retail propane distribution business should
increase in the short-term because retail prices tend to change less rapidly
than wholesale prices. Should the wholesale cost of propane increase, for
similar reasons retail margins and profitability would likely be reduced at
least for the short-term until retail prices can be increased. The Company
historically has been able to maintain margins on an annual basis despite
propane supply cost changes. The General Partner is unable to predict,
however, how and to what extent a substantial increase or decrease in the
wholesale cost of propane would affect the Partnership's margins and
profitability.
The Company has a network of approximately 416 retail outlets and 226
satellite locations marketing propane under the "Ferrellgas" trade name to
approximately 600,000 customers located in 45 states and the District of
Columbia. The Company's largest market concentrations are in the Midwest,
Great Lakes and Southeast regions of the United States. The Company operates
in areas of strong retail market competition, which has required it to develop
and implement strict capital expenditure and operating standards in its
existing and acquired retail propane operations in order to control operating
costs.
The Company utilizes marketing programs targeting both new and existing
customers. The Company emphasizes its superior ability to deliver propane to
customers as well as its training and safety programs. During the fiscal year
ended July 31, 1993, sales to residential customers accounted for 44% of the
Company's retail propane sales volume, sales to industrial and other
commercial customers accounted for 33% of the Company's retail propane sales
volume, sales to agricultural customers accounted for 13% of the Company's
retail propane sales volume and sales to other customers accounted for 10% of
the Company's retail propane sales volume. Residential sales have a greater
profit margin, more stable customer base and tend to be less sensitive to
price changes than the other markets served by the Company. No single customer
of Ferrellgas accounts for 10% or more of the Company's consolidated revenues.
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The retail market for propane is seasonal because it is used primarily for
heating in residential and commercial buildings. Consequently, sales and
operating profits are concentrated in the second and third fiscal quarters
(November through April). Cash inflows from these quarters will be realized in
the third and fourth quarters and to the extent necessary the Partnership will
reserve cash inflows from the third and fourth quarters for distribution to
Unitholders in the first and second fiscal quarters. In addition, sales volume
traditionally fluctuates from year to year in response to variations in
weather, prices and other factors, although the Company believes that the
broad geographic distribution of the Company's operations helps to minimize
the Company's exposure to regional weather or economic patterns. Long-term,
historic weather data from the National Climatic Data Center indicate that the
average annual temperatures have remained relatively constant over the last 30
years with fluctuations occurring on a year-to-year basis only. In each of the
past five fiscal years, which include the two warmest winters in the United
States since 1953, pro forma Available Cash would have been sufficient to
enable the Partnership to distribute the Minimum Quarterly Distribution on all
Common Units assuming projected pro forma interest expense and capital
expenditure levels. During times of colder-than-normal winter weather, such as
the conditions experienced by certain regions served by the Company in the
second and third quarters of fiscal year 1994, the Company has been able to
take advantage of its larger and more efficient distribution network to help
avoid supply disruptions such as those experienced by some of its competitors,
thereby broadening its long-term customer base.
The following chart illustrates the impact of annual variations in weather
on the Company's sales volumes. Set forth are (i) the average national degree
days (population weighted) (a measure of the relative warmth of a particular
year in which a larger number indicates a colder year), (ii) degree days as a
percentage of the average normal degree days as of 1993 (100.0% represents a
normal year with larger percentages representing colder-than-normal years and
smaller percentages representing warmer-than-normal years), (iii) the annual
retail propane sales volumes of the Company, and (iv) a retail gross margin
index for the Company (demonstrating changes in retail gross margins from a
base year of 100.0% in 1989) for the five fiscal years ended July 31, 1989 to
1993 and the nine months ended April 30, 1993 and 1994. The average degree
days in regions served by the Company have historically varied on an annual
basis by a greater amount than the average national degree days.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FOR THE YEAR ENDED JULY 31, APRIL 30,
--------------------------------- ------------
1989 1990 1991 1992 1993 1993 1994
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
National Degree Days.......... 4,673 4,549 4,211 4,303 4,663 4,444 4,526
Degree Days as % of 1993 Normal
Degree Days(1)............... 99.7% 97.0% 89.8% 91.8% 99.4% 99.3% 101.1%
Sales Volumes (in millions of
gallons)(2).................. 498 499 482 496 553 483 490
Retail gross margin index(3).. 100.0% 98.4% 114.5% 109.7% 101.1% 102.1% 105.8%
</TABLE>
- --------
(1) The normal average national degree days as of the fiscal year ended July
31, 1993 were 4,689 and the normal average national degree days as of the
nine months ended April 30, 1994 were 4,477.
(2) From 1989 through 1993, 49 acquisitions were completed at a total cost of
approximately $69.0 million. The aggregate annual sales volumes
attributable to these acquisitions (measured with respect to each
acquisition on the date of the acquisition) were estimated to be 7.3
million gallons, 11.3 million gallons, 18.0 million gallons, 8.6 million
gallons and 0.7 million gallons for the fiscal years ended July 31, 1989
through 1993, respectively.
(3) The Company's average retail gross margins, on a cents per gallon basis,
are measured as a percentage of fiscal 1989 retail gross margins. Average
retail gross margins in fiscal 1991 were affected by the Persian Gulf
crisis.
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SUPPLY AND DISTRIBUTION
The Company purchases propane primarily from major domestic oil companies.
Supplies of propane from these sources have traditionally been readily
available, although no assurance can be given that supplies of propane will be
readily available in the future. As a result of (i) the Company's ability to
buy large volumes of propane and (ii) the Company's large distribution system
and underground storage capacity, the Company believes that it is in a
position to achieve product cost savings and avoid shortages during periods of
tight supply to an extent not generally available to other retail propane
distributors. The Company is not dependent upon any single supplier or group
of suppliers, the loss of which would have a material adverse effect on the
Company. For the year ended July 31, 1993, no supplier at any single delivery
point provided more than 10% of the Company's total domestic propane supply. A
portion of the Company's propane inventory is purchased under supply contracts
which typically have a one year term and a fluctuating price relating to spot
market prices. Certain of the Company's contracts specify certain minimum and
maximum amounts of propane to be purchased thereunder. The Company may
purchase and store inventories of propane in order to help insure
uninterrupted deliverability during periods of extreme demand. The Company
owns three underground storage facilities with an aggregate capacity of
approximately 168 million gallons. Currently, approximately 80 million gallons
of this capacity is leased to third parties, and approximately 6 million
gallons of capacity is exchanged with another company for approximately 6
million gallons of storage capacity at Bumstead, Arizona. The remaining space
is available for the Company's own use.
Propane is generally transported from natural gas processing plants and
refineries, pipeline terminals and storage facilities to retail distribution
outlets and wholesale customers by railroad tank cars leased by the Company
and highway transport trucks owned or leased by the Company. The Company
operates a fleet of 62 transport trucks to transport propane from refineries,
natural gas processing plants or pipeline terminals to the Company's retail
distribution outlets. Common carrier transport trucks may be used during the
peak delivery season in the winter months or to provide service in areas where
economic considerations favor common carrier use. Propane is then transported
from the Company's retail distribution outlets to customers by the Company's
fleet of 1,059 bulk delivery trucks, which are fitted generally with 2,000 to
3,000 gallon propane tanks. Propane storage tanks located on the customers'
premises are then filled from the delivery truck. Propane is also delivered to
customers in portable cylinders.
INDUSTRY AND COMPETITION
INDUSTRY
Based upon information contained in the Energy Information Administration's
Annual Energy Review 1993 magazine, propane accounts for approximately 3.0% of
household energy consumption in the United States, an average level which has
remained relatively constant for the past 10 years. It competes primarily with
natural gas, electricity and fuel oil as an energy source principally on the
basis of price, availability and portability. Propane serves as an alternative
to natural gas in rural and suburban areas where natural gas is unavailable or
portability of product is required. Propane is generally more expensive than
natural gas on an equivalent BTU basis in locations served by natural gas,
although propane is often sold in such areas as a standby fuel for use during
peak demands and during interruption in natural gas service. The expansion of
natural gas into traditional propane markets has historically been inhibited
by the capital costs required to expand distribution and pipeline systems.
Although the extension of natural gas pipelines tends to displace propane
distribution in the neighborhoods affected, the Company believes that new
opportunities for propane sales arise as more geographically remote
neighborhoods are developed. Propane is generally less expensive to use than
electricity for space heating, water heating and cooking and competes
effectively with electricity in those parts of the country where propane is
cheaper than electricity on an equivalent BTU basis.
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Although propane is similar to fuel oil in application, market demand and
price, propane and fuel oil have generally developed their own distinct
geographic markets. Because residential furnaces and appliances that burn
propane will not operate on fuel oil, a conversion from one fuel to the other
requires the installation of new equipment. The Partnership's residential
retail propane customers, therefore, will have an incentive to switch to fuel
oil only if fuel oil becomes significantly less expensive than propane.
Likewise, the Partnership may be unable to expand its customer base in areas
where fuel oil is widely used, particularly the Northeast, unless propane
becomes significantly less expensive than fuel oil. Alternatively, many
industrial customers who use propane as a heating fuel have the capacity to
switch to other fuels, such as fuel oil, on the basis of availability or minor
variations in price. Propane generally is becoming increasingly favored over
fuel oil and other alternative sources of fuel as an environmentally preferred
energy source.
COMPETITION
In addition to competing with marketers of other fuels, the Company competes
with other companies engaged in the retail propane distribution business.
Competition within the propane distribution industry stems from two types of
participants: the larger multi-state marketers, and the smaller, local
independent marketers. Based upon information contained in the National
Propane Gas Association's LP-Gas Market Facts and the June 1993 issue of LP
Gas magazine, the Company believes that the ten largest multi-state retail
marketers of propane, including the Company, account for less than 35% of the
total retail sales of propane in the United States. Based upon information
contained in industry publications, the Company also believes no single
marketer has a greater than 10% share of the total market in the United States
and that the Company is the third largest retail marketer of propane in the
United States, with a market share of approximately 6.0% as measured by volume
of national retail propane sales.
Most of the Company's retail distribution outlets compete with three or more
marketers or distributors. The principal factors influencing competition among
propane marketers are price and service. The Company competes with other
retail marketers primarily on the basis of reliability of service and
responsiveness to customer needs, safety and price. Each retail distribution
outlet operates in its own competitive environment because retail marketers
locate in close proximity to customers to lower the cost of providing service.
The typical retail distribution outlet has an effective marketing radius of
approximately 25 miles.
OTHER OPERATIONS
The other operations of the Company consist of: (1) trading, (2) chemical
feedstocks marketing, and (3) wholesale propane marketing. The Company,
through its natural gas liquids trading operations and wholesale marketing,
has become one of the largest independent traders of propane and natural gas
liquids in the United States. The Company owns no properties that are material
to these operations, but leases 371 railroad tank cars for use in its chemical
feedstocks marketing operations.
TRADING
The Company's traders are engaged in trading propane and other natural gas
liquids for the Company's account and for supplying the Company's retail and
wholesale propane operations. The Company primarily trades products purchased
from its over 200 suppliers, however, it also conducts transactions on the New
York Mercantile Exchange. Trading activity is conducted primarily to generate
a profit independent of the retail and wholesale operations, but is also
conducted to insure the availability of propane during periods of short
supply. Propane represents over 65% of the Company's total trading volume,
with the remainder consisting of various other natural gas liquids. The
Company attempts to minimize trading risk through the enforcement of its
trading policies, which include total
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inventory limits and loss limits, and attempts to minimize credit risk through
credit checks and application of its credit policies. However, there can be no
assurance that historical experience or the existence of such policies will
prevent trading losses in the future. For the fiscal years ended July 31,
1993, 1992 and 1991, the Company had net revenues of $6.7 million, $4.9
million and $9.9 million, respectively, from its trading activities.
CHEMICAL FEEDSTOCKS MARKETING
The Company is also involved in the marketing of refinery and petrochemical
feedstocks. Petroleum by-products are purchased from refineries and sold to
petrochemical plants. The Company had revenues of $54.0 million, $50.6 million
and $31.8 million from such activities for the fiscal years ended July 31,
1993, 1992 and 1991, respectively.
WHOLESALE MARKETING
The Company engages in the wholesale distribution of propane to other retail
propane distributors. During the fiscal years ended July 31, 1993, 1992 and
1991 the Company sold 129 million, 95 million and 73 million gallons,
respectively, of propane to wholesale customers and had revenues attributable
to such sales of $29.3 million, $37.7 million and $57.4 million, respectively.
EMPLOYEES
At April 30, 1994, the Company had 2,342 full-time employees and 990
temporary and part-time employees. The number of temporary and part-time
employees is generally higher by approximately 500 people during the winter
heating season. At April 30, 1994, the Company's full-time employees were
employed in the following areas:
<TABLE>
<S> <C>
Retail Market Locations............................................. 1,979
Transportation and Storage.......................................... 115
Field Services...................................................... 56
Corporate Offices (Liberty & Houston)............................... 192
-----
Total............................................................. 2,342
=====
</TABLE>
Approximately two percent of the Company's employees are represented by nine
local labor unions, which are all affiliated with the International
Brotherhood of Teamsters. The Company has not experienced any significant work
stoppages or other labor problems.
The Company's supply, trading, chemical feedstocks marketing, distribution
scheduling and product accounting functions are operated out of the Company's
offices located in Houston, Texas, by a total full time corporate staff of 60
people (which includes four traders as well as necessary support staff).
GOVERNMENTAL REGULATION; ENVIRONMENTAL AND SAFETY MATTERS
From August 1971 until January 1981, the United States Department of Energy
regulated the price and allocation of propane. The Company is no longer
subject to any similar regulation.
Propane is not a hazardous substance within the meaning of federal and state
environmental laws. In connection with all acquisitions of retail propane
businesses that involve the purchase of real estate, the Company conducts a
due diligence investigation to attempt to determine whether any substance
other than propane has been sold from or stored on any such real estate prior
to its purchase. Such due diligence includes questioning the sellers,
obtaining representations and warranties concerning the sellers' compliance
with environmental laws and visual inspections of the properties, whereby
Company employees look for evidence of hazardous substances or the existence
of underground storage tanks.
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With respect to the transportation of propane by truck, the Company is
subject to regulations promulgated under the Federal Motor Carrier Safety Act.
These regulations cover the transportation of hazardous materials and are
administered by the United States Department of Transportation. National Fire
Protection Association Pamphlet No.58, which establishes a set of rules and
procedures governing the safe handling of propane, or comparable regulations,
have been adopted as the industry standard in a majority of the states in
which the Company operates. There are no material environmental claims pending
and the Company complies in all material respects with all material
governmental regulations and industry standards applicable to environmental
and safety matters.
SERVICE MARKS AND TRADEMARKS
The Company markets retail propane under the "Ferrellgas" tradename and uses
the tradename "Ferrell North America" for its other operations. In addition,
the Company has a trademark on the name "Ferrellmeter," its patented gas leak
detection device. The Company will contribute all of its right, title and
interest in such tradenames and trademark in the continental United States to
the Partnership. The Company will have an option to purchase such tradenames
and trademark from the Partnership for a nominal value if the Company is
removed as general partner of the Partnership other than for cause. If the
Company ceases to serve as the general partner of the Partnership for any
other reason, it will have the option to purchase such tradenames and
trademark from the Partnership for fair market value.
MANAGEMENT INFORMATION AND CONTROL SYSTEMS
The Company has, in each of its retail outlets, a computer-based information
and control system. This system provides for remote billing of, and
collections from, customers and is designed to enhance the local outlets'
responsiveness to customers. Each outlet can be monitored by headquarters to
determine volume of sales, selling price and gross margin.
PROPERTIES
At April 30, 1994, the Company owned or leased the following transportation
equipment which was utilized primarily in retail operations, except for
railroad tank cars, which are used primarily by chemical feedstocks
operations:
The highway transport trailers have an average capacity of approximately
9,000 gallons. The bulk delivery trucks are generally fitted with 2,000 to
3,000 gallon propane tanks. Each railroad tank car has a capacity of
approximately 30,000 gallons.
<TABLE>
<CAPTION>
OWNED LEASED TOTAL
----- ------ -----
<S> <C> <C> <C>
Truck tractors............................................ 15 47 62
Transport trailers........................................ 69 -- 69
Bulk delivery trucks...................................... 442 617 1,059
Pickup and service trucks................................. 399 574 973
Railroad tank cars........................................ -- 371 371
</TABLE>
A typical retail distribution outlet is located on one to three acres of
land and includes a small office, a workshop, bulk storage capacity of 18,000
gallons to 60,000 gallons and a small inventory of stationary customer storage
tanks and portable propane cylinders that the Company provides to its retail
customers for propane storage. The Company owns the land and buildings of
about 50% of its retail outlets and leases the remaining facilities on terms
customary in the industry and in the applicable local markets.
Approximately 500,000 propane tanks are owned by the Company, most of which
are located on customer property and leased to those customers. The Company
also owns approximately 545,000 portable propane cylinders, most of which are
leased to industrial and commercial customers for use
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in manufacturing and processing needs, including forklift operations, and to
residential customers for home heating and cooking, and to local dealers who
purchase propane from the Company for resale.
Ferrellgas owns underground storage facilities at Hutchinson, Kansas;
Adamana, Arizona; and Moab, Utah. At April 30, 1994, the capacity of these
facilities approximated 73 million gallons, 88 million gallons and 7 million
gallons, respectively (an aggregate of approximately 168 million gallons).
Currently, approximately 80 million gallons of this capacity is leased to
third parties, and approximately 6 million gallons of capacity is exchanged
with another company for approximately 6 million gallons of storage capacity
at Bumstead, Arizona. The remaining space is available for the Company's own
use.
The Company purchased, in fiscal year 1993, the land and two buildings
(50,245 square feet of office space) comprising its corporate headquarters in
Liberty, Missouri, from Ferrell Leasing Corp. The Company leases the 18,124
square feet of office space in Houston, Texas, where its trading, chemical
feedstocks marketing and wholesale marketing operations are located.
The Company believes that it has satisfactory title to or valid rights to
use all of its material properties and, although some of such properties are
subject to liabilities and leases and, in certain cases, liens for taxes not
yet currently due and payable and immaterial encumbrances, easements and
restrictions, the Company does not believe that any such burdens will
materially interfere with the continued use of such properties by the
Partnership in its business, taken as a whole. In addition, the Company
believes that it has, or is in the process of obtaining, all required material
approvals, authorizations, orders, licenses, permits, franchises and consents
of, and has obtained or made all required material registrations,
qualifications and filings with, the various state and local governmental and
regulatory authorities which relate to ownership of the Company's properties
or the operations of its business.
LITIGATION
Propane is a flammable, combustible gas. Serious personal and property
damage can occur in connection with its transportation, storage or use. The
Company, in the ordinary course of business, is threatened with or is named as
a defendant in various lawsuits which, among other items, seek actual and
punitive damages for products liability, personal injury and property damage.
The Company maintains liability insurance policies with insurers in such
amounts and with such coverages and deductibles as management of the Company
believes is reasonable and prudent. However, there can be no assurance that
such insurance will be adequate to protect the Company from material expenses
related to such personal injury or property damage or that such levels of
insurance will continue to be available in the future at economical prices. It
is not possible to determine the ultimate disposition of these matters
discussed above; however, after taking into consideration the Company's
insurance coverage and existing reserves, management is of the opinion that
there are no known uninsured claims or known contingent claims that are likely
to have a material adverse effect on the results of operations or financial
condition of the Company. When the Partnership assumes all outstanding
liabilities relating to the business, it will assume such liabilities, whether
or not asserted against or known by the Company at the time of the transfer.
TRANSFER OF THE PARTNERSHIP ASSETS
The Company will transfer its right, title and interest in its propane
business and assets to the Partnership at or shortly before the closing of
this offering, subject to the following. The assets include the Company's
interests in leases covering several types of assets, including railcars,
trucks and retail distribution centers. Many of these leases are transferable
to the Partnership only with the consent of the lessor. The Company expects to
obtain, prior to the closing of this offering, third party consents which are
sufficient to enable the Company to transfer to the Partnership the assets
necessary to
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enable the Partnership to conduct the Company's propane business in all
material respects as described in this Prospectus. In the event any such
consents are not obtained, the Company will enter into other agreements,
including the lease or purchase of other assets, in order to insure that the
Partnership has the assets necessary to enable it to conduct the Company's
propane business in all material respects as described in this Prospectus. In
addition, certain of the Company's licenses, permits and other similar rights
relating to the assets to be assigned to the Partnership are not transferable
or are transferable only with the consent of third parties. Such transferable
rights will not be transferred to the Partnership at the closing of this
offering unless applicable consents have been obtained. In the case of non-
transferable rights or rights where no consent has been obtained by the
closing, the Company will seek to obtain such consents in the normal course of
business after the closing or seek to have comparable rights granted to the
Partnership prior to the closing. Numerous licenses, permits and rights will
be required for the operation of the Partnership's business, and no assurance
can be given that the Partnership will obtain all licenses, permits and rights
which are required in connection with the ownership and operation of its
business. Although failure by the Partnership to obtain such licenses, permits
or rights could have a material adverse effect on the Partnership, the Company
believes that the Partnership will have the licenses, permits and rights which
will enable the Partnership to conduct its propane business in a manner which
is similar in all material respects to that which was conducted by the Company
prior to the closing of this offering and that any such failure to obtain
licenses, permits or rights will not have a material adverse impact on the
business of the Partnership as described in this Prospectus. The Operating
Partnership will be responsible for the payment of any transfer taxes and fees
owing as a result of the transfer of the Company's assets, but the Company
believes that the amount of any such taxes will not be material.
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MANAGEMENT
PARTNERSHIP MANAGEMENT
The General Partner will manage and operate the activities of the
Partnership, and the General Partner anticipates that its activities will be
limited to such management and operation. Unitholders will not directly or
indirectly participate in the management or operation of the Partnership. The
General Partner will owe a fiduciary duty to the Unitholders. See "Conflicts
of Interest and Fiduciary Responsibility." Notwithstanding any limitation on
obligations or duties, the General Partner will be liable, as the general
partner of the Partnership, for all the debts of the Partnership (to the
extent not paid by the Partnership), except to the extent that indebtedness
incurred by the Partnership is made specifically non-recourse to the General
Partner.
The General Partner will appoint two persons who are neither officers nor
employees of the General Partner or any affiliate of the General Partner to
serve on a committee of the Partnership (the "Audit Committee") with the
authority to review, at the request of the General Partner, specific matters
as to which the General Partner believes there may be a conflict of interest
in order to determine if the resolution of such conflict proposed by the
General Partner is fair and reasonable to the Partnership. The Audit Committee
members will be elected no later than three months after the date of this
Prospectus. The Audit Committee will only review matters relating to conflicts
of interest at the request of the General Partner, and the General Partner has
sole discretion to determine which matters, if any, to submit to the Audit
Committee. Any matters approved by the Audit Committee will be conclusively
deemed to be fair and reasonable to the Partnership, approved by all partners
of the Partnership and not a breach by the General Partner of any duties it
may owe the Partnership or the Unitholders.
The Partnership will not directly employ any of the persons responsible for
managing or operating the Partnership. The current management and workforce of
Ferrellgas will continue to manage and operate the Partnership's business as
officers and employees of the General Partner. At April 30, 1994, 2,342 full-
time and 990 temporary and part-time individuals were employed by the General
Partner.
DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER
The following table sets forth certain information with respect to the
directors and executive officers of the Company. Each of the persons named
below is elected to their respective office or offices annually. The executive
officers are not subject to employment agreements with their respective
employer or employers. The General Partner intends to promptly add additional
members to its Board of Directors, including at least two independent members.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITION
---- --- -------- --------
<S> <C> <C> <C>
James E. Ferrell........... 54 1984 President, Chairman of the Board and a
Director of the Company
Bradley A. Cochennet....... 40 -- Executive Vice President and Chief
Operating Officer of the Company
Danley K. Sheldon.......... 35 -- Vice President and Chief Financial
Officer/Treasurer of the Company
Rhonda E. Smiley........... 38 -- Vice President of Legal Affairs
Brian M. Smith............. 43 -- Vice President of Marketing and
Communications
</TABLE>
James E. Ferrell--Mr. Ferrell has been with Ferrell or its predecessors and
its affiliates in various executive capacities since 1965.
Bradley A. Cochennet--Mr. Cochennet has been Chief Operating Officer since
January 1993 and has been a Vice President of the Company since 1985. Mr.
Cochennet joined the Company in 1980.
72
<PAGE>
Danley K. Sheldon--Mr. Sheldon has been Chief Financial Officer of the
Company since January 1994 and has served as Treasurer since 1989. He joined
the Company in 1986.
Rhonda E. Smiley--Ms. Smiley joined the Company in 1991 as Director of Legal
Affairs and has been a Vice President of the Company since April 1994. Prior
to joining the Company, Ms. Smiley practiced law with Shook, Hardy & Bacon for
ten years, the last five years as a partner.
Brian M. Smith--Mr. Smith joined the Company in 1991 as Managing Director of
Marketing and Communications and has been a Vice President of the Company
since April 1994. Prior to joining the Company, Mr. Smith was President and
owner of The Smith Group, Inc., a marketing communications firm.
COMPENSATION OF THE GENERAL PARTNER
The General Partner will receive no management fee or similar compensation
in connection with its management of the Partnership and will receive no
remuneration other than:
(i) distributions in respect of its 2% general partner interest, on a
combined basis, in the Partnership and the Operating Partnership; and
(ii) reimbursement for all direct and indirect costs and expenses
incurred on behalf of the Partnership, all selling, general and
administrative expenses incurred by the General Partner for or on behalf of
the Partnership and all other expenses necessary or appropriate to the
conduct of the business of, and allocable to, the Partnership.
In addition, Ferrell, the parent of the General Partner, will receive
1,000,000 Common Units, 16,118,559 Subordinated Units and the Incentive
Distribution Rights in connection with the transactions described in this
Prospectus and will be entitled to distributions thereon, as described under
"Cash Distributions Policy" above.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual salary, bonuses and all other
compensation awards and payouts to the Chief Executive Officer and to named
executive officers of the Company, for the fiscal years ended July 31, 1991,
1992 and 1993.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------- ------------------- ---------
OTHER
ANNUAL RESTRICTED STOCK LONG-TERM ALL OTHER
COMPEN- STOCK OPTIONS/ INCENTIVE COMPEN-
NAME AND SALARY BONUS SATION AWARDS SARS PAYOUTS SATION
POTENTIAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
------------------ ---- ------- ------ ------- ---------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James E. Ferrell........ 1993 480,000 -- -- -- -- 1,502,080(1) 25,489(2)
Chairman and Chief 1992 480,000 13,000 -- -- -- -- 32,401
Executive Officer 1991 246,000 20,000 -- -- -- -- 18,439
Bradley A. Cochennet.... 1993 150,000 -- -- -- 2,762 -- 9,315(3)
Vice President and 1992 150,000 -- -- -- -- -- 12,317
Chief Operating Officer 1991 151,667 -- -- -- -- -- 18,373
Geoffrey H. Ramsden (4). 1993 120,000 -- -- -- 9,566 -- 7,453(3)
Vice President and 1992 120,000 -- -- -- -- -- 12,000
Chief Financial Officer 1991 120,000 -- -- -- -- -- 17,550
</TABLE>
- --------
(1) Early purchase of all the employee's 64,000 Equity Units under Ferrell's
Long-Term Incentive Plan at a price per unit of $23.47.
(2) Includes (i) Company contributions of $13,787 to the employee's 401(k) and
profit sharing plans and (ii) compensation of $11,702 resulting from the
Company's payment of split dollar life insurance premiums.
(3) Company contributions to the employee's 401(k) and profit sharing plans.
(4) Mr. Ramsden resigned in January 1994.
73
<PAGE>
STOCK OPTION TABLES
The Board of Directors of Ferrell adopted the 1992 Key Employee Stock Option
Plan (the "Option Plan") on June 26, 1992. The Option Plan reserves 100,000
shares of Class M Common Stock of Ferrell for the purpose of allowing Ferrell
to offer options on the Class M Common Stock to officers and key employees of
Ferrell and the Company. The value of each share of Class M Common Stock is
determined by the Board of Directors of Ferrell and shall not be less than
fair market value of such stock on the date the option is granted. The
following table sets forth the option grants for the fiscal year ended July
31, 1993:
<TABLE>
<CAPTION>
INDIVIDUAL GRANT
-----------------------------------------------
POTENTIAL REALIZED
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK APPRECIATIONS
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(2)
OPTIONS TO EMPLOYEES PRICE EXPIRATION --------------------
NAME GRANTED IN FISCAL YEAR ($/SH) DATE 5% 10%
---- ---------- --------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bradley A. Cochennet.... 2,762 22% $36.20 12/30/02 $29,000 $106,000
Geoffrey H. Ramsden..... 3,836(1) 31% $36.20 12/30/02 $41,000 $147,000
Geoffrey H. Ramsden..... 5,730(1) 47% $89.36 01/08/03 -- --
</TABLE>
- --------
(1) Options terminated as a result of Mr. Ramsden's resignation in January
1994.
(2) These dollar amounts represent the potential realizable value of each
grant of options assuming that the market price of the Class M Common
Stock appreciates in value from the date of grant at 5% and 10% annual
rates and are not intended to forecast possible future appreciation, if
any, of the price of the Class M Common Stock.
The following table lists information on the named executive officer's
exercised/unexercised options for the fiscal year ended July 31, 1993:
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END AT FY-END
------------- ----------------
NUMBER OF
SHARES
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED ($) UNEXERCISABLE UNEXERCISABLE($)
---- ----------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
Bradley A. Cochennet.... -- -- 2,762/-- $57,357/--
Geoffrey H. Ramsden(1).. -- -- 9,566/-- 79,674/--
</TABLE>
- --------
(1) Options terminated as a result of Mr. Ramsden's resignation in January
1994.
LONG-TERM INCENTIVE PLAN AWARDS
The goal of Ferrell's Long-Term Incentive Plan (the "Plan") is to attract
and retain officers and key executives needed for the continued growth and
success of Ferrell and its affiliates through long-term incentives in the form
of units ("Equity Units"). The plan is administered by the Compensation
Committee (the "Committee") of the Board of Directors of Ferrell. The
Committee members who hold an award under the Plan are ineligible to vote on
matters relating to the Plan. The Committee has the authority to determine,
within the express provisions of the Plan, the individuals to whom awards will
be granted; the amount, size and terms of each such award; the time when
awards will be granted; and the objectives and conditions for earning such
awards. The Committee has the full and final authority to interpret the
provisions of the Plan, to decide all questions of fact arising upon its
application and to make all other determinations necessary or advisable for
the administration of the plan.
The Equity Units awarded under the Plan, which were 100% vested as of July
31, 1993, are subject to purchase by Ferrell at a cash price related to the
increased value of Ferrell's common stock from 1986, as determined pursuant to
(i) an appraisal conducted by a nationally recognized investment
74
<PAGE>
banking firm, (ii) the mean of the closing bid and asked price of a class of
Ferrell's common stock if a class of Ferrell's common stock is publicly
traded, or (iii) in certain limited circumstances, including if the appraisal
referred to in (i) is more than 90 days old or if there is no public market as
referred to in (ii), the Committee shall determine the value of the Equity
Units. Unless purchased earlier, Ferrell will purchase all of the issued and
outstanding Equity Units as of July 31, 1996. The value of the Equity Units as
of July 31, 1996 will be the value of Ferrell's common stock as of such date,
determined in accordance with the valuation methods described above, less the
"deemed" value of Ferrell's common equity as of August 1, 1986.
As of July 31, 1993, a total of 60,000 Equity Units, awarded in previous
years, were outstanding to the group of executive officers named in the
Summary Compensation Table as follows: Geoffrey H. Ramsden--30,000 Equity
Units and Bradley A. Cochennet--30,000 Equity Units. When Mr. Ramsden resigned
in January 1994, all of his Equity Units were fully vested and were
subsequently repurchased by Ferrell. During fiscal 1993, James E. Ferrell had
a total of 64,000 Equity Units repurchased by Ferrell. No additional Equity
Units were awarded under the Plan in fiscal 1993, therefore, no long-term
incentive plan awards table is presented.
Compensation expense of $720,000 and $80,000 was recorded for the nine
months ended April 30, 1994 and for the fiscal year ended July 31, 1993,
respectively pursuant to the Plan for the benefit of the Equity Unit holders.
As of April 30, 1994, a liability totaling approximately $2,145,000 is
recorded in the financial statements of Ferrell as a result of the grants
under this Plan.
PROFIT SHARING PLAN
The Ferrell Profit Sharing Plan is a qualified defined contribution plan
(the "Profit Sharing Plan"). All full-time employees of Ferrell or any of its
direct or indirect wholly owned subsidiaries with at least one year of service
are eligible to participate in the Profit Sharing Plan. The Board of Directors
of Ferrell determines the amount of the annual contribution to the Profit
Sharing Plan, which is purely discretionary. This decision is based on the
operating results of Ferrell for the previous fiscal year and anticipated
future cash needs of the Company and Ferrell. The contributions are allocated
to the Profit Sharing Plan participant's based on each participant's wages or
salary as compared to the total of all participants' wages and salaries.
Historically, the annual contribution to the Profit Sharing Plan has been 2%
to 7% of each participant's annual wage or salary. The Profit Sharing Plan
also has a cash-or-deferred, or 401(k), feature allowing plan participants to
specify a portion of their pre-tax and/or after-tax compensation to be
contributed to the Profit Sharing Plan.
COMPENSATION OF DIRECTORS
The Company pays no additional remuneration to its employees (or employees
of, or legal counsel to, a direct or indirect wholly-owned subsidiary) for
serving as directors. Directors who are not employees of the Company, a direct
or indirect wholly-owned subsidiary, or counsel to any of the foregoing,
receive a fee per meeting of $500, plus reimbursement for out-of-pocket
expenses.
TERMINATION OF EMPLOYMENT ARRANGEMENT
On January 3, 1991, Warren Gfeller resigned as President of the Company and
as Director of Ferrell. In connection with such resignation, a severance
agreement was executed by and among Mr. Gfeller, the Company and Ferrell,
whereby Mr. Gfeller would receive $2.6 million, payable in four equal annual
installments commencing on or before January 11, 1991. As consideration for
these payments, Mr. Gfeller agreed not to compete with the Company and to the
termination and release of his participation in the Ferrell Long-Term
Incentive Plan and all bonus or performance plans maintained by the Company
and Ferrell.
75
<PAGE>
In connection with Geoffrey H. Ramsden's resignation in January 1994,
Ferrell and Mr. Ramsden entered into a severance agreement dated March 23,
1994. Pursuant to the terms of the agreement, Mr. Ramsden received
approximately $500,000 in exchange for the repurchase of his Class M Stock and
Equity Units and the termination of all rights under Ferrell's bonus and
performance plans.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a wholly owned subsidiary of Ferrell. The following table
sets forth the beneficial ownership of the outstanding capital stock of
Ferrell by beneficial owners of five percent or more of any class of capital
stock of Ferrell, by directors of Ferrell and by all directors and officers of
Ferrell as a group as of May 31, 1994.
<TABLE>
<CAPTION>
SHARES
TITLE OF BENEFICIALLY PERCENT
CLASS NAME OF BENEFICIAL OWNER OWNED(1) OF CLASS
-------- ------------------------------------- ------------ --------
<S> <C> <C> <C>
Class A Common Stock.... James E. Ferrell(2) 2,562,680(3) 99.6%
All Directors and Officers as a Group 2,562,680 99.6%
Class M Common Stock(4). James E. Ferrell -- --
Bradley A. Cochennet 2,770 17.9%
All Directors and Officers as a Group 4,325 27.9%
</TABLE>
- --------
(1) Beneficial ownership for the purposes of the foregoing table is defined by
Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Under
that rule a person is generally considered to be the beneficial owner of a
security if he has or shares the power to vote or direct the voting
thereof ("Voting Power") or to impose or direct the disposition thereof
("Investment Power") or has the right to acquire either of those powers
within 60 days.
(2) The address for James E. Ferrell is c/o Ferrell Companies, Inc., One
Liberty Plaza, Liberty, Missouri 64081.
(3) James E. Ferrell has sole Voting and Investment Power with respect to
1,525,817 shares of Class A Common Stock held by Mr. Ferrell as Trustee of
the James E. Ferrell Revocable Trust. Mr. Ferrell shares Voting and
Investment Power with respect to 1,036,823 shares of Class A Common Stock
held by himself and his wife, Elizabeth J. Ferrell, as joint tenants with
rights of survivorship.
(4) The shares of Class M Common Stock are restricted to eligible employees of
Ferrell and the Company and are non-voting and non-transferable. Ferrell
will repurchase all of the shares of Class M Common Stock owned by such
employees upon their death, disability, retirement, voluntary or
involuntary termination of employment or bankruptcy. The purchase price
for such shares is based on valuation formulas set forth in the Class M
Stock Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a discussion of certain relationships and related
transactions among affiliates of the Company. Upon the consummation of the
transactions contemplated hereby, the indebtedness set forth below will be
repaid and will no longer be outstanding.
In the second and third quarter of fiscal year 1993, Ferrell Leasing Corp.,
a subsidiary of Ferrell Properties, Inc., sold to the Company for the fair
market value of $4,100,000, the land and two buildings comprising the
Company's corporate headquarters in Liberty, Missouri. The purchase price was
based on an independent appraisal. The land and building were acquired by
Ferrell Leasing Corp. in December 1989. James E. Ferrell, a director and
executive officer of the Company, owns all of the issued and outstanding stock
of Ferrell Properties, Inc. Prior to the purchase of the buildings, the
Company paid total rent to Ferrell Leasing of $403,000.
76
<PAGE>
In fiscal year 1993, the Company received a capital contribution from
Ferrell. The contribution consisted of (i) the forgiveness of a $3,015,000
long-term note payable to an affiliate, including interest, and (ii) a
$262,000 note receivable from an affiliate.
During the three fiscal years ended July 31, 1993, the directors and
executive officers of the Company listed below have, or corporations in which
such directors or executive officers beneficially own ten percent or more of
any class of equity securities have, from time to time, been indebted to the
Company, Ferrell and/or their respective subsidiaries or affiliates in an
amount in excess of $60,000 as follows:
<TABLE>
<CAPTION>
HIGHEST AMOUNT AMOUNT
OUTSTANDING SINCE OUTSTANDING AT
NAME RELATIONSHIP AUGUST 1, 1990 APRIL 30, 1994
- ---- ----------------- ----------------- --------------
<S> <C> <C> <C>
James E. Ferrell(1)......... Executive Officer $8,895,810 $8,895,810
and Director
Ferrell Development,
Inc.(2).................... Affiliate $1,500,000 $1,500,000
One Liberty Plaza, Inc.(2).. Affiliate $3,000,000 $3,000,000
Ferrell Properties, Inc.(2). Affiliate $1,757,946 $ 262,199
</TABLE>
- --------
(1) All loans or advances to Mr. Ferrell are cash loans made by the Company
for Mr. Ferrell's personal use. The loans or advances did not arise as a
result of any transactions with the Company. All loans or advances to Mr.
Ferrell are represented by a demand note which bears interest at the prime
rate. The interest rate charged on this loan ranged from 6% to 8.5% during
fiscal 1993, from 8.5% to 10.5% during fiscal 1992, and 10.0% to 10.5%
during fiscal 1991.
(2) Ferrell Development, Inc., and One Liberty Plaza, Inc. are wholly owned
subsidiaries of Ferrell Properties, Inc. The indebtedness of Ferrell
Development and One Liberty Plaza arose as a result of cash loans made by
the Company. The indebtedness of Ferrell Properties, which was contributed
to the Company by Ferrell in fiscal 1993, arose as a result of cash loans
made by Ferrell. The loans did not arise as a result of any transactions
with the Company or Ferrell. The terms of the loans, as fixed by the loan
documents, are as favorable as could be obtained from a third party and
the loans were approved by a majority of the Company's or Ferrell's
independent directors. The interest income generated from the loans, which
bear interest of the prime rate plus 1.125%, is not material to the
Company or Ferrell.
77
<PAGE>
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY
TRANSACTIONS OF THE PARTNERSHIP WITH FERRELLGAS AND ITS AFFILIATES
The Partnership will have extensive ongoing relationships with Ferrellgas
and its affiliates. These relationships will include Ferrellgas serving as
general partner of the Partnership. In addition, the Partnership Agreement
provides that Ferrellgas will indemnify the Partnership for liabilities
arising from certain historical and future non-Partnership operations of
Ferrellgas and that the Partnership will indemnify Ferrellgas and Ferrell for
liabilities arising in connection with the ongoing conduct of the Partnership
business. The Partnership will be responsible for all tax liabilities, other
than federal and state income tax liabilities but including liabilities for
state franchise taxes, associated with the business Ferrellgas conducted prior
to this offering. All costs and expenses in connection with this offering will
be borne by the Partnership.
CONFLICTS OF INTEREST
The General Partner will make all decisions relating to the management of
the Partnership. Ferrell owns all the capital stock of Ferrellgas, the General
Partner. Upon the closing of this offering, Ferrellgas will own a 2% general
partner interest in the Partnership, and Ferrell will own 1,000,000 Common
Units (if the Underwriters' overallotment option is exercised in full all of
such 1,000,000 Common Units will be repurchased by the Partnership) and
16,118,559 Subordinated Units representing in the aggregate an approximate
55.5% limited partner interest in the Partnership (50.7% if the Underwriters'
overallotment option is exercised in full) and the Incentive Distribution
Rights. Certain conflicts of interest could arise as a result of the
relationships among the General Partner, Ferrell, Ferrell's affiliates and the
Partnership. The directors and officers of both Ferrell and Ferrellgas have
fiduciary duties to manage their companies, including their investments in its
subsidiaries and affiliates, in a manner beneficial to their shareholders. In
general, the General Partner has a fiduciary duty to manage the Partnership in
a manner beneficial to the Partnership and the Unitholders. The Partnership
Agreement contains provisions that allow the General Partner to take into
account the interests of parties in addition to the Partnership in resolving
conflicts of interest, thereby limiting its fiduciary duty to the Partners, as
well as provisions that may restrict the remedies available to Unitholders for
actions taken that might, without such limitations, constitute breaches of
fiduciary duty. The duty of the directors and officers of Ferrellgas to the
shareholder of Ferrellgas may, therefore, come into conflict with the duties
of the General Partner to the Partnership and the Unitholders. The Audit
Committee of the Board of Directors of the General Partner will, at the
request of the General Partner, review conflicts of interest that may arise
between Ferrellgas or its affiliates, on the one hand, and the Partnership, on
the other. See "Management--Partnership Management" and "--Fiduciary Duties of
the General Partner."
Potential conflicts of interest could arise in the situations described
below, among others:
CERTAIN ACTIONS TAKEN BY THE GENERAL PARTNER MAY AFFECT THE AMOUNT OF CASH
AVAILABLE FOR DISTRIBUTION TO UNITHOLDERS, ENABLE AN AFFILIATE OF THE
GENERAL PARTNER TO RECEIVE DISTRIBUTIONS WITH RESPECT TO THE INCENTIVE
DISTRIBUTION RIGHTS OR HASTEN THE RIGHT TO CONVERT SUBORDINATED UNITS
The General Partner (as general partner of the Partnership) and Ferrell (as
the holder of Common Units, Subordinated Units and Incentive Distribution
Rights) have certain varying percentage interests and priorities with respect
to Available Cash. See "Cash Distribution Policy." Because of the definitions
of Available Cash and Cash from Operations set forth under the caption "Cash
Distribution Policy" and in the glossary, decisions of the General Partner
with respect to the amount and timing of cash expenditures, borrowings,
issuance of additional Units and reserves in any quarter may affect whether,
or the extent to which, there is sufficient Available Cash constituting Cash
from Operations to meet the Minimum Quarterly Distribution on all Units in
such quarter or subsequent quarters or to make distributions with respect to
the Incentive Distribution Rights. In addition, the decisions of the General
Partner regarding the Partnership's participation in proposed capital projects
may have the same effect.
78
<PAGE>
Borrowings and issuances of additional Units for cash also increase the amount
of Available Cash. The Partnership Agreement provides that any borrowings by
the Partnership or the approval thereof by the General Partner shall not
constitute a breach of any duty owed by the General Partner to the Partnership
or the Unitholders, including borrowings that have the purpose or effect,
directly or indirectly, of (i) enabling the Partnership to make distributions
with respect to the Incentive Distribution Rights or (ii) hastening the
expiration of the Subordination Period or the conversion of the Subordinated
Units into Common Units. The Partnership Agreement provides that the
Partnership may make loans to and borrow funds from the General Partner and
its affiliates. Further, any actions taken by the General Partner consistent
with the standards of reasonable discretion set forth in the definitions of
Available Cash, Cash from Operations and Cash from Interim Capital
Transactions will be deemed not to breach any duty of the General Partner to
the Partnership or the Unitholders. See "Risk Factors--Conflicts of Interest
and Fiduciary Duties" and "Cash Distribution Policy."
EMPLOYEES OF THE GENERAL PARTNER AND ITS AFFILIATES WHO PROVIDE SERVICES TO
THE PARTNERSHIP WILL ALSO PROVIDE SERVICES TO OTHER BUSINESSES
The Partnership will not have any employees and will rely on employees of
the General Partner and its affiliates. The General Partner and its affiliates
will conduct business and activities of their own in which the Partnership
will have no economic interest. There may be competition between the
Partnership and the affiliates of the General Partner for the time and effort
of employees who provide services to both the Partnership and such affiliates.
Certain officers of affiliates of the General Partner will divide their time
between the business of the Partnership and the business of the affiliates and
will not be required to spend any specified percentage or amount of their time
on the business of the Partnership.
THE PARTNERSHIP WILL REIMBURSE THE GENERAL PARTNER AND ITS AFFILIATES FOR
CERTAIN EXPENSES
Under the terms of the Partnership Agreement, the General Partner and its
affiliates will be reimbursed by the Partnership for certain expenses incurred
on behalf of the Partnership, including costs incurred in providing corporate
staff and support services to the Partnership. See "Management."
THE GENERAL PARTNER INTENDS TO LIMIT ITS LIABILITY WITH RESPECT TO THE
PARTNERSHIP'S OBLIGATIONS
Whenever possible, the General Partner intends to limit the Partnership's
liability under contractural arrangements to all or particular assets of the
Partnership, with the other party thereto to have no recourse against the
General Partner or its assets. The Partnership Agreement provides that any
action by the General Partner in so limiting the liability of the General
Partner or that of the Partnership will not be deemed to be a breach of the
General Partner's fiduciary duties, even if the Partnership could have
obtained more favorable terms without such limitation on liability.
COMMON UNITHOLDERS WILL HAVE NO RIGHT TO ENFORCE OBLIGATIONS OF THE GENERAL
PARTNER AND ITS AFFILIATES UNDER AGREEMENTS WITH THE PARTNERSHIP
The Partnership will acquire or provide many services from or to Ferrellgas
and their affiliates on an ongoing basis, including those described above. The
agreements relating thereto do not grant to the holders of the Common Units,
separate and apart from the Partnership, the right to enforce the obligations
of Ferrellgas and its affiliates in favor of the Partnership. Therefore, the
General Partner will be primarily responsible for enforcing such obligations.
CONTRACTS BETWEEN THE PARTNERSHIP, ON THE ONE HAND, AND THE GENERAL PARTNER
AND ITS AFFILIATES, ON THE OTHER, WILL NOT BE THE RESULT OF ARM'S-LENGTH
NEGOTIATIONS
Under the terms of the Partnership Agreement, the General Partner is not
restricted from paying Ferrell, Ferrellgas or their affiliates for any
services rendered (provided such services are rendered on
79
<PAGE>
terms fair and reasonable to the Partnership) or entering into additional
contractual arrangements with any of them on behalf of the Partnership.
Neither the Partnership Agreement nor any of the other agreements, contracts
and arrangements between the Partnership, on the one hand, and Ferrell,
Ferrellgas and their affiliates, on the other, are or will be the result of
arm's-length negotiations. All of such transactions entered into after the
sale of the Common Units offered hereby are to be on terms which are fair and
reasonable to the Partnership, provided that any transaction shall be deemed
fair and reasonable if (i) such transaction is approved by the Audit
Committee, (ii) its terms are no less favorable to the Partnership than those
generally being provided to or available from unrelated third parties or (iii)
taking into account the totality of the relationships between the parties
involved (including other transactions that may be particularly favorable or
advantageous to the Partnership), the transaction is fair to the Partnership.
The General Partner and its affiliates will have no obligation to permit the
Partnership to use any facilities or assets of the General Partner and such
affiliates, except as may be provided in contracts entered into from time to
time specifically dealing with such use, nor shall there be any obligation of
the General Partner and its affiliates to enter into any such contracts.
COMMON UNITHOLDERS HAVE NOT BEEN REPRESENTED BY COUNSEL
As is customary in many types of public securities offerings, the Common
Unitholders have not been represented by counsel in connection with the
preparation of the Partnership Agreement or other agreements referred to
herein or in establishing the terms of this offering made hereby. The
attorneys, accountants and others who have performed services for the
Partnership in connection with this offering have been employed by the General
Partner and its affiliates and may continue to represent the General Partner
and its affiliates. Attorneys, accountants and others who will perform
services for the Partnership in the future will be selected by the General
Partner or the Audit Committee and may also perform services for the General
Partner and its affiliates. The General Partner may retain separate counsel
for the Partnership or the Unitholders after the sale of the Common Units
offered hereby, depending on the nature of the conflict that arises, but it
does not intend to do so in most cases.
COMMON UNITS ARE SUBJECT TO THE GENERAL PARTNERS LIMITED CALL RIGHT
The Partnership Agreement provides that it will not constitute a breach of
the General Partners fiduciary duties if the General Partner exercises its
right to call for and purchase Units as provided in the Partnership Agreement
or assign this right to its affiliates or to the Partnership. The General
Partner thus may use its own discretion, free of fiduciary duty restrictions,
in determining whether to exercise such right. As a consequence, a Common
Unitholder may have his Common Units purchased from him even though he may not
desire to sell them, and the price paid may be less than the amount the holder
would desire to receive upon sale of his Common Units. For a description of
such right, see "The Partnership Agreement--Limited Call Right."
AFFILIATES OF THE GENERAL PARTNER MAY COMPETE WITH THE PARTNERSHIP
Following the sale of the Common Units offered hereby, affiliates of the
General Partner will not be restricted from engaging in any business
activities other than the retail sales of propane to end users in the
continental United States, even if they are in competition with the
Partnership. As a result, conflicts of interest may arise between affiliates
of the General Partner, on the one hand, and the Partnership, on the other.
The Partnership Agreement expressly provides that, subject to certain limited
exceptions, it shall not constitute a breach of the General Partner's
fiduciary duties to the Partnership or the Unitholders for affiliates of the
General Partner to engage in direct competition with the Partnership, other
than with respect to the retail sale of propane to end users within the
continental United States. Such competition may include the trading,
transportation, storage and wholesale distribution of propane. The Partnership
Agreement also provides that the General Partner and its affiliates have no
obligation to present business opportunities to the Partnership. The General
Partner
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anticipates that there may be competition between the Partnership and
affiliates of the General Partner. Although the Partnership Agreement does not
restrict the ability of affiliates of the General Partner to trade propane or
other natural gas liquids in competition with the Partnership, they do not
intend to engage in such trading except in association with the conduct of
their other permitted activities.
FIDUCIARY DUTIES OF THE GENERAL PARTNER
The General Partner will be accountable to the Partnership and the
Unitholders as a fiduciary. Consequently, the General Partner must exercise
good faith and integrity in handling the assets and affairs of the
Partnership. In contrast to the relatively well developed law concerning
fiduciary duties owed by officers and directors to the shareholders of a
corporation, the law concerning the duties owed by general partners to other
partners and to partnerships is relatively undeveloped. The Delaware Act does
not define with particularity the fiduciary duties owed by general partners,
but fiduciary duties are generally considered to include an obligation to act
with the highest good faith, fairness and loyalty. Such duty of loyalty would
generally prohibit a general partner of a Delaware limited partnership from
taking any action or engaging in any transaction as to which it has a conflict
of interest. However, the Delaware Act has been amended to clarify that
Delaware limited partnerships may, in their partnership agreements, restrict
or expand the fiduciary duties that might otherwise be applied by a court in
analyzing the standard duty owed by general partners to limited partners. In
order to induce the General Partner to manage the business of the Partnership,
the Partnership Agreement, as permitted by the Delaware Act, contains various
provisions that have the effect of restricting the fiduciary duties that might
otherwise be owed by the General Partner to the Partnership and its partners
and waiving or consenting to conduct by the General Partner and its affiliates
that might otherwise raise issues as to compliance with fiduciary duties or
applicable law.
The Partnership Agreement provides that whenever a conflict of interest
arises between the General Partner or its affiliates, on the one hand, and the
Partnership or any other partner, on the other, the General Partner shall
resolve such conflict. The General Partner shall not be in breach of its
obligations under the Partnership Agreement or its duties to the Partnership
or the Unitholders if the resolution of such conflict is fair and reasonable
to the Partnership, and any resolution shall conclusively be deemed to be fair
and reasonable to the Partnership if such resolution is (i) approved by the
Audit Committee (although no party is obligated to seek such approval and the
General Partner may adopt a resolution or course of action that has not
received such approval), (ii) on terms no less favorable to the Partnership
than those generally being provided to or available from unrelated third
parties or (iii) fair to the Partnership, taking into account the totality of
the relationships between the parties involved (including other transactions
that may be particularly favorable or advantageous to the Partnership). In
resolving such conflict, the General Partner may (unless the resolution is
specifically provided for in the Partnership Agreement) consider the relative
interests of the parties involved in such conflict or affected by such action,
any customary or accepted industry practices or historical dealings with a
particular person or entity and, if applicable, generally accepted accounting
or engineering practices or principles and such other factors as it deems
relevant. Thus, unlike the strict duty of a fiduciary who must act solely in
the best interests of his beneficiary, the Partnership Agreement permits the
General Partner to consider the interests of all parties to a conflict of
interest, including the interests of the General Partner. In connection with
the resolution of any conflict that arises, unless the General Partner has
acted in bad faith, the action taken by the General Partner shall not
constitute a breach of the Partnership Agreement, any other agreement or any
standard of care or duty imposed by the Delaware Act or other applicable law.
The Partnership Agreement also provides that in certain circumstances the
General Partner may act in its sole discretion, in good faith or pursuant to
other appropriate standards.
The Delaware Act provides that a limited partner may institute legal action
on behalf of the partnership (a partnership derivative action) to recover
damages from a third party where the general partner has failed to institute
the action or where an effort to cause the general partner to do so is not
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likely to succeed. In addition, the statutory or case law of certain
jurisdictions may permit a limited partner to institute legal action on behalf
of himself or all other similarly situated limited partners (a class action)
to recover damages from a general partner for violations of its fiduciary
duties to the limited partners.
The Partnership Agreement also provides that any standard of care and duty
imposed thereby or under the Delaware Act or any applicable law, rule or
regulation will be modified, waived or limited as required to permit the
General Partner and its officers and directors to act under the Partnership
Agreement or any other agreement contemplated therein and to make any decision
pursuant to the authority prescribed in the Partnership Agreement so long as
such action is reasonably believed by the General Partner to be in, or not
inconsistent with, the best interests of the Partnership. Further, the
Partnership Agreement provides that the General Partner and its officers and
directors will not be liable for monetary damages to the Partnership, the
limited partners or assignees for errors of judgment or for any acts or
omissions if the General Partner and such other persons acted in good faith.
In addition, under the terms of the Partnership Agreement, the Partnership is
required to indemnify the General Partner and its officers, directors,
employees, affiliates, partners, agents and trustees, to the fullest extent
permitted by law, against liabilities, costs and expenses incurred by the
General Partner or other such persons, if the General Partner or such persons
acted in good faith and in a manner they reasonably believed to be in, or not
opposed to, the best interests of the Partnership and, with respect to any
criminal proceedings, had no reasonable cause to believe the conduct was
unlawful. See "The Partnership Agreement--Indemnification." Thus, the General
Partner could be indemnified for its negligent acts if it meets such
requirements concerning good faith and the best interests of the Partnership.
The fiduciary obligations of general partners is a developing area of law.
The provisions of the Delaware Act that allow the fiduciary duties of a
general partner to be waived or restricted by a partnership agreement have not
been tested in a court of law, and the General Partner has not obtained an
opinion of counsel covering the provisions set forth in the Partnership
Agreement that purport to waive or restrict fiduciary duties of the General
Partner. Unitholders should consult their own legal counsel concerning the
fiduciary responsibilities of the General Partner and its officers and
directors and the remedies available to the Unitholders.
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DESCRIPTION OF THE COMMON UNITS
The Common Units will be registered under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations
promulgated thereunder, and the Partnership will be subject to the reporting
and certain other requirements of the Exchange Act. The Partnership will be
required to file periodic reports containing financial and other information
with the Securities and Exchange Commission (the "Commission").
Purchasers of Common Units in this offering and subsequent transferees of
Common Units (or their brokers, agents or nominees on their behalf) will be
required to execute Transfer Applications, the form of which is included as
Appendix B to this Prospectus. Purchasers may hold Common Units in nominee
accounts, provided that the broker (or other nominee) executes and delivers a
Transfer Application and becomes a limited partner. The Partnership will be
entitled to treat the nominee holder of a Common Unit as the absolute owner
thereof, and the beneficial owner's rights will be limited solely to those
that it has against the nominee holder as a result of or by reason of any
understanding or agreement between such beneficial owner and nominee holder.
The Common Units have been approved for listing on the NYSE, subject to
official notice of issuance, under the trading symbol "FGP".
THE UNITS
Generally, the Common Units and the Subordinated Units represent limited
partner interests in the Partnership, which entitle the holders thereof to
participate in Partnership distributions and exercise the rights or privileges
available to limited partners under the Partnership Agreement. For a
description of the relative rights and preferences of holders of Common Units
and holders of Subordinated Units in and to Partnership distributions,
together with a description of the circumstances under which Subordinated
Units may convert into Common Units, see "Cash Distribution Policy." For a
description of the rights and privileges of limited partners under the
Partnership Agreement, see "The Partnership Agreement."
TRANSFER AGENT AND REGISTRAR
DUTIES
The First National Bank of Boston, N. A. will act as a registrar and
transfer agent (the "Transfer Agent") for the Common Units and will receive a
fee from the Partnership for serving in such capacities. All fees charged by
the Transfer Agent for transfers of Common Units will be borne by the
Partnership and not by the holders of Common Units, except for fees similar to
those customarily paid by stockholders for surety bond premiums to replace
lost or stolen certificates, taxes and other governmental charges, special
charges for services requested by a holder of a Common Unit and other similar
fees or charges will be borne by the affected holder. There will be no charge
to holders for disbursements of the Partnership's cash distributions. The
Partnership will indemnify the Transfer Agent, its agents and each of their
respective shareholders, directors, officers and employees against all claims
and losses that may arise out of acts performed or omitted in respect of its
activities as such, except for any liability due to any negligence, gross
negligence, bad faith or intentional misconduct of the indemnified person or
entity.
RESIGNATION OR REMOVAL
The Transfer Agent may at any time resign, by notice to the Partnership, or
be removed by the Partnership, such resignation or removal to become effective
upon the appointment by the General Partner of a successor transfer agent and
registrar and its acceptance of such appointment. If no successor has been
appointed and accepted such appointment within 30 days after notice of such
resignation or removal, the General Partner is authorized to act as the
transfer agent and registrar until a successor is appointed.
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TRANSFER OF UNITS
Until a Common Unit has been transferred on the books of the Partnership,
the Partnership and the Transfer Agent, notwithstanding any notice to the
contrary, may treat the record holder thereof as the absolute owner for all
purposes, except as otherwise required by law or stock exchange regulations.
The transfer of the Common Units to persons that purchase directly from the
Underwriters will be accomplished through the completion, execution and
delivery of a Transfer Application by such purchaser in connection with such
purchase. Any subsequent transfers of a Common Unit will not be recorded by
the Transfer Agent or recognized by the Partnership unless the transferee
executes and delivers a Transfer Application. By executing and delivering a
Transfer Application (the form of which is set forth as Appendix B to this
Prospectus and which is also set forth on the reverse side of the certificate
representing Common Units), the transferee of Common Units (i) becomes the
record holder of such Units and shall constitute an assignee until admitted
into the Partnership as a substituted limited partner, (ii) automatically
requests admission as a substituted limited partner in the Partnership, (iii)
agrees to be bound by the terms and conditions of, and executes, the
Partnership Agreement, (iv) represents that such transferee has the capacity,
power and authority to enter into the Partnership Agreement, (v) grants powers
of attorney to the General Partner and any liquidator of the Partnership as
specified in the Partnership Agreement and (vi) makes the consents and waivers
contained in the Partnership Agreement. An assignee will become a substituted
limited partner of the Partnership in respect of the transferred Common Units
upon the consent of the General Partner and the recordation of the name of the
assignee on the books and records of the Partnership. Such consent may be
withheld in the sole discretion of the General Partner. Common Units are
securities and are transferable according to the laws governing transfer of
securities. In addition to other rights acquired upon transfer, the transferor
gives the transferee the right to request admission as a substituted limited
partner in the Partnership in respect of the transferred Common Units. A
purchaser or transferee of Common Units who does not execute and deliver a
Transfer Application obtains only (a) the right to assign the Common Units to
a purchaser or other transferee and (b) the right to transfer the right to
seek admission as a substituted limited partner in the Partnership with
respect to the transferred Common Units. Thus, a purchaser or transferee of
Common Units who does not execute and deliver a Transfer Application will not
receive cash distributions unless the Common Units are held in a nominee or
"street name" account and the nominee or broker has executed and delivered a
Transfer Application with respect to such Common Units, and may not receive
certain federal income tax information or reports furnished to record holders
of Common Units. The transferor of Common Units will have a duty to provide
such transferee with all information that may be necessary to obtain
registration of the transfer of the Common Units, but a transferee agrees, by
acceptance of the certificate representing Common Units, that the transferor
will not have a duty to insure the execution of the Transfer Application by
the transferee and will have no liability or responsibility if such transferee
neglects or chooses not to execute and forward the Transfer Application to the
Transfer Agent. See "The Partnership Agreement--Status as Limited Partner or
Assignee."
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THE PARTNERSHIP AGREEMENT
The following paragraphs are a summary of certain provisions of the
Partnership Agreement. The form of the Partnership Agreement for the
Partnership is included in this Prospectus as Appendix A. The form of
Partnership Agreement for the Operating Partnership (the "Operating
Partnership Agreement") is included as an exhibit to the Registration
Statement of which this Prospectus constitutes a part. The Partnership will
provide prospective investors with a copy of the form of the Operating
Partnership Agreement upon request at no charge. The following discussion is
qualified in its entirety by reference to the Partnership Agreements for the
Partnership and for the Operating Partnership. The Partnership will be the
sole limited partner of the Operating Partnership, which will own, manage and
operate the Partnership's business. The General Partner will serve as the
general partner of the Partnership and of the Operating Partnership,
collectively owning a 2% general partner interest in the business and
properties owned by the Partnership and the Operating Partnership on a
combined basis. Unless specifically described otherwise, references herein to
the term "Partnership Agreement" constitute references to the Partnership
Agreements of the Partnership and the Operating Partnership, collectively.
Certain provisions of the Partnership Agreement are summarized elsewhere in
this Prospectus under various headings. With regard to various transactions
and relationships of the Partnership with the General Partner and its
affiliates, see "Risk Factors--Conflicts of Interest and Fiduciary Duties" and
"Conflicts of Interest and Fiduciary Responsibility." With regard to the
management of the Partnership, see "Management." With regard to the transfer
of Units, see "Description of the Common Units." With regard to distributions
of Available Cash, see "Cash Distribution Policy." With regard to allocations
of taxable income and taxable loss, see "Tax Considerations." Prospective
investors are urged to review these sections of this Prospectus and the
Partnership Agreement carefully.
ORGANIZATION AND DURATION
The Partnership and the Operating Partnership were recently organized as
Delaware limited partnerships. The General Partner is the general partner of
the Partnership and the Operating Partnership. Upon the sale of the Common
Units offered hereby, the General Partner will hold an aggregate 2% interest
as general partner, and the Unitholders (including Ferrell as an owner of
Common Units, Subordinated Units and Incentive Distribution Rights) will hold
a 98% interest as limited partners in the Partnership and the Operating
Partnership on a combined basis. The Partnership will dissolve on July 31,
2084, unless sooner dissolved pursuant to the terms of the Partnership
Agreement.
PURPOSE
The purpose of the Partnership under the Partnership Agreement is limited to
serving as the limited partner of the Operating Partnership and engaging in
any business activity that may be engaged in by the Operating Partnership or
is approved by the General Partner. The Operating Partnership Agreement
provides that the Operating Partnership may engage in any activity engaged in
by Ferrellgas immediately prior to this offering, any activities that are, in
the sole judgment of the General Partner, reasonably related thereto and any
other activity approved by the General Partner.
CAPITAL CONTRIBUTIONS
For a description of the initial capital contributions to be made to the
Partnership, see "The Transactions." The Unitholders are not obligated to make
additional capital contributions to the Partnership.
POWER OF ATTORNEY
Each limited partner, and each person who acquires a Unit from a Unitholder
and executes and delivers a Transfer Application with respect thereto, grants
to the General Partner and, if a liquidator of
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the Partnership has been appointed, such liquidator, a power of attorney to,
among other things, execute and file certain documents required in connection
with the qualification, continuance or dissolution of the Partnership, or the
amendment of the Partnership Agreement in accordance with the terms thereof
and to make consents and waivers contained in the Partnership Agreement.
RESTRICTIONS ON AUTHORITY OF THE GENERAL PARTNER
The authority of the General Partner is limited in certain respects under
the Partnership Agreement. The General Partner is prohibited, without the
prior approval of holders of record of at least a majority of the Units (other
than Units owned by the General Partner and its affiliates) during the
Subordination Period, or a majority of all of the outstanding Units
thereafter, from, among other things, selling or exchanging all or
substantially all of the Partnership's assets in a single transaction or a
series of related transactions (including by way of merger, consolidation or
other combination) or approving on behalf of the Partnership the sale,
exchange or other disposition of all or substantially all of the assets of the
Partnership, provided that the Partnership may mortgage, pledge, hypothecate
or grant a security interest in all or substantially all of the Partnership's
assets without such approval. The Partnership may also sell all or
substantially all of its assets pursuant to a foreclosure or other realization
upon the foregoing encumbrances without such approval. The Common Unitholders
are not entitled to dissenters' rights of appraisal under the Partnership
Agreement or applicable Delaware law in the event of a merger or consolidation
of the Partnership, a sale of substantially all of the Partnership's assets or
any other event. Except as provided in the Partnership Agreement and generally
described below under "--Amendment of Partnership Agreement," any amendment to
a provision of the Partnership Agreement generally will require the approval
of the holders of at least 66 2/3% of the outstanding Units.
In general, the General Partner may not take any action, or refuse to take
any reasonable action, without the consent of the holders of at least 66 2/3%
of each class of outstanding Units, including the consent of at least 66 2/3%
of the outstanding Common Units (other than Common Units owned by the General
Partner and its affiliates), the effect of which would be to cause the
Partnership to be treated as an association taxable as a corporation or
otherwise taxed as an entity for federal income tax purposes.
WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER
The General Partner has agreed not to voluntarily withdraw as general
partner of the Partnership and the Operating Partnership prior to July 31,
2004 (with limited exceptions described below), without obtaining the approval
of at least 66 2/3% of the outstanding Units (excluding for purposes of such
determination Units held by the General Partner and its affiliates) and
furnishing an opinion of counsel that such withdrawal (following the selection
of a successor general partner) will not result in the loss of the limited
liability of the limited partners of the Partnership or cause the Partnership
to be treated as an association taxable as a corporation or otherwise taxed as
an entity for federal income tax purposes (an "Opinion of Counsel"). On or
after July 31, 2004, the General Partner may withdraw as general partner by
giving 90 days' written notice (without first obtaining approval from the
Unitholders), and such withdrawal will not constitute a violation of the
Partnership Agreement. Notwithstanding the foregoing, the General Partner may
withdraw without Unitholder approval upon 90 days' notice to the limited
partners if more than 50% of the outstanding Units are held or controlled by
one person and its affiliates (other than the General Partner and its
affiliates). In addition, the Partnership Agreement permits the General
Partner (in certain limited instances) to sell all of its general partner
interest in the Partnership and permits the parent corporation of the General
Partner to sell all or any portion of the capital stock of the General Partner
to a third party without the approval of the Unitholders. See "--Transfer of
General Partner Interest." Upon the withdrawal of the General Partner under
any circumstances (other than as a result of a transfer by the General Partner
of all or a part of its general partner interest in the Partnership), the
holders of a majority of the outstanding Units (excluding for purposes of such
determination Units held by the General Partner and its affiliates) may select
a successor to such withdrawing General Partner. If such a successor is not
elected, or is elected but an Opinion of Counsel cannot be obtained, the
Partnership will be dissolved, wound up and liquidated,
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unless within 180 days after such withdrawal a majority of the Unitholders
agree in writing to continue the business of the Partnership and to the
appointment of a successor General Partner. See "--Termination and
Dissolution."
The General Partner may not be removed unless such removal is approved by
the vote of the holders of not less than 66 2/3% of the outstanding Units and
the Partnership receives an Opinion of Counsel. Any such removal is also
subject to the approval of a successor general partner by the vote of the
holders of not less than a majority of the outstanding Units.
Removal or withdrawal of the General Partner of the Partnership also
constitutes removal or withdrawal, as the case may be, of the General Partner
as general partner of the Operating Partnership.
In the event of withdrawal of the General Partner where such withdrawal
violates the Partnership Agreement or removal of the General Partner by the
limited partners under circumstances where cause exists, a successor general
partner will have the option to purchase the general partner interest of the
departing General Partner (the "Departing Partner") in the Partnership and the
Operating Partnership for a cash payment equal to the fair market value of
such interest. Under all other circumstances where the General Partner
withdraws or is removed by the limited partners, the Departing Partner will
have the option to require the successor general partner to purchase such
general partner interest of the Departing Partner for such amount. In each
case such fair market value will be determined by agreement between the
Departing Partner and the successor general partner, or if no agreement is
reached, by an independent investment banking firm or other independent
experts selected by the Departing Partner and the successor general partner
(or if no expert can be agreed upon, by the expert chosen by agreement of the
experts selected by each of them). In addition, the Partnership would also be
required to reimburse the Departing Partner for all amounts due the Departing
Partner, including without limitation, all employee related liabilities,
including severance liabilities, incurred in connection with the termination
of the employees employed by the Departing Partner for the benefit of the
Partnership.
If the above-described option is not exercised by either the Departing
Partner or the successor general partner, as applicable, the Departing
Partner's general partner interest in the partnership will be converted into
Common Units equal to the fair market value of such interest as determined by
an investment banking firm or other independent expert selected in the manner
described in the preceding paragraph.
TRANSFER OF GENERAL PARTNER INTEREST
Except for a transfer by the General Partner of all, but not less than all,
of its general partner interest in the Partnership to an affiliate or in
connection with the merger or consolidation of the General Partner with or
into another entity or the transfer by the General Partner of all or
substantially all of its assets to another person or entity, the General
Partner may not transfer all or any part of its general partner interest in
the Partnership to another person or entity prior to July 31, 2004, without
the approval of holders of at least a majority of the outstanding Units
(excluding any Units held by such General Partner or its affiliates), provided
that, in each case such transferee assumes the rights and duties of the
General Partner, agrees to be bound by the provisions of the Partnership
Agreement and furnishes an Opinion of Counsel and agrees to purchase all (or
the appropriate portion thereof, as applicable) of the General Partner's
partnership interest in the Operating Partnership.
REIMBURSEMENT FOR SERVICES
The Partnership Agreement provides that the General Partner is not entitled
to receive any compensation for its services as general partner of the
Partnership; the General Partner is, however, entitled to be reimbursed on a
monthly basis (or such other basis as the General Partner may reasonably
determine) for all direct and indirect expenses it incurs or payments it makes
on behalf of the Partnership, and all other necessary or appropriate expenses
allocable to the Partnership or
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otherwise reasonably incurred by the General Partner in connection with the
operation of the Partnership's business. The Partnership Agreement provides
that the General Partner shall determine the fees and expenses that are
allocable to the Partnership in any reasonable manner determined by the
General Partner in its sole discretion.
CHANGE OF MANAGEMENT PROVISIONS
The Partnership Agreement contains certain provisions that are intended to
discourage a person or group from attempting to remove Ferrellgas as general
partner of the Partnership or otherwise change management of the Partnership.
If any person or group other than Ferrellgas and its affiliates acquires
beneficial ownership of 20% or more of the Common Units, such person or group
loses voting rights with respect to all of its Common Units. In addition, if
Ferrellgas is removed as General Partner other than for cause, the
Subordination Period will end and any Subordinated Units held by Ferrellgas
and any of its affiliates will immediately convert into Common Units. As a
result, Ferrellgas and such affiliates, as the holders of Common Units issued
upon conversion of Subordinated Units, would participate in any distributions
pro rata with the other holders of Common Units, including distributions in
respect of Common Unit Arrearages.
STATUS AS LIMITED PARTNER OR ASSIGNEE
Except as described below under "--Limited Liability," the Units will be
fully paid, and Unitholders will not be required to make additional
contributions to the Partnership.
Each purchaser of Common Units offered hereby must execute a Transfer
Application (the form of which is attached as Appendix B to this Prospectus)
whereby such purchaser requests admission as a substituted limited partner in
the Partnership, makes certain representations and agrees to certain
provisions. If such action is not taken, a purchaser will not be registered as
a record holder of Common Units on the books of the Transfer Agent or issued a
Common Unit. Purchasers may hold Common Units in nominee accounts. See
"Description of the Common Units--Transfer Agent and Registrar" and "--
Transfer of Units" for a more complete description of the requirements for the
transfer of Common Units.
An assignee, subsequent to executing and delivering a Transfer Application,
but pending its admission as a substituted limited partner in the Partnership,
is entitled to an interest in the Partnership equivalent to that of a limited
partner with respect to the right to share in allocations and distributions
from the Partnership, including liquidating distributions. The General Partner
will vote and exercise other powers attributable to Common Units owned by an
assignee who has not become a substituted limited partner at the written
direction of such assignee. See "--Meetings; Voting." Transferees who do not
execute and deliver a Transfer Application will be treated neither as
assignees nor as record holders of Common Units, and will not receive cash
distributions, federal income tax allocations or reports furnished to record
holders of Common Units. The only right such transferees will have is the
right to negotiate such Common Units to a purchaser or other transferee and
the right to transfer the right to request admission as a substituted limited
partner in respect of the transferred Common Units to a purchaser or other
transferee who executes a Transfer Application in respect of the Common Units.
A nominee or broker who has executed a Transfer Application with respect to
Common Units held in street name or nominee accounts will receive such
distributions and reports pertaining to such Common Units.
NON-CITIZEN ASSIGNEES; REDEMPTION
If the Partnership is or becomes subject to federal, state or local laws or
regulations that, in the reasonable determination of the General Partner,
create a substantial risk of cancellation or forfeiture of any property in
which the Partnership has an interest because of the nationality, citizenship
or other related status of any limited partner or assignee, the Partnership
may redeem the Units held by such
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limited partner or assignee at their Current Market Price (as defined in the
glossary). In order to avoid any such cancellation or forfeiture, the General
Partner may require each limited partner or assignee to furnish information
about his nationality, citizenship, residency or related status. If a limited
partner or assignee fails to furnish information about such nationality,
citizenship, residency or other related status within 30 days after a request
for such information, such limited partner or assignee may be treated as a
non-citizen assignee ("Non-citizen Assignee"). In addition to other
limitations on the rights of an assignee who is not a substituted limited
partner, a Non-citizen Assignee does not have the right to direct the voting
of his Units and may not receive distributions in kind upon liquidation of the
Partnership. See "--Status as Limited Partner or Assignee."
ISSUANCE OF ADDITIONAL SECURITIES
The Partnership Agreement authorizes the General Partner to cause the
Partnership to issue an unlimited number of additional limited partner
interests and other equity securities of the Partnership for such
consideration and on such terms and conditions as shall be established by the
General Partner in its sole discretion without the approval of any limited
partners, with certain exceptions, including the following: prior to the end
of the Subordination Period, the Partnership may not issue equity securities
of the Partnership ranking prior or senior to the Common Units or an aggregate
of more than 7,000,000 additional Common Units (excluding Common Units issued
in connection with the exercise of the Underwriters' overallotment option and
Common Units issued upon conversion of Subordinated Units) or an equivalent
amount of securities ranking on a parity with the Common Units, in either case
without the approval of the holders of at least 66 2/3% of the outstanding
Common Units; provided, however, that the Partnership may also issue an
unlimited number of additional Common Units or parity securities prior to the
end of the Subordination Period and without the approval of the Unitholders if
(a) such issuance occurs in connection with or (b) such issuance occurs within
270 days of, and the net proceeds from such issuance are used to repay debt
incurred in connection with, a transaction in which the Partnership acquires
(through an asset acquisition, merger, stock acquisition or other form of
investment) control over assets and properties that would have, if acquired by
the Partnership as of the date that is one year prior to the first day of the
quarter in which such transaction is to be consummated, resulted in an
increase in (i) the amount of Acquisition Pro Forma Available Cash
constituting Cash from Operations generated by the Partnership on a per-Unit
basis with respect to all outstanding Units with respect to each of the four
most recently completed quarters over (ii) the actual amount of Available Cash
constituting Cash from Operations generated by the Partnership on a per-Unit
basis for all outstanding Units with respect to each of such four quarters.
The issuance, during the Subordination Period, of any equity securities of the
Partnership with rights as to distributions and allocations or in liquidation
ranking prior or senior to the Common Units, will require the approval of the
holders of at least 66 2/3% of the outstanding Common Units. After the
Subordination Period, the General Partner, without a vote of the Unitholders,
may cause the Partnership to issue additional Common Units or other equity
securities of the Partnership on a parity with or senior to the Common Units.
After the end of the Subordination Period, there is no restriction under the
Partnership Agreement on the ability of the Partnership to issue additional
limited or general partner interests having rights to distributions or rights
in liquidation on a parity with or senior to the Common Units. In accordance
with Delaware law and the provisions of the Partnership Agreement, the General
Partner may cause the Partnership to issue additional partnership interests
that, in its sole discretion, may have special voting rights to which the
Common Units are not entitled.
The General Partner will have the right, which it may from time to time
assign in whole or in part to any of its affiliates, to purchase Common Units,
Subordinated Units, Incentive Distribution Rights or other equity securities
of the Partnership from the Partnership whenever, and on the same terms that,
the Partnership issues such securities or rights to persons other than the
General Partner and its affiliates, to the extent necessary to maintain the
percentage interest of the General Partner and its affiliates in the
Partnership that existed immediately prior to each such issuance.
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LIMITED CALL RIGHT
If at any time less than 20% of the then issued and outstanding limited
partner interests of any class are held by persons other than the General
Partner and its affiliates, the General Partner will have the right, which it
may assign and transfer to any of its affiliates or to the Partnership, to
acquire all, but not less than all, of the remaining limited partner interests
of such class held by such unaffiliated persons as of a record date to be
selected by the General Partner, on at least 10 but not more than 60 days'
notice. The purchase price in the event of such purchase shall be the greater
of (a) the highest price paid by the General Partner or any of its affiliates
for any limited partner interests of such class purchased within the 90 days
preceding the date on which the General Partner first mails notice of its
election to purchase such limited partner interests and (b)(i) the average of
the closing prices of the limited partner interests of such class for the 20
trading days ending three days prior to the date on which such notice is first
mailed or (ii) if such limited partner interests are not listed for trading on
an exchange or quoted by NASDAQ, an amount equal to the fair market value of
such limited partner interests as of three days prior to the date such notice
is first mailed, as determined by the General Partner using any reasonable
method of valuation. As a consequence of the General Partner's right to
purchase outstanding limited partner interests, a holder of limited partner
interests may have his limited partner interests purchased from him even
though he may not desire to sell them, or the price paid may be less than the
amount the holder would desire to receive upon the sale of his limited partner
interests.
AMENDMENT OF PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed only by or with the
consent of the General Partner. In order to adopt a proposed amendment, the
General Partner is required to seek written approval of the holders of the
number of Units required to approve such amendment or call a meeting of the
limited partners to consider and vote upon the proposed amendment, except as
described below. Proposed amendments (other than those described below) must
be approved by holders of at least 66 2/3% of the outstanding Units during the
Subordination Period and a majority of the outstanding Units thereafter,
except that no amendment may be made which would (i) enlarge the obligations
of any limited partner, without its consent, (ii) enlarge the obligations of
the General Partner, without its consent, which may be given or withheld in
its sole discretion, (iii) restrict in any way any action by or rights of the
General Partner as set forth in the Partnership Agreement, (iv) modify the
amounts distributable, reimbursable or otherwise payable by the Partnership to
the General Partner, (v) change the term of the Partnership, or (vi) give any
person the right to dissolve the Partnership other than the General Partner's
right to dissolve the Partnership with the approval of at least 66 2/3% of the
Units during the Subordination Period, or a majority of the outstanding Units
thereafter or change such right of the General Partner in any way.
The General Partner may make amendments to the Partnership Agreement without
the approval of any limited partner or assignee of the Partnership to reflect
(i) a change in the name of the Partnership, the location of the principal
place of business of the Partnership, the registered agent or the registered
office of the Partnership, (ii) admission, substitution, withdrawal or removal
of partners in accordance with the Partnership Agreement, (iii) a change that,
in the sole discretion of the General Partner, is necessary or appropriate to
qualify or continue the qualification of the Partnership as a partnership in
which the limited partners have limited liability or that is necessary or
advisable in the opinion of the General Partner to ensure that the Partnership
will not be treated as an association taxable as a corporation or otherwise
subject to taxation as an entity for federal income tax purposes, (iv) an
amendment that is necessary, in the opinion of counsel to the Partnership, to
prevent the Partnership or the General Partner or its respective directors or
officers from in any manner being subjected to the provisions of the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, or "plan asset" regulations adopted under the Employee
Retirement Income Security Act of 1974, as amended, whether or not
substantially similar to plan asset regulations currently applied or proposed,
(v) subject to the limitations on the issuance of additional
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Common Units or other limited or general partner interests described above, an
amendment that in the sole discretion of the General Partner is necessary or
desirable in connection with the authorization of additional limited or
general partner interests, (vi) any amendment expressly permitted in the
Partnership Agreement to be made by the General Partner acting alone, (vii) an
amendment effected, necessitated or contemplated by a merger agreement that
has been approved pursuant to the terms of the Partnership Agreement, (viii)
any amendment that, in the sole discretion of the General Partner, is
necessary or desirable in connection with the formation by the Partnership of,
or its investment in, any corporation, partnership or other entity (other than
the Operating Partnership) as otherwise permitted by the Partnership
Agreement, (ix) a change in the fiscal year and taxable year of the
Partnership and changes related thereto, and (x) any other amendments
substantially similar to the foregoing.
In addition, the General Partner may make amendments to the Partnership
Agreement without such consent if such amendments (i) do not adversely affect
the limited partners in any material respect, (ii) are necessary or desirable
to satisfy any requirements, conditions or guidelines contained in any
opinion, directive, ruling or regulation of any federal or state agency or
judicial authority or contained in any federal or state statute, (iii) are
necessary or desirable to implement certain tax-related provisions of the
Partnership Agreement, (iv) are necessary or desirable to facilitate the
trading of the Units or to comply with any rule, regulation, guideline or
requirement of any securities exchange on which the Units are or will be
listed for trading, compliance with any of which the General Partner deems to
be in the best interests of the Partnership and the Unitholders or (v) are
required or contemplated by the Partnership Agreement.
The General Partner will not be required to obtain an Opinion of Counsel as
to the tax consequences or the possible effect on limited liability of
amendments described in the two immediately preceding paragraphs. No other
amendments to the Partnership Agreement will become effective without the
approval of at least 95% of the Units unless the Partnership obtains an
Opinion of Counsel to the effect that such amendment will not cause the
Partnership to be treated as an association taxable as a corporation or
otherwise cause the Partnership to be subject to entity level taxation for
federal income tax purposes and will not affect the limited liability of any
limited partner in the Partnership or the limited partner of the Operating
Partnership.
Any amendment that materially and adversely affects the rights or
preferences of any type or class of limited partner interests in relation to
other types of classes of limited partner interests or the general partner
interests will require the approval of at least a majority of the type or
class of limited partner interests so affected (excluding any such limited
partner interests held by the General Partner and its affiliates).
MEETINGS; VOTING
Except as described below with respect to a person or group owning 20% or
more of all Common Units, Unitholders or assignees who are record holders of
Units on the record date set pursuant to the Partnership Agreement will be
entitled to notice of, and to vote at, meetings of limited partners of the
Partnership and to act with respect to matters as to which approvals may be
solicited. With respect to voting rights attributable to Common Units that are
owned by an assignee who is a record holder but who has not yet been admitted
as a limited partner, the General Partner shall be deemed to be the limited
partner with respect thereto and shall, in exercising the voting rights in
respect of such Common Units on any matter, vote such Common Units at the
written direction of such record holder. Absent such direction, such Common
Units will not be voted (except that, in the case of Units held by the General
Partner on behalf of Non-citizen Assignees, the General Partner shall
distribute the votes in respect of such Units in the same ratios as the votes
of limited partners in respect of other Units are cast).
The General Partner does not anticipate that any meeting of limited partners
will be called in the foreseeable future. Any action that is required or
permitted to be taken by the limited partners may be
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taken either at a meeting of the limited partners or without a meeting if
consents in writing setting forth the action so taken are signed by holders of
such number of limited partner interests as would be necessary to authorize or
take such action at a meeting of the limited partners. Meetings of the limited
partners of the Partnership may be called by the General Partner or by limited
partners owning at least 20% of the outstanding Units of the class for which a
meeting is proposed. Limited partners may vote either in person or by proxy at
meetings. Two-thirds (or a majority, if that is the vote required to take
action at the meeting in question) of the outstanding limited partner
interests of the class for which a meeting is to be held (excluding, if such
are excluded from such vote, limited partner interests held by the General
Partner and its affiliates) represented in person or by proxy will constitute
a quorum at a meeting of limited partners of the Partnership.
Each record holder of a Unit has a vote according to his percentage interest
in the Partnership, although additional limited partner interests having
special voting rights could be issued by the General Partner. See "--Issuance
of Additional Securities." However, Common Units owned beneficially by any
person and its affiliates (other than Ferrell and its affiliates) that own
beneficially 20% or more of all Common Units may not be voted on any matter
and will not be considered to be outstanding when sending notices of a meeting
of limited partners, calculating required votes, determining the presence of a
quorum or for other similar Partnership purposes. The Partnership Agreement
provides that Units held in nominee or street name account will be voted by
the broker (or other nominee) pursuant to the instruction of the beneficial
owner unless the arrangement between the beneficial owner and his nominee
provides otherwise. Except as otherwise provided in the Partnership Agreement,
Subordinated Units will vote together with Common Units as a single class.
Any notice, demand, request, report or proxy material required or permitted
to be given or made to record holders of Units (whether or not such record
holder has been admitted as a limited partner) under the terms of the
Partnership Agreement will be delivered to the record holder by the
Partnership or by the Transfer Agent at the request of the Partnership.
INDEMNIFICATION
The Partnership Agreement provides that the Partnership will indemnify the
General Partner, any Departing Partner and any Person who is or was an officer
or director of the General Partner or any Departing Partner, any person who is
or was an affiliate of the General Partner or any Departing Partner, any
Person who is or was an employee, partner, agent or trustee of the General
Partner or any Departing Partner or any affiliate of the General Partner or
any Departing Partner, or any Person who is or was serving at the request of
the General Partner or any affiliate of the General Partner or any Departing
Partner as an officer, director, employee, partner, agent, or trustee of
another Person ("Indemnitees"), to the fullest extent permitted by law, from
and against any and all losses, claims, damages, liabilities (joint or
several) expenses (including, without limitation, legal fees and expenses),
judgments, fines, penalties, interest, settlements and other amounts arising
from any and all claims, demands, actions, suits or proceedings, whether
civil, criminal, administrative or investigative, in which any Indemnitee may
be involved, or is threatened to be involved, as a party or otherwise, by
reason of its status as (i) the General Partner, Departing Partner or
affiliate of either, (ii) an officer, director, employee, partner, agent or
trustee of the General Partner, Departing Partner or affiliate of either or
(iii) a person serving at the request of the Partnership in another entity in
a similar capacity, provided that in each case the Indemnitee acted in good
faith and in a manner which such Indemnitee reasonably believed to be in or
not opposed to the best interests of the Partnership and, with respect to any
criminal proceeding, had no reasonable cause to believe its conduct was
unlawful. Any indemnification under these provisions will be only out of the
assets of the Partnership, and the General Partner shall not be personally
liable for, or have any obligation to contribute or loan funds or assets to
the Partnership to enable it to effectuate, such indemnification. The
Partnership is authorized to purchase (or to reimburse the General Partner or
its affiliates for the cost of) insurance against liabilities asserted
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against and expenses incurred by such persons in connection with the
Partnerships activities, whether or not the Partnership would have the power
to indemnify such person against such liabilities under the provisions
described above.
LIMITED LIABILITY
Assuming that a limited partner does not participate in the control of the
business of the Partnership within the meaning of the Delaware Act and that he
otherwise acts in conformity with the provisions of the Partnership Agreement,
his liability under the Delaware Act will be limited, subject to certain
possible exceptions, to the amount of capital he is obligated to contribute to
the Partnership in respect of his Units plus his share of any undistributed
profits and assets of the Partnership. However, if it were determined that the
right or exercise of the right by the limited partners as a group to remove or
replace the General Partner, to approve certain amendments to the Partnership
Agreement or to take other action pursuant to the Partnership Agreement
constituted "participation in the control" of the Partnerships business for
the purposes of the Delaware Act, then the limited partners could be held
personally liable for the Partnership's obligations under the laws of the
State of Delaware to the same extent as the General Partner. Under the
Delaware Act, a limited partnership may not make a distribution to a partner
to the extent that at the time of the distribution, after giving effect to the
distribution, all liabilities of the partnership, other than liabilities to
partners on account of their partnership interests and nonrecourse
liabilities, exceed the fair value of the assets of the limited partnership.
For the purpose of determining the fair value of the assets of a limited
partnership, the Delaware Act provides that the fair value of property subject
to nonrecourse liability shall be included in the assets of the limited
partnership only to the extent that the fair value of that property exceeds
that nonrecourse liability. The Delaware Act provides that a limited partner
who receives such a distribution and knew at the time of the distribution that
the distribution was in violation of the Delaware Act shall be liable to the
limited partnership for the amount of the distribution for three years from
the date of the distribution. Under the Delaware Act, an assignee who becomes
a substituted limited partner of a limited partnership is liable for the
obligations of his assignor to make contributions to the partnership, except
the assignee is not obligated for liabilities unknown to him at the time he
became a limited partner and which could not be ascertained from the
partnership agreement.
It is contemplated that the Operating Partnership will conduct business in
at least 45 and possibly other states. Maintenance of limited liability may
require compliance with legal requirements in such jurisdictions in which the
Operating Partnership conducts business, including qualifying the Operating
Partnership to do business therein. Limitations on the liability of limited
partners for the obligations of a limited partnership have not been clearly
established in many jurisdictions. If it were determined that the Partnership
was, by virtue of its limited partner interest in the Operating Partnership or
otherwise, conducting business in any state without compliance with the
applicable limited partnership statute, or that the right or exercise of the
right by the limited partners as a group to remove or replace the General
Partner, to approve certain amendments to the Partnership Agreement, or to
take other action pursuant to the Partnership Agreement constituted
"participation in the control" of the Partnership's business for the purposes
of the statutes of any relevant jurisdiction, then the limited partners could
be held personally liable for the Partnership's obligations under the law of
such jurisdiction to the same extent as the General Partner. The Partnership
will operate in such manner as the General Partner deems reasonable and
necessary or appropriate to preserve the limited liability of Unitholders.
BOOKS AND REPORTS
The General Partner is required to keep appropriate books of the business of
the Partnership at the principal offices of the Partnership. The books will be
maintained for both tax and financial reporting purposes on an accrual basis.
The fiscal year of the Partnership is August 1 to July 31.
As soon as practicable, but in no event later than 120 days after the close
of each fiscal year, the General Partner will furnish each record holder of
Units (as of a record date selected by the General
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Partner) with an annual report containing audited financial statements of the
Partnership for the past fiscal year, prepared in accordance with generally
accepted accounting principles. As soon as practicable, but in no event later
than 90 days after the close of each quarter (except the fourth quarter), the
General Partner will furnish each record holder of Units (as of a record date
selected by the General Partner) a report containing unaudited financial
statements of the Partnership with respect to such quarter and such other
information as may be required by law.
The General Partner will use all reasonable efforts to furnish each record
holder of a Unit information reasonably required for tax reporting purposes
within 90 days after the close of each calendar year. Such information is
expected to be furnished in summary form so that certain complex calculations
normally required of partners can be avoided. The General Partner's ability to
furnish such summary information to Unitholders will depend on the cooperation
of such Unitholders in supplying certain information to the General Partner.
Every Unitholder (without regard to whether he supplies such information to
the General Partner) will receive information to assist him in determining his
federal and state tax liability and filing his federal and state income tax
returns.
RIGHT TO INSPECT PARTNERSHIP BOOKS AND RECORDS
The Partnership Agreement provides that a limited partner can for a purpose
reasonably related to such limited partner's interest as a limited partner,
upon reasonable demand and at his own expense, have furnished to him (i) a
current list of the name and last known address of each partner, (ii) a copy
of the Partnerships tax returns, (iii) information as to the amount of cash,
and a description and statement of the agreed value of any other property or
services, contributed or to be contributed by each partner and the date on
which each became a partner, (iv) copies of the Partnership Agreement, the
certificate of limited partnership of the Partnership, amendments thereto and
powers of attorney pursuant to which the same have been executed, (v)
information regarding the status of the Partnership's business and financial
condition and (vi) such other information regarding the affairs of the
Partnership as is just and reasonable. The General Partner may, and intends
to, keep confidential from the limited partners trade secrets or other
information the disclosure of which the General Partner believes in good faith
is not in the best interests of the Partnership or which the Partnership is
required by law or by agreements with third parties to keep confidential.
TERMINATION AND DISSOLUTION
The Partnership will continue until July 31, 2084, unless sooner terminated
pursuant to the Partnership Agreement. The Partnership will be dissolved upon
(i) the election of the General Partner to dissolve the Partnership, if
approved by at least a majority of the Units (other than Units owned by the
General Partner and its affiliates) during the Subordination Period, or a
majority of all of the outstanding Units thereafter, (ii) the sale of all or
substantially all of the assets and properties of the Partnership and the
Operating Partnership, (iii) the entry of a decree of judicial dissolution of
the Partnership or (iv) withdrawal or removal of the General Partner or any
other event that results in its ceasing to be the General Partner (other than
by reason of a transfer in accordance with the Partnership Agreement or
withdrawal or removal following approval of a successor), provided that the
Partnership shall not be dissolved upon an event described in clause (iv) if
within 90 days after such event the partners agree in writing to continue the
business of the Partnership and to the appointment, effective as of the date
of such event, of a successor General Partner. Upon a dissolution pursuant to
clause (iv), the holders of at least a majority of the Units may also elect,
within certain time limitations, to reconstitute the Partnership and continue
its business on the same terms and conditions set forth in the Partnership
Agreement by forming a new limited partnership on terms identical to those set
forth in the Partnership Agreement and having as a general partner an entity
approved by at least the holders of a majority of the Units, subject to
receipt by the Partnership of an opinion of counsel that the exercise of such
right will not result in the loss of the limited liability of Unitholders or
cause the Partnership or the reconstituted limited partnership to be treated
as an association taxable as a corporation or otherwise subject to taxation as
an entity for federal income tax purposes.
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LIQUIDATION AND DISTRIBUTION OF PROCEEDS
Upon dissolution of the Partnership, unless the Partnership is reconstituted
and continued as a new limited partnership, the person authorized to wind up
the affairs of the Partnership (the "Liquidator") will, acting with all of the
powers of the general partner that such Liquidator deems necessary or
desirable in its good faith judgment in connection therewith, liquidate the
Partnership's assets and apply the proceeds of the liquidation as follows: (i)
first towards the payment of all creditors of the Partnership and the creation
of a reserve for contingent liabilities and (ii) then to all partners in
accordance with the positive balance in their respective capital accounts.
Under certain circumstances and subject to certain limitations, the Liquidator
may defer liquidation or distribution of the Partnership's assets for a
reasonable period of time or distribute assets to partners in kind if it
determines that a sale would be impractical or would cause undue loss to the
partners.
REGISTRATION RIGHTS
Pursuant to the terms of the Partnership Agreement and subject to certain
limitations described therein, the Partnership has agreed to register for
resale under the Securities Act of 1933 and applicable state securities laws
any Units (or other securities of the Partnership) proposed to be sold by the
General Partner (or its affiliates) if an exemption from such registration
requirements is not otherwise available for such proposed transaction. The
Partnership is obligated to pay all expenses incidental to such registration,
excluding underwriting discounts and commissions.
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UNITS ELIGIBLE FOR FUTURE SALE
After the sale of the Common Units offered hereby, Ferrell will own
1,000,000 Common Units (if the Underwriters' overallotment option is exercised
in full, all of such Common Units will be repurchased by the Partnership). In
addition, Ferrell will hold 16,118,559 Subordinated Units, 5,372,853 of which
may convert into Common Units after July 31, 1997 and all of which may convert
into Common Units after termination of the Subordination Period, subject in
each case to the satisfaction of certain conditions. The sale of these Common
Units could have an adverse impact on the price of the Common Units or on any
trading market that may develop. For a discussion of the transactions whereby
Ferrell acquired the Common Units in connection with the organization of the
Partnership, see "The Transactions."
The Common Units sold in this offering will generally be freely transferable
without restriction or further registration under the Securities Act, except
that any Units owned by an "affiliate" of the Partnership (as that term is
defined in the rules and regulations under the Securities Act) may not be
resold publicly except in compliance with the registration requirements of the
Securities Act or pursuant to an exemption therefrom under Rule 144 thereunder
("Rule 144") or otherwise. Rule 144 permits securities acquired by an
affiliate of the issuer in an offering to be sold into the market in an amount
that does not exceed, during any three-month period, the greater of (i) 1% of
the total number of such securities outstanding or (ii) the average weekly
reported trading volume of the Units for the four calendar weeks prior to such
sale. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Partnership. A person who is not deemed to have been an
affiliate of the Partnership at any time during the three months preceding a
sale, and who has beneficially owned his Units for at least three years, would
be entitled to sell such Units under Rule 144 without regard to the public
information requirements, volume limitations, manner of sale provisions or
notice requirements of Rule 144.
Prior to the end of the Subordination Period, the Partnership may not issue
equity securities of the Partnership ranking prior or senior to the Common
Units or an aggregate of more than 7,000,000 additional Common Units
(excluding Common Units issued in connection with the exercise of the
Underwriters' overallotment option or Common Units issued upon conversion of
Subordinated Units) or an equivalent amount of securities ranking on a parity
with the Common Units, in either case without the approval of the holders of
at least 66 2/3% of the outstanding Common Units; provided, however, that the
Partnership may also issue an unlimited number of additional Common Units or
parity securities prior to the end of the Subordination Period and without the
approval of the Unitholders if (a) such issuance occurs in connection with or
(b) such issuance occurs within 270 days of, and the net proceeds from such
issuance are used to repay debt incurred in connection with, a transaction in
which the Partnership acquires (through an asset acquisition, merger, stock
acquisition or other form of investment) control over assets and properties
that would have, if acquired by the Partnership as of the date that is one
year prior to the first day of the quarter in which such transaction is to be
consummated, resulted in an increase in (i) the amount of Acquisition Pro
Forma Available Cash constituting Cash from Operations generated by the
Partnership on a per-Unit basis for all outstanding Units with respect to each
of the four most recently completed quarters over (ii) the actual amount of
Available Cash constituting Cash from Operations generated by the Partnership
on a per-Unit basis for all outstanding Units with respect to each of such
four quarters. After the Subordination Period, the General Partner, without a
vote of the Unitholders, may cause the Partnership to issue additional Common
Units or other equity securities of the Partnership on a parity with or senior
to the Common Units. The Partnership Agreement does not impose any restriction
on the Partnership's ability to issue equity securities ranking junior to the
Common Units at any time. Any issuance of additional Units would result in a
corresponding decrease in the proportionate ownership interest in the
Partnership represented by, and could adversely affect the cash distributions
to and market price of, Common Units then outstanding.
Pursuant to the Partnership Agreement, the General Partner and its
affiliates will have the right, upon the terms and subject to the conditions
therein, to cause the Partnership to register under the
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Securities Act the offer and sale of any Units held by such party. Subject to
the terms and conditions of the Partnership Agreement such registration rights
allow the General Partner and its affiliates, or their assignees, holding any
Units to require registration of any such Units and to include any such Units
in a registration by the Partnership of other Units, including Units offered
by the Partnership or by any Unitholder. Such registration rights will
continue in effect for two years following any withdrawal or removal of the
General Partner as the general partner of the Partnership. In connection with
any such registration, the Partnership will indemnify each holder of Units
participating in such registration and its officers, directors and controlling
persons from and against any liabilities under the Securities Act or any state
securities laws arising from the registration statement or prospectus. The
Partnership will bear the reasonable costs of any such registration. In
addition, the General Partner and its affiliates may sell their Units in
private transactions at any time, in accordance with applicable law.
The Partnership has agreed not to offer, sell, contract to sell or otherwise
dispose of any Common Units or Subordinated Units, or any securities
substantially similar to the Common Units or Subordinated Units, including but
not limited to any securities that are convertible into or exchangeable for or
that represent the right to receive Common Units or Subordinated Units or any
such substantially similar securities, for a period of 180 days after the date
of this Prospectus without the prior written consent of the representatives of
the Underwriters, except for the Common Units offered in connection with this
offering and except for any Common Units which may be issued in connection
with acquisitions by the Partnership. In addition, Ferrell has agreed that for
a period of 24 months from the date of this Prospectus it will not offer,
sell, contract to sell or otherwise dispose of any Common Units or
Subordinated Units or any securities substantially similar to the Common Units
or Subordinated Units, including but not limited to any securities that are
convertible into or exchangeable for or that represent the right to receive
Common Units or Subordinated Units or any such substantially similar
securities, without the prior written consent of the representatives of the
Underwriters, except (i) pursuant to the repurchase of a portion of such
Common Units in connection with the exercise of the Underwriters'
overallotment option, (ii) transfers to James E. Ferrell or his spouse, lineal
descendants or brothers or sisters, entities controlled by James E. Ferrell or
his spouse, lineal descendants or brothers or sisters or trusts for the
benefit of James E. Ferrell or his spouse, lineal descendants or brothers or
sisters, (iii) in connection with the sale of the Partnership or substantially
all of its assets, (iv) as collateral in connection with good faith borrowing,
(v) gifts of up to 20% of such Units to charitable organizations or (vi) in
the event of the death or permanent disability of James E. Ferrell, provided,
however, that in the case of (ii) above the transferee shall enter into an
agreement with the representatives of the Underwriters agreeing to comply with
the above restrictions for the remainder of the 24 month period.
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TAX CONSIDERATIONS
This section is a summary of certain federal income tax considerations that
may be relevant to prospective Unitholders and, to the extent set forth below
under "--Legal Opinions and Advice," represents the opinion of Andrews & Kurth
L.L.P., special counsel to the General Partner and the Partnership
("Counsel"), insofar as it relates to matters of law and legal conclusions.
This section is based upon current provisions of the Internal Revenue Code of
1986, as amended ("Code"), existing and proposed regulations thereunder and
current administrative rulings and court decisions, all of which are subject
to change. Subsequent changes may cause the tax consequences to vary
substantially from the consequences described below. Unless the context
otherwise requires, references in this section to "Partnership" are references
to both the Partnership and the Operating Partnership.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting the Partnership or the Unitholders.
Moreover, the discussion focuses on Unitholders who are individual citizens or
residents of the United States and has only limited application to
corporations, estates, trusts or non-resident aliens. Accordingly, each
prospective Unitholder should consult, and should depend on, his own tax
advisor in analyzing the federal, state, local and foreign tax consequences to
him of the purchase, ownership or disposition of Common Units.
LEGAL OPINIONS AND ADVICE
Counsel has expressed its opinion that, based on the representations and
subject to the qualifications set forth in the detailed discussion that
follows, for federal income tax purposes (i) the Partnership will be treated
as a partnership, and (ii) owners of Common Units (with certain exceptions, as
described in "--Limited Partner Status" below) will be treated as partners of
the Partnership (but not the Operating Partnership). In addition, all
statements as to matters of law and legal conclusions contained in this
section, unless otherwise noted, reflect the opinion of Counsel. Counsel has
also advised the General Partner that, based on current law, the following
general description of the principal federal income tax consequences that
should arise from the purchase, ownership and disposition of Common Units,
insofar as it relates to matters of law and legal conclusions, addresses all
material tax consequences to Unitholders who are individual citizens or
residents of the United States.
No ruling has been requested from the Internal Revenue Service (the "IRS")
with respect to the foregoing issues or any other matter affecting the
Partnership or the Unitholders. An opinion of counsel represents only such
counsel's best legal judgment and does not bind the IRS or the courts. Thus,
no assurance can be provided that the opinions and statements set forth herein
would be sustained by a court if contested by the IRS. The costs of any
contest with the IRS will be borne directly or indirectly by the Unitholders
and the General Partner. Furthermore, no assurance can be given that the
treatment of the Partnership or an investment therein will not be
significantly modified by future legislative or administrative changes or
court decisions. Any such modification may or may not be retroactively
applied.
CHANGES IN FEDERAL INCOME TAX LAWS
On August 10, 1993 the Omnibus Budget Reconciliation Act of 1993 (the "1993
Budget Act") was enacted. The 1993 Budget Act increases the top marginal
income tax rate for individuals from 31% to 36% and imposes a 10% surtax on
individuals with taxable income in excess of $250,000 per year. The surtax is
computed by applying a 39.6% rate to taxable income in excess of the
threshold. Net capital gains remain subject to a maximum 28% tax rate. The
increased rates are effective for taxable years beginning after December 31,
1992. It is not anticipated that the 1993 Budget Act will have any adverse
impact on the Partnership or its operations.
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Proposed legislation introduced in the Congress as part of the Tax
Simplification Bill of 1993 (the "1993 Bill") and adopted by the Ways and
Means Committee on November 16, 1993, would alter the tax reporting system and
the deficiency collection system applicable to large partnerships (generally
defined as partnerships with more than 250 partners) and would make certain
additional changes to the treatment of large partnerships, such as the
Partnership. Certain of the proposed changes are discussed later in this
section. The 1993 Bill is generally intended to simplify the administration of
the tax rules governing large partnerships.
As of the date of this Prospectus, it is not possible to predict whether any
of the changes set forth in the 1993 Bill or any other changes in the federal
income tax laws that would impact the Partnership and the Unitholders will
ultimately be enacted, or if enacted, what form they will take, what the
effective dates will be, and what, if any, transition rules will be provided.
PARTNERSHIP STATUS
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner is required to take into account his
allocable share of items of income, gain, loss, deduction and credit of the
Partnership in computing his federal income tax liability, regardless of
whether cash distributions are made. Distributions by a partnership to a
partner are generally not taxable unless the amount of any cash distributed is
in excess of the partners adjusted basis in his partnership interest.
No tax ruling has been sought from the IRS as to the status of the
Partnership as a partnership for federal income tax purposes. Instead the
Partnership has relied on the opinion of Counsel that, based upon the Code,
the regulations thereunder, published revenue rulings and court decisions, the
Partnership will be classified as a partnership for federal income tax
purposes.
In rendering its opinion, Counsel has relied on certain factual
representations made by the General Partner, including:
(a) With respect to the Partnership and the Operating Partnership, the
General Partner, at all times while acting as general partner of the
relevant partnership, will have a net worth, computed on a fair market
value basis, excluding its interests in the Partnership and the Operating
Partnership and any notes or receivables due from such partnerships, equal
to $25 million;
(b) The Partnership will be operated in accordance with (i) all
applicable partnership statutes, (ii) the Partnership Agreement and (iii)
this Prospectus;
(c) The Operating Partnership will be operated in accordance with (i) all
applicable partnership statutes, (ii) the limited partnership agreement for
the Operating Partnership and (iii) the description thereof in this
Prospectus;
(d) The General Partner will at all times act independently of the
limited partners; and
(e) For each taxable year, less than 10% of the gross income of the
Partnership will be derived from sources other than (i) the exploration,
development, production, processing, refining, transportation or marketing
of any mineral or natural resource, including oil, gas or products thereof
or (ii) other items of "qualifying income" within the meaning of Section
7704(d) of the Code.
Counsel's opinion as to the partnership classification of the Partnership in
the event of a change in the general partner is based upon the assumption that
the new general partner will satisfy the foregoing representations.
Section 7704 of the Code provides that publicly-traded partnerships will, as
a general rule, be taxed as corporations. However, an exception (the
"Qualifying Income Exception") exists with respect to publicly-traded
partnerships of which 90% or more of the gross income for every taxable year
consists of "qualifying income." "Qualifying income" includes income and gains
derived from the
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transportation and marketing of crude oil, natural gas, and products thereof.
Counsel is of the opinion that qualifying income also includes the wholesale
and retail marketing of propane. The General Partner has represented that in
excess of 90% of the Partnership's gross income will be derived from these
sources. Thus, based upon that representation at least 90% of the
Partnership's gross income will constitute "qualifying income." The General
Partner estimates that less than 7% of the Partnership's gross income will not
constitute qualifying income.
If the Partnership fails to meet the Qualifying Income Exception (other than
a failure determined by the IRS to be inadvertent which is cured within a
reasonable time after discovery), the Partnership will be treated as if it had
transferred all of its assets (subject to liabilities) to a newly formed
corporation (on the first day of the year in which it fails to meet the
Qualifying Income Exception) in return for stock in such corporation, and then
distributed such stock to the partners in liquidation of their interests in
the Partnership. This contribution and liquidation should be tax-free to
Unitholders and the Partnership, so long as the Partnership, at such time,
does not have liabilities in excess of the basis of its assets. Thereafter,
the Partnership would be treated as a corporation for federal income tax
purposes.
If the Partnership were treated as an association or otherwise taxable as a
corporation in any taxable year, as a result of a failure to meet the
Qualifying Income Exception or otherwise, its items of income, gain, loss,
deduction and credit would be reflected only on its tax return rather than
being passed through to the Unitholders, and its net income would be taxed at
the Partnership level at corporate rates. In addition, any distribution made
to a Unitholder would be treated as either taxable dividend income (to the
extent of the Partnerships current or accumulated earnings and profits), in
the absence of earnings and profits as a nontaxable return of capital (to the
extent of the Unitholders basis in his Common Units) or taxable capital gain
(after the Unitholders basis in the Common Units is reduced to zero).
Accordingly, treatment of either the Partnership or the Operating Partnership
as an association taxable as a corporation would result in a material
reduction in a Unitholder's cash flow and after-tax return.
The discussion below is based on the assumption that the Partnership will be
classified as a partnership for federal income tax purposes.
LIMITED PARTNER STATUS
Unitholders who have become limited partners will be treated as partners of
the Partnership for federal income tax purposes. Moreover, the IRS has ruled
that assignees of partnership interests who have not been admitted to a
partnership as partners, but who have the capacity to exercise substantial
dominion and control over the assigned partnership interests, will be treated
as partners for federal income tax purposes. On the basis of this ruling,
except as otherwise described herein, Counsel is of the opinion that (a)
assignees who have executed and delivered Transfer Applications, and are
awaiting admission as limited partners and (b) Unitholders whose Common Units
are held in street name or by another nominee and who have the right to direct
the nominee in the exercise of all substantive rights attendant to the
ownership of their Common Units will be treated as partners of the Partnership
for federal income tax purposes. As this ruling does not extend, on its facts,
to assignees of Common Units who are entitled to execute and deliver Transfer
Applications and thereby become entitled to direct the exercise of attendant
rights, but who fail to execute and deliver Transfer Applications, Counsel's
opinion does not extend to these persons. Income, gain, deductions, losses or
credits would not appear to be reportable by such a Unitholder, and any cash
distributions received by such a Unitholder would therefore be fully taxable
as ordinary income. These holders should consult their own tax advisors with
respect to their status as partners in the Partnership for federal income tax
purposes. A purchaser or other transferee of Common Units who does not execute
and deliver a Transfer Application may not receive certain federal income tax
information or reports furnished to record holders of Common Units unless the
Common Units are held in a nominee or street name account and the nominee or
broker has executed and delivered a Transfer Application with respect to such
Common Units.
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A beneficial owner of Common Units whose Common Units have been transferred
to a short seller to complete a short sale would appear to lose his status as
a partner with respect to such Common Units for federal income tax purposes.
See "--Tax Treatment of Operations--Treatment of Short Sales" below.
TAX CONSEQUENCES OF UNIT OWNERSHIP
FLOW-THROUGH OF TAXABLE INCOME
No federal income tax will be paid by the Partnership. Instead, each
Unitholder will be required to report on his income tax return his allocable
share of the income, gains, losses and deductions of the Partnership without
regard to whether corresponding cash distributions are received by such
Unitholder. Consequently, a Unitholder may be allocated income from the
Partnership although he has not received a cash distribution in respect of
such income.
TREATMENT OF PARTNERSHIP DISTRIBUTIONS
Distributions by the Partnership to a Unitholder generally will not be
taxable to the Unitholder for federal income tax purposes to the extent of his
basis in his Common Units immediately before the distribution. Cash
distributions in excess of a Unitholder's basis generally will be considered
to be gain from the sale or exchange of the Common Units, taxable in
accordance with the rules described under "--Disposition of Common Units"
below. Any reduction in a Unitholder's share of the Partnership's liabilities
for which no partner, including the General Partner, bears the economic risk
of loss ("nonrecourse liabilities") will be treated as a distribution of cash
to such Unitholder.
RATIO OF TAXABLE INCOME TO DISTRIBUTIONS
The General Partner estimates that a purchaser of Common Units pursuant to
this offering (i) who holds such Common Units through the record date for the
last quarter of the Partnership's fiscal year ending July 31, 1995 (assuming
the Minimum Quarterly Distribution is made for each quarter or portion thereof
during that period) will be allocated an amount of federal taxable income for
such period that will be approximately 10% of the amount of cash distributed
to such Unitholder with respect to such period and (ii) who holds such Common
Units through the record date for the last quarter of the Partnership's fiscal
year ending July 31, 1999 will be allocated, on a cumulative basis, no net
federal taxable income for such period (assuming the Minimum Quarterly
Distribution is made for each quarter or portion thereof during that period).
The General Partner anticipates that after July 31, 1999 taxable income
allocated to Unitholders will increase from year to year and will constitute a
significantly higher percentage of cash distributed to Unitholders. The
foregoing estimates are based upon the assumption that gross income from
operations will approximate the amount required to make the Minimum Quarterly
Distribution and other assumptions with respect to capital expenditures, cash
flow and anticipated cash distributions. These estimates and assumptions are
subject to, among other things, numerous business, economic, regulatory,
political and competitive uncertainties which are beyond the control of the
General Partner or the Partnership. Accordingly, no assurance can be given
that the estimates will prove to be correct. The actual percentages could be
higher or lower than as described above, and any such differences could be
material. Further, the estimates are based on certain tax reporting positions
that the General Partner intends to adopt and with which the IRS could
disagree, including the amortization of customer relationships. In connection
with the formation of the Partnership, the General Partner will contribute
certain customer relationships to the Partnership. The General Partner intends
to treat such customer relationships as amortizable assets of the Partnership
for federal income tax purposes. The IRS has challenged the Company's
amortization of customer relationships and it is possible that the IRS will
challenge the amortization of customer relationships by the Partnership. If
the IRS were to successfully challenge the amortization of customer
relationships by the Partnership, the amount of amortization available to a
Unitholder and, therefore, the after tax return
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of a Unitholder with respect to his investment in the Partnership could be
adversely affected, although the General Partner does not believe the impact
of such effect will be material.
BASIS OF COMMON UNITS
A Unitholder's initial tax basis for his Common Units will be the amount
paid for the Common Unit. The initial tax basis for a Common Unit will be
increased by the Unitholder's share of Partnership income. The basis for a
Common Unit will be decreased (but not below zero) by distributions from the
Partnership by the Unitholder's share of Partnership losses and by the
Unitholder's share of expenditures of the Partnership that are not deductible
in computing its taxable income and are not required to be capitalized.
LIMITATIONS ON DEDUCTIBILITY OF PARTNERSHIP LOSSES
To the extent losses are incurred by the Partnership, a Unitholder's share
of deductions for the losses will be limited to the tax basis of the
Unitholder's Units or, in the case of an individual Unitholder or a corporate
Unitholder if more than 50% in the value of its stock is owned directly or
indirectly by five or fewer individuals or certain tax-exempt organizations,
to the amount which the Unitholder is considered to be "at risk" with respect
to the Partnership's activities, if that is less than the Unitholder's basis.
A Unitholder must recapture losses deducted in previous years to the extent
that Partnership distributions cause the Unitholder's at risk amount to be
less than zero at the end of any taxable year. Losses disallowed to a
Unitholder or recaptured as a result of these limitations will carry forward
and will be allowable to the extent that the Unitholder's basis or at risk
amount (whichever is the limiting factor) is increased.
In general, a Unitholder will be at risk to the extent of the purchase price
of his Units. A Unitholder's at risk amount will increase or decrease as the
basis of the Unitholder's Units increases or decreases.
The passive loss limitations generally provide that individuals, estates,
trusts and certain closely held corporations and personal service corporations
can only deduct losses from passive activities (generally, activities in which
the taxpayer does not materially participate) that are not in excess of the
taxpayer's income from such passive activities or investments. The passive
loss limitations are to be applied separately with respect to each publicly-
traded partnership. Consequently, the losses generated by the Partnership, if
any, will only be available to offset future income generated by the
Partnership and will not be available to offset income from other passive
activities or investments (including other publicly-traded partnerships) or
salary or active business income. Passive losses which are not deductible
because they exceed the Unitholder's income generated by the Partnership may
be deducted in full when the Unitholder disposes of his entire investment in
the Partnership in a fully taxable transaction to an unrelated party. The
passive activity loss rules are applied after other applicable limitations on
deductions such as the at risk rules and the basis limitation.
A Unitholder's share of net income from the Partnership may be offset by any
suspended passive losses from the Partnership, but it may not be offset by any
other current or carryover losses from other passive activities, including
those attributable to other publicly-traded partnerships. The IRS has
announced that Treasury Regulations will be issued which characterize net
passive income from a publicly-traded partnership as investment income for
purposes of the limitations on the deductibility of investment interest.
LIMITATIONS ON INTEREST DEDUCTIONS
The deductibility of a non-corporate taxpayer's "investment interest
expense" is generally limited to the amount of such taxpayer's "net investment
income." As noted, a Unitholder's net passive income from the Partnership will
be treated as investment income for this purpose. In addition, the
Unitholder's share of the Partnership's portfolio income will be treated as
investment income. Investment interest expense includes (i) interest on
indebtedness properly allocable to property held for investment, (ii) a
partnership's interest expense attributed to portfolio income and (iii) the
portion of interest expense
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incurred to purchase or carry an interest in a passive activity to the extent
attributable to portfolio income. The computation of a Unitholder's investment
interest expense will take into account interest on any margin account
borrowing or other loan incurred to purchase or carry a Unit to the extent
attributable to portfolio income of the Partnership. Net investment income
includes gross income from property held for investment and amounts treated as
portfolio income pursuant to the passive loss rules less deductible expenses
(other than interest) directly connected with the production of investment
income, but for taxable years beginning after 1992 net investment income
generally does not include gains attributable to the disposition of property
held for investment.
ALLOCATION OF PARTNERSHIP INCOME, GAIN, LOSS AND DEDUCTION
The Partnership Agreement provides that a capital account be maintained for
each partner, that the capital accounts generally be maintained in accordance
with the applicable tax accounting principles set forth in applicable Treasury
Regulations and that all allocations to a partner be reflected by an
appropriate increase or decrease in his capital account. Distributions upon
liquidation of the Partnership generally are to be made in accordance with
positive capital account balances.
In general, if the Partnership has a net profit, items of income, gain, loss
and deduction will be allocated among the General Partner and the Unitholders
in accordance with their respective Percentage Interests in the Partnership. A
class of Unitholders that receives more cash than another class, on a per Unit
basis, with respect to a year, will be allocated additional income equal to
that excess. If the Partnership has a net loss, items of income, gain, loss
and deduction will generally be allocated for both book and tax purposes (1)
first, to the General Partner and the Unitholders in accordance with their
respective Percentage Interests to the extent of their positive capital
accounts; and (2) second, to the General Partner. In addition, all items of
Partnership income, gain, loss and deduction for the period beginning on the
date of the closing of the offering made hereby and ending on July 31, 1994,
will be allocated to the General Partner. An amount of items of income, gain,
loss or deduction equal to 98% of any net income or net loss so allocated to
the General Partner will be allocated to the Limited Partners, in accordance
with their respective percentage interests, for the taxable year of the
Partnership beginning August 1, 1994. The General Partner believes that the
Partnership will generate a net taxable loss for the period beginning on the
date of the closing of the offering made hereby and ending on July 31, 1994.
Notwithstanding the above, as required by Section 704(c) of the Code,
certain items of Partnership income, deduction, gain and loss will be
specially allocated to account for the difference between the tax basis and
fair market value of property contributed to the Partnership by the General
Partner ("Contributed Property"). In addition, certain items of recapture
income will be allocated to the extent possible to the partner allocated the
deduction giving rise to the treatment of such gain as recapture income in
order to minimize the recognition of ordinary income by some Unitholders, but
these allocations may not be respected. If these allocations of recapture
income are not respected, the amount of the income or gain allocated to a
Unitholder will not change but instead a change in the character of the income
allocated to a Unitholder would result. Finally, although the Partnership does
not expect that its operations will result in the creation of negative capital
accounts, if negative capital accounts nevertheless result, items of
Partnership income and gain will be allocated in an amount and manner
sufficient to eliminate the negative balance as quickly as possible.
Regulations provide that an allocation of items of Partnership income, gain,
loss, deduction or credit, other than an allocation required by Section 704(c)
of the Code to eliminate the disparity between a partner's "book" capital
account (credited with the fair market value of Contributed Property) and
"tax" capital account (credited with the tax basis of Contributed Property)
(the "Book-Tax Disparity"), will generally be given effect for federal income
tax purposes in determining a partner's distributive share of an item of
income, gain, loss or deduction only if the allocation has substantial
economic effect. In any other case, a partner's distributive share of an item
will be determined on the
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basis of the partner's interest in the partnership, which will be determined
by taking into account all the facts and circumstances, including the
partner's relative contributions to the partnership, the interests of the
partners in economic profits and losses, the interests of the partners in cash
flow and other nonliquidating distributions and rights of the partners to
distributions of capital upon liquidation.
Under the Code, the partners in a partnership cannot be allocated more
depreciation, gain or loss than the total amount of any such item recognized
by that partnership in a particular taxable period (the "ceiling limitation").
To the extent the ceiling limitation is or becomes applicable, the Partnership
Agreement will require that certain items of income and deduction be allocated
in a way designed to effectively "cure" this problem and eliminate the impact
of the ceiling limitation. Such allocations will not have substantial economic
effect because they will not be reflected in the capital accounts of the
Unitholders. Recently released Temporary Regulations under Section 704(c) of
the Code permit a partnership to make reasonable curative allocations to
reduce or eliminate Book-Tax Disparities. Counsel believes the curative
allocations provided in the Partnership Agreement are reasonable and will be
respected for federal income tax purposes.
Counsel is of the opinion that, with the exception of the allocation of
recapture income discussed above allocations under the Partnership Agreement
will be given effect for federal income tax purposes in determining a
partner's distributive share of an item of income, gain, loss or deduction.
There are, however, uncertainties in the Treasury Regulations relating to
allocations of partnership income, and investors should be aware that some of
the allocations in the Partnership Agreement may be successfully challenged by
the IRS.
TAX TREATMENT OF OPERATIONS
ACCOUNTING METHOD AND TAXABLE YEAR
The Partnership will use the fiscal year ending July 31 as its taxable year
and will adopt the accrual method of accounting for federal income tax
purposes. Each Unitholder will be required to include in income his allocable
share of Partnership income, gain, loss and deduction for the fiscal year of
the Partnership ending within or with the taxable year of the Unitholder. In
addition, a Unitholder who disposes of Units following the close of the
Partnership's taxable year but before the close of the Unitholder's taxable
year must include his allocable share of Partnership income, gain, loss and
deduction in income for the Unitholder's taxable year with the result that
that Unitholder will be required to report in income for his taxable year his
distributive share of more than one year of Partnership income, gain, loss and
deduction. For example, a Unitholder reporting on a calendar year basis who
acquires Common Units in the offering made hereby and who disposes of such
Common Units after July 31, 1995 but before December 31, 1995 will be required
to include in his 1995 taxable income his allocable share of Partnership
income for the Partnership's fiscal year ending July 31, 1995, plus his
allocable share of Partnership income for the period beginning August 1, 1995
and ending on the date such Common Units are disposed. See "Disposition of
Common Units--Allocations Between Transferors and Transferees" below.
The Partnership may be required at some future date to adopt a taxable year
ending December 31, rather than its current taxable year ending July 31. In
that event, a Unitholder may be required to include in income for his taxable
year his distributive share of more than one year of Partnership income, gain,
loss and deduction.
INITIAL TAX BASIS, DEPRECIATION AND AMORTIZATION
The tax basis established for the various assets of the Partnership will be
used for purposes of computing depreciation and cost recovery deductions and,
ultimately, gain or loss on the disposition
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of such assets. The Partnership assets will initially have an aggregate tax
basis equal to the tax basis of the assets in the hands of the General Partner
immediately prior to their contribution to the Partnership.
To the extent allowable, the General Partner may elect to use the
depreciation and cost recovery methods that will result in the largest
depreciation deductions in the early years of the Partnership. Property
subsequently acquired or constructed by the Partnership may be depreciated
using accelerated methods permitted by the Code.
If the Partnership disposes of depreciable property by sale, foreclosure, or
otherwise, all or a portion of any gain (determined by reference to the amount
of depreciation previously deducted and the nature of the property) may be
subject to the recapture rules and taxed as ordinary income rather than
capital gain. Similarly, a partner who has taken cost recovery or depreciation
deductions with respect to property owned by the Partnership may be required
to recapture such deductions upon a sale of his interest in the Partnership.
See "--Allocation of Partnership Income, Gain, Loss and Deduction" above and
"--Disposition of Common Units--Recognition of Gain or Loss" below.
Costs incurred in organizing the Partnership may be amortized over any
period selected by the Partnership not shorter than 60 months. The costs
incurred in promoting the issuance of Units must be capitalized and cannot be
deducted currently, ratably or upon termination of the Partnership. There are
uncertainties regarding the classification of costs as organization expenses,
which may be amortized, and as syndication expenses, which may not be
amortized.
The 1993 Budget Act added Section 197 to the Code which generally permits a
taxpayer who after August 10, 1993 acquires an interest in goodwill, going
concern value and certain other intangible property including customer
relationships which are held in connection with the conduct of a trade or
business or the production of income (an "amortizable Section 197 intangible")
to amortize the adjusted basis of such amortizable Section 197 intangible
ratably over a 15-year period. The IRS is currently challenging deductions for
amortization claimed by the General Partner with respect to certain customer
relationships. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Tax Audit." In connection with the
formation of the Partnership, the General Partner will contribute those
customer relationships and other customer relationships to the Partnership.
The application of Section 197 of the Code to customer relationships held by
the Partnership is unclear. The General Partner, however, intends to treat
such customer relationships as amortizable assets of the Partnership for
federal income tax purposes. It is possible that the IRS will challenge that
treatment. If the IRS were to successfully challenge the amortization of
customer relationships by the Partnership, the amount of amortization
available to a Unitholder and, therefore, the after tax return of a Unitholder
with respect to his investment in the Partnership could be adversely affected,
although the Partnership does not believe the impact of such effect will be
material. See "--Tax Consequences of Unit Ownership--Ratio of Taxable Income
to Distributions" above.
SECTION 754 ELECTION
The Partnership will make the election permitted by Section 754 of the Code,
which election is irrevocable without the consent of the IRS. The election
will generally permit a purchaser of Common Units to adjust his share of the
basis in the Partnership's properties ("inside basis") pursuant to Section
743(b) of the Code to fair market value (as reflected by his Unit price). The
Section 743(b) adjustment is attributed solely to a purchaser of Common Units
and is not added to the bases of the Partnership's assets associated with all
of the Unitholders. (For purposes of this discussion, a partner's inside basis
in the Partnership's assets will be considered to have two components: (1) his
share of the Partnership's actual basis in such assets ("Common Basis") and
(2) his Section 743(b) adjustment allocated to each such asset.)
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Proposed Treasury Regulation Section 1.168-2(n) generally requires the
Section 743(b) adjustment attributable to recovery property to be depreciated
as if the total amount of such adjustment were attributable to newly-acquired
recovery property placed in service when the purchaser acquires the Common
Unit. Similarly, the legislative history of Section 197 indicates that the
Section 743(b) adjustment attributable to an amortizable Section 197
intangible should be treated as a newly-acquired asset placed in service in
the month when the purchaser acquires the Common Unit. Under Treasury
Regulation Section 1.167(c)-1(a)(6), a Section 743(b) adjustment attributable
to property subject to depreciation under Section 167 of the Code rather than
cost recovery deductions under Section 168 is generally required to be
depreciated using either the straight-line method or the 150% declining
balance method. The depreciation and amortization methods and useful lives
associated with the Section 743(b) adjustment, therefore, may differ from the
methods and useful lives generally used to depreciate the Common Bases in such
properties. Pursuant to the Partnership Agreement, the General Partner is
authorized to adopt a convention to preserve the uniformity of Units even if
such convention is not consistent with Treasury Regulation Section 1.167(c)-
1(a)(6) or the legislative history of Section 197 of the Code. See "--
Uniformity of Units" below.
Although Counsel is unable to opine as to the validity of such an approach,
the Partnership intends to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value of Contributed
Property (to the extent of any unamortized Book-Tax Disparity) using a rate of
depreciation or amortization derived from the depreciation or amortization
method and useful life applied to the Common Basis of such property, despite
its inconsistency with Proposed Treasury Regulation Section 1.168-2(n),
Treasury Regulation Section 1.167(c)-1(a)(6) or the legislative history of
Section 197 of the Code. If the Partnership determines that such position
cannot reasonably be taken, the Partnership may adopt a depreciation or
amortization convention under which all purchasers acquiring Units in the same
month would receive depreciation or amortization, whether attributable to
Common Basis or Section 743(b) basis, based upon the same applicable rate as
if they had purchased a direct interest in the Partnership's property. Such an
aggregate approach may result in lower annual depreciation or amortization
deductions than would otherwise be allowable to certain Unitholders. See "--
Uniformity of Units" below.
The allocation of the Section 743(b) adjustment must be made in accordance
with the principles of Section 1060 of the Code. Based on these principles,
the IRS may seek to reallocate some or all of any Section 743(b) adjustment
not so allocated by the Partnership to goodwill which, as an intangible asset,
would be amortizable over a longer period of time than the Partnership's
tangible assets. Alternatively, it is possible that the IRS might seek to
treat the portion of such Section 743(b) adjustment attributable to the
Underwriters' discount as if allocable to a non-deductible syndication cost.
A Section 754 election is advantageous if the transferee's basis in his
Units is higher than such Units' share of the aggregate basis to the
Partnership of the Partnership's assets immediately prior to the transfer. In
such case, pursuant to the election, the transferee would take a new and
higher basis in his share of the Partnership's assets for purposes of
calculating, among other items, his depreciation deductions and his share of
any gain or loss on a sale of the Partnership's assets. Conversely, a Section
754 election is disadvantageous if the transferee's basis in such Units is
lower than such Units share of the aggregate basis of the Partnership's assets
immediately prior to the transfer. Thus, the amount which a Unitholder will be
able to obtain upon the sale of his Common Units may be affected either
favorably or adversely by the election.
The calculations involved in the Section 754 election are complex and will
be made by the Partnership on the basis of certain assumptions as to the value
of Partnership assets and other matters. There is no assurance that the
determinations made by the Partnership will not be successfully challenged by
the IRS and that the deductions attributable to them will not be disallowed or
reduced. Should the IRS require a different basis adjustment to be made, and
should, in the General Partner's opinion, the expense of compliance exceed the
benefit of the election, the General Partner may seek
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permission from the IRS to revoke the Section 754 election for the
Partnership. If such permission is granted, a purchaser of Units subsequent to
such revocation probably will incur increased tax liability.
ALTERNATIVE MINIMUM TAX
Each Unitholder will be required to take into account his distributive share
of any items of Partnership income, gain or loss for purposes of the
alternative minimum tax. A portion of the Partnership's depreciation
deductions may be treated as an item of tax preference for this purpose.
A Unitholder's alternative minimum taxable income derived from the
Partnership may be higher than his share of Partnership net income because the
Partnership may use accelerated methods of depreciation for purposes of
computing federal taxable income or loss. The 1993 Budget Act increases the
minimum tax rate applicable to noncorporate Unitholders from 24% to 26% on the
first $175,000 of alternative minimum taxable income in excess of the
exemption amount and to 28% on any additional alternative minimum taxable
income. Prospective Unitholders should consult with their tax advisors as to
the impact of an investment in Common Units on their liability for the
alternative minimum tax.
VALUATION OF PARTNERSHIP PROPERTY AND BASIS OF PROPERTIES
The federal income tax consequences of the acquisition, ownership and
disposition of Units will depend in part on estimates by the General Partner
of the relative fair market values, and determinations of the initial tax
basis, of the assets of the Partnership. Although the General Partner may from
time to time consult with professional appraisers with respect to valuation
matters, many of the relative fair market value estimates will be made solely
by the General Partner. These estimates and determinations of basis are
subject to challenge and will not be binding on the IRS or the courts. If the
estimates of fair market value or determinations of basis are subsequently
found to be incorrect, the character and amount of items of income, gain,
loss, deductions or credits previously reported by Unitholders might change,
and Unitholders might be required to amend their previously filed tax returns
or to file claims for refunds.
TREATMENT OF SHORT SALES
It would appear that a Unitholder whose Units are loaned to a "short seller"
to cover a short sale of Units would be considered as having transferred
beneficial ownership of those Units and would, thus, no longer be a partner
with respect to those Units during the period of the loan. As a result, during
this period, any Partnership income, gain, deduction, loss or credit with
respect to those Units would appear not to be reportable by the Unitholder,
any cash distributions received by the Unitholder with respect to those Units
would be fully taxable and all of such distributions would appear to be
treated as ordinary income. The IRS may also contend that a loan of Units to a
"short seller" constitutes a taxable exchange. If this contention were
successfully made, the lending Unitholder may be required to recognize gain or
loss. Unitholders desiring to assure their status as partners should modify
their brokerage account agreements, if any, to prohibit their brokers from
borrowing their Units. The IRS has announced that it is actively studying
issues relating to the tax treatment of short sales of partnership interests.
DISPOSITION OF COMMON UNITS
RECOGNITION OF GAIN OR LOSS
Gain or loss will be recognized on a sale of Units equal to the difference
between the amount realized and the Unitholder's tax basis for the Units sold.
A Unitholder's amount realized will be measured by the sum of the cash or the
fair market value of other property received plus his share of Partnership
nonrecourse liabilities. Since the amount realized includes a Unitholder's
share of Partnership nonrecourse liabilities, the gain recognized on the sale
of Units may result in a tax liability in excess of any cash received from
such sale.
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Gain or loss recognized by a Unitholder (other than a "dealer" in Units) on
the sale or exchange of a Unit held for more than one year will generally be
taxable as long-term capital gain or loss. A substantial portion of this gain
or loss, however, will be separately computed and taxed as ordinary income or
loss under Section 751 of the Code to the extent attributable to assets giving
rise to depreciation recapture or other "unrealized receivables" or to
"substantially appreciated inventory" owned by the Partnership. Inventory is
considered to be "substantially appreciated" if its value exceeds 120% of its
adjusted basis to the Partnership. The term "unrealized receivables" includes
potential recapture items, including depreciation recapture. Ordinary income
attributable to unrealized receivables, substantially appreciated inventory
and depreciation recapture may exceed net taxable gain realized upon the sale
of the Unit and may be recognized even if there is a net taxable loss realized
on the sale of the Unit. Thus, a Unitholder may recognize both ordinary income
and a capital loss upon a disposition of Units. Net capital loss may offset no
more than $3,000 of ordinary income in the case of individuals and may only be
used to offset capital gain in the case of a corporation.
The IRS has ruled that a partner acquiring interests in a partnership in
separate transactions at different prices must maintain an aggregate adjusted
tax basis in a single partnership interest and that, upon sale or other
disposition of some of the interests, a portion of such aggregate tax basis
must be allocated to the interests sold on the basis of some equitable
apportionment method. The ruling is unclear as to how the holding period is
affected by this aggregation concept. If this ruling is applicable to the
holders of Common Units, the aggregation of tax bases of a holder of Common
Units effectively prohibits him from choosing among Common Units with varying
amounts of unrealized gain or loss as would be possible in a stock
transaction. Thus, the ruling may result in an acceleration of gain or
deferral of loss on a sale of a portion of a Unitholder's Common Units. It is
not clear whether the ruling applies to publicly-traded partnerships, such as
the Partnership, the interests in which are evidenced by separate interests,
and accordingly Counsel is unable to opine as to the effect such ruling will
have on the Unitholders. A Unitholder considering the purchase of additional
Common Units or a sale of Common Units purchased at differing prices should
consult his tax advisor as to the possible consequences of such ruling.
ALLOCATIONS BETWEEN TRANSFERORS AND TRANSFEREES
In general, the Partnership's taxable income and losses will be determined
annually and will be prorated on a monthly basis and subsequently apportioned
among the Unitholders in proportion to the number of Units owned by them as of
the opening of the first business day of the month to which they relate.
However, gain or loss realized on a sale or other disposition of Partnership
assets other than in the ordinary course of business shall be allocated among
the Unitholders of record as of the opening of the New York Stock Exchange on
the first business day of the month in which such gain or loss is recognized.
As a result of this monthly allocation, a Unitholder transferring Units in the
open market may be allocated income, gain, loss, deduction and credit accrued
after the transfer.
The use of the monthly conventions discussed above may not be permitted by
existing Treasury Regulations and, accordingly, Counsel is unable to opine on
the validity of the method of allocating income and deductions between the
transferors and the transferees of Common Units. If a monthly convention is
not allowed by the Treasury Regulations (or only applies to transfers of less
than all of the Unitholder's interest), taxable income or losses of the
Partnership might be reallocated among the Unitholders. The General Partner is
authorized to revise the Partnership's method of allocation between
transferors and transferees (as well as among partners whose interests
otherwise vary during a taxable period) to conform to a method permitted by
future Treasury Regulations.
A Unitholder who owns Units at any time during a quarter and who disposes of
such Units prior to the record date set for a distribution with respect to
such quarter will be allocated items of Partnership income and gain
attributable to such quarter during which such Units were owned but will not
be entitled to receive such cash distribution.
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NOTIFICATION REQUIREMENTS
A Unitholder who sells or exchanges Units is required to notify the
Partnership in writing of such sale or exchange within 30 days of the sale or
exchange and in any event no later than January 15 of the year following the
calendar year in which the sale or exchange occurred. The Partnership is
required to notify the IRS of such transaction and to furnish certain
information to the transferor and transferee. However, these reporting
requirements do not apply with respect to a sale by an individual who is a
citizen of the United States and who effects such sale through a broker.
Additionally, a transferor and a transferee of a Unit will be required to
furnish statements to the IRS, filed with their income tax returns for the
taxable year in which the sale or exchange occurred, which set forth the
amount of the consideration received for such Unit that is allocated to
goodwill or going concern value of the Partnership. Failure to satisfy such
reporting obligations may lead to the imposition of substantial penalties.
CONSTRUCTIVE TERMINATION
The Partnership and the Operating Partnership will be considered to have
been terminated if there is a sale or exchange of 50% or more of the total
interests in Partnership capital and profits within a 12-month period. A
constructive termination results in the closing of a partnership's taxable
year for all partners and the partnership properties are regarded as having
been distributed to the partners and reconveyed to the partnership, which is
then treated as a new partnership. Such a termination could result in the non-
uniformity of Units for federal income tax purposes. A constructive
termination of the Partnership will cause a termination of the Operating
Partnership. Such a termination could also result in penalties or loss of
basis adjustments under Section 754 of the Code if the Partnership were unable
to determine that the termination had occurred. (Under the 1993 Bill,
termination of a large partnership such as the Partnership would not occur by
reason of the sale or exchange of interests in the partnership.)
In the case of a Unitholder reporting on a taxable year other than a fiscal
year ending July 31, the closing of a tax year of the Partnership may result
in more than 12 months' taxable income or loss of the Partnership being
includable in its taxable income for the year of termination. In addition,
each Unitholder will realize taxable gain to the extent that any money
constructively distributed to him exceeds the adjusted basis of his Units. New
tax elections required to be made by the Partnership, including a new election
under Section 754 of the Code, must be made subsequent to the constructive
termination. A constructive termination could also result in a deferral of
Partnership deductions for depreciation. In addition, a termination might
either accelerate the application of or subject the Partnership to any tax
legislation enacted with effective dates after the closing of this offering.
ENTITY-LEVEL COLLECTIONS
If the Partnership is required or elects under applicable law to pay any
federal, state or local income tax on behalf of any Unitholder or the General
Partner or former Unitholder, the General Partner is authorized to pay such
taxes from Partnership funds. Such payments, if made, will be deemed current
distributions of cash to the Unitholders and the General Partner. The General
Partner is authorized to amend the Partnership Agreement in the manner
necessary to maintain uniformity of intrinsic tax characteristics of Units and
to adjust subsequent distributions so that after giving effect to such deemed
distributions, the priority and characterization of distributions otherwise
applicable under the Partnership Agreement is maintained as nearly as is
practicable. Payments by the Partnership as described above could give rise to
an overpayment of tax on behalf of an individual partner in which event, the
partner could file a claim for credit or refund.
UNIFORMITY OF UNITS
Since the Partnership cannot match transferors and transferees of Common
Units, uniformity of the economic and tax characteristics of the Common Units
to a purchaser of such Common Units must
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be maintained. In the absence of uniformity, compliance with a number of
federal income tax requirements, both statutory and regulatory, could be
substantially diminished. A lack of uniformity can result from a literal
application of Proposed Treasury Regulation Section 1.168-2(n) and Treasury
Regulation Section 1.167(c)-1 (a) (6) or the legislative history of Section
197 and from the application of the "ceiling limitation" on the Partnership's
ability to make allocations to eliminate Book-Tax Disparities attributable to
Contributed Properties and Partnership property that has been revalued and
reflected in the partners' capital accounts ("Adjusted Properties"). Any such
non-uniformity could have a negative impact on the value of a Unitholder's
interest in the Partnership.
The Partnership intends to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value of Contributed
Property or Adjusted Property (to the extent of any unamortized Book-Tax
Disparity) using a rate of depreciation or amortization derived from the
depreciation or amortization method and useful life applied to the Common
Basis of such property, despite its inconsistency with Proposed Treasury
Regulation Section 1.168-2(n) and Treasury Regulation Section 1.167(c)-1(a)
(6) or the legislative history of Section 197. See "--Tax Treatment of
Operations--Section 754 Election" above. If the Partnership determines that
such a position cannot reasonably be taken, the Partnership may adopt a
depreciation and amortization deductions convention under which all purchasers
acquiring Common Units in the same month would receive depreciation and
amortization deductions, whether attributable to common basis or Section
743(b) basis, based upon the same applicable rate as if they had purchased a
direct interest in the Partnership's property. If such an aggregate approach
is adopted, it may result in lower annual depreciation and amortization
deductions than would otherwise be allowable to certain Unitholders and risk
the loss of depreciation and amortization deductions not taken in the year
that such deductions are otherwise allowable. This convention will not be
adopted if the Partnership determines that the loss of depreciation and
amortization deductions will have a material adverse effect on the
Unitholders. If the Partnership chooses not to utilize this aggregate method,
the Partnership may use any other reasonable depreciation and amortization
convention to preserve the uniformity of the intrinsic tax characteristics of
any Common Units that would not have a material adverse effect on the
Unitholders. The IRS may challenge any method of depreciating the Section
743(b) adjustment described in this paragraph. If such a challenge were to be
sustained, the uniformity of Common Units might be affected.
Items of income and deduction will be specially allocated in a manner that
is intended to preserve the uniformity of intrinsic tax characteristics among
all Units, despite the application of the "ceiling limitation" to Contributed
Properties and Adjusted Properties. Such special allocations will be made
solely for federal income tax purposes. See "--Tax Consequences of Unit
Ownership" and "--Allocation of Partnership Income, Gain, Loss and Deduction"
above.
TAX-EXEMPT ORGANIZATIONS AND CERTAIN OTHER INVESTORS
Ownership of Units by employee benefit plans, other tax-exempt
organizations, nonresident aliens, foreign corporations, other foreign persons
and regulated investment companies raises issues unique to such persons and,
as described below, may have substantially adverse tax consequences.
Employee benefit plans and most other organizations exempt from federal
income tax (including individual retirement accounts and other retirement
plans) are subject to federal income tax on unrelated business taxable income.
Virtually all of the taxable income derived by such an organization from the
ownership of a Unit will be unrelated business taxable income and thus will be
taxable to such a Unitholder.
Regulated investment companies are required to derive 90% or more of their
gross income from interest, dividends, gains from the sale of stocks or
securities or foreign currency or certain related sources. It is not
anticipated that any significant amount of the Partnership's gross income will
qualify as such income.
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Non-resident aliens and foreign corporations, trusts or estates which
acquire Units will be considered to be engaged in business in the United
States on account of ownership of Units and as a consequence will be required
to file federal tax returns in respect of their distributive shares of
Partnership income, gain, loss, deduction or credit and pay federal income tax
at regular rates on such income. Generally, a partnership is required to pay a
withholding tax on the portion of the partnerships income which is effectively
connected with the conduct of a United States trade or business and which is
allocable to the foreign partners, regardless of whether any actual
distributions have been made to such partners. However, under rules applicable
to publicly-traded partnerships, the Partnership will withhold (currently at
the rate of 31%) on actual cash distributions made quarterly to foreign
Unitholders. Each foreign Unitholder must obtain a taxpayer identification
number from the IRS and submit that number to the Transfer Agent of the
Partnership on a Form W-8 in order to obtain credit for the taxes withheld.
Subsequent adoption of Treasury Regulations or the issuance of other
administrative pronouncements may require the Partnership to change these
procedures.
Because a foreign corporation which owns Units will be treated as engaged in
a United States trade or business, such a Unitholder may be subject to United
States branch profits tax at a rate of 30%, in addition to regular federal
income tax, on its allocable share of the Partnership's earnings and profits
(as adjusted for changes in the foreign corporation's "U.S. net equity") which
are effectively connected with the conduct of a United States trade or
business. Such a tax may be reduced or eliminated by an income tax treaty
between the United States and the country with respect to which the foreign
corporate Unitholder is a "qualified resident." In addition, such a Unitholder
is subject to special information reporting requirements under Section 6038C
of the Code.
Assuming that the Units are regularly traded on an established securities
market, a foreign Unitholder who sells or otherwise disposes of a Unit and who
has not held more than 5% in value of the Units at any time during the five-
year period ending on the date of the disposition will not be subject to
federal income tax on gain realized on the disposition that is attributable to
real property held by the Partnership, but (regardless of a foreign
Unitholder's percentage interest in the Partnership or whether Units are
regularly traded) such Unitholder may be subject to federal income tax on any
gain realized on the disposition that is treated as effectively connected with
a United States trade or business of the foreign Unitholder. A foreign
Unitholder will be subject to federal income tax on gain attributable to real
property held by the Partnership if the holder held more than 5% in value of
the Units during the five-year period ending on the date of the disposition or
if the Units were not regularly traded on an established securities market at
the time of the disposition.
ADMINISTRATIVE MATTERS
PARTNERSHIP INFORMATION RETURNS AND AUDIT PROCEDURES
The Partnership intends to furnish to each Unitholder within 90 days after
the close of each calendar year, certain tax information, including a Schedule
K-1, which sets forth each Unitholder's allocable share of the Partnership's
income, gain, loss, deduction and credit for the preceding Partnership taxable
year. In preparing this information, which will generally not be reviewed by
counsel, the General Partner will use various accounting and reporting
conventions, some of which have been mentioned in the previous discussion, to
determine the respective Unitholders' allocable share of income, gain, loss,
deduction and credits. There is no assurance that any such conventions will
yield a result which conforms to the requirements of the Code, regulations or
administrative interpretations of the IRS. The General Partner cannot assure
prospective Unitholders that the IRS will not successfully contend in court
that such accounting and reporting conventions are impermissible.
The federal income tax information returns filed by the Partnership may be
audited by the IRS. Adjustments resulting from any such audit may require each
Unitholder to file an amended tax return, and possibly may result in an audit
of the Unitholder's own return. Any audit of a Unitholder's return could
result in adjustments of non-Partnership as well as Partnership items.
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Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS
and tax settlement proceedings. The tax treatment of partnership items of
income, gain, loss, deduction and credit are determined at the partnership
level in a unified partnership proceeding rather than in separate proceedings
with the partners. The Code provides for one partner to be designated as the
"Tax Matters Partner" for these purposes. The Partnership Agreement appoints
the General Partner as the Tax Matters Partner.
The Tax Matters Partner will make certain elections on behalf of the
Partnership and Unitholders and can extend the statute of limitations for
assessment of tax deficiencies against Unitholders with respect to Partnership
items. The Tax Matters Partner may bind a Unitholder with less than a 1%
profits interest in the Partnership to a settlement with the IRS unless such
Unitholder elects, by filing a statement with the IRS, not to give such
authority to the Tax Matters Partner. The Tax Matters Partner may seek
judicial review (to which all the Unitholders are bound) of a final
Partnership administrative adjustment and, if the Tax Matters Partner fails to
seek judicial review, such review may be sought by any Unitholder having at
least 1% interest in the profits of the Partnership and by the Unitholders
having in the aggregate at least a 5% profits interest. However, only one
action for judicial review will go forward, and each Unitholder with an
interest in the outcome may participate.
A Unitholder must file a statement with the IRS identifying the treatment of
any item on its federal income tax return that is not consistent with the
treatment of the item on the Partnership's return to avoid the requirement
that all items be treated consistently on both returns. Intentional or
negligent disregard of the consistency requirement may subject a Unitholder to
substantial penalties. Under the 1993 Bill, partners in large partnerships,
such as the Partnership, would be required to treat all partnership items in a
manner consistent with the partnership return.
Under the reporting provisions of the 1993 Bill, each partner of a large
partnership, such as the Partnership, would take into account separately his
share of the following items, determined at the partnership level: (1) taxable
income or loss from passive loss limitation activities; (2) taxable income or
loss from other activities (such as portfolio income or loss); (3) net capital
gains to the extent allocable to passive loss limitation activities and other
activities; (4) a net alternative minimum tax adjustment separately computed
for passive loss limitation activities and other activities; (5) general
credits; (6) low-income housing credit; (7) rehabilitation credit; (8) for
certain partnerships, tax-exempt interest; and (9) for certain partnerships,
foreign taxes paid and foreign source partnership items.
The 1993 Bill would also make a number of changes to the tax compliance and
administrative rules relating to partnerships. One provision would require
that each partner in a large partnership, such as the Partnership, take into
account his share of any adjustments to partnership items in the year such
adjustments are made. Under current law, adjustments relating to partnership
items for a previous taxable year are taken into account by those persons who
were partners in the previous taxable year. Alternatively, under the 1993 Bill
a partnership could elect to or, in some circumstances, could be required to,
directly pay the tax resulting from any such adjustments. In either case,
therefore, Unitholders could bear significant economic burdens associated with
tax adjustments relating to periods predating their acquisition of Units.
It cannot be predicted whether or in what form the 1993 Bill, or other tax
legislation that might affect Unitholders, will be enacted. However, if tax
legislation is enacted which includes provisions similar to those discussed
above, a Unitholder might experience a reduction in cash distributions.
NOMINEE REPORTING
Persons who hold an interest in the Partnership as a nominee for another
person are required to furnish to the Partnership (a) the name, address and
taxpayer identification number of the beneficial owners and the nominee; (b)
whether the beneficial owner is (i) a person that is not a United States
person, (ii) a foreign government, an international organization or any wholly
owned agency or
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instrumentality of either of the foregoing or (iii) a tax-exempt entity; (c)
the amount and description of Units held, acquired or transferred for the
beneficial owners; and (d) certain information including the dates of
acquisitions and transfers, means of acquisitions and transfers, and
acquisition cost for purchases, as well as the amount of net proceeds from
sales. Brokers and financial institutions are required to furnish additional
information, including whether they are United States persons and certain
information on Units they acquire, hold or transfer for their own account. A
penalty of $50 per failure (up to a maximum of $100,000 per calendar year) is
imposed by the Code for failure to report such information to the Partnership.
The nominee is required to supply the beneficial owner of the Units with the
information furnished to the Partnership.
REGISTRATION AS A TAX SHELTER
The Code requires that "tax shelters" be registered with the Secretary of
the Treasury. The temporary Treasury Regulations interpreting the tax shelter
registration provisions of the Code are extremely broad. It is arguable that
the Partnership will not be subject to the registration requirement on the
basis that (i) it will not constitute a tax shelter or (ii) it will constitute
a projected income investment exempt from registration. However, the General
Partner, as a principal organizer of the Partnership, has registered the
Partnership as a tax shelter with the IRS in the absence of assurance that the
Partnership will not be subject to tax shelter registration and in light of
the substantial penalties which might be imposed if registration is required
and not undertaken. The Partnership has applied for a tax shelter registration
number with the IRS. ISSUANCE OF THE REGISTRATION NUMBER DOES NOT INDICATE
THAT AN INVESTMENT IN THE PARTNERSHIP OR THE CLAIMED TAX BENEFITS HAVE BEEN
REVIEWED, EXAMINED OR APPROVED BY THE IRS. The Partnership must furnish the
registration number to the Unitholders, and a Unitholder who sells or
otherwise transfers a Unit in a subsequent transaction must furnish the
registration number to the transferee. The penalty for failure of the
transferor of a Common Unit to furnish such registration number to the
transferee is $100 for each such failure. The Unitholders must disclose the
tax shelter registration number of the Partnership on Form 8271 to be attached
to the tax return on which any deduction, loss, credit or other benefit
generated by the Partnership is claimed or income of the Partnership is
included. A Unitholder who fails to disclose the tax shelter registration
number on his return, without reasonable cause for such failure, will be
subject to a $250 penalty for each such failure. Any penalties discussed
herein are not deductible for federal income tax purposes.
ACCURACY-RELATED PENALTIES
An additional tax equal to 20% of the amount of any portion of an
underpayment of tax which is attributable to one or more of certain listed
causes, including negligence or disregard of rules or regulations, substantial
understatements of income tax and substantial valuation misstatements, is
imposed by the Code. No penalty will be imposed, however, with respect to any
portion of an underpayment if it is shown that there was a reasonable cause
for such portion and that the taxpayer acted in good faith with respect to
such portion.
A substantial understatement of income tax in any taxable year exists if the
amount of the understatement exceeds the greater of 10% of the tax required to
be shown on the return for the taxable year or $5,000 ($10,000 for most
corporations). The amount of any understatement subject to penalty generally
is reduced if any portion is attributable to a position adopted on the return
(i) with respect to which there is, or was, "substantial authority" or (ii) as
to which there is a reasonable basis and the pertinent facts of such position
are disclosed on the return. Certain more stringent rules apply to "tax
shelters," a term that does not appear to include the Partnership. If any
Partnership item of income, gain, loss, deduction or credit included in the
distributive shares of Unitholders might result in such an "understatement" of
income for which no "substantial authority" exists, the Partnership must
disclose the pertinent facts on its return. In addition, the Partnership will
make a reasonable effort to furnish sufficient information for Unitholders to
make adequate disclosure on their returns to avoid liability for this penalty.
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A substantial valuation misstatement exists if the value of any property (or
the adjusted basis of any property) claimed on a tax return is 200% or more of
the amount determined to be the correct amount of such valuation or adjusted
basis. No penalty is imposed unless the portion of the underpayment
attributable to a substantial valuation misstatement exceeds $5,000 ($10,000
for most corporations). If the valuation claimed on a return is 400% or more
than the correct valuation, the penalty imposed increases to 40%.
OTHER TAX CONSIDERATIONS
In addition to federal income taxes, Unitholders may be subject to other
taxes, such as state and local income taxes, unincorporated business taxes,
and estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which the Partnership does business or owns property.
Although an analysis of those various taxes cannot be presented here, each
prospective Unitholder should consider their potential impact on his
investment in the Partnership. The Partnership will own property and conduct
business in 45 states of the United States. A Unitholder may be required to
file state income tax returns and to pay taxes in various states and may be
subject to penalties for failure to comply with such requirements. The General
Partner anticipates that approximately 46% of the Partnerships income will be
generated in approximately six states. Based on the Company's income
apportionment for 1992 state income tax purposes, the General Partner
estimates that no other state will account for more than 4% of the
Partnership's income. Of the six states in which the General Partner
anticipates that a substantial portion of the Partnership's U.S. income will
be generated, only Texas does not currently impose a personal income tax. In
certain states, tax losses may not produce a tax benefit in the year incurred
(if, for example, the Partnership has no income from sources within that
state) and also may not be available to offset income in subsequent taxable
years. Some of the states may require the Partnership to withhold a percentage
of income from amounts to be distributed to a Unitholder who is not a resident
of the state. Withholding, the amount of which may be greater or less than a
particular Unitholder's income tax liability to the state, generally does not
relieve the non-resident Unitholder from the obligation to file an income tax
return. Amounts withheld will be treated as if distributed to Unitholders for
purposes of determining the amounts distributed by the Partnership. Based on
current law and its estimate of future Partnership operations, the General
Partner anticipates that any amounts required to be withheld will not be
material.
It is the responsibility of each prospective Unitholder to investigate the
legal and tax consequences, under the laws of pertinent states and localities,
of his investment in the Partnership. Accordingly, each prospective Unitholder
should consult, and must depend upon, his own tax counsel or other advisor
with regard to those matters. Further, it is the responsibility of each
Unitholder to file all state and local, as well as federal, tax returns that
may be required of such Unitholder. Counsel has not rendered an opinion on the
state or local tax consequences of an investment in the Partnership.
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INVESTMENT IN THE PARTNERSHIP
BY EMPLOYEE BENEFIT PLANS
An investment in the Partnership by an employee benefit plan is subject to
certain additional considerations because the investments of such plans are
subject to the fiduciary responsibility and prohibited transaction provisions
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and restrictions imposed by Section 4975 of the Code. As used herein, the term
"employee benefit plan" includes, but is not limited to, qualified pension,
profit-sharing and stock bonus plans, Keogh plans, simplified employee pension
plans and tax deferred annuities or Individual Retirement Accounts established
or maintained by an employer or employee organization. Among other things,
consideration should be given to (a) whether such investment is prudent under
Section 404(a)(1)(B) of ERISA, (b) whether in making such investment, such
plan will satisfy the diversification requirement of Section 404(a)(1)(C) of
ERISA; and (c) whether such investment will result in recognition of unrelated
business taxable income by such plan and, if so, the potential after-tax
investment return. See "Tax Considerations--Tax Exempt Organizations and
Certain Other Investors." The person with investment discretion with respect
to the assets of an employee benefit plan (a "fiduciary") should determine
whether an investment in the Partnership is authorized by the appropriate
governing instrument and is a proper investment for such plan.
Section 406 of ERISA and Section 4975 of the Code (which also applies to
Individual Retirement Accounts that are not considered part of an employee
benefit plan) prohibit an employee benefit plan from engaging in certain
transactions involving "plan assets" with parties that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
the plan.
In addition to considering whether the purchase of Common Units is a
prohibited transaction, a fiduciary of an employee benefit plan should
consider whether such plan will, by investing in the Partnership, be deemed to
own an undivided interest in the assets of the Partnership, with the result
that the General Partner also would be a fiduciary of such plan and the
operations of the Partnership would be subject to the regulatory restrictions
of ERISA, including its prohibited transaction rules, as well as the
prohibited transaction rules of the Code.
The Department of Labor issued final regulations on November 13, 1986
providing guidance with respect to whether the assets of an entity in which
employee benefit plans acquire equity interests would be deemed "plan assets"
under certain circumstances. Pursuant to these regulations, an entity's assets
would not be considered to be "plan assets" if, among other things, (a) the
equity interest acquired by employee benefit plans are publicly offered
securities--i.e., the equity interests are widely held by 100 or more
investors independent of the issuer and each other, freely transferable and
registered pursuant to certain provisions of the federal securities laws, (b)
the entity is an "operating company"--i.e., it is primarily engaged in the
production or sale of a product or service other than the investment of
capital either directly or through a majority owned subsidiary or subsidiaries
or (c) there is no significant investment by benefit plan investors, which is
defined to mean that less than 25% of the value of each class of equity
interest (disregarding certain interests held by the General Partner, its
affiliates, and certain other persons) is held by the employee benefit plans
referred to above, Individual Retirement Accounts and other employee benefit
plans not subject to ERISA (such as governmental plans). The Partnership's
assets should not be considered "plan assets" under these regulations because
it is expected that the investment will satisfy the requirements in (a) and
(b) above and may also satisfy the requirements in (c).
Plan fiduciaries contemplating a purchase of Units should consult with their
own counsel regarding the consequences under ERISA and the Code in light of
the serious penalties imposed on persons who engage in prohibited transactions
or other violations.
115
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
the Partnership has agreed to sell to each of the Underwriters named below,
and each of the Underwriters, for whom Goldman, Sachs & Co., Donaldson, Lufkin
& Jenrette Securities Corporation, A. G. Edwards & Sons, Inc., PaineWebber
Incorporated, and Smith Barney Inc. are acting as representatives, has
severally agreed to purchase from the Partnership, the respective number of
Common Units set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER COMMON UNITS
----------- ------------
<S> <C>
Goldman, Sachs & Co..........................................
Donaldson, Lufkin & Jenrette Securities Corporation..........
A. G. Edwards & Sons, Inc....................................
PaineWebber Incorporated.....................................
Smith Barney Inc.............................................
----------
Total...................................................... 13,100,000
==========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of such Common Units
offered hereby, if any are taken.
The Underwriters propose to offer the Common Units in part directly to the
public at the initial public offering price set forth on the cover page of
this Prospectus, and in part to certain securities dealers at such price less
a concession of $ per Common Unit. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per Common Unit to
certain brokers and dealers. After the Common Units are released for sale to
the public, the offering price and other selling terms may from time to time
be varied by the representatives.
The Partnership has granted to the Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
1,965,000 additional Common Units to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of Common Units to be purchased by
each of them, as shown in the foregoing table, bears to the 13,100,000 Common
Units offered. The Underwriters may exercise such option only to cover
overallotments in connection with the sale of the 13,100,000 Common Units
offered hereby.
The Partnership has agreed not to offer, sell, contract to sell or otherwise
dispose of any Common Units or Subordinated Units, or any securities
substantially similar to the Common Units or Subordinated Units, including but
not limited to any securities that are convertible into or exchangeable for or
that represent the right to receive Common Units or Subordinated Units or any
such substantially similar securities, for a period of 180 days after the date
of this Prospectus without the prior written consent of the representatives of
the Underwriters, except for the Common Units offered in connection with this
offering and except for any Common Units which may be issued in connection
with acquisitions by the Partnership. In addition, Ferrell has agreed that for
a period of 24 months from the date of this Prospectus it will not offer,
sell, contract to sell or otherwise dispose of any Common Units or
Subordinated Units or any securities substantially similar to the Common Units
or Subordinated Units, including but not limited to any securities that are
convertible into or exchangeable for or that
116
<PAGE>
represent the right to receive Common Units or Subordinated Units or any such
substantially similar securities, without the prior written consent of the
representatives of the Underwriters, except (i) pursuant to the repurchase of
a portion of such Common Units in connection with the exercise of the
Underwriters' overallotment option, (ii) transfers to James E. Ferrell or his
spouse, lineal descendants or brothers or sisters, entities controlled by
James E. Ferrell or his spouse, lineal descendants or brothers or sisters or
trusts for the benefit of James E. Ferrell or his spouse, lineal descendants
or brothers or sisters, (iii) in connection with the sale of the Partnership
or substantially all of its assets, (iv) as collateral in connection with good
faith borrowing, (v) gifts of up to 20% of such Units to charitable
organizations or (vi) in the event of the death or permanent disability of
James E. Ferrell, provided, however, that in the case of (ii) above the
transferee shall enter into an agreement with the representatives of the
Underwriters agreeing to comply with the above restrictions for the remainder
of the 24 month period.
Because the National Association of Securities Dealers, Inc. ("NASD") is
expected to view the Common Units offered hereby as interests in a direct
participation program, the offering is being made in compliance with Appendix
F of the NASD's Rules of Fair Practice. Investor suitability of the Common
Units should be judged similarly to the suitability of other securities that
are listed for trading on a national securities exchange. The Underwriters do
not intend to confirm sales to any accounts over which they exercise
discretionary authority without the prior written approval of the transaction
by the customer.
Prior to this offering, there has been no public market for the Common
Units. The initial public offering price will be negotiated among the
Partnership and the representatives of the Underwriters. Among the factors to
be considered in determining the initial public offering price of the Common
Units, in addition to prevailing market conditions, are the historical
performance of Ferrellgas, the proposed capital structure, assets and
liabilities of the Partnership, the General Partner's estimates of the
business potential and earnings prospects of the Partnership, an assessment of
the Partnership's management and the consideration of the above factors in
relation to market valuation of companies in related businesses.
The Common Units have been approved for listing on the NYSE, subject to
official notice of issuance. In order to meet one of the requirements for
listing the Common Units on the NYSE, the Underwriters have undertaken to sell
lots of 100 or more Common Units to a minimum of 2,000 beneficial holders.
The Partnership, the General Partner and Ferrell have agreed to indemnify
the several Underwriters against certain civil liabilities, including
liabilities under the Securities Act of 1933.
Each of Goldman, Sachs & Co. and Donaldson, Lufkin & Jenrette Securities
Corporation is acting as an underwriter in connection with the concurrent
offering of Senior Notes by the Operating Partnership and will receive
underwriting discounts in connection therewith. See "The Transactions." In
addition, the Company has retained Donaldson, Lufkin & Jenrette Securities
Corporation as Dealer/Manager for the consent solicitation and tender offer
with respect to its Existing Subordinated Debentures. Donaldson, Lufkin &
Jenrette Securities Corporation has also acted as financial advisor to
Ferrellgas in connection with various matters for which it has received
customary fees.
VALIDITY OF COMMON UNITS
The validity of the Common Units will be passed upon for the Partnership by
Andrews & Kurth L.L.P., New York, New York, and for the Underwriters by
Sullivan & Cromwell, New York, New York.
117
<PAGE>
EXPERTS
The consolidated financial statements of Ferrellgas, Inc. as of April 30,
1994 and July 31, 1993 and 1992 and for the nine months ended April 30, 1994
and for each of the three years in the period ended July 31, 1993 included in
this Prospectus and the related financial statement schedules included
elsewhere in the Registration Statement have been audited by Deloitte &
Touche, independent auditors, as stated in their reports appearing herein and
elsewhere in the Registration Statement (which reports expressed an
unqualified opinion and included an explanatory paragraph concerning an
uncertainty involving an income tax matter) and have been so included in
reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
The balance sheet of Ferrellgas Partners, L.P. as of April 27, 1994,
included in this Prospectus has been audited by Deloitte & Touche, independent
auditors, as stated in their report appearing herein, and has been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The pro forma financial information of Ferrellgas Partners, L.P. included in
this Prospectus has been examined by Deloitte & Touche, independent
accountants, as stated in their report appearing herein, and has been so
included in reliance upon the report of such firm given upon their authority
as experts in accounting.
ADDITIONAL INFORMATION
The Partnership has filed with the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, a Form S-1 Registration Statement under the Securities
Act, for the registration of the securities to be offered by this Prospectus.
Certain of the information contained in the Registration Statement is omitted
from this Prospectus, and reference is hereby made to the Registration
Statement and exhibits relating thereto for further information concerning the
Partnership and the General Partner and the securities to which this
Prospectus relates. Statements contained herein concerning the provisions of
any document are not necessarily complete and in each instance reference is
made to the copy of the document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by this reference.
The Registration Statement and the exhibits thereto are available for
inspection in the principal office of the commission in Washington, D.C. and
photostatic copies of such material may be obtained from the Commission upon
payment of the fees prescribed by the Commission.
The Partnership intends to furnish to holders of the Common Units annual
reports containing audited financial statements and an opinion thereon by its
independent accountants and quarterly reports containing unaudited financial
information on the first three quarters of each fiscal year.
118
<PAGE>
FERRELLGAS PARTNERS, L.P.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Ferrellgas Partners, L.P. Pro Forma Combined Financial Statements:
Independent Accountants' Report......................................... F-2
Pro Forma Combined Balance Sheet--April 30, 1994........................ F-3
Pro Forma Combined Statement of Earnings--Nine Months Ended April 30,
1994 and Year Ended July 31, 1993...................................... F-4
Notes to Pro Forma Combined Financial Statements........................ F-5
Ferrellgas Partners, L.P. Historical Balance Sheet:
Independent Auditors' Report............................................ F-7
Balance Sheet--April 27, 1994........................................... F-8
Note to Balance Sheet................................................... F-9
Ferrellgas, Inc. Historical Consolidated Financial Statements:
Independent Auditors' Report............................................ F-10
Consolidated Balance Sheet--April 30, 1994 and July 31, 1993 and 1992... F-11
Consolidated Statement of Operations--Nine Months Ended April 30, 1994
and 1993
(Unaudited) and Years Ended July 31, 1993, 1992 and 1991............... F-12
Consolidated Statement of Stockholder's Equity--Nine Months Ended April
30, 1994 and Years Ended July 31, 1993, 1992 and 1991.................. F-13
Consolidated Statement of Cash Flows--Nine Months Ended April 30, 1994
and 1993
(Unaudited) and Years Ended July 31, 1993, 1992 and 1991............... F-14
Notes to Consolidated Financial Statements.............................. F-15
</TABLE>
F-1
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors
Ferrellgas Partners, L.P.
Liberty, Missouri
We have examined the pro forma adjustments reflecting the proposed
transactions described in the Notes to Pro Forma Combined Financial Statements
and the application of those adjustments to the historical amounts in the
accompanying pro forma combined balance sheet of Ferrellgas Partners, L.P. as
of April 30, 1994, and the related pro forma combined statement of earnings
for the nine-month period ended April 30, 1994, and the year ended July 31,
1993. The historical financial statements are derived from the historical
financial statements of Ferrellgas, Inc. and subsidiaries, which were audited
by us (on which we have issued our report dated June 3, 1994, which expressed
an unqualified opinion and included an explanatory paragraph concerning an
uncertainty involving an income tax matter) that appear elsewhere herein. Such
pro forma adjustments are based upon management's assumptions described in the
Notes to Pro Forma Combined Financial Statements. Our examination was made in
accordance with standards established by the American Institute of Certified
Public Accountants and, accordingly, included such procedures as we considered
necessary in circumstances.
The objective of this pro forma financial information is to show what the
significant effects on the historical financial information might have been
had the proposed transactions occurred at an earlier date. However, the Pro
Forma Combined Financial Statements are not necessarily indicative of the
results of operations or related effects on financial position that would have
been attained had the above-mentioned proposed transactions actually occurred
earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-
mentioned proposed transactions described in the Notes to Pro Forma Combined
Financial Statements, the related pro forma adjustments give appropriate
effect to those assumptions, and the pro forma column reflects the proper
application of those adjustments to the historical financial statement amounts
in the Pro Forma Combined Balance Sheet of Ferrellgas Partners, L.P. as of
April 30, 1994, and the related Pro Forma Combined Statement of Earnings for
the nine-month period ended April 30, 1994, and the year ended July 31, 1993.
DELOITTE & TOUCHE
Kansas City, Missouri
June 3, 1994
F-2
<PAGE>
FERRELLGAS PARTNERS, L.P.
PRO FORMA COMBINED BALANCE SHEET
APRIL 30, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANY PARTNERSHIP
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term invest-
ments......................... $ 88,151 $ 260,314 (A) $ 21,680
(254,001)(B)
(33,679)(C)
(39,105)(D)
Accounts and notes receivable.. 55,869 (500)(D) 55,369
Inventories.................... 29,781 -- 29,781
Prepaid expenses and other cur-
rent assets................... 3,272 -- 3,272
-------- --------- --------
TOTAL CURRENT ASSETS......... 177,073 (66,971) 110,102
Property, plant and equipment.. 295,423 -- 295,423
Intangible assets.............. 65,569 -- 65,569
Investment in Class B redeem-
able common stock of parent... 36,031 (36,031)(D) --
Other assets................... 22,017 (14,857)(B),(C),(D) 7,160
Note receivable from parent.... 4,000 (4,000)(D) --
-------- --------- --------
TOTAL ASSETS................. $600,113 $(121,859) $478,254
======== ========= ========
LIABILITIES AND SPONSOR
EQUITY/PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable............... $ 34,266 $ -- $ 34,266
Current portion of long-term
debt.......................... 1,486 -- 1,486
Accrued interest expense....... 17,237 (17,111)(B),(C) 126
Other current liabilities...... 19,829 -- 19,829
Payable to parent.............. 91 -- 91
-------- --------- --------
TOTAL CURRENT LIABILITIES.... 72,909 (17,111) 55,798
Long-term debt................. 476,471 (209,030)(B),(C) 267,441
Other liabilities.............. 10,534 -- 10,534
Deferred income taxes.......... 9,351 (9,351)(D) --
SPONSOR EQUITY/PARTNERS' CAPITAL:
Equity of sponsor.............. 30,848 260,314 (A) --
(24,641)(B)
(38,597)(C)
(83,443)(D)
(144,481)(E)
PARTNERS' CAPITAL:
Common unitholders............. -- 66,067 (E) 66,067
Subordinated unitholder........ -- 75,524 (E) 75,524
General partner................ -- 2,890 (E) 2,890
-------- --------- --------
TOTAL SPONSOR
EQUITY/PARTNERS' CAPITAL.... 30,848 113,633 144,481
-------- --------- --------
TOTAL LIABILITIES AND SPONSOR
EQUITY/PARTNERS' CAPITAL.... $600,113 $(121,859) $478,254
======== ========= ========
</TABLE>
See notes to pro forma combined financial statements.
F-3
<PAGE>
FERRELLGAS PARTNERS, L.P.
PRO FORMA COMBINED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1993 NINE MONTHS ENDED APRIL 30, 1994
------------------------------------ ------------------------------------
COMPANY PARTNERSHIP COMPANY PARTNERSHIP
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Gas liquids and
related product
sales................ $516,891 $ -- $516,891 $430,401 $ -- $430,401
Other................. 25,054 -- 25,054 20,076 -- 20,076
-------- ------- -------- -------- ------- --------
Total revenues...... 541,945 -- 541,945 450,477 -- 450,477
COSTS AND EXPENSES:
Cost of product sold.. 298,033 -- 298,033 229,326 -- 229,326
Operating............. 139,617 -- 139,617 112,687 -- 112,687
Depreciation and
amortization......... 30,840 -- 30,840 21,688 -- 21,688
General and
administrative....... 10,079 500 (F) 10,579 8,128 375 (F) 8,503
Vehicle leases........ 4,823 -- 4,823 3,203 -- 3,203
-------- ------- -------- -------- ------- --------
Total costs and
expenses........... 483,392 500 483,892 375,032 375 375,407
-------- ------- -------- -------- ------- --------
OPERATING INCOME........ 58,553 (500) 58,053 75,445 (375) 75,070
Loss on disposal of
assets............... (1,153) -- (1,153) (888) -- (888)
Interest income....... 3,266 (2,387)(G) 879 2,791 (1,894)(G) 897
Interest expense...... (60,071) 31,042 (H) (29,029) (44,233) 23,046 (H) (21,187)
-------- ------- -------- -------- ------- --------
EARNINGS BEFORE INCOME
TAXES AND EXTRAORDINARY
ITEM................... 595 28,155 28,750 33,115 20,777 53,892
Income tax expense...... 486 (486)(I) -- 12,759 (12,759)(I) --
-------- ------- -------- -------- ------- --------
EARNINGS FROM CONTINUING
OPERATIONS (BEFORE
EXTRAORDINARY ITEM).... $ 109 $28,641 28,750 $ 20,356 $33,536 53,892
======== ======= ======== =======
GENERAL PARTNER'S
INTEREST IN EARNINGS
FROM CONTINUING
OPERATIONS............. 575 1,078
-------- --------
LIMITED PARTNERS'
INTEREST IN NET
EARNINGS FROM
CONTINUING OPERATIONS.. $ 28,175 $ 52,814
======== ========
EARNINGS FROM CONTINUING
OPERATIONS PER UNIT.... $ 0.93 $ 1.75
======== ========
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING... 30,219 30,219
======== ========
RATIO OF EARNINGS TO
FIXED CHARGES.......... 1.0x 1.7x
======== ========
</TABLE>
See notes to pro forma combined financial statements.
F-4
<PAGE>
FERRELLGAS PARTNERS, L.P. NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
NINE MONTHS ENDED APRIL 30, 1994 AND YEAR ENDED JULY 31, 1993
The pro forma combined financial statements are based upon the historical
financial position and results of operations of Ferrellgas, Inc. and its
subsidiaries ("Ferrellgas"). The propane business of Ferrellgas will be owned
and operated by a newly formed limited partnership (the "Partnership") and
through a separate Operating Partnership (the "Operating Partnership"). Unless
the context otherwise requires, references herein to the Partnership include
the Partnership and the Operating Partnership.
At the closing of the sale of the Common Units offered hereby, Ferrellgas
will convey substantially all of its assets to the Partnership (excluding
cash, receivables from parent and affiliates and an investment in the Class B
Stock of parent) and the Partnership will assume all of the liabilities,
whether known or unknown, associated with the business that are reflected or
should be reflected on the balance sheet of the Company prepared in accordance
with generally accepted accounting principles (excluding income tax
liabilities). In connection with the acquisition of the propane business, the
Partnership will issue Common Units, Subordinated Units and Incentive
Distribution Rights to Ferrellgas, as well as general partner interests in the
Partnership and the Operating Partnership. Ferrellgas will make a dividend of
the Common Units, Subordinated Units and Incentive Distribution Rights to its
parent, Ferrell Companies, Inc.
The Operating Partnership has also agreed with Ferrellgas to be primarily
responsible for all obligations of Ferrellgas under the approximately
$477,957,000 of Ferrellgas long-term debt outstanding as of April 30, 1994.
Substantially all of this long-term debt will be retired with the net proceeds
from the sale by the Partnership of the Common Units offered hereby (estimated
to be approximately $260,314,000), and the net proceeds from the issuance of
an aggregate principal amount of Senior Notes due 2001 (the "Senior Notes")
(estimated to be approximately $245,250,000 and assuming a fixed interest rate
of 9.75%) to be issued by the Operating Partnership concurrent with the
closing of this offering. It is possible, however, that a portion of the
Senior Notes, not anticipated to be in excess of $50,000,000, will bear
interest at a floating rate.
The following pro forma adjustments have been prepared as if the
transactions to be effected at the closing of this offering (assuming that the
Underwriters' overallotment option is not exercised) had taken place on April
30, 1994, in the case of the pro forma consolidated balance sheet, or as of
August 1, 1992, in the case of the pro forma consolidated statement of income
for the year ended July 31, 1993, or as of August 1, 1993 in the case of the
pro forma consolidated statement of income for the nine months ended April 30,
1994. The adjustments are based upon currently available information and
certain estimates and assumptions, and therefore the actual adjustments may
differ from the pro forma adjustments. However, management believes that the
assumptions provide a reasonable basis for presenting the significant effects
of the transactions as contemplated and that the pro forma adjustments give
appropriate effect to those assumptions and are properly applied in the pro
forma financial information.
(A) Reflects the net proceeds to the Partnership of approximately
$260,314,000 from the issuance and sale of 13,100,000 Common Units at an
assumed offering price of $21.375 per Common Unit, net of the Underwriters'
discount (estimated to be $18,202,000) and offering expenses (estimated to be
$1,500,000).
(B) Reflects the retirement of $227,600,000 in aggregate principal amount of
Existing Senior Notes and the related accrued interest of $6,051,000 and
defeasance interest of $814,000, from the net proceeds from the sale by the
Partnership of the Common Units and existing cash balances of the Partnership.
The early extinguishment of the Existing Senior Notes results in an
extraordinary loss of approximately $24,641,000, resulting from prepayment
premiums of $19,536,000, the write-off of unamortized financing costs of
$4,291,000, and defeasance interest of $814,000.
F-5
<PAGE>
(C) Reflects the net proceeds to the Partnership of approximately
$245,250,000 from the issuance of $250,000,000 of Senior Notes, net of the
Underwriters' discount (estimated to be $4,250,000) and offering expenses
(estimated to be $500,000) by the Partnership concurrent with the offering
made hereby, and the proceeds from term loan borrowings on the Partnership's
Credit Facility of approximately $15,000,000 (anticipated to be approximately
$10,000,000 at closing). The net proceeds from the issuance of the Senior
Notes and existing cash balances of the Partnership are used to retire the
$250,000,000 face amount (carrying amount of $246,430,000) Existing
Subordinated Debentures and related accrued interest of $11,060,000. The early
extinguishment of the Existing Subordinated Debentures results in an
extraordinary loss of approximately $38,597,000 resulting from subordinated
bondholder consent solicitation and tender offer fees of $31,250,000, write-
off of unamortized note discount of $3,570,000, and write-off of unamortized
financing costs of $3,777,000. The Operating Partnership will incur estimated
additional financing costs of approximately $6,369,000 in connection with the
issuance of the Senior Notes and entrance into the Credit Facility, each of
which will be deferred and amortized over the term of the indebtedness.
(D) Reflects elimination of the assets, liabilities and equity of the
Company that will not be conveyed to the Partnership, including approximately
$39,105,000 of cash, receivables from parent and affiliates of $17,658,000,
investment in Class B Stock of Ferrell of $36,031,000, income tax liabilities
of $9,351,000 and equity of the Company of $83,443,000.
(E) Reflects the allocation of Partnership equity resulting from the
completion of the transactions associated with the closing of this offering,
using the following relative partnership interests: (1) effective general
partner interest in the Partnership equal to 2% of total partners' capital;
(2) Common Units equal to an approximate 45.7% limited partner interest; and
(3) Subordinated Units equal to an approximate 52.3% limited partner interest
in the Partnership.
(F) Reflects estimated incremental general and administrative costs (e.g.
costs of tax return preparation and annual and quarterly reports to
Unitholders, investor relations and registrar and transfer agent fees)
associated with the Partnership at an annual rate of $500,000.
(G) Reflects the reduction of interest income to the Partnership as a result
of the reduction in cash balances available for short-term investment
opportunity.
(H) Reflects the adjustment to interest expense resulting from the
transactions described in (B) and (C) above, reconciled as follows (in
thousands):
<TABLE>
<CAPTION>
NINE
YEAR MONTHS
ENDED ENDED
JULY 31, APRIL 30,
1993 1994
-------- ---------
<S> <C> <C>
Historical interest expense attributable to retired debt:
Interest expense on senior notes......................... $ 26,741 $18,923
Interest expense on subordinated debentures.............. 29,063 21,797
Amortization of note discount and financing costs........ 2,577 2,157
-------- -------
58,381 42,877
-------- -------
Pro forma interest expense applicable to the Partnership:
Interest expense assuming 9.75% per annum on the Senior
Notes................................................... (24,375) (18,281)
Amortization of note discount and financing costs on all
indebtedness............................................ (912) (684)
Interest expense attributable to Credit Facility......... (2,052) (866)
-------- -------
(27,339) (19,831)
-------- -------
Pro forma interest expense reductions.................... $ 31,042 $23,046
======== =======
</TABLE>
If the fixed interest rate on the Senior Notes were to fluctuate one-half of
one percent, pro forma interest expense would fluctuate approximately
$1,250,000, for the year ended July 31, 1993 and approximately $938,000 for
the nine months ended April 30, 1994.
(I) Reflects the elimination of the provision for current and deferred
income taxes as income taxes will be borne by the partners and not the
Partnership.
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ferrellgas Partners, L.P.
Liberty, Missouri
We have audited the accompanying balance sheet of Ferrellgas Partners, L.P.,
as of April 27, 1994. This financial statement is the responsibility of the
Partnership's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of Ferrellgas Partners, L.P. as of April 27,
1994 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
Kansas City, Missouri
April 27, 1994
F-7
<PAGE>
FERRELLGAS PARTNERS, L.P.
BALANCE SHEET
APRIL 27, 1994
<TABLE>
<S> <C>
ASSETS
Cash.................................................................. $1,000
------
Total Assets........................................................ $1,000
======
PARTNERS' CAPITAL
General Partner....................................................... $ 10
Limited Partner....................................................... 990
------
Total Partners' Capital............................................. $1,000
======
</TABLE>
See note to balance sheet.
F-8
<PAGE>
FERRELLGAS PARTNERS, L.P.
NOTE TO BALANCE SHEET
APRIL 27, 1994
Ferrellgas Partners, L.P. (the "Partnership") was formed April 19, 1994 as a
Delaware limited partnership. The Partnership was formed to acquire, own and
operate substantially all of the assets of Ferrellgas, Inc. through
Ferrellgas, L.P. (the "Operating Partnership") in which the Partnership will
hold a 98.9899% limited partner interest and Ferrellgas, Inc. holds a 1.0101%
general partner interest. Ferrellgas, Inc. will convey substantially all of
its assets to the Operating Partnership (excluding cash, receivables from
parent and affiliates and an investment in the Class B Stock of Parent) and
all of the liabilities, whether known or unknown, associated with such assets
(other than income tax liabilities). The Partnership has not commenced
operations. The Partnership intends to offer Common Units, representing
limited partner interests in the Partnership, to third parties and to
concurrently issue Common Units, Subordinated Units and Incentive Distribution
Rights, representing additional limited partner interests in the Partnership,
to the general partner of the Partnership, Ferrellgas, Inc.
Ferrellgas, Inc., as general partner, contributed $10 and the organizational
limited partner contributed $990 to the Partnership on April 27, 1994. There
have been no other transactions involving the Partnership as of April 27,
1994.
F-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ferrellgas, Inc.
Liberty, Missouri
We have audited the accompanying consolidated balance sheet of Ferrellgas,
Inc. (a wholly owned subsidiary of Ferrell Companies, Inc.) and subsidiaries
as of April 30, 1994 and July 31, 1993 and 1992, and the related consolidated
statements of operations, stockholder's equity and cash flows for the nine
months ended April 30, 1994 and for each of the three years in the period
ended July 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Ferrellgas, Inc. and
subsidiaries as of April 30, 1994 and July 31, 1993 and 1992, and the results
of their operations and their cash flows for the nine months ended April 30,
1994 and for each of the three years in the period ended July 31, 1993, in
conformity with generally accepted accounting principles.
As discussed in Note J to the consolidated financial statements, the
Internal Revenue Service has proposed certain adjustments to the Company's
consolidated income tax returns for the years ended July 31, 1987 and 1986.
The ultimate outcome of this matter cannot presently be determined.
Accordingly, no provision for any loss that may result upon resolution of this
matter has been made in the accompanying consolidated financial statements.
DELOITTE & TOUCHE
Kansas City, Missouri
June 3, 1994
F-10
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JULY 31,
APRIL 30, ------------------
ASSETS 1994 1993 1992
------ --------- -------- --------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................... $ 58,806 $ 32,706 $ 27,959
Short-term investments......................... 29,345 25,040 23,165
Accounts and notes receivable including related
party
(1994--$500; 1993--$500; 1992--$1,000), less
allowance for doubtful accounts (1994--$884;
1993--$607; 1992--$837)....................... 55,869 52,190 53,802
Inventories.................................... 29,781 23,652 33,881
Prepaid expenses and other current assets...... 3,272 1,898 3,020
Receivable from parent and affiliate........... -- 916 26
-------- -------- --------
TOTAL CURRENT ASSETS......................... 177,073 136,402 141,853
Property, plant and equipment.................... 295,423 303,816 313,126
Intangible assets................................ 65,569 72,537 82,448
Other assets, including notes receivable from
related parties
(1994--$13,158; 1993--$10,909; 1992--$10,088)... 22,017 21,833 23,137
Investment in Class B redeemable common stock of
parent.......................................... 36,031 36,031 32,813
Deferred income taxes............................ -- 2,757 2,094
Note receivable from parent...................... 4,000 -- 3,142
-------- -------- --------
TOTAL ASSETS................................. $600,113 $573,376 $598,613
======== ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable............................... $ 34,266 $ 32,946 $ 44,864
Other current liabilities...................... 38,552 29,048 29,016
Payable to parent.............................. 91 -- --
-------- -------- --------
TOTAL CURRENT LIABILITIES.................... 72,909 61,994 73,880
Long-term debt................................... 476,471 489,589 501,614
Other liabilities................................ 10,534 10,434 8,907
Payable to parent................................ -- -- 2,542
Note and accrued interest payable to parent and
affiliate....................................... -- -- 2,862
Deferred income taxes............................ 9,351 -- --
STOCKHOLDER'S EQUITY:
Common stock, one dollar par value; 10,000
shares authorized; 990 shares issued.......... 1 1 1
Additional paid-in capital..................... 32,863 32,863 29,535
Accumulated deficit............................ (2,016) (21,505) (20,728)
-------- -------- --------
TOTAL STOCKHOLDER'S EQUITY................... 30,848 11,359 8,808
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY... $600,113 $573,376 $598,613
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEAR ENDED JULY
ENDED 31,
---------------------- ----------------------------
APRIL 30, APRIL 30,
1994 1993 1993 1992 1991
--------- ----------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Gas liquids and related
products.............. $430,401 $448,269 $516,891 $480,088 $515,507
Other.................. 20,076 20,033 25,054 21,041 28,426
-------- -------- -------- -------- --------
Total revenues....... 450,477 468,302 541,945 501,129 543,933
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Cost of products sold.. 229,326 256,736 298,033 267,279 297,968
Operating.............. 112,687 112,553 139,617 134,165 129,684
Depreciation and amor-
tization.............. 21,688 23,238 30,840 31,196 36,151
General and administra-
tive.................. 8,128 7,385 10,079 7,561 12,953
Vehicle leases......... 3,203 3,682 4,823 4,520 4,132
-------- -------- -------- -------- --------
Total costs and ex-
penses.............. 375,032 403,594 483,392 444,721 480,888
-------- -------- -------- -------- --------
OPERATING INCOME......... 75,445 64,708 58,553 56,408 63,045
Loss on disposal of
assets.................. (888) (947) (1,153) (1,959) (2,842)
Interest income,
including related
parties ($787 and $539
at April 30, 1994 and
1993, respectively;
$725, $890, and $696 at
July 31, 1993, 1992 and
1991, respectively)..... 2,791 2,333 3,266 4,401 3,841
Interest expense,
including parent and
affiliate ($114 at April
30, 1993; $153, $180 and
$238 at July 31, 1993,
1992, and 1991,
respectively)........... (44,233) (45,056) (60,071) (61,219) (60,507)
-------- -------- -------- -------- --------
Earnings (loss) before
income taxes and
extraordinary loss...... 33,115 21,038 595 (2,369) 3,537
Income tax expense (bene-
fit).................... 12,759 8,253 486 (669) 1,558
-------- -------- -------- -------- --------
Earnings (loss) before
extraordinary loss...... 20,356 12,785 109 (1,700) 1,979
Extraordinary loss on
early extinguishment of
debt, net of income
taxes ($531 at April 30,
1994; $543 and $6,116 at
July 31, 1993 and 1992,
respectively)........... 867 -- 886 9,979 --
-------- -------- -------- -------- --------
NET EARNINGS (LOSS)...... $ 19,489 $ 12,785 $ (777) $(11,679) $ 1,979
======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL TOTAL
COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES STOCK CAPITAL DEFICIT EQUITY
--------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AUGUST 1, 1990... 990 $ 1 $22,490 $(11,028) $ 11,463
Capital contribution from
parent................... -- -- 6,687 -- 6,687
Capital transaction--
Ferrell Companies, Inc.
Long-Term Incentive
Plan.................... -- -- 1,558 -- 1,558
Net earnings............. -- -- -- 1,979 1,979
--- ------ ------- -------- --------
BALANCE JULY 31, 1991.... 990 1 30,735 (9,049) 21,687
Capital transaction--
Ferrell Companies, Inc.
Long-Term Incentive
Plan.................... -- -- (1,200) -- (1,200)
Net loss................. -- -- -- (11,679) (11,679)
--- ------ ------- -------- --------
BALANCE JULY 31, 1992.... 990 1 29,535 (20,728) 8,808
Capital contribution from
parent.................. -- -- 3,277 -- 3,277
Capital transaction --
Ferrell Companies, Inc.
Long-Term Incentive
Plan.................... -- -- 51 -- 51
Net loss................. -- -- -- (777) (777)
--- ------ ------- -------- --------
BALANCE JULY 31, 1993.... 990 1 32,863 (21,505) 11,359
Net earnings............. -- -- -- 19,489 19,489
--- ------ ------- -------- --------
BALANCE APRIL 30, 1994... 990 $ 1 $32,863 $ (2,016) $ 30,848
=== ====== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED FOR THE YEAR ENDED JULY 31,
--------------------- -----------------------------
APRIL 30, APRIL 30,
1994 1993 1993 1992 1991
--------- ----------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Earnings (loss) before
extraordinary loss..... $20,356 $12,785 $ 109 $ (1,700) $ 1,979
Reconciliation of
earnings (loss) to net
cash provided by
operating activities:
Depreciation and
amortization......... 21,688 23,238 30,840 31,196 36,151
Other................. 4,127 4,664 5,236 7,007 8,141
Decrease (increase) in
assets:
Accounts and notes
receivable......... (4,610) (4,023) (252) (1,475) (10,001)
Inventories......... (6,129) 13,730 10,229 (12,447) (4,620)
Prepaid expenses and
other current
assets............. (1,374) 206 977 (801) (218)
Increase (decrease) in
liabilities:
Accounts payable.... 1,320 (23,323) (11,918) 3,742 7,851
Other current
liabilities........ 10,278 11,959 1,729 (1,912) 9,780
Other liabilities... (49) 151 131 325 871
Deferred income
taxes.............. 12,639 7,694 (120) (970) 1,006
------- ------- -------- --------- --------
Net cash provided by
operating activities..... 58,246 47,081 36,961 22,965 50,940
------- ------- -------- --------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures.... (8,330) (11,816) (14,188) (20,392) (25,942)
Net short-term
investment activity.... (4,305) (25,894) (1,875) (23,165) --
Proceeds from asset
sales.................. 643 1,670 1,983 3,040 1,315
Net additions to
intangible assets...... (62) (1) (82) (3,175) (9,619)
Net reductions
(additions) to other
assets................. (271) (2) 1 (520) (14)
------- ------- -------- --------- --------
Net cash used in investing
activities............... (12,325) (36,043) (14,161) (44,212) (34,260)
------- ------- -------- --------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Additions to long-term
debt................... -- -- 81 246,804 3,202
Reductions of long-term
debt................... (13,336) (1,863) (12,796) (212,637) (2,964)
Additional payments to
retire debt............ (1,190) -- (1,195) (11,983) --
Additions to financing
costs.................. (53) (24) (627) (4,918) (644)
Investment in Class B
redeemable common stock
of parent.............. -- (3,218) (3,218) (9,092) (7,249)
Net advances to related
party.................. (2,249) 585 (59) (3,832) (2,756)
Net advances from (to)
parent and affiliates.. (2,993) (274) (239) (2,907) 718
------- ------- -------- --------- --------
Net cash provided by (used
in) financing activities. (19,821) (4,794) (18,053) 1,435 (9,693)
------- ------- -------- --------- --------
Increase (decrease) in
cash and cash
equivalents.............. 26,100 6,244 4,747 (19,812) 6,987
Cash and cash
equivalents--beginning of
year..................... 32,706 27,959 27,959 47,771 40,784
------- ------- -------- --------- --------
CASH AND CASH
EQUIVALENTS--END OF
PERIOD................... $58,806 $34,203 $ 32,706 $ 27,959 $ 47,771
======= ======= ======== ========= ========
</TABLE>
See notes to consolidated financial statements.
F-14
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED)
AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
A. BASIS OF PRESENTATION:
The accompanying consolidated financial statements and related notes present
the consolidated financial position, results of operations and cash flows of
Ferrellgas, Inc. (the "Company") and its subsidiaries. The Company is a
wholly-owned subsidiary of Ferrell Companies, Inc. ("Ferrell" or "Parent").
These consolidated financial statements are prepared in connection with the
proposed public offering of limited partner interests in Ferrellgas Partners,
L.P. (the "Partnership"), as described in Note B.
B. INITIAL PUBLIC OFFERING OF COMMON UNITS AND OTHER TRANSACTIONS
The Partnership was formed April 19, 1994, as a Delaware limited
partnership. The Partnership was formed to acquire, own and operate the
propane business and substantially all of the assets of the Company. In order
to simplify the Partnership's obligations under the laws of several
jurisdictions in which the Partnership will conduct business, the
Partnership's activities will be conducted through a subsidiary operating
partnership, Ferrellgas, L.P. (the "Operating Partnership"). The Company will
convey substantially all of the assets to the Partnership (excluding cash,
payables to or receivables from parent and affiliates and an investment in
Class B Stock of Parent) and all of the liabilities, whether known or unknown,
associated with such assets (other than income tax liabilities).
The Partnership intends to offer 13,100,000 Common Units, representing
limited partner interests in the Partnership, to third parties and to
concurrently issue Common Units, Subordinated Units and Incentive Distribution
Rights, representing additional limited partner interests in the Partnership,
to the Company, as well as a 2% general partner interest in the Partnership
and the Operating Partnership, on a combined basis. The Company will make a
dividend of such Common Units, Subordinated Units and Incentive Distribution
Rights to its parent, Ferrell.
The Operating Partnership will assume the payment obligations of the Company
under its Series A and Series C Floating Rate Senior Notes due 1996 (the
"Existing Floating Rate Notes"), its Series B and Series D Fixed Rate Senior
Notes (the "Existing Fixed Rate Notes" and together with the Existing Floating
Rate Notes the "Existing Senior Notes") and its 11 5/8% Senior Subordinated
Debentures (the "Existing Subordinated Debentures"). All of this long-term
debt will be retired with the net proceeds from the sale by the Partnership of
the Common Units offered and the net proceeds from the issuance of
approximately $250,000,000 in aggregate principal amount of Senior Notes due
2001 to be issued by the Operating Partnership concurrently with the closing
of this offering.
Concurrent with the closing of the offering of Common Units, the Company
will consummate a tender offer and consent solicitation with respect to the
Existing Subordinated Debentures. The consent solicitation is necessary to
modify the indenture related to the Existing Subordinated Debentures in order
to permit the Company to consummate the transactions contemplated by this
Prospectus. As of June 3, 1994, all of the outstanding Existing Subordinated
Debentures have been tendered for repurchase and will be retired by the
Operating Partnership, as described above.
F-15
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED)
AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
Concurrent with the closing of this offering, the Company will mail to the
holders of the Existing Senior Notes a notice of redemption of all outstanding
Existing Senior Notes, pursuant to the optional redemption provisions of the
indenture governing the Existing Senior Notes (the "Existing Senior Notes
Indenture"). The redemption date will be 30 days after the date of mailing of
such notice. The Existing Senior Notes Indenture provides for a redemption
price equal to 100% of the principal amount plus accrued and unpaid interest,
if any, to the redemption date plus, in the case of the Existing Fixed Rate
Notes, a premium which is based on certain yield information for U.S. Treasury
securities as of three business days prior to the redemption date. The
Operating Partnership will deposit with the trustee on the date of closing of
this offering an amount expected to be more than sufficient to pay the
redemption price. As a result of the transactions contemplated hereby, during
the 30-day period prior to the redemption date, an event of default will exist
under the Existing Senior Notes Indenture. The holders of at least 25% of the
principal amount of Existing Senior Notes, therefore, will be entitled, by
notice to the Company and the trustee, to declare the unpaid principal of, and
accrued and unpaid interest and the applicable premium on, the Existing Senior
Notes to be immediately due and payable. In the event of such a declaration,
the amount already deposited by the Operating Partnership in payment of the
redemption price would be applied to pay the amount so declared immediately
due and payable.
C. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(1) PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany profits, transactions and
balances have been eliminated.
The interim financial data for the nine months ended April 30, 1994, is
audited. The interim financial data for the nine months ended April 30, 1993,
is unaudited; however, in the opinion of management, the 1993 interim data
reflects all adjustments, consisting only of normal, recurring adjustments,
necessary for a fair statement of the results of the interim period presented.
The propane industry is seasonal in nature with peak activity during the
winter months. Therefore, the results of operations for the nine months ended
April 30, 1994 and 1993, are not indicative of the results to be expected for
a full fiscal year.
(2) RECLASSIFICATIONS:
Certain reclassifications have been made to the 1992 consolidated balance
sheet and the 1993, 1992 and 1991 consolidated statement of cash flows in
order to conform with the 1994 and 1993 presentation.
(3) SHORT-TERM INVESTMENTS:
Short-term investments consist of U.S. Treasury Bills and U.S. government
obligations with remaining maturities as of April 30, 1994, ranging from
approximately four to ten months. Short-term investments are carried at cost
which approximates market value.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 115--Accounting for Certain Investments in Debt and
Equity Securities, which is
F-16
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED)
AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
effective for fiscal years beginning after December 15, 1993. The statement
addresses the accounting and reporting for certain investments in debt and
equity securities and expands the use of fair value accounting for those
securities but retains the use of the amortized cost method for investments
that the Company has the positive intent and ability to hold to maturity. The
Company does not believe that the adoption of this statement will have a
material effect on the results of operations or financial condition of the
Company.
(4) INVENTORIES:
Inventories are stated at the lower of cost or market using average cost and
actual cost methods.
The Company enters into forward purchase/sale agreements and options
involving propane and related products which are for trading purposes. To the
extent such contracts are entered into at fixed prices and thereby subject the
Company to market risk, the contracts are accounted for on a mark-to-market
basis.
(5) PROPERTY, PLANT AND EQUIPMENT AND OTHER NONCURRENT ASSETS:
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are computed by
the straight-line method over the estimated useful lives of the assets ranging
from two to thirty years. Expenditures for maintenance and routine repairs are
expensed as incurred.
On August 1, 1991, the Company revised the estimated useful lives of storage
tanks from twenty to thirty years in order to more closely reflect expected
useful lives of the assets. The effect of this change in accounting estimate
resulted in a favorable impact on loss before extraordinary loss of $3,763,000
for the year ended July 31, 1992.
Intangible assets, consisting primarily of customer location values and
goodwill, are stated at cost, net of amortization computed on the straight-
line method over fifteen years for customer location values and forty years
for goodwill. The Company evaluates its intangible assets for impairment by
calculating the anticipated cash flow attributable to each acquisition over
its expected remaining life. Such expected cash flows, on an undiscounted
basis, are compared to the carrying value of the tangible and intangible
assets, and if impairment is indicated, the carrying value of the intangible
assets are adjusted. Accumulated amortization of intangible assets totaled
$66,211,000 as of April 30, 1994, and $59,181,000 and $49,188,000 as of July
31, 1993 and 1992, respectively.
Other assets consist primarily of non-current notes receivable and deferred
financing costs. The deferred financing costs are amortized using the
effective interest method over the terms of the respective debt agreements.
Accumulated amortization of other assets totaled $9,401,000 as of April 30,
1994 and $7,592,000 and $5,286,000 as of July 31, 1993 and 1992, respectively.
F-17
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED)
AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
(6) INCOME TAXES:
The Company files a consolidated Federal income tax return with its parent
and affiliates. Income taxes are computed as though each company filed its own
income tax return in accordance with the Company's tax sharing agreement.
Deferred income taxes are provided as a result of temporary differences
between financial and tax reporting as described in NOTE I.
Effective August 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109--Accounting for Income Taxes. The adoption
of this statement changed the Company's method of accounting for income taxes
from the deferred method, under APB 11, to the asset/liability method. Under
SFAS No. 109, deferred income taxes are recognized for the tax consequences of
temporary differences between the financial statement carrying amounts and the
tax basis of existing assets and liabilities. The statement was adopted on a
prospective basis and prior year amounts are not restated. The fiscal year
1993 and cumulative effects of adopting the statement as of August 1, 1992,
did not have a material impact on earnings or cash flow and is therefore not
disclosed separately.
(7) CONSOLIDATED STATEMENT OF CASH FLOWS:
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid, debt instruments purchased with a maturity of
three months or less to be cash equivalents.
Interest paid totaled $35,062,000 and $35,853,000 for the nine months ended
April 30, 1994 and 1993, respectively, and $57,563,000, $59,054,000, and
$51,518,000 for the three fiscal years ended July 31, 1993, 1992 and 1991,
respectively.
In 1993 and 1991, the Company received capital contributions, as described
in NOTE M, from its parent.
In connection with the early extinguishment of certain senior notes in 1994
and 1993 and the refinancing of subordinated debentures in 1992, as described
in NOTE H, the Company recorded noncash extraordinary losses from the write-
off of financing costs, net of income tax benefits, of $129,000, $145,000 and
$2,550,000, respectively.
D. INVENTORIES:
<TABLE>
<CAPTION>
APRIL JULY 31,
30, ---------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Liquified propane gas and related products............. $25,055 $19,378 $29,658
Appliances, parts and supplies......................... 4,726 4,274 4,223
------- ------- -------
$29,781 $23,652 $33,881
======= ======= =======
</TABLE>
In addition to inventories on hand, the Company enters into contracts to buy
product for supply purposes. All such contracts have terms of less than one
year and call for payment based on market prices at date of delivery.
F-18
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED)
AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
E. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
JULY 31,
APRIL -----------------
30, 1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and improvements................................ $ 18,517 $ 18,459 $ 17,150
Buildings and improvements........................... 22,860 23,001 20,339
Vehicles............................................. 37,229 37,564 39,205
Furniture and fixtures............................... 17,368 16,402 14,194
Bulk equipment and market facilities................. 33,276 33,612 32,051
Tanks and customer equipment......................... 316,801 314,127 313,634
Other................................................ 2,846 1,456 99
-------- -------- --------
448,897 444,621 436,672
Less accumulated depreciation and amortization....... 153,474 140,805 123,546
-------- -------- --------
$295,423 $303,816 $313,126
======== ======== ========
</TABLE>
F. INVESTMENT IN CLASS B REDEEMABLE COMMON STOCK OF PARENT:
The investment in Class B redeemable common stock of parent represents all
of the authorized and issued shares of the parent's Class B redeemable common
stock. All shares were purchased from unrelated parties and are recorded at
historical cost. It is the intent of the parent to repay the Company the full
amount of its investment in Class B redeemable common stock with funds from
sources other than the Company. Upon redemption by the parent, the difference,
if any, between the Company's cost and the redemption amount received from the
parent will be recorded as a capital contribution from or dividend to the
parent.
G. OTHER CURRENT LIABILITIES:
<TABLE>
<CAPTION>
APRIL JULY 31,
30, ---------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt...................... $ 1,486 $ 1,766 $ 1,912
Accrued insurance...................................... 7,996 8,846 10,515
Accrued interest....................................... 17,237 10,374 10,759
Accrued payroll........................................ 7,924 3,273 2,122
Other.................................................. 3,909 4,789 3,708
------- ------- -------
$38,552 $29,048 $29,016
======= ======= =======
</TABLE>
F-19
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED)
AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
H. LONG-TERM DEBT:
<TABLE>
<CAPTION>
APRIL JULY 31,
30, -----------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed rate senior notes, interest at 12%, due in
August 1996........................................ $177,600 $189,500 $200,000
Floating rate senior notes, interest at applicable
LIBOR rate plus 2.25% (5.5% at April 30, 1994), due
in August 1996..................................... 50,000 50,000 50,000
Senior subordinated debentures, interest at 11 5/8%,
$250,000,000 face amount, due in December 2003..... 246,430 246,293 246,293
Notes payable, including approximately $2,329,000,
$2,975,000 and $3,848,000 secured by property and
equipment, interest rates ranging from noninterest-
bearing to 12%, due on various dates through 2001.. 3,927 5,562 7,233
-------- -------- --------
477,957 491,355 503,526
Less current portion................................ 1,486 1,766 1,912
-------- -------- --------
$476,471 $489,589 $501,614
======== ======== ========
</TABLE>
For the nine months ended April 30, 1994, the Company reacquired $11,900,000
of its fixed rate senior notes, at an approximate price of 110.00% of face
value together with accrued interest. The early extinguishment of senior notes
resulted in an extraordinary loss from debt premium and write-off of financing
costs of approximately $867,000, net of income tax benefit of $531,000.
In fiscal year 1993, the Company reacquired $10,500,000 of its fixed rate
senior notes, at an approximate aggregate price of 111.35% of face value,
together with accrued interest. The early extinguishment of senior notes
resulted in an extraordinary loss from debt premium and write-off of financing
costs of approximately $886,000, net of income tax benefit of $543,000.
In December 1991, the Company issued, at 98.418% of face value, $250,000,000
of 11 5/8% senior subordinated debentures due 2003. A portion of the proceeds
was used to acquire the Company's existing subordinated debt, together with a
prepayment premium, leaving the remainder available to finance future
acquisitions and for additional working capital purposes. The refinancing of
the subordinated debt resulted in an extraordinary loss from prepayment
premium and write-off of financing costs of approximately $9,979,000, net of
income tax benefit of $6,116,000.
The Company currently has a $50,000,000 bank credit facility which
terminates July 31, 1995. The facility provides for a working capital facility
and a letter of credit facility. At April 30, 1994, there were no borrowings
outstanding under the working capital facility and letters of credit
outstanding under the letter of credit facility, which are used primarily to
secure obligations under certain insurance and leasing arrangements, totaled
$32,778,000. Such letters of credit reduce the amount otherwise available for
borrowings under the facility.
The various agreements for the senior notes and bank credit facility have
similar requirements for maintaining certain working capital and net worth
amounts and meeting interest coverage tests. These
F-20
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED)
AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
loan agreements and the senior subordinated debentures also place various
limitations on the Company, the most restrictive relating to additional
indebtedness and guarantees, sale and disposition of assets, intercompany
transactions, common stock issuance, and essentially prohibit the payment of
dividends. The Company is in compliance with all requirements, tests,
limitations and covenants related to the senior notes and bank credit
facility. The senior notes and bank credit agreement are collateralized by the
stock of the Company.
Annual principal payments on long-term debt for each of the next five fiscal
years are $1,486,000 in 1995, $1,022,000 in 1996, $227,884,000 in 1997,
$125,000 in 1998 and $94,000 in 1999.
I. INCOME TAXES:
Income tax expense (benefit) consists of (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED FOR THE YEAR ENDED
APRIL 30, JULY 31,
--------------- ----------------------
1994 1993 1993 1992 1991
------- ------ ----- ------- ------
<S> <C> <C> <C> <C> <C>
Current.................................. $ 120 $ 559 $ 606 $ 301 $ 552
Deferred................................. 12,108 7,694 (663) (7,086) 1,006
------- ------ ----- ------- ------
$12,228 $8,253 $ (57) $(6,785) $1,558
======= ====== ===== ======= ======
Allocated to:
Operating activities................... $12,759 $8,253 $ 486 $ (669) $1,558
Extraordinary loss..................... (531) -- (543) (6,116) --
------- ------ ----- ------- ------
$12,228 $8,253 $ (57) $(6,785) $1,558
======= ====== ===== ======= ======
</TABLE>
Deferred taxes result from temporary differences in the recognition of
income and expense for tax and financial statement purposes. The significant
temporary differences and related deferred tax provision (benefit) are as
follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED FOR THE YEAR ENDED JULY
APRIL 30, 31,
--------------- --------------------------
1994 1993 1993 1992 1991
------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Depreciation expense.............. $ (49) $1,175 $ 1,568 $ 7,010 $ 19,555
Net operating loss................ 12,584 6,712 (1,975) (9,055) (15,539)
Net cash, accrual and other
differences...................... (794) (564) (752) (5,427) (3,260)
Amortization...................... 367 371 496 386 250
------- ------ ------- ------- --------
$12,108 $7,694 $ (663) $(7,086) $ 1,006
======= ====== ======= ======= ========
</TABLE>
For Federal income tax purposes, the Company has net operating loss
carryforwards of approximately $187,000,000 at April 30, 1994 available to
offset future taxable income. These net operating loss carryforwards expire at
various dates through 2009.
F-21
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED)
AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
A reconciliation between the effective tax rate and the statutory Federal
rate follows (amounts in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED APRIL
30, FOR THE YEAR ENDED JULY 31,
-------------------------- ------------------------------------------
1994 1993 1993 1992 1991
------------- ----------- ------------- -------------- -----------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------- ---- ------ ---- ------ ----- ------- ----- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income tax expense (ben-
efit) at statutory
rate................... $11,100 35.0 $7,153 34.0 $(284) (34.0) $(6,278) (34.0) $1,202 34.0
Statutory surtax........ (317) (1.0) -- -- -- -- -- -- -- --
State income taxes, net
of Federal benefit..... 1,402 4.4 970 4.6 182 21.8 (518) (2.7) 310 8.7
Nondeductible meal and
entertainment expense.. 30 .1 27 .1 36 4.3 42 .2 41 1.2
Other................... 13 -- 103 .5 9 1.1 (31) (.2) 5 .1
------- ---- ------ ---- ----- ----- ------- ----- ------ ----
$12,228 38.5 $8,253 39.2 $ (57) (6.8) $(6,785) (36.7) $1,558 44.0
======= ==== ====== ==== ===== ===== ======= ===== ====== ====
</TABLE>
The significant components of the net deferred tax asset (liability)
included in the Consolidated Balance Sheets are as follows (in thousands):
<TABLE>
<CAPTION>
APRIL
30, JULY 31,
1994 1993
-------- --------
<S> <C> <C>
DEFERRED TAX LIABILITIES:
Differences between book and tax basis of property and
intangible assets....................................... $(98,788) $(86,533)
Other.................................................... -- (3,267)
-------- --------
Total deferred tax liabilities......................... (98,788) (89,800)
DEFERRED TAX ASSETS:
Operating loss carryforwards............................. 72,871 85,790
Reserves not currently deductible........................ 14,764 6,767
Other.................................................... 1,802 --
-------- --------
Total deferred tax assets.............................. 89,437 92,557
-------- --------
Net deferred tax asset (liability)......................... $ (9,351) $ 2,757
======== ========
</TABLE>
J. CONTINGENCIES AND COMMITMENTS:
The Company is threatened with or named as a defendant in various lawsuits
which, among other items, claim damages for product liability. It is not
possible to determine the ultimate disposition of these matters; however,
after taking into consideration the Company's insurance coverage and its
existing reserves, management is of the opinion that there are no known
uninsured claims or known contingent claims that are likely to have a material
adverse effect on the results of operations or financial condition of the
Company.
The Internal Revenue Service ("IRS") has examined the Company's consolidated
income tax returns for the years ended July 31, 1987 and 1986, and has
proposed certain adjustments which relate principally to the purchase price
allocations for an acquisition made during 1987. The IRS has proposed to
disallow $61 million of deductions taken or to be taken for depreciation of
customer tanks
F-22
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED)
AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
for which the Company asserts the methods and principles used during the
valuation of the customer tanks are defensible. Also, the IRS has proposed to
disallow $90 million of deductions for amortization of customer relationships
taken or to be taken in the Company's consolidated income tax returns. On
April 20, 1993, the United States Supreme Court held in Newark Morning Ledger
v. United States that a taxpayer may amortize customer based intangibles if
that taxpayer can prove such intangibles are capable of being valued and the
value diminishes over time. The Company contends it has met this burden of
proof and feels this recent Supreme Court decision supports the positions
taken during the Company's allocation of purchase price to customer
relationships. The Company intends to vigorously defend against these proposed
adjustments and is in the process of protesting these adjustments through the
appeals process of the IRS. At this time, it is not possible to determine the
ultimate resolution of this matter.
Certain property and equipment is leased under noncancellable operating
leases which require fixed monthly rental payments and which expire at various
dates through 2016. Rental expense under these leases totalled $7,822,000 and
$8,379,000 for the nine months ended April 30, 1994 and 1993, respectively,
and $10,903,000, $10,317,000, and $9,334,000 for the three fiscal years ended
July 31, 1993, 1992 and 1991. Future minimum lease commitments for such leases
are $7,939,000 in 1995, $5,703,000 in 1996, $3,694,000 in 1997, $1,707,000 in
1998, and $441,000 in 1999.
K. EMPLOYEE BENEFITS:
The Company and its parent have a defined contribution profit-sharing plan
which covers substantially all employees with more than one year of service.
Contributions are made to the plan at the discretion of the parent's Board of
Directors. This plan also provides for matching contributions under a cash or
deferred arrangement (401(k) plan) based upon participant salaries and
employee contributions to the plan. Company contributions under the profit
sharing provision of the plan were $1,200,000 and $1,000,000, for the nine
months ended April 30, 1994 and 1993, respectively, and were $1,000,000,
$2,711,000 and $2,200,000, for the three fiscal years ended July 31, 1993,
1992 and 1991, respectively. Company matching contributions to the plan under
the 401(k) provision of the plan were $1,153,000 and $1,175,000 for the nine
months ended April 30, 1994 and 1993, respectively, and were $1,541,000,
$1,420,000 and $1,398,000 for the three fiscal years ended July 31, 1993, 1992
and 1991, respectively.
The Company has a defined benefit plan that provides participants who were
covered under a previously terminated plan with a guaranteed retirement
benefit at least equal to the benefit they would have received under the
terminated plan. Benefits under the terminated plan are determined by years of
credited service and salary levels. The Company's funding policy for this plan
is to contribute amounts deductible for Federal income tax purposes. Plan
assets consist primarily of corporate stocks and bonds, U.S. Treasury bonds
and short-term cash investments.
F-23
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED)
AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
The following table sets forth the plan's projected funded status for the
respective periods based on the most recent actuarial valuations:
ACTUARIALLY COMPUTED PENSION EXPENSE INCLUDES THE FOLLOWING COMPONENTS:
<TABLE>
<CAPTION>
NINE MONTHS ENDED FOR THE YEAR ENDED
APRIL 30, JULY 31,
------------------ ----------------------
1994 1993 1993 1992 1991
-------- -------- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service cost....................... $ 184 $ 213 $ 285 $ 318 $ 361
Interest on obligations............ 277 284 378 407 407
Actual return on plan assets....... 109 (500) (448) (320) 92
Amortization and deferral of:
Prior service cost............... (23) (23) (31) 1 1
Gain............................. (139) (74) (98) (98) (83)
Deferred asset (gain)/loss....... (347) 282 157 108 (310)
-------- -------- ------ ------ ------
ACTUARIALLY COMPUTED PENSION
EXPENSE........................... $ 61 $ 182 $ 243 $ 416 $ 468
======== ======== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
JULY 31,
APRIL 30, ----------------
1994 1993 1992
--------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
Vested benefit obligation........................ $ 2,917 $ 2,215 $ 1,840
======= ======= =======
Accumulated benefit obligation................... $$3,520 $ 2,747 $ 2,378
======= ======= =======
Projected benefit obligation..................... $ 5,556 $ 4,917 $ 4,981
Less: plan assets at fair value.................. (3,142) (3,605) (2,727)
------- ------- -------
Benefit obligation in excess of plan assets...... 2,414 1,312 2,254
Unrecognized prior service cost.................. 306 329 (12)
Unrecognized gain................................ 1,454 2,573 2,054
------- ------- -------
ACCRUED BENEFIT OBLIGATION......................... $ 4,174 $ 4,214 $ 4,296
======= ======= =======
</TABLE>
The actuarial computations assumed a discount rate, annual salary increase
and expected long-term rate of return on plan assets of 7.5%, 5% and 9.5%,
respectively, for the nine months ended April 30, 1994, 8%, 5% and 9.5%,
respectively, for fiscal year 1993 and 1992 and 8.5%, 5.5% and 9.5%,
respectively, for fiscal year 1991.
In fiscal 1987, Ferrell Companies, Inc. (Ferrell) established the Ferrell
Companies, Inc. Long-Term Incentive Plan (the Plan). The Plan provides long-
term incentives to officers and executives of Ferrell and its subsidiaries in
the form of units (Equity Units). The Plan provides for the redemption of the
Equity Units after July 31, 1996, based upon the excess of an appraised value
as of July 31, 1996, over a minimum value established at Plan inception.
Earned awards are 100% vested by the participants at July 31, 1993.
Because the participants are primarily employees of Ferrellgas, compensation
expense charges (credits) representing increases (decreases) in the estimated
value of the vested Equity Units are
F-24
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED)
AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
recorded by the Company. Compensation expense charged (credited) to income was
$720,000 and $0 for the nine months ended April 30, 1994 and 1993,
respectively, and was $80,000, $(1,934,000) and $2,508,000, respectively, for
the three fiscal years ended July 31, 1993, 1992 and 1991.
L. EMPLOYEE BENEFITS OTHER THAN PENSIONS:
The Company provides postretirement medical benefits to a closed group of
approximately 400 retired employees and their spouses. The plan requires the
Company to provide primary medical benefits to the participants until age 65,
at which time the Company only pays a fixed amount of $55 per month per
participant for medical benefits. Effective August 1, 1993, the Company
adopted Statement of Financial Accounting Standards No. 106--Employers'
Accounting for Postretirement Benefits Other Than Pensions which requires
accrual of postretirement benefits (such as health care benefits) during the
years an employee provides services. The Company elected to amortize the
postretirement benefit obligation over a period not to exceed the average
remaining life expectancy of the plan participants (since all of the plan
participants are retired). The cumulative effect as of August 1, 1993, and
impact for the nine months ended April 10, 1994, of adopting this statement
was not material to the financial statements of the Company.
The Company has expensed $560,000, $471,000 and $532,000 for the years ended
July 31, 1993, 1992 and 1991, respectively, on a pay-as-you-go-basis relative
to this postretirement benefit obligation.
The actuarial liabilities for these postretirement benefits, none of which
have been funded, are as follows at April 30, 1994:
<TABLE>
<CAPTION>
Accumulated Postretirement Benefit Obligation--Retirees....... $2,270,000
<S> <C>
Fair Value of Assets.......................................... 0
----------
Accrued Liability............................................. $2,270,000
==========
</TABLE>
Net periodic postretirement benefit cost for the nine months ended April 30,
1994, included the following components:
<TABLE>
<CAPTION>
Interest Cost on Obligation..................................... $145,647
<S> <C>
Amortization of Transition Obligation........................... 171,320
--------
Net Periodic Postretirement Benefit Cost........................ $316,967
========
</TABLE>
The accumulated postretirement benefit obligation was determined using a
discount rate of 7.75% and a health care cost trend rate of 10% in fiscal year
1994, 8% in fiscal years 1995 through 1997 and 5% thereafter for any
individuals who have not attained the age of 65 by such cut-off dates.
Benefits relate to a closed group of retirees whose benefits convert to a
fixed monthly supplement at age 65. Because of the nature of this group, a 1%
change in the assumed health care cost trend
F-25
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED)
AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
rates does not have a significant impact on net periodic postretirement
benefit cost or the accumulated postretirement benefit obligation.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 112--Employers' Accounting For Postemployment
Benefits which is effective for fiscal years beginning after December 15,
1993. This statement requires that employers recognize over the service lives
of employees the costs of postemployment benefits if certain conditions are
met. The Company does not believe that adoption of the statement will have a
material impact on results of operations or financial condition of the
Company.
M. TRANSACTIONS WITH RELATED PARTIES:
All notes receivable from related parties bear interest at the prime rate
plus 1.375% (8.125% at April 30, 1994) except for one note totaling $8,896,000
which bears interest at the prime rate (6.75% at April 30, 1994).
In 1993 and 1991, the Company received capital contributions from its
Parent. In 1993, the contribution consisted of (i) the forgiveness of a
$3,015,000 long-term note payable to affiliate, including interest, and (ii) a
$262,000 note receivable from affiliate. In 1991, the contribution consisted
of forgiveness of $6,687,000 long-term note payable to Parent, including
interest.
In the second and third quarter of fiscal year 1993, Ferrell Leasing
Corporation, a subsidiary of Ferrell Properties, Inc., sold to the Company for
the fair market value of $4,100,000, the land and two buildings comprising the
Company's corporate headquarters in Liberty, Missouri. James E. Ferrell, a
director and executive officer in the Company, owns all of the issued and
outstanding stock of Ferrell Properties, Inc. Prior to the purchase of the
buildings, the Company paid rent to Ferrell Leasing of $403,000, $692,000 and
$661,000 in fiscal years 1993, 1992 and 1991, respectively.
A. Andrew Levison, a director of the parent, is a Managing Director of
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). DLJ acted as
placement agent with regard to the senior subordinated notes issued in
December 1991 and was paid fees of $3,545,000.
The law firm of Smith, Gill, Fisher & Butts, a Professional Corporation, is
general counsel to the Company, the parent and their respective subsidiaries
and affiliates. David S. Mouber, a director of the Parent, is a member of such
law firm. The Company, the Parent and their respective subsidiaries paid such
firm fees of $987,000 and $899,000 for the nine months ended April 30, 1994
and 1993, respectively, and paid fees of $1,381,000, $2,189,000 and $2,776,000
during the three fiscal years ended July 31, 1993, 1992 and 1991,
respectively.
N. DISCLOSURES ABOUT OFF BALANCE SHEET RISK AND FAIR VALUE OF FINANCIAL
INSTRUMENTS:
In fiscal year 1993, the Company adopted Statement of Financial Accounting
Standards No. 107--Disclosures about Fair Value of Financial Instruments which
requires disclosing the fair value of financial instruments which can be
reasonably determined.
F-26
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED)
AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Current Assets. The carrying amount of cash and cash equivalents and
short-term investments approximates fair value because of the short
maturity of those instruments.
Long-term Debt. The estimated fair value of the Company's long-term debt
was $505,597,000 and $539,651,000 as of April 30, 1994 and July 31, 1993,
respectively. The fair value is estimated based on quoted market prices and
discounted cash flows.
The Company is a party to certain option and forward contracts in connection
with its trading activities involving various liquified petroleum products.
Contracts are executed with private counter-parties and to a lesser extent on
national mercantile exchanges. Open contract positions are summarized as
follows:
AS OF APRIL 30, 1994
(IN THOUSANDS EXCEPT PRICE PER GALLON DATA)
<TABLE>
<CAPTION>
MARKET
VOLUME PRICE MATURITY CONTRACT VALUE OF UNREALIZED
(IN GALLONS) (PER GALLON) DATES AMOUNTS CONTRACTS GAIN/(LOSS)
------------ ------------ ----------------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Exchange Traded Option
Contracts to Buy....... 2,730 $0.26 June-July 1994 $ 723 $ 820 $ 97
Forward Contracts to
Buy.................... 61,893 $.19 to $.34 May-December 1994 15,717 16,093 376
Forward Contracts to
(Sell)................. (30,142) $.29 to $.37 May-December 1994 (10,180) (9,588) 592
------- -------- ------- ------
Total.................. 34,481 $ 6,260 $ 7,325 $1,065
======= ======== ======= ======
</TABLE>
Risks related to these contracts arise from the possible inability of
counterparties to meet the terms of their contracts and changes in underlying
product prices. The Company attempts to minimize market risk through the
enforcement of its trading policies, which include total inventory limits and
loss limits, and attempts to minimize credit risk through application of its
credit policies.
In connection with its trading activities, at July 31, 1993, the Company had
open forward and option contracts to buy $10,394 and sell ($11,347) of various
liquified petroleum products expressed in dollars based on contract prices. At
July 31, 1992, similar contracts to buy were $7,582 and to sell ($4,986). Net
unrealized gains/(losses) on those open position were $281 and $0,
respectively, at July 31, 1993 and 1992.
F-27
<PAGE>
FERRELLGAS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED)
AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
O. SUMMARIZED FINANCIAL DATA--FERRELL COMPANIES, INC. AND SUBSIDIARIES:
The Company is the sole operating subsidiary of Ferrell Companies, Inc.
Summarized consolidated financial information for Ferrell Companies, Inc. and
subsidiaries is presented below (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED FOR THE YEAR ENDED JULY
APRIL 30, 31,
-------------------- ----------------------------
1994 1993 1993 1992 1991
----------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Operating revenues......... $450,482 $468,308 $542,116 $501,297 $544,021
Operating expenses......... 375,332 403,840 483,782 445,048 481,246
Earnings (loss) before ex-
traordinary loss.......... 20,142 12,784 174 (1,653) 2,102
Extraordinary loss......... (867) -- (886) (9,979) --
Net earnings (loss)........ 19,275 12,784 (712) (11,632) 2,102
<CAPTION>
JULY 31,
APRIL 30, ------------------
1994 1993 1992
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUMMARY OF FINANCIAL
POSITION:
Current assets............. $180,648 $136,373 $142,161
Non-current assets......... 384,095 401,702 423,906
Current liabilities........ 72,924 62,804 74,517
Non-current liabilities and
equity.................... 491,819 475,271 491,550
</TABLE>
F-28
<PAGE>
APPENDIX A
FORM OF
AGREEMENT
OF
LIMITED PARTNERSHIP
OF
FERRELLGAS PARTNERS, L.P.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE I--ORGANIZATIONAL MATTERS.......................................... A-1
1.1 Formation.......................................................... A-1
1.2 Name............................................................... A-1
1.3 Registered Office; Principal Office................................ A-1
1.4 Power of Attorney.................................................. A-1
1.5 Term............................................................... A-3
1.6 Possible Restrictions on Transfer.................................. A-3
</TABLE>
ARTICLE II--DEFINITIONS
<TABLE>
<S> <C>
"Acquisition"............................................................ A-3
"Additional Limited Partner"............................................. A-3
"Adjusted Capital Account"............................................... A-3
"Adjusted Property"...................................................... A-4
"Affiliate".............................................................. A-4
"Agreed Allocation"...................................................... A-4
"Agreed Value"........................................................... A-4
"Agreement".............................................................. A-4
"Assignee"............................................................... A-4
"Associate".............................................................. A-4
"Audit Committee"........................................................ A-4
"Available Cash"......................................................... A-4
"Book-Tax Disparity"..................................................... A-5
"Business Day"........................................................... A-5
"Capital Account"........................................................ A-5
"Capital Additions and Improvements"..................................... A-5
"Capital Contribution"................................................... A-6
"Carrying Value"......................................................... A-6
"Cash from Interim Capital Transactions"................................. A-6
"Cash from Operations"................................................... A-6
"Cause".................................................................. A-7
"Certificate"............................................................ A-7
"Certificate of Limited Partnership"..................................... A-7
"Citizenship Certification".............................................. A-7
"Claim".................................................................. A-7
"Closing Date"........................................................... A-7
"Closing Price".......................................................... A-7
"Code"................................................................... A-7
"Combined Interest"...................................................... A-7
"Commission"............................................................. A-7
"Common Unit"............................................................ A-7
"Common Unit Arrearage".................................................. A-8
"Contributed Property"................................................... A-8
"Contribution Agreement"................................................. A-8
"Cumulative Common Unit Arrearage"....................................... A-8
"Curative Allocation".................................................... A-8
"Current Market Price"................................................... A-8
"Delaware Act"........................................................... A-8
"Departing Partner"...................................................... A-8
"Economic Risk of Loss".................................................. A-8
"Eligible Citizen"....................................................... A-8
"Event of Withdrawal".................................................... A-8
</TABLE>
A-(i)
<PAGE>
<TABLE>
<S> <C>
"Ferrell"............................................................... A-8
"Ferrellgas"............................................................ A-8
"First Liquidation Target Amount"....................................... A-8
"First Target Distribution"............................................. A-8
"General Partner"....................................................... A-9
"Group"................................................................. A-9
"Holder"................................................................ A-9
"IDR"................................................................... A-9
"Incentive Distribution"................................................ A-9
"Indemnified Persons"................................................... A-9
"Indemnitee"............................................................ A-9
"Initial Limited Partners".............................................. A-9
"Initial Offering"...................................................... A-9
"Initial Unit Price".................................................... A-9
"Interim Capital Transactions".......................................... A-9
"Issue Price"........................................................... A-9
"Limited Partner"....................................................... A-10
"Liquidation Date"...................................................... A-10
"Liquidator"............................................................ A-10
"Maintenance Capital Expenditures"...................................... A-10
"Merger Agreement"...................................................... A-10
"Minimum Quarterly Distribution"........................................ A-10
"National Securities Exchange".......................................... A-10
"Net Agreed Value"...................................................... A-10
"Net Income"............................................................ A-10
"Net Loss".............................................................. A-11
"Net Termination Gain".................................................. A-11
"Net Termination Loss".................................................. A-11
"Non-citizen Assignee".................................................. A-11
"Nonrecourse Built-in Gain"............................................. A-11
"Nonrecourse Deductions"................................................ A-11
"Nonrecourse Liability"................................................. A-11
"Notice of Election to Purchase"........................................ A-11
"Operating Partnership"................................................. A-11
"Operating Partnership Agreement"....................................... A-11
"Opinion of Counsel".................................................... A-11
"Organizational Limited Partner"........................................ A-12
"Outstanding"........................................................... A-12
"Overallotment Option".................................................. A-12
"Partners".............................................................. A-12
"Partner Nonrecourse Debt".............................................. A-12
"Partner Nonrecourse Debt Minimum Gain"................................. A-12
"Partner Nonrecourse Deductions"........................................ A-12
"Partnership"........................................................... A-12
"Partnership Interest".................................................. A-12
"Partnership Minimum Gain".............................................. A-12
"Partnership Securities"................................................ A-12
"Per Unit Capital Amount"............................................... A-12
"Percentage Interest"................................................... A-12
"Person"................................................................ A-12
"Purchase Date"......................................................... A-12
"Quarter"............................................................... A-13
</TABLE>
A-(ii)
<PAGE>
<TABLE>
<S> <C>
"Recapture Income"...................................................... A-13
"Record Date"........................................................... A-13
"Record Holder"......................................................... A-13
"Redeemable Units"...................................................... A-13
"Registration Statement"................................................ A-13
"Required Allocations".................................................. A-13
"Residual Gain"......................................................... A-13
"Residual Loss"......................................................... A-13
"Restricted Activities"................................................. A-13
"Second Liquidation Target Amount"...................................... A-13
"Second Target Distribution"............................................ A-13
"Securities Act"........................................................ A-13
"Special Approval"...................................................... A-13
"Special Limited Partner"............................................... A-13
"Special Limited Partners Book Capital"................................. A-14
"Subordinated Unit"..................................................... A-14
"Subordination Period".................................................. A-14
"Substituted Limited Partner"........................................... A-14
"Surviving Business Entity"............................................. A-14
"Termination Capital Transactions"...................................... A-14
"Third Target Distribution"............................................. A-14
"Trading Day"........................................................... A-14
"Transfer".............................................................. A-14
"Transfer Agent"........................................................ A-14
"Transfer Application".................................................. A-14
"Underwriter"........................................................... A-15
"Underwriting Agreement"................................................ A-15
"Unit".................................................................. A-15
"Unpaid MQD"............................................................ A-15
"Unrealized Gain"....................................................... A-15
"Unrealized Loss"....................................................... A-15
"Unrecovered Initial Unit Price"........................................ A-15
"Unrecovered Subordinated Unit Capital"................................. A-15
"Withdrawal Opinion of Counsel"......................................... A-15
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE III--PURPOSE...................................................... A-15
3.1 Purpose and Business.............................................. A-15
3.2 Powers............................................................ A-16
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE IV--CAPITAL CONTRIBUTIONS........................................ A-16
4.1 Initial Contributions; Return of Initial Contributions.......... A-16
Contributions by the General Partner and the Initial Limited
4.2 Partners........................................................ A-16
4.3 Issuances of Additional Units and Other Securites............... A-17
4.4 Limited Preemptive Rights....................................... A-18
4.5 Capital Accounts................................................ A-19
4.6 Interest........................................................ A-21
4.7 No Withdrawal................................................... A-21
4.8 Loans from Partners............................................. A-21
4.9 No Fractional Units............................................. A-21
4.10 Splits and Combinations......................................... A-21
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE V--ALLOCATIONS AND DISTRIBUTIONS.................................. A-22
5.1 Allocations for Capital Account Purposes.......................... A-22
(a)Net Income..................................................... A-22
(b)Net Losses..................................................... A-22
(c)Net Termination Gains and Losses............................... A-22
</TABLE>
A-(iii)
<PAGE>
<TABLE>
<C> <C> <C> <S> <C>
(d) Special Allocations........................................... A-24
(i) Partnership Minimum Gain Chargeback................... A-24
(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain... A-24
(iii) Priority Allocations.................................. A-25
(iv) Qualified Income Offset............................... A-25
(v) Gross Income Allocations.............................. A-25
(vi) Nonrecourse Deductions................................ A-25
(vii) Partner Nonrecourse Deductions........................ A-25
(viii) Nonrecourse Liabilities............................... A-25
(ix) Code Section 754 Adjustments.......................... A-26
(x) Economic Uniformity................................... A-26
(xi) Curative Allocation................................... A-26
(xii) Retirement of Assumed Indebtedness.................... A-27
(xiii) First Year Allocation................................. A-27
5.2 Allocations for Tax Purposes...................................... A-27
5.3 Requirement and Characterization of Distributions................. A-29
5.4 Distributions of Cash from Operations............................. A-29
(a) During Subordination Period................................... A-29
(b) After Subordination Period.................................... A-30
5.5 Distributions of Cash from Interim Capital Transactions........... A-30
5.6 Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels............................................... A-31
5.7 Special Provisions Relating to the Subordinated Units............. A-31
5.8 Special Provisions Relating to the Special Limited Partners....... A-32
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE VI--MANAGEMENT AND OPERATION OF BUSINESS......................... A-32
6.1 Management...................................................... A-32
6.2 Certificate of Limited Partnership.............................. A-34
6.3 Restrictions on General Partner's Authority..................... A-34
6.4 Reimbursement of the General Partner............................ A-35
6.5 Outside Activities.............................................. A-35
6.6 Loans to and from the General Partner; Contracts with
Affiliates...................................................... A-36
6.7 Indemnification................................................. A-37
6.8 Liability of Indemnitees........................................ A-39
6.9 Resolution of Conflicts of Interest............................. A-39
6.10 Other Matters Concerning the General Partner.................... A-41
6.11 Title to Partnership Assets..................................... A-41
6.12 Purchase or Sale of Units....................................... A-41
6.13 Registration Rights of Ferrellgas and its Affiliates............ A-42
6.14 Reliance by Third Parties....................................... A-43
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE VII--RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS................... A-44
7.1 Limitation of Liability.......................................... A-44
7.2 Management of Business........................................... A-44
7.3 Outside Activities............................................... A-44
7.4 Return of Capital................................................ A-44
7.5 Rights of Limited Partners Relating to the Partnership........... A-44
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE VIII--BOOKS, RECORDS, ACCOUNTING AND REPORTS...................... A-45
8.1 Records and Accounting........................................... A-45
8.2 Fiscal Year...................................................... A-45
8.3 Reports.......................................................... A-45
</TABLE>
A-(iv)
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE IX--TAX MATTERS................................................... A-46
9.1 Preparation of Tax Returns....................................... A-46
9.2 Tax Elections.................................................... A-46
9.3 Tax Controversies................................................ A-46
9.4 Organizational Expenses.......................................... A-46
9.5 Withholding...................................................... A-46
9.6 Entity-Level Taxation............................................ A-46
9.7 Entity-Level Arrearage Collections............................... A-47
9.8 Opinions of Counsel.............................................. A-47
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE X--CERTIFICATES................................................... A-47
10.1 Certificates..................................................... A-47
10.2 Registration, Registration of Transfer and Exchange.............. A-48
10.3 Mutilated, Destroyed, Lost or Stolen Certificates................ A-48
10.4 Record Holder.................................................... A-49
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE XI--TRANSFER OF INTERESTS......................................... A-49
11.1 Transfer......................................................... A-49
11.2 Transfer of a General Partner's Partnership Interest............. A-49
11.3 Transfer of Units................................................ A-50
11.4 Restrictions on Transfers........................................ A-50
11.5 Citizenship Certificates; Non-citizen Assignees.................. A-50
11.6 Redemption of Interests.......................................... A-51
11.7 Transfer of IDRs................................................. A-52
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE XII--ADMISSION OF PARTNERS........................................ A-52
12.1 Admission of Initial Limited Partners............................ A-52
12.2 Admission of Substituted Limited Partners........................ A-52
12.3 Admission of Successor General Partner........................... A-53
12.4 Admission of Additional Limited Partners......................... A-53
12.5 Amendment of Agreement and Certificate of Limited Partnership.... A-53
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE XIII--WITHDRAWAL OR REMOVAL OF PARTNERS........................... A-53
13.1 Withdrawal of the General Partner................................ A-53
13.2 Removal of the General Partner................................... A-55
13.3 Interest of Departing Partner and Successor General Partner...... A-55
13.4 Withdrawal of Limited Partners................................... A-56
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE XIV--DISSOLUTION AND LIQUIDATION................................. A-56
14.1 Dissolution..................................................... A-56
14.2 Continuation of the Business of the Partnership after
Dissolution..................................................... A-57
14.3 Liquidation..................................................... A-57
14.4 Distributions in Kind........................................... A-58
14.5 Cancellation of Certificate of Limited Partnership.............. A-59
14.6 Reasonable Time for Winding Up.................................. A-59
14.7 Return of Capital............................................... A-59
14.8 Capital Account Restoration..................................... A-59
14.9 Waiver of Partition............................................. A-59
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE XV--AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE..... A-59
15.1 Amendment to be Adopted Solely by General Partner................ A-59
15.2 Amendment Procedures............................................. A-60
</TABLE>
A-(v)
<PAGE>
<TABLE>
<C> <S> <C>
15.3 Amendment Requirements.......................................... A-61
15.4 Meetings........................................................ A-61
15.5 Notice of a Meeting............................................. A-62
15.6 Record Date..................................................... A-62
15.7 Adjournment..................................................... A-62
15.8 Waiver of Notice; Approval of Meeting; Approval of Minutes...... A-62
15.9 Quorum.......................................................... A-62
15.10 Conduct of Meeting.............................................. A-63
15.11 Action Without a Meeting........................................ A-63
15.12 Voting and Other Rights......................................... A-63
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE XVI--MERGER....................................................... A-64
16.1 Authority....................................................... A-64
16.2 Procedure for Merger or Consolidation........................... A-64
16.3 Approval by Limited Partners of Merger or Consolidation......... A-65
16.4 Certificate of Merger........................................... A-65
16.5 Effect of Merger................................................ A-65
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE XVII--RIGHT TO ACQUIRE UNITS...................................... A-66
17.1 Right to Acquire Units.......................................... A-66
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE XVIII--GENERAL PROVISIONS......................................... A-67
18.1 Addresses and Notices........................................... A-67
18.2 References...................................................... A-67
18.3 Pronouns and Plurals............................................ A-68
18.4 Further Action.................................................. A-68
18.5 Binding Effect.................................................. A-68
18.6 Integration..................................................... A-68
18.7 Creditors....................................................... A-68
18.8 Waiver.......................................................... A-68
18.9 Counterparts.................................................... A-68
18.10 Applicable Law.................................................. A-68
18.11 Invalidity of Provisions........................................ A-68
</TABLE>
<TABLE>
<S> <C>
Exhibit A--Form of Certificate Evidencing Common Unit...................... A-70
</TABLE>
A-(vi)
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP OF
FERRELLGAS PARTNERS, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF FERRELLGAS PARTNERS, L.P., dated as
of , 1994, is entered into by and among Ferrellgas, Inc., a Delaware
corporation, as the General Partner, and Danley K. Sheldon, as the
Organizational Limited Partner, together with any other Persons who become
Partners in the Partnership or parties hereto as provided herein. In
consideration of the covenants, conditions and agreements contained herein,
the parties hereto hereby agree as follows:
ARTICLE I
ORGANIZATIONAL MATTERS
1.1 FORMATION. (a) The General Partner and the Organizational Limited
Partner have previously formed the Partnership as a limited partnership
pursuant to the provisions of the Delaware Act. Except as expressly provided
to the contrary in this Agreement, the rights and obligations of the Partners
and the administration, dissolution and termination of the Partnership shall
be governed by the Delaware Act. All Partnership Interests shall constitute
personal property of the owner thereof for all purposes.
(b) In connection with the formation of the Partnership, Ferrellgas has been
admitted as a general partner of the Partnership, and the Organizational
Limited Partner has been admitted as a limited partner of the Partnership. As
of the Closing Date, after giving effect to the transactions contemplated by
Section 4.2 and after giving effect to the admission of the Initial Limited
Partners as contemplated by Section 12.1 (but in no event prior to such time),
the interest in the Partnership of the Organizational Limited Partner shall be
terminated and the Organizational Limited Partner shall withdraw as a limited
partner of the Partnership.
1.2 NAME. The name of the Partnership shall be "Ferrellgas Partners, L.P."
The Partnership's business may be conducted under any other name or names
deemed necessary or appropriate by the General Partner, including, without
limitation, the name of the General Partner. The words "Limited Partnership,"
"L.P.," "Ltd." or similar words or letters shall be included in the
Partnership's name where necessary for the purposes of complying with the laws
of any jurisdiction that so requires. The General Partner in its sole
discretion may change the name of the Partnership at any time and from time to
time and shall notify the Limited Partners of such change in the next regular
communication to the Limited Partners.
1.3 REGISTERED OFFICE; PRINCIPAL OFFICE. Unless and until changed by the
General Partner, the registered office of the Partnership in the State of
Delaware shall be located at The Corporation Trust Center, 1209 Orange Street,
New Castle County, Wilmington, Delaware 19801, and the registered agent for
service of process on the Partnership in the State of Delaware at such
registered office shall be The Corporation Trust Company. The principal office
of the Partnership shall be located at, and the address of the General Partner
shall be, One Liberty Plaza, Liberty, Missouri 64068, or such other place as
the General Partner may from time to time designate by notice to the Limited
Partners. The Partnership may maintain offices at such other place or places
within or outside the State of Delaware as the General Partner deems necessary
or appropriate.
1.4 POWER OF ATTORNEY. (a) Each Limited Partner and each Assignee hereby
constitutes and appoints each of the General Partner and, if a Liquidator
shall have been selected pursuant to Section 14.3, the Liquidator severally
(and any successor to either thereof by merger, transfer, assignment, election
or otherwise) and each of their authorized officers and attorneys-in-fact,
with full power of substitution, as his true and lawful agent and attorney-in-
fact, with full power and authority in his name, place and stead, to:
A-1
<PAGE>
(i) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (A) all certificates, documents and other
instruments (including, without limitation, this Agreement and the
Certificate of Limited Partnership and all amendments or restatements
thereof) that the General Partner or the Liquidator deems necessary or
appropriate to form, qualify or continue the existence or qualification
of the Partnership as a limited partnership (or a partnership in which
the limited partners have limited liability) in the State of Delaware
and in all other jurisdictions in which the Partnership may conduct
business or own property; (B) all certificates, documents and other
instruments that the General Partner or the Liquidator deems necessary
or appropriate to reflect, in accordance with its terms, any amendment,
change, modification or restatement of this Agreement; (C) all
certificates, documents and other instruments (including, without
limitation, conveyances and a certificate of cancellation) that the
General Partner or the Liquidator deems necessary or appropriate to
reflect the dissolution and liquidation of the Partnership pursuant to
the terms of this Agreement; (D) all certificates, documents and other
instruments relating to the admission, withdrawal, removal or
substitution of any Partner pursuant to, or other events described in,
Article XI, XII, XIII or XIV or the Capital Contribution of any
Partner; (E) all certificates, documents and other instruments relating
to the determination of the rights, preferences and privileges of any
class or series of Units or other Partnership Securities issued
pursuant to Section 4.2; and (F) all certificates, documents and other
instruments (including, without limitation, agreements and a
certificate of merger) relating to a merger or consolidation of the
Partnership pursuant to Article XVI; and
(ii) execute, swear to, acknowledge, deliver, file and record all
ballots, consents, approvals, waivers, certificates, documents and
other instruments necessary or appropriate, in the sole discretion of
the General Partner or the Liquidator, to make, evidence, give, confirm
or ratify any vote, consent, approval, agreement or other action that
is made or given by the Partners hereunder or is consistent with the
terms of this Agreement or is necessary or appropriate, in the sole
discretion of the General Partner or the Liquidator, to effectuate the
terms or intent of this Agreement; provided, that when required by
Section 15.3 or any other provision of this Agreement that establishes
a percentage of the Limited Partners or of the Limited Partners of any
class or series required to take any action, the General Partner or the
Liquidator may exercise the power of attorney made in this Section
1.4(a)(ii) only after the necessary vote, consent or approval of the
Limited Partners or of the Limited Partners of such class or series, as
applicable.
Nothing contained in this Section 1.4(a) shall be construed as authorizing the
General Partner to amend this Agreement except in accordance with Article XV
or as may be otherwise expressly provided for in this Agreement.
(b) The foregoing power of attorney is hereby declared to be irrevocable and
a power coupled with an interest, and it shall survive and not be affected by
the subsequent death, incompetency, disability, incapacity, dissolution,
bankruptcy or termination of any Limited Partner or Assignee and the transfer
of all or any portion of such Limited Partner's or Assignee's Partnership
Interest and shall extend to such Limited Partner's or Assignee's heirs,
successors, assigns and personal representatives. Each such Limited Partner or
Assignee hereby agrees to be bound by any representation made by the General
Partner or the Liquidator acting in good faith pursuant to such power of
attorney; and each such Limited Partner or Assignee hereby waives any and all
defenses that may be available to contest, negate or disaffirm the action of
the General Partner or the Liquidator taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within 15 days after receipt of the General
Partner's or the Liquidator's request therefor, such further designation,
powers of attorney and other instruments as the General Partner or the
Liquidator deems necessary to effectuate this Agreement and the purposes of
the Partnership.
A-2
<PAGE>
1.5 TERM. The Partnership commenced upon the filing of the Certificate of
Limited Partnership in accordance with the Delaware Act and shall continue in
existence until the close of Partnership business on July 31, 2084, or until
the earlier dissolution of the Partnership in accordance with the provisions
of Article XIV.
1.6 POSSIBLE RESTRICTIONS ON TRANSFER. Notwithstanding anything to the
contrary contained in this Agreement, in the event of (a) the enactment (or
imminent enactment) of any legislation, (b) the publication of any temporary
or final regulation by the Treasury Department, (c) any ruling by the Internal
Revenue Service or (d) any judicial decision, that, in any such case, in the
Opinion of Counsel, would result in the taxation of the Partnership as an
association taxable as a corporation or would otherwise result in the
Partnership's being taxed as an entity for federal income tax purposes, then,
the General Partner may impose such restrictions on the transfer of Units or
Partnership Interests as may be required, in the Opinion of Counsel, to
prevent the Partnership from being taxed as an association taxable as a
corporation or otherwise as an entity for federal income tax purposes,
including, without limitation, making such amendments to this Agreement as the
General Partner in its sole discretion may determine to be necessary or
appropriate to impose such restrictions, provided, that any such amendment to
this Agreement that would result in the delisting or suspension of trading of
any class of Units on any National Securities Exchange on which such class of
Units is then traded must be approved by the holders of at least two-thirds of
the Outstanding Units of such class (excluding the vote in respect of Units
held by the General Partner and its Affiliates).
ARTICLE II
DEFINITIONS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this
Agreement.
"ACQUISITION" means any transaction in which the Partnership or the
Operating Partnership acquires (through an asset acquisition, merger, stock
acquisition or other form of investment) control over all or a portion of
the assets, properties or business of another Person for the purpose of
increasing the operating capacity of the Partnership and the Operating
Partnership, taken as a whole, from the operating capacity of the
Partnership and the Operating Partnership, taken as a whole, existing
immediately prior to such transaction.
"ADDITIONAL LIMITED PARTNER" means a Person admitted to the Partnership
as a Limited Partner pursuant to Section 12.4 and who is shown as such on
the books and records of the Partnership.
"ADJUSTED CAPITAL ACCOUNT" means the Capital Account maintained for each
Partner as of the end of each fiscal year of the Partnership, (a) increased
by any amounts that such Partner is obligated to restore under the
standards set by Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or is
deemed obligated to restore under Treasury Regulation Sections 1.704-2(g)
and 1.704-2(i)(5)) and (b) decreased by (i) the amount of all losses and
deductions that, as of the end of such fiscal year, are reasonably expected
to be allocated to such Partner in subsequent years under Sections
704(e)(2) and 706(d) of the Code and Treasury Regulation Section 1.751-
1(b)(2)(ii), and (ii) the amount of all distributions that, as of the end
of such fiscal year, are reasonably expected to be made to such Partner in
subsequent years in accordance with the terms of this Agreement or
otherwise to the extent they exceed offsetting increases to such Partner's
Capital Account that are reasonably expected to occur during (or prior to)
the year in which such distributions are reasonably expected to be made
(other than increases as a result of a minimum gain chargeback pursuant to
Section 5.1(d)(i) or 5.1(d)(ii)). The foregoing definition of Adjusted
Capital Account is intended to comply with the provisions of Treasury
Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith. The "Adjusted Capital Account" in respect of a
Common Unit, a Subordinated Unit or any other specified interest in the
Partnership
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shall be the amount which such Adjusted Capital Account would be if such
Common Unit, Subordinated Unit or other interest in the Partnership were
the only interest in the Partnership held by a Limited Partner.
"ADJUSTED PROPERTY" means any property the Carrying Value of which has
been adjusted pursuant to Section 4.5(d)(i) or 4.5(d)(ii). Once an Adjusted
Property is deemed distributed by, and recontributed to, the Partnership
for federal income tax purposes upon a termination thereof pursuant to
Section 708 of the Code, such property shall thereafter constitute a
Contributed Property until the Carrying Value of such property is
subsequently adjusted pursuant to Section 4.5(d)(i) or 4.5(d)(ii).
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by or is under common
control with, the Person in question. As used herein, the term "control"
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether
through ownership of voting securities, by contract or otherwise.
"AGREED ALLOCATION" means any allocation, other than a Required
Allocation, of an item of income, gain, loss or deduction pursuant to the
provisions of Section 5.1, including, without limitation, a Curative
Allocation (if appropriate to the context in which the term "Agreed
Allocation" is used).
"AGREED VALUE" of any Contributed Property means the fair market value of
such property or other consideration at the time of contribution as
determined by the General Partner using such reasonable method of valuation
as it may adopt; provided, however, that the Agreed Value of any property
deemed contributed to the Partnership for federal income tax purposes upon
termination and reconstitution thereof pursuant to Section 708 of the Code
shall be determined in accordance with Section 4.5(c)(i). Subject to
Section 4.5(c)(i), the General Partner shall, in its sole discretion, use
such method as it deems reasonable and appropriate to allocate the
aggregate Agreed Value of Contributed Properties contributed to the
Partnership in a single or integrated transaction among each separate
property on a basis proportional to the fair market value of each
Contributed Property.
"AGREEMENT" means this Agreement of Limited Partnership of Ferrellgas
Partners, L.P., as it may be amended, supplemented or restated from time to
time.
"ASSIGNEE" means a Non-citizen Assignee or a Person to whom one or more
Units have been transferred in a manner permitted under this Agreement and
who has executed and delivered a Transfer Application as required by this
Agreement, but who has not become a Substituted Limited Partner.
"ASSOCIATE" means, when used to indicate a relationship with any Person,
(i) any corporation or organization of which such Person is a director,
officer or partner or is, directly or indirectly, the owner of 20% or more
of any class of voting stock; (ii) any trust or other estate in which such
Person has at least a 20% beneficial interest or as to which such Person
serves as trustee or in a similar fiduciary capacity; and (iii) any
relative or spouse of such Person, or any relative of such spouse, who has
the same residence as such Person.
"AUDIT COMMITTEE" means a committee of the Board of Directors of the
General Partner composed entirely of two or more directors who are neither
officers nor employees of the General Partner or any of its Affiliates.
"AVAILABLE CASH" means, with respect to any Quarter and without
duplication:
(a) the sum of:
(i) all cash receipts of the Partnership during such Quarter from
all sources (including, without limitation, distributions of cash
received from the Operating Partnership and cash proceeds from
Interim Capital Transactions, but excluding cash proceeds from
Termination Capital Transactions), plus, in the case of the Quarter
ending
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October 31, 1994, the cash balance of the Partnership as of the
close of business on the Closing Date and all cash receipts of the
Partnership from all sources during the Quarter ending July 31,
1994; and
(ii) any reduction in a cash reserve previously established
pursuant to (b)(ii) below (either by reversal or utilization) with
respect to such Quarter from the level of such reserve at the end of
the prior Quarter;
(b) less the sum of:
(i) all cash disbursements of the Partnership during such Quarter,
including, without limitation, disbursements for operating expenses,
taxes, if any, debt service (including, without limitation, the
payment of principal, premium and interest), redemption of
Partnership Interests, capital expenditures and contributions, if
any, to the Operating Partnership (but excluding all cash
distributions to Partners to the extent of Available Cash for the
immediately preceding Quarter); and
(ii) any cash reserves established with respect to such Quarter,
and any increase in cash reserves established with respect to prior
Quarters, in such amounts as the General Partner determines in its
reasonable discretion to be necessary or appropriate (A) to provide
for the proper conduct of the business of the Partnership or the
Operating Partnership (including, without limitation, reserves for
future capital expenditures) or (B) to provide funds for
distributions with respect to Units and any general partner
interests in the Partnership in respect of any one or more of the
next four Quarters or (C) because the distribution of such amounts
would be prohibited by applicable law or by any loan agreement,
security agreement, mortgage, debt instrument or other agreement or
obligation to which the Partnership or the Operating Partnership is
a party or by which any of them is bound or its assets are subject.
Notwithstanding the foregoing, "Available Cash" with respect to any Quarter
shall not include any cash receipts or reductions in reserves or take into
account any disbursements made or reserves established in each case after
the Liquidation Date. Taxes paid by the Partnership on behalf of, or
amounts withheld with respect to, all or less than all of the Partners
shall not be considered cash disbursements of the Partnership that reduce
Available Cash, but the payment or withholding thereof shall be deemed to
be a distribution of Available Cash to such Partners. Alternatively, in the
discretion of the General Partner, such taxes (if pertaining to all
Partners) may be considered to be cash disbursements of the Partnership
which reduce Available Cash, but the payment or withholding thereof shall
not be deemed to be a distribution of Available Cash to such Partners.
"BOOK-TAX DISPARITY" means with respect to any item of Contributed
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or
Adjusted Property and the adjusted basis thereof for federal income tax
purposes as of such date. A Partner's share of the Partnership's Book-Tax
Disparities in all of its Contributed Property and Adjusted Property will
be reflected by the difference between such Partner's Capital Account
balance as maintained pursuant to Section 4.5 and the hypothetical balance
of such Partner's Capital Account computed as if it had been maintained
strictly in accordance with federal income tax accounting principles.
"BUSINESS DAY" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States or
the states of New York or Missouri shall not be regarded as a Business Day.
"CAPITAL ACCOUNT" means the capital account maintained for a Partner
pursuant to Section 4.5.
"CAPITAL ADDITIONS AND IMPROVEMENTS" means (a) additions or improvements
to the capital assets owned by the Partnership or the Operating Partnership
or (b) the acquisition of existing or
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the construction of new capital assets (including, without limitation,
retail distribution outlets, propane tanks, pipeline systems, storage
facilities and related assets), made to increase the operating capacity of
the Partnership and the Operating Partnership, taken as a whole, from the
operating capacity of the Partnership and the Operating Partnership, taken
as a whole, existing immediately prior to such addition, improvement,
acquisition or construction.
"CAPITAL CONTRIBUTION" means any cash, cash equivalents or the Net Agreed
Value of Contributed Property that a Partner contributes to the Partnership
pursuant to the Contribution Agreement or Sections 4.1, 4.2, 4.3,
4.5(c)(i), 13.3(c) or 14.8.
"CARRYING VALUE" means (a) with respect to a Contributed Property, the
Agreed Value of such property reduced (but not below zero) by all
depreciation, amortization and cost recovery deductions charged to the
Partners' and Assignees' Capital Accounts in respect of such Contributed
Property, and (b) with respect to any other Partnership property, the
adjusted basis of such property for federal income tax purposes, all as of
the time of determination. The Carrying Value of any property shall be
adjusted from time to time in accordance with Sections 4.5(d)(i) and
4.5(d)(ii) and to reflect changes, additions or other adjustments to the
Carrying Value for dispositions and acquisitions of Partnership properties,
as deemed appropriate by the General Partner.
"CASH FROM INTERIM CAPITAL TRANSACTIONS" means, at any date, such amounts
of Available Cash as are deemed to be Cash from Interim Capital
Transactions pursuant to Section 5.3.
"CASH FROM OPERATIONS" means, at the close of any Quarter but prior to
the Liquidation Date, on a cumulative basis and without duplication,
(a) the sum of all cash receipts of the Partnership and the Operating
Partnership during the period since the Closing Date through such date
(including, without limitation, the cash balance of the Partnership as
of the close of business on the Closing Date, plus an initial balance
of $25 million, excluding any cash proceeds from any Interim Capital
Transactions (except to the extent specified in Section 5.3) and
Termination Capital Transactions),
(b) less the sum of:
(i) all cash operating expenditures of the Partnership and the
Operating Partnership during such period, including, without
limitation, taxes, if any, and amounts owed to the General Partner
as reimbursement pursuant to Section 6.4,
(ii) all cash debt service payments of the Partnership and the
Operating Partnership during such period (other than payments or
prepayments of principal and premium (A) required by reason of loan
agreements (including, without limitation, covenants and default
provisions therein) or by lenders, in each case in connection with
sales or other dispositions of assets or (B) made in connection with
refinancings or refundings of indebtedness with the proceeds from
new indebtedness or from the sale of equity interests, provided,
that any payment or prepayment of principal and premium, whether or
not then due, shall be deemed, at the election and in the discretion
of the General Partner, to be refunded or refinanced by any
indebtedness incurred or to be incurred by the Partnership or the
Operating Partnership simultaneously with or within 180 days prior
to or after such payment or prepayment to the extent of the
principal amount of such indebtedness so incurred),
(iii) all cash capital expenditures of the Partnership and the
Operating Partnership during such period, including, without
limitation, cash capital expenditures made in respect of Maintenance
Capital Expenditures, but excluding (A) cash capital expenditures
made in respect of Acquisitions and Capital Additions and
Improvements and (B) cash expenditures made in payment of
transaction expenses relating to Interim Capital Transactions,
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(iv) any cash reserves of the Partnership or the Operating
Partnership outstanding as of such date that the General Partner
deems in its reasonable discretion to be necessary or appropriate to
provide for the future cash payment of items of the type referred to
in clauses (i) through (iii) of this sentence, and
(v) any cash reserves that the General Partner deems in its
reasonable discretion to be necessary or appropriate to provide
funds for distributions with respect to Units and any general
partner interests in the Partnership in respect of any one or more
of the next four Quarters,
all as determined on a consolidated basis and after taking into account the
General Partner's interest therein attributable to its general partner
interest in the Operating Partnership. Where cash capital expenditures are
made in part in respect of Acquisitions or Capital Additions and
Improvements and in part for other purposes, the General Partner's good
faith allocation thereof between the portion made for Acquisitions or
Capital Additions and Improvements and the portion made for other purposes
shall be conclusive. Taxes paid by the Partnership on behalf of, or amounts
withheld with respect to, all or less than all of the Partners shall not be
considered cash operating expenditures of the Partnership that reduce Cash
from Operations, but the payment or withholding thereof shall be deemed to
be a distribution of Available Cash to such Partners. Alternatively, in the
discretion of the General Partner, such taxes (if pertaining to all
Partners) may be considered to be cash operating expenditures of the
Partnership which reduce Cash from Operations, but the payment or
withholding thereof shall not be deemed to be a distribution of Available
Cash to such Partners.
"CAUSE" means a court of competent jurisdiction has entered a final, non-
appealable judgment finding the General Partner liable for actual fraud,
gross negligence or willful or wanton misconduct in its capacity as general
partner of the Partnership.
"CERTIFICATE" means a certificate, substantially in the form of Exhibit A
to this Agreement or in such other form as may be adopted by the General
Partner in its sole discretion, issued by the Partnership evidencing
ownership of one or more Common Units, or a certificate, in such form as
may be adopted by the General Partner in its sole discretion, issued by the
Partnership evidencing ownership of one or more other Units.
"CERTIFICATE OF LIMITED PARTNERSHIP" means the Certificate of Limited
Partnership filed with the Secretary of State of the State of Delaware as
referenced in Section 6.2, as such Certificate of Limited Partnership may
be amended, supplemented or restated from time to time.
"CITIZENSHIP CERTIFICATION" means a properly completed certificate in
such form as may be specified by the General Partner by which an Assignee
or a Limited Partner certifies that he (and if he is a nominee holding for
the account of another Person, that to the best of his knowledge such other
Person) is an Eligible Citizen.
"CLAIM" has the meaning assigned to such term in Section 6.13(c).
"CLOSING DATE" means the first date on which Common Units are sold by the
Partnership to the Underwriters pursuant to the provisions of the
Underwriting Agreement.
"CLOSING PRICE" has the meaning assigned to such term in Section 17.1(a).
"CODE" means the Internal Revenue Code of 1986, as amended and in effect
from time to time, as interpreted by the applicable regulations thereunder.
Any reference herein to a specific section or sections of the Code shall be
deemed to include a reference to any corresponding provision of future law.
"COMBINED INTEREST" has the meaning assigned to such term in Section
13.3(a).
"COMMISSION" means the Securities and Exchange Commission.
"COMMON UNIT" means a Unit representing a fractional part of the
Partnership Interests of all Limited Partners and Assignees and having the
rights and obligations specified with respect to Common Units in this
Agreement.
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"COMMON UNIT ARREARAGE" means, with respect to any Common Unit, whenever
issued, and as to any Quarter within the Subordination Period, the excess,
if any, of (a) the Minimum Quarterly Distribution with respect to such
Common Unit over (b) the sum of all Available Cash distributed with respect
to such Common Unit in respect of such Quarter pursuant to Section
5.4(a)(i).
"CONTRIBUTED PROPERTY" means each property or other asset, in such form
as may be permitted by the Delaware Act, but excluding cash, contributed to
the Partnership (or deemed contributed to the Partnership on termination
and reconstitution thereof pursuant to Section 708 of the Code). Once the
Carrying Value of a Contributed Property is adjusted pursuant to
Section 4.5(d), such property shall no longer constitute a Contributed
Property, but shall be deemed an Adjusted Property.
"CONTRIBUTION AGREEMENT" means that certain Contribution, Conveyance and
Assumption Agreement, dated as of the Closing Date, between Ferrellgas, the
Partnership and the Operating Partnership, together with the additional
conveyance documents and instruments contemplated or referenced thereunder.
"CUMULATIVE COMMON UNIT ARREARAGE" means, with respect to any Common
Unit, whenever issued, and as of the end of any Quarter, the excess, if
any, of (a) the sum resulting from adding together the Common Unit
Arrearage as to such Common Unit for each of the Quarters within the
Subordination Period ending on or before the last day of such Quarter over
(b) the sum of any distributions theretofore made pursuant to Section
5.4(a)(ii) with respect to such Common Unit (including any distributions to
be made in respect of the last of such Quarters).
"CURATIVE ALLOCATION" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 5.1(d)(xi).
"CURRENT MARKET PRICE" has the meaning assigned to such term in Section
17.1(a).
"DELAWARE ACT" means the Delaware Revised Uniform Limited Partnership
Act, 6 Del C. (S) 17-101, et seq., as amended, supplemented or restated
from time to time, and any successor to such statute.
"DEPARTING PARTNER" means a former General Partner from and after the
effective date of any withdrawal or removal of such former General Partner
pursuant to Section 13.1 or 13.2.
"ECONOMIC RISK OF LOSS" has the meaning set forth in Treasury Regulation
Section 1.752-2(a).
"ELIGIBLE CITIZEN" means a Person qualified to own interests in real
property in jurisdictions in which the Partnership or the Operating
Partnership does business or proposes to do business from time to time, and
whose status as a Limited Partner or Assignee does not or would not subject
the Partnership or the Operating Partnership to a substantial risk of
cancellation or forfeiture of any of its properties or any interest
therein.
"EVENT OF WITHDRAWAL" has the meaning assigned to such term in Section
13.1(a).
"FERRELL" means Ferrell Companies, Inc., a Kansas corporation.
"FERRELLGAS" means Ferrellgas, Inc., a Delaware corporation and a wholly
owned subsidiary of Ferrell.
"FIRST LIQUIDATION TARGET AMOUNT" has the meaning assigned to such term
in Section 5.1(c)(i)(D).
"FIRST TARGET DISTRIBUTION" means $0.55 per Unit (or, with respect to the
period commencing on the Closing Date and ending on October 31, 1994, the
product of $0.55 multiplied by a fraction of which the numerator is the
number of days in such period and of which the denominator is 92), subject
to adjustment in accordance with Sections 5.6 and 9.6.
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"GENERAL PARTNER" means Ferrellgas, and its successors as general partner
of the Partnership.
"GROUP" means a Person that with or through any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting (except voting pursuant to a revocable proxy
or consent given to such Person in response to a proxy or consent
solicitation made to 10 or more Persons) or disposing of any Partnership
Securities with any other Person that beneficially owns, or whose
Affiliates or Associates beneficially own, directly or indirectly,
Partnership Interests.
"HOLDER" has the meaning assigned to such term in Section 6.13(a).
"IDR" means a Partnership Interest issued to Ferrellgas in connection
with the transfer of its assets to the Partnership pursuant to Section 4.2,
which Partnership Interest shall confer upon the holder thereof only the
rights and obligations specifically provided in this Agreement with respect
to IDRs (and no other rights otherwise available to holders of a
Partnership Interest).
"INCENTIVE DISTRIBUTION" means any amount of cash distributed to the
Special Limited Partners, pursuant to Sections 5.4(a)(v), (vi) or (vii) or
5.4(b)(iii), (iv) or (v).
"INDEMNIFIED PERSONS" has the meaning assigned to such term in Section
6.13(c).
"INDEMNITEE" means the General Partner, any Departing Partner, any Person
who is or was an Affiliate of the General Partner or any Departing Partner,
any Person who is or was an officer, director, employee, partner, agent or
trustee of the General Partner or any Departing Partner or any such
Affiliate, or any Person who is or was serving at the request of the
General Partner or any Departing Partner or any such Affiliate as a
director, officer, employee, partner, agent or trustee of another Person.
"INITIAL LIMITED PARTNERS" means Ferrellgas (with respect to the Common
Units and the Subordinated Units received by it pursuant to Section 4.2)
and the Underwriters, in each case upon being admitted to the Partnership
in accordance with Section 12.1.
"INITIAL OFFERING" means the initial offering and sale of Common Units to
the public, as described in the Registration Statement.
"INITIAL UNIT PRICE" means (a) the initial public offering price per
Common Unit at which the Underwriters offered the Common Units to the
public for sale as set forth on the cover page of the prospectus first
issued at or after the time the Registration Statement first became
effective or (b) with respect to any other class or series of Units, the
price per Unit at which such class or series of Units is initially sold by
the Partnership, as determined by the General Partner, in each case
adjusted as the General Partner determines to be appropriate to give effect
to any distribution, subdivision or combination of Units.
"INTERIM CAPITAL TRANSACTIONS" means (a) borrowings, refinancings or
refundings of indebtedness and sales of debt securities (other than for
working capital purposes and other than for items purchased on open account
in the ordinary course of business) by the Partnership or the Operating
Partnership, (b) sales of equity interests (including Common Units sold to
the Underwriters pursuant to the exercise of the Overallotment Option) by
the Partnership or the Operating Partnership and (c) sales or other
voluntary or involuntary dispositions of any assets of the Partnership or
the Operating Partnership (other than (x) sales or other dispositions of
inventory in the ordinary course of business, (y) sales or other
dispositions of other current assets including, without limitation,
receivables and accounts and (z) sales or other dispositions of assets as a
part of normal retirements or replacements), in each case prior to the
commencement of the dissolution and liquidation of the Partnership.
"ISSUE PRICE" means the price at which a Unit is purchased from the
Partnership, after taking into account any sales commission or underwriting
discount charged to the Partnership.
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"LIMITED PARTNER" means, unless the context otherwise requires, (a) the
Organizational Limited Partner, each Initial Limited Partner, each
Substituted Limited Partner, each Additional Limited Partner and any
Departing Partner upon the change of its status from General Partner to
Limited Partner pursuant to Section 13.3, subject to the provisions of
Section 5.7, (b) solely for the purposes of Section 1.4 and Articles VI and
VII, each Special Limited Partner and (c) solely for purposes of Articles
IV, V and VI and Sections 14.3 and 14.4, each Assignee.
"LIQUIDATION DATE" means (a) in the case of an event giving rise to the
dissolution of the Partnership of the type described in clauses (a) and (b)
of the first sentence of Section 14.2, the date on which the applicable
time period during which the holders of Outstanding Units have the right to
elect to reconstitute the Partnership and continue its business has expired
without such an election being made, and (b) in the case of any other event
giving rise to the dissolution of the Partnership, the date on which such
event occurs.
"LIQUIDATOR" means the General Partner or other Person approved pursuant
to Section 14.3 who performs the functions described therein.
"MAINTENANCE CAPITAL EXPENDITURES" means cash capital expenditures made
to maintain, up to the level thereof that existed at the time of such
expenditure, the operating capacity of the capital assets of the
Partnership and the Operating Partnership, taken as a whole, as such assets
existed at the time of such expenditure and shall, therefore, not include
cash capital expenditures made in respect of Aquisitions and Capital
Additions and Improvements. Where cash capital expenditures are made in
part to maintain the operating capacity level referred to in the
immediately preceding sentence and in part for other purposes, the General
Partner's good faith allocation thereof between the portion used to
maintain such operating capacity level and the portion used for other
purposes shall be conclusive.
"MERGER AGREEMENT" has the meaning assigned to such term in Section 16.1.
"MINIMUM QUARTERLY DISTRIBUTION" means (a) $0.50 per Unit per Quarter
(or, with respect to the period commencing on the Closing Date and ending
on October 31, 1994, the product of $0.50 multiplied by a fraction of which
the numerator is the number of days in such period and of which the
denominator is 92), subject to adjustment in accordance with Sections 5.6
and 9.6.
"NATIONAL SECURITIES EXCHANGE" means an exchange registered with the
Securities and Exchange Commission under Section 6(a) of the Securities
Exchange Act of 1934, as amended, supplemented or restated from time to
time, and any successor to such statute.
"NET AGREED VALUE" means, (a) in the case of any Contributed Property,
the Agreed Value of such property reduced by any liabilities either assumed
by the Partnership upon such contribution or to which such property is
subject when contributed, and (b) in the case of any property distributed
to a Partner or Assignee by the Partnership, the Partnership's Carrying
Value of such property (as adjusted pursuant to Section 4.5(d)(ii)) at the
time such property is distributed, reduced by any indebtedness either
assumed by such Partner or Assignee upon such distribution or to which such
property is subject at the time of distribution, in either case, as
determined under Section 752 of the Code.
"NET INCOME" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain (other than those items attributable
to dispositions constituting Termination Capital Transactions) for such
taxable period over the Partnership's items of loss and deduction (other
than those items attributable to dispositions constituting Termination
Capital Transactions) for such taxable period. The items included in the
calculation of Net Income shall be determined in accordance with Section
4.5(b) and shall not include any items specially allocated under Section
5.1(d). Once an item of income, gain, loss or deduction that has been
included in the initial computation of Net Income is subjected to a
Required Allocation or a Curative Allocation, Net Income or Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
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"NET LOSS" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction (other than those items
attributable to dispositions constituting Termination Capital Transactions)
for such taxable period over the Partnership's items of income and gain
(other than those items attributable to dispositions constituting
Termination Capital Transactions) for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance
with Section 4.5(b) and shall not include any items specially allocated
under Section 5.1(d). Once an item of income, gain, loss or deduction that
has been included in the initial computation of Net Loss is subjected to a
Required Allocation or a Curative Allocation, Net Income, or Net Loss,
whichever the case may be, shall be recomputed without regard to such item.
"NET TERMINATION GAIN" means, for any taxable period, the sum, if
positive, of all items of income, gain, loss or deduction recognized by the
Partnership (including, without limitation, such amounts recognized through
the Operating Partnership) from Termination Capital Transactions occurring
in such taxable period. The items included in the determination of Net
Termination Gain shall be determined in accordance with Section 4.5(b) and
shall not include any items of income, gain or loss specially allocated
under Section 5.1(d). Once an item of income, gain or loss that has been
included in the initial computation of Net Termination Gain is subjected to
a Required Allocation or a Curative Allocation, Net Termination Gain or Net
Termination Loss, whichever the case may be, shall be recomputed without
regard to such item.
"NET TERMINATION LOSS" means, for any taxable period, the sum, if
negative, of all items of income, gain, loss or deduction recognized by the
Partnership (including, without limitation, such amounts recognized through
the Operating Partnership) from Termination Capital Transactions occurring
in such taxable period. The items included in the determination of Net
Termination Loss shall be determined in accordance with Section 4.5(b) and
shall not include any items of income, gain or loss specially allocated
under Section 5.1(d). Once an item of gain or loss that has been included
in the initial computation of Net Termination Loss is subjected to a
Required Allocation or a Curative Allocation, Net Termination Gain or Net
Termination Loss, whichever the case may be, shall be recomputed without
regard to such item.
"NON-CITIZEN ASSIGNEE" means a Person who the General Partner has
determined in its sole discretion does not constitute an Eligible Citizen
and as to whose Partnership Interest the General Partner has become the
Substituted Limited Partner, pursuant to Section 11.5.
"NONRECOURSE BUILT-IN GAIN" means with respect to any Contributed
Properties or Adjusted Properties that are subject to a mortgage or pledge
securing a Nonrecourse Liability, the amount of any taxable gain that would
be allocated to the Partners pursuant to Sections 5.2(b)(i)(A),
5.2(b)(ii)(A) or 5.2(b)(iii) if such properties were disposed of in a
taxable transaction in full satisfaction of such liabilities and for no
other consideration.
"NONRECOURSE DEDUCTIONS" means any and all items of loss, deduction or
expenditures (described in Section 705(a)(2)(B) of the Code) that, in
accordance with the principles of Treasury Regulation Section 1.704-2(b),
are attributable to a Nonrecourse Liability.
"NONRECOURSE LIABILITY" has the meaning set forth in Treasury Regulation
Section 1.752-1(a)(2).
"NOTICE OF ELECTION TO PURCHASE" has the meaning assigned to such term in
Section 17.1(b).
"OPERATING PARTNERSHIP" means Ferrellgas, L.P., a Delaware limited
partnership.
"OPERATING PARTNERSHIP AGREEMENT" means the Agreement of Limited
Partnership of the Operating Partnership, as it may be amended,
supplemented or restated from time to time.
"OPINION OF COUNSEL" means a written opinion of counsel (who may be
regular counsel to Ferrellgas, any Affiliate of Ferrellgas, the Partnership
or the General Partner) acceptable to the General Partner.
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"ORGANIZATIONAL LIMITED PARTNER" means Danley K. Sheldon, in his capacity
as the organizational limited partner of the Partnership pursuant to this
Agreement.
"OUTSTANDING" means, with respect to the Units or other Partnership
Securities, all Units or other Partnership Securities that are issued by
the Partnership and reflected as outstanding on the Partnership's books and
records as of the date of determination; provided that, if at any time any
Person or Group (other than Ferrellgas and its Affiliates) owns
beneficially 20% or more of all Common Units, such Common Units so owned
shall not be voted on any matter and shall not be considered to be
Outstanding when sending notices of a meeting of Limited Partners (unless
otherwise required by law), calculating required votes, determining the
presence of a quorum or for other similar purposes under this Agreement,
except that such Common Units shall be considered to be Outstanding for
purposes of Section 13.1(b)(iv) (such Common Units shall not, however, be
treated as a separate class of Partnership Securities for purposes of this
Agreement).
"OVERALLOTMENT OPTION" means the overallotment option granted to the
Underwriters by the Partnership pursuant to the Underwriting Agreement.
"PARTNERS" means the General Partner, the Limited Partners and the
Special Limited Partners.
"PARTNER NONRECOURSE DEBT" has the meaning set forth in Treasury
Regulation Section 1.704-2(b)(4).
"PARTNER NONRECOURSE DEBT MINIMUM GAIN" has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2).
"PARTNER NONRECOURSE DEDUCTIONS" means any and all items of loss,
deduction or expenditure (including, without limitation, any expenditure
described in Section 705(a)(2)(B) of the Code) that, in accordance with the
principles of Treasury Regulation Section 1.704-2(i), are attributable to a
Partner Nonrecourse Debt.
"PARTNERSHIP" means Ferrellgas Partners, L.P., a Delaware limited
partnership established by the Certificate of Limited Partnership, and any
successors thereto.
"PARTNERSHIP INTEREST" means an interest in the Partnership, which shall
include general partner interests, Common Units, Subordinated Units, IDRs
or other Partnership Securities, or a combination thereof or interest
therein, as the case may be.
"PARTNERSHIP MINIMUM GAIN" means that amount determined in accordance
with the principles of Treasury Regulation Section 1.704-2(d).
"PARTNERSHIP SECURITIES" has the meaning assigned to such term in Section
4.3(a).
"PER UNIT CAPITAL AMOUNT" means, as of any date of determination, the
Capital Account, stated on a per Unit basis, underlying any Unit held by a
Person other than the General Partner or any Affiliate of the General
Partner who holds Units.
"PERCENTAGE INTEREST" means as of the date of such determination (a) as
to the General Partner, 1%, (b) as to any Limited Partner or Assignee
holding Units, the product of (i) 99% multiplied by (ii) the quotient of
the number of Units held by such Limited Partner or Assignee divided by the
total number of all Units then Outstanding; provided, however, that
following any issuance of additional Partnership Securities by the
Partnership in accordance with Section 4.3, proper adjustment shall be made
to the Percentage Interest represented by each Unit to reflect such
issuance, and (c) as to the holders of additional Partnership Securities
issued by the Partnership in accordance with Section 4.3, the percentage
established as a part of such issuance.
"PERSON" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"PURCHASE DATE" means the date determined by the General Partner as the
date for purchase of all Outstanding Units (other than Units owned by the
General Partner and its Affiliates) pursuant to Article XVII.
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"QUARTER" means, unless the context requires otherwise, a three month
period of time ending on October 31, January 31, April 30, or July 31;
provided, however, that the General Partner, in its sole discretion, may
amend such period as it deems necessary or appropriate in connection with a
change in the fiscal year of the Partnership.
"RECAPTURE INCOME" means any gain recognized by the Partnership (computed
without regard to any adjustment required by Sections 734 or 743 of the
Code) upon the disposition of any property or asset of the Partnership,
which gain is characterized as ordinary income because it represents the
recapture of deductions previously taken with respect to such property or
asset.
"RECORD DATE" means the date established by the General Partner for
determining (a) the identity of the Record Holder entitled to notice of, or
to vote at, any meeting of Limited Partners or entitled to vote by ballot
or give approval of Partnership action in writing without a meeting or
entitled to exercise rights in respect of any lawful action of Limited
Partners or (b) the identity of Record Holders entitled to receive any
report or distribution.
"RECORD HOLDER" means the Person in whose name a Unit is registered on
the books of the Transfer Agent as of the opening of business on a
particular Business Day, or with respect to a holder of a general partner
interest or an IDR, the Person in whose name such general partner interest
or IDR is registered on the books of the General Partner as of the opening
of business on such Business Day.
"REDEEMABLE UNITS" means any Units for which a redemption notice has been
given, and has not been withdrawn, under Section 11.6.
"REGISTRATION STATEMENT" means the Registration Statement on Form S-1
(Registration No. 33-53383), as it has been or as it may be amended or
supplemented from time to time, filed by the Partnership with the
Commission under the Securities Act to register the offering and sale of
the Common Units in the Initial Offering.
"REQUIRED ALLOCATIONS" means any allocation (or limitation imposed on any
allocation) of an item of income, gain, deduction or loss pursuant to (a)
Section 5.1(b)(ii) or (b) Sections 5.1(d)(i), 5.1(d)(ii), 5.1(d)(iv),
5.1(d)(v), 5.1(d)(vi), 5.1(d)(vii) and 5.1(d)(ix), such allocations (or
limitations thereon) being directly or indirectly required by the Treasury
regulations promulgated under Section 704(b) of the Code.
"RESIDUAL GAIN" or "RESIDUAL LOSS" means any item of gain or loss, as the
case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of a Contributed
Property or Adjusted Property, to the extent such item of gain or loss is
not allocated pursuant to Sections 5.2(b)(i)(A) or 5.2(b)(ii)(A),
respectively, to eliminate Book-Tax Disparities.
"RESTRICTED ACTIVITIES" means the retail sale of propane to end users
within the continental United States in the manner engaged in by Ferrellgas
immediately prior to the Closing Date.
"SECOND LIQUIDATION TARGET AMOUNT" has the meaning assigned to such term
in Section 5.1(c)(i)(E).
"SECOND TARGET DISTRIBUTION" means $0.63 per Unit (or, with respect to
the period commencing on the Closing Date and ending on October 31, 1994,
the product of $0.63 multiplied by a fraction of which the numerator is
equal to the number of days in such period and of which the denominator is
92), subject to adjustment in accordance with Sections 5.6 and 9.6.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
supplemented or restated from time to time and any successor to such
statute.
"SPECIAL APPROVAL" means approval by the Audit Committee.
"SPECIAL LIMITED PARTNER" means each holder of an IDR.
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"SPECIAL LIMITED PARTNERS BOOK CAPITAL" means, as of any date of
determination, the amount equal to the sum of the balances of the Capital
Accounts of all the Special Limited Partners, determined pursuant to
Section 4.5 (prior to any adjustment pursuant to Section 4.5(d) arising
upon the present event requiring a valuation of the Partnership's assets).
"SUBORDINATED UNIT" means a Unit representing a fractional part of the
Partnership Interests of all Limited Partners and Assignees and having the
rights and obligations specified with respect to Subordinated Units in this
Agreement.
"SUBORDINATION PERIOD" means the period commencing on the Closing Date
and ending on the first to occur of the following dates:
(a) the first day of any Quarter commencing on or after August 1,
1999, provided that each of the following two tests have been
satisfied:
(i) the Partnership has, with respect to each of the three
consecutive four-Quarter periods immediately preceding such date,
made distributions of Available Cash constituting Cash from
Operations in an amount equal to or greater than the Minimum
Quarterly Distribution on each Common Unit and Subordinated Unit
Outstanding for such periods; provided, however, that in determining
the amount of Available Cash constituting Cash from Operations
distributed in any four-Quarter period the following amounts shall
not be included: (A) any positive balance in Cash from Operations at
the beginning of such four-Quarter period, (B) any net increase in
working capital borrowings in such four-Quarter period and (C) any
net decrease in reserves in such four-Quarter period; and
(ii) as of such date, the Partnership and the Operating
Partnership, on a combined basis, have made, directly or indirectly,
cash capital expenditures attributable to Acquisitions and Capital
Additions and Improvements since the Closing Date which equal or
exceed $50 million; and
(b) the date on which the General Partner is removed as general
partner of the Partnership upon the requisite vote by Limited Partners
under circumstances where Cause does not exist.
"SUBSTITUTED LIMITED PARTNER" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 12.2 in place of and with
all the rights of a Limited Partner and who is shown as a Limited Partner
on the books and records of the Partnership.
"SURVIVING BUSINESS ENTITY" has the meaning assigned to such term in
Section 16.2(b).
"TERMINATION CAPITAL TRANSACTIONS" means any sale, transfer or other
disposition of property of the Partnership or the Operating Partnership
occurring upon or incident to the liquidation and winding up of the
Partnership and the Operating Partnership pursuant to Article XIV.
"THIRD TARGET DISTRIBUTION" means $0.82 per Unit (or, with respect to the
period commencing on the Closing Date and ending on October 31, 1994, the
product of $0.82 multiplied by a fraction of which the numerator is equal
to the number of days in such period and of which the denominator is 92),
subject to adjustment in accordance with Sections 5.6 and 9.6.
"TRADING DAY" has the meaning assigned to such term in Section 17.1(a).
"TRANSFER" has the meaning assigned to such term in Section 11.1(a).
"TRANSFER AGENT" means such bank, trust company or other Person
(including, without limitation, the General Partner or one of its
Affiliates) as shall be appointed from time to time by the Partnership to
act as registrar and transfer agent for the Units.
"TRANSFER APPLICATION" means an application and agreement for transfer of
Units in the form set forth on the back of a Certificate or in a form
substantially to the same effect in a separate instrument.
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"UNDERWRITER" means each Person named as an underwriter in Schedule I to
the Underwriting Agreement who purchases Common Units pursuant thereto.
"UNDERWRITING AGREEMENT" means the Underwriting Agreement dated ,
1994, among the Underwriters, the Partnership, the General Partner and
Ferrell providing for the purchase of Common Units by such Underwriters.
"UNIT" means a Partnership Interest of a Limited Partner or Assignee in
the Partnership representing a fractional part of the Partnership Interests
of all Limited Partners and Assignees and shall include, without
limitation, Common Units and Subordinated Units; provided, that each Common
Unit at any time Outstanding shall represent the same fractional part of
the Partnership Interests of all Limited Partners and Assignees holding
Common Units as each other Common Unit and each Subordinated Unit at any
time Outstanding shall represent the same fractional part of the
Partnership Interests of all Limited Partners and Assignees holding
Subordinated Units as each other Subordinated Unit.
"UNPAID MQD" has the meaning assigned to such term in Section
5.1(c)(i)(B).
"UNREALIZED GAIN" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (a) the fair market
value of such property as of such date (as determined under Section 4.5(d))
over (b) the Carrying Value of such property as of such date (prior to any
adjustment to be made pursuant to Section 4.5(d) as of such date).
"UNREALIZED LOSS" attributable to any item of Partnership property means,
as of any date of determination, the excess, if any, of (a) the Carrying
Value of such property as of such date (prior to any adjustment to be made
pursuant to Section 4.5(d) as of such date) over (b) the fair market value
of such property as of such date (as determined under Section 4.5(d)).
"UNRECOVERED INITIAL UNIT PRICE" means, at any time, with respect to a
class or series of Units (other than Subordinated Units), the price per
Unit at which such class or series of Units was initially offered to the
public for sale by the underwriters in respect of such offering, as
determined by the General Partner, less the sum of all distributions
theretofore made in respect of a Unit of such class or series that was sold
in the initial offering of Units of said class or series constituting Cash
from Interim Capital Transactions and any distributions of cash (or the Net
Agreed Value of any distributions in kind) in connection with the
dissolution and liquidation of the Partnership theretofore made in respect
of a Unit of such class or series that was sold in the initial offering of
Units of such class or series, adjusted as the General Partner determines
to be appropriate to give effect to any distribution, subdivision or
combination of Units.
"UNRECOVERED SUBORDINATED UNIT CAPITAL" means, at any time, with respect
to a Subordinated Unit, prior to its conversion into a Common Unit pursuant
to Sections 5.7(b) and (c), the excess, if any, of (a) the Net Agreed Value
(at the time of conveyance) of the undivided interest in the Contributed
Property conveyed to the Partnership pursuant to Section 4.2 in exchange
for such Subordinated Unit, over (b) any distributions of cash (or the Net
Agreed Value of any distributions in kind) in connection with the
dissolution and liquidation of the Partnership, adjusted as the General
Partner determines to be appropriate to give effect to any distribution,
subdivision or combination of Subordinated Units.
"WITHDRAWAL OPINION OF COUNSEL" has the meaning assigned to such term in
Section 13.1(b).
ARTICLE III
PURPOSE
3.1 PURPOSE AND BUSINESS. The purpose and nature of the business to be
conducted by the Partnership shall be (a) to serve as a limited partner in the
Operating Partnership and, in connection therewith, to exercise all of the
rights and powers conferred upon the Partnership as a limited partner in the
Operating Partnership pursuant to the Operating Partnership Agreement or
otherwise, (b) to
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engage directly in, or to enter into or form any corporation, partnership,
joint venture, limited liability company or other arrangement to engage in,
any business activity that the Operating Partnership is permitted to engage in
by the Operating Partnership Agreement and, in connection therewith, to
exercise all of the rights and powers conferred upon the Partnership pursuant
to the agreements relating to such business activity, (c) to engage directly
in, or to enter into or form any corporation, partnership, joint venture,
limited liability company or other arrangement to engage in, any business
activity that is approved by the General Partner and which lawfully may be
conducted by a limited partnership organized pursuant to the Delaware Act and,
in connection therewith, to exercise all of the rights and powers conferred
upon the Partnership pursuant to the agreements relating to such business
activity, and (d) to do anything necessary or appropriate to the foregoing,
including, without limitation, the making of capital contributions or loans to
the Operating Partnership. The General Partner has no obligation or duty to
the Partnership, the Limited Partners, the Special Limited Partners or the
Assignees to propose or approve, and in its sole discretion may decline to
propose or approve, the conduct by the Partnership of any business.
3.2 POWERS. The Partnership shall be empowered to do any and all acts and
things necessary, appropriate, proper, advisable, incidental to or convenient
for the furtherance and accomplishment of the purposes and business described
in Section 3.1 and for the protection and benefit of the Partnership.
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.1 INITIAL CONTRIBUTIONS; RETURN OF INITIAL CONTRIBUTIONS. (a) In
connection with the formation of the Partnership under the Delaware Act, the
General Partner has made an initial Capital Contribution to the Partnership in
the amount of $10 for an interest in the Partnership and has been admitted as
the general partner of the Partnership, and the Organizational Limited Partner
has made a Capital Contribution to the Partnership in the amount of $990 for
an interest in the Partnership and has been admitted as a limited partner of
the Partnership.
(b) As of the Closing Date, after giving effect to the transactions
contemplated by Section 4.2 and the admission to the Partnership of the
Initial Limited Partners in accordance with this Agreement, the interest of
the Organizational Limited Partner shall be terminated, the $10 Capital
Contribution by the General Partner and the $990 Capital Contribution by the
Organizational Limited Partner as initial Capital Contributions shall be
refunded and the Organizational Limited Partner shall cease to be a Limited
Partner of the Partnership. Ninety-nine percent of any interest or other
profit that may have resulted from the investment or other use of such initial
Capital Contributions shall be allocated and distributed to the Organizational
Limited Partner, and the balance thereof shall be allocated and distributed to
the General Partner.
4.2 CONTRIBUTIONS BY THE GENERAL PARTNER AND THE INITIAL LIMITED PARTNERS.
(a) On the Closing Date, the General Partner shall, as set forth in the
Contribution Agreement, contribute, transfer, convey, assign and deliver to
the Partnership, as a Capital Contribution, a limited partner interest in the
Operating Partnership which, together with the Partnership Interest (as
defined in the Operating Partnership Agreement) previously held by the
Partnership, will represent a 98.9899% Percentage Interest (as defined in the
Operating Partnership Agreement) in the Operating Partnership, in exchange for
(i) the continuation of its Partnership Interest as general partner in the
Partnership, subject to all of the rights, privileges and duties of the
General Partner under this Agreement, (ii) 1,000,000 Common Units and
16,118,559 Subordinated Units and (iii) the IDRs.
(b) Subject to completion of the Capital Contributions referred to in
Section 4.2(a), on the Closing Date, each Underwriter shall contribute and
deliver to the Partnership cash in an amount equal to the Issue Price per
Common Unit, multiplied by the number of Common Units specified in the
Underwriting Agreement to be purchased by such Underwriter at the "First
Closing Date", as such term is defined in the Underwriting Agreement. In
exchange for such Capital Contribution by the Underwriters, the Partnership
shall issue Common Units to each Underwriter on whose behalf such Capital
Contribution is made in an amount equal to the quotient obtained by dividing
(X) the cash contribution to the Partnership by or on behalf of such
Underwriter by (Y) the Issue Price per Common Unit.
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4.3 ISSUANCES OF ADDITIONAL UNITS AND OTHER SECURITIES. (a) Subject to
Section 4.3(c), the General Partner is hereby authorized to cause the
Partnership to issue, in addition to the Partnership Interests and Units
issued pursuant to Sections 4.1 and 4.2, such additional Units, or classes or
series thereof, or options, rights, warrants or appreciation rights relating
thereto, or any other type of equity security that the Partnership may
lawfully issue, any unsecured or secured debt obligations of the Partnership
convertible into any class or series of equity securities of the Partnership
(collectively, "PARTNERSHIP SECURITIES"), for any Partnership purpose, at any
time or from time to time, to the Partners or to other Persons for such
consideration and on such terms and conditions as shall be established by the
General Partner in its sole discretion, all without the approval of any
Limited Partners. The General Partner shall have sole discretion, subject to
the guidelines set forth in this Section 4.3 and the requirements of the
Delaware Act, in determining the consideration and terms and conditions with
respect to any future issuance of Partnership Securities.
(b) Additional Partnership Securities to be issued by the Partnership
pursuant to this Section 4.3 shall be issuable from time to time in one or
more classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or other
special rights, powers and duties, including, without limitation, rights,
powers and duties senior to existing classes and series of Partnership
Securities (except as provided in Section 4.3(c)), all as shall be fixed by
the General Partner in the exercise of its sole discretion, subject to
Delaware law and Section 4.3(c), including, without limitation, (i) the
allocations of items of Partnership income, gain, loss, deduction and credit
to each such class or series of Partnership Securities; (ii) the right of each
such class or series of Partnership Securities to share in Partnership
distributions; (iii) the rights of each such class or series of Partnership
Securities upon dissolution and liquidation of the Partnership; (iv) whether
such class or series of additional Partnership Securities is redeemable by the
Partnership and, if so, the price at which, and the terms and conditions upon
which, such class or series of additional Partnership Securities may be
redeemed by the Partnership; (v) whether such class or series of additional
Partnership Securities is issued with the privilege of conversion and, if so,
the rate at which, and the terms and conditions upon which, such class or
series of Partnership Securities may be converted into any other class or
series of Partnership Securities or other property; (vi) the terms and
conditions upon which each such class or series of Partnership Securities will
be issued, evidenced by certificates and assigned or transferred; and (vii)
the right, if any, of each such class or series of Partnership Securities to
vote on Partnership matters, including, without limitation, matters relating
to the relative rights, preferences and privileges of each such class or
series.
(c) Notwithstanding the terms of Sections 4.3(a) and 4.3(b), the issuance by
the Partnership of any Partnership Securities pursuant to this Section 4.3
shall be subject to the following restrictions and limitations:
(i) During the Subordination Period, the Partnership shall not issue an
aggregate of more than 7,000,000 additional Common Units (excluding Common
Units issued in connection with the exercise of the Overallotment Option
and Common Units issued upon conversion of Subordinated Units pursuant to
Section 5.7(b)) or an equivalent amount of other Units having rights to
distributions or in liquidation ranking on a parity with the Common Units,
without the prior approval of two-thirds of the Outstanding Common Units;
provided, however, that in addition to such Units the Partnership may also
issue an unlimited amount of additional Common Units or other Partnership
Securities having rights to distribution or in liquidation ranking on a
parity with the Common Units prior to the end of the Subordination Period
and without the approval of the Unitholders if (A) such issuance occurs in
connection with or (B) within 270 days of, and the net proceeds from the
issuance of such Common Units or other Partnership Securities are used to
repay debt incurred in connection with, an Acquisition or a Capital
Addition and Improvement involving properties and assets that would have,
if acquired by the Partnership as of the date that is one year prior to the
first day of the Quarter in which such Acquisition is to be consummated or
such Capital Addition and Improvement is to be completed, resulted in an
increase in (1) the amount of Available Cash constituting Cash from
Operations generated by the Partnership on a
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per-Unit basis (for all Outstanding Units) with respect to each of the four
most recently completed Quarters (determined on a pro forma basis assuming
that (w) all of the Common Units or other Partnership Securities to be
issued in connection with or within 270 days of such Acquisition or Capital
Addition and Improvement had been issued and outstanding, and (x) all
indebtedness for borrowed money to be incurred or assumed in connection
with such Acquisition or Capital Addition and Improvement (other than any
such indebtedness that is to be repaid with the proceeds of such offering)
had been incurred or assumed, in each case as of the commencement of such
four-Quarter period), and computing expenses that would have been incurred
by the Partnership in the operation of the assets and properties acquired
by including (y) the personnel expenses for employees to be retained by the
Partnership in the operation of the assets and properties acquired and (z)
the non-personnel costs and expenses on the same basis as those incurred by
the Partnership in the operation of the Partnership's business at similarly
situated Partnership facilities) over (2) the actual amount of Available
Cash constituting Cash from Operations generated by the Partnership on a
per-Unit basis (for all Outstanding Units) with respect to each of such
four Quarters; and
(ii) During the Subordination Period, the Partnership shall not issue
additional Partnership Securities having rights to distributions or in
liquidation ranking prior or senior to the Common Units, without the prior
approval of two-thirds of the Outstanding Common Units; and
(iii) Upon the issuance of any Partnership Interests by the Partnership
or the making of any other Capital Contributions to the Partnership, the
General Partner shall be required to make additional Capital Contributions
to the Partnership in an amount equal to 1.01% of the additional Capital
Contribution then made by a Person other than the General Partner.
(d) The General Partner is hereby authorized and directed to take all
actions that it deems necessary or appropriate in connection with each
issuance of Units, IDRs or other Partnership Securities pursuant to Section
4.3(a) and to amend this Agreement in any manner that it deems necessary or
appropriate to provide for each such issuance, to admit Additional Limited
Partners in connection therewith and to specify the relative rights, powers
and duties of the holders of the Units, IDRs or other Partnership Securities
being so issued.
(e) The General Partner shall do all things necessary to comply with the
Delaware Act and is authorized and directed to do all things it deems to be
necessary or advisable in connection with any future issuance of Partnership
Securities, including, without limitation, compliance with any statute, rule,
regulation or guideline of any federal, state or other governmental agency or
any National Securities Exchange on which the Units or other Partnership
Securities are listed for trading.
4.4 LIMITED PREEMPTIVE RIGHTS. Except as provided in this Section 4.4, no
Person shall have any preemptive, preferential or other similar right with
respect to (a) additional Capital Contributions; (b) issuance or sale of any
class or series of Units, IDRs or other Partnership Securities, whether
unissued, held in the treasury or hereafter created; (c) issuance of any
obligations, evidences of indebtedness or other securities of the Partnership
convertible into or exchangeable for, or carrying or accompanied by any rights
to receive, purchase or subscribe to, any such Units, IDRs or other
Partnership Securities; (d) issuance of any right of subscription to or right
to receive, or any warrant or option for the purchase of, any such Units, IDRs
or other Partnership Securities; or (e) issuance or sale of any other
securities that may be issued or sold by the Partnership. The General Partner
shall have the right, which it may from time to time assign in whole or in
part to any of its Affiliates, to purchase Units, IDRs or other Partnership
Securities from the Partnership whenever, and on the same terms that, the
Partnership issues Units, IDRs or other Partnership Securities to Persons
other than the General Partner and its Affiliates, to the extent necessary to
maintain the Percentage Interests of the General Partner and its Affiliates
equal to that which existed immediately prior to the issuance of such Units,
IDRs or other Partnership Securities.
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4.5 CAPITAL ACCOUNTS. (a) The Partnership shall maintain for each Partner
(or a beneficial owner of Units held by a nominee in any case in which the
nominee has furnished the identity of such owner to the Partnership in
accordance with Section 6031(c) of the Code or any other method acceptable to
the General Partner in its sole discretion) owning a Partnership Interest a
separate Capital Account with respect to such Partnership Interest in
accordance with the rules of Treasury Regulation Section 1.704-1(b)(2)(iv).
Such Capital Account shall be increased by (i) the amount of all Capital
Contributions made to the Partnership with respect to such Partnership
Interest pursuant to this Agreement and (ii) all items of Partnership income
and gain (including, without limitation, income and gain exempt from tax)
computed in accordance with Section 4.5(b) and allocated with respect to such
Partnership Interest pursuant to Section 5.1, and decreased by (x) the amount
of cash or Net Agreed Value of all actual and deemed distributions of cash or
property made with respect to such Partnership Interest pursuant to this
Agreement and (y) all items of Partnership deduction and loss computed in
accordance with Section 4.5(b) and allocated with respect to such Partnership
Interest pursuant to Section 5.1.
(b) For purposes of computing the amount of any item of income, gain, loss
or deduction to be reflected in the Partners' Capital Accounts, the
determination, recognition and classification of any such item shall be the
same as its determination, recognition and classification for federal income
tax purposes (including, without limitation, any method of depreciation, cost
recovery or amortization used for that purpose), provided, that:
(i) Solely for purposes of this Section 4.5, the Partnership shall be
treated as owning directly its proportionate share (as determined by the
General Partner based upon the provisions of the Operating Partnership
Agreements) of all property owned by the Operating Partnership.
(ii) All fees and other expenses incurred by the Partnership to promote
the sale of (or to sell) a Partnership Interest that can neither be
deducted nor amortized under Section 709 of the Code, if any, shall, for
purposes of Capital Account maintenance, be treated as an item of deduction
at the time such fees and other expenses are incurred and shall be
allocated among the Partners pursuant to Section 5.1.
(iii) Except as otherwise provided in Treasury Regulation Section 1.704-
1(b)(2)(iv)(m), the computation of all items of income, gain, loss and
deduction shall be made without regard to any election under Section 754 of
the Code which may be made by the Partnership and, as to those items
described in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without
regard to the fact that such items are not includable in gross income or
are neither currently deductible nor capitalized for federal income tax
purposes.
(iv) Any income, gain or loss attributable to the taxable disposition of
any Partnership property shall be determined as if the adjusted basis of
such property as of such date of disposition were equal in amount to the
Partnership's Carrying Value with respect to such property as of such date.
(v) In accordance with the requirements of Section 704(b) of the Code,
any deductions for depreciation, cost recovery or amortization attributable
to any Contributed Property shall be determined as if the adjusted basis of
such property on the date it was acquired by the Partnership were equal to
the Agreed Value of such property. Upon an adjustment pursuant to Section
4.5(d) to the Carrying Value of any Partnership property subject to
depreciation, cost recovery or amortization, any further deductions for
such depreciation, cost recovery or amortization attributable to such
property shall be determined (A) as if the adjusted basis of such property
were equal to the Carrying Value of such property immediately following
such adjustment and (B) using a rate of depreciation, cost recovery or
amortization derived from the same method and useful life (or, if
applicable, the remaining useful life) as is applied for federal income tax
purposes; provided, however, that, if the asset has a zero adjusted basis
for federal income tax purposes, depreciation, cost recovery or
amortization deductions shall be determined using any reasonable method
that the General Partner may adopt.
(vi) If the Partnership's adjusted basis in a depreciable or cost
recovery property is reduced for federal income tax purposes pursuant to
Section 48(q)(1) or 48(q)(3) of the Code, the amount
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of such reduction shall, solely for purposes hereof, be deemed to be an
additional depreciation or cost recovery deduction in the year such
property is placed in service and shall be allocated among the Partners
pursuant to Section 5.1. Any restoration of such basis pursuant to Section
48(q)(2) of the Code shall, to the extent possible, be allocated in the
same manner to the Partners to whom such deemed deduction was allocated.
(c) (i) Except as otherwise provided in Section 4.5(c)(ii), a transferee
of a Partnership Interest shall succeed to a pro rata portion of the
Capital Account of the transferor relating to the Partnership Interest so
transferred; provided, however, that, if the transfer causes a termination
of the Partnership under Section 708(b)(1)(B) of the Code, the
Partnership's properties shall be deemed to have been distributed in
liquidation of the Partnership to the Partners (including any transferee of
a Partnership Interest that is a party to the transfer causing such
termination) pursuant to Sections 14.3 and 14.4 and recontributed by such
Partners in reconstitution of the Partnership. Any such deemed distribution
shall be treated as an actual distribution for purposes of this Section
4.5. In such event, the Carrying Values of the Partnership properties shall
be adjusted immediately prior to such deemed distribution pursuant to
Section 4.5(d)(ii) and such Carrying Values shall then constitute the
Agreed Values of such properties upon such deemed contribution to the
reconstituted Partnership. The Capital Accounts of such reconstituted
Partnership shall be maintained in accordance with the principles of this
Section 4.5.
(ii) Immediately prior to the conversion of a Subordinated Unit into a
Common Unit pursuant to Sections 5.7(b) or (c) or the sale, exchange or
other disposition of a Subordinated Unit by a holder thereof, the Capital
Account maintained for such Person with respect to its Subordinated Units
will (A) first, be allocated to the Subordinated Units to be converted or
transferred,as the case may be, in an amount equal to the product of (x)
the number of such Subordinated Units to be converted or transferred,as the
case may be, and (y) the Per Unit Capital Amount for a Common Unit, and (B)
second, any remaining balance in such Capital Account will be retained by
the transferor, regardless of whether it has retained any Subordinated
Units. Following any such allocation, the transferor's Capital Account, if
any, maintained with respect to the retained Subordinated Units, if any,
will have a balance equal to the amount allocated under clause (B)
hereinabove, and the transferee's Capital Account established with respect
to the transferred Subordinated Units will have a balance equal to the
amount allocated under clause (A) hereinabove.
(d) (i) Consistent with the provisions of Treasury Regulation Section
1.704-1(b)(2)(iv)(f), on an issuance of additional Units for cash or
Contributed Property or the conversion of the General Partner's Partnership
Interest to Common Units pursuant to Section 13.3(b), the Capital Account
of all Partners and the Carrying Value of each Partnership property
immediately prior to such issuance shall be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to such
Partnership property, as if such Unrealized Gain or Unrealized Loss had
been recognized on an actual sale of each such property immediately prior
to such issuance and had been allocated to the Partners at such time
pursuant to Sections 5.1(a) and 5.1(b). In determining such Unrealized Gain
or Unrealized Loss, the aggregate cash amount and fair market value of all
Partnership assets (including, without limitation, cash or cash
equivalents) immediately prior to the issuance of additional Units shall be
determined by the General Partner using such reasonable method of valuation
as it may adopt; provided, however, the General Partner, in arriving at
such valuation, must take fully into account the fair market value of the
Partnership Interests of all Partners at such time. The General Partner
shall allocate such aggregate value among the assets of the Partnership (in
such manner as it determines in its sole discretion to be reasonable) to
arrive at a fair market value for individual properties.
(ii) In accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f),
immediately prior to any actual or deemed distribution to a Partner of any
Partnership property (other than a distribution of cash that is not in
redemption or retirement of a Partnership Interest), the Capital Accounts
of all Partners and the Carrying Value of all Partnership property shall be
adjusted upward or
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downward to reflect any Unrealized Gain or Unrealized Loss attributable to
such Partnership property, as if such Unrealized Gain or Unrealized Loss
had been recognized in a sale of such property immediately prior to such
distribution for an amount equal to its fair market value, and had been
allocated to the Partners, at such time, pursuant to Section 5.1. Any
Unrealized Gain or Unrealized Loss attributable to such property shall be
allocated in the same manner as Net Termination Gain or Net Termination
Loss pursuant to Section 5.1(c); provided, however, that, in making any
such allocation, Net Termination Gain or Net Termination Loss actually
realized shall be allocated first. In determining such Unrealized Gain or
Unrealized Loss the aggregate cash amount and fair market value of all
Partnership assets (including, without limitation, cash or cash
equivalents) immediately prior to a distribution shall (A) in the case of a
deemed distribution occurring as a result of a termination of the
Partnership pursuant to Section 708 of the Code, be determined and
allocated in the same manner as that provided in Section 4.5(d)(i) or (B)
in the case of a liquidating distribution pursuant to Section 14.3 or 14.4,
be determined and allocated by the Liquidator using such reasonable method
of valuation as it may adopt.
4.6 INTEREST. No interest shall be paid by the Partnership on Capital
Contributions or on balances in Partners' Capital Accounts.
4.7 NO WITHDRAWAL. No Partner shall be entitled to withdraw any part of its
Capital Contributions or its Capital Account or to receive any distribution
from the Partnership, except as provided in Section 4.1, and Articles V, VII,
XIII and XIV.
4.8 LOANS FROM PARTNERS. Loans by a Partner to the Partnership shall not
constitute Capital Contributions. If any Partner shall advance funds to the
Partnership in excess of the amounts required hereunder to be contributed by
it to the capital of the Partnership, the making of such excess advances shall
not result in any increase in the amount of the Capital Account of such
Partner. The amount of any such excess advances shall be a debt obligation of
the Partnership to such Partner and shall be payable or collectible only out
of the Partnership assets in accordance with the terms and conditions upon
which such advances are made.
4.9 NO FRACTIONAL UNITS. No fractional Units shall be issued by the
Partnership.
4.10 SPLITS AND COMBINATIONS. (a) Subject to Section 4.10(d), the General
Partner may make a pro rata distribution of Units or other Partnership
Securities to all Record Holders or may effect a subdivision or combination of
Units or other Partnership Securities; provided, however, that after any such
distribution, subdivision or combination, each Partner shall have the same
Percentage Interest in the Partnership as before such distribution,
subdivision or combination.
(b) Whenever such a distribution, subdivision or combination of Units or
other Partnership Securities is declared, the General Partner shall select a
Record Date as of which the distribution, subdivision or combination shall be
effective and shall send notice of the distribution, subdivision or
combination at least 20 days prior to such Record Date to each Record Holder
as of the date not less than 10 days prior to the date of such notice. The
General Partner also may cause a firm of independent public accountants
selected by it to calculate the number of Units to be held by each Record
Holder after giving effect to such distribution, subdivision or combination.
The General Partner shall be entitled to rely on any certificate provided by
such firm as conclusive evidence of the accuracy of such calculation.
(c) Promptly following any such distribution, subdivision or combination,
the General Partner may cause Certificates to be issued to the Record Holders
of Units as of the applicable Record Date representing the new number of Units
held by such Record Holders, or the General Partner may adopt such other
procedures as it may deem appropriate to reflect such distribution,
subdivision or combination; provided, however, if any such distribution,
subdivision or combination results in a smaller total number of Units
Outstanding, the General Partner shall require, as a condition to the delivery
to a Record Holder of such new Certificate, the surrender of any Certificate
held by such Record Holder immediately prior to such Record Date.
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(d) The Partnership shall not issue fractional Units upon any distribution,
subdivision or combination of Units. If a distribution, subdivision or
combination of Units would result in the issuance of fractional Units but for
the provisions of Section 4.9 and this Section 4.10(d), each fractional Unit
shall be rounded to the nearest whole Unit (and a 0.5 Unit shall be rounded to
the next higher Unit).
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.1 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES. For purposes of maintaining
the Capital Accounts and in determining the rights of the Partners among
themselves, the Partnership's items of income, gain, loss and deduction
(computed in accordance with Section 4.5(b)) shall be allocated among the
Partners in each taxable year (or portion thereof) as provided hereinbelow.
(a) Net Income. After giving effect to the special allocations set forth
in Section 5.1(d), Net Income for each taxable period and all items of
income, gain, loss and deduction taken into account in computing Net Income
for such taxable period shall be allocated as follows:
(i) First, 100% to the General Partner until the aggregate Net Income
allocated to the General Partner pursuant to this Section 5.1(a)(i) for
the current taxable year and all previous taxable years is equal to the
aggregate Net Losses allocated to the General Partner pursuant to
Section 5.1(b)(iii) for all previous taxable years;
(ii) Second, 100% to the General Partner and the Limited Partners, in
accordance with their respective Percentage Interests, until the
aggregate Net Income allocated to such Partners pursuant to this
Section 5.1(a)(ii) for the current taxable year and all previous
taxable years is equal to the aggregate Net Losses allocated to such
Partners pursuant to Section 5.1(b)(ii) for all previous taxable years;
and
(iii) Third, the balance, if any, 100% to the General Partner and the
Limited Partners in accordance with their respective Percentage
Interests.
(b) Net Losses. After giving effect to the special allocations set forth
in Section 5.1(d), Net Losses for each taxable period and all items of
income, gain, loss and deduction taken into account in computing Net Losses
for such taxable period shall be allocated as follows:
(i) First, 100% to the General Partner and the Limited Partners, in
accordance with their respective Percentage Interests, until the
aggregate Net Losses allocated pursuant to this Section 5.1(b)(i) for
the current taxable year and all previous taxable years is equal to the
aggregate Net Income allocated to such Partners pursuant to Section
5.1(a)(iii) for all previous taxable years;
(ii) Second, 100% to the General Partner and the Limited Partners in
accordance with their respective Percentage Interests; provided, that
Net Losses shall not be allocated pursuant to this Section 5.1(b)(ii)
to the extent that such allocation would cause any Limited Partner to
have a deficit balance in its Adjusted Capital Account at the end of
such taxable year (or increase any existing deficit balance in its
Adjusted Capital Account); and
(iii) Third, the balance, if any, 100% to the General Partner.
(c) Net Termination Gains and Losses. After giving effect to the special
allocations set forth in Section 5.1(d), all items of income gain, loss and
deduction taken into account in computing Net Termination Gain or Net
Termination Loss for such taxable period shall be allocated in the same
manner as such Net Termination Gain or Net Termination Loss is allocated
hereunder. All allocations under this Section 5.1(c) shall be made after
Capital Account balances have been adjusted by all other allocations
provided under this Section 5.1 and after all distributions of Available
Cash provided under Section 5.4 have been made with respect to the taxable
period ending on the date of the Partnership's liquidation pursuant to
Section 14.3.
(i) If a Net Termination Gain is recognized (or deemed recognized
pursuant to Section 4.5(d)) from Termination Capital Transactions, such
Net Termination Gain shall be allocated
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among the General Partner, the Limited Partners and the Special Limited
Partners in the following manner (and the Adjusted Capital Accounts of
the Partners shall be increased by the amount so allocated in each of
the following subclauses, in the order listed, before an allocation is
made pursuant to the next succeeding subclause):
(A) First, to each Partner having a deficit balance in its
Adjusted Capital Account, in the proportion that such deficit
balance bears to the total deficit balances in the Adjusted Capital
Accounts of all Partners, until each such Partner has been allocated
Net Termination Gain equal to any such deficit balance in its
Adjusted Capital Account;
(B) Second, 99% to all Limited Partners holding Common Units, in
accordance with their relative Percentage Interests, and 1% to the
General Partner until the Adjusted Capital Account in respect of
each Common Unit then Outstanding is equal to the sum of (1) its
Unrecovered Initial Unit Price plus (2) the Minimum Quarterly
Distribution for the Quarter during which such Net Termination Gain
is recognized, reduced by any distribution pursuant to Sections
5.4(a)(i) or (b)(i) with respect to such Common Unit for such
Quarter (the amount determined pursuant to this clause (2) is
hereinafter defined as the "UNPAID MQD") plus (3) any then existing
Cumulative Common Unit Arrearage with respect to a Common Unit sold
by the Underwriters on the Closing Date;
(C) Third, if such Termination Capital Transaction occurs (or is
deemed to occur) prior to the expiration of the Subordination
Period, 99% to the Limited Partners holding Subordinated Units, in
the proportion that the total number of Subordinated Units held by
each such Limited Partner bears to the total number of Subordinated
Units then Outstanding, and 1% to the General Partner, in the amount
which will increase the Adjusted Capital Account of each such
Limited Partner maintained with respect to such Subordinated Units
to that amount which equals the sum of (1) the Unrecovered
Subordinated Unit Capital attributable to such Subordinated Units,
determined for the taxable year (or portion thereof) to which this
allocation of gain relates plus (2) the Minimum Quarterly
Distribution for the Quarter during which such Net Termination Gain
is recognized, reduced by any distribution pursuant to Section
5.4(a)(iii) with respect to such Subordinated Unit for such Quarter;
(D) Fourth, 99% to all Limited Partners, in accordance with their
relative Percentage Interests, and 1% to the General Partner until
the Adjusted Capital Account in respect of each Common Unit then
Outstanding is equal to the sum of (1) its Unrecovered Initial Unit
Price, plus (2) the Unpaid MQD, if any, for such Common Unit with
respect to the Quarter during which such Net Termination Gain is
recognized, plus (3) any then existing Cumulative Common Unit
Arrearage with respect to a Common Unit sold by the Underwriters on
the Closing Date, plus (4) the excess of (aa) the First Target
Distribution less the Minimum Quarterly Distribution for each
Quarter of the Partnership's existence over (bb) the amount of any
distributions of Cash from Operations that was distributed pursuant
to Sections 5.4(a)(iv) or 5.4 (b)(ii) (the sum of (1) plus (2) plus
(3) plus (4) is hereinafter defined as the "FIRST LIQUIDATION TARGET
AMOUNT");
(E) Fifth, 85.8673% to all Limited Partners, in accordance with
their relative Percentage Interests, and 13.1327% to the Special
Limited Partners, pro rata, and 1% to the General Partner until the
Adjusted Capital Account in respect of each Common Unit then
Outstanding is equal to the sum of (1) the First Liquidation Target
Amount, plus (2) the excess of (aa) the Second Target Distribution
less the First Target Distribution for each Quarter of the
Partnership's existence over (bb) the amount of any distributions of
Cash from Operations that was distributed pursuant to Section
5.4(a)(v) or 5.4(b)(iii) (the sum of (1) plus (2) is hereinafter
defined as the "SECOND LIQUIDATION TARGET AMOUNT");
(F) Sixth, 75.7653% to all Limited Partners, in accordance with
their relative Percentage Interests, and 23.2347% to the Special
Limited Partners, pro rata, and 1% to
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the General Partner until the Adjusted Capital Account in respect of
each Common Unit then Outstanding is equal to the sum of (1) the
Second Liquidation Target Amount, plus (2) the excess of (aa) the
Third Target Distribution less the Second Target Distribution for
each Quarter of the Partnership's existence over (bb) the amount of
any distributions of Cash from Operations that was distributed
pursuant to Section 5.4(a)(vi) or 5.4(b)(iv); and
(G) Finally, any remaining amount 50.5102% to all Limited
Partners, in accordance with their relative Percentage Interests,
and 48.4898% to the Special Limited Partners, pro rata, and 1% to
the General Partner.
(ii) If a Net Termination Loss is recognized (or deemed recognized
pursuant to Section 4.5(d)) from Termination Capital Transactions, such
Net Termination Loss shall be allocated to the Partners in the
following manner:
(A) First, if such Termination Capital Transaction occurs (or is
deemed to occur) prior to the conversion of the last outstanding
Subordinated Unit, 99% to the Partners holding Subordinated Units,
in proportion that the total number of Subordinated Units held by
each such Limited Partner bears to the total number of Subordinated
Units then Outstanding, and 1% to the General Partner, until the
Adjusted Capital Account in respect of each Subordinated Unit then
Outstanding has been reduced to zero;
(B) Second, 99% to all Limited Partners holding Common Units, in
accordance with their relative Percentage Interests, and 1% to the
General Partner, until the Adjusted Capital Account in respect of
each Common Unit then Outstanding has been reduced to zero; and
(C) Third, the balance, if any, 100% to the General Partner.
(d) Special Allocations. Notwithstanding any other provision of this
Section 5.1, the following special allocations shall be made for such
taxable period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 5.1, if there is a net decrease in
Partnership Minimum Gain during any Partnership taxable period, each
Partner shall be allocated items of Partnership income and gain for
such period (and, if necessary, subsequent periods) in the manner and
amounts provided in Treasury Regulation Sections 1.704-2(f)(6), 1.704-
2(g)(2) and 1.704-2(j)(2)(i), or any successor provision. For purposes
of this Section 5.1(d), each Partner's Adjusted Capital Account balance
shall be determined, and the allocation of income or gain required
hereunder shall be effected, prior to the application of any other
allocations pursuant to this Section 5.1(d) with respect to such
taxable period (other than an allocation pursuant to Sections
5.1(d)(vi) and 5.1(d)(vii)). This Section 5.1(d)(i) is intended to
comply with the Partnership Minimum Gain chargeback requirement in
Treasury Regulation Section 1.704-2(f) and shall be interpreted
consistently therewith.
(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain.
Notwithstanding the other provisions of this Section 5.1 (other than
Section 5.1(d)(i)), except as provided in Treasury Regulation Section
1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain during any Partnership taxable period, any Partner with a
share of Partner Nonrecourse Debt Minimum Gain at the beginning of such
taxable period shall be allocated items of Partnership income and gain
for such period (and, if necessary, subsequent periods) in the manner
and amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and
1.704-2(j)(2)(ii), or any successor provisions. For purposes of this
Section 5.1(d), each Partner's Adjusted Capital Account balance shall
be determined, and the allocation of income or gain required hereunder
shall be effected, prior to the application of any other allocations
pursuant to this Section 5.1(d), other than Section 5.1(d)(i) and other
than an allocation pursuant to Sections 5.1(d)(vi) and 5.1(d)(vii),
with respect to such taxable period. This Section 5.1(d)(ii) is
intended to comply with the chargeback of items of income and gain
requirement in Treasury Regulation Section 1.704-2(i)(4) and shall be
interpreted consistently therewith.
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(iii) Priority Allocations. If the amount of cash or the Net Agreed
Value of any property distributed (except cash or property distributed
pursuant to Section 14.3 or 14.4) to any Limited Partner with respect
to a taxable year is greater (on a per Unit basis) than the amount of
cash or the Net Agreed Value of property distributed to the other
Limited Partners (on a per Unit basis), then (1) each Limited Partner
receiving such greater cash or property distribution shall be allocated
gross income in an amount equal to the product of (aa) the amount by
which the distribution (on a per Unit basis) to such Limited Partner
exceeds the distribution (on a per Unit basis) to the Limited Partners
receiving the smallest distribution and (bb) the number of Units owned
by the Limited Partner receiving the greater distribution; and (2) the
General Partner shall be allocated gross income in an aggregate amount
equal to 1/99 of the sum of the amounts allocated in clause (1) above.
All or a portion of the remaining items of Partnership gross income or
gain for the taxable period, if any, shall be allocated 100% to the
Special Limited Partners, pro rata, until the aggregate amount of such
items allocated to the Special Limited Partners, pro rata, under this
paragraph (iii) for the current taxable period and all previous taxable
periods is equal to the cumulative amount of cash distributed to the
Special Limited Partners, pro rata, from the Closing Date through the
end of such taxable period.
(iv) Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations or distributions described in
Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-
1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Partnership
income and gain shall be specifically allocated to such Partner in an
amount and manner sufficient to eliminate, to the extent required by
the Treasury Regulations promulgated under Section 704(b) of the Code,
the deficit balance, if any, in its Adjusted Capital Account created by
such adjustments, allocations or distributions as quickly as possible
unless such deficit balance is otherwise eliminated pursuant to Section
5.1(d)(i) or (ii).
(v) Gross Income Allocations. In the event any Partner has a deficit
balance in its Adjusted Capital Account at the end of any Partnership
taxable period, such Partner shall be specially allocated items of
Partnership gross income and gain in the amount of such excess as
quickly as possible; provided, that an allocation pursuant to this
Section 5.1(d)(v) shall be made only if and to the extent that such
Partner would have a deficit balance in its Adjusted Capital Account
after all other allocations provided for in this Section 5.1 have been
tentatively made as if this Section 5.1(d)(v) were not in this
Agreement.
(vi) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
period shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in
its good faith discretion that the Partnership's Nonrecourse Deductions
must be allocated in a different ratio to satisfy the safe harbor
requirements of the Treasury Regulations promulgated under Section
704(b) of the Code, the General Partner is authorized, upon notice to
the Limited Partners, to revise the prescribed ratio to the numerically
closest ratio that does satisfy such requirements.
(vii) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions
for any taxable period shall be allocated 100% to the Partner that
bears the Economic Risk of Loss with respect to the Partner Nonrecourse
Debt to which such Partner Nonrecourse Deductions are attributable in
accordance with Treasury Regulation Section 1.704-2(i). If more than
one Partner bears the Economic Risk of Loss with respect to a Partner
Nonrecourse Debt, such Partner Nonrecourse Deductions attributable
thereto shall be allocated between or among such Partners in accordance
with the ratios in which they share such Economic Risk of Loss.
(viii) Nonrecourse Liabilities. For purposes of Treasury Regulation
Section 1.752-3(a)(3), the Partners agree that Nonrecourse Liabilities
of the Partnership in excess of the sum of (A)
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the amount of Partnership Minimum Gain and (B) the total amount of
Nonrecourse Built-in Gain shall be allocated among the Partners in
accordance with their respective Percentage Interests.
(ix) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b)
or 743(b) of the Code is required, pursuant to Treasury Regulation
Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining
Capital Accounts, the amount of such adjustment to the Capital Accounts
shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis),
and such item of gain or loss shall be specially allocated to the
Partners in a manner consistent with the manner in which their Capital
Accounts are required to be adjusted pursuant to such Section of the
Treasury regulations.
(x) Economic Uniformity. At the election of the General Partner with
respect to any taxable period ending upon, or after, the termination of
the Subordination Period, all or a portion of the remaining items of
Partnership gross income or gain for such taxable period, if any, shall
be allocated 100% to each Partner holding Subordinated Units in the
proportion of the number of Subordinated Units held by such Partner to
the total number of Subordinated Units then Outstanding, until each
such Partner has been allocated an amount of gross income or gain which
increases the Capital Account maintained with respect to such
Subordinated Units to an amount equal to the product of (A) the number
of Subordinated Units held by such Partner and (B) the Per Unit Capital
Amount for a Common Unit. The purpose of this allocation is to
establish uniformity between the Capital Accounts underlying
Subordinated Units and the Capital Accounts underlying Common Units
held by Persons other than the General Partner and its Affiliates
immediately prior to the conversion of such Subordinated Units into
Common Units. This allocation method for establishing such economic
uniformity will only be available to the General Partner if the method
for allocating the Capital Account maintained with respect to the
Subordinated Units between the transferred and retained Subordinated
Units pursuant to Section 4.5(c)(ii) does not otherwise provide such
economic uniformity to the Subordinated Units.
(xi) Curative Allocation.
(A) Notwithstanding any other provision of this Section 5.1, other
than the Required Allocations, the Required Allocations shall be
taken into account in making the Agreed Allocations so that, to the
extent possible, the net amount of items of income, gain, loss and
deduction allocated to each Partner pursuant to the Required
Allocations and the Agreed Allocations, together, shall be equal to
the net amount of such items that would have been allocated to each
such Partner under the Agreed Allocations had the Required
Allocations and the related Curative Allocation not otherwise been
provided in this Section 5.1. Notwithstanding the preceding
sentence, Required Allocations relating to (1) Nonrecourse
Deductions shall not be taken into account except to the extent that
there has been a decrease in Partnership Minimum Gain and (2)
Partner Nonrecourse Deductions shall not be taken into account
except to the extent that there has been a decrease in Partner
Nonrecourse Debt Minimum Gain. Allocations pursuant to this Section
5.1(d)(xi)(A) shall only be made with respect to Required
Allocations to the extent the General Partner reasonably determines
that such allocations will otherwise be inconsistent with the
economic agreement among the Partners. Further, allocations pursuant
to this Section 5.1(d)(xi)(A) shall be deferred with respect to
allocations pursuant to clauses (1) and (2) hereof to the extent the
General Partner reasonably determines that such allocations are
likely to be offset by subsequent Required Allocations.
(B) The General Partner shall have reasonable discretion, with
respect to each taxable period, to (1) apply the provisions of
Section 5.1(d)(xi)(A) in whatever order is
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most likely to minimize the economic distortions that might
otherwise result from the Required Allocations, and (2) divide all
allocations pursuant to Section 5.1(d)(xi)(A) among the Partners in
a manner that is likely to minimize such economic distortions.
(xii) Retirement of Assumed Indebtedness. All losses or deductions
attributable to premiums, consent fees, or other expenditures
incurred by the Partnership to retire indebtedness assumed from the
General Partner pursuant to the Contribution Agreement shall be
allocated to the General Partner.
(xiii) First Year Allocation. Net Income or Net Loss of the
Partnership for the period beginning on the Closing Date and ending
on the last day of the taxable year of the Partnership that includes
the Closing Date shall be allocated 100% to the General Partner. For
the immediately succeeding taxable year of the Partnership, items of
income or gain (if the allocation in the prior year was an
allocation of Net Income) or items of loss and deduction (if the
allocation in the prior year was an allocation of Net Loss) shall be
allocated 100% to the Limited Partners, in accordance with their
Percentage Interests, in an amount equal to 99% of the Net Income or
Net Loss allocated to the General Partner in the prior taxable year.
5.2 ALLOCATIONS FOR TAX PURPOSES. (a) Except as otherwise provided herein,
for federal income tax purposes, each item of income, gain, loss and deduction
shall be allocated among the Partners in the same manner as its correlative
item of "book" income, gain, loss or deduction is allocated pursuant to
Section 5.1.
(b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
federal income tax purposes among the Partners as follows:
(i) (A) In the case of a Contributed Property, such items attributable
thereto shall be allocated among the Partners in the manner provided under
Section 704(c) of the Code that takes into account the variation between
the Agreed Value of such property and its adjusted basis at the time of
contribution; and (B) except as otherwise provided in Section 5.2(b)(iii),
any item of Residual Gain or Residual Loss attributable to a Contributed
Property shall be allocated among the Partners in the same manner as its
correlative item of "book" gain or loss is allocated pursuant to Section
5.1.
(ii) (A) In the case of an Adjusted Property, such items shall (1) first,
be allocated among the Partners in a manner consistent with the principles
of Section 704(c) of the Code to take into account the Unrealized Gain or
Unrealized Loss attributable to such property and the allocations thereof
pursuant to Section 4.5(d)(i) or (ii), and (2) second, in the event such
property was originally a Contributed Property, be allocated among the
Partners in a manner consistent with Section 5.2(b)(i)(A); and (B) except
as otherwise provided in Section 5.2(b)(iii), any item of Residual Gain or
Residual Loss attributable to an Adjusted Property shall be allocated among
the Partners in the same manner as its correlative item of "book" gain or
loss is allocated pursuant to Section 5.1.
(iii) The General Partner shall apply the principles of Temporary
Regulation Section 1.704-3T to eliminate Book-Tax Disparities.
(c) For the proper administration of the Partnership and for the
preservation of uniformity of the Units (or any class or classes thereof), the
General Partner shall have sole discretion to (i) adopt such conventions as it
deems appropriate in determining the amount of depreciation, amortization and
cost recovery deductions; (ii) make special allocations for federal income tax
purposes of income (including, without limitation, gross income) or
deductions; and (iii) amend the provisions of this Agreement as appropriate
(x) to reflect the proposal or promulgation of Treasury regulations under
Section 704(b) or
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Section 704(c) of the Code or (y) otherwise to preserve or achieve uniformity
of the Units (or any class or classes thereof). The General Partner may adopt
such conventions, make such allocations and make such amendments to this
Agreement as provided in this Section 5.2(c) only if such conventions,
allocations or amendments would not have a material adverse effect on the
Partners, the holders of any class or classes of Units issued and Outstanding
or the Partnership, and if such allocations are consistent with the principles
of Section 704 of the Code.
(d) The General Partner in its sole discretion may determine to depreciate
or amortize the portion of an adjustment under Section 743(b) of the Code
attributable to unrealized appreciation in any Adjusted Property (to the
extent of the unamortized Book-Tax Disparity) using a predetermined rate
derived from the depreciation or amortization method and useful life applied
to the Partnership's common basis of such property, despite the inconsistency
of such approach with Proposed Treasury Regulation Section 1.168-2(n),
Treasury Regulation Section 1.167(c)-1(a)(6) or the legislative history of
Section 197 of the Code. If the General Partner determines that such reporting
position cannot reasonably be taken, the General Partner may adopt
depreciation and amortization conventions under which all purchasers acquiring
Units in the same month would receive depreciation and amortization
deductions, based upon the same applicable rate as if they had purchased a
direct interest in the Partnership's property. If the General Partner chooses
not to utilize such aggregate method, the General Partner may use any other
reasonable depreciation and amortization conventions to preserve the
uniformity of the intrinsic tax characteristics of any Units that would not
have a material adverse effect on the Limited Partners or the Record Holders
of any class or classes of Units.
(e) Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after
taking into account other required allocations of gain pursuant to this
Section 5.2, be characterized as Recapture Income in the same proportions and
to the same extent as such Partners (or their predecessors in interest) have
been allocated any deductions directly or indirectly giving rise to the
treatment of such gains as Recapture Income.
(f) All items of income, gain, loss, deduction and credit recognized by the
Partnership for federal income tax purposes and allocated to the Partners in
accordance with the provisions hereof shall be determined without regard to
any election under Section 754 of the Code which may be made by the
Partnership; provided, however, that such allocations, once made, shall be
adjusted as necessary or appropriate to take into account those adjustments
permitted or required by Sections 734 and 743 of the Code.
(g) Each item of Partnership income, gain, loss and deduction attributable
to a transferred Partnership Interest of the General Partner or to transferred
Units shall, for federal income tax purposes, be determined on an annual basis
and prorated on a monthly basis and shall be allocated to the Partners as of
the opening of the New York Stock Exchange on the first Business Day of each
month; provided, however, that (i) if the Underwriter's Overallotment Option
is not exercised, such items for the period beginning on the Closing Date and
ending on the last day of the month in which the Closing Date occurs shall be
allocated to Partners as of the opening of the New York Stock Exchange on the
first Business Day of the next succeeding month or (ii) if the Underwriters'
Overallotment Option is exercised, such items for the period beginning on the
Closing Date and ending on the last day of the month in which the Second Time
of Delivery (as defined in the Underwriting Agreement) occurs shall be
allocated to the Partners as of the opening of the New York Stock Exchange on
the first Business Day of the next succeeding month; and provided, further,
that gain or loss on a sale or other disposition of any assets of the
Partnership other than in the ordinary course of business shall be allocated
to the Partners as of the opening of the New York Stock Exchange on the first
Business Day of the month in which such gain or loss is recognized for federal
income tax purposes. The General Partner may revise, alter or otherwise modify
such methods of allocation as it determines necessary, to the extent permitted
or required by Section 706 of the Code and the regulations or rulings
promulgated thereunder.
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(h) Allocations that would otherwise be made to a Limited Partner under the
provisions of this Article V shall instead be made to the beneficial owner of
Units held by a nominee in any case in which the nominee has furnished the
identity of such owner to the Partnership in accordance with Section 6031(c)
of the Code or any other method acceptable to the General Partner in its sole
discretion.
5.3 REQUIREMENT AND CHARACTERIZATION OF DISTRIBUTIONS. (a) Within 45 days
following the end of (i) the period of time beginning on the Closing Date and
ending on October 31, 1994 and (ii) each Quarter commencing with the Quarter
beginning on November 1, 1994, an amount equal to 100% of Available Cash with
respect to such period or Quarter shall be distributed in accordance with this
Article V by the Partnership to the Partners, as of the Record Date selected
by the General Partner in its reasonable discretion. All amounts of Available
Cash distributed by the Partnership on any date from any source shall be
deemed to be Cash from Operations until the sum of all amounts of Available
Cash theretofore distributed by the Partnership to Partners pursuant to
Section 5.4 equals the aggregate amount of all Cash from Operations generated
by the Partnership since the Closing Date through the close of the immediately
preceding Quarter. Any remaining amounts of Available Cash distributed by the
Partnership on such date shall, except as otherwise provided in Section 5.5,
be deemed to be Cash from Interim Capital Transactions.
(b) Notwithstanding the definitions of Available Cash and Cash from
Operations contained herein, disbursements (including, without limitation,
contributions to the Operating Partnership or disbursements on behalf of the
Operating Partnership) made or cash reserves established, increased or reduced
after the end of any Quarter but on or before the date on which the
Partnership makes its distribution of Available Cash in respect of such
Quarter pursuant to Section 5.3(a) shall be deemed to have been made,
established, increased or reduced for purposes of determining Available Cash
and Cash from Operations, within such Quarter if the General Partner so
determines. Notwithstanding the foregoing, in the event of the dissolution and
liquidation of the Partnership, all proceeds of such liquidation shall be
applied and distributed in accordance with, and subject to the terms and
conditions of, Sections 14.3 and 14.4.
5.4 DISTRIBUTIONS OF CASH FROM OPERATIONS. (a) During Subordination Period.
Available Cash with respect to any Quarter within the Subordination Period
that is deemed to be Cash from Operations pursuant to the provisions of
Section 5.3 or 5.5 shall be distributed as follows, except as otherwise
required by Section 4.2(b) in respect of additional Partnership Securities
issued pursuant thereto:
(i) First, 99% to the Limited Partners holding Common Units, in
accordance with their relative Percentage Interests, and 1% to the General
Partner until there has been distributed in respect of each Common Unit
then Outstanding an amount equal to the Minimum Quarterly Distribution;
(ii) Second, 99% to the Limited Partners holding Common Units, in
accordance with their relative Percentage Interests, and 1% to the General
Partner until there has been distributed in respect of each Common Unit
then Outstanding an amount equal to the Cumulative Common Unit Arrearage,
if any, existing with respect to such Quarter;
(iii) Third, 99% to the Limited Partners holding Subordinated Units, in
accordance with their relative Percentage Interests, and 1% to the General
Partner until there has been distributed in respect of each Subordinated
Unit then Outstanding an amount equal to the Minimum Quarterly
Distribution;
(iv) Fourth, 99% to all Limited Partners, in accordance with their
relative Percentage Interests, and 1% to the General Partner until there
has been distributed in respect of each Unit then Outstanding an amount
equal to the excess of the First Target Distribution over the Minimum
Quarterly Distribution;
(v) Fifth, 85.8673% to all Limited Partners, in accordance with their
relative Percentage Interests, 13.1327% to the Special Limited Partners,
pro rata, and 1% to the General Partner until
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there has been distributed in respect of each Unit then Outstanding an
amount equal to the excess of the Second Target Distribution over the First
Target Distribution;
(vi) Sixth, 75.7653% to all Limited Partners, in accordance with their
relative Percentage Interests, 23.2347% to the Special Limited Partners,
pro rata, and 1% to the General Partner until there has been distributed in
respect of each Unit then Outstanding an amount equal to the excess of the
Third Target Distribution over the Second Target Distribution; and
(vii) Thereafter, 50.5102% to all Limited Partners, in accordance with
their relative Percentage Interests, 48.4898% to the Special Limited
Partners, pro rata, and 1% to the General Partner;
provided, however, if the Minimum Quarterly Distribution, the First Target
Distribution, the Second Target Distribution and the Third Target Distribution
have been reduced to zero pursuant to the second sentence of Section 5.6, the
distributions of Available Cash that is deemed to be Cash from Operations with
respect to any Quarter will be made in accordance with Section 5.4(a)(vii).
(b) After Subordination Period. Available Cash with respect to any Quarter
after the Subordination Period that is deemed to be Cash from Operations
pursuant to the provisions of Section 5.3 or 5.5 shall be distributed as
follows, except as otherwise required by Section 4.2(b) in respect of
additional Partnership Securities issued pursuant thereto:
(i) First, 99% to all Limited Partners, in accordance with their relative
Percentage Interests, and 1% to the General Partner until there has been
distributed in respect of each Unit then Outstanding an amount equal to the
Minimum Quarterly Distribution;
(ii) Second, 99% to all Limited Partners, in accordance with their
relative Percentage Interests, and 1% to the General Partner until there
has been distributed in respect of each Unit then Outstanding an amount
equal to the excess of the First Target Distribution over the Minimum
Quarterly Distribution;
(iii) Third, 85.8673% to all Limited Partners, in accordance with their
relative Percentage Interests, 13.1327% to the Special Limited Partners,
pro rata, and 1% to the General Partner until there has been distributed in
respect of each Unit then Outstanding an amount equal to the excess of the
Second Target Distribution over the First Target Distribution;
(iv) Fourth, 75.7653% to all Limited Partners, in accordance with their
relative Percentage Interests, 23.2347% to the Special Limited Partners,
pro rata, and 1% to the General Partner until there has been distributed in
respect of each Unit then Outstanding an amount equal to the excess of the
Third Target Distribution over the Second Target Distribution; and
(v) Thereafter, 50.5102% to all Limited Partners, in accordance with
their relative Percentage Interests, 48.4898% to the Special Limited
Partners, pro rata, and 1% to the General Partner;
provided, however, if the Minimum Quarterly Distribution, the First Target
Distribution, the Second Target Distribution and the Third Target Distribution
have been reduced to zero pursuant to the second sentence of Section 5.6, the
distributions of Available Cash that is deemed to be Cash from Operations with
respect to any Quarter will be made in accordance with Section 5.4(b)(v).
5.5 DISTRIBUTIONS OF CASH FROM INTERIM CAPITAL TRANSACTIONS. Available Cash
that constitutes Cash from Interim Capital Transactions shall be distributed,
unless the provisions of Section 5.3 require otherwise, 99% to all Limited
Partners, in accordance with their relative Percentage Interests, and 1% to
the General Partner until a hypothetical holder of a Common Unit acquired on
the Closing Date has received with respect to such Common Unit, during the
period since the Closing Date through such date, distributions of Available
Cash that are deemed to be Cash from Interim Capital Transactions in an
aggregate amount equal to the Initial Unit Price. Thereafter, all Available
Cash shall be distributed as if it were Cash from Operations and shall be
distributed in accordance with Section 5.4.
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5.6 ADJUSTMENT OF MINIMUM QUARTERLY DISTRIBUTION AND TARGET DISTRIBUTION
LEVELS. (a) The Minimum Quarterly Distribution, First Target Distribution,
Second Target Distribution and Third Target Distribution shall be
proportionately adjusted in the event of any distribution, combination or
subdivision (whether effected by a distribution payable in Units or otherwise)
of Units or other Partnership Securities in accordance with Section 4.10. In
the event of a distribution of Available Cash that is deemed to be Cash from
Interim Capital Transactions, the Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution and Third Target Distribution shall
be adjusted proportionately downward to equal the product obtained by
multiplying the otherwise applicable Minimum Quarterly Distribution, First
Target Distribution, Second Target Distribution and Third Target Distribution,
as the case may be, by a fraction of which the numerator is the Unrecovered
Initial Unit Price of the Common Units immediately after giving effect to such
distribution and of which the denominator is the Unrecovered Initial Unit
Price of the Common Units immediately prior to giving effect to such
distribution.
(b) The Minimum Quarterly Distribution, First Target Distribution, Second
Target Distribution and Third Target Distribution shall also be subject to
adjustment pursuant to Section 9.6.
5.7 SPECIAL PROVISIONS RELATING TO THE SUBORDINATED UNITS.
(a) Except with respect to the right to vote on or approve matters requiring
the vote or approval of a percentage of the holders of Outstanding Common
Units and the right to participate in allocations of income, gain, loss and
deduction and distributions of cash made with respect to Common Units pursuant
to this Article V, the holder of a Subordinated Unit shall have all of the
rights and obligations of a Limited Partner holding Common Units hereunder;
provided, however, that immediately upon the end of the Subordination Period
or upon the conversion of Subordinated Units as provided in subparagraph (b)
below, the holder of a Subordinated Unit shall possess all of the rights and
obligations of a Limited Partner holding Common Units hereunder, including,
without limitation, the right to vote as a Common Unitholder, the right to
participate in allocations of income, gain, loss and deduction and
distributions of cash made with respect to Common Units pursuant to this
Article V (but such Subordinated Units shall remain subject to the provisions
of Sections 4.5(c)(ii) and 5.1(d)(x)).
(b) A total of 5,372,853 Subordinated Units will convert into Common Units
(subject to paragraph (c) immediately below) on the first day of any Quarter
commencing on or after August 1, 1997, provided that each of the following two
tests have been satisfied:
(i) the Partnership has, with respect to each of the two consecutive
four-Quarter periods immediately preceding such date, made distributions
of Available Cash constituting Cash from Operations on the Common Units
and the Subordinated Units in an amount equal to or greater than the
Minimum Quarterly Distribution on each Common Unit and Subordinated Unit
Outstanding for such periods; provided, however, that in determining the
amount of Available Cash constituting Cash from Operations distributed in
any four-Quarter period the following amounts shall not be included: (A)
any positive balance in Cash from Operations at the beginning of such
four-Quarter period, (B) any net increase in working capital borrowings
in such four-Quarter period and (C) any net decrease in reserves in such
four-Quarter period; and
(ii) the amount of Available Cash constituting Cash from Operations
generated by the Partnership in each of the two consecutive four-Quarter
periods immediately preceding such date, equaled or exceeded 125% of the
Minimum Quarterly Distribution on all Common Units and all Subordinated
Units for such periods; provided, however, that in determining the amount
of Available Cash constituting Cash from Operations generated by the
Partnership in any four-Quarter period (A) the following amounts shall
not be included: (1) any positive balance in Cash from Operations at the
beginning of such four-Quarter period, (2) any net increase in working
capital borrowings in such four-Quarter period and (3) any net decrease
in reserves in such four-
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Quarter period, and (B) any net increase in reserves in such four-Quarter
period to provide funds for distributions with respect to Units and any
general partner interests in the Partnership shall be included.
(c) After the end of the Subordination Period or upon the occurrence of the
events described in subparagraph (b) of this Section 5.7, once the General
Partner determines, based on advice of counsel, that a Subordinated Unit has,
as a substantive matter, like intrinsic economic and federal income tax
characteristics, in all material respects, to the intrinsic economic and
federal income tax characteristics of a Common Unit then Outstanding, then the
Subordinated Unit shall be converted to a Common Unit (on a one-for-one basis)
and from that time forward (which time shall, except as provided in
subparagraph (b) above, in no event commence before the first day following
the end of the Subordination Period) shall constitute a Common Unit for all
purposes under this Agreement. In connection with the condition set forth
above, it is understood that the General Partner may take whatever reasonable
steps are required to provide economic uniformity to the Subordinated Units in
preparation for a conversion into Common Units, including the application of
Sections 4.5(c) and 5.1(d)(x); provided, however, that no such steps may be
taken that would have a material adverse effect on the Limited Partners
holding Common Units or the Record Holders of any class of Units.
5.8 SPECIAL PROVISIONS RELATING TO THE SPECIAL LIMITED PARTNERS.
Notwithstanding anything to the contrary set forth in this Agreement, the
Special Limited Partners (a) shall (i) possess the rights and obligations
provided in this Agreement with respect to a Limited Partner pursuant to
Articles VI and VII and (ii) have a Capital Account as a Partner pursuant to
Section 4.5 and all other provisions related thereto and (b) shall not (i) be
entitled to vote on any matters requiring the approval or vote of the holders
of Outstanding Units, (ii) be entitled to any distributions other than to
Partners pursuant to Sections 5.4(a)(v), (vi) and (vii), 5.4(b)(iii), (iv) and
(v), 14.3 and 14.4 or (iii) be allocated items of income, gain, loss or
deduction other than as specified in this Article V.
ARTICLE VI
MANAGEMENT AND OPERATION OF BUSINESS
6.1 MANAGEMENT. (a) The General Partner shall conduct, direct and manage all
activities of the Partnership. Except as otherwise expressly provided in this
Agreement, all management powers over the business and affairs of the
Partnership shall be exclusively vested in the General Partner, and no Limited
Partner or Assignee shall have any management power over the business and
affairs of the Partnership. In addition to the powers now or hereafter granted
a general partner of a limited partnership under applicable law or which are
granted to the General Partner under any other provision of this Agreement,
the General Partner, subject to Section 6.3, shall have full power and
authority to do all things and on such terms as it, in its sole discretion,
may deem necessary or appropriate to conduct the business of the Partnership,
to exercise all powers set forth in Section 3.2 and to effectuate the purposes
set forth in Section 3.1, including, without limitation, (i) the making of any
expenditures, the lending or borrowing of money, the assumption or guarantee
of, or other contracting for, indebtedness and other liabilities, the issuance
of evidences of indebtedness and the incurring of any other obligations; (ii)
the making of tax, regulatory and other filings, or rendering of periodic or
other reports to governmental or other agencies having jurisdiction over the
business or assets of the Partnership; (iii) the acquisition, disposition,
mortgage, pledge, encumbrance, hypothecation or exchange of any or all of the
assets of the Partnership or the merger or other combination of the
Partnership with or into another Person (the matters described in this clause
(iii) being subject, however, to any prior approval that may be required by
Section 6.3); (iv) the use of the assets of the Partnership (including,
without limitation, cash on hand) for any purpose consistent with the terms of
this Agreement, including, without limitation, the financing of the conduct of
the operations of the Partnership or the Operating Partnership, the lending of
funds to other Persons (including, without limitation, the Operating
Partnership, the General Partner and Affiliates of the General Partner) and
the repayment of obligations of the Partnership and the Operating Partnership
and the making of capital contributions to the
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Operating Partnership; (v) the negotiation, execution and performance of any
contracts, conveyances or other instruments (including, without limitation,
instruments that limit the liability of the Partnership under contractual
arrangements to all or particular assets of the Partnership, with the other
party to the contract to have no recourse against the General Partner or its
assets other than its interest in the Partnership, even if same results in the
terms of the transaction being less favorable to the Partnership than would
otherwise be the case); (vi) the distribution of Partnership cash; (vii) the
selection and dismissal of employees and agents (including, without
limitation, employees having titles such as "president," "vice president,"
"secretary" and "treasurer") and agents, outside attorneys, accountants,
consultants and contractors and the determination of their compensation and
other terms of employment or hiring; (viii) the maintenance of such insurance
for the benefit of the Partnership, the Operating Partnership and the Partners
(including, without limitation, the assets of the Operating Partnership and
the Partnership) as it deems necessary or appropriate; (ix) the formation of,
or acquisition of an interest in, and the contribution of property and the
making of loans to, any further limited or general partnerships, joint
ventures, corporations or other relationships (including, without limitation,
the acquisition of interests in, and the contributions of property to, the
Operating Partnership from time to time); (x) the control of any matters
affecting the rights and obligations of the Partnership, including, without
limitation, the bringing and defending of actions at law or in equity and
otherwise engaging in the conduct of litigation and the incurring of legal
expense and the settlement of claims and litigation; (xi) the indemnification
of any Person against liabilities and contingencies to the extent permitted by
law; (xii) the entering into of listing agreements with The New York Stock
Exchange, Inc. and any other securities exchange and the delisting of some or
all of the Units from, or requesting that trading be suspended on, any such
exchange (subject to any prior approval that may be required under Section
1.6); (xiii) the purchase, sale or other acquisition or disposition of Units;
and (xiv) the undertaking of any action in connection with the Partnership's
participation in the Operating Partnership as the limited partner (including,
without limitation, contributions or loans of funds by the Partnership to the
Operating Partnership).
(b) Notwithstanding any other provision of this Agreement, the Operating
Partnership Agreement, the Delaware Act or any applicable law, rule or
regulation, each of the Partners and Assignees and each other Person who may
acquire an interest in Units hereby (i) approves, ratifies and confirms the
execution, delivery and performance by the parties thereto of the Operating
Partnership Agreement, the Underwriting Agreement, the Contribution Agreement,
the agreements and other documents filed as exhibits to the Registration
Statement, and the other agreements described in or filed as a part of the
Registration Statement, and the engaging by any Affiliate of the General
Partner in business and activities (other than Restricted Activities) that are
in direct competition with the business and activities of the Partnership and
the Operating Partnership; (ii) agrees that the General Partner (on its own or
through any officer of the Partnership) is authorized to execute, deliver and
perform the agreements referred to in clause (i) of this sentence and the
other agreements, acts, transactions and matters described in or contemplated
by the Registration Statement on behalf of the Partnership without any further
act, approval or vote of the Partners or the Assignees or the other Persons
who may acquire an interest in Units; and (iii) agrees that the execution,
delivery or performance by the General Partner, the Partnership, the Operating
Partnership or any Affiliate of any of them, of this Agreement or any
agreement authorized or permitted under this Agreement (including, without
limitation, the exercise by the General Partner or any Affiliate of the
General Partner of the rights accorded pursuant to Article XVII), or the
engaging by any Affiliate of the General Partner in any business and
activities (other than Restricted Activities) that are in direct competition
with the business and activities of the Partnership and the Operating
Partnership, shall not constitute a breach by the General Partner of any duty
that the General Partner may owe the Partnership or the Limited Partners or
the Assignees or any other Persons under this Agreement (or any other
agreements) or of any duty stated or implied by law or equity. The term
"Affiliate" when used in this Section 6.1(b) with respect to the General
Partner shall not include the Partnership, the Operating Partnership or any
further limited partnership of which the Partnership or the Operating
Partnership is, directly or indirectly, a limited partner.
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6.2 CERTIFICATE OF LIMITED PARTNERSHIP. The General Partner has caused the
Certificate of Limited Partnership to be filed with the Secretary of State of
the State of Delaware as required by the Delaware Act and shall use all
reasonable efforts to cause to be filed such other certificates or documents
as may be determined by the General Partner in its sole discretion to be
reasonable and necessary or appropriate for the formation, continuation,
qualification and operation of a limited partnership (or a partnership in
which the limited partners have limited liability) in the State of Delaware or
any other state in which the Partnership may elect to do business or own
property. To the extent that such action is determined by the General Partner
in its sole discretion to be reasonable and necessary or appropriate, the
General Partner shall file amendments to and restatements of the Certificate
of Limited Partnership and do all things to maintain the Partnership as a
limited partnership (or a partnership in which the limited partners have
limited liability) under the laws of the State of Delaware or of any other
state in which the Partnership may elect to do business or own property.
Subject to the terms of Section 7.5(a), the General Partner shall not be
required, before or after filing, to deliver or mail a copy of the Certificate
of Limited Partnership, any qualification document or any amendment thereto to
any Limited Partner or Assignee.
6.3 RESTRICTIONS ON GENERAL PARTNER'S AUTHORITY. (a) The General Partner may
not, without written approval of the specific act by all of the Outstanding
Units or by other written instrument executed and delivered by all of the
Outstanding Units subsequent to the date of this Agreement, take any action in
contravention of this Agreement, including, without limitation, (i) any act
that would make it impossible to carry on the ordinary business of the
Partnership, except as otherwise provided in this Agreement; (ii) possess
Partnership property, or assign any rights in specific Partnership property,
for other than a Partnership purpose; (iii) admit a Person as a Partner,
except as otherwise provided in this Agreement; (iv) amend this Agreement in
any manner, except as otherwise provided in this Agreement; or (v) transfer
its interest as general partner of the Partnership, except as otherwise
provided in this Agreement.
(b) Except as provided in Articles XIV and XVI, the General Partner may not
sell, exchange or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related
transactions or approve on behalf of the Partnership the sale, exchange or
other disposition of all or substantially all of the assets of the Operating
Partnership, without the approval of at least a majority of the Outstanding
Units (other than Units owned by the General Partner and its Affiliates)
during the Subordination Period and thereafter without the approval of at
least a majority of the Outstanding Units; provided, however, that this
provision shall not preclude or limit the General Partner's ability to
mortgage, pledge, hypothecate or grant a security interest in all or
substantially all of the Partnership's assets and shall not apply to any
forced sale of any or all of the Partnership's assets pursuant to the
foreclosure of, or other realization upon, any such encumbrance. Without the
approval of at least two-thirds of the Outstanding Units, the General Partner
shall not, on behalf of the Partnership, (i) consent to any amendment to the
Operating Partnership Agreement or, except as expressly permitted by Section
6.9(d), take any action permitted to be taken by a partner of the Operating
Partnership, in either case, that would have a material adverse effect on the
Partnership as a partner of the Operating Partnership or (ii) except as
permitted under Sections 11.2, 13.1 and 13.2 elect or cause the Partnership to
elect a successor general partner of the Operating Partnership.
(c) Unless approved by the affirmative vote of the holders of at least two-
thirds of each class of Outstanding Units, including two-thirds of the Common
Units (excluding for purposes of such determination Common Units owned by the
General Partner and its Affiliates), the General Partner shall not take any
action or refuse to take any reasonable action the effect of which, if taken
or not taken, as the case may be, would be to cause the Partnership or the
Operating Partnership to be treated as an association taxable as a corporation
or otherwise to be taxed as an entity for federal income tax purposes;
provided that this Section 6.3(c) shall not be construed to apply to
amendments to this Agreement (which are governed by Article XV) or mergers or
consolidations of the Partnership with any Person (which are governed by
Article XVI).
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(d) At all times while serving as the general partner of the Partnership,
the General Partner shall not (except as provided below) make any dividend or
distribution on, or repurchase any shares of, its stock or take any other
action within its control unless it shall first receive an Opinion of Counsel
that the effect of such dividend, distribution, repurchase or other action
would not reduce its net worth below an amount such that the Partnership will
be treated as an association taxable as a corporation for federal income tax
purposes; provided, however, to the extent the General Partner receives
distributions of cash from the Partnership, the Operating Partnership or any
other partnership of which the Partnership is, directly or indirectly, a
partner, the General Partner shall not use such cash to make any dividend or
distribution on, or repurchase any shares of, its stock or take any other
action within its control if the effect of such dividend, distribution,
repurchase or other action would be to reduce its net worth below an amount
necessary to receive an Opinion of Counsel that the Partnership will be
treated as a partnership for federal income tax purposes.
6.4 REIMBURSEMENT OF THE GENERAL PARTNER. (a) Except as provided in this
Section 6.4 and elsewhere in this Agreement or in the Operating Partnership
Agreement, the General Partner shall not be compensated for its services as
general partner of the Partnership or the Operating Partnership.
(b) The General Partner shall be reimbursed on a monthly basis, or such
other basis as the General Partner may determine in its sole discretion, for
(i) all direct and indirect expenses it incurs or payments it makes on behalf
of the Partnership (including, without limitation, salary, bonus, incentive
compensation and other amounts paid to any Person to perform services for the
Partnership or for the General Partner in the discharge of its duties to the
Partnership), and (ii) all other necessary or appropriate expenses allocable
to the Partnership or otherwise reasonably incurred by the General Partner in
connection with operating the Partnership's business (including, without
limitation, expenses allocated to the General Partner by its Affiliates). The
General Partner shall determine the fees and expenses that are allocable to
the Partnership in any reasonable manner determined by the General Partner in
its sole discretion. Reimbursements pursuant to this Section 6.4 shall be in
addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 6.7.
(c) Subject to Section 4.3(c), the General Partner in its sole discretion
and without the approval of the Limited Partners (who shall have no right to
vote in respect thereof) may propose and adopt on behalf of the Partnership,
employee benefit and incentive plans (including, without limitation, plans
involving the issuance of Units), or issue Partnership Securities pursuant to
any employee benefit or incentive plan maintained or sponsored by the General
Partner or one of its Affiliates, in each case for the benefit of employees of
the General Partner, the Partnership, the Operating Partnership or any
Affiliate of any of them in respect of services performed, directly or
indirectly, for the benefit of the Partnership or the Operating Partnership.
The Partnership agrees to issue and sell to the General Partner any Units or
other Partnership Securities that the General Partner is obligated to provide
to any employees pursuant to any such benefit or incentive plans. Expenses
incurred by the General Partner in connection with any such plans (including
the net cost to the General Partner of Units purchased by the General Partner
from the Partnership to fulfill options or awards under such plans) shall be
reimbursed in accordance with Section 6.4(b). Any and all obligations of the
General Partner under any employee benefit or incentive plans adopted by the
General Partner as permitted by this Section 6.4(c) shall constitute
obligations of the General Partner hereunder and shall be assumed by any
successor General Partner approved pursuant to Section 13.1 or 13.2 or the
transferee of or successor to all of the General Partner's Partnership
Interest as a general partner in the Partnership pursuant to Section 11.2.
6.5 OUTSIDE ACTIVITIES. (a) After the Closing Date, the General Partner, for
so long as it is the general partner of the Partnership, (i) agrees that its
sole business will be to act as the general partner of the Partnership, the
Operating Partnership and any other limited partnership of which the
Partnership or the Operating Partnership is, directly or indirectly, a limited
partner and to undertake activities that
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are ancillary or related thereto (including being a limited partner in the
Partnership), (ii) shall not enter into or conduct any business or incur any
debts or liabilities except in connection with or incidental to (A) its
performance of the activities required or authorized by this Agreement or the
Operating Partnership Agreement or described in or contemplated by the
Registration Statement and (B) the acquisition, ownership or disposition of
Partnership Interests in the Partnership or partnership interests in the
Operating Partnership or any other limited partnership of which the
Partnership or the Operating Partnership is, directly or indirectly, a limited
partner, except that, notwithstanding the foregoing, employees of the General
Partner may perform services for Ferrell and its Affiliates, and (iii) shall
not and shall cause its Affiliates not to engage in any Restricted Activity.
(b) Except as described in Section 6.5(a), no Indemnitee shall be expressly
or implicitly restricted or proscribed pursuant to this Agreement, the
Operating Partnership Agreement or the partnership relationship established
hereby or thereby from engaging in other activities for profit, whether in the
businesses engaged in by the Partnership or the Operating Partnership or
anticipated to be engaged in by the Partnership, the Operating Partnership or
otherwise, including, without limitation, in the case of any Affiliates of the
General Partner those businesses and activities (other than Restricted
Activities) in direct competition with the business and activities of the
Partnership or the Operating Partnership or otherwise described in or
contemplated by the Registration Statement. Without limitation of and subject
to the foregoing each Indemnitee (other than the General Partner) shall have
the right to engage in businesses of every type and description and to engage
in and possess an interest in other business ventures of any and every type or
description, independently or with others, including, without limitation, in
the case of any Affiliates of the General Partner business interests and
activities (other than Restricted Activities) in direct competition with the
business and activities of the Partnership or the Operating Partnership, and
none of the same shall constitute a breach of this Agreement or any duty to
the Partnership, the Operating Partnership or any Partner or Assignee. Neither
the Partnership, the Operating Partnership, any Limited Partner nor any other
Person shall have any rights by virtue of this Agreement, the Operating
Partnership Agreement or the partnership relationship established hereby or
thereby in any business ventures of any Indemnitee (subject, in the case of
the General Partner, to compliance with Section 6.5(c)) and such Indemnitees
shall have no obligation to offer any interest in any such business ventures
to the Partnership, the Operating Partnership, any Limited Partner or any
other Person. The General Partner and any other Persons affiliated with the
General Partner may acquire Units or other Partnership Securities in addition
to those acquired by any of such Persons on the Closing Date, and, except as
otherwise provided in this Agreement, shall be entitled to exercise all rights
of an Assignee or Limited Partner, as applicable, relating to such Units or
Partnership Securities, as the case may be.
(c) Subject to the terms of Sections 6.5(a) and (b) but otherwise
notwithstanding anything to the contrary in this Agreement, (i) the
competitive activities of any Indemnitees (other than the General Partner) are
hereby approved by the Partnership and all Partners and (ii) it shall be
deemed not to be a breach of the General Partner's fiduciary duty or any other
obligation of any type whatsoever of the General Partner for the General
Partner to permit an Affiliate of the General Partner to engage, or for any
such Affiliate to engage, in business interests and activities (other than
Restricted Activities) in preference to or to the exclusion of the
Partnership.
(d) The term "Affiliates" when used in this Section 6.5 with respect to the
General Partner shall not include the Partnership, the Operating Partnership
or any other limited partnership of which the Partnership or the Operating
Partnership is, directly or indirectly, a limited partner.
6.6 LOANS TO AND FROM THE GENERAL PARTNER; CONTRACTS WITH AFFILIATES. (a)
The General Partner or any Affiliate thereof may lend to the Partnership or
the Operating Partnership, and the Partnership and the Operating Partnership
may borrow, funds needed or desired by the Partnership and the Operating
Partnership for such periods of time as the General Partner may determine and
(ii) the General Partner or any Affiliate thereof may borrow from the
Partnership or the Operating Partnership,
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and the Partnership and the Operating Partnership may lend to the General
Partner or such Affiliate, excess funds of the Partnership and the Operating
Partnership for such periods of time and in such amounts as the General
Partner may determine; provided, however, that in either such case the lending
party may not charge the borrowing party interest at a rate greater than the
rate that would be charged the borrowing party (without reference to the
lending party's financial abilities or guarantees), by unrelated lenders on
comparable loans. The borrowing party shall reimburse the lending party for
any costs (other than any additional interest costs) incurred by the lending
party in connection with the borrowing of such funds. For purposes of this
Section 6.6(a) and Section 6.6(b), the term "Partnership" shall include any
Affiliate of the Partnership that is controlled by the Partnership and the
term "Operating Partnership" shall include any Affiliate of the Operating
Partnership that is controlled by the Operating Partnership.
(b) The Partnership may lend or contribute to the Operating Partnership, and
the Operating Partnership may borrow, funds on terms and conditions
established in the sole discretion of the General Partner; provided, however,
that the Partnership may not charge the Operating Partnership interest at a
rate greater than the rate that would be charged to the Operating Partnership
(without reference to the General Partner's financial abilities or
guarantees), by unrelated lenders on comparable loans. The foregoing authority
shall be exercised by the General Partner in its sole discretion and shall not
create any right or benefit in favor of the Operating Partnership or any other
Person.
(c) The General Partner may itself, or may enter into an agreement with any
of its Affiliates to, render services to the Partnership or to the General
Partner in the discharge of its duties as general partner of the Partnership.
Any services rendered to the Partnership by the General Partner or any of its
Affiliates shall be on terms that are fair and reasonable to the Partnership;
provided, however, that the requirements of this Section 6.6(c) shall be
deemed satisfied as to (i) any transaction approved by Special Approval, (ii)
any transaction, the terms of which are no less favorable to the Partnership
than those generally being provided to or available from unrelated third
parties or (iii) any transaction that, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership), is
equitable to the Partnership. The provisions of Section 6.4 shall apply to the
rendering of services described in this Section 6.6(c).
(d) The Partnership may transfer assets to joint ventures, other
partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and
applicable law.
(e) Neither the General Partner nor any of its Affiliates shall sell,
transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership; provided, however, that the
requirements of this Section 6.6(e) shall be deemed to be satisfied as to (i)
the transactions effected pursuant to Sections 4.1, 4.2 and 4.3, the
Contribution Agreement and any other transactions described in or contemplated
by the Registration Statement, (ii) any transaction approved by Special
Approval, (iii) any transaction, the terms of which are no less favorable to
the Partnership than those generally being provided to or available from
unrelated third parties, or (iv) any transaction that, taking into account the
totality of the relationships between the parties involved (including other
transactions that may be particularly favorable or advantageous to the
Partnership), is equitable to the Partnership.
(f) The General Partner and its Affiliates will have no obligation to permit
the Partnership or the Operating Partnership to use any facilities or assets
of the General Partner and its Affiliates, except as may be provided in
contracts entered into from time to time specifically dealing with such use,
nor shall there be any obligation on the part of the General Partner or its
Affiliates to enter into such contracts.
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(g) Without limitation of Sections 6.6(a) through 6.6(f), and
notwithstanding anything to the contrary in this Agreement, the existence of
the conflicts of interest described in the Registration Statement are hereby
approved by all Partners.
6.7 INDEMNIFICATION. (a) To the fullest extent permitted by law but subject
to the limitations expressly provided in this Agreement, the General Partner,
any Departing Partner and any Person who is or was an officer or director of
the General Partner or any Departing Partner and all other Indemnitees shall
be indemnified and held harmless by the Partnership from and against any and
all losses, claims, damages, liabilities, joint or several, expenses
(including, without limitation, legal fees and expenses), judgments, fines,
penalties, interest, settlements and other amounts arising from any and all
claims, demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which any Indemnitee may be involved, or
is threatened to be involved, as a party or otherwise, by reason of its status
as (i) the General Partner, a Departing Partner or any of their Affiliates,
(ii) an officer, director, employee, partner, agent or trustee of the
Partnership, the General Partner, any Departing Partner or any of their
Affiliates or (iii) a Person serving at the request of the Partnership in
another entity in a similar capacity, provided, that in each case the
Indemnitee acted in good faith and in a manner which such Indemnitee
reasonably believed to be in, or not opposed to, the best interests of the
Partnership and, with respect to any criminal proceeding, had no reasonable
cause to believe its conduct was unlawful; provided, further, no
indemnification pursuant to this Section 6.7 shall be available to the General
Partner with respect to its obligations incurred pursuant to the Underwriting
Agreement or the Contribution Agreement (other than obligations incurred by
the General Partner on behalf of the Partnership or the Operating
Partnership). The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere, or its
equivalent, shall not create a presumption that the Indemnitee acted in a
manner contrary to that specified above. Any indemnification pursuant to this
Section 6.7 shall be made only out of the assets of the Partnership, it being
agreed that the General Partner shall not be personally liable for such
indemnification and shall have no obligation to contribute or loan any monies
or property to the Partnership to enable it to effectuate such
indemnification.
(b) To the fullest extent permitted by law, expenses (including, without
limitation, legal fees and expenses) incurred by an Indemnitee who is
indemnified pursuant to Section 6.7(a) in defending any claim, demand, action,
suit or proceeding shall, from time to time, be advanced by the Partnership
prior to the final disposition of such claim, demand, action, suit or
proceeding upon receipt by the Partnership of an undertaking by or on behalf
of the Indemnitee to repay such amount if it shall be determined that the
Indemnitee is not entitled to be indemnified as authorized in this Section
6.7.
(c) The indemnification provided by this Section 6.7 shall be in addition to
any other rights to which an Indemnitee may be entitled under any agreement,
pursuant to any vote of the holders of Outstanding Units, as a matter of law
or otherwise, both as to actions in the Indemnitee's capacity as (i) the
General Partner, a Departing Partner or an Affiliate thereof, (ii) an officer,
director, employee, partner, agent or trustee of the Partnership, the General
Partner, any Departing Partner or an Affiliate thereof or (iii) a Person
serving at the request of the Partnership in another entity in a similar
capacity, and as to actions in any other capacity (including, without
limitation, any capacity under the Underwriting Agreement), and shall continue
as to an Indemnitee who has ceased to serve in such capacity and shall inure
to the benefit of the heirs, successors, assigns and administrators of the
Indemnitee.
(d) The Partnership may purchase and maintain (or reimburse the General
Partner or its Affiliates for the cost of) insurance, on behalf of the General
Partner and such other Persons as the General Partner shall determine, against
any liability that may be asserted against or expense that may be incurred by
such Person in connection with the Partnership's activities, regardless of
whether the Partnership would have the power to indemnify such Person against
such liability under the provisions of this Agreement.
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(e) For purposes of this Section 6.7, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants
or beneficiaries of the plan; excise taxes assessed on an Indemnitee with
respect to an employee benefit plan pursuant to applicable law shall
constitute "fines" within the meaning of Section 6.7(a); and action taken or
omitted by it with respect to an employee benefit plan in the performance of
its duties for a purpose reasonably believed by it to be in the interest of
the participants and beneficiaries of the plan shall be deemed to be for a
purpose which is in, or not opposed to, the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in part
under this Section 6.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 6.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 6.7 or any
provision hereof shall in any manner terminate, reduce or impair the right of
any past, present or future Indemnitee to be indemnified by the Partnership,
nor the obligation of the Partnership to indemnify any such Indemnitee under
and in accordance with the provisions of this Section 6.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
6.8 LIABILITY OF INDEMNITEES. (a) Notwithstanding anything to the contrary
set forth in this Agreement, no Indemnitee shall be liable for monetary
damages to the Partnership, the Limited Partners, the Assignees or any other
Persons who have acquired interests in the Units, for losses sustained or
liabilities incurred as a result of any act or omission if such Indemnitee
acted in good faith.
(b) Subject to its obligations and duties as General Partner set forth in
Section 6.1(a), the General Partner may exercise any of the powers granted to
it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents, and the General Partner shall not
be responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.
(c) Any amendment, modification or repeal of this Section 6.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability to the Partnership and the Limited Partners of
the General Partner, its directors, officers and employees under this Section
6.8 as in effect immediately prior to such amendment, modification or repeal
with respect to claims arising from or relating to matters occurring, in whole
or in part, prior to such amendment, modification or repeal, regardless of
when such claims may arise or be asserted.
6.9 RESOLUTION OF CONFLICTS OF INTEREST. (a) Unless otherwise expressly
provided in this Agreement or the Operating Partnership Agreement, whenever a
potential conflict of interest exists or arises between the General Partner or
any of its Affiliates, on the one hand, and the Partnership, the Operating
Partnership, any Partner or any Assignee, on the other, any resolution or
course of action in respect of such conflict of interest shall be permitted
and deemed approved by all Partners, and shall not constitute a breach of this
Agreement, of the Operating Partnership Agreement, of any agreement
contemplated herein or therein, or of any duty stated or implied by law or
equity, if the resolution or course of action is, or by operation of this
Agreement is deemed to be, fair and reasonable to the Partnership. The General
Partner shall be authorized but not required in connection with its resolution
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of such conflict of interest to seek Special Approval of a resolution of such
conflict or course of action. Any conflict of interest and any resolution of
such conflict of interest shall be conclusively deemed fair and reasonable to
the Partnership if such conflict of interest or resolution is (i) approved by
Special Approval, (ii) on terms no less favorable to the Partnership than
those generally being provided to or available from unrelated third parties or
(iii) fair to the Partnership, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership). The General
Partner may also adopt a resolution or course of action that has not received
Special Approval. The General Partner (including the Audit Committee in
connection with Special Approval) shall be authorized in connection with its
determination of what is "fair and reasonable" to the Partnership and in
connection with its resolution of any conflict of interest to consider (A) the
relative interests of any party to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interest; (B) any
customary or accepted industry practices and any customary or historical
dealings with a particular Person; (C) any applicable generally accepted
accounting practices or principles; and (D) such additional factors as the
General Partner (including such Audit Committee) determines in its sole
discretion to be relevant, reasonable or appropriate under the circumstances.
Nothing contained in this Agreement, however, is intended to nor shall it be
construed to require the General Partner (including such Audit Committee) to
consider the interests of any Person other than the Partnership. In the
absence of bad faith by the General Partner, the resolution, action or terms
so made, taken or provided by the General Partner with respect to such matter
shall not constitute a breach of this Agreement or any other agreement
contemplated herein or a breach of any standard of care or duty imposed herein
or therein or under the Delaware Act or any other law, rule or regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the General Partner or any of its Affiliates is permitted or
required to make a decision (i) in its "sole discretion" or "discretion," that
it deems "necessary or appropriate" or under a grant of similar authority or
latitude, the General Partner or such Affiliate shall be entitled to consider
only such interests and factors as it desires and shall have no duty or
obligation to give any consideration to any interest of, or factors affecting,
the Partnership, the Operating Partnership, any Limited Partner or any
Assignee, (ii) it may make such decision in its sole discretion (regardless of
whether there is a reference to "sole discretion" or "discretion") unless
another express standard is provided for, or (iii) in "good faith" or under
another express standard, the General Partner or such Affiliate shall act
under such express standard and shall not be subject to any other or different
standards imposed by this Agreement, the Operating Partnership Agreement, any
other agreement contemplated hereby or under the Delaware Act or any other
law, rule or regulation. In addition, any actions taken by the General Partner
or such Affiliate consistent with the standards of "reasonable discretion" set
forth in the definitions of Available Cash or Cash from Operations shall not
constitute a breach of any duty of the General Partner to the Partnership or
the Limited Partners. The General Partner shall have no duty, express or
implied, to sell or otherwise dispose of any asset of the Operating
Partnership or of the Partnership, other than in the ordinary course of
business. No borrowing by the Partnership or the Operating Partnership or the
approval thereof by the General Partner shall be deemed to constitute a breach
of any duty of the General Partner to the Partnership or the Limited Partners
by reason of the fact that the purpose or effect of such borrowing is directly
or indirectly to (A) enable Incentive Distributions or (B) hasten the
expiration of the Subordination Period or the conversion of any Subordinated
Units into Common Units.
(c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.
(d) The Limited Partners hereby authorize the General Partner, on behalf of
the Partnership as a partner of the Operating Partnership, to approve of
actions by the general partner of the Operating Partnership similar to those
actions permitted to be taken by the General Partner pursuant to this Section
6.9.
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6.10 OTHER MATTERS CONCERNING THE GENERAL PARTNER. (a) The General Partner
may rely and shall be protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, bond, debenture, or other paper or document believed
by it to be genuine and to have been signed or presented by the proper party
or parties.
(b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants
and advisers selected by it, and any act taken or omitted to be taken in
reliance upon the opinion (including, without limitation, an Opinion of
Counsel) of such Persons as to matters that such General Partner reasonably
believes to be within such Person's professional or expert competence shall be
conclusively presumed to have been done or omitted in good faith and in
accordance with such opinion.
(c) The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers, a duly appointed attorney or attorneys-in-fact or the duly
authorized officers of the Partnership. Each such attorney shall, to the
extent provided by the General Partner in the power of attorney, have full
power and authority to do and perform each and every act and duty that is
permitted or required to be done by the General Partner hereunder.
(d) Any standard of care and duty imposed by this Agreement or under the
Delaware Act or any applicable law, rule or regulation shall be modified,
waived or limited as required to permit the General Partner to act under this
Agreement or any other agreement contemplated by this Agreement and to make
any decision pursuant to the authority prescribed in this Agreement so long as
such action is reasonably believed by the General Partner to be in, or not
inconsistent with, the best interests of the Partnership.
6.11 TITLE TO PARTNERSHIP ASSETS. Title to Partnership assets, whether real,
personal or mixed and whether tangible or intangible, shall be deemed to be
owned by the Partnership as an entity, and no Partner or Assignee,
individually or collectively, shall have any ownership interest in such
Partnership assets or any portion thereof. Title to any or all of the
Partnership assets may be held in the name of the Partnership, the General
Partner, one or more of its Affiliates or one or more nominees, as the General
Partner may determine. The General Partner hereby declares and warrants that
any Partnership assets for which record title is held in the name of the
General Partner or one or more of its Affiliates or one or more nominees shall
be held by the General Partner or such Affiliate or nominee for the use and
benefit of the Partnership in accordance with the provisions of this
Agreement; provided, however, that the General Partner shall use its
reasonable efforts to cause record title to such assets (other than those
assets in respect of which the General Partner determines that the expense and
difficulty of conveyancing makes transfer of record title to the Partnership
impracticable) to be vested in the Partnership as soon as reasonably
practicable; provided that, prior to the withdrawal or removal of the General
Partner or as soon thereafter as practicable, the General Partner shall use
reasonable efforts to effect the transfer of record title to the Partnership
and, prior to any such transfer, will provide for the use of such assets in a
manner satisfactory to the Partnership. All Partnership assets shall be
recorded as the property of the Partnership in its books and records,
irrespective of the name in which record title to such Partnership assets is
held. The General Partner covenants and agrees that at the Closing Date, the
Partnership and the Operating Partnership shall have all licenses, permits,
certificates, franchises, or other governmental authorizations or permits
necessary for the ownership of their properties or for the conduct of their
businesses, except for such licenses, permits, certificates, franchises, or
other governmental authorizations or permits, failure to have obtained which
will not, individually or in the aggregate, have a material adverse effect on
the Partnership or the Operating Partnership.
6.12 PURCHASE OR SALE OF UNITS. The General Partner may cause the
Partnership to purchase or otherwise acquire Units; provided that, except as
permitted pursuant to Section 11.6, the General Partner may not cause the
Partnership to purchase Subordinated Units during the Subordination
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Period. As long as Units are held by the Partnership or the Operating
Partnership, such Units shall not be considered Outstanding for any purpose,
except as otherwise provided herein. The General Partner or any Affiliate of
the General Partner may also purchase or otherwise acquire and sell or
otherwise dispose of Units for its own account, subject to the provisions of
Articles XI and XII.
6.13 REGISTRATION RIGHTS OF FERRELLGAS AND ITS AFFILIATES. (a) If (i)
Ferrellgas or any Affiliate of Ferrellgas (including, without limitation, for
purposes of this Section 6.13, any Person that is an Affiliate of Ferrellgas
at the date hereof notwithstanding that it may later cease to be an Affiliate
of Ferrellgas) holds Units or other Partnership Securities that it desires to
sell and (ii) Rule 144 of the Securities Act (or any successor rule or
regulation to Rule 144) or another exemption from registration is not
available to enable such holder of Units (the "HOLDER") to dispose of the
number of Units or other securities it desires to sell at the time it desires
to do so without registration under the Securities Act, then upon the request
of Ferrellgas or any of its Affiliates, the Partnership shall file with the
Commission as promptly as practicable after receiving such request, and use
all reasonable efforts to cause to become effective and remain effective for a
period of not more than six months following its effective date, a
registration statement under the Securities Act registering the offering and
sale of the number of Units or other securities specified by the Holder;
provided, however, that the Partnership shall not be required to effect more
than three registrations pursuant to this Section 6.13(a); and provided
further, that if the General Partner or, if at the time a request pursuant to
this Section 6.13 is submitted to the Partnership, Ferrellgas or its Affiliate
requesting registration is an Affiliate of the General Partner, the Audit
Committee in connection with Special Approval determines in its good faith
judgment that a postponement of the requested registration for up to six
months would be in the best interests of the Partnership and its Partners due
to a pending transaction, investigation or other event, the filing of such
registration statement or the effectiveness thereof may be deferred for up to
six months, but not thereafter. In connection with any registration pursuant
to the immediately preceding sentence, the Partnership shall promptly prepare
and file (x) such documents as may be necessary to register or qualify the
securities subject to such registration under the securities laws of such
states as the Holder shall reasonably request; provided, however, that no such
qualification shall be required in any jurisdiction where, as a result
thereof, the Partnership would become subject to general service of process or
to taxation or qualification to do business as a foreign corporation or
partnership doing business in such jurisdiction, and (y) such documents as may
be necessary to apply for listing or to list the securities subject to such
registration on such National Securities Exchange as the Holder shall
reasonably request, and do any and all other acts and things that may
reasonably be necessary or advisable to enable the Holder to consummate a
public sale of such Units in such states. Except as set forth in Section
6.13(c), all costs and expenses of any such registration and offering (other
than the underwriting discounts and commissions) shall be paid by the
Partnership, without reimbursement by the Holder.
(b) If the Partnership shall at any time propose to file a registration
statement under the Securities Act for an offering of equity securities of the
Partnership for cash (other than an offering relating solely to an employee
benefit plan), the Partnership shall use all reasonable efforts to include
such number or amount of securities held by the Holder in such registration
statement as the Holder shall request. If the proposed offering pursuant to
this Section 6.13(b) shall be an underwritten offering, then, in the event
that the managing underwriter of such offering advises the Partnership and the
Holder in writing that in its opinion the inclusion of all or some of the
Holder's securities would adversely and materially affect the success of the
offering, the Partnership shall include in such offering only that number or
amount, if any, of securities held by the Holder which, in the opinion of the
managing underwriter, will not so adversely and materially affect the
offering. Except as set forth in Section 6.13(c), all costs and expenses of
any such registration and offering (other than the underwriting discounts and
commissions) shall be paid by the Partnership, without reimbursement by the
Holder.
(c) If underwriters are engaged in connection with any registration referred
to in this Section 6.13, the Partnership shall provide indemnification,
representations, covenants, opinions and other
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assurance to the underwriters in form and substance reasonably satisfactory to
such underwriters. Further, in addition to and not in limitation of the
Partnership's obligation under Section 6.7, the Partnership shall, to the
fullest extent permitted by law, indemnify and hold harmless the Holder, its
officers, directors and each Person who controls the Holder (within the
meaning of the Securities Act) and any agent thereof (collectively,
"INDEMNIFIED PERSONS") against any losses, claims, demands, actions, causes of
action, assessments, damages, liabilities (joint or several), costs and
expenses (including, without limitation, interest, penalties and reasonable
attorneys' fees and disbursements), resulting to, imposed upon, or incurred by
the Indemnified Persons, directly or indirectly, under the Securities Act or
otherwise (hereinafter referred to in this Section 6.13(c) as a "CLAIM" and in
the plural as "CLAIMS"), based upon, arising out of, or resulting from any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which any Units were registered under the
Securities Act or any state securities or Blue Sky laws, in any preliminary
prospectus (if used prior to the effective date of such registration
statement), or in any summary or final prospectus or in any amendment or
supplement thereto (if used during the period the Partnership is required to
keep the registration statement current), or arising out of, based upon or
resulting from the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements made
therein not misleading; provided, however, that the Partnership shall not be
liable to any Indemnified Person to the extent that any such claim arises out
of, is based upon or results from an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
such preliminary, summary or final prospectus or such amendment or supplement,
in reliance upon and in conformity with written information furnished to the
Partnership by or on behalf of such Indemnified Person specifically for use in
the preparation thereof.
(d) The provisions of Sections 6.13(a) and 6.13(b) shall continue to be
applicable with respect to Ferrellgas (and any of Ferrellgas' Affiliates)
after it ceases to be a Partner of the Partnership, during a period of two
years subsequent to the effective date of such cessation and for so long
thereafter as is required for the Holder to sell all of the Units or other
securities of the Partnership with respect to which it has requested during
such two year period that a registration statement be filed; provided,
however, that the Partnership shall not be required to file successive
registration statements covering the same securities for which registration
was demanded during such two-year period. The provisions of Section 6.13(c)
shall continue in effect thereafter.
(e) Any request to register Partnership Securities pursuant to this Section
6.13 shall (i) specify the Partnership Securities intended to be offered and
sold by the Person making the request, (ii) express such Person's present
intent to offer such shares for distribution, (iii) describe the nature or
method of the proposed offer and sale of Partnership Securities, and (iv)
contain the undertaking of such Person to provide all such information and
materials and take all action as may be required in order to permit the
Partnership to comply with all applicable requirements in connection with the
registration of such Partnership Securities.
6.14 RELIANCE BY THIRD PARTIES. Notwithstanding anything to the contrary in
this Agreement, any Person dealing with the Partnership shall be entitled to
assume that the General Partner and any officer of the Partnership authorized
by the General Partner to act on behalf and in the name of the Partnership has
full power and authority to encumber, sell or otherwise use in any manner any
and all assets of the Partnership and to enter into any contracts on behalf of
the Partnership, and such Person shall be entitled to deal with the General
Partner or any such officer as if it were the Partnership's sole party in
interest, both legally and beneficially. Each Limited Partner hereby waives
any and all defenses or other remedies that may be available against such
Person to contest, negate or disaffirm any action of the General Partner or
any such officer in connection with any such dealing. In no event shall any
Person dealing with the General Partner or any such officer or its
representatives be obligated to ascertain that the terms of this Agreement
have been complied with or to inquire into the necessity or expedience of any
act or action of the General Partner or any such officer. Each and every
certificate, document or
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other instrument executed on behalf of the Partnership by the General Partner
or any such officer shall be conclusive evidence in favor of any and every
Person relying thereon or claiming thereunder that (a) at the time of the
execution and delivery of such certificate, document or instrument, this
Agreement was in full force and effect, (b) the Person executing and
delivering such certificate, document or instrument was duly authorized and
empowered to do so for and on behalf of the Partnership and (c) such
certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
ARTICLE VII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
7.1 LIMITATION OF LIABILITY. The Limited Partners, the Organizational
Limited Partner and the Assignees shall have no liability under this Agreement
except as expressly provided in this Agreement or the Delaware Act.
7.2 MANAGEMENT OF BUSINESS. No Limited Partner or Assignee (other than the
General Partner, any of its Affiliates or any officer, director, employee,
partner, agent or trustee of the General Partner or any of its Affiliates, in
its capacity as such, if such Person shall also be a Limited Partner or
Assignee) shall participate in the operation, management or control (within
the meaning of the Delaware Act) of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. The transaction of any such business by the
General Partner, any of its Affiliates or any officer, director, employee,
partner, agent or trustee of the General Partner or any of its Affiliates, in
its capacity as such, shall not affect, impair or eliminate the limitations on
the liability of the Limited Partners or Assignees under this Agreement.
7.3 OUTSIDE ACTIVITIES. Subject to the provisions of Section 6.5, which
shall continue to be applicable to the Persons referred to therein, regardless
of whether such Persons shall also be Limited Partners or Assignees, any
Limited Partner or Assignee shall be entitled to and may have business
interests and engage in business activities in addition to those relating to
the Partnership, including, without limitation, business interests and
activities in direct competition with the Partnership or the Operating
Partnership. Neither the Partnership nor any of the other Partners or
Assignees shall have any rights by virtue of this Agreement in any business
ventures of any Limited Partner or Assignee.
7.4 RETURN OF CAPITAL. No Limited Partner or Assignee shall be entitled to
the withdrawal or return of its Capital Contribution, except to the extent, if
any, that distributions made pursuant to this Agreement or upon termination of
the Partnership may be considered as such by law and then only to the extent
provided for in this Agreement. Except to the extent provided by Article V or
as otherwise expressly provided in this Agreement, no Limited Partner or
Assignee shall have priority over any other Limited Partner or Assignee either
as to the return of Capital Contributions or as to profits, losses or
distributions. Any such return shall be a compromise to which all Partners and
Assignees agree within the meaning of (S) 17-502(b) of the Delaware Act.
7.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP. (a) In addition
to other rights provided by this Agreement or by applicable law, and except as
limited by Section 7.5(b), each Limited Partner shall have the right, for a
purpose reasonably related to such Limited Partner's interest as a limited
partner in the Partnership, upon reasonable demand and at such Limited
Partner's own expense:
(i) to obtain true and full information regarding the status of the
business and financial condition of the Partnership;
(ii) promptly after becoming available, to obtain a copy of the
Partnership's federal, state and local tax returns for each year;
(iii) to have furnished to him, upon notification to the General Partner,
a current list of the name and last known business, residence or mailing
address of each Partner;
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(iv) to have furnished to him, upon notification to the General Partner,
a copy of this Agreement and the Certificate of Limited Partnership and all
amendments thereto, together with a copy of the executed copies of all
powers of attorney pursuant to which this Agreement, the Certificate of
Limited Partnership and all amendments thereto have been executed;
(v) to obtain true and full information regarding the amount of cash and
a description and statement of the Agreed Value of any other Capital
Contribution by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a Partner; and
(vi) to obtain such other information regarding the affairs of the
Partnership as is just and reasonable.
(b) Notwithstanding any other provision of this Agreement, the General
Partner may keep confidential from the Limited Partners and Assignees, for
such period of time as the General Partner deems reasonable, any information
that the General Partner reasonably believes to be in the nature of trade
secrets or other information the disclosure of which the General Partner in
good faith believes is not in the best interests of the Partnership or the
Operating Partnership or could damage the Partnership or the Operating
Partnership or that the Partnership or the Operating Partnership are required
by law or by agreements with third parties to keep confidential (other than
agreements with Affiliates the primary purpose of which is to circumvent the
obligations set forth in this Section 7.5).
ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 RECORDS AND ACCOUNTING. The General Partner shall keep or cause to be
kept at the principal office of the Partnership appropriate books and records
with respect to the Partnership's business, including, without limitation, all
books and records necessary to provide to the Limited Partners any
information, lists and copies of documents required to be provided pursuant to
Section 7.5(a). Any books and records maintained by or on behalf of the
Partnership in the regular course of its business, including, without
limitation, the record of the Record Holders and Assignees of Units or other
Partnership Securities, books of account and records of Partnership
proceedings, may be kept on, or be in the form of, computer disks, hard
drives, punch cards, magnetic tape, photographs, micrographics or any other
information storage device, provided, that the books and records so maintained
are convertible into clearly legible written form within a reasonable period
of time. The books of the Partnership shall be maintained, for both tax and
financial reporting purposes, on an accrual basis in accordance with generally
accepted accounting principles.
8.2 FISCAL YEAR. The fiscal year of the Partnership shall be August 1 to
July 31.
8.3 REPORTS. (a) As soon as practicable, but in no event later than 120 days
after the close of each fiscal year of the Partnership, the General Partner
shall cause to be mailed to each Record Holder of a Unit as of a date selected
by the General Partner in its sole discretion, an annual report containing
financial statements of the Partnership for such fiscal year of the
Partnership, presented in accordance with generally accepted accounting
principles, including a balance sheet and statements of operations, Partners'
equity and cash flows, such statements to be audited by a firm of independent
public accountants selected by the General Partner.
(b) As soon as practicable, but in no event later than 90 days after the
close of each Quarter except the last Quarter of each year, the General
Partner shall cause to be mailed to each Record Holder of a Unit, as of a date
selected by the General Partner in its sole discretion, a report containing
unaudited financial statements of the Partnership and such other information
as may be required by applicable law, regulation or rule of any National
Securities Exchange on which the Units are listed for trading, or as the
General Partner determines to be necessary or appropriate.
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ARTICLE IX
TAX MATTERS
9.1 PREPARATION OF TAX RETURNS. The General Partner shall arrange for the
preparation and timely filing of all returns of Partnership income, gains,
deductions, losses and other items required of the Partnership for federal and
state income tax purposes and shall use all reasonable efforts to furnish,
within 90 days of the close of each calendar year, the tax information
reasonably required by holders of Outstanding Units for federal and state
income tax reporting purposes. The classification, realization and recognition
of income, gain, losses and deductions and other items shall be on the accrual
method of accounting for federal income tax purposes. The taxable year of the
Partnership shall be August 1 to July 31.
9.2 TAX ELECTIONS. Except as otherwise provided herein, the General Partner
shall, in its sole discretion, determine whether to make any available
election pursuant to the Code; provided, however, that the General Partner
shall make the election under Section 754 of the Code in accordance with
applicable regulations thereunder. The General Partner shall have the right to
seek to revoke any such election (including, without limitation, the election
under Section 754 of the Code) upon the General Partner's determination in its
sole discretion that such revocation is in the best interests of the Limited
Partners and Assignees. For purposes of computing the adjustments under
Section 743(b) of the Code, the General Partner shall be authorized (but not
required) to adopt a convention whereby the price paid by a transferee of
Units will be deemed to be the lowest quoted closing price of the Units on any
National Securities Exchange on which such Units are traded during the
calendar month in which such transfer is deemed to occur pursuant to Section
5.2(g) without regard to the actual price paid by such transferee.
9.3 TAX CONTROVERSIES. Subject to the provisions hereof, the General Partner
is designated the Tax Matters Partner (as defined in Section 6231 of the
Code), and is authorized and required to represent the Partnership (at the
Partnership's expense) in connection with all examinations of the
Partnership's affairs by tax authorities, including, without limitation,
resulting administrative and judicial proceedings, and to expend Partnership
funds for professional services and costs associated therewith. Each Partner
and Assignee agrees to cooperate with the General Partner and to do or refrain
from doing any or all things reasonably required by the General Partner to
conduct such proceedings.
9.4 ORGANIZATIONAL EXPENSES. The Partnership shall elect to deduct expenses,
if any, incurred by it in organizing the Partnership ratably over a 60-month
period as provided in Section 709 of the Code.
9.5 WITHHOLDING. Notwithstanding any other provision of this Agreement, the
General Partner is authorized to take any action that it determines in its
sole discretion to be necessary or appropriate to cause the Partnership and
the Operating Partnership to comply with any withholding requirements
established under the Code or any other federal, state or local law including,
without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of the
Code. To the extent that the Partnership is required to withhold and pay over
to any taxing authority any amount resulting from the allocation or
distribution of income to any Partner or Assignee (including, without
limitation, by reason of Section 1446 of the Code), the amount withheld shall
be treated as a distribution of cash pursuant to Section 5.3 in the amount of
such withholding from such Partner.
9.6 ENTITY-LEVEL TAXATION. If legislation is enacted or the interpretation
of existing language is modified which causes the Partnership or the Operating
Partnership to be treated as an association taxable as a corporation or
otherwise subjects the Partnership or the Operating Partnership to entity-
level taxation for federal income tax purposes, the Minimum Quarterly
Distribution, First Target Distribution, Second Target Distribution or Third
Target Distribution, as the case may be, shall be equal to the product
obtained by multiplying (a) the amount thereof by (b) 1 minus the sum of (i)
the highest marginal federal corporate (or other entity, as applicable) income
tax rate of the Partnership for the
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taxable year of the Partnership in which such Quarter occurs (expressed as a
percentage) plus (ii) the effective overall state and local income tax rate
(expressed as a percentage) applicable to the Partnership for the calendar
year next preceding the calendar year in which such Quarter occurs (after
taking into account the benefit of any deduction allowable for federal income
tax purposes with respect to the payment of state and local income taxes), but
only to the extent of the increase in such rates resulting from such
legislation or interpretation. Such effective overall state and local income
tax rate shall be determined for the taxable year next preceding the first
taxable year during which the Partnership or the Operating Partnership is
taxable for federal income tax purposes as an association taxable as a
corporation or is otherwise subject to entity-level taxation by determining
such rate as if the Partnership or the Operating Partnership had been subject
to such state and local taxes during such preceding taxable year.
9.7 ENTITY-LEVEL ARREARAGE COLLECTIONS. If the Partnership is required by
applicable law to pay any federal, state or local income tax on behalf of, or
withhold such amount with respect to, any Partner or Assignee or any former
Partner or Assignee (a) the General Partner shall cause the Partnership to pay
such tax on behalf of such Partner or Assignee or former Partner or Assignee
from the funds of the Partnership; (b) any amount so paid on behalf of, or
withheld with respect to, any Partner or Assignee shall constitute a
distribution out of Available Cash to such Partner or Assignee pursuant to
Section 5.3; provided, however, in the discretion of the General Partner, such
taxes (if pertaining to all Partners) may be considered to be cash
disbursements of the Partnership which reduce Available Cash, but the payment
or withholding thereof shall not be deemed to be a distribution of Available
Cash to such Partners; and (c) to the extent any such Partner or Assignee (but
not a former Partner or Assignee) is not then entitled to such distribution
under this Agreement, the General Partner shall be authorized, without the
approval of any Partner or Assignee, to amend this Agreement insofar as is
necessary to maintain the uniformity of intrinsic tax characteristics as to
all Units and to make subsequent adjustments to distributions in a manner
which, in the reasonable judgment of the General Partner, will make as little
alteration as practicable in the priority and amount of distributions
otherwise applicable under this Agreement, and will not otherwise alter the
distributions to which Partners and Assignees are entitled under this
Agreement. If the Partnership is permitted (but not required) by applicable
law to pay any such tax on behalf of, or withhold such amount with respect to,
any Partner or Assignee or former Partner or Assignee, the General Partner
shall be authorized (but not required) to cause the Partnership to pay such
tax from the funds of the Partnership and to take any action consistent with
this Section 9.7. The General Partner shall be authorized (but not required)
to take all necessary or appropriate actions to collect all or any portion of
a deficiency in the payment of any such tax that relates to prior periods and
that is attributable to Persons who were Limited Partners or Assignees when
such deficiencies arose, from such Persons.
9.8 OPINIONS OF COUNSEL. Notwithstanding any other provision of this
Agreement, if the Partnership or the Operating Partnership is treated as an
association taxable as a corporation at any time or is otherwise taxable for
federal income tax purposes as an entity at any time and, pursuant to the
provisions of this Agreement, an Opinion of Counsel would otherwise be
required to the effect that an action will not cause the Partnership or the
Operating Partnership to become so treated as an association taxable as a
corporation or otherwise taxable as an entity for federal income tax purposes,
such requirement for an Opinion of Counsel shall be deemed automatically
waived.
ARTICLE X
CERTIFICATES
10.1 CERTIFICATES. Upon the Partnership's issuance of Common Units or
Subordinated Units to any Person, the Partnership shall issue one or more
Certificates in the name of such Person evidencing the number of such Units
being so issued. Certificates shall be executed on behalf of the Partnership
by the General Partner. No Common Unit Certificate shall be valid for any
purpose until it has been
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countersigned by the Transfer Agent. The Partners holding Certificates
evidencing Subordinated Units may exchange such Certificates for Certificates
evidencing Common Units on or after the date on which such Subordinated Units
are converted into Common Units pursuant to the terms of Section 5.7(c).
10.2 REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. (a) The General
Partner shall cause to be kept on behalf of the Partnership a register in
which, subject to such reasonable regulations as it may prescribe and subject
to the provisions of Section 10.2(b), the General Partner will provide for the
registration and transfer of Units. The Transfer Agent is hereby appointed
registrar and transfer agent for the purpose of registering Units and
transfers of such Units as herein provided. The Partnership shall not
recognize transfers of Certificates representing Units unless same are
effected in the manner described in this Section 10.2. Upon surrender for
registration of transfer of any Units evidenced by a Certificate, and subject
to the provisions of Section 10.2(b), the General Partner on behalf of the
Partnership shall execute, and the Transfer Agent shall countersign and
deliver, in the name of the holder or the designated transferee or
transferees, as required pursuant to the holder's instructions, one or more
new Certificates evidencing the same aggregate number of Units as was
evidenced by the Certificate so surrendered.
(b) Except as otherwise provided in Section 11.5, the Partnership shall not
recognize any transfer of Units until the Certificates evidencing such Units
are surrendered for registration of transfer and such Certificates are
accompanied by a Transfer Application duly executed by the transferee (or the
transferee's attorney-in-fact duly authorized in writing). No charge shall be
imposed by the Partnership for such transfer, provided, that as a condition to
the issuance of any new Certificate under this Section 10.2, the General
Partner may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed with respect thereto.
10.3 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. (a) If any mutilated
Certificate is surrendered to the Transfer Agent, the General Partner on
behalf of the Partnership shall execute, and upon its request the Transfer
Agent shall countersign and deliver in exchange therefor, a new Certificate
evidencing the same number of Units as the Certificate so surrendered.
(b) The General Partner on behalf of the Partnership shall execute, and upon
its request the Transfer Agent shall countersign and deliver a new Certificate
in place of any Certificate previously issued if the Record Holder of the
Certificate:
(i) makes proof by affidavit, in form and substance satisfactory to the
General Partner, that a previously issued Certificate has been lost,
destroyed or stolen;
(ii) requests the issuance of a new Certificate before the Partnership
has notice that the Certificate has been acquired by a purchaser for value
in good faith and without notice of an adverse claim;
(iii) if requested by the General Partner, delivers to the Partnership a
bond, in form and substance satisfactory to the General Partner, with
surety or sureties and with fixed or open penalty as the General Partner
may reasonably direct, in its sole discretion, to indemnify the
Partnership, the General Partner and the Transfer Agent against any claim
that may be made on account of the alleged loss, destruction or theft of
the Certificate; and
(iv) satisfies any other reasonable requirements imposed by the General
Partner.
If a Limited Partner or Assignee fails to notify the Partnership within a
reasonable time after he has notice of the loss, destruction or theft of a
Certificate, and a transfer of the Units represented by the Certificate is
registered before the Partnership, the General Partner or the Transfer Agent
receives such notification, the Limited Partner or Assignee shall be precluded
from making any claim against the Partnership, the General Partner or the
Transfer Agent for such transfer or for a new Certificate.
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(c) As a condition to the issuance of any new Certificate under this Section
10.3, the General Partner may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto
and any other expenses (including, without limitation, the fees and expenses
of the Transfer Agent) reasonably connected therewith.
10.4 RECORD HOLDER. In accordance with Section 10.2(b), the Partnership
shall be entitled to recognize the Record Holder as the Limited Partner or
Assignee with respect to any Units and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such Units on the
part of any other Person, whether or not the Partnership shall have actual or
other notice thereof, except as otherwise provided by law or any applicable
rule, regulation, guideline or requirement of any National Securities Exchange
on which the Units are listed for trading. Without limiting the foregoing,
when a Person (such as a broker, dealer, bank, trust company or clearing
corporation or an agent of any of the foregoing) is acting as nominee, agent
or in some other representative capacity for another Person in acquiring
and/or holding Units, as between the Partnership on the one hand, and such
other Persons, on the other, such representative Person (a) shall be the
Limited Partner or Assignee (as the case may be) of record and beneficially,
(b) must execute and deliver a Transfer Application and (c) shall be bound by
this Agreement and shall have the rights and obligations of a Limited Partner
or Assignee (as the case may be) hereunder and as provided for herein.
ARTICLE XI
TRANSFER OF INTERESTS
11.1 TRANSFER. (a) The term "transfer," when used in this Article XI with
respect to a Partnership Interest, shall be deemed to refer to a transaction
by which the General Partner assigns its Partnership Interest as a general
partner in the Partnership to another Person, by which the holder of a Unit
assigns such Unit to another Person who is or becomes an Assignee or by which
a Special Limited Partner holding an IDR assigns such IDR to another Person,
and includes a sale, assignment, gift, pledge, encumbrance, hypothecation,
mortgage, exchange or any other disposition by law or otherwise.
(b) No Partnership Interest shall be transferred, in whole or in part,
except in accordance with the terms and conditions set forth in this Article
XI. Any transfer or purported transfer of a Partnership Interest not made in
accordance with this Article XI shall be null and void.
(c) Nothing contained in this Article XI shall be construed to prevent a
disposition by the parent entity of the General Partner of any or all of the
issued and outstanding capital stock of the General Partner.
(d) Nothing contained in this Article XI, or elsewhere in this Partnership
Agreement, shall preclude the settlement of any transactions involving Common
Units entered into through the facilities of the New York Stock Exchange.
11.2 TRANSFER OF A GENERAL PARTNER'S PARTNERSHIP INTEREST. Except for a
transfer by the General Partner of all, but not less than all, of its
Partnership Interest as a general partner in the Partnership to (a) an
Affiliate of the General Partner or (b) another Person in connection with the
merger or consolidation of the General Partner with or into another Person or
the transfer by the General Partner of all or substantially all of its assets
to another Person, the transfer by the General Partner of all or any part of
its Partnership Interest as a general partner in the Partnership to a Person
prior to July 31, 2004 shall be subject to the prior approval of at least a
majority of the Outstanding Units (excluding for purposes of such
determination Units owned by the General Partner and its Affiliates).
Notwithstanding anything herein to the contrary, no transfer by the General
Partner of all or any part of its Partnership Interest as a general partner in
the Partnership to another Person shall be permitted unless (i) the
transferee agrees to assume the rights and duties of the General Partner under
this Agreement and
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the Operating Partnership Agreement and to be bound by the provisions of this
Agreement and the Operating Partnership Agreement, (ii) the Partnership
receives an Opinion of Counsel that such transfer would not result in the loss
of limited liability of any Limited Partner or of any limited partner of the
Operating Partnership or cause the Partnership or any of the Operating
Partnership to be treated as an association taxable as a corporation or
otherwise to be taxed as an entity for federal income tax purposes and (iii)
such transferee also agrees to purchase all (or the appropriate portion
thereof, if applicable) of the partnership interest of the General Partner as
the general partner of the Operating Partnership. In the case of a transfer
pursuant to and in compliance with this Section 11.2, the transferee or
successor (as the case may be) shall, subject to compliance with the terms of
Section 12.3, be admitted to the Partnership as a General Partner immediately
prior to the transfer of the Partnership Interest, and the business of the
Partnership shall continue without dissolution.
11.3 TRANSFER OF UNITS. (a) Units may be transferred only in the manner
described in Section 10.2. The transfer of any Units and the admission of any
new Partner shall not constitute an amendment to this Agreement.
(b) Until admitted as a Substituted Limited Partner pursuant to Article XII,
the Record Holder of a Unit shall be an Assignee in respect of such Unit.
Limited Partners may include custodians, nominees, or any other individual or
entity in its own or any representative capacity.
(c) Each distribution in respect of Units shall be paid by the Partnership,
directly or through the Transfer Agent or through any other Person or agent,
only to the Record Holders thereof as of the Record Date set for the
distribution. Such payment shall constitute full payment and satisfaction of
the Partnership's liability in respect of such payment, regardless of any
claim of any Person who may have an interest in such payment by reason of an
assignment or otherwise.
(d) A transferee who has completed and delivered a Transfer Application
shall be deemed to have (i) requested admission as a Substituted Limited
Partner, (ii) agreed to comply with and be bound by and to have executed this
Agreement, (iii) represented and warranted that such transferee has the right,
power and authority and, if an individual, the capacity to enter into this
Agreement, (iv) granted the powers of attorney set forth in this Agreement and
(v) given the consents and approvals and made the waivers contained in this
Agreement.
11.4 RESTRICTIONS ON TRANSFERS. Notwithstanding the other provisions of this
Article XI, no transfer of any Unit or interest therein of any Limited
Partner, Special Limited Partner or Assignee shall be made if such transfer
would (a) violate the then applicable federal or state securities laws or
rules and regulations of the Securities and Exchange Commission, any state
securities commission or any other governmental authorities with jurisdiction
over such transfer, (b) result in the taxation of the Partnership or the
Operating Partnership as an association taxable as a corporation or otherwise
subject the Partnership or the Operating Partnership to entity-level taxation
for federal income tax purposes or (c) affect the Partnership's or the
Operating Partnership's existence or qualification as a limited partnership
under the Delaware Act.
11.5 CITIZENSHIP CERTIFICATES; NON-CITIZEN ASSIGNEES. (a) If the Partnership
or the Operating Partnership is or becomes subject to any federal, state or
local law or regulation that, in the reasonable determination of the General
Partner, creates a substantial risk of cancellation or forfeiture of any
property in which the Partnership or the Operating Partnership has an interest
based on the nationality, citizenship or other related status of a Limited
Partner or Assignee, the General Partner may request any Limited Partner or
Assignee to furnish to the General Partner, within 30 days after receipt of
such request, an executed Citizenship Certification or such other information
concerning his nationality, citizenship or other related status (or, if the
Limited Partner or Assignee is a nominee holding for the account of another
Person, the nationality, citizenship or other related status of such Person)
as the
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General Partner may request. If a Limited Partner or Assignee fails to furnish
to the General Partner within the aforementioned 30-day period such
Citizenship Certification or other requested information or if upon receipt of
such Citizenship Certification or other requested information the General
Partner determines, with the advice of counsel, that a Limited Partner or
Assignee is not an Eligible Citizen, the Units owned by such Limited Partner
or Assignee shall be subject to redemption in accordance with the provisions
of Section 11.6. In addition, the General Partner may require that the status
of any such Limited Partner or Assignee be changed to that of a Non-citizen
Assignee, and, thereupon, the General Partner shall be substituted for such
Non-citizen Assignee as the Limited Partner in respect of his Units.
(b) The General Partner shall, in exercising voting rights in respect of
Units held by it on behalf of Non-citizen Assignees, distribute the votes in
the same ratios as the votes of Limited Partners in respect of Units other
than those of Non-citizen Assignees are cast, either for, against or
abstaining as to the matter.
(c) Upon dissolution of the Partnership, a Non-citizen Assignee shall have
no right to receive a distribution in kind pursuant to Section 14.4 but shall
be entitled to the cash equivalent thereof, and the General Partner shall
provide cash in exchange for an assignment of the Non-citizen Assignee's share
of the distribution in kind. Such payment and assignment shall be treated for
Partnership purposes as a purchase by the General Partner from the Non-citizen
Assignee of his Partnership Interest (representing his right to receive his
share of such distribution in kind).
(d) At any time after he can and does certify that he has become an Eligible
Citizen, a Non-citizen Assignee may, upon application to the General Partner,
request admission as a Substituted Limited Partner with respect to any Units
of such Non-citizen Assignee not redeemed pursuant to Section 11.6, and upon
his admission pursuant to Section 12.2 the General Partner shall cease to be
deemed to be the Limited Partner in respect of the Non-citizen Assignee's
Units.
11.6 REDEMPTION OF INTERESTS. (a) If at any time a Limited Partner or
Assignee fails to furnish a Citizenship Certification or other information
requested within the 30-day period specified in Section 11.5(a), or if upon
receipt of such Citizenship Certification or other information the General
Partner determines, with the advice of counsel, that a Limited Partner or
Assignee is not an Eligible Citizen, the Partnership may, unless the Limited
Partner or Assignee establishes to the satisfaction of the General Partner
that such Limited Partner or Assignee is an Eligible Citizen or has
transferred his Units to a Person who furnishes a Citizenship Certification to
the General Partner prior to the date fixed for redemption as provided below,
redeem the Partnership Interest of such Limited Partner or Assignee as
follows:
(i) The General Partner shall, not later than the 30th day before the
date fixed for redemption, give notice of redemption to the Limited Partner
or Assignee, at his last address designated on the records of the
Partnership or the Transfer Agent, by registered or certified mail, postage
prepaid. The notice shall be deemed to have been given when so mailed. The
notice shall specify the Redeemable Units, the date fixed for redemption,
the place of payment, that payment of the redemption price will be made
upon surrender of the Certificate evidencing the Redeemable Units and that
on and after the date fixed for redemption no further allocations or
distributions to which the Limited Partner or Assignee would otherwise be
entitled in respect of the Redeemable Units will accrue or be made.
(ii) The aggregate redemption price for Redeemable Units shall be an
amount equal to the Current Market Price (the date of determination of
which shall be the date fixed for redemption) of Units of the class to be
so redeemed multiplied by the number of Units of each such class included
among the Redeemable Units. The redemption price shall be paid, in the sole
discretion of the General Partner, in cash or by delivery of a promissory
note of the Partnership in the principal amount of the redemption price,
bearing interest at the rate of 10% annually and payable in three
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equal annual installments of principal together with accrued interest,
commencing one year after the redemption date.
(iii) Upon surrender by or on behalf of the Limited Partner or Assignee,
at the place specified in the notice of redemption, of the Certificate
evidencing the Redeemable Units, duly endorsed in blank or accompanied by
an assignment duly executed in blank, the Limited Partner or Assignee or
his duly authorized representative shall be entitled to receive the payment
therefor.
(iv) After the redemption date, Redeemable Units shall no longer
constitute issued and Outstanding Units.
(b) The provisions of this Section 11.6 shall also be applicable to Units
held by a Limited Partner or Assignee as nominee of a Person determined to be
other than an Eligible Citizen.
(c) Nothing in this Section 11.6 shall prevent the recipient of a notice of
redemption from transferring his Units before the redemption date if such
transfer is otherwise permitted under this Agreement. Upon receipt of notice
of such a transfer, the General Partner shall withdraw the notice of
redemption, provided, the transferee of such Units certifies in the Transfer
Application that he is an Eligible Citizen. If the transferee fails to make
such certification, such redemption shall be effected from the transferee on
the original redemption date.
11.7 TRANSFER OF IDRS. A Special Limited Partner holding IDRs may transfer
any or all of the IDRs held by such Special Limited Partner. The General
Partner shall have the authority (but shall not be required) to adopt such
reasonable restrictions on the transfer of IDRs, consistent with the
restrictions on transfer of Units provided for in this Agreement, and
requirements for registering the transfer of IDRs as the General Partner, in
its sole discretion, shall determine are necessary or appropriate including,
without limitation, if the General Partner shall so determine, in its sole
discretion, the right of the Partnership to redeem IDRs upon terms and
conditions similar to those applicable to Units.
ARTICLE XII
ADMISSION OF PARTNERS
12.1 ADMISSION OF INITIAL LIMITED PARTNERS. Upon the issuance by the
Partnership of Common Units, Subordinated Units and IDRs to the General
Partner as described in Section 4.2, the General Partner shall be deemed to
have been admitted to the Partnership as a Limited Partner in respect of the
Common Units and Subordinated Units issued to it and as a Special Limited
Partner in respect of the IDRs issued to it. Upon the issuance by the
Partnership of Common Units to the Underwriters as described in Section 4.2 in
connection with the Initial Offering and the execution by each Underwriter of
a Transfer Application, the General Partner shall admit the Underwriters to
the Partnership as Initial Limited Partners in respect of the Common Units
purchased by them.
12.2 ADMISSION OF SUBSTITUTED LIMITED PARTNERS. By transfer of a Unit in
accordance with Article XI, the transferor shall be deemed to have given the
transferee the right to seek admission as a Substituted Limited Partner
subject to the conditions of, and in the manner permitted under, this
Agreement. A transferor of a Certificate shall, however, only have the
authority to convey to a purchaser or other transferee who does not execute
and deliver a Transfer Application (a) the right to negotiate such Certificate
to a purchaser or other transferee and (b) the right to transfer the right to
request admission as a Substituted Limited Partner to such purchaser or other
transferee in respect of the transferred Units. Each transferee of a Unit
(including, without limitation, any nominee holder or an agent acquiring such
Unit for the account of another Person) who executes and delivers a Transfer
Application shall, by virtue of such execution and delivery, be an Assignee
and be deemed to have applied to become a Substituted Limited Partner with
respect to the Units so transferred to such Person. Such Assignee shall become
a Substituted Limited Partner (x) at such time as the General
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Partner consents thereto, which consent may be given or withheld in the
General Partner's sole discretion, and (y) when any such admission is shown on
the books and records of the Partnership. If such consent is withheld, such
transferee shall be an Assignee. An Assignee shall have an interest in the
Partnership equivalent to that of a Limited Partner with respect to
allocations and distributions, including, without limitation, liquidating
distributions, of the Partnership. With respect to voting rights attributable
to Units that are held by Assignees, the General Partner shall be deemed to be
the Limited Partner with respect thereto and shall, in exercising the voting
rights in respect of such Units on any matter, vote such Units at the written
direction of the Assignee who is the Record Holder of such Units. If no such
written direction is received, such Units will not be voted. An Assignee shall
have no other rights of a Limited Partner.
12.3 ADMISSION OF SUCCESSOR GENERAL PARTNER. A successor General Partner
approved pursuant to Section 13.1 or 13.2 or the transferee of or successor to
all of the General Partner's Partnership Interest as a general partner in the
Partnership pursuant to Section 11.2 who is proposed to be admitted as a
successor General Partner shall be admitted to the Partnership as the General
Partner, effective immediately prior to the withdrawal or removal of the
General Partner pursuant to Section 13.1 or 13.2 or the transfer of the
General Partner's Partnership Interest as a general partner in the Partnership
pursuant to Section 11.2; provided, however, that no such successor shall be
admitted to the Partnership until compliance with the terms of Section 11.2
has occurred and such successor has executed and delivered such other
documents or instruments as may be required to effect such admission. Any such
successor shall, subject to the terms hereof, carry on the business of the
Partnership and Operating Partnership without dissolution.
12.4 ADMISSION OF ADDITIONAL LIMITED PARTNERS. (a) A Person (other than the
General Partner, an Initial Limited Partner or a Substituted Limited Partner)
who makes a Capital Contribution to the Partnership in accordance with this
Agreement shall be admitted to the Partnership as an Additional Limited
Partner only upon furnishing to the General Partner (i) evidence of acceptance
in form satisfactory to the General Partner of all of the terms and conditions
of this Agreement, including, without limitation, the power of attorney
granted in Section 1.4, and (ii) such other documents or instruments as may be
required in the discretion of the General Partner to effect such Person's
admission as an Additional Limited Partner.
(b) Notwithstanding anything to the contrary in this Section 12.4, no Person
shall be admitted as an Additional Limited Partner without the consent of the
General Partner, which consent may be given or withheld in the General
Partner's sole discretion. The admission of any Person as an Additional
Limited Partner shall become effective on the date upon which the name of such
Person is recorded as such in the books and records of the Partnership,
following the consent of the General Partner to such admission.
12.5 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP. To
effect the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Delaware Act to amend
the records of the Partnership to reflect such admission and, if necessary, to
prepare as soon as practical an amendment of this Agreement and, if required
by law, to prepare and file an amendment to the Certificate of Limited
Partnership and may for this purpose, among others, exercise the power of
attorney granted pursuant to Section 1.4.
ARTICLE XIII
WITHDRAWAL OR REMOVAL OF PARTNERS
13.1 WITHDRAWAL OF THE GENERAL PARTNER. (a) The General Partner shall be
deemed to have withdrawn from the Partnership upon the occurrence of any one
of the following events (each such event herein referred to as an "EVENT OF
WITHDRAWAL");
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(i) the General Partner voluntarily withdraws from the Partnership by
giving written notice to the other Partners (and it shall be deemed that
the General Partner has withdrawn pursuant to this Section 13.1(a)(i) if
the General Partner voluntarily withdraws as general partner of the
Operating Partnership);
(ii) the General Partner transfers all of its rights as General Partner
pursuant to Section 11.2;
(iii) the General Partner is removed pursuant to Section 13.2;
(iv) the General Partner (A) makes a general assignment for the benefit
of creditors; (B) files a voluntary bankruptcy petition; (C) files a
petition or answer seeking for itself a reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under
any law; (D) files an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against the General
Partner in a proceeding of the type described in clauses (A)-(C) of this
Section 13.1(a)(iv); or (E) seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of the General Partner or
of all or any substantial part of its properties;
(v) a final and non-appealable judgment is entered by a court with
appropriate jurisdiction ruling that the General Partner is bankrupt or
insolvent, or a final and non-appealable order for relief is entered by a
court with appropriate jurisdiction against the General Partner, in each
case under any federal or state bankruptcy or insolvency laws as now or
hereafter in effect; or
(vi) a certificate of dissolution or its equivalent is filed for the
General Partner, or 90 days expire after the date of notice to the General
Partner of revocation of its charter without a reinstatement of its
charter, under the laws of its state of incorporation.
If an Event of Withdrawal specified in Section 13.1(a)(iv), (v) or (vi)
occurs, the withdrawing General Partner shall give notice to the Limited
Partners within 30 days after such occurrence. The Partners hereby agree that
only the Events of Withdrawal described in this Section 13.1 shall result in
the withdrawal of the General Partner from the Partnership.
(b) Withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal shall not constitute a breach of this
Agreement under the following circumstances: (i) at any time during the period
beginning on the Closing Date and ending at 12:00 midnight, Central Standard
Time, on July 31, 2004, the General Partner voluntarily withdraws by giving at
least 90 days' advance notice of its intention to withdraw to the Limited
Partners, provided, that prior to the effective date of such withdrawal the
withdrawal is approved by Limited Partners holding at least two-thirds of the
Outstanding Units (excluding for purposes of such determination Units owned by
the General Partner and its Affiliates) and the General Partner delivers to
the Partnership an Opinion of Counsel ("WITHDRAWAL OPINION OF COUNSEL") that
such withdrawal (following the selection of the successor General Partner)
would not result in the loss of the limited liability of any Limited Partner
or of the limited partner of the Operating Partnership or cause the
Partnership or the Operating Partnership to be treated as an association
taxable as a corporation or otherwise to be taxed as an entity for federal
income tax purposes; (ii) at any time after 12:00 midnight, Central Standard
Time, on July 31, 2004, the General Partner voluntarily withdraws by giving at
least 90 days' advance notice to the Limited Partners, such withdrawal to take
effect on the date specified in such notice; (iii) at any time that the
General Partner ceases to be a General Partner pursuant to Section 13.1(a)(ii)
or is removed pursuant to Section 13.2; or (iv) notwithstanding clause (i) of
this sentence, at any time that the General Partner voluntarily withdraws by
giving at least 90 days' advance notice of its intention to withdraw to the
Limited Partners, such withdrawal to take effect on the date specified in the
notice, if at the time such notice is given one Person and its Affiliates
(other than the General Partner and its Affiliates) own beneficially or of
record or control at least 50% of the Outstanding Units. The withdrawal of the
General Partner from the Partnership upon the occurrence of an Event of
Withdrawal shall also constitute the withdrawal of the General Partner as
general partner of the Operating Partnership. If the General Partner gives a
notice of withdrawal pursuant to Section 13.1(a)(i), holders of at least a
majority of the
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Outstanding Units (excluding for purposes of such determination Units owned by
the General Partner and its Affiliates) may, prior to the effective date of
such withdrawal, elect a successor General Partner. The Person so elected as
successor General Partner shall automatically become the successor general
partner of the Operating Partnership, as provided in the Operating Partnership
Agreement. If, prior to the effective date of the General Partner's
withdrawal, a successor is not selected by the Limited Partners as provided
herein or the Partnership does not receive a Withdrawal Opinion of Counsel,
the Partnership shall be dissolved in accordance with Section 14.1. Any
successor General Partner elected in accordance with the terms of this Section
13.1 shall be subject to the provisions of Section 12.3.
13.2 REMOVAL OF THE GENERAL PARTNER. The General Partner may be removed if
such removal is approved by Limited Partners holding at least two-thirds of
the Outstanding Units. Any such action by such Limited Partners for removal of
the General Partner must also provide for the election of a successor General
Partner by Limited Partners holding at least a majority of the Outstanding
Units. Such removal shall be effective immediately following the admission of
a successor General Partner pursuant to Article XII. The removal of the
General Partner shall also automatically constitute the removal of the General
Partner as general partner of the Operating Partnership, as provided in the
Operating Partnership Agreement. If a person is elected as a successor General
Partner in accordance with the terms of this Section 13.2, such person shall,
upon admission pursuant to Article XII, automatically become the successor
general partner of the Operating Partnership, as provided in the Operating
Partnership Agreement. The right of the Limited Partners holding Outstanding
Units to remove the General Partner shall not exist or be exercised unless the
Partnership has received an opinion opining as to the matters covered by a
Withdrawal Opinion of Counsel. Any successor General Partner elected in
accordance with the terms of this Section 13.2 shall be subject to the
provisions of Section 12.3.
13.3 INTEREST OF DEPARTING PARTNER AND SUCCESSOR GENERAL PARTNER. (a) In the
event of (i) withdrawal of the General Partner under circumstances where such
withdrawal does not violate this Agreement or (ii) removal of the General
Partner by the Limited Partners under circumstances where Cause does not
exist, if a successor General Partner is elected in accordance with the terms
of Section 13.1 or 13.2, the Departing Partner shall have the option
exercisable prior to the effective date of the departure of such Departing
Partner to require its successor to purchase its Partnership Interest as a
general partner in the Partnership and its partnership interest as the general
partner in the Operating Partnership (collectively, the "COMBINED INTEREST")
in exchange for an amount in cash equal to the fair market value of such
Combined Interest, such amount to be determined and payable as of the
effective date of its departure. If the General Partner is removed by the
Limited Partners under circumstances where Cause exists or if the General
Partner withdraws under circumstances where such withdrawal violates this
Agreement or the Operating Partnership Agreement, and if a successor General
Partner is elected in accordance with the terms of Section 13.1 or 13.2, such
successor shall have the option, exercisable prior to the effective date of
the departure of such Departing Partner, to purchase the Combined Interest of
the Departing Partner for such fair market value of such Combined Interest. In
either event, the Departing Partner shall be entitled to receive all
reimbursements due such Departing Partner pursuant to Section 6.4, including,
without limitation, any employee-related liabilities (including, without
limitation, severance liabilities), incurred in connection with the
termination of any employees employed by the General Partner for the benefit
of the Partnership or the Operating Partnership. Subject to Section 13.3(b),
the Departing Partner shall, as of the effective date of its departure, cease
to share in any allocations or distributions with respect to its Partnership
Interest as a general partner in the Partnership and Partnership income, gain,
loss, deduction and credit will be prorated and allocated as set forth in
Section 5.2(g).
For purposes of this Section 13.3(a), the fair market value of the Departing
Partner's Combined Interest shall be determined by agreement between the
Departing Partner and its successor or, failing agreement within 30 days after
the effective date of such Departing Partner's departure, by an
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independent investment banking firm or other independent expert selected by
the Departing Partner and its successor, which, in turn, may rely on other
experts and the determination of which shall be conclusive as to such matter.
If such parties cannot agree upon one independent investment banking firm or
other independent expert within 45 days after the effective date of such
departure, then the Departing Partner shall designate an independent
investment banking firm or other independent expert, the Departing Partner's
successor shall designate an independent investment banking firm or other
independent expert, and such firms or experts shall mutually select a third
independent investment banking firm or independent expert, which shall
determine the fair market value of the Combined Interest. In making its
determination, such independent investment banking firm or other independent
expert shall consider the then current trading price of Units on any National
Securities Exchange on which Units are then listed, the value of the
Partnership's assets, the rights and obligations of the General Partner and
other factors it may deem relevant.
(b) If the Combined Interest is not purchased in the manner set forth in
Section 13.3(a), the Departing Partner shall become a Limited Partner and the
Combined Interest shall be converted into Common Units pursuant to a valuation
made by an investment banking firm or other independent expert selected
pursuant to Section 13.3(a), without reduction in such Partnership Interest
(but subject to proportionate dilution by reason of the admission of its
successor). Any successor General Partner shall indemnify the Departing
Partner as to all debts and liabilities of the Partnership arising on or after
the date on which the Departing Partner becomes a Limited Partner. For
purposes of this Agreement, conversion of the General Partner's Combined
Interest to Common Units will be characterized as if the General Partner
contributed its Combined Interest to the Partnership in exchange for the
newly issued Common Units.
(c) If a successor General Partner is elected in accordance with the terms
of Section 13.1 or 13.2 and the option described in Section 13.3(a) is not
exercised by the party entitled to do so, the successor General Partner shall,
at the effective date of its admission to the Partnership, contribute to the
capital of the Partnership cash in an amount such that its Capital Account,
after giving effect to such contribution and any adjustments made to the
Capital Accounts of all Partners pursuant to Section 4.4(d)(i), shall be equal
to that percentage of the Capital Accounts of all Partners that is equal to
its Percentage Interest as the General Partner. In such event, such successor
General Partner shall, subject to the following sentence, be entitled to such
Percentage Interest of all Partnership allocations and distributions and any
other allocations and distributions to which the Departing Partner was
entitled. In addition, such successor General Partner shall cause this
Agreement to be amended to reflect that, from and after the date of such
successor General Partner's admission, the successor General Partner's
interest in all Partnership distributions and allocations shall be 1%, and
that of the holders of Outstanding Units shall be 99%.
13.4 WITHDRAWAL OF LIMITED PARTNERS. No Limited Partner shall have any right
to withdraw from the Partnership; provided, however, that when a transferee of
a Limited Partner's Units becomes a Record Holder, such transferring Limited
Partner shall cease to be a Limited Partner with respect to the Units so
transferred.
ARTICLE XIV
DISSOLUTION AND LIQUIDATION
14.1 DISSOLUTION. The Partnership shall not be dissolved by the admission of
Substituted Limited Partners or Additional Limited Partners or by the
admission of a successor General Partner in accordance with the terms of this
Agreement. Upon the removal or withdrawal of the General Partner, if a
successor General Partner is elected pursuant to Section 13.1 or 13.2, the
Partnership shall not be dissolved and such successor General Partner shall
continue the business of the Partnership. The Partnership shall dissolve, and
(subject to Section 14.2) its affairs should be wound up, upon:
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(a) the expiration of its term as provided in Section 1.5;
(b) an Event of Withdrawal of the General Partner as provided in Section
13.1(a) (other than Section 13.1(a)(ii)), unless a successor is elected and
an Opinion of Counsel is received as provided in Section 13.1(b) or 13.2
and such successor is admitted to the Partnership pursuant to Section 12.3;
(c) an election to dissolve the Partnership by the General Partner that
(i) during the Subordination Period, is approved by at least a majority of
the Outstanding Units other than Units held by the General Partner or its
Affiliates or (ii) after the expiration of the Subordination Period, is
approved by at least a majority of the Outstanding Units (and all Limited
Partners hereby expressly consent that in either case such approval may be
effected upon written consent of said applicable percentage of the
Outstanding Units);
(d) entry of a decree of judicial dissolution of the Partnership pursuant
to the provisions of the Delaware Act; or
(e) the sale of all or substantially all of the assets and properties of
the Partnership and the Operating Partnership taken as a whole.
14.2 CONTINUATION OF THE BUSINESS OF THE PARTNERSHIP AFTER DISSOLUTION. Upon
(a) dissolution of the Partnership following an Event of Withdrawal caused by
the withdrawal or removal of the General Partner as provided in Section
13.1(a)(i) or (iii) and the failure of the Partners to select a successor to
such Departing Partner pursuant to Section 13.1 or 13.2, then within 90 days
thereafter or (b) dissolution of the Partnership upon an event constituting an
Event of Withdrawal as defined in Section 13.1(a)(iv), (v) or (vi), then
within 180 days thereafter, a majority of the Outstanding Units may elect to
reconstitute the Partnership and continue its business on the same terms and
conditions set forth in this Agreement by forming a new limited partnership on
terms identical to those set forth in this Agreement and having as the
successor general partner a Person approved by a majority of the Outstanding
Units. Upon any such election by a majority of the Outstanding Units, all
Partners shall be bound thereby and shall be deemed to have approved thereof.
Unless such an election is made within the applicable time period as set forth
above, the Partnership shall conduct only activities necessary to wind up its
affairs. If such an election is so made, then:
(i) the reconstituted Partnership shall continue until the end of the
term set forth in Section 1.5 unless earlier dissolved in accordance with
this Article XIV;
(ii) if the successor General Partner is not the former General Partner,
then the interest of the former General Partner shall be treated
thenceforth as the interest of a Limited Partner and converted into Common
Units in the manner provided in Section 13.3(b); and
(iii) all necessary steps shall be taken to cancel this Agreement and the
Certificate of Limited Partnership and to enter into and, as necessary, to
file a new partnership agreement and certificate of limited partnership,
and the successor general partner may for this purpose exercise the powers
of attorney granted the General Partner pursuant to Section 1.4; provided,
that the right of a majority of Outstanding Units to approve a successor
General Partner and to reconstitute and to continue the business of the
Partnership shall not exist and may not be exercised unless the Partnership
has received an Opinion of Counsel that (x) the exercise of the right would
not result in the loss of limited liability of any Limited Partner and (y)
neither the Partnership, the reconstituted limited partnership nor the
Operating Partnership would be treated as an association taxable as a
corporation or otherwise be taxable as an entity for federal income tax
purposes upon the exercise of such right to continue.
14.3 LIQUIDATION. Upon dissolution of the Partnership, unless the
Partnership is continued under an election to reconstitute and continue the
Partnership pursuant to Section 14.2, the General Partner, or in the event the
General Partner has been dissolved or removed, become bankrupt as set forth in
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Section 13.1 or withdrawn from the Partnership, a liquidator or liquidating
committee approved by a majority of the Outstanding Units, shall be the
Liquidator. The Liquidator (if other than the General Partner) shall be
entitled to receive such compensation for its services as may be approved by a
majority of the Outstanding Units. The Liquidator shall agree not to resign at
any time without 15 days' prior notice and (if other than the General Partner)
may be removed at any time, with or without cause, by notice of removal
approved by a majority of the Outstanding Units. Upon dissolution, removal or
resignation of the Liquidator, a successor and substitute Liquidator (who
shall have and succeed to all rights, powers and duties of the original
Liquidator) shall within 30 days thereafter be approved by a majority of the
Outstanding Units. The right to approve a successor or substitute Liquidator
in the manner provided herein shall be deemed to refer also to any such
successor or substitute Liquidator approved in the manner herein provided.
Except as expressly provided in this Article XIV, the Liquidator approved in
the manner provided herein shall have and may exercise, without further
authorization or consent of any of the parties hereto, all of the powers
conferred upon the General Partner under the terms of this Agreement (but
subject to all of the applicable limitations, contractual and otherwise, upon
the exercise of such powers, other than the limitation on sale set forth in
Section 6.3(b)) to the extent necessary or desirable in the good faith
judgment of the Liquidator to carry out the duties and functions of the
Liquidator hereunder for and during such period of time as shall be reasonably
required in the good faith judgment of the Liquidator to complete the
winding up and liquidation of the Partnership as provided for herein. The
Liquidator shall liquidate the assets of the Partnership, and apply and
distribute the proceeds of such liquidation in the following order of
priority, unless otherwise required by mandatory provisions of applicable law:
(a) the payment to creditors of the Partnership, including, without
limitation, Partners who are creditors, in the order of priority provided
by law; and the creation of a reserve of cash or other assets of the
Partnership for contingent liabilities in an amount, if any, determined by
the Liquidator to be appropriate for such purposes; and
(b) to all Partners in accordance with, and to the extent of, the
positive balances in their respective Capital Accounts, as determined after
taking into account all Capital Account adjustments (other than those made
by reason of this clause) for the taxable year of the Partnership during
which the liquidation of the Partnership occurs (with the date of such
occurrence being determined pursuant to Treasury Regulation Section 1.704-
1(b)(2)(ii)(g)); and such distribution shall be made by the end of such
taxable year (or, if later, within 90 days after said date of such
occurrence).
14.4 DISTRIBUTIONS IN KIND. (a) Notwithstanding the provisions of Section
14.3, which require the liquidation of the assets of the Partnership, but
subject to the order of priorities set forth therein, if prior to or upon
dissolution of the Partnership the Liquidator determines that an immediate
sale of part or all of the Partnership's assets would be impractical or would
cause undue loss to the Partners, the Liquidator may, in its absolute
discretion, defer for a reasonable time the liquidation of any assets except
those necessary to satisfy liabilities of the Partnership (including, without
limitation, those to Partners as creditors) and or distribute to the Partners
or to specific classes of Partners, in lieu of cash, as tenants in common and
in accordance with the provisions of Section 14.3, undivided interests in such
Partnership assets as the Liquidator deems not suitable for liquidation. Any
such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Limited Partners, and shall be subject to such conditions relating to the
disposition and management of such properties as the Liquidator deems
reasonable and equitable and to any agreements governing the operation of such
properties at such time. The Liquidator shall determine the fair market value
of any property distributed in kind using such reasonable method of valuation
as it may adopt.
(b) In accordance with Section 704(c)(1)(B) of the Code, in the case of any
deemed distribution occurring as a result of a termination of the Partnership
pursuant to Section 708(b)(1)(B) of the Code,
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to the maximum extent possible consistent with the priorities of Section 14.3,
the General Partner shall have sole discretion to treat the deemed
distribution of Partnership assets to Partners as occurring in a manner that
will not cause a shift of the Book-Tax Disparity attributable to a Partnership
asset existing immediately prior to the deemed distribution to another asset
upon the deemed contribution of assets to the reconstituted Partnership,
including, without limitation, deeming the distribution of any Partnership
assets to be made either to the Partner who contributed such assets or to the
transferee of such Partner.
14.5 CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP. Upon the completion
of the distribution of Partnership cash and property as provided in Sections
14.3 and 14.4 in connection with the liquidation of the Partnership, the
Partnership shall be terminated and the Certificate of Limited Partnership and
all qualifications of the Partnership as a foreign limited partnership in
jurisdictions other than the State of Delaware shall be cancelled and such
other actions as may be necessary to terminate the Partnership shall be taken.
14.6 REASONABLE TIME FOR WINDING UP. A reasonable time shall be allowed for
the orderly winding up of business and affairs of the Partnership and the
liquidation of its assets pursuant to Section 14.3 in order to minimize any
losses otherwise attendant upon such winding up, and the provisions of this
Agreement shall remain in effect between the Partners during the period of
liquidation.
14.7 RETURN OF CAPITAL. The General Partner shall not be personally liable
for, and shall have no obligation to contribute or loan any monies or property
to the Partnership to enable it to effectuate, the return of the Capital
Contributions of the Limited Partners, or any portion thereof, it being
expressly understood that any such return shall be made solely from
Partnership assets.
14.8 CAPITAL ACCOUNT RESTORATION. No Limited Partner shall have any
obligation to restore any negative balance in its Capital Account upon
liquidation of the Partnership. The General Partner shall be obligated to
restore any negative balance in its Capital Account upon liquidation of its
interest in the Partnership by the end of the taxable year of the Partnership
during which such liquidation occurs, or, if later, within 90 days after the
date of such liquidation.
14.9 WAIVER OF PARTITION. Each Partner hereby waives any right to partition
of the Partnership property.
ARTICLE XV
AMENDMENT OF PARTNERSHIP AGREEMENT;
MEETINGS; RECORD DATE
15.1 AMENDMENT TO BE ADOPTED SOLELY BY GENERAL PARTNER. Each Limited Partner
agrees that the General Partner (pursuant to its powers of attorney from the
Limited Partners, Special Limited Partners and Assignees), without the
approval of any Limited Partner or Assignee, may amend any provision of this
Agreement, and execute, swear to, acknowledge, deliver, file and record
whatever documents may be required in connection therewith, to reflect:
(a) a change in the name of the Partnership, the location of the
principal place of business of the Partnership, the registered agent of the
Partnership or the registered office of the Partnership;
(b) admission, substitution, withdrawal or removal of Partners in
accordance with this Agreement;
(c) a change that, in the sole discretion of the General Partner, is
necessary or appropriate to qualify or continue the qualification of the
Partnership as a limited partnership or a partnership in which the limited
partners have limited liability under the laws of any state or that is
necessary or advisable in the opinion of the General Partner to ensure that
the Partnership and the Operating
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Partnership will not be treated as an association taxable as a corporation
or otherwise taxed as an entity for federal income tax purposes;
(d) a change (i) that, in the sole discretion of the General Partner,
does not adversely affect the Limited Partners in any material respect,
(ii) that is necessary or desirable to satisfy any requirements, conditions
or guidelines contained in any opinion, directive, order, ruling or
regulation of any federal or state agency or judicial authority or
contained in any federal or state statute (including, without limitation,
the Delaware Act) or that is necessary or desirable to facilitate the
trading of the Units (including, without limitation, the division of
Outstanding Units into different classes to facilitate uniformity of tax
consequences within such classes of Units) or comply with any rule,
regulation, guideline or requirement of any National Securities Exchange on
which the Units are or will be listed for trading, compliance with any of
which the General Partner determines in its sole discretion to be in the
best interests of the Partnership and the Limited Partners or (iii) that is
necessary or desirable to implement certain tax-related provisions of the
Partnership Agreement, or (iv) that is required to effect the intent of the
provisions of this Agreement or is otherwise contemplated by this
Agreement;
(e) a change in the fiscal year and taxable year of the Partnership and
any changes that, in the sole discretion of the General Partner, are
necessary or appropriate as a result of a change in the fiscal year and
taxable year of the Partnership including, without limitation, if the
General Partner shall so determine, a change in the definition of "Quarter"
and the dates on which distributions are to be made by the Partnership;
(f) an amendment that is necessary, in the Opinion of Counsel, to prevent
the Partnership or the General Partner or its directors or officers from in
any manner being subjected to the provisions of the Investment Company Act
of 1940, as amended, the Investment Advisers Act of 1940, as amended, or
"plan asset" regulations adopted under the Employee Retirement Income
Security Act of 1974, as amended, whether or not substantially similar to
plan asset regulations currently applied or proposed by the United States
Department of Labor;
(g) subject to the terms of Section 4.3, an amendment that, in the sole
discretion of the General Partner, is necessary or desirable in connection
with the authorization for issuance of any class or series of Partnership
Securities pursuant to Section 4.3;
(h) any amendment expressly permitted in this Agreement to be made by the
General Partner acting alone;
(i) an amendment effected, necessitated or contemplated by a Merger
Agreement approved in accordance with Section 16.3;
(j) an amendment that, in the sole discretion of the General Partner, is
necessary or desirable to reflect, account for and deal with appropriately
the formation by the Partnership of, or investment by the Partnership in,
any corporation, partnership, joint venture, limited liability company or
other entity other than the Operating Partnership, in connection with the
conduct by the Partnership of activities permitted by the terms of Section
3.1; or
(k) any other amendments substantially similar to the foregoing.
15.2 AMENDMENT PROCEDURES. Except as provided in Sections 15.1 and 15.3, all
amendments to this Agreement shall be made in accordance with the following
requirements. Amendments to this Agreement may be proposed only by or with the
consent of the General Partner. A proposed amendment shall be effective upon
its approval by the holders of at least two-thirds of the Outstanding Units
during the Subordination Period and thereafter upon its approval by the
holders of at least a majority of the Outstanding Units, unless, in either
case, a greater or different percentage is required under this Agreement. Each
proposed amendment that requires the approval of the holders of a specified
percentage of Outstanding Units shall be set forth in a writing that contains
the text of the
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proposed amendment. If such an amendment is proposed, the General Partner
shall seek the written approval of the requisite percentage of Outstanding
Units or call a meeting of the Limited Partners to consider and vote on such
proposed amendment. The General Partner shall notify all Record Holders upon
final adoption of any such proposed amendments.
15.3 AMENDMENT REQUIREMENTS. (a) Notwithstanding the provisions of Sections
15.1 and 15.2, no provision of this Agreement that establishes a percentage of
Outstanding Units required to take any action shall be amended, altered,
changed, repealed or rescinded in any respect that would have the effect of
reducing such voting requirement unless such amendment is approved by the
written consent or the affirmative vote of holders of Outstanding Units whose
aggregate Outstanding Units constitute not less than the voting requirement
sought to be reduced.
(b) Notwithstanding the provisions of Sections 15.1 and 15.2, no amendment
to this Agreement may (i) enlarge the obligations of any Limited Partner
without its consent, (ii) enlarge the obligations of the General Partner
without its consent, which may be given or withheld in its sole discretion,
(iii) modify the amounts distributable, reimbursable or otherwise payable to
the General Partner by the Partnership or the Operating Partnership, (iv)
change Section 14.1(a) or (c), (v) restrict in any way any action by or rights
of the General Partner as set forth in this Agreement or (vi) change the term
of the Partnership or, except as set forth in Section 14.1(c), give any Person
the right to dissolve the Partnership.
(c) Except as otherwise provided, and without limitation of the General
Partner's authority to adopt amendments to this Agreement as contemplated in
Section 15.1, any amendment that would have a material adverse effect on the
rights or preferences of any class of Outstanding Units in relation to other
classes of Units must be approved by the holders of not less than a majority
of the Outstanding Units of the class affected (excluding for purposes of such
determination Units owned by the General Partner and its Affiliates).
(d) Notwithstanding any other provision of this Agreement, except for
amendments pursuant to Section 6.3 or 15.1 and except as otherwise provided by
Section 16.3(b), no amendments shall become effective without the approval of
the holders of at least 95% of the Outstanding Units unless the Partnership
obtains an Opinion of Counsel to the effect that (a) such amendment will not
cause the Partnership or the Operating Partnership to be treated as an
association taxable as a corporation or otherwise taxable as an entity for
federal income tax purposes and (b) such amendment will not affect the limited
liability of any Limited Partner or any limited partner of the Operating
Partnership under applicable law.
(e) This Section 15.3 shall only be amended with the approval of the holders
of not less than 95% of the Outstanding Units.
15.4 MEETINGS. All acts of Limited Partners to be taken pursuant to this
Agreement shall be taken in the manner provided in this Article XV. Meetings
of the Limited Partners may be called by the General Partner or by Limited
Partners owning 20% or more of the Outstanding Units of the class or classes
for which a meeting is proposed. Limited Partners shall call a meeting by
delivering to the General Partner one or more requests in writing stating that
the signing Limited Partners wish to call a meeting and indicating the general
or specific purposes for which the meeting is to be called. Within 60 days
after receipt of such a call from Limited Partners or within such greater time
as may be reasonably necessary for the Partnership to comply with any
statutes, rules, regulations, listing agreements or similar requirements
governing the holding of a meeting or the solicitation of proxies for use at
such a meeting, the General Partner shall send a notice of the meeting to the
Limited Partners either directly or indirectly through the Transfer Agent. A
meeting shall be held at a time and place determined by the General Partner on
a date not more than 60 days after the mailing of notice of the meeting.
Limited Partners shall not vote on matters that would cause the Limited
Partners to be deemed to be taking part in the management and control of the
business and affairs of the Partnership so as to jeopardize the Limited
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Partners' limited liability under the Delaware Act or the law of any other
state in which the Partnership is qualified to do business.
15.5 NOTICE OF A MEETING. Notice of a meeting called pursuant to Section
15.4 shall be given to the Record Holders in writing by mail or other means of
written communication in accordance with Section 18.1. The notice shall be
deemed to have been given at the time when deposited in the mail or sent by
other means of written communication.
15.6 RECORD DATE. For purposes of determining the Limited Partners entitled
to notice of or to vote at a meeting of the Limited Partners or to give
approvals without a meeting as provided in Section 15.11, the General Partner
may set a Record Date, which shall not be less than 10 nor more than 60 days
before (a) the date of the meeting (unless such requirement conflicts with any
rule, regulation, guideline or requirement of any National Securities Exchange
on which the Units are listed for trading, in which case the rule, regulation,
guideline or requirement of such exchange shall govern) or (b) in the event
that approvals are sought without a meeting, the date by which Limited
Partners are requested in writing by the General Partner to give such
approvals.
15.7 ADJOURNMENT. When a meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting and a new Record Date need
not be fixed, if the time and place thereof are announced at the meeting at
which the adjournment is taken, unless such adjournment shall be for more than
45 days. At the adjourned meeting, the Partnership may transact any business
which might have been transacted at the original meeting. If the adjournment
is for more than 45 days or if a new Record Date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given in accordance with
this Article XV.
15.8 WAIVER OF NOTICE; APPROVAL OF MEETING; APPROVAL OF MINUTES. The
transactions of any meeting of Limited Partners, however called and noticed,
and whenever held, shall be as valid as if had at a meeting duly held after
regular call and notice, if a quorum is present either in person or by proxy,
and if, either before or after the meeting, Limited Partners representing such
quorum who were present in person or by proxy and entitled to vote, sign a
written waiver of notice or an approval of the holding of the meeting or an
approval of the minutes thereof. All waivers and approvals shall be filed with
the Partnership records or made a part of the minutes of the meeting.
Attendance of a Limited Partner at a meeting shall constitute a waiver of
notice of the meeting, except when the Limited Partner does not approve, at
the beginning of the meeting, of the transaction of any business because the
meeting is not lawfully called or convened; and except that attendance at a
meeting is not a waiver of any right to disapprove the consideration of
matters required to be included in the notice of the meeting, but not so
included, if the disapproval is expressly made at the meeting.
15.9 QUORUM. The holders of two-thirds of the Outstanding Units of the class
or classes for which a meeting has been called represented in person or by
proxy shall constitute a quorum at a meeting of Limited Partners of such class
or classes unless any such action by the Limited Partners requires approval by
holders of a majority in interest of such Units, in which case the quorum
shall be a majority (excluding, in either case, if such are to be excluded
from the vote, Outstanding Units owned by the General Partner and its
Affiliates). At any meeting of the Limited Partners duly called and held in
accordance with this Agreement at which a quorum is present, the act of
Limited Partners holding Outstanding Units that in the aggregate represent a
majority of the Outstanding Units entitled to vote and be present in person or
by proxy at such meeting shall be deemed to constitute the act of all Limited
Partners, unless a greater or different percentage is required with respect to
such action under the provisions of this Agreement, in which case the act of
the Limited Partners holding Outstanding Units that in the aggregate represent
at least such greater or different percentage shall be required. The Limited
Partners present at a duly called or held meeting at which a quorum is present
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough Limited Partners to leave less than a quorum, if any
action taken (other than adjournment) is approved by the
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required percentage of Outstanding Units specified in this Agreement. In the
absence of a quorum, any meeting of Limited Partners may be adjourned from
time to time by the affirmative vote of a majority of the Outstanding Units
represented either in person or by proxy, but no other business may be
transacted, except as provided in Section 15.7.
15.10 CONDUCT OF MEETING. The General Partner shall have full power and
authority concerning the manner of conducting any meeting of the Limited
Partners or solicitation of approvals in writing, including, without
limitation, the determination of Persons entitled to vote, the existence of a
quorum, the satisfaction of the requirements of Section 15.4, the conduct of
voting, the validity and effect of any proxies and the determination of any
controversies, votes or challenges arising in connection with or during the
meeting or voting. The General Partner shall designate a Person to serve as
chairman of any meeting and shall further designate a Person to take the
minutes of any meeting. All minutes shall be kept with the records of the
Partnership maintained by the General Partner. The General Partner may make
such other regulations consistent with applicable law and this Agreement as it
may deem advisable concerning the conduct of any meeting of the Limited
Partners or solicitation of approvals in writing, including, without
limitation, regulations in regard to the appointment of proxies, the
appointment and duties of inspectors of votes and approvals, the submission
and examination of proxies and other evidence of the right to vote, and the
revocation of approvals in writing.
15.11 ACTION WITHOUT A MEETING. Any action that may be taken at a meeting of
the Limited Partners may be taken without a meeting if an approval in writing
setting forth the action so taken is signed by Limited Partners owning not
less than the minimum percentage of the Outstanding Units that would be
necessary to authorize or take such action at a meeting at which all the
Limited Partners were present and voted. Prompt notice of the taking of action
without a meeting shall be given to the Limited Partners who have not approved
in writing. The General Partner may specify that any written ballot submitted
to Limited Partners for the purpose of taking any action without a meeting
shall be returned to the Partnership within the time period, which shall be
not less than 20 days, specified by the General Partner. If a ballot returned
to the Partnership does not vote all of the Units held by the Limited Partner,
the Partnership shall be deemed to have failed to receive a ballot for the
Units that were not voted. If approval of the taking of any action by the
Limited Partners is solicited by any Person other than by or on behalf of the
General Partner, the written approvals shall have no force and effect unless
and until (a) they are deposited with the Partnership in care of the General
Partner, (b) approvals sufficient to take the action proposed are dated as of
a date not more than 90 days prior to the date sufficient approvals are
deposited with the Partnership and (c) an Opinion of Counsel is delivered to
the General Partner to the effect that the exercise of such right and the
action proposed to be taken with respect to any particular matter (i) will not
cause the Limited Partners to be deemed to be taking part in the management
and control of the business and affairs of the Partnership so as to jeopardize
the Limited Partners' limited liability, (ii) will not jeopardize the status
of the Partnership as a partnership under applicable tax laws and regulations
and (iii) is otherwise permissible under the state statutes then governing the
rights, duties and liabilities of the Partnership and the Partners.
15.12 VOTING AND OTHER RIGHTS. (a) Only those Record Holders of Units on the
Record Date set pursuant to Section 15.6 (and also subject to the limitations
contained in the definition of "Outstanding") shall be entitled to notice of,
and to vote at, a meeting of Limited Partners or to act with respect to
matters as to which the holders of the Outstanding Units have the right to
vote or to act. All references in this Agreement to votes of, or other acts
that may be taken by, the Outstanding Units shall be deemed to be references
to the votes or acts of the Record Holders of such Outstanding Units.
(b) With respect to Units that are held for a Person's account by another
Person (such as a broker, dealer, bank, trust company or clearing corporation,
or an agent of any of the foregoing), in whose name such Units are registered,
such broker, dealer or other agent shall, in exercising the voting rights in
respect of such Units on any matter, and unless the arrangement between such
Persons provides otherwise, vote such Units in favor of, and at the direction
of, the Person who is the beneficial owner,
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and the Partnership shall be entitled to assume it is so acting without
further inquiry. The provisions of this Section 15.12(b) (as well as all other
provisions of this Agreement) are subject to the provisions of Section 10.4.
ARTICLE XVI
MERGER
16.1 AUTHORITY. The Partnership may merge or consolidate with one or more
corporations, business trusts or associations, real estate investment trusts,
common law trusts or unincorporated businesses, including, without limitation,
a general partnership or limited partnership, formed under the laws of the
State of Delaware or any other state of the United States of America, pursuant
to a written agreement of merger or consolidation ("MERGER AGREEMENT") in
accordance with this Article XVI.
16.2 PROCEDURE FOR MERGER OR CONSOLIDATION. Merger or consolidation of the
Partnership pursuant to this Article XVI requires the prior approval of the
General Partner. If the General Partner shall determine, in the exercise of
its sole discretion, to consent to the merger or consolidation, the General
Partner shall approve the Merger Agreement, which shall set forth:
(a) The names and jurisdictions of formation or organization of each of
the business entities proposing to merge or consolidate;
(b) The name and jurisdictions of formation or organization of the
business entity that is to survive the proposed merger or consolidation
(the "SURVIVING BUSINESS ENTITY");
(c) The terms and conditions of the proposed merger or consolidation;
(d) The manner and basis of exchanging or converting the equity
securities of each constituent business entity for, or into, cash, property
or general or limited partnership interests, rights, securities or
obligations of the Surviving Business Entity; and (i) if any general or
limited partnership interests, securities or rights of any constituent
business entity are not to be exchanged or converted solely for, or into,
cash, property or general or limited partnership interests, rights,
securities or obligations of the Surviving Business Entity, the cash,
property or general or limited partnership interests, rights, securities or
obligations of any limited partnership, corporation, trust or other entity
(other than the Surviving Business Entity) which the holders of such
general or limited partnership interests, securities or rights are to
receive in exchange for, or upon conversion of, their general or limited
partnership interests, securities or rights, and (ii) in the case of
securities represented by certificates, upon the surrender of such
certificates, which cash, property or general or limited partnership
interests, rights, securities or obligations of the Surviving Business
Entity or any general or limited partnership, corporation, trust or other
entity (other than the Surviving Business Entity), or evidences thereof,
are to be delivered;
(e) A statement of any changes in the constituent documents or the
adoption of new constituent documents (the articles or certificate of
incorporation, articles of trust, declaration of trust, certificate or
agreement of limited partnership or other similar charter or governing
document) of the Surviving Business Entity to be effected by such merger or
consolidation;
(f) The effective time of the merger, which may be the date of the filing
of the certificate of merger pursuant to Section 16.4 or a later date
specified in or determinable in accordance with the Merger Agreement
(provided, that if the effective time of the merger is to be later than the
date of the filing of the certificate of merger, the effective time shall
be fixed no later than the time of the filing of the certificate of merger
and stated therein); and
(g) Such other provisions with respect to the proposed merger or
consolidation as are deemed necessary or appropriate by the General
Partner.
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16.3 APPROVAL BY LIMITED PARTNERS OF MERGER OR CONSOLIDATION. (a) The
General Partner of the Partnership, upon its approval of the Merger Agreement,
shall direct that the Merger Agreement be submitted to a vote of Limited
Partners whether at a meeting or by written consent, in either case in
accordance with the requirements of Article XV. A copy or a summary of the
Merger Agreement shall be included in or enclosed with the notice of a meeting
or the written consent.
(b) The Merger Agreement shall be approved upon receiving the affirmative
vote or consent of the holders of at least a majority of the Outstanding Units
(excluding for purposes of such determination Units owned by the General
Parter and its Affiliates) during the Subordination Period and at least a
majority of the Outstanding Units thereafter unless the Merger Agreement
contains any provision which, if contained in an amendment to this Agreement,
the provisions of this Agreement or the Delaware Act would require the vote or
consent of a greater percentage of the Outstanding Units or of any class of
Limited Partners, in which case such greater percentage vote or consent shall
be required for approval of the Merger Agreement; provided that, in the case
of a merger or consolidation in which the surviving entity is a corporation or
other entity intended to be treated as an association taxable as a corporation
or otherwise taxable as an entity for federal income tax purposes, if in the
opinion of the General Partner it is necessary to effect, in contemplation of
such merger or consolidation, an amendment that would otherwise require a vote
pursuant to Section 15.3(d), no such vote pursuant to Section 15.3(d) shall be
required unless such amendment by its terms will be applicable to the
Partnership in the event the merger or consolidation is abandoned or unless
such amendment will be applicable to the Partnership during a period in excess
of ten days prior to the merger or consolidation.
(c) After such approval by vote or consent of the Limited Partners, and at
any time prior to the filing of the certificate of merger pursuant to Section
16.4, the merger or consolidation may be abandoned pursuant to provisions
therefor, if any, set forth in the Merger Agreement.
16.4 CERTIFICATE OF MERGER. Upon the required approval by the General
Partner and the Limited Partners of a Merger Agreement, a certificate of
merger shall be executed and filed with the Secretary of State of the State of
Delaware in conformity with the requirements of the Delaware Act.
16.5 EFFECT OF MERGER. (a) At the effective time of the certificate of
merger:
(i) all of the rights, privileges and powers of each of the business
entities that has merged or consolidated, and all property, real, personal
and mixed, and all debts due to any of those business entities and all
other things and causes of action belonging to each of those business
entities shall be vested in the Surviving Business Entity and after the
merger or consolidation shall be the property of the Surviving Business
Entity to the extent they were of each constituent business entity;
(ii) the title to any real property vested by deed or otherwise in any of
those constituent business entities shall not revert and is not in any way
impaired because of the merger or consolidation;
(iii) all rights of creditors and all liens on or security interests in
property of any of those constituent business entities shall be preserved
unimpaired; and
(iv) all debts, liabilities and duties of those constituent business
entities shall attach to the Surviving Business Entity, and may be enforced
against it to the same extent as if the debts, liabilities and duties had
been incurred or contracted by it.
(b) A merger or consolidation effected pursuant to this Article shall not be
deemed to result in a transfer or assignment of assets or liabilities from one
entity to another having occurred.
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ARTICLE XVII
RIGHT TO ACQUIRE UNITS
17.1 RIGHT TO ACQUIRE UNITS. (a) Notwithstanding any other provision of this
Agreement, if at any time not more than 20% of the total Units of any class
then Outstanding are held by Persons other than the General Partner and its
Affiliates, the General Partner shall then have the right, which right it may
assign and transfer to the Partnership or any Affiliate of the General
Partner, exercisable in its sole discretion, to purchase all, but not less
than all, of the Units of such class then Outstanding held by Persons other
than the General Partner and its Affiliates, at the greater of (x) the Current
Market Price as of the date three days prior to the date that the notice
described in Section 17.1(b) is mailed, and (y) the highest cash price paid by
the General Partner or any of its Affiliates for any such Unit purchased
during the 90-day period preceding the date that the notice described in
Section 17.1(b) is mailed. As used in this Agreement, (i) "CURRENT MARKET
PRICE" as of any date of any class of Units listed or admitted to trading on
any National Securities Exchange means the average of the daily Closing Prices
(as hereinafter defined) per Unit of such class for the 20 consecutive Trading
Days (as hereinafter defined) immediately prior to such date; (ii) "CLOSING
PRICE" for any day means the last sale price on such day, regular way, or in
case no such sale takes place on such day, the average of the closing bid and
asked prices on such day, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal National Securities Exchange on which the Units of
such class are listed or admitted to trading or if the Units of such class are
not listed or admitted to trading on any National Securities Exchange, the
last quoted price on such day or, if not so quoted, the average of the high
bid and low asked prices on such day in the over the counter market, as
reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or such other system then in use, or if on any such day the
Units of such class are not quoted by any such organization, the average of
the closing bid and asked prices on such day as furnished by a professional
market maker making a market in the Units of such class selected by the Board
of Directors of the General Partner, or if on any such day no market maker is
making a market in the Units of such class, the fair value of such Units on
such day as determined reasonably and in good faith by the Board of Directors
of the General Partner; and (iii) "TRADING DAY" means a day on which the
principal National Securities Exchange on which the Units of any class are
listed or admitted to trading is open for the transaction of business or, if
Units of a class are not listed or admitted to trading on any National
Securities Exchange, a day on which banking institutions in New York City
generally are open.
(b) If the General Partner, any Affiliate of the General Partner or the
Partnership elects to exercise the right to purchase Units granted pursuant to
Section 17.1(a), the General Partner shall deliver to the Transfer Agent
notice of such election to purchase (the "NOTICE OF ELECTION TO PURCHASE") and
shall cause the Transfer Agent to mail a copy of such Notice of Election to
Purchase to the Record Holders of Units (as of a Record Date selected by the
General Partner) at least 10, but not more than 60, days prior to the Purchase
Date. Such Notice of Election to Purchase shall also be published for a period
of at least three consecutive days in at least two daily newspapers of general
circulation printed in the English language and published in the Borough of
Manhattan, New York. The Notice of Election to Purchase shall specify the
Purchase Date and the price (determined in accordance with Section 17.1(a) at
which Units will be purchased and state that the General Partner, its
Affiliate or the Partnership, as the case may be, elects to purchase such
Units, upon surrender of Certificates representing such Units in exchange for
payment, at such office or offices of the Transfer Agent as the Transfer Agent
may specify, or as may be required by any National Securities Exchange on
which the Units are listed or admitted to trading. Any such Notice of Election
to Purchase mailed to a Record Holder of Units at his address as reflected in
the records of the Transfer Agent shall be conclusively presumed to have been
given whether or not the owner receives such notice. On or prior to the
Purchase Date, the General Partner, its Affiliate or the Partnership, as the
case may be, shall deposit with the Transfer Agent cash in an amount
sufficient to pay the aggregate purchase price of all of the Units to be
purchased in
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accordance with this Section 17.1. If the Notice of Election to Purchase shall
have been duly given as aforesaid at least 10 days prior to the Purchase Date,
and if on or prior to the Purchase Date the deposit described in the preceding
sentence has been made for the benefit of the holders of Units subject to
purchase as provided herein, then from and after the Purchase Date,
notwithstanding that any Certificate shall not have been surrendered for
purchase, all rights of the holders of such Units (including, without
limitation, any rights pursuant to Articles IV, V and XIV) shall thereupon
cease, except the right to receive the purchase price (determined in
accordance with Section 17.1(a)) for Units therefor, without interest, upon
surrender to the Transfer Agent of the Certificates representing such Units,
and such Units shall thereupon be deemed to be transferred to the General
Partner, its Affiliate or the Partnership, as the case may be, on the record
books of the Transfer Agent and the Partnership, and the General Partner or
any Affiliate of the General Partner, or the Partnership, as the case may be,
shall be deemed to be the owner of all such Units from and after the Purchase
Date and shall have all rights as the owner of such Units (including, without
limitation, all rights as owner of such Units pursuant to Articles IV, V and
XIV).
(c) At any time from and after the Purchase Date, a holder of an Outstanding
Unit subject to purchase as provided in this Section 17.1 may surrender his
Certificate, as the case may be, evidencing such Unit to the Transfer Agent in
exchange for payment of the amount described in Section 17.1(a), therefor,
without interest thereon.
ARTICLE XVIII
GENERAL PROVISIONS
18.1 ADDRESSES AND NOTICES. Any notice, demand, request, report or proxy
materials required or permitted to be given or made to a Partner or Assignee
under this Agreement shall be in writing and shall be deemed given or made
when delivered in person or when sent by first class United States mail or by
other means of written communication to the Partner or Assignee at the address
described below. Any notice, payment or report to be given or made to a
Partner or Assignee hereunder shall be deemed conclusively to have been given
or made, and the obligation to give such notice or report or to make such
payment shall be deemed conclusively to have been fully satisfied, upon
sending of such notice, payment or report to the Record Holder of such Unit at
his address as shown on the records of the Transfer Agent or as otherwise
shown on the records of the Partnership, regardless of any claim of any Person
who may have an interest in such Unit or the Partnership Interest of a General
Partner by reason of any assignment or otherwise. An affidavit or certificate
of making of any notice, payment or report in accordance with the provisions
of this Section 18.1 executed by the General Partner, the Transfer Agent or
the mailing organization shall be prima facie evidence of the giving or making
of such notice, payment or report. If any notice, payment or report addressed
to a Record Holder at the address of such Record Holder appearing on the books
and records of the Transfer Agent or the Partnership is returned by the United
States Post Office marked to indicate that the United States Postal Service is
unable to deliver it, such notice, payment or report and any subsequent
notices, payments and reports shall be deemed to have been duly given or made
without further mailing (until such time as such Record Holder or another
Person notifies the Transfer Agent or the Partnership of a change in his
address) if they are available for the Partner or Assignee at the principal
office of the Partnership for a period of one year from the date of the giving
or making of such notice, payment or report to the other Partners and
Assignees. Any notice to the Partnership shall be deemed given if received by
the General Partner at the principal office of the Partnership designated
pursuant to Section 1.3. The General Partner may rely and shall be protected
in relying on any notice or other document from a Partner, Assignee or other
Person if believed by it to be genuine.
18.2 REFERENCES. Except as specifically provided otherwise, references to
"Articles" and "Sections" are to Articles and Sections of this Agreement.
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18.3 PRONOUNS AND PLURALS. Whenever the context may require, any pronoun
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns, pronouns and verbs shall include
the plural and vice versa.
18.4 FURTHER ACTION. The parties shall execute and deliver all documents,
provide all information and take or refrain from taking action as may be
necessary or appropriate to achieve the purposes of this Agreement.
18.5 BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns.
18.6 INTEGRATION. This Agreement constitutes the entire agreement among the
parties hereto pertaining to the subject matter hereof and supersedes all
prior agreements and understandings pertaining thereto.
18.7 CREDITORS. None of the provisions of this Agreement shall be for the
benefit of, or shall be enforceable by, any creditor of the Partnership.
18.8 WAIVER. No failure by any party to insist upon the strict performance
of any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon a breach thereof shall constitute waiver
of any such breach or any other covenant, duty, agreement or condition.
18.9 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which together shall constitute an agreement binding on all the parties
hereto, notwithstanding that all such parties are not signatories to the
original or the same counterpart. Each party shall become bound by this
Agreement immediately upon affixing its signature hereto or, in the case of a
Person acquiring a Unit, upon accepting the certificate evidencing such Unit
or executing and delivering a Transfer Application as herein described,
independently of the signature of any other party.
18.10 APPLICABLE LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Delaware, without regard to the
principles of conflicts of law.
18.11 INVALIDITY OF PROVISIONS. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall
not be affected thereby.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
GENERAL PARTNER:
FERRELLGAS, INC.
By: ______________________________________
ORGANIZATIONAL LIMITED PARTNER:
------------------------------------------
Danley K. Sheldon
LIMITED PARTNERS:
All Limited Partners now and hereafter
admitted as limited partners of the
Partnership, pursuant to Powers of
Attorney now and hereafter executed in
favor of, and granted and delivered to,
the General Partner.
By:FERRELLGAS, INC.
General Partner, as attorney-in-
fact for all Limited Partners
pursuant to the Powers of Attorney
granted pursuant to Section 1.4.
By: _______________________________
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<PAGE>
EXHIBIT A
TO THE AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF
FERRELLGAS PARTNERS, L.P.
CERTIFICATE EVIDENCING COMMON UNITS
REPRESENTING LIMITED PARTNER INTERESTS
FERRELLGAS PARTNERS, L.P.
No. Common Units
FERRELLGAS, INC., a Delaware corporation, as the General Partner of
FERRELLGAS PARTNERS, L.P., a Delaware limited partnership (the "Partnership"),
hereby certifies that (the "Holder") is the
registered owner of Common Units representing limited partner
interests in the Partnership (the "Common Units") transferable on the books of
the Partnership, in person or by duly authorized attorney, upon surrender of
this Certificate properly endorsed and accompanied by a properly executed
application for transfer of the Common Units represented by this Certificate.
The rights, preferences and limitations of the Common Units are set forth in,
and this Certificate and the Common Units represented hereby are issued and
shall in all respects be subject to the terms and provisions of, the Agreement
of Limited Partnership of FERRELLGAS PARTNERS, L.P., as amended, supplemented
or restated from time to time (the "Partnership Agreement"). Copies of the
Partnership Agreement are on file at, and will be furnished without charge on
delivery of written request to the Partnership at, the principal office of the
Partnership located at One Liberty Plaza, Liberty, Missouri 64068. Capitalized
terms used herein but not defined shall have the meaning given them in the
Partnership Agreement.
The Holder, by accepting this Certificate, is deemed to have (i) requested
admission as, and agreed to become, a Limited Partner and to have agreed to
comply with and be bound by and to have executed the Partnership Agreement,
(ii) represented and warranted that the Holder has all right, power and
authority and, if an individual, the capacity necessary to enter into the
Partnership Agreement, (iii) granted the powers of attorney provided for in
the Partnership Agreement and (iv) made the waivers and given the consents and
approvals contained in the Partnership Agreement.
This Certificate shall not be valid for any purpose unless it has been
countersigned and registered by the Transfer Agent and Registrar.
Dated:
FERRELLGAS, INC.,
as General Partner
Countersigned and Registered by: By: _________________________________
President
___________________________________ , By: _________________________________
as Transfer Agent and Registrar Secretary
By: _________________________________
Authorized Signature
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<PAGE>
[REVERSE OF CERTIFICATE]
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as follows according to applicable laws
or regulations:
TEN COM- as tenants in common UNIF GIFT MIN ACT-
TEN ENT- as tenants by the entireties ....... Custodian ........
JT TEN- as joint tenants with right of (Cust) (Minor)
survivorship and not as under Uniform Gifts to
tenants in common Minors
Act ......................
State
Additional abbreviations, though not in the above list, may also be used.
ASSIGNMENT OF COMMON UNITS
in
FERRELLGAS PARTNERS, L.P.
IMPORTANT NOTICE REGARDING INVESTOR RESPONSIBILITIES
DUE TO TAX SHELTER STATUS OF FERRELLGAS PARTNERS, L.P.
You have acquired an interest in Ferrellgas Partners, L.P., One Liberty
Plaza, Liberty, Missouri 64068, whose taxpayer identification number is 43-
1675728. The Internal Revenue Service has issued Ferrellgas Partners, L.P. the
following tax shelter registration number:
YOU MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE SERVICE IF
YOU CLAIM ANY DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT OR REPORT ANY
INCOME BY REASON OF YOUR INVESTMENT IN FERRELLGAS PARTNERS, L.P.
You must report the registration number as well as the name and taxpayer
identification number of Ferrellgas Partners, L.P. on Form 8271. FORM 8271
MUST BE ATTACHED TO THE RETURN ON WHICH YOU CLAIM THE DEDUCTION, LOSS, CREDIT,
OR OTHER TAX BENEFIT OR REPORT ANY INCOME BY REASON OF YOUR INVESTMENT IN
FERRELLGAS PARTNERS, L.P.
If you transfer your interest in Ferrellgas Partners, L.P. to another
person, you are required by the Internal Revenue Service to keep a list
containing (a) that person's name, address and taxpayer identification number,
(b) the date on which you transferred the interest and (c) the name, address
and tax shelter registration number of Ferrellgas Partners, L.P. If you do not
want to keep such a list, you must (1) send the information specified above to
the Partnership, which will keep the list for this tax shelter, and (2) give a
copy of this notice to the person to whom you transfer your interest. Your
failure to comply with any of the above-described responsibilities could
result in the imposition of a penalty under Section 6707(b) or 6708(a) of the
Internal Revenue Service Code of 1986, as amended, unless such failure is
shown to be due to reasonable cause.
ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT OR
THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED, OR APPROVED BY THE
INTERNAL REVENUE SERVICE.
A-71
<PAGE>
FOR VALUE RECEIVED, hereby assigns, conveys,
sells and transfers unto ______________________________________________________
- --------------------------------- ------------------------------------------
(Please print or typewrite name (Please insert Social Security or other
and address of Assignee) identifying number of Assignee)
Common Units representing limited partner interests
evidenced by this Certificate, subject to the Partnership Agreement, and does
hereby irrevocably constitute and appoint as its
attorney-in-fact with full power of substitution to transfer the same on the
books of Ferrellgas Partners, L.P.
Date: _____________________ NOTE: The signature to any endorsement hereon
must correspond with the name as written
upon the face of this Certificate in
every particular, without alteration,
enlargement or change.
SIGNATURE(S) MUST BE GUARANTEED BY
A MEMBER FIRM OF THE NATIONAL ---------------------------------------
ASSOCIATION OF SECURITIES DEALERS, (Signature)
INC. OR BY A COMMERCIAL BANK OR ---------------------------------------
TRUST COMPANY (Signature)
SIGNATURE(S) GUARANTEED
No transfer of the Common Units evidenced hereby will be registered on the
books of the Partnership, unless the Certificate evidencing the Common Units
to be transferred is surrendered for registration or transfer and an
Application for Transfer of Common Units has been executed by a transferee
either (a) on the form set forth below or (b) on a separate application that
the Partnership will furnish on request without charge. A transferor of the
Common Units shall have no duty to the transferee with respect to execution of
the transfer application in order for such transferee to obtain registration
of the transfer of the Common Units.
---------------------------------------------------------------
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<PAGE>
APPLICATION FOR TRANSFER OF COMMON UNITS
The undersigned ("Assignee") hereby applies for transfer to the name of the
Assignee of the Common Units evidenced hereby.
The Assignee (a) requests admission as a Substituted Limited Partner and
agrees to comply with and be bound by, and hereby executes, the Agreement of
Limited Partnership of Ferrellgas Partners, L.P. (the "Partnership"), as
amended, supplemented or restated to the date hereof (the "Partnership
Agreement"), (b) represents and warrants that the Assignee has all right,
power and authority and, if an individual, the capacity necessary to enter
into the Partnership Agreement, (c) grants the powers of attorney provided for
in the Partnership Agreement and (d) makes the waivers and gives the consents
and approvals contained in the Partnership Agreement.
Capitalized terms not defined herein have the meanings assigned to such
terms in the Partnership Agreement.
Date: _______________________________ -------------------------------------
Signature of Assignee
- ------------------------------------- -------------------------------------
Social Security or other identifying Name and Address of Assignee
number of Assignee
- -------------------------------------
Purchase Price
including commissions, if any
Type of Entity (check one)
_________ Individual _________ Partnership ________________________ Corporation
_________ Trust _________ Other (specify) _____________________________________
Nationality (Check One):
_____ U.S. Citizen, Resident or Domestic Entity
_____ Foreign Corporation, or _____ Non-resident alien
If the U.S. Citizen, Resident or Domestic Entity box is checked, the
following certification must be completed.
Under Section 1445(e) of the Internal Revenue Code of 1986, as amended (the
"Code"), the Partnership must withhold tax with respect to certain transfers
of property if a holder of an interest in the Partnership is a foreign person.
To inform the Partnership that no withholding is required with respect to the
undersigned interest holder's interest in it, the undersigned hereby certifies
the following (or, if applicable, certifies the following on behalf of the
interest holder).
Complete Either A or B:
A.Individual Interest Holder
1.I am not a non-resident alien for purposes of U.S. income taxation.
2.My U.S. taxpayer identifying number (Social Security Number) is
___________________________________________________.
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<PAGE>
3.My home address is
________________________________________________.
B. Partnership, Corporate or Other Interest-Holder
1. ______________________________________________________________ is not a
(Name of Interest-Holder)
foreign corporation, foreign partnership, foreign trust or foreign
estate (as those terms are defined in the Code and Treasury
Regulations).
2. The interest-holder's U.S. employer identification number is
_____________________________________________________________________ .
3. The interest-holder's office address and place of incorporation (if
applicable) is
_____________________________________________________________________ .
The interest-holder agrees to notify the Partnership within 60 days of the
date the interest-holder becomes a foreign person.
The interest-holder understands that this certificate may be disclosed to
the Internal Revenue Service by the Partnership and that any false statement
contained herein could be punishable by fine, imprisonment or both.
Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct
and complete and, if applicable, I further declare that I have authority to
sign this document on behalf of
- -------------------------------------------------------------------------------
(Name of Interest-Holder)
- -------------------------------------------------------------------------------
Signature and Date
- -------------------------------------------------------------------------------
Title (if applicable)
Note: If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee holder or an agent of any of the foregoing, and is
holding for the account of any other person, this application should be
completed by an officer thereof or, in the case of a broker or dealer, by a
registered representative who is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc.,
or, in the case of any other nominee holder, a person performing a similar
function. If the Assignee is a broker, dealer, bank trust company, clearing
corporation, other nominee owner or an agent of any of the foregoing, the
above certification as to any person for whom the Assignee will hold the
Common Units shall be made to the best of the Assignee's knowledge.
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<PAGE>
APPENDIX B
No transfer of the Common Units evidenced hereby will be registered on the
books of the Partnership, unless the Certificate evidencing the Common Units
to be transferred is surrendered for registration or transfer and an
Application for Transfer of Common Units has been executed by a transferee
either (a) on the form set forth below or (b) on a separate application that
the Partnership will furnish on request without charge. A transferor of the
Common Units shall have no duty to the transferee with respect to execution of
the transfer application in order for such transferee to obtain registration
of the transfer of the Common Units.
APPLICATION FOR TRANSFER OF COMMON UNITS
The undersigned ("Assignee") hereby applies for transfer to the name of the
Assignee of the Common Units evidenced hereby.
The Assignee (a) requests admission as a Substituted Limited Partner and
agrees to comply with and be bound by, and hereby executes, the Agreement of
Limited Partnership of Ferrellgas Partners, L.P. (the "Partnership"), as
amended, supplemented or restated to the date hereof (the "Partnership
Agreement"), (b) represents and warrants that the Assignee has all right,
power and authority and, if an individual, the capacity necessary to enter
into the Partnership Agreement, (c) appoints the General Partner and, if a
Liquidator shall be appointed, the Liquidator of the Partnership as the
Assignee's attorney-in-fact to execute, swear to, acknowledge and file any
document, including, without limitation, the Partnership Agreement and any
amendment thereto and the Certificate of Limited Partnership of the
Partnership and any amendment thereto, necessary or appropriate for the
Assignee's admission as a Substituted Limited Partner and as a party to the
Partnership Agreement, (d) gives the powers of attorney provided for in the
Partnership Agreement and (e) makes the waivers and gives the consents and
approvals contained in the Partnership Agreement. Capitalized terms not
defined herein have the meanings assigned to such terms in the Partnership
Agreement.
Date: _______________________________ -------------------------------------
- ------------------------------------- SIGNATURE OF ASSIGNEE
SOCIAL SECURITY OR OTHER IDENTIFYING -------------------------------------
NUMBER OF ASSIGNEE NAME AND ADDRESS OF ASSIGNEE
- -------------------------------------
PURCHASE PRICE INCLUDING
COMMISSIONS, IF ANY
Type of Entity (check one)
[_] Individual [_] Partnership [_] Corporation
[_] Trust [_] Other (specify) ________________
Nationality (check one):
[_] U.S. Citizen, Resident or Domestic Entity
[_] Foreign Corporation, or [_] Non-resident alien
If the U.S. Citizen, Resident or Domestic Entity box is checked, the
following certification must be completed.
Under Section 1445(e) of the Internal Revenue Code of 1986, as amended (the
"CODE"), the Partnership must withhold tax with respect to certain transfers
of property if a holder of an interest in the Partnership is a foreign person.
To inform the Partnership that no withholding is required with respect to the
undersigned interest-holder's interest in it, the undersigned hereby certifies
the following (or, if applicable, certifies the following on behalf of the
interestholder).
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<PAGE>
Complete Either A or B:
A.Individual Interestholder
1.I am not a non-resident alien for purposes of U.S. income taxation.
2.My U.S. taxpayer identifying number (Social Security Number) is
___________________________________________________________________ .
3.My home address is _________________________________________________ .
B.Partnership, Corporate or Other Interestholder
1._____________________________________________________ is not a foreign
(NAME OF INTERESTHOLDER)
corporation, foreign partnership, foreign trust or foreign estate
(as those terms are defined in the Code and Treasury Regulations).
2.The interestholder's U.S. employer identification number is
___________________________________________________________________ .
3.The interestholder's office address and place of incorporation (if
applicable) is
___________________________________________________________________ .
The interestholder agrees to notify the Partnership within sixty (60) days
of the date the interest-holder becomes a foreign person.
The interestholder understands that this certificate may be disclosed to the
Internal Revenue Service by the Partnership and that any false statement
contained herein could be punishable by fine, imprisonment or both.
Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct
and complete and, if applicable, I further declare that I have authority to
sign this document on behalf of
------------------------------------------
(NAME OF INTERESTHOLDER)
------------------------------------------
SIGNATURE AND DATE
------------------------------------------
TITLE (IF APPLICABLE)
Note: If the Assignee is a broker, dealer, bank, trust company, clearing
corporation, other nominee holder or an agent of any of the foregoing, and is
holding for the account of any other person, this application should be
completed by an officer thereof or, in the case of a broker or dealer, by a
registered representative who is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers Inc.,
or, in the case of any other nominee holder, a person performing a similar
function. If the Assignee is a broker, dealer, bank trust company, clearing
corporation, other nominee owner or an agent of any of the foregoing, the
above certification as to any person for whom the Assignee will hold the
Common Units shall be made to the best of the Assignee's knowledge.
B-2
<PAGE>
APPENDIX C
GLOSSARY OF TERMS
ACQUISITION PRO FORMA AVAILABLE CASH CONSTITUTING CASH FROM OPERATIONS: The
amount of Available Cash constituting Cash from Operations generated by the
Partnership on a per Unit basis for all outstanding Units with respect to each
of the four most recently completed quarters prior to the referenced
acquisition, determined on a pro forma basis assuming that all of the Common
Units or any such parity securities to be issued in connection with, or in
repayment of any debt incurred in connection with, such transaction had been
issued and outstanding and all indebtedness for borrowed money to be incurred
or assumed in connection with such transaction (other than any such
indebtedness that is to be repaid with the proceeds of such issuance) had been
incurred or assumed, as of the commencement of such four-quarter period, and
computing expenses that would have been incurred by the Partnership in the
operation of the assets and properties acquired by including (i) the personnel
expenses for employees to be retained by the Partnership in the operation of
the assets and properties acquired and (ii) the non-personnel costs and
expenses on the same basis as those incurred by the Partnership in the
operation of the Partnership's business at similarly situated Partnership
facilities.
AUDIT COMMITTEE: A committee of the board of directors of the General
Partner who are neither officers nor employees of the General Partner or any
affiliate of the General Partner with the authority to review, at the request
of the board of directors of the General Partner, specific matters as to which
the board of directors of the General Partner believes there may be a conflict
of interest in order to determine if the resolution of such conflict proposed
by the General Partner is fair and reasonable to the Partnership.
AVAILABLE CASH: Generally, for any quarter, all of the cash receipts of the
Partnership during such quarter (other than cash receipts that are
attributable to the liquidation of the Partnership) plus net reductions to
reserves less all of its cash disbursements and net additions to reserves
during such quarter, including, for the period from the closing of this
offering through October 31, 1994, the cash balance of the Partnership on the
date the Partnership commences operations. The full definition of Available
Cash is set forth in the Partnership Agreement, a form of which is included in
this Prospectus as Appendix A. The definition of Available Cash permits the
General Partner to maintain reserves for distributions with respect to any of
the next four succeeding quarters in order to reduce quarter-to-quarter
variations in distributions. The General Partner has broad discretion in
establishing reserves for other purposes, and its decisions regarding reserves
could have a significant impact on the amount of Available Cash available for
distribution.
BTU: British thermal unit. The quantity of heat required to raise the
temperature of one pound of water by one degree Fahrenheit.
CASH FROM INTERIM CAPITAL TRANSACTIONS: To avoid the difficulty of trying to
determine whether Available Cash distributed by the Partnership is Cash from
Operations or Cash from Interim Capital Transactions, all Available Cash
distributed by the Partnership from any source will be treated as Cash from
Operations until the sum of all Available Cash distributed as Cash from
Operations equals the cumulative amount of Cash from Operations actually
generated from the date the Partnership commenced operations through the end
of the fiscal quarter prior to such distribution. Any excess Available Cash
(irrespective of its source) will be deemed to be Cash from Interim Capital
Transactions and distributed accordingly. The full definition of Cash from
Interim Capital Transactions is set forth in the Partnership Agreement, a form
of which is included in this Prospectus as Appendix A.
CASH FROM OPERATIONS: Cash from Operations, which is determined on a
cumulative basis, generally refers to the cash balance of the Partnership on
the date the Partnership commences operations, plus an initial balance of $25
million, plus all cash receipts of the Partnership operations
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(excluding any cash proceeds from Interim Capital Transactions), after
deducting all cash operating expenditures, cash debt service payments (other
than refinancings or refundings of debt with the proceeds from new debt or the
sale of equity interests), cash capital expenditures of the Partnership
necessary to maintain the facilities and operations of the Partnership (as
distinguished from capital expenditures made to increase the operating
capacity of the Partnership) and any cash reserves that the General Partner
determines in its reasonable discretion to be necessary or appropriate to
provide for the future cash payment of items of the type referred to above.
The General Partner has the discretion to determine whether capital
expenditures made by the Partnership were necessary or desirable to maintain
the facilities and operations of the Partnership or whether they were made to
increase the operating capacity of the Partnership. The General Partner's
determination will in turn determine whether the capital expenditures in
question will reduce the amount of Cash from Operations. The full definition
of Cash from Operations is set forth in the Partnership Agreement, a form of
which is included in this Prospectus as Appendix A.
COMMON UNIT ARREARAGES: With respect to any Common Units for any quarter
within the Subordination Period, the amount by which the Minimum Quarterly
Distribution in such quarter exceeds the amount of Available Cash constituting
Cash from Operations actually distributed on such Common Unit for such
quarter. Common Unit Arrearages are calculated on a cumulative basis for all
quarters during the Subordination Period. Common Units will not accrue
arrearages for any quarter after the Subordination Period. Common Unit
Arrearages do not accrue interest.
COMMON UNITS: The 13,100,000 Common Units (15,065,000 if the Underwriters'
overallotment option is exercised in full) offered hereby and to be issued at
the closing of this offering together with the 1,000,000 Common Units (if the
Underwriters' overallotment option is exercised in full, all of such Common
Units will be repurchased by the Partnership) to be held by Ferrell at the
closing of this offering. Each Common Unit represents a fractional part of the
partnership interests of all limited partners and assignees and has the rights
and obligations specified with respect to Common Units in the Partnership
Agreement.
COMPANY: Ferrellgas, Inc., a Delaware corporation and a wholly owned
subsidiary of Ferrell. Also referred to in this Prospectus as "Ferrellgas" and
the "General Partner."
CONTRIBUTION AGREEMENT: The Contribution, Conveyance and Assumption
Agreement dated as of the closing date of this offering between Ferrellgas,
the Partnership and the Operating Partnership, which provides for, among other
things, the principal transactions required to effect the transfer of assets
to the Operating Partnership prior to or concurrent with the consummation of
this offering.
CREDIT FACILITY: The credit facility to be entered into by the Operating
Partnership and Bank of America National Trust and Savings Association, as
Agent, which will permit borrowings by the Operating Partnership of up to $100
million on a senior unsecured revolving line of credit basis and up to $85
million on a senior unsecured revolving credit facility.
CURRENT MARKET PRICE: The 20-day average of the closing prices of the
applicable security on the NYSE ending three days prior to the date on which
such notice is first mailed.
EBITDA: Earnings before interest, income taxes and depreciation and
amortization, calculated as operating income plus depreciation and
amortization excluding interest.
FERRELL: Ferrell Companies, Inc., a Kansas corporation.
FERRELLGAS: Ferrellgas, Inc., a Delaware corporation and a wholly owned
subsidiary of Ferrell. Also referred to in this Prospectus as the "Company"
and the "General Partner."
FIXED CHARGE COVERAGE RATIO: Earnings from continuing operations before
income taxes, plus interest expense (including amortization of original issue
discount) plus depreciation and amortization (excluding amortization of
prepaid cash expenses) as a ratio of fixed charges (consisting of interest
expense, including amortization of original issue discount and letter of
credit commissions and fees).
FGP: The trading symbol for the Common Units on the NYSE.
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GENERAL PARTNER: Ferrellgas, a wholly owned subsidiary of Ferrell, and its
successors as general partner of the Partnership.
INCENTIVE DISTRIBUTION RIGHTS: The right to receive specified incentive
distributions of Available Cash constituting Cash from Operations if quarterly
distributions of Available Cash constituting Cash from Operations exceed
certain specified target levels, issued to Ferrellgas in connection with the
transfer of its assets to the Partnership.
INDENTURE: The indenture pursuant to which the Senior Notes will be issued
(the form of which has been filed as an exhibit to the registration statement
of which this Prospectus is a part).
INITIAL UNIT PRICE: An amount per Unit equal to the initial public offering
price of the Common Units.
INTERIM CAPITAL TRANSACTIONS: (a) borrowings, refinancings and refundings of
indebtedness and sales of debt securities (other than for working capital
purposes and other than for items purchased on open account in the ordinary
course of business) by the Partnership, (b) sales of equity interests
(including the Common Units sold to the Underwriters pursuant to the exercise
of their overallotment option) by the Partnership and (c) sales or other
voluntary or involuntary dispositions of any assets of the Partnership (other
than (i) sales or other dispositions of inventory in the ordinary course of
business, (ii) sales or other dispositions of other current assets, including,
without limitation, receivables and accounts and (iii) sales or other
dispositions of assets as a part of normal retirements or replacements), in
each case prior to the commencement of the dissolution and liquidation of the
Partnership.
MINIMUM QUARTERLY DISTRIBUTION OR MQD: $0.50 per Unit with respect to each
quarter, subject to adjustment as described in "Cash Distribution Policy--
Quarterly Distributions of Available Cash--Distributions of Cash from Interim
Capital Transactions" and "Cash Distribution Policy--Quarterly Distributions
of Available Cash--Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels."
OPERATING PARTNERSHIP: Ferrellgas, L.P., a Delaware limited partnership of
which the Partnership will own a 99% limited partner interest and Ferrellgas
will own a 1% general partner interest. The Operating Partnership will conduct
the Partnership's business and has been established to simplify the
Partnership's obligations under the laws of certain jurisdictions in which it
will conduct business.
OPERATING PARTNERSHIP AGREEMENT: The partnership agreement for the Operating
Partnership (the form of which has been filed as an exhibit to the
registration statement of which this Prospectus is a part).
PARTNERSHIP: Ferrellgas Partners, L.P., a Delaware limited partnership.
PARTNERSHIP AGREEMENT: The partnership agreement for the Partnership (the
form of which has been filed as an exhibit to the registration statement of
which this Prospectus is a part), and unless the context requires otherwise,
references to the Partnership Agreement constitute references to the
Partnership Agreements of the Partnership and of the Operating Partnership,
collectively.
SENIOR NOTES: The $250 million in aggregate principal amount of % senior
notes due 2001 to be issued pursuant to the Indenture and sold by the
Operating Partnership in a registered public offering concurrent with the sale
of the Common Units offered by this Prospectus. The Senior Notes will be
unsecured general joint and several obligations of the Operating Partnership
and will be recourse to the General Partner in its capacity as general partner
of the Operating Partnership.
SUBORDINATED UNITS: The subordinated limited partner interests to be issued
to Ferrellgas in connection with the transfer of its assets to the
Partnership.
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<PAGE>
SUBORDINATION PERIOD: The Subordination Period will extend from the closing
of this offering until the first day of any quarter beginning on or after
August 1, 1999 in respect of which (i) distributions of Available Cash on the
Common Units and the Subordinated Units equaled or exceeded the Minimum
Quarterly Distribution for each of the three consecutive four-quarter periods
immediately preceding such date (excluding any such Available Cash that is
attributable to net increases in working capital borrowings, net decreases in
reserves and any positive balance in Cash from Operations at the beginning of
such four-quarter periods) and (ii) the Partnership has invested at least $50
million in acquisitions and capital additions or improvements made to increase
the operating capacity of the Partnership. In addition, the Subordination
Period ends if the General Partner is removed other than for cause.
TARGET DISTRIBUTIONS: The distribution level at which all Unitholders have
received a total of $0.55 for such quarter in respect of each Unit, in
addition to any distributions to Common Unitholders of Common Unit Arrearages
(the "First Target Distribution"), and the distribution levels at which the
interest in distributions for holders of Incentive Distribution Rights
increase from 0% to 13% (the "Second Target Distribution") and from 13% to 23%
(the "Third Target Distribution"). See "Cash Distribution Policy--Quarterly
Distributions of Available Cash."
TRANSFER APPLICATION: The application that all purchasers of Common Units in
this offering and purchasers of Common Units in the open market who wish to
become Common Unitholders of record must deliver before the transfer of such
Common Units will be registered and before cash distributions and federal
income tax allocations will be made to the transferee. A form of Transfer
Application is included in this Prospectus as Appendix B.
UNITHOLDERS: Holders of the Common Units and the Subordinated Units.
UNITS: The Common Units and the Subordinated Units, collectively.
UNRECOVERED INITIAL UNIT PRICE: At any time, with respect to a class or
series of Units (other than Subordinated Units), the price per Unit at which
such class or series of Units was initially offered to the public for sale by
the Underwriters in respect of such offering, as determined by the General
Partner, less the sum of all distributions theretofore made in respect of a
Unit of such class or series that was sold in the initial offering of Units of
said class or series constituting Cash from Interim Capital Transactions and
any distributions of cash (or the net agreed value of any distributions in
kind) in connection with the dissolution and liquidation of the Partnership
theretofore made in respect of a Unit of such class or series that was sold in
the initial offering of Units of such class or series, adjusted as the General
Partner determines to be appropriate to give effect to any distribution,
subdivision or combination of Units.
UNRECOVERED SUBORDINATED UNIT CAPITAL: At any time, with respect to a
Subordinated Unit, prior to its conversion into a Common Unit, the excess, if
any, of (a) the net agreed value (at the time of conveyance) of the undivided
interest in any property conveyed to the Partnership in exchange for such
Subordinated Unit, over (b) any distributions of cash (or the net agreed value
of any distributions in kind) in connection with the dissolution and
liquidation of the Partnership, adjusted as the General Partner determines to
be appropriate to give effect to any distribution, subdivision or combination
of Subordinated Units.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE PARTNERSHIP SINCE THE DATE HEREOF, OR THAT INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 27
The Transactions.......................................................... 38
Use of Proceeds........................................................... 40
Capitalization............................................................ 41
Dilution.................................................................. 42
Cash Distribution Policy.................................................. 43
Selected Historical and Pro Forma Consolidated Financial and Operating
Data..................................................................... 50
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 52
Business.................................................................. 62
Management................................................................ 72
Conflicts of Interest and Fiduciary Responsibility........................ 78
Description of the Common Units........................................... 83
The Partnership Agreement................................................. 85
Units Eligible for Future Sale............................................ 96
Tax Considerations........................................................ 98
Investment in the Partnership by Employee Benefit Plans................... 115
Underwriting.............................................................. 116
Validity of Common Units.................................................. 117
Experts................................................................... 118
Additional Information.................................................... 118
Index to Financial Statements............................................. F-1
Form of Agreement of Limited Partnership of Ferrellgas
Partners, L.P. ..................................................... Appendix A
Form of Application for Transfer of Common Units .................... Appendix B
Glossary of Terms.................................................... Appendix C
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
13,100,000 COMMON UNITS
REPRESENTING
LIMITED PARTNER INTERESTS
FERRELLGAS PARTNERS, L. P.
---------------
LOGO
Ferrellgas
---------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below are the expenses (other than underwriting discounts and
commissions) expected to be incurred in connection with the issuance and
distribution of the securities registered hereby. With the exception of the
Securities and Exchange Commission registration fee and the NASD filing fee,
the amounts set forth below are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 115,586
NASD filing fee............................................... 30,500
The New York Stock Exchange, Inc. listing fee................. 120,000
Printing and engraving expenses............................... 300,000
Legal fees and expenses....................................... 817,182
Accounting fees and expenses.................................. 206,250
Blue Sky fees and expenses.................................... 26,000
Transfer agent and registrar fees............................. 1,000
Miscellaneous................................................. 125,416
----------
Total....................................................... $1,741,934
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Section of the Prospectus entitled "The Partnership Agreement--
Indemnification" is incorporated herein by reference.
Article VII of the Company's bylaws provides, with respect to
indemnification, as follows:
"Section 7.01. Indemnification of Authorized Representatives in Third Party
Proceedings. The Corporation shall indemnify any person who was or is an
"authorized representative" of the Corporation (which shall mean for purposes
of this Article a Director or officer of the Corporation, or a person serving
at the request of the Corporation as a director, officer, or trustee, of
another corporation, partnership, joint venture, trust or other enterprise)
and who was or is a "party" (which shall include for purposes of this Article
the giving of testimony or similar involvement) or is threatened to be made a
party to any "third party proceeding" (which shall mean for purposes of this
Article any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, or investigative, other than an
action by or in the right of the Corporation) by reason of the fact that such
person was or is an authorized representative of the Corporation, against
expenses (which shall include for purposes of this Article attorneys' fees),
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such third party
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to any criminal third party proceeding (which
could or does lead to a criminal third party proceeding) had no reasonable
cause to believe such conduct was unlawful. The termination of any third party
proceeding by judgment, order, settlement, indictment, conviction or upon a
plea of nolo contendere or its equivalent, shall not of itself create a
presumption that the authorized representative did not act in good faith and
in a manner which such person reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal third
party proceeding, had reasonable cause to believe that such conduct was
unlawful.
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<PAGE>
Section 7.02. Indemnification of Authorized Representatives in Corporate
Proceedings. The Corporation shall indemnify any person who was or is an
authorized representative of the Corporation and who was or is a party or is
threatened to be made a party to any "corporation proceeding" (which shall
mean for purposes of this Article any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its
favor or investigative proceeding by the Corporation) by reason of the fact
that such person was or is an authorized representative of the Corporation,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such corporate action if such person acted
in good faith and in a manner reasonably believed to be in, or not opposed to,
the best interests of the Corporation, except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the
performance of such person's duty to the Corporation unless and only to the
extent that the Court of Chancery or the court in which such corporate
proceeding was pending shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such authorized representative is fairly and reasonably entitled to indemnity
for such expenses which the Court of Chancery or such other court shall deem
proper.
Section 7.03. Mandatory Indemnification of Authorized Representatives. To
the extent that an authorized representative of the Corporation has been
successful on the merits or otherwise in defense of any third party or
corporate proceeding or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses actually and reasonably incurred
by such person in connection therewith.
Section 7.04. Determination of Entitlement to Indemnification. Any
indemnification under Section 7.01, 7.02 or 7.03 of this Article (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the authorized
representative is proper in the circumstances because such person has either
met the applicable standards of conduct set forth in Section 7.01 or 7.02 or
has been successful on the merits or otherwise as set forth in Section 7.03
and that the amount requested has been actually and reasonably incurred. Such
determination shall be made:
(1) By the Board of Directors by a majority of a quorum consisting of
Directors who were not parties to such third party or corporate proceeding,
or
(2) If such a quorum is not obtainable, or, even if obtainable, a
majority vote of such a quorum so directs, by independent legal counsel in
a written opinion, or
(3) By the stockholders.
Section 7.05. Advancing Expenses. Expenses actually and reasonably incurred
in defending a third party or corporate proceeding shall be paid on behalf of
an authorized representative by the Corporation in advance of the final
disposition of such third party or corporate proceeding as authorized in the
manner provided in Section 7.04 of this Article upon receipt of an undertaking
by or on behalf of the authorized representative to repay such amount unless
it shall ultimately be determined that such person is entitled to be
indemnified by the Corporation as authorized in this Article. The financial
ability of such authorized representative to make such repayment shall not be
a prerequisite to the making of an advance.
Section 7.06. Employee Benefit Plans. For purposes of this Article, the
Corporation shall be deemed to have requested an authorized representative to
serve an employee benefit plan where the performance by such person of duties
to the Corporation also imposes duties on, or otherwise involves services by,
such person to the plan or participants or beneficiaries of the plan; excise
taxes assessed on an authorized representative with respect to an employee
benefit plan pursuant to applicable law shall be deemed "fines"; and action
taken or omitted by such person with respect to an employee
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<PAGE>
benefit plan in the performance of duties for a purpose reasonably believed to
be in the interest of the participants and beneficiaries of the plan shall be
deemed to be for a purpose which is not opposed to the best interests of the
Corporation.
Section 7.07. Scope of Article. The indemnification of authorized
representatives, as authorized by this Article, shall (1) not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any statute, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in an official capacity and as to
action in another capacity, (2) continue as to a person who has ceased to be
an authorized representative and (3) inure to the benefit of the heirs,
executors and administrators of such a person.
Section 7.08. Reliance on Provisions. Each person who shall act as an
authorized representative of the Corporation shall be deemed to be doing so in
reliance upon rights of indemnification provided by this Article."
Article EIGHTH of Ferrell's Articles of Incorporation provides, with respect
to indemnification, as follows:
"Article EIGHTH. No Director shall be personally liable to this Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director provided that nothing in this Article EIGHTH shall be construed so as
to eliminate or limit the liability of a director (A) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (B) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (C) under the provisions of K.S.A. 17-6424 and
amendments thereto, (D) for any transaction from which the director derived an
improper personal benefit or (E) for any act or omission occurring prior to
the effective date of this Article EIGHTH. No amendment to or repeal of this
Article EIGHTH shall adversely affect any right, benefit or protection of a
director of the Corporation existing at the time of such amendment or repeal
with respect to any acts or omissions occurring prior to such amendment or
repeal."
In addition, paragraph 22 of Ferrell's bylaws provides as follows:
"22. Indemnification of Directors and Officers. (a) Subject to subparagraph
(c) below, the corporation shall indemnify every director and officer who is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation),
by reason of the fact that he is or was a director or officer of the
corporation, or is or was serving at the request of the corporation, as a
director or officer, of another corporation, partnership, joint venture, trust
or other enterprise, against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement, actually and reasonably incurred by him
in connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.
(b) Subject to subparagraph (c) below, the corporation shall indemnify every
person who is a party or is threatened to be made a party, to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director or officer of the corporation, or is or was serving at the request of
the corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against expenses, including
attorneys' fees, and amounts paid in settlement actually and reasonably
incurred by him in connection with the defense or settlement of the action or
suit if he acted in good faith and in a manner
II-3
<PAGE>
he reasonably believed to be in or not opposed to the best interests of the
corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the court in which the action
or suit was brought determines upon application that, despite the adjudication
of liability and in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expense which the court
shall deem proper.
(c) Any indemnification under the subparagraphs (a) or (b) above, unless
ordered by a court, shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director or
officer is proper in the circumstances because he has met the applicable
standard of conduct set forth in this Section 22. The determination shall be
made by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding, or if such a
quorum is not obtainable, or even if obtainable a quorum of disinterested
directors so directs, by independent counsel in a written opinion, or by the
stockholders.
(d) It is the intent of this Section 22 that the corporation shall be
obligated to indemnify every officer and director of this corporation to the
fullest extent permitted by law provided that the officer and director has met
the standard of conduct applicable by law which entitles such director and
officer to such indemnification. To such end:
(i) The indemnification and advancement of expenses provided by this
Section 22 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a
person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person; and
(ii) In the event the matter with respect to which indemnification is
sought under this Section 22 is required by law to be authorized in
accordance with subparagraph (c) above, then the exercise of discretion in
granting any such authorization shall be on the basis of the utmost good
faith consistent with the intent of this Section 22 to indemnify every
officer and director of this corporation to the fullest extent permitted by
law.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the corporation in advance of the final
disposition of the action, suit or proceeding upon receipt of an undertaking
by or on behalf of the director or officer to repay such amounts if it is
ultimately determined that the director or officer is not entitled to be
indemnified by the corporation as authorized in this Section 22.
(f) Absent a vote by a majority of the Board of Directors or a determination
by independent legal counsel appointed by a majority of the Board of Directors
upon the facts of a specific case, indemnification described in this Section
22 will be limited to defensive application.
(g) The corporation may purchase and maintain insurance on behalf of any
person who is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability under the provisions of this
Section 22.
(h) For purposes of this Section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed
II-4
<PAGE>
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors or officers so
that any person who is or was a director or officer of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position
under this Section with respect to the resulting or surviving corporation as
such person would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this Section, reference to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as director or officer of the corporation which imposes duties on, or
involves services by, such director or officer, with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in
good faith and in a manner such person reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests
of the corporation" as referred to in this Section."
Section 145 of the General Corporation Law of the State of Delaware
authorizes the indemnification of directors and officers of a corporation
against liability incurred by reason of being a director or officer and
against expenses (including attorneys' fees) in connection with defending any
action seeking to establish such liability, in the case of third party claims,
if the director or officer acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and
in the case of action by or in the right of the corporation, if the director
or officer acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and if such director
or officer shall not have been adjudged liable to the corporation, unless a
court otherwise determines. Indemnification is also authorized with respect to
any criminal action or proceeding where the director or officer had no
reasonable cause to believe his conduct was unlawful.
Reference is made to Section 8 of the Underwriting Agreement filed as
Exhibit 1.1 to this Registration Statement.
Subject to any terms, conditions or restrictions set forth in the
Partnership Agreements, Section 17-108 of the Delaware Revised Limited
Partnership Act empowers a Delaware limited partnership to indemnify and hold
harmless any partner or other person from and against any and all claims and
demands whatsoever.
Under insurance policies maintained by Ferrell, directors and officers of
Ferrell and its subsidiaries may be indemnified against losses arising from
certain claims, including claims under the Securities Act of 1933, as amended,
which may be made against such persons by reason of their being directors or
officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
There has been no sale of securities of the Partnership within the past
three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<C> <S>
*1.1 --Form of Underwriting Agreement
*3.1 --Form of Agreement of Limited Partnership of Ferrellgas Partners,
L.P. (included as Appendix A to the Prospectus)
*3.2 --Form of Agreement of Limited Partnership of Ferrellgas, L.P.
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
*5.1 --Opinion of Andrews & Kurth L.L.P. as to the legality of the
securities being registered
*8.1 --Opinion of Andrews & Kurth L.L.P. relating to tax matters
*10.1 --Form of working capital credit agreement among Ferrellgas, L.P.
and certain banks in the amount of $185,000,000
*10.2 --Form of Indenture among Ferrellgas, L.P., and Norwest Bank
Minnesota, as Trustee, relating to % Senior Notes due 2001
**10.3 --$250,000,000 11 5/8% Senior Subordinated Debenture Indenture due
2003, dated as of December 1, 1991, between the Company and
Norwest Bank Minnesota, National Association, as Trustee
**10.4 --Assignment and Agreement dated as of January 1, 1989 between BP
Oil Company and Ferrell Petroleum, Inc., as amended
**10.5 --Ferrell Long-Term Incentive Plan, dated June 23, 1987, between
Ferrell and the participants in the Plan
**10.6 --Ferrell 1992 Key Employee Stock Option Plan
*10.7 --Form of Contribution, Conveyance and Assumption Agreement between
Ferrellgas, the Partnership and the Operating Partnership
*10.8 --First Supplemental Indenture dated June 2, 1994 relating to
$250,000,000 11 5/8% Senior Subordinated Debentures
**21.1 --List of subsidiaries
*23.1 --Consent of Deloitte & Touche
*23.2 --Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1)
*23.3 --Consent of Andrews & Kurth L.L.P. (included in Exhibit 8.1)
**24.1 --Powers of Attorney
</TABLE>
- --------
* Filed herewith
**Previously filed
(b) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Index of Financial Statement Schedules..................................... S-1
Independent Auditors' Report............................................... S-2
Schedule I--Marketable Securities--Other Investments ...................... S-3
Schedule II--Amounts Receivable From Related Parties and Employees......... S-4
Schedule V--Property, Plant and Equipment.................................. S-5
Schedule VI--Accumulated Depreciation and Amortization of Property, Plant
and Equipment ............................................................ S-6
Schedule VIII--Valuation and Qualifying Accounts........................... S-7
Schedule IX--Short-Term Borrowings......................................... S-8
Schedule X--Supplementary Income Statement Information..................... S-9
</TABLE>
All other financial statement schedules are omitted because the information
is not required, is not material or is otherwise included in the financial
statements or related notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers or
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling
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<PAGE>
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF LIBERTY, STATE OF MISSOURI, ON THE 9TH DAY OF JUNE, 1994.
Ferrellgas Partners, L.P.
By: Ferrellgas, Inc., as General
Partner
*
By: _________________________________
JAMES E. FERRELL CHAIRMAN OF THE
BOARD AND CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Director, Chairman
* of the Board and June 9, 1994
- ------------------------------------- Chief Executive
JAMES E. FERRELL Officer (Principal
Executive Officer)
/s/ Danley K. Sheldon Chief Financial
- ------------------------------------- Officer/Treasurer June 9, 1994
DANLEY K. SHELDON (Principal
Financial and
Accounting Officer)
/s/ Danley K. Sheldon
*By: ___________________________
DANLEY K. SHELDON ATTORNEY-IN-
FACT
II-8
<PAGE>
INDEX OF FINANCIAL STATEMENTS SCHEDULES
<TABLE>
<S> <C>
Independent Auditors' Report............................................... S-2
Schedule I--Marketable Securities--Other Investments ...................... S-3
Schedule II--Amounts Receivable From Related Parties and Employees......... S-4
Schedule V--Property, Plant and Equipment.................................. S-5
Schedule VI--Accumulated Depreciation and Amortization of Property, Plant
and Equipment ............................................................ S-6
Schedule VIII--Valuation and Qualifying Accounts........................... S-7
Schedule IX--Short-Term Borrowings......................................... S-8
Schedule X--Supplementary Income Statement Information..................... S-9
</TABLE>
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ferrellgas, Inc.
Liberty, Missouri
We have audited the consolidated financial statements of Ferrellgas, Inc.
and subsidiaries as of April 30, 1994 and July 31, 1993 and 1992, and for the
nine months ended April 30, 1994 and for each of the three years in the period
ended July 31, 1993, and have issued our report thereon dated June 3, 1994,
which expressed an unqualified opinion and included an explanatory paragraph
concerning an uncertainty involving an income tax matter. Our audits also
included the financial statement schedules listed at Item 16(b). These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information therein set forth.
DELOITTE & TOUCHE
Kansas City, Missouri
June 3, 1994
S-2
<PAGE>
SCHEDULE I
FERRELLGAS, INC. AND SUBSIDIARIES
MARKETABLE SECURITIES--OTHER INVESTMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SHARES/ MARKET BALANCE
ISSUANCE/ISSUER PAR VALUE COST VALUE SHEET VALUE
--------------- --------- ------- ------- -----------
<S> <C> <C> <C> <C>
Year ended July 31, 1993
United States Treasury Bills
United States Government....... $15,000 $14,497 $14,703 $14,497(1)
United States Treasury Notes
United States Government....... $ 5,000 $ 5,116 $ 5,171 $ 5,116(1)
Corporate Commercial Paper
Beta Finance, Inc.............. $ 2,500 $ 2,474 $ 2,474 $ 2,474(1)
General Electric Capital Corp.. $ 3,000 $ 2,953 $ 2,977 $ 2,953(1)
Class B Redeemable Common Stock
Ferrell Companies, Inc......... 643(4) $36,031 $36,031(2) $36,031(3)
Year ended July 31, 1992
United States Treasury Bills
United States Government....... $24,000 $23,165 $23,600 $23,165(1)
Class B Redeemable Common Stock
Ferrell Companies, Inc......... 576 $32,813 $32,813(2) $32,813(3)
Year ended July 31, 1991
Class B Redeemable Common Stock
Ferrell Companies, Inc. ....... 394 $23,721 $23,721(2) $23,721(3)
</TABLE>
- --------
(1) Short-term investments on Consolidated Balance Sheet.
(2) Class B redeemable common stock is not publicly traded. Therefore, market
value was considered the same as cost for this schedule.
(3) Investment in Class B redeemable common stock of parent (eliminated in
consolidation) on Balance Sheet.
(4) Total authorized and issued shares of Ferrell's Class B redeemable common
stock.
S-3
<PAGE>
SCHEDULE II
FERRELLGAS, INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND EMPLOYEES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT END
BALANCE OF PERIOD
AT ---------------
BEGINNING AMOUNTS NOT
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED CURRENT CURRENT
-------------- --------- --------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1993
One Liberty Plaza, Inc.
(1).................... $3,000 $ -- $ -- $ -- $3,000
====== ====== ====== ====== ======
Ferrell Development,
Inc. (1)............... $1,500 $ -- $ -- $ -- $1,500
====== ====== ====== ====== ======
Ferrell Properties, Inc.
(1).................... $ -- $ 262(3) $ -- $ -- $ 262
====== ====== ====== ====== ======
James E. Ferrell (2).... $6,588 $4,400 $4,341 $ 500 $6,147
====== ====== ====== ====== ======
Year ended July 31, 1992
One Liberty Plaza, Inc.
(1).................... $3,000 $ -- $ -- $ -- $3,000
====== ====== ====== ====== ======
Ferrell Development,
Inc. (1)............... $1,500 $ -- $ -- $ -- $1,500
====== ====== ====== ====== ======
James E. Ferrell (2).... $2,756 $5,480 $1,648 $1,000 $5,588
====== ====== ====== ====== ======
Year ended July 31, 1991
One Liberty Plaza, Inc.
(1).................... $3,000 $ -- $ -- $ -- $3,000
====== ====== ====== ====== ======
Ferrell Development,
Inc. (1)............... $1,500 $ -- $ -- $ -- $1,500
====== ====== ====== ====== ======
James E. Ferrell (2).... $ -- $6,216 $3,460 $2,756 $ --
====== ====== ====== ====== ======
</TABLE>
- --------
(1) Notes are due December 31, 1997, and bear interest at the prime rate plus
1.375%.
(2) Note is due on demand and bears interest at the prime rate.
(3) Contributed by Ferrell in fiscal year 1993.
S-4
<PAGE>
SCHEDULE V
FERRELLGAS, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1993 JULY 31, 1992 JULY 31, 1991
------------- ------------- -------------
<S> <C> <C> <C>
Land and improvements... $ 18,459 $ 17,150 $ 16,974
Buildings and improve-
ments.................. 23,001 20,339 18,560
Vehicles................ 37,564 39,205 40,662
Furniture and fixtures.. 16,402 14,194 11,182
Bulk equipment and mar-
ket facilities......... 33,612 32,051 30,462
Tanks and customer
equipment.............. 314,127 313,634 307,210
Other................... 1,456 99 1,790
-------- -------- --------
$444,621 $436,672 $426,840
======== ======== ========
Additions, at cost...... $ 14,187 $ 20,392 $ 25,942
======== ======== ========
Retirements............. $ 6,238 $ 10,560 $ 9,854
======== ======== ========
</TABLE>
- --------
Note: See Notes to financial statements for a description of the methods and
estimated useful lives used in computing depreciation and amortization.
Detail of additions and retirements by major classification is not
provided as the totals for such additions and retirements are less than
10% of the total property, plant and equipment for each year.
S-5
<PAGE>
SCHEDULE VI
FERRELLGAS, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO
BEGINNING COSTS AND END OF
OF YEAR EXPENSES RETIREMENTS YEAR
--------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Year ended July 31, 1993
Land and improvements.............. $ 1,293 $ 263 $ 5 $ 1,551
Buildings and improvements......... 5,831 996 124 6,703
Vehicles........................... 21,804 4,466 2,260 24,010
Furniture and fixtures............. 8,162 2,433 92 10,503
Bulk equipment and market facili-
ties.............................. 9,186 1,712 92 10,806
Tanks and customer equipment....... 77,270 10,579 617 87,232
-------- ------- ------ --------
$123,546 $20,449 $3,190 $140,805
======== ======= ====== ========
Year ended July 31, 1992
Land and improvements.............. $ 1,049 $ 248 $ 4 $ 1,293
Buildings and improvements......... 5,033 979 181 5,831
Vehicles........................... 20,403 5,107 3,706 21,804
Furniture and fixtures............. 6,742 2,072 652 8,162
Bulk equipment and market facili-
ties.............................. 7,955 1,507 276 9,186
Tanks and customer equipment....... 67,455 10,573 758 77,270
-------- ------- ------ --------
$108,637 $20,486 $5,577 $123,546
======== ======= ====== ========
Year ended July 31, 1991
Land and improvements.............. $ 826 $ 234 $ 11 $ 1,049
Buildings and improvements......... 5,095 1,057 1,119 5,033
Vehicles........................... 17,323 5,115 2,035 20,403
Furniture and fixtures............. 5,301 1,978 537 6,742
Bulk equipment and market facili-
ties.............................. 6,263 1,826 134 7,955
Tanks and customer equipment....... 52,521 15,775 841 67,455
-------- ------- ------ --------
$ 87,329 $25,985 $4,677 $108,637
======== ======= ====== ========
</TABLE>
S-6
<PAGE>
SCHEDULE VIII
FERRELLGAS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED DEDUCTIONS BALANCE
BEGINNING TO COST/ (AMOUNTS AT END
DESCRIPTION OF PERIOD EXPENSES CHARGED-OFF) OF PERIOD
----------- ---------- -------- ------------ ---------
<S> <C> <C> <C> <C>
Year ended July 31, 1993
Allowance for uncollectible re-
ceivables........................ $ 837 $ 1,343 $1,573 $ 607
======= ======= ====== =======
Accumulated amortization of intan-
gible assets..................... $49,188 $ 9,993 $ -- $59,181
======= ======= ====== =======
Accumulated amortization of other
assets........................... $ 5,286 $ 2,538 $ 232 $ 7,592
======= ======= ====== =======
Year ended July 31, 1992
Allowance for uncollectible re-
ceivables........................ $ 1,005 $ 2,071 $2,239 $ 837
======= ======= ====== =======
Accumulated amortization of intan-
gible assets..................... $38,901 $10,306 $ 19 $49,188
======= ======= ====== =======
Accumulated amortization of other
assets........................... $ 6,895 $ 2,654 $4,263 $ 5,286
======= ======= ====== =======
Year ended July 31, 1991
Allowance for uncollectible re-
ceivables........................ $ 1,005 $ 2,423 $2,423 $ 1,005
======= ======= ====== =======
Accumulated amortization of intan-
gible assets..................... $29,116 $ 9,785 $ -- $38,901
======= ======= ====== =======
Accumulated amortization of other
assets........................... $ 4,309 $ 2,586 $ -- $ 6,895
======= ======= ====== =======
</TABLE>
S-7
<PAGE>
SCHEDULE IX
FERRELLGAS, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAXIMUM WEIGHTED
WEIGHTED AMOUNT AVERAGE AVERAGE
BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST
AT END INTEREST DURING DURING RATE DURING
CATEGORY OF YEAR RATE THE YEAR THE YEAR THE YEAR*
-------- ------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1993
(There were no short-term borrowings during the fiscal year ended July 31,
1993).
Year ended July 31, 1992
Working capital loan.... $ -- -- $1,000 $ 453 7.82%
==== ==== ====== ====== ====
Revolving loan.......... $ -- -- $4,275 $2,640 7.53%
==== ==== ====== ====== ====
Year ended July 31, 1991
(There were no short-term borrowings during the fiscal year ended July 31,
1991).
</TABLE>
- --------
* Based upon the actual rate in effect and the average daily outstanding
balance.
S-8
<PAGE>
SCHEDULE X
FERRELLGAS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO COSTS AND
EXPENSES
-----------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
JULY JULY JULY
31, 31, 31,
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
1. Maintenance and repairs............................. $10,110 $ 9,855 $ 8,819
======= ======= =======
2. Depreciation........................................ $20,472 $20,486 $25,985
Amortization of intangibles......................... 9,993 10,306 9,785
Amortization of other assets........................ 2,538 2,654 2,586
------- ------- -------
$33,003 $33,446 $38,356
======= ======= =======
</TABLE>
- --------
Note: Detail for the other items required for this schedule has been omitted
since each of the other items is less than 1% of total revenues.
S-9
<PAGE>
GRAPHICS APPENDIX LIST
PAGE WHERE
GRAPHIC DESCRIPTION OF GRAPHIC OR CROSS-REFERENCE
- ------------ -----------------------------------------
INSIDE FRONT A map depicting the locations of assets and operations of
COVER PAGE Ferrellgas Partners, L.P. (the "Partnership") in the United
OF PROSPECTUS States. The map is coded to reflect the locations of the
following: (1) retail markets; (ii) the headquarters; (iii) the
Houston headquarters; (iv) a service center; (v) owned
underground storage; and (vi) owned throughput terminals. The
map also depicts LPG common carrier pipelines not owned by the
Partnership and seaborne import terminals not owned by the
Partnership.
PAGE 9 A chart depicting the organization and ownership of the
Partnership and Ferrellgas, L.P. (the "Operating Partnership")
after giving effect to the sale of the Common Units. The
ownership interests as depicted are as follow: (1) Ferrell
Companies, Inc. ("Ferrell") will own 1,000,000 Common Units,
16,118,559 Subordinated Units and Incentive Distribution Rights
representing a 56.1% limited partner interest in the
Partnership; Ferrellgas, Inc. ("Ferrellgas"), a wholly owned
subsidiary of Ferrell, will own a 1% general partner interest
in the Partnership and a 1.0101% general partner interest in
the Operating Partnership; the Partnership will own a 98.9899%
limited partner interest in the Operating Partnership; and the
public unitholders will own 13,100,000 Common Units
representing a 42.9% limited partner interest in the
Partnership.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
-------- -----------
<C> <S>
*1.1 --Form of Underwriting Agreement
*3.1 --Form of Agreement of Limited Partnership of Ferrellgas
Partners, L.P. (included as Appendix A to the Prospectus)
*3.2 --Form of Agreement of Limited Partnership of Ferrellgas, L.P.
*5.1 --Opinion of Andrews & Kurth L.L.P. as to the legality of the
securities being registered
*8.1 --Opinion of Andrews & Kurth L.L.P. relating to tax matters
*10.1 --Form of working capital credit agreement among Ferrellgas,
L.P. and certain banks in the amount of $185,000,000
*10.2 --Form of Indenture among Ferrellgas, L.P., and Norwest Bank
Minnesota, as Trustee, relating to % Senior Notes due 2001
**10.3 --$250,000,000 11 5/8% Senior Subordinated Debenture Indenture
due 2003, dated as of December 1, 1991, between the Company
and Norwest Bank Minnesota, National Association, as Trustee
**10.4 --Assignment and Agreement dated as of January 1, 1989 between
BP Oil Company and Ferrell Petroleum, Inc., as amended
**10.5 --Ferrell Long-Term Incentive Plan, dated June 23, 1987,
between Ferrell and the participants in the Plan
**10.6 --Ferrell 1992 Key Employee Stock Option Plan
*10.7 --Form of Contribution, Conveyance and Assumption Agreement
between Ferrellgas, the Partnership and the Operating
Partnership
*10.8 --First Supplemental Indenture dated June 2, 1994 relating to
$250,000,000
11 5/8% Senior Subordinated Debentures
**21.1 --List of subsidiaries
*23.1 --Consent of Deloitte & Touche
*23.2 --Consent of Andrews & Kurth L.L.P. (included in Exhibit 5.1)
*23.3 --Consent of Andrews & Kurth L.L.P. (included in Exhibit 8.1)
**24.1 --Powers of Attorney
</TABLE>
- --------
* Filed herewith
**Previously filed
<PAGE>
EXHIBIT 1.1
Draft of June 8, 1994
FERRELLGAS PARTNERS, L.P.
COMMON UNITS
REPRESENTING LIMITED PARTNER INTERESTS
UNDERWRITING AGREEMENT
___________, 1994
Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette
Securities Corporation,
A.G. Edwards & Sons, Inc.,
PaineWebber Incorporated,
Smith Barney Inc.,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Dear Sirs:
Ferrellgas Partners, L.P., a Delaware limited partnership (the
"Partnership"), proposes, subject to the terms and conditions stated herein, to
issue and sell to the Underwriters named in Schedule I hereto (the
"Underwriters") an aggregate of 13,100,000 units (the "Firm Units") representing
common limited partner interests in the Partnership and, at the election of the
Underwriters, 1,965,000 additional units (the "Optional Units") (the Firm Units
and the Optional Units which the Underwriters elect to purchase pursuant to
Section 2 hereof being collectively called the "Common Units").
It is understood by all parties that (i) concurrently herewith
Ferrellgas, L.P., a Delaware limited partnership (the "Operating Partnership")
and Ferrellgas Finance Corp., a Delaware corporation and wholly owned subsidiary
of the Operating Partnership ("Ferrellgas Finance" and, together with the
Operating Partnership, the "Issuers"), and Donaldson, Lufkin & Jenrette
Securities Corporation, Goldman, Sachs & Co. are entering into an underwriting
agreement (the "Senior Note Underwriting Agreement") providing for the sale by
the Issuers of their Senior Notes due 2001 (the "Senior Notes") to be issued
pursuant to an Indenture (the "Indenture") between the Issuers and Norwest Bank,
Minnesota, National Association, as trustee and (ii) concurrent with the First
Time of Delivery (as defined in Section 4 hereof), (a) the closing under the
Senior Note Underwriting Agreement will occur, (b) Ferrellgas, Inc., a Delaware
corporation (the "General Partner"), will accept for purchase all of its 11 5/8%
Senior Subordinated Debentures due December 15, 2003 (the "Senior Subordinated
Debentures") validly tendered and not withdrawn pursuant to its Offer to
Purchase the Senior Subordinated Debentures (the "Offer to Purchase"), (c) the
General Partner will call for redemption its Series A and Series C Floating Rate
Senior Notes due 1996 and Series B and Series D Fixed Rate Senior Notes due 1996
(collectively, the "Existing Senior Notes") and the Operating Partnership will
deposit with the trustee under the Indenture, dated as of July 1, 1990 (the
"Existing Indenture"), relating to the Existing Senior Notes an amount of funds
reasonably expected to be sufficient to redeem such Existing Senior Notes on
their redemption date and (d) the Operating Partnership will enter into a
working capital facility for up to $ million (the "Credit Facility") with a
group of commercial banks.
<PAGE>
The closing with respect to the transaction contemplated hereby is conditional
on the consummation of each of the transactions described in the preceding
sentence.
1. (A) Each of the Partnership and the General Partner represents
and warrants to, and agrees with, each of the Underwriters that:
(a) A registration statement on Form S-1 (File No. 33-53383), and
amendments thereto, in respect of the Firm Units and Optional Units has
been filed with the Securities and Exchange Commission (the "Commission");
such registration statement, as amended, and any post-effective amendment
thereto, each in the form heretofore delivered to you, and, excluding
exhibits thereto, to you for each of the other Underwriters, have been
declared effective by the Commission in such form; no other document with
respect to such registration statement has heretofore been filed with the
Commission; and no stop order suspending the effectiveness of such
registration statement has been issued and no proceeding for that purpose
has been initiated or threatened by the Commission (any preliminary
prospectus included in such registration statement or filed with the
Commission pursuant to Rule 424(a) of the rules and regulations of the
Commission under the Securities Act of 1933, as amended (the "Act"), being
hereinafter called a "Preliminary Prospectus"; the various parts of such
registration statement, including all exhibits thereto and including the
information contained in the form of final prospectus filed with the
Commission pursuant to Rule 424(b) under the Act in accordance with Section
5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of
the registration statement at the time it was declared effective, each as
amended at the time such part of the registration statement became
effective, being hereinafter called the "Registration Statement"; and such
final prospectus, in the form first filed pursuant to Rule 424(b) under the
Act, being hereinafter called the "Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Partnership by an Underwriter
through you expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; and each of the statements made by the Partnership
in such documents within the coverage of Rule 175(b) of the rules and
regulations under the Act was made or will be made with a reasonable basis
and in good faith; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information relating to any Underwriter furnished in
writing to the Partnership by an Underwriter through you expressly for use
therein; no contract or document of a character required to be described in
the Registration Statement or the Prospectus or to be filed as an exhibit
to the Registration Statement is not described or filed as required;
-2-
<PAGE>
(d) None of the Partnership, the Operating Partnership, the General
Partner or any of their respective subsidiaries (collectively, the
"Subsidiaries") has sustained since the date of the latest audited
financial statements included in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Prospectus; and, since the respec tive dates as of
which information is given in the Registration Statement and the
Prospectus, there has not been any change in the capitalization or long-
term debt or increase in short-term debt of the Partnership, the Operating
Partnership, the General Partner, Ferrell or any of the Subsidiaries or any
material adverse change, or any development involving a prospective mate-
rial adverse change, in or affecting the properties, business, general
affairs, management, condition (financial or otherwise), financial
position, security holders' equity or results of operations of the
Partnership and the Operating Partnership, taken as a whole, or the General
Partner or any of the Subsidiaries, otherwise than as set forth or
contemplated in the Prospectus;
(e) The consolidated historical and pro forma financial statements,
together with related schedules and notes, set forth in the Prospectus and
the Registration Statement comply as to form in all material respects with
the requirements of the Act; at April 30, 1994, the Partnership would have
had, on the pro forma basis indicated in the Prospectus, a duly authorized
and outstanding capitalization as set forth therein; the audited balance
sheet of the Partnership included in the Prospectus presents fairly the
financial position of the Partnership as of the date indicated; the
audited and unaudited historical consolidated financial statements of the
General Partner included in the Prospectus present fairly the consolidated
financial position of the General Partner and the Subsidiaries as of the
dates indicated and their results of operations and cash flows for the
periods specified; the supplemental schedules included in the Registration
Statement, when considered in relation to the audited and unaudited
historical consolidated financial statements of the General Partner,
present fairly in all material respects the information shown therein; such
audited and unaudited historical consolidated financial statements and
supplemental schedules included in the Registration Statement and the
Prospectus have been prepared in conformity with generally accepted
accounting principles applied on a substantially consistent basis, except
to the extent disclosed therein; the historical information set forth in
the Prospectus under the caption "Selected Historical and Pro Forma
Consolidated Financial and Operating Data" is fairly stated in all material
respects in relation to the audited and unaudited historical consolidated
financial statements from which it has been derived; the pro forma
financial information set forth in the Prospectus under the caption
"Selected Historical and Pro Forma Consolidated Financial and Operating
Data" is fairly stated in all material respects in relation to the pro
forma financial statements from which it has been derived; the pro forma
financial statements of the Partnership included in the Registration
Statement and the Prospectus have been prepared on a basis consistent with
such historical statements, except for the pro forma adjustments specified
therein, and in accordance with the applicable published rules and
regulations of the Commission, the assumptions used in the preparation of
such pro forma financial statements are reasonable, and the pro forma
entries reflected in such pro forma financial statements have been properly
applied in such pro forma financial statements; the other financial and
statistical information and data included in the Prospectus and in the
Registration Statement, historical and pro forma, are, in all material
respects, accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Partnership and the
General Partner;
(f) The Partnership has been duly formed and is validly existing as a
limited partnership under the Delaware Revised Uniform Limited Partnership
Act (the "Delaware Act"), with partnership power and authority to own or
lease the properties it will own or lease at each Time of Delivery (as
defined in Section 4 hereof) and conduct the business it will conduct at
each
-3-
<PAGE>
Time of Delivery, in each case as described in the Prospectus, and has been
duly qualified or registered as a foreign limited partnership for the
transaction of business under the laws of each jurisdiction in which the
failure so to qualify or register would have a material adverse effect upon
the Partnership or subject the Partnership or the limited partners of the
Partnership to any material liability or disability;
(g) The Operating Partnership has been duly formed and is validly
existing as a limited partnership under the Delaware Act, with partnership
power and authority to own or lease the properties it will own or lease at
each Time of Delivery and conduct the business it will conduct at each Time
of Delivery, in each case as described in the Prospectus, and has been duly
qualified or registered as a foreign limited partnership for the
transaction of business under the laws of each jurisdiction in which the
failure so to qualify or register would have a material adverse effect upon
the Operating Partnership or subject the Operating Partnership or the
limited partners of the Partnership to any material liability or
disability;
(h) The General Partner is and, upon consummation of the transactions
described under the caption "The Transactions" in the Prospectus and
contemplated by the Operative Agreements (as defined in (s) below) (the
"Transactions"), will be the sole general partner of the Partnership with a
general partner interest in the Partnership of 1.0%; such general partner
interest is duly authorized by the Agreement of Limited Partnership of the
Partnership (as it may be amended or restated at or prior to the First Time
of Delivery, the "Partnership Agreement"), and was validly issued to the
General Partner and is fully paid (to the extent required at such time);
and at each Time of Delivery the General Partner will own such general
partner interest free and clear of all liens, encumbrances, charges or
claims;
(i) Upon consummation of the Transactions, Ferrell Companies, Inc., a
Kansas corporation ("Ferrell"), will own a limited partner interest in the
Partnership represented by ____ Common Units and ___ units representing
subordinated limited partner interests ("Subordinated Units" and,
collectively with the Common Units, "Units"); such limited partner interest
will be duly authorized by the Partnership Agreement and will be validly
issued to the General Partner and transferred in the form of a dividend to
Ferrell and will be fully paid (to the extent required at such time) and
non-assessable (except as such non-assessability may be affected by matters
described in the Prospectus under the caption "The Partnership Agreement--
Limited Liability"); and at each Time of Delivery Ferrell will own such
limited partner interest free and clear of all liens, encumbrances, charges
or claims;
(j) The General Partner is the sole general partner of the Operating
Partnership with a general partner interest in the Operating Partnership of
1.0101%; such general partner interest is duly authorized by the Agreement
of Limited Partnership of the Operating Partnership (as it may be amended
or restated at or prior to the First Time of Delivery, the "Operating
Partnership Agreement"), and is validly issued to the General Partner and
is fully paid (to the extent required at such time) (the Operating
Partnership Agreement and the Partnership Agreement are herein
collectively referred to as the "Partnership Agreements"); and at each Time
of Delivery the General Partner will own such general partner interest free
and clear of all liens, encumbrances, charges or claims;
(k) Upon consummation of the Transactions, the Partnership will be
the sole limited partner of the Operating Partnership, with a limited
partner interest of 98.9899%; at each Time of Delivery, such limited
partner interest will be duly authorized by the Operating Partnership
Agreement, will have been validly issued and will be fully paid and non-
assessable (except as such non-assessability may be affected by matters
described in the Prospectus under the caption "The Partnership Agreement--
Limited Liability"); and upon the consummation of the
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Transactions, the Partnership will own such limited partner interest in the
Operating Partnership free and clear of all liens, encumbrances, charges or
claims;
(l) Upon the consummation of the Transactions, there will be issued
to the Underwriters ____________ Common Units (assuming no purchase by the
Underwriters of Optional Units); at each Time of Delivery, the Common Units
and the limited partner interests represented thereby will be duly
authorized by the Partnership Agreement and, when issued and delivered
against payment therefor as provided herein, will be validly issued, fully
paid and non-assessable (except as such non-assessability may be affected
by matters described in the Prospectus under the caption "The Partnership
Agreement--Limited Liability"); other than the Units and the Incentive
Distribution Rights owned by Ferrell, at each Time of Delivery, the Common
Units will be the only limited partner interests of the Partnership issued;
(m) Except as described in the Prospectus, there are no preemptive
rights or other rights to subscribe for or to purchase, nor any restriction
upon the voting or transfer of, any limited partner interests in the
Partnership or the Operating Partnership pursuant to either of the
Partnership Agreements or other governing documents or any agreement or
other instrument to which the Partnership or the Operating Partnership is
a party or by which either of them may be bound; the capitalization of the
Partnership is in all material respects as described in the Prospectus
under the caption "Capitalization".
(n) The General Partner has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the state of
its incorporation, with power and authority (corporate and other) to own or
lease its properties, to conduct its business and to act as general partner
of the Partnership and of the Operating Partnership, in each case as
described in the Prospectus, and has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under
the laws of each other jurisdiction in which the failure so to qualify or
register would have a material adverse effect upon the Partnership or
subject the Partnership or the limited partners of the Partnership to any
material liability or disability;
(o) All of the issued shares of capital stock of the General Partner
have been duly authorized and validly issued and are fully paid and non-
assessable; and all of the issued shares of capital stock of the General
Partner are owned by Ferrell, free and clear of all liens, security
interests, mortgages, pledges, encumbrances, equities or claims (each, a
"Lien"), except as set forth in the Prospectus and except for Liens created
by the Pledge Agreement, dated July 1, 1990, among Ferrellgas, Inc.,
Ferrell Companies, Inc. and Firstbank Minneapolis, as pledge agent (the
"Existing Pledge Agreement");
(p) All of the issued and outstanding shares of capital stock of, or
other ownership interests in, each Subsidiary of the Partnership, the
Operating Partnership or the General Partner have been duly and validly
authorized and issued, and all of the shares of capital stock of, or other
ownership interests in, each such Subsidiary are owned, directly or through
other Subsidiaries, by the Partnership, the Operating Partnership or the
General Partner, as the case may be; all such shares of capital stock are
fully paid and nonassessable, and are owned free and clear of any Liens,
except as set forth in the Prospectus and except for the Lien created by
the Existing Pledge Agreement;
(q) The General Partner has the corporate power and authority to
convey the Properties (as defined in paragraph (v) below) to the Operating
Partnership pursuant to the Closing Agreement (as defined in paragraph (s)
below); the General Partner has, and, upon execution, delivery and
performance of the Closing Agreement, the Operating Partnership will have,
good and indefeasible title to the Properties, free and clear of all liens,
encumbrances, security
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interests, equities, charges, claims or defects except such as are
described in the Prospectus or such as do not materially interfere with the
ownership or benefits of ownership or materially increase the cost of
ownership of the Properties, taken as a whole; the Properties then owned by
the General Partner are accurately reflected in the General Partner's
consolidated financial statements at and for the period ended April 30,
1994; any real property, buildings and equipment held under lease by the
General Partner are held by the General Partner under valid, subsisting and
enforceable leases, and, following the execution, delivery and performance
of the Closing Agreement, the Operating Partnership will have the right to
use any such real property, buildings and equipment in a manner consistent
with the past business practices of the General Partner, in each case,
except as described in the Prospectus and except as are not material and do
not interfere with the use made and proposed to be made of such real
property, buildings and equipment by the General Partner and the Operating
Partnership;
(r) This Agreement has been duly authorized, executed and delivered
by each of the Partnership, the General Partner and Ferrell; at or before
the First Time of Delivery, the Partnership Agreement will have been duly
authorized, executed and delivered by the General Partner and will be a
valid and legally binding agreement of the General Partner, enforceable
against the General Partner in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles and except as described in the
Registration Statement; at or before the First Time of Delivery, the
Operating Partnership Agreement will have been duly authorized, executed
and delivered by the General Partner and the Partnership and will be a
valid and legally binding agreement of the General Partner and the
Partnership, enforceable against the General Partner and the Partnership in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles and except as described in the Registration Statement; at
or before the First Time of Delivery, the Contribution and Closing
Agreement among the Partnership, the Operating Partnership and the General
Partner (the "Closing Agreement") will have been duly authorized, executed
and delivered by the Partnership, the Operating Partnership and the General
Partner and will be a valid and legally binding agreement of the
Partnership, the Operating Partnership and the General Partner enforceable
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles; the Partnership Agreement, the Operating Partnership
Agreement, the Closing Agreement, the Indenture and the Credit Facility are
herein collectively referred to as the "Operative Agreements";
(s) The issuance and sale of the Units by the Partnership, and the
execution, delivery and performance by the Partnership, the Operating
Partnership, Ferrellgas Finance, the General Partner and Ferrell, as the
case may be, of this Agreement and the Operative Agreements and the
consummation by the Partnership, the Operating Partnership, Ferrellgas
Finance, the General Partner and Ferrell, as the case may be, of the
Transactions will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default or cause an
acceleration of any obligation under, or result in the imposition or
creation of (or the obligation to create or impose) a Lien with respect to,
any material bond, note, debenture or other evidence of indebtedness or any
material indenture, mortgage, deed of trust, loan agreement, contract,
lease or other agreement or instrument to which the Partnership, the
Operating Partnership, the General Partner or the Subsidiaries is a party
or by which the Partnership, the Operating Partnership, the General Partner
or the Subsidiaries is bound or to which any of their properties or assets
is subject (other than the default arising as a result of the Transactions
under the Existing Indenture which is to be followed by the deposit of
funds in accordance with Section 7(m)), nor will such action result in any
breach or violation of the provisions of the
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<PAGE>
Partnership Agreement or the Operating Partnership Agreement or of the
charter or bylaws of the General Partner or any of the Subsidiaries, or
contravene any order of any court or governmental agency or body having
jurisdiction over the Partnership, the Operating Partnership, the General
Partner or any of the Subsidiaries or any of their respective properties,
or violate or conflict with any statute, rule or regulation or
administrative or court decree applicable to the Partnership, the Operating
Partnership, the General Partner or any of the Subsidiaries or any of their
respective properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the issuance and sale of the Common Units
by the Partnership to the Underwriters or the consummation by the
Partnership, the Operating Partnership or the General Partner, as the case
may be, of the Transactions, except (i) the registration under the Act of
the Senior Notes and of the Common Units issuable to the Underwriters and
under the Trust Indenture Act of 1939, as amended, of the Indenture or (ii)
such consents, approvals, authorizations, orders, registrations or
qualifications (A) as have been, or prior to the First Time of Delivery
will be, obtained or (B) as may be required under state securities or Blue
Sky laws in connection with the purchase and distribution of the Common
Units by the Underwriters or with the purchase and distribution of the
Senior Notes;
(t) No action has been taken and no statute, rule or regulation or
order has been enacted, adopted or issued by any governmental agency or
body which prevents the issuance of the Common Units, suspends the
effectiveness of the Registration Statement, prevents or suspends the use
of any preliminary prospectus or suspends the sale of the Common Units in
any jurisdiction referred to in Section 5(b) hereof; no injunction,
restraining order or order of any nature by a federal or state court of
competent jurisdiction has been issued with respect to the Partnership,
the Operating Partnership, the General Partner or any of the Subsidiaries
which would prevent or suspend the issuance or sale of the Common Units,
the effectiveness of the Registration Statement, or the use of any
preliminary prospectus in any jurisdiction referred to in Section 5(b)
hereof; no action, suit or proceeding is pending against or, to the best of
the knowledge of the Partnership, the Operating Partnership and the General
Partner, threatened against or affecting the Partnership, the Operating
Partnership, the General Partner or any of the Subsidiaries before any
court or arbitrator or any governmental body, agency or official, domestic
or foreign, which, if adversely determined, would materially interfere with
or adversely affect the issuance of the Common Units or in any manner draw
into question the validity of this Agreement or the Common Units; and every
request of the Commission or any securities authority or agency of any
jurisdiction for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) has been complied
with in all material respects;
(u) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body will be
required for the conveyance of the real and personal property to be
conveyed pursuant to the Closing Agreement (the "Properties"), except such
consents, approvals, authorizations, orders, registrations or
qualifications (i) as have been, or prior to the First Time of Delivery
will be, obtained, or (ii) which, if not obtained, would not, individually
or in the aggregate, have a material adverse effect upon the ability of the
Partnership and the Operating Partnership considered as a whole to conduct
their business substantially in accordance with the past practice of the
General Partner;
(v) The Partnership has, or at or before the First Time of Delivery
will have, all necessary consents, approvals, authorizations, orders,
registrations and qualifications of or with any court or governmental
agency or body having jurisdiction over it or any of its properties or of
or with any other person to acquire and own the limited partner interest in
the Operating Partnership as set forth or contemplated in the Prospectus,
except such consents, approvals, authorizations, orders, registrations or
qualifications which, if not obtained, would not,
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<PAGE>
individually or in the aggregate, have a material adverse effect upon the
properties, business, general affairs, management, condition (financial or
otherwise), financial position, security holders' equity, results of
operations or prospects of the Partnership and the Operating Partnership,
taken as a whole, or upon the holders of Common Units; the Operating
Partnership has, or at or before the First Time of Delivery will have, all
necessary consents, approvals, authorizations, orders, registrations and
qualifications (or the equivalent thereof in all material respects) of or
with any court or governmental agency or body having jurisdiction over it
or any of its properties or of or with any other person or permit the
Operating Partnership to conduct its business substantially in accordance
with the past practice of the General Partner, except such consents,
approvals, authorizations, orders, registrations or qualifications which,
if not obtained, would not, individually or in the aggregate, have a
material adverse effect upon the properties, business, general affairs,
management, condition (financial or otherwise), financial position,
security holders' equity, results of operations or prospects of the
Partnership and the Operating Partnership, taken as a whole, or upon the
holders of Common Units;
(w) Except as set forth or contemplated in the Prospectus or as
contemplated by this Agreement, neither the Partnership nor the Operating
Partnership has incurred any material liabilities or obligations, direct or
contingent, or entered into any material agreement or engaged in any
material business other than in connection with its formation;
(x) Other than as set forth in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending to which the
Partnership, the Operating Partnership, the General Partner or any
Subsidiary is a party or of which any of their respective properties is the
subject, which is required to be disclosed in the Prospectus and is not so
disclosed, which, if determined adversely to such person, would
individually or in the aggregate have a material adverse effect upon the
properties, business, general affairs, management, condition (financial or
otherwise), financial position, security holders' equity, results of
operations or prospects of either the General Partner or the Partnership
and the Operating Partnership, taken as a whole, or which could reasonably
be expected to materially and adversely affect the consummation of this
Agreement, the Operative Agreements or the Transactions; and to the best of
the knowledge of the Partnership, the Operating Partnership and the General
Partner, no such actions, suits or proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(y) The statements made in the Prospectus under the caption
"Description of The Common Units", insofar as they purport to constitute
summaries of the terms of the Common Units, under the captions "The
Partnership Agreement", "Cash Distribution Policy" and "Conflicts of
Interest and Fiduciary Responsibility", under the caption "Tax
Considerations" and under the caption "Underwriting" insofar as they
describe the provisions of the documents therein described, are in all
material respects accurate, complete and fair summaries;
(z) Each of the Partnership, the Operating Partnership, the General
Partner and their respective Subsidiaries maintains insurance which is
adequate in accordance with customary industry practice to protect each of
them and their businesses; none of the Partnership, the Operating
Partnership, the General Partner and their respective Subsidiaries has
received notice from any insurer or agent of such insurer that substantial
capital improvements or other expenditures will have to be made in order to
continue such insurance; all such insurance is outstanding and duly in
force on the date hereof and will be outstanding and duly in force at each
Time of Delivery;
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<PAGE>
(aa) None of the Partnership, the Operating Partnership, the General
Partner or any Subsidiary is in: (i) breach or violation of the provisions
of its agreement of limited partnership or of its charter or bylaws, as the
case may be; or (ii) default (and no event has occurred which, with notice
or lapse of time or both, would constitute such a default) in the due
performance or observance of any term, covenant or condition contained in
any bond, note, debenture or other evidence of indebtedness or any
indenture, mortgage, deed of trust, loan agreement, contract, lease or
other agreement or instrument to which it is a party or by which it is
bound or to which any of its properties or assets is subject (other than
the default arising as a result of the Transactions under the Existing
Indenture which is to be followed by the deposit of funds in accordance
with Section 7(m)), or violation of any statute, rule or regulation or
administrative or court decree applicable to it or any of its properties,
which default or violation, individually or in the aggregate, could have a
material adverse effect upon the holders of Common Units or the properties,
business, general affairs, management, prospects, condition (financial or
otherwise), financial position, security holders' equity or results of
operations of any of the Partnership and the Operating Partnership, taken
as a whole, the General Partner or any Subsidiary;
(bb) Except as described in the Prospectus, the Partnership, the
Operating Partnership, the General Partner and the Subsidiaries possess,
and are operating in compliance in all material respects with, all
certificates, consents, exemptions, orders, permits, licenses,
authorizations, or other approvals (each, an "Authorization") issued by the
appropriate local, state, federal or foreign regulatory agencies or bodies
necessary or required to own, lease, license and use their properties and
assets and to conduct the business currently (or, as described or
contemplated in the Prospectus, to be) operated by them, except for such
Authorizations which, if not obtained, would not reasonably be expected to
have, individually or in the aggregate, a material adverse effect upon the
ability of the Partnership, the Operating Partnership, the General Partner
or the Subsidiaries to conduct their businesses in all material respects as
currently conducted and as contemplated by the Prospectus to be conducted;
and, except as described in the Prospectus, none of the Partnership, the
Operating Partnership, the General Partner or the Subsidiaries has received
any notice of proceedings relating to the revocation or modification of any
such Authorization which, individually or in the aggregate, if the subject
of an unfavorable decision, ruling or filing, would be expected to have a
material adverse effect upon the ability of the Partnership, the Operating
Partnership, the General Partner or the Subsidiaries to conduct their
businesses in all material respects as currently conducted and as
contemplated by the Prospectus to be conducted;
(cc) None of the Partnership, the Operating Partnership, the General
Partner or any of the Subsidiaries has violated any environmental safety or
similar law or regulation applicable to its business relating to the
protection of human health and safety, the environmental or hazardous or
toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), lacks any permits, licenses or other approvals required of them
under applicable Environmental Laws to own, lease and operate their
respective properties and to conduct their business in the manner described
in the Prospectus, is violating any terms and conditions of any such
permit, license or approval or has permitted to occur any event that
allows, or after notice or lapse of time would allow, revocation,
termination of any such permit, license or approval or results in any other
impairment of their rights thereunder, which in each case might result,
singly or in the aggregate, in a material adverse effect on the
Partnership, the Operating Partnership, the General Partner and the
Subsidiaries, taken as a whole (a "Material Adverse Effect"); none of the
Partnership, the Operating Partnership, the General Partner or any of the
Subsidiaries violated any federal, state or local law relating to
discrimination in the hiring, promotion or pay of employees prior to any
applicable wage or hour laws, nor any provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA") or the rules and regulations
promulgated thereunder, nor has the Partnership, the Operating Partnership,
the General Partner or any of
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<PAGE>
the Subsidiaries engaged in any unfair labor practice, which in each case
might result, singly or in the aggregate, in a Material Adverse Effect;
there is (i) no significant unfair labor practice complaint pending against
the Partnership, the Operating Partnership, the General Partner or any of
the Subsidiaries or, to the best knowledge of the Partnership, the
Operating Partnership or the General Partner, threatened against any of
them before the National Labor Relations Board or any state or local labor
relations board, and no significant grievance or significant arbitration
proceeding arising out of or under any collective bargaining agreement is
so pending against the Partnership, the Operating Partnership, the General
Partner or any of the Subsidiaries or, to the best knowledge of the
Partnership, the Operating Partnership or the General Partner, threatened
against any of them, (ii) no significant strike, labor dispute, slowdown or
stoppage pending against the Partnership, the Operating Partnership, the
General Partner or any of the Subsidiaries or, to the best knowledge of the
Partnership, the Operating Partnership or the General Partner, threatened
against the Partnership, the Operating Partnership, the General Partner or
any of the Subsidiaries and (iii) to the best knowledge of the
Partnership, the Operating Partnership or the General Partner, no union
representation question existing with respect to the employees of the
Partnership, the Operating Partnership, the General Partner or any of the
Subsidiaries and, to the best knowledge of the Partnership, the Operating
Partnership or the General Partner, no union organizing activities are
taking place, except (with respect to any matter specified in clause (i),
(ii) or (iii) above, singly or in the aggregate) such as could not have a
Material Adverse Effect;
(dd) All tax returns required to be filed by the Partnership, the
Operating Partnership, the General Partner or any of the Subsidiaries in
any jurisdiction have been filed, other than those filings being contested
in good faith, and all material taxes, including withholding taxes,
penalties and interest, assessments, fees and other charges due or claimed
to be due from such entities have been paid, other than those being
contested in good faith and for which adequate reserves have been provided
or those currently payable without penalty or interest;
(ee) None of the Partnership, the Operating Partnership, the General
Partner or any Subsidiary (i) has taken, and none of such persons shall
take, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute,
the stabilization or manipulation of the price of the Common Units to
facilitate the sale or resale of the Common Units in violation of any law,
rule or regulation or (ii) since the initial filing of the Registration
Statement (A) has sold, bid for, purchased, or paid anyone any compensation
for soliciting purchases of, the Common Units or (B) except as contemplated
by this Agreement, has paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the Partnership;
(ff) Deloitte & Touche, who have certified certain financial
statements of the Partnership and the General Partner included in the
Registration Statement and the Prospectus, are independent public
accountants with respect to the Partnership and the General Partner as
required by the Act and the rules and regulations of the Commission
thereunder;
(gg) None of the Partnership, the Operating Partnership, the General
Partner or the Subsidiaries is, and at each Time of Delivery none of the
Partnership, the Operating Partnership, the General Partner or the
Subsidiaries will be, an "investment company" or a company "controlled" by
an "investment company" within the meaning of the Investment Company Act of
1940, as amended (the "Investment Company Act");
(hh) None of the Partnership, the Operating Partnership, the General
Partner or the Subsidiaries is a "holding company" or a "subsidiary
company" of a holding company, or an "affiliate" thereof within the meaning
of the Public Utility Holding Company Act of 1935, as amended;
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<PAGE>
(ii) Except as described in the Prospectus, no holder of any security
of the Partnership has or will have any right to require the registration
of such security by virtue of any transaction contemplated by this
Agreement;
(jj) None of the Partnership, the Operating Partnership, the General
Partner or the Subsidiaries does business with the government of Cuba or
with any person or affiliate located in Cuba within the meaning of Section
517.075 of Florida Statutes (Chapter 92-198, Laws of Florida); and
(kk) At each Time of Delivery, the General Partner will have
(excluding its interests in the Partnership and the Operating Partnership
and any notes receivable from or payable to the Partnership or the
Operating Partnership) a net worth of at least $25 million.
(B) Ferrell represents and warrants to, and agrees with, each of the
Underwriters that:
(a) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; and each of the statements made by the Partnership
in such documents within the coverage of Rule 175(b) of the rules and
regulations under the Act was made or will be made with a reasonable basis
and in good faith; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information relating to any Underwriter furnished in
writing to the Partnership by an Underwriter through you expressly for use
therein; no contract or document of a character required to be described in
the Registration Statement or the Prospectus or to be filed as an exhibit
to the Registration Statement is not described or filed as required;
(b) This Agreement has been duly authorized, executed and delivered
by Ferrell;
(c) The issuance and sale of the Units by the Partnership, and the
execution, delivery and performance by the Partnership, the Operating
Partnership, Ferrellgas Finance, the General Partner and Ferrell, as the
case may be, of this Agreement and the Operative Agreements and the
consummation by the Partnership, the Operating Partnership, Ferrellgas
Finance, the General Partner and Ferrell, as the case may be, of the
Transactions will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default or cause an
acceleration of any obligation under, or result in the imposition or
creation of (or the obligation to create or impose) a Lien with respect to,
any material bond, note, debenture or other evidence of indebtedness or any
material indenture, mortgage, deed of trust, loan agreement, contract,
lease or other agreement or instrument to which Ferrell is a party or by
which Ferrell is bound or to which any of its properties or assets is
subject (other than the default arising as a result of the Transactions
under the Existing Indenture which is to be followed by the deposit of
funds in accordance with Section 7(m)), nor will such action result in any
breach or violation of the provisions of the charter or bylaws of Ferrell,
or contravene any order of any court or governmental agency or body having
jurisdiction over Ferrell or any of its properties, or violate or conflict
with any statute, rule or regulation or administrative or court decree
applicable to Ferrell or any of its properties; and no consent, approval,
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required for the consummation by
Ferrell of the Transactions.
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<PAGE>
2. Subject to the terms and conditions herein set forth, (a) the
Partnership agrees to issue and sell to each of the Underwriters, and each of
the Underwriters agrees, severally and not jointly, to purchase from the
Partnership, at a purchase price per unit of $.................., the number of
Firm Units set forth opposite the name of such Underwriter in Schedule I hereto
and (b) in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Units as provided below, the Partnership agrees to
issue and sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Partnership, at the purchase
price per unit set forth in clause (a) of this Section 2, that portion of the
number of Optional Units as to which such election shall have been exercised (to
be adjusted by you so as to eliminate fractional shares) determined by
multiplying such number of Optional Units by a fraction the numerator of which
is the maximum number of Optional Units which such Underwriter is entitled to
purchase as set forth opposite the name of such Underwriter in Schedule I hereto
and the denominator of which is the maximum number of the Optional Units which
all of the Underwriters are entitled to purchase hereunder.
The Partnership hereby grants to the Underwriters the right to purchase at
their election up to .................. Optional Units, at the purchase price
per unit set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Units. Any such election to purchase
Optional Units may be exercised only by written notice from you to the
Partnership given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate number of Optional Units to be purchased
and the date on which such Optional Units are to be delivered, as determined by
you but in no event earlier than the First Time of Delivery (as defined in
Section 4 hereof) or, unless you and the Partnership otherwise agree in writing,
earlier than two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Units, the
several Underwriters propose to offer the Firm Units for sale upon the terms and
conditions set forth in the Prospectus.
4. Certificates in definitive form for the Units to be purchased by each
Underwriter hereunder, and in such denominations and registered in such names as
Goldman, Sachs & Co. may request upon at least forty-eight hours' prior notice
to the Partnership, shall be delivered by or on behalf of the Partnership to you
for the account of such Underwriter, against payment by such Underwriter or on
its behalf of the purchase price therefor by certified or official bank check or
checks, payable to the order of the Partnership in New York Clearing House
funds, all at the offices of Sullivan & Cromwell, 125 Broad Street, New York,
New York. The time and date of such delivery and payment shall be, with respect
to the Firm Units, 9:30 a.m. New York time, on .............., 1994, or at such
other time and date as you and the Partnership may agree upon in writing, and,
with respect to the Optional Units, 9:30 a.m., New York time, on the date
specified by you in the written notice given by you of the Underwriters'
election to purchase such Optional Units, or at such other time and date as you
and the Partnership may agree upon in writing. Such time and date for delivery
of the Firm Units is herein called the "First Time of Delivery," such time and
date for delivery of the Optional Units, if not the First Time of Delivery, is
herein called the "Second Time of Delivery," and each such time and date for
delivery is herein called a "Time of Delivery." Such certificates will be made
available for checking and packaging at least twenty-four hours prior to each
Time of Delivery at the office of Goldman, Sachs & Co., 85 Broad Street, New
York, New York 10004.
5. Each of the Partnership and the General Partner agrees with each of the
Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall
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be disapproved by you promptly after reasonable notice thereof; to advise
you, promptly after it receives notice thereof, of the time when the
Registration Statement, or any amendment thereto, has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus has
been filed and to furnish you with copies thereof; to advise you, promptly
after it receives notice thereof, of the issuance by the Commission of any
stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Common Units for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such purpose, or
of any request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information; and,
in the event of the issuance of any stop order or of any order preventing
or suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, to use promptly its best efforts to
obtain its withdrawal;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Common Units for offering and sale under
the securities laws of such jurisdictions as you may reasonably request and
to comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary to
complete the distribution of the Common Units, provided that in connection
therewith neither the Partnership nor the General Partner shall be required
to qualify as a foreign limited partnership or foreign corporation or to
file a general consent to service of process in any jurisdiction in which
it is not so qualified or has not so filed;
(c) To furnish the Underwriters with copies of the Prospectus in such
quantities as you may from time to time reasonably request, and, if the
delivery of a prospectus is required at any time prior to the expiration of
nine months after the time of issue of the Prospectus in connection with
the offering or sale of the Common Units and if at such time any event
shall have occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made when
such Prospectus is delivered, not misleading, or, if for any other reason
it shall be necessary during such period to amend or supplement the
Prospectus in order to comply with any law, to promptly notify you and upon
your request to promptly prepare, file with the Commission and furnish
without charge to each Underwriter and to any dealer in securities as many
copies as such Underwriter or dealer may from time to time reasonably
request of an amended Prospectus or a supplement to the Prospectus which
will correct such statement or omission or effect such compliance, and in
case any Underwriter is required to deliver a prospectus in connection with
sales of any of the Common Units at any time nine months or more after the
time of issue of the Prospectus, upon your request but at the expense of
such Underwriter, to prepare and deliver to such Underwriter as many copies
as you may request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Act;
(d) To mail and make generally available to security holders of the
Partnership as soon as reasonably practicable, but in any event not later
than 18 months after the "effective date" (as defined in Rule 158 under the
Act) of the Registration Statement a consolidated earning statement of the
Partnership covering a period of at least twelve months beginning after
such effective date (but in no event commencing later than 90 days after
such effective date) which shall satisfy the provisions of Section 11(a) of
the Act and Rule 158 thereunder, and to advise you in writing when such
statement has been so made available;
(e) To timely complete all required filings and otherwise fully
comply in a timely manner with all provisions of the Securities Exchange
Act of 1934, as amended, including the rules and regulations thereunder
(collectively, the "Exchange Act"), in connection with the registration, if
any, of the Common Units thereunder;
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(f) With respect to the Partnership, during the period beginning from the
date hereof and continuing to and including the date 180 days after the
date of the Prospectus, not to offer, sell, contract to sell or otherwise
dispose of, except as provided hereunder and except for any Common Units
which may be issued in connection with acquisitions by the Partnership, any
securities of the Partnership which are substantially similar to the Common
Units or Subordinated Units, including but not limited to any securities
that are convertible into or exchangeable for or that represent the right
to receive Common Units or Subordinated Units or any such substantially
similar securities, without your prior written consent;
(g) With respect to Ferrell, during the period from the date hereof
and continuing to and including the date 24 months after the date of the
Prospectus, not to offer, sell, contract to sell or otherwise dispose of,
except as provided hereunder, any Common Units or Subordinated Units or any
securities substantially similar to the Common Units or Subordinated Units,
including but not limited to any securities that are convertible into or
exchangeable for or that represent the right to receive Common Units or
Subordinated Units or any such substantially similar securities, without
your prior written consent except (i) transfers to James E. Ferrell or the
spouse, lineal descendants or brothers or sisters of James E. Ferrell,
entities controlled by James E. Ferrell or his spouse, lineal descendants
or brothers or sisters or trusts for the benefit of James E. Ferrell or his
spouse, lineal descendants or brothers or sisters, (ii) in connection with
the sale of the Partnership or substantially all of its assets, (iii) as
collateral in connection with good faith borrowing, (iv) gifts of up to 20%
of such Units to charitable organizations or (v) in the event of the death
or permanent disability of James E. Ferrell, provided, however, that in the
case of (i) or (ii) above the transferee shall enter into an agreement with
you agreeing to comply with the above restrictions for the remainder of the
24 month period;
(h) To furnish to the holders of Common Units as soon as practicable
(but in no event later than 120 days) after the end of each fiscal year an
annual report (including a balance sheet and statements of income, security
holders' equity and cash flow of the Partnership and the entities
consolidated therewith certified by independent public accountants) and, as
soon as practicable (but in no event later than 90 days) after the end of
each of the first three quarters of each fiscal year, consolidated summary
financial information of the Partnership for such quarter in reasonable
detail;
(i) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to security holders of the
Partnership, and deliver to you (i) as soon as they are available, copies
of any reports and financial statements furnished to or filed with the
Commission or any national securities exchange on which any class of
securities of the Partnership is listed; and (ii) such additional
information concerning the business and financial condition of the
Partnership as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Partnership and the entities consolidated therewith are consolidated in
reports furnished to its security holders generally or to the Commission);
(j) To use the net proceeds from the sale of the Common Units
pursuant to this Agreement in the manner specified in the Prospectus under
the caption "Use of Proceeds";
(k) To use its best efforts to list, subject to notice of issuance,
the Common Units on the New York Stock Exchange;
(l) To file with the Commission such reports on Form SR as may be
required by Rule 463 under the Act; and
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(m) To use its best efforts to do and perform all things required to
be done and performed under this Agreement by it prior to or after the
First Time of Delivery and to satisfy all conditions precedent on its part
to the delivery of the Common Units.
6. Each of the Partnership and the General Partner covenants and agrees
with the several Underwriters that the Partnership will pay or cause to be paid
the following: (i) the fees, disbursements and expenses of the Partnership's
counsel and accountants in connection with the registration of the Common Units
under the Act and all other expenses in connection with the preparation,
printing and filing of the Registration Statement, any Preliminary Prospectus
and the Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriters and dealers; (ii) the cost of
printing or producing any Agreement among Underwriters, this Agreement, the Blue
Sky Memorandum and any other documents in connection with the offering,
purchase, sale and delivery of the Common Units; (iii) all expenses in
connection with the qualification of the Common Units for offering and sale
under state securities laws as provided in Section 5(b) hereof, including the
reasonable fees and disbursements of counsel for the Underwriters in connection
with such qualification and in connection with the Blue Sky survey; (iv) the
filing fees incident to securing any required review by the National Association
of Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Common
Units; (v) the cost of preparing certificates representing the Units; (vi) the
cost and charges of any transfer agent or registrar; (vii) all fees and
expenses of listing the Common Units on a stock exchange or automated quotation
system; (viii) the fees and disbursements of any "qualified independent
underwriter" as required by Schedule E of the Bylaws of the NASD (including fees
and disbursements of counsel for such qualified independent underwriter); and
(ix) all other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section. It
is understood, however, that, except as provided in this Section, Section 8 and
Section 11 hereof, the Underwriters will pay all of their own costs and
expenses, including the fees of their counsel, transfer taxes on resale of any
of the Units by them, and any advertising expenses connected with any offers
they may make.
7. The obligations of the Underwriters hereunder, as to the Common Units
to be delivered at each Time of Delivery, shall be subject, in their discretion,
to the condition that all representations and warranties and other statements on
the part of the Partnership, the General Partner and Ferrell herein are, at and
as of such Time of Delivery, true and correct, the condition that each of the
Partnership, the General Partner and Ferrell shall have performed all of its
obligations and agreements hereunder theretofore to be performed, and the
following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; no stop order suspending the effectiveness of the Registration
Statement or any part thereof shall have been issued and no proceeding for
that purpose shall have been initiated or threatened by the Commission; all
requests for additional information on the part of the Commission shall
have been complied with to your reasonable satisfaction; and no stop order
suspending the sale of the Securities in any jurisdiction referred to in
Section 5(b) shall have been issued and no proceeding for that purpose
shall have been commenced or shall be pending or threatened;
(b) No action shall have been taken and no statute, rule, regulation
or order shall have been enacted, adopted or issued, by any governmental
agency which would, as of such Time of Delivery, prevent the issuance of
the Common Units; and no injunction, restraining order or order of any
nature by a federal or state court of competent jurisdiction shall have
been issued as of such Time of Delivery which would prevent the issuance of
the Common Units;
(c) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of Delivery,
with respect to the formation of the
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<PAGE>
Partnership, the validity of the Common Units being delivered at such Time
of Delivery, the Registration Statement, the Prospectus, and other related
matters as you may reasonably request, and such counsel shall have received
such papers and information as they may reasonably request to enable them
to pass upon such matters;
(d) Andrews & Kurth LLP, special counsel for the Partnership and the
General Partner, shall have furnished to you their written opinion or
opinions, dated such Time of Delivery, in form and substance satisfactory
to you, to the effect that:
(i) Each of the Partnership and the Operating Partnership
has been duly formed and is validly existing as a limited partnership
under the Delaware Act, with partnership power and authority to own or
lease its properties and conduct its business as described in the
Prospectus;
(ii) The General Partner is the sole general partner of the
Partnership and the Operating Partnership with a general partner
interest in the Partnership of 1.0% and a general partner interest in
the Operating Partnership of 1.0101%; such general partner interests
are duly authorized by the Partnership Agreement and the Operating
Partnership Agreement, respectively, are validly issued and fully
paid, and are owned by the General Partner free and clear of all
liens, encumbrances, charges or claims of record (A) in respect of
which a financing statement under the Uniform Commercial Code of the
State of Delaware naming the General Partner as debtor is on file in
the office of the Secretary of State of the State of Delaware or (B)
otherwise known (based solely upon its participation as special
counsel in matters relating to the Transactions, and without having
conducted an independent investigation) to such counsel, other than
those created by or arising under the Delaware Act;
(iii) Ferrell owns a limited partner interest in the
Partnership represented by ____ Common Units and ___ Subordinated
Units; such limited partner interest is duly authorized by the
Partnership Agreement and was validly issued and is fully paid (to the
extent required) and non-assessable (except as such non-assessability
may be affected by matters described in the Prospectus under the
caption "The Partnership Agreement--Limited Liability") and is owned
by Ferrell clear of all liens, encumbrances, charges or claims of
record (A) in respect of which a financing statement under the Uniform
Commercial Code of the State of Delaware naming Ferrell as debtor is
on file in the office of the Secretary of State of the State of
Delaware or (B) otherwise known (based solely upon its participation
as special counsel in matters relating to the Transactions, and
without having conducted an independent investigation) to such
counsel, otherwise than those created by or arising under the Delaware
Act;
(iv) The Partnership is the sole limited partner of the
Operating Partnership, with a limited partner interest of 98.9899%;
such limited partner interest is duly authorized by the Operating
Partnership Agreement and is validly issued, fully paid and non-
assessable (except as such non-assessability may be affected by
matters described in the Prospectus under the caption "The Partnership
Agreement--Limited Liability"); and the Partnership owns such limited
partner interest in the Operating Partnership free and clear of all
liens, encumbrances, charges or claims of record (A) in respect of
which a financing statement under the Uniform Commercial Code of the
State of Delaware naming the Partnership as debtor is on file in the
office of the Secretary of
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<PAGE>
State of the State of Delaware or (B) otherwise known (based solely
upon its participation as special counsel in matters relating to the
Transactions, and without having conducted an independent
investigation) to such counsel, other than those created by or arising
under the Delaware Act;
(v) The Underwriters have been issued ________ Common Units
(assuming no purchase by the Underwriters of Optional Units); the
Common Units and the limited partner interests represented thereby are
authorized by the Partnership Agreement and, when issued and delivered
against payment therefor as provided in this Agreement, will be
validly issued, fully paid and nonassessable (except as such non-
assessability may be affected by matters described in the Prospectus
under the caption "The Partnership Agreement--Limited Liability");
other than the Units and the Incentive Distribution Rights held by
Ferrell, at each Time of Delivery, the Common Units will be the only
limited partner interests of the Partnership issued;
(vi) Except as described in the Prospectus, there are no
preemptive rights or other rights to subscribe for or to purchase, nor
any restriction upon the voting or transfer of, any limited partner
interests in the Partnership or the Operating Partnership pursuant to
the Partnership Agreements;
(vii) Each of the Partnership Agreements and this Agreement
have been duly authorized, executed and delivered by the General
Partner, the Partnership and the Operating Partnership, as the case
may be, and each of the Partnership Agreements constitutes a valid and
legally binding agreement of the General Partner, the Partnership and
the Operating Partnership, as the case may be, enforceable against the
General Partner, the Partnership and the Operating Partnership, as the
case may be, in accordance with their respective terms, subject to (A)
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles and (B)
limitations imposed by public policy, applicable law relating to
fiduciary duties and the judicial imposition of an implied covenant of
good faith and fair dealing and (c) the enforceability of equitable
rights and remedies provided for in such documents is subject to
equitable defenses and judicial discretion, and the enforceability of
such documents to may be limited by general equitable principles;
(viii) The Common Units, the Subordinated Units and the
Partnership Agreements conform in all material respects to the
descriptions thereof contained in the Prospectus;
(ix) The issuance and sale of the Common Units by the
Partnership and the execution, delivery and performance by the
Partnership, the Operating Partnership, Ferrellgas Finance, Ferrell
and the General Partner, as the case may be, of this Agreement and the
Operative Agreements and the consummation by the Partnership, the
Operating Partnership, Ferrellgas Finance, Ferrell and the General
Partner, as the case may be, of the Transactions will not conflict
with or result in a breach of any of the provisions of the Partnership
Agreement or the Operating Partnership Agreement;
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<PAGE>
(x) None of the Partnership, the Operating Partnership,
Ferrellgas Finance, the General Partner or Ferrell is an "investment
company" within the meaning of the Investment Company Act;
(xi) The Registration Statement has become effective under
the Act; and to the knowledge of such counsel no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been initiated or threatened by the
Commission;
(xii) None of the Partnership, the Operating Partnership,
Ferrellgas Finance, the General Partner or Ferrell is a "holding
company" within the meaning of the Public Utility Holding Company Act
of 1935, as amended; and
(xiii) The Registration Statement and the Prospectus and
any further amendments and supplements thereto made by the Partnership
prior to such Time of Delivery (other than the financial statements
and related schedules therein, as to which such counsel need express
no opinion) comply as to form in all material respect with the
requirements of the Act and the rules and regulations thereunder.
In addition, such counsel shall state that it has participated in the
preparation of the Registration Statement and Prospectus and, although such
counsel is not passing upon, and does not assume responsibility for the
accuracy, completeness or fairness of, any portion of the Registration
Statement and the Prospectus, as amended or supplemented (except to the
extent specified in such counsel's opinion and relying to a large extent as
to factual matters upon certificates of officers and directors of the
General Partner), nothing has come to the attention of such counsel that
cause such counsel to believe that as of its effective date, the
Registration Statement, or any further amendment thereto made by the
Partnership prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel need
express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that, as of its date, the
Prospectus or any further amendment or supplement thereto made by the
Partnership prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel need
express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading or
that, as of such Time of Delivery, the Prospectus or any further amendment
or supplement thereto made by the Partnership prior to such Time of
Delivery (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) contains an
untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
In addition, such counsel shall state that the Underwriters shall be
entitled to rely on their opinion as to certain federal income tax
consequences of the offering of the Common Units contemplated by the
Prospectus (which opinion has been filed as Exhibit 8 to the Registration
Statement), to the same extent as if such opinion were addressed to the
Underwriters and as if it were dated the date of such Time of Delivery.
In rendering such opinion, such counsel may (A) rely in respect of
matters of fact upon certificates of the Partnership and the Operating
Partnership and of officers and employees of the General Partner and
Ferrell and upon information obtained from public officials and upon
opinions of other counsel issued in connection with the Transactions, and
may assume that the
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signatures on all documents examined by such counsel are genuine, (B) state
that their opinion is limited to federal laws, the Delaware Act, the
Delaware General Corporation Law and the laws of the State of Texas, (C)
state that they express no opinion with respect to the title of any of the
General Partner, the Partnership or the Operating Partnership to any real
or personal property transferred by or to them, (D) state that they express
no opinion with respect to state or local taxes or tax statutes to which
any of the limited partners of the Partnership, the General Partner, the
Partnership or the Operating Partnership may be subject and (E) state that
their opinion is furnished as special counsel for the Partnership, the
Operating Partnership and the General Partner to you, as representatives of
the several Underwriters, and is solely for the benefit of the several
Underwriters;
(d) Smith, Gill, Fisher & Butts, P.C., counsel to the General Partner
and Ferrell, shall have furnished to you their written opinion, dated such
Time of Delivery in form and substance satisfactory to you, to the effect
that:
(i) Each of the General Partner and Ferrell has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the state of its incorporation, with power and
authority (corporate and otherwise) to own or lease its properties, to
conduct its businesses and, in the case of the General Partner to act
as general partner of the Partnership and of the Operating
Partnership, in each case as described in the Prospectus;
(ii) Based solely on opinions of local counsel (copies of
which shall have been provided to you pursuant to paragraph (e) of
this Section 7), the General Partner has been duly qualified or
registered as a foreign corporation and is in good standing under the
laws of each of the jurisdictions set forth in Schedule II hereto;
based solely upon certificates of foreign qualifications provided by
the Secretary of State of such jurisdiction (each of which shall be
dated as of a date not more than seven days prior to the Closing Date
and shall be provided to you), the General Partner has been duly
qualified or registered as a foreign corporation and is in good
standing under the laws of each of the jurisdictions set forth on
Schedule III hereto; and to the knowledge of such counsel, such
jurisdictions are the only jurisdictions in which the General Partner
owns or leases property, or conducts any business, so as to require
qualification or registration to conduct business as a foreign
corporation, and in which the failure so to qualify or register would
be likely in the judgment of such counsel to subject the General
Partner to any liability or disability which is material to the
business, prospects, financial position or results of operations of
the General Partner, the Partnership or the Operating Partnership, or
would be likely in the judgment of such counsel to subject the holders
of Common Units to any material liability or disability; all of the
issued shares of capital stock of the General Partner have been duly
authorized and validly issued and are fully paid and nonassessable;
and, to the knowledge of such counsel, all of the issued shares of
capital stock of the General Partner are owned, directly or
indirectly, by Ferrell, free and clear of all liens, encumbrances,
charges or claims of record (A) in respect of which a financing
statement under the Uniform Commercial Code of the State of Delaware
naming the General Partner or Ferrell, as the case may be, as debtor
is on file in the office of the Secretary of State of the State of
Delaware or (B) otherwise known, without investigation, to such
counsel, other than those created by or arising under the Delaware Act
and except for the Lien created by the Existing Pledge Agreement;
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(iii) The Partnership has been duly qualified or registered
as a foreign limited partnership for the transaction of business in
Missouri and, to the knowledge of such counsel, Missouri is the only
jurisdiction in which the Partnership owns or leases property, or
conducts any business, so as to require qualification or registration
to conduct business as a foreign limited partnership, except where the
failure to so qualify or register would not (i) have a material
adverse effect upon the Partnership, the Operating Partnership or the
General Partner or (ii) subject the holders of Common Units to any
material liability or disability;
(iv) Based solely on opinions of local counsel (copies of
which shall have been provided to you pursuant to paragraph (e) of
this Section 7), the Operating Partnership has been duly qualified or
registered as a foreign partnership to transact business in, and is in
good standing under the laws of, each of the jurisdictions set forth
on Schedule IV hereto; based solely upon certificates of foreign
qualification provided by the Secretary of State of such jurisdiction
(each of which shall be dated as of a date not more than seven days
prior to the Closing Date and shall be provided to you), the Operating
Partnership has been duly qualified or registered as a foreign limited
partnership to transact business in, and is in good standing under the
laws of each of the jurisdictions set forth on Schedule VI hereto;
and, to the knowledge of such counsel, such jurisdictions are the only
jurisdictions in which the Operating Partnership owns or leases
property, or conducts any business, so as to require qualification or
registration to conduct business as a foreign limited partnership,
except where the failure to so qualify or register would not (i) have
a material adverse effect upon the Partnership, the Operating
Partnership or the General Partner or (ii) subject the holders of
Common Units to any material liability or disability;
(v) All of the issued and outstanding shares of capital
stock of, or other ownership interests in, each Subsidiary of the
Partnership, the Operating Partnership, Ferrellgas Finance, the
General Partner or Ferrell have been duly and validly authorized and
issued, and all of the shares of capital stock of, or other ownership
interests in, each such Subsidiary are owned, directly or through
other Subsidiaries, by the Partnership, the Operating Partnership,
Ferrellgas Finance, the General Partner or Ferrell, as the case may
be; all such shares of capital stock are fully paid and nonassessable,
and are owned free and clear of any Liens, except as set forth in the
Prospectus and except for the Lien created by the Existing Pledge
Agreement;
(vi) Except as described in the Prospectus, there are no
preemptive rights or other rights to subscribe for or to purchase, nor
any restriction upon the voting or transfer of, any limited partner
interests in the Partnership or the Operating Partnership pursuant to
any agreement or other instrument to which the Partnership or the
Operating Partnership is a party or by which either of them is bound;
(vii) Each of the General Partner and Ferrell has full
power and authority to execute, deliver and perform this Agreement and
the Operative Agreements, as applicable;
(viii) This Agreement has been duly authorized, executed
and delivered by Ferrell;
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(ix) Each of the Closing Agreement, the Indenture and the Credit
Facility have been duly authorized, executed and delivered by the
Partnership, the Operating Partnership, Ferrellgas Finance, Ferrell
and the General Partner, as the case may be, and each of the Closing
Agreement, the Indenture and the Credit Agreement constitutes a valid
and legally binding agreement of the Partnership, the Operating
Partnership, Ferrellgas Finance, Ferrell and the General Partner, as
the case may be, enforceable against the Partnership, the Operating
Partnership, Ferrellgas Finance, Ferrell and the General Partner, as
the case may be, in accordance with their respective terms, subject to
(A) bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles and (B)
limitations imposed by public policy, applicable law relating to
fiduciary duties and the judicial imposition of an implied covenant of
good faith and fair dealing;
(x) The Senior Notes and the Indenture conform in all
material respects to the descriptions thereof contained in the
Prospectus;
(xi) None of the Partnership, the Operating Partnership,
Ferrellgas Finance, the General Partner or Ferrell is in violation of
its partnership agreement or its charter or bylaws, as the case may
be, or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which it is a party or by which it or any of them or
their properties may be bound (other than any default or event of
default arising as a result of the Transactions under the Existing
Indenture) and which is material to the General Partner or the
Partnerships, the Operating Partnership and Ferrellgas Finance, taken
as a whole;
(xii) The issuance and sale of the Common Units by the
Partnership and the execution, delivery and performance by the
Partnership, the Operating Partnership, Ferrellgas Finance, Ferrell
and the General Partner, as the case may be, of this Agreement and the
Operative Agreements and the consummation by the Partnership, the
Operating Partnership, Ferrellgas Finance, Ferrell and the General
Partner, as the case may be, of the Transactions will not conflict
with or result in a breach of any of the terms or provisions of, or
constitute a default or cause an acceleration of any obligation under,
or result in the imposition or creation of (or the obligation to
create or impose) a Lien with respect to, any bond, note, debenture or
other evidence of indebtedness or any indenture, mortgage, deed of
trust, loan agreement, contract, lease or other agreement or
instrument relating to indebtedness for borrowed money known to such
counsel to which the Partnership, the Operating Partnership,
Ferrellgas Finance, the General Partner, Ferrell or any of their
Subsidiaries is a party or by which the Partnership, the Operating
Partnership, Ferrellgas Finance, the General Partner, Ferrell or any
of their Subsidiaries is bound or to which any of the property or
assets of the Partnership, the Operating Partnership, Ferrellgas
Finance, the General Partner, Ferrell or any of their Subsidiaries is
subject (other than a default or event of default arising as a result
of the Transactions under the Existing Indenture), excluding in each
case any conflict, breach, default or acceleration which, individually
or in the aggregate, would not have a material adverse effect upon the
holders of Common Units or on the properties, business, general
affairs, management, prospects, condition (financial or otherwise),
financial position, security holders'
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equity or results of operations of the Partnership and the Operating
Partnership, taken as a whole, Ferrellgas Finance, the General
Partner, Ferrell or any of their Subsidiaries; or violate the
provisions of the charter or bylaws of the General Partner, Ferrell or
any of their Subsidiaries; nor will the issuance and sale of the
Common Units by the Partnership and the execution, delivery and
performance by the Partnership, the Operating Partnership, Ferrellgas
Finance, the General Partner and Ferrell, as the case may be, of the
Operative Agreements, and the execution and delivery by the
Partnership, the Operating Partnership, Ferrellgas Finance, the
General Partner and Ferrell, as the case may be, of this Agreement
violate the Delaware General Corporation Law or any federal law of the
United States or law of the State of Missouri or any rules or
regulations adopted by a governmental agency thereof applicable to the
Partnership, the Operating Partnership, Ferrellgas Finance, the
General Partner, Ferrell or any of their Subsidiaries, excluding in
each case any violation which, individually or in the aggregate, would
not have a material adverse effect upon the holders of Common Units or
on the properties, business, general affairs, management, prospects,
condition (financial or otherwise), financial position, security
holders' equity or results of operations of the Partnership and the
Operating Partnership, taken as a whole, Ferrellgas Finance, the
General Partner, Ferrell or any of their Subsidiaries; provided,
however, that, for the purposes of this paragraph (x), no opinion is
expressed with respect to federal or state securities laws, other
antifraud laws and fraudulent transfer laws; and, provided, further,
that performance by the Partnership, the Operating Partnership,
Ferrellgas Finance, Ferrell and the General Partner of their
respective obligations under the Operative Agreements are subject to
(A) bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles and (B)
limitations imposed by public policy, applicable law relating to
fiduciary duties and the judicial imposition of an implied covenant of
good faith and fair dealing;
(xiii) No consent, approval, authorization, order,
registration or qualification of or with any court or governmental
agency or body of the United States or the State of Missouri having
jurisdiction over the Partnership, the Operating Partnership,
Ferrellgas Finance, the General Partner, Ferrell or any of their
Subsidiaries or any of their properties is required for the issuance
and sale of the Common Units by the Partnership or for the
consummation by the Partnership, the Operating Partnership,
Ferrellgas Finance, Ferrell or the General Partner of the Transactions
or this Agreement, except in each case (A) such consents, approvals,
authorizations, orders, registrations or qualifications (1) as have
been obtained, (2) as may be required under state securities or Blue
Sky laws, (3) as are of a routine or administrative nature and are
either (i) not customarily obtained or made prior to the consummation
of transactions such as the Transactions or (ii) expected in the
judgment of such counsel to be obtained in the ordinary course of
business subsequent to the consummation of the Transactions, (4)
which, if not obtained, would not, individually or in the aggregate,
have a material adverse effect upon the holders of Common Units or
upon the properties, business, general affairs, management, prospects,
condition (financial or otherwise), financial position, security
holders' equity or results of operations of the Partnership and the
Operating Partnership, taken as a whole, Ferrellgas Finance, the
General Partner, Ferrell or any of their Subsidiaries;
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(xiv) The descriptions in the Registration Statement and
the Prospectus of statutes, legal and governmental proceedings and
contracts and other documents are accurate in all material respects
and fairly present the information required to be shown; and such
counsel does not know of any legal or governmental proceedings
required to be described in the Registration Statement or Prospectus
which are not described as required or of any contracts or documents
of a character required to be described in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration Statement
which are not described or filed as required; and
(xv) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Partnership
prior to such Time of Delivery (other than the financial statements
and related schedules therein, as to which such counsel need express
no opinion) comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder.
In addition, such counsel shall state that although such counsel is
not passing upon, and does not assume responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or Prospectus, they have no reason to believe that, as of its
effective date, the Registration Statement, or any further amendment
thereto made by the Partnership prior to such Time of Delivery (other than
the financial statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that,
as of its date, the Prospectus or any further amendment or supplement
thereto made by the Partnership prior to such Time of Delivery (other than
the financial statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading or that, as of such Time of Delivery, either the
Registration Statement or the Prospectus or any further amendment or
supplement thereto made by the Partnership prior to such Time of Delivery
(other than the financial statements and related schedules therein, as to
which such counsel need express no opinion) contains an untrue statement of
a material fact or omits to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and they do not know of any contracts or other
documents of a character required to be filed as an exhibit to the
Registration Statement or required to be described in the Registration
Statement or the Prospectus which are not filed or described as required.
In rendering such opinion, such counsel may (A) rely in respect of
matters of fact upon certificates of officers and employees of the
Partnership, the Operating Partnership, Ferrellgas Finance, the General
Partner and Ferrell and upon information obtained from public officials and
upon opinions of other counsel issued in connection with the Transactions,
and may assume that the signatures on all documents examined by such
counsel are genuine and (B) state that their opinion is limited to federal
laws, the laws of the State of Missouri and the Delaware General
Corporation Law.
(e) Each of Smith, Gill, Fisher & Butts, P.C., with respect to the
State of Missouri, Andrews & Kurth LLP, with respect to the State of Texas,
_______________, with respect to the State of Georgia, _________________
with respect to the State of Kentucky, _____________ with
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respect to the State of Michigan, ______________ with respect to the State
of Ohio, each of which are counsel or special counsel for the Partnership,
the Operating Partnership, the General Partner and Ferrell, shall have
furnished to you their written opinion or opinions, dated such Time of
Delivery in form and substance satisfactory to you, to the effect that:
(i) With respect to the states other than Missouri, the
Partnership need not be qualified or registered as a foreign limited
partnership for the transaction of business under the laws of such
state, or the failure so to qualify or register in such state would
not in the judgment of such counsel subject the Partnership to any
liability or disability which is material to the Partnership and the
Operating Partnership, taken as a whole, and would not in the judgment
of such counsel subject the holders of Common Units to any material
liability or disability;
(ii) Each of the General Partner and the Operating
Partnership has been duly qualified or registered as a foreign
corporation or a foreign limited partnership, respectively, for the
transaction of business under the laws of such state;
(iii) The Operating Partnership has all requisite partnership
power and authority as a limited partnership under the laws of such
state to own or lease the Properties and to conduct its business in
such state; and upon the consummation of the Transactions, assuming
that the Partnership will not be liable under the laws of the State of
Delaware for the liabilities of the Operating Partnership and that the
Unitholders will not be liable under the laws of the State of Delaware
for liabilities of the Partnership or the Operating Partnership, the
Partnership will not be liable under the laws of such state for the
liabilities of the Operating Partnership, and the Unitholders will not
be liable under the laws of such state for the liabilities of the
Partnership or the Operating Partnership, except in each case to the
same extent as under the laws of the State of Delaware or as otherwise
described in the Prospectus;
(iv) The execution, delivery and performance of the Closing
Agreement relating to the transfer of property in such state in
accordance with the terms thereof will not violate any statute of such
state or, to the knowledge of such counsel, based solely upon their
participation as special [state] counsel with respect to matters
relating to the Transactions, any order, rule or regulation of any
agency of such state having jurisdiction over any of the Partnership,
the Operating Partnership, the General Partner or any of their
respective properties, except for (A) any such violations which,
individually or in the aggregate, would not have a material adverse
effect upon the holders of Common Units or upon the General Partner or
the Partnership and the Operating Partnership, taken as a whole, and
(B) as to performance by the parties thereto of the Closing Agreement,
any violations which may arise by reason of the business activities of
the Partnership or the Operating Partnership, the nature of the assets
of either of them or the manner in which such assets were constructed
or are operated; provided, that such counsel need express no opinion
with respect to the securities or Blue Sky laws of such state, other
antifraud laws or fraudulent transfer laws or the extent to which
indemnity and contribution provisions of such documents may be limited
by the laws of such state; and provided, further, that insofar as
performance by the
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parties to the Closing Agreement of their respective obligations
thereunder, such counsel need express no opinion as to bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium and
similar laws of general applicability relating to or affecting
creditors' rights and as to general equitable principles;
(v) The Closing Agreement, assuming the due authorization,
execution and delivery thereof by the parties thereto, to the extent
it is a valid and legally binding agreement under the applicable law
as stated therein and that such law applies thereto, is a valid and
legally binding agreement of the parties thereto under the laws of
such state, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting the rights of contracting parties and to general equity
principles; each of the Closing Agreement and the form of deeds and
assignments is in a form legally sufficient as between the parties
thereto to convey to the transferee thereunder all of the General
Partner's right, title and interest in and to the Properties located
in such state, as described in the Closing Agreement or the form of
deeds and assignments, as the case may be, subject to the conditions,
reservations and limitations contained in the Closing Agreement or the
form of deeds and assignments, as the case may be, except motor
vehicles or other property requiring conveyance of certificated title
as to which the Closing Agreement is legally sufficient to compel
delivery of such certificated title; no opinion is expressed as to
whether the Closing Agreement complies with applicable recording,
filing and registration laws and regulations; and
(vi) No consent, approval, authorization, order,
registration or qualification of or with any governmental agency or
body of such state governing (A) changes in ownership or control of
industrial or other facilities generally, (B) retail propane sales
generally or (C) the issuance of securities by entities owning retail
propane sales facilities, or, to such counsel's knowledge, based
solely upon their participation as special [state] counsel with
respect to matters relating to the Transactions, any other
governmental agency or body of such state, having jurisdiction over
the Partnership, the Operating Partnership, the General Partner or
Ferrell, as the case may be, or any of their respective properties is
required for the issue and sale of the Units by the Partnership or for
the conveyance of the Properties located in such State purported to be
conveyed to the Operating Partnership pursuant to the Closing
Agreement, except such consents, approvals, authorizations, orders,
registrations or qualifications (1) as have been obtained, (2) as may
be required under the Act or state securities or Blue Sky laws, (3) as
are of a routine or administrative nature and either are (i) not
customarily obtained or made prior to the consummation of transactions
such as the Transactions, or (ii) expected in the reasonable judgment
of such counsel to be obtained in the ordinary course of business
subsequent to the consummation of the Transaction, (4) which, if not
obtained, would not, individually or in the aggregate, have a material
adverse effect upon the ability of the Partnership and the Operating
Partnership considered as a whole to conduct their business
substantially in accordance with the past practice of the General
Partner, or (5) that relate to zoning or subdivision mapping, or (6)
as set forth or contemplated in the Prospectus.
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In rendering such opinion, such counsel may (A) rely in respect of
matters of fact upon certificates of the Partnership, the Operating
Partnership and of officers and employees of the General Partner and
Ferrell, and upon information obtained from public officials, and upon
opinions of other counsel issued in connection with the Transactions, and
may assume that the signatures on all documents examined by such counsel
are genuine, (B) state that their opinion is limited to the laws of their
state of practice, excepting therefrom municipal and local ordinances and
regulations, and (C) state that they express no opinion with respect to
state or local taxes or tax statutes, (D) state that they express no
opinion with respect to the title of any of the General Partner, the
Partnership or the Operating Partnership to any real or personal property
purported to be transferred by or to them, that they have not made any
review of specific property or facilities or title files relating to any
such properties, that they express no opinion regarding the accuracy of the
description or references to any real or personal property, that they have
assumed that references in exhibits or schedules to other instruments
already of record are correct and that such instruments contain legally
sufficient property descriptions.
(f) On the effective date of the Registration Statement and the most
recently filed post-effective amendment to the Registration Statement and
also at each Time of Delivery, Deloitte & Touche shall have furnished to
you a letter or letters, dated the respective date of delivery thereof, in
form and substance satisfactory to you, to the effect set forth in Annex I
hereto;
(g) (i) None of the Partnership, the Operating Partnership, the
General Partner, any Subsidiary or Ferrell shall have sustained (A) since
the date of the latest audited financial statements included in the
Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus, or (B) any liability
or obligation, direct or contingent, that is required to be disclosed on a
balance sheet in accordance with generally accepted accounting principles
and is not disclosed on the latest balance sheet included in the
Registration Statement and the Prospectus, and (ii) since the respective
dates as of which information is given in the Prospectus there shall not
have been any change in the capitalization or long-term debt, or increase
in short-term debt, of the Partnership, the Operating Partnership, the
General Partner, any Subsidiary or Ferrell or any change, or any
development involving a prospective change, in or affecting the property,
business, general affairs, management, condition (financial or otherwise),
financial position, security holders' equity or results of operations of
the Partnership, the Operating Partnership, the General Partner, any
Subsidiary or Ferrell, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in clause (i)
or (ii), is in your judgment so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Common Units being delivered at such Time of Delivery on
the terms and in the manner contemplated in the Prospectus;
(h) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded the General Partner's debt securities by
any "nationally recognized statistical rating organization," as that term
is defined by the Commission for purposes of Rule 436(g)-(2) under the Act
and (ii) no such organization shall have publicly announced that it has
under surveillance or review, with possible negative implications, its
rating of any of the General Partner's debt securities;
(i) On or after the date hereof there shall not have occurred any of
the following: (i) any suspension or material limitation of trading
generally in securities on the New York Stock Exchange or in the over-the-
counter markets or any setting of minimum prices for trading on such
exchange or markets; (ii) any suspension or material limitation in trading
of the securities
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of the Partnership, the Operating Partnership, the General Partner or any
of the Subsidiaries on the New York Stock Exchange or in the over-the-
counter markets; (iii) a general moratorium on commercial banking
activities in New York declared by either Federal or New York State
authorities; (iv) the outbreak or escalation of hostilities involving the
United States or the declaration by the United States of a national
emergency or war; or (v) any other national or international calamity or
crisis or material adverse change in the financial markets of the United
States or elsewhere, or any other substantial national or international
calamity or emergency if the effect of any such event specified in clause
(iv) or clause (v) in your judgment makes it impracticable or inadvisable
to proceed with the public offering or the delivery of the Common Units
being delivered at such Time of Delivery on the terms and in the manner
contemplated by the Prospectus;
(j) The Common Units to be sold by the Partnership at such Time of
Delivery shall have been duly listed, subject to notice of issuance, on the
New York Stock Exchange; and
(k) The closing under the Senior Note Underwriting Agreement shall
have occurred and Standard & Poor's and Moody's Investor Services, Inc.
shall have provided written confirmation that the rating of the Senior
Notes shall be no less than [ ], respectively;
(l) The General Partner shall have accepted for purchase all of the
Senior Subordinated Debentures validly tendered and not withdrawn pursuant
to the Offer to Purchase;
(m) The Existing Senior Notes shall have been called for redemption
and an amount of funds reasonably expected to be sufficient to redeem such
notes shall have been deposited with the trustee therefor;
(n) The Credit Facility shall have become effective;
(o) All indebtedness and other obligations outstanding pursuant to
the Amended and Restated Loan Agreement, dated as of May 10, 1993, among
Ferrellgas, Inc., Stratton Insurance Company, Inc., Ferrell Companies,
Inc., One Liberty Oil Company, Ferrellgas International (F.L.)
Establishment, Vaduz and Wells Fargo Bank, National Association, as agent,
and the other lenders party thereto shall have been repaid in full; and
(p) There shall have been furnished to you at such Time of Delivery
certificates reasonably satisfactory to you, signed on behalf of the
General Partner and Ferrell by a President or Vice President thereof and on
behalf of the Partnership by the General Partner by an authorized officer
thereof to the effect that:
(i) In the case of the Partnership (A) the representations
and warranties of the Partnership contained in this Agreement are true
and correct at and as of such Time of Delivery as though made at and
as of such Time of Delivery; (B) the Partnership has duly performed
all obligations required to be performed by it pursuant to the terms
of this Agreement at or prior to such Time of Delivery; (C) no stop
order suspending the effectiveness of the Registration Statement has
been issued and no proceeding for that purpose has been initiated or,
to the knowledge of the Partnership, threatened by the Commission, and
all requests for additional information on the part of the Commission
have been complied with or otherwise satisfied; (D) the Common Units
have been duly listed, subject to official notice of issuance, on the
New York Stock Exchange; and (E) no event contemplated by subsection
(g) of this Section 7 in respect of the Partnership or the Operating
Partnership shall have occurred;
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(ii) In the case of the General Partner (A) the
representations and warranties of the General Partner contained in
this Agreement are true and correct at and as of such Time of Delivery
as though made at and as of such Time of Delivery; (B) the General
Partner has duly performed all obligations required to be performed by
it pursuant to the terms of this Agreement at or prior to such Time of
Delivery; and (C) no event contemplated by subsection (g) of this
Section 7 in respect of the General Partner shall have occurred; and
(iii) In the case of Ferrell (A) the representations and
warranties of Ferrell contained in this Agreement are true and
correct at and as of such Time of Delivery as though made at and as of
such Time of Delivery; (B) Ferrell has duly performed all obligations
required to be performed by it pursuant to the terms of this Agreement
at or prior to such Time of Delivery; and (C) no event contemplated by
subsection (g) of this Section 7 in respect of Ferrell shall have
occurred.
8. (a) The Partnership, the General Partner and Ferrell, jointly and
severally, will indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any reasonable legal or other expenses
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that none
of the Partnership, the General Partner or Ferrell shall be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information relating to any Underwriter furnished to the
Partnership by any Underwriter through you expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Partnership, the
General Partner and Ferrell against any losses, claims, damages or liabilities
to which the Partnership, the General Partner and Ferrell may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
relating to any Underwriter furnished to the Partnership by such Underwriter
through you expressly for use therein; and will reimburse the Partnership, the
General Partner or Ferrell as the case may be, for any reasonable legal or
other expenses incurred by the Partnership, the General Partner or Ferrell as
the case may be, in connection with investigating or defending any such action
or claim as such expenses are incurred.
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(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. In no event shall an indemnifying party be liable for
the fees and expenses of more than one counsel (in addition to any local
counsel), apart from counsel to such indemnifying party, for all indemnified
parties in connection with any one action or separate but similar or related
actions arising out of the same general allegations or circumstances. No
indemnifying party shall be liable for any settlement of any such action
effected without its consent, provided that such consent is not unreasonably
withheld or delayed.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Partnership, the General Partner and Ferrell on the one hand and the
Underwriters on the other from the offering of the Common Units. If, however,
the allocation provided by the immediately preceding sentence is not permitted
by applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Partnership, the General Partner and Ferrell on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Partnership, the General Partner and Ferrell
on the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Partnership bear to the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Partnership, the
General Partner and Ferrell on the one hand or the Underwriters on the other and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Partnership, the General
Partner and Ferrell and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this subsection (d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price
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at which the Common Units underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Partnership, the General Partner and Ferrell
under this Section 8 shall be in addition to any liability which the
Partnership, the General Partner and Ferrell may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who controls
any Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Partnership, the
General Partner and Ferrell and to each person, if any, who controls the
Partnership, the General Partner or Ferrell within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Common Units which it has agreed to purchase hereunder at a Time of Delivery,
you may in your discretion arrange for you or another party or other parties to
purchase such Common Units on the terms contained herein. If within thirty-six
hours after such default by any Underwriter you do not arrange for the purchase
of such Common Units, then the Partnership shall be entitled to a further period
of thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Common Units on such terms. In the event
that, within the respective prescribed periods, you notify the Partnership that
you have so arranged for the purchase of such Common Units, or the Partnership
notifies you that it has so arranged for the purchase of such Common Units, you
or the Partnership shall have the right to postpone such Time of Delivery for a
period of not more than seven days, in order to effect whatever changes may
thereby be made necessary in the Registration Statement or the Prospectus, or
in any other documents or arrangements, and the Partnership agrees to file
promptly any amendments to the Registration Statement or the Prospectus which in
your opinion may thereby be made necessary. The term "Underwriter" as used in
this Agreement shall include any person substituted under this Section with like
effect as if such person had originally been a party to this Agreement with
respect to such Common Units.
(b) If, after giving effect to any arrangements for the purchase of the
Common Units of a defaulting Underwriter or Underwriters by you and the
Partnership as provided in subsection (a) above, the aggregate number of such
Common Units which remains unpurchased does not exceed one-eleventh of the
aggregate number of all the Common Units to be purchased at such Time of
Delivery, then the Partnership shall have the right to require each non-
defaulting Underwriter to purchase the number of Common Units which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro rata
share (based on the number of Common Units which such Underwriter agreed to
purchase hereunder) of the Common Units of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Common Units of a defaulting Underwriter or Underwriters by you and the
Partnership as provided in subsection (a) above, the aggregate number of such
Common Units which remains unpurchased exceeds one-eleventh of the aggregate
number of all the Common Units to be purchased at such Time of Delivery, or if
the Partnership shall not exercise the right described in subsection (b) above
to require non-defaulting Underwriters to purchase Common Units of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the Second
Time of Delivery, the obligations of the Underwriters to purchase and of the
Partnership to sell the Optional Units) shall thereupon terminate, without
liability
-30-
<PAGE>
on the part of any nondefaulting Underwriter or the Partnership, the General
Partner or Ferrell except for the expenses to be borne by the Partnership, the
General Partner and Ferrell and the Underwriters as provided in Section 6 hereof
and the indemnity and contribution agreements in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Partnership, the General Partner and Ferrell and the
several Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall remain in full force and
effect, regardless of any investigation (or any statement as to the results
thereof) made by or on behalf of any Underwriter or any controlling person of
any Underwriter, or the Partnership, the General Partner and Ferrell or any
officer or director or controlling person of the Partnership, the General
Partner or Ferrell and shall survive delivery of and payment for the Units.
Anything herein to the contrary notwithstanding, the indemnity agreement of
each of the General Partner and Ferrell in subsection (a) of Section 8 hereof,
the representations and warranties in subsections (b) and (c) of Section 1
hereof and any representation or warranty as to the accuracy of the
Registration Statement or the Prospectus contained in any certificate furnished
by the General Partner or Ferrell pursuant to Section 7 hereof, insofar as they
may constitute a basis for indemnification for liabilities (other than payment
by the General Partner or Ferrell of expenses incurred or paid in the successful
defense of any action, suit or proceeding) arising under the Act, shall not
extend to the extent of any interest therein of a controlling Person or Partner
of an Underwriter who is a director, officer or controlling person of the
General Partner or Ferrell when the Registration Statement has become effective,
except in each case to the extent that an interest of such character shall have
been determined by a court of appropriate jurisdiction as not against public
policy as expressed in the Act. Unless in the opinion of counsel for the General
Partner or Ferrell the matter has been settled by controlling precedent, the
General Partner or Ferrell will, if a claim for such indemnification is
asserted, submit to a court of appropriate jurisdiction the question whether
such interest is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
none of the Partnership, the General Partner or Ferrell shall then be under any
liability to any Underwriter except as provided in Section 6 and Section 8
hereof; but, if for any other reason, any Common Units are not delivered by or
on behalf of the Partnership as provided herein, the Partnership, the General
Partner and Ferrell will reimburse the Underwriters through you for all
reasonable out-of-pocket expenses approved in writing by you, including fees and
disbursements of counsel, incurred by the Underwriters in making preparations
for the purchase, sale and delivery of the Common Units not so delivered, but
the Partnership, the General Partner and Ferrell shall then be under no further
liability to any Underwriter except as provided in Section 6 and Section 8
hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., at 85 Broad Street, New York, N.Y. 10004, Attention: Registration
Department; and if to any of the Partnership, the General Partner and Ferrell
shall be sufficient in all respects if delivered or sent by mail to the address
of the Partnership set forth in the Registration Statement, Attention:
Secretary; provided, however, that any notice to an Underwriter pursuant to
Section 8(c) hereof shall be delivered or sent by mail, telex or facsimile
transmission to such Underwriter at its address set forth in its Underwriters'
Questionnaire, or telex
-31-
<PAGE>
constituting such Questionnaire, which address will be supplied to the
Partnership and the General Partner by you upon request. Any such statements,
requests, notices or agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, and the Partnership, the General Partner and Ferrell and,
to the extent provided in Sections 8 and 10 hereof, the officers and directors
of the Partnership, the General Partner and Ferrell and each person who controls
the Partnership, the General Partner or Ferrell or any Underwriter, and their
respective heirs, executors, administrators, successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Units from any Underwriter shall be deemed
a successor or assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
-32-
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us [ten] counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Underwriters and the
Partnership. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters, the form of which shall be submitted to the
Partnership for examination upon request, but without warranty on your part as
to the authority of the signers thereof.
Very truly yours,
FERRELLGAS PARTNERS, L.P.
By: Ferrellgas, Inc.,
its General Partner
By:
Name:
Title:
FERRELLGAS, INC.
By:
Name:
Title:
FERRELL COMPANIES, INC.
By:
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Donaldson, Lufkin & Jenrette Securities
Corporation
A.G. Edwards & Sons, Inc.
PaineWebber Incorporated
Smith Barney Shearson Inc.
By:
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
-33-
<PAGE>
SCHEDULE I
NUMBER OF
OPTIONAL
UNITS TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM UNITS MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
----------- --------------- ---------
Goldman, Sachs & Co. .....................
Donaldson, Lufkin & Jenrette Securities
Corporation
A.G. Edwards & Sons, Inc. ................
Painewebber Incorporated..................
Smith Barney Inc. ........................
Total =============== =========
<PAGE>
ANNEX I
Pursuant to Section 7(f) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Partnership, the Operating Partnership and the General Partner within
the meaning of the Act and the applicable published rules and regulations
thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, prospective
financial statements or pro forma financial information) examined by them
and included in the Prospectus or the Registration Statement comply as to
form in all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations thereunder; and,
if applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited consolidated interim financial statements, selected financial
data, pro forma financial information, prospective financial statements
and/or condensed financial statements derived from audited financial
statements of the Partnership and the General Partner for the periods
specified in such letter, as indicated in their reports thereon, copies of
which have been furnished to the representatives of the Underwriters (the
"Representatives");
(iii) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
General Partner for the five most recent fiscal years included in the
Prospectus agrees with the corresponding amounts (after restatements where
applicable) in the audited and unaudited consolidated financial statements
of the General Partner for such five fiscal years;
(iv) On the basis of limited procedures, not constituting an audit in
accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Partnership and the General Partner, inspection of the
minute books of the Partnership and the General Partner since the date of
the latest audited financial statements included in the Prospectus,
inquiries of officials of the Partnership and the General Partner
responsible for financial and accounting matters and such other inquiries
and procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations thereunder, or are not in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with the basis for the audited consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus;
<PAGE>
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding items
in the unaudited consolidated financial statements from which such data and
items were derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis for the
corresponding amounts in the audited consolidated financial statements
included in the Prospectus;
(C) the unaudited financial statements which were not included
in the Prospectus but from which were derived any unaudited condensed
financial statements referred to in Clause (A) and any unaudited income
statement data and balance sheet items included in the Prospectus and
referred to in Clause (B) were not determined on a basis substantially
consistent with the basis for the audited consolidated financial statements
included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (or owners' equity in the case of partnerships) or any
increase in the consolidated long-term debt of the Partnership and the
General Partner, or any decreases in consolidated net current assets or net
assets or other items specified by the Representatives, or any increases in
any items specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described in
such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred to in
Clause (E) there were any decreases in consolidated net revenues or
operating profit or the total or per share amounts of consolidated net
income or other items specified by the Representatives, or any increases in
any items specified by the Representatives, in each case as compared with
the comparable period of the preceding year and with any other period of
corresponding length specified by the Representatives, except in each case
for decreases or increases which the Prospectus discloses have occurred or
may occur or which are described in such letter; and
(v) In addition to the audit referred to in their reports included in
the Prospectus and the limited procedures, inspection of minute books,
inquiries and other procedures referred to in paragraphs (iii) and (iv)
above, they have carried out certain specified procedures, not constituting
an audit in accordance with generally accepted auditing standards, with
respect to certain amounts, percentages and financial information specified
by the Representatives, which are derived from the general accounting
records of the Partnership and the General Partner, which appear in the
Prospectus, or in Part II of, or in exhibits and schedules to, the
Registration Statement specified by the Representatives, and have compared
certain of such amounts, percentages and financial information with the
accounting records of the Partnership and the General Partner and have
found them to be in agreement.
<PAGE>
Exhibit 3.2
DRAFT OF JUNE 8, 1994
AGREEMENT
OF
LIMITED PARTNERSHIP
OF
FERRELLGAS, L.P.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
ARTICLE I - ORGANIZATIONAL MATTERS............................. 1
1.1 Formation........................................... 1
1.2 Name................................................ 1
1.3 Registered Office; Principal Office................. 1
1.4 Power of Attorney................................... 2
1.5 Term................................................ 3
1.6 Possible Restrictions on Transfer................... 3
ARTICLE II - DEFINITIONS........................................ 4
"Additional Limited Partner".............................. 4
"Adjusted Capital Account"................................ 4
"Adjusted Property"....................................... 4
"Affiliate"............................................... 5
"Agreed Allocation"....................................... 5
"Agreed Value"............................................ 5
"Agreement"............................................... 5
"Audit Committee"......................................... 5
"Available Cash".......................................... 5
"Book-Tax Disparity"...................................... 7
"Business Day"............................................ 7
"Capital Account"......................................... 7
"Capital Contribution".................................... 7
"Capital Interests"....................................... 7
"Carrying Value".......................................... 7
"Certificate of Limited Partnership"...................... 8
"Closing Date"............................................ 8
"Code".................................................... 8
"Common Unit"............................................. 8
"Contributed Property".................................... 8
"Contribution Agreement".................................. 8
"Curative Allocation"..................................... 8
"Delaware Act"............................................ 8
"Departing Partner"....................................... 8
"Economic Risk of Loss"................................... 8
"Event of Withdrawal"..................................... 8
"Exchange Act"............................................ 9
"Ferrell"................................................. 9
"Ferrellgas".............................................. 9
"General Partner"......................................... 9
"IDR"..................................................... 9
"Indemnitee".............................................. 9
"Initial Limited Partner"................................. 9
"Limited Partner"......................................... 9
"Liquidation Date"........................................ 9
"Liquidator".............................................. 9
"Merger Agreement"........................................ 9
"MLP"..................................................... 10
"MLP Agreement"........................................... 10
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
"MLP Offering"........................................... 10
"MLP Registration Statement"............................. 10
"MLP Subsidiary"......................................... 10
"MLP Underwriting Agreement"............................. 10
"National Securities Exchange"........................... 10
"Net Agreed Value"....................................... 10
"Net Income"............................................. 10
"Net Loss"............................................... 11
"Net Termination Gain"................................... 11
"Net Termination Loss"................................... 11
"Nonrecourse Built-in Gain".............................. 12
"Nonrecourse Deductions"................................. 12
"Nonrecourse Liability".................................. 12
"OLP Offering"........................................... 12
"OLP Registration Statement"............................. 12
"OLP Subsidiary"......................................... 12
"OLP Underwriting Agreement"............................. 12
"Opinion of Counsel"..................................... 12
"Partners"............................................... 12
"Partner Nonrecourse Debt"............................... 12
"Partner Nonrecourse Debt Minimum Gain".................. 12
"Partner Nonrecourse Deductions"......................... 13
"Partnership"............................................ 13
"Partnership Interest"................................... 13
"Partnership Minimum Gain"............................... 13
"Percentage Interest".................................... 13
"Person"................................................. 13
"Quarter"................................................ 13
"Recapture Income"....................................... 13
"Registration Statements"................................ 13
"Required Allocations"................................... 13
"Residual Gain".......................................... 14
"Residual Loss".......................................... 14
"Restricted Activities".................................. 14
"Securities Act"......................................... 14
"Senior Notes"........................................... 14
"Special Approval"....................................... 14
"Subsidiary"............................................. 14
"Substituted Limited Partner"............................ 14
"Surviving Business Entity".............................. 14
"Termination Capital Transactions"....................... 15
"Underwriting Agreements"................................ 15
"Unit"................................................... 15
"Unrealized Gain"........................................ 15
"Unrealized Loss"........................................ 15
"Withdrawal Opinion of Counsel".......................... 15
ARTICLE III - PURPOSE.......................................... 15
3.1 Purpose and Business.............................. 15
3.2 Powers............................................ 16
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE IV - CAPITAL CONTRIBUTIONS.............................. 16
4.1 Initial Contributions............................... 16
4.2 Contributions by Ferrellgas and the MLP............. 16
4.3 Additional Capital Contributions.................... 17
4.4 No Preemptive Rights................................ 17
4.5 Capital Accounts.................................... 17
4.6 Interest............................................ 20
4.7 No Withdrawal....................................... 20
4.8 Loans from Partners................................. 20
ARTICLE V - ALLOCATIONS AND DISTRIBUTIONS...................... 21
5.1 Allocations for Capital Account Purposes............ 21
(a) Net Income...................................... 21
(b) Net Losses...................................... 21
(c) Net Termination Gains and Losses................ 22
(d) Special Allocations............................. 23
(i) Partnership Minimum Gain Chargeback...... 23
(ii) Chargeback of Partner Nonrecourse Debt
Minimum Gain............................. 23
(iii) Qualified Income Offset.................. 23
(iv) Gross Income Allocations................. 24
(v) Nonrecourse Deductions................... 24
(vi) Partner Nonrecourse Deductions........... 24
(vii) Nonrecourse Liabilities.................. 24
(viii) Code Section 754 Adjustments............. 25
(ix) Curative Allocation...................... 25
5.2 Allocations for Tax Purposes........................ 26
5.3 Requirement of Distributions........................ 28
ARTICLE VI - MANAGEMENT AND OPERATION OF BUSINESS............... 28
6.1 Management.......................................... 28
6.2 Certificate of Limited Partnership.................. 30
6.3 Restrictions on General Partner's Authority......... 31
6.4 Reimbursement of the General Partner................ 31
6.5 Outside Activities.................................. 32
6.6 Loans to and from the General Partner; Contracts
with Affiliates..................................... 33
6.7 Indemnification..................................... 35
6.8 Liability of Indemnitees............................ 37
6.9 Resolution of Conflicts of Interest................. 37
6.10 Other Matters Concerning the General Partner........ 39
6.11 Title to Partnership Assets......................... 40
6.12 Reliance by Third Parties........................... 40
ARTICLE VII - RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNER..... 41
7.1 Limitation of Liability............................. 41
7.2 Management of Business.............................. 41
7.3 Return of Capital................................... 41
7.4 Rights of the Limited Partner Relating
to the Partnership.................................. 42
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VIII - BOOKS, RECORDS, ACCOUNTING AND REPORTS........ 43
8.1 Records and Accounting......................... 43
8.2 Fiscal Year.................................... 43
ARTICLE IX - TAX MATTERS................................... 43
9.1 Preparation of Tax Returns..................... 43
9.2 Tax Elections.................................. 43
9.3 Tax Controversies.............................. 44
9.4 Organizational Expenses........................ 44
9.5 Withholding.................................... 44
9.6 Opinions of Counsel............................ 44
ARTICLE X - TRANSFER OF INTERESTS......................... 44
10.1 Transfer....................................... 44
10.2 Transfer of the General Partner's Partnership
Interest....................................... 45
10.3 Transfer of the Limited Partner's Partnership
Interest....................................... 45
ARTICLE XI - ADMISSION OF PARTNERS......................... 45
11.1 Admission of Initial Partners.................. 45
11.2 Admission of Ferrellgas as a Limited Partner... 45
11.3 Admission of Substituted Limited Partners...... 46
11.4 Admission of Successor General Partner......... 46
11.5 Amendment of Agreement and Certificate of
Limited Partnership............................ 46
11.6 Admission of Additional Limited Partners....... 46
ARTICLE XII - WITHDRAWAL OR REMOVAL OF PARTNERS............. 47
12.1 Withdrawal of the General Partner.............. 47
12.2 Removal of the General Partner................. 49
12.3 Interest of Departing Partner and
Successor General Partner...................... 49
12.4 Reimbursement of Departing Partner............. 49
12.5 Withdrawal of the Limited Partner.............. 49
ARTICLE XIII - DISSOLUTION AND LIQUIDATION................... 50
13.1 Dissolution.................................... 50
13.2 Continuation of the Business of the Partnership
after Dissolution.............................. 50
13.3 Liquidation.................................... 51
13.4 Distributions in Kind.......................... 52
13.5 Cancellation of Certificate of Limited
Partnership.................................... 53
13.6 Reasonable Time for Winding Up................. 53
13.7 Return of Capital.............................. 53
13.8 Capital Account Restoration.................... 53
13.9 Waiver of Partition............................ 54
ARTICLE XIV - AMENDMENT OF PARTNERSHIP AGREEMENT............ 54
14.1 Amendment to be Adopted Solely by General
Partner........................................ 54
14.2 Amendment Procedures........................... 55
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE XV - MERGER...................................... 56
15.1 Authority.................................... 56
15.2 Procedure for Merger or Consolidation........ 56
15.3 Approval by Limited Partner of
Merger or Consolidation...................... 57
15.4 Certificate of Merger........................ 57
15.5 Effect of Merger............................. 57
ARTICLE XVI - GENERAL PROVISIONS.......................... 58
16.1 Addresses and Notices........................ 58
16.2 References................................... 58
16.3 Pronouns and Plurals......................... 58
16.4 Further Action............................... 58
16.5 Binding Effect............................... 58
16.6 Integration.................................. 59
16.7 Creditors.................................... 59
16.8 Waiver....................................... 59
16.9 Counterparts................................. 59
16.10 Applicable Law............................... 59
16.11 Invalidity of Provisions..................... 59
</TABLE>
v
<PAGE>
AGREEMENT OF LIMITED PARTNERSHIP OF
FERRELLGAS, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF FERRELLGAS, L.P., dated as of
_________________________, 1994, is entered into by and among Ferrellgas, Inc.,
a Delaware corporation, as the General Partner, and Ferrellgas Partners, L.P., a
Delaware limited partnership, as the Initial Limited Partner, together with any
other Persons who become Partners in the Partnership as provided herein. In
consideration of the covenants, conditions and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE I
ORGANIZATIONAL MATTERS
1.1 FORMATION. (a) The General Partner and the Initial Limited Partner
have previously formed the Partnership as a limited partnership pursuant to the
provisions of the Delaware Act. Except as expressly provided to the contrary in
this Agreement, the rights and obligations of the Partners and the
administration, dissolution and termination of the Partnership shall be governed
by the Delaware Act. All Partnership Interests shall constitute personal
property of the owner thereof for all purposes.
1.2 NAME. The name of the Partnership shall be, and the business of the
Partnership shall be conducted under the name of, "Ferrellgas, L.P." The
Partnership's business may be conducted under any other name or names deemed
necessary or appropriate by the General Partner, including, without limitation,
the name of the General Partner or any Affiliate thereof. The words "Limited
Partnership," "L.P.," "Ltd." or similar words or letters shall be included in
the Partnership's name where necessary for the purposes of complying with the
laws of any jurisdiction that so requires. The General Partner in its sole
discretion may change the name of the Partnership at any time and from time to
time and shall notify the Limited Partner of such change in the next regular
communication to the Limited Partner.
1.3 REGISTERED OFFICE; PRINCIPAL OFFICE. Unless and until changed by the
General Partner, the registered office of the Partnership in the State of
Delaware shall be located at The Corporation Trust Center, 1209 Orange Street,
New Castle County, Wilmington, Delaware 19801, and the registered agent for
service of process on the Partnership in the State of Delaware at such
registered office shall be The Corporation Trust Company. The principal office
of the Partnership and the address of the General
1
<PAGE>
Partner shall be One Liberty Plaza, Liberty, Missouri 64068, or such other place
as the General Partner may from time to time designate by notice to the Limited
Partner. The Partnership may maintain offices at such other place or places
within or outside the State of Delaware as the General Partner deems necessary
or appropriate.
1.4 POWER OF ATTORNEY. (a) The Limited Partner hereby constitutes and
appoints each of the General Partner and, if a Liquidator shall have been
selected pursuant to Section 13.3, the Liquidator severally (and any successor
to either thereof by merger, transfer, assignment, election or otherwise) and
each of their authorized officers and attorneys-in-fact, with full power of
substitution, as its true and lawful agent and attorney-in-fact, with full power
and authority in its name, place and stead, to:
(i) execute, swear to, acknowledge, deliver, file and record in the
appropriate public offices (A) all certificates, documents and other instruments
(including, without limitation, this Agreement and the Certificate of Limited
Partnership and all amendments or restatements thereof) that the General Partner
or the Liquidator deems necessary or appropriate to form, qualify or continue
the existence or qualification of the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware and in all other jurisdictions in which the Partnership may conduct
business or own property; (B) all certificates, documents and other instruments
that the General Partner or the Liquidator deems necessary or appropriate to
reflect, in accordance with its terms, any amendment, change, modification or
restatement of this Agreement; (C) all certificates, documents and other
instruments (including, without limitation, conveyances and a certificate of
cancellation) that the General Partner or the Liquidator deems necessary or
appropriate to reflect the dissolution and liquidation of the Partnership
pursuant to the terms of this Agreement; (D) all certificates, documents and
other instruments relating to the admission, withdrawal, removal or substitution
of any Partner pursuant to, or other events described in, Article X, XI, XII or
XIII or the Capital Contribution of any Partner; (E) all certificates, documents
and other instruments relating to the determination of the rights, preferences
and privileges of any class or series of Partnership Interests; and (F) all
certificates, documents and other instruments (including, without limitation,
agreements and a certificate of merger) relating to a merger or consolidation of
the Partnership pursuant to Article XV; and
(ii) execute, swear to, acknowledge, deliver, file and record all ballots,
consents, approvals, waivers, certificates, documents and other instruments
necessary or appropriate, in the sole discretion of the General Partner or the
Liquidator,
2
<PAGE>
to make, evidence, give, confirm or ratify any vote, consent, approval,
agreement or other action that is made or given by the Partners hereunder or is
consistent with the terms of this Agreement or is necessary or appropriate, in
the sole discretion of the General Partner or the Liquidator, to effectuate the
terms or intent of this Agreement; provided, that when the consent or approval
of the Limited Partner is required by any provision of this Agreement, the
General Partner or the Liquidator may exercise the power of attorney made in
this Section 1.4(a)(ii) only after the necessary consent or approval of the
Limited Partner is obtained.
Nothing contained in this Section 1.4(a) shall be construed as authorizing the
General Partner to amend this Agreement except in accordance with Article XIV or
as may be otherwise expressly provided for in this Agreement.
(b) The foregoing power of attorney is hereby declared to be irrevocable and
a power coupled with an interest, and it shall survive and not be affected by
the subsequent death, incompetency, disability, incapacity, dissolution,
bankruptcy or termination of the Limited Partner and the transfer of all or any
portion of the Limited Partner's Partnership Interest and shall extend to the
Limited Partner's heirs, successors, assigns and personal representatives. The
Limited Partner hereby agrees to be bound by any representation made by the
General Partner or the Liquidator acting in good faith pursuant to such power of
attorney; and the Limited Partner hereby waives any and all defenses that may be
available to contest, negate or disaffirm the action of the General Partner or
the Liquidator taken in good faith under such power of attorney. The Limited
Partner shall execute and deliver to the General Partner or the Liquidator,
within 15 days after receipt of the General Partner's or the Liquidator's
request therefor, such further designation, powers of attorney and other
instruments as the General Partner or the Liquidator deems necessary to
effectuate this Agreement and the purposes of the Partnership.
1.5 TERM. The Partnership commenced upon the filing of the Certificate of
Limited Partnership in accordance with the Delaware Act and shall continue in
existence until the close of Partnership business on July 31, 2084, or until the
earlier termination of the Partnership in accordance with the provisions of
Article XIII.
1.6 POSSIBLE RESTRICTIONS ON TRANSFER. Notwithstanding anything to the
contrary contained in this Agreement, in the event of (a) the enactment (or
imminent enactment) of any legislation, (b) the publication of any temporary or
final regulation by the Treasury Department, (c) any ruling by the Internal
Revenue Service or (d) any judicial decision, that, in any such case, in the
Opinion of Counsel, would result in the taxation of the Partnership as an
association taxable as a corporation or would otherwise result in the
Partnership being taxed as an entity for federal
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income tax purposes, then, the General Partner may impose such restrictions on
the transfer of Partnership Interests as may be required, in the Opinion of
Counsel, to prevent the Partnership from being taxed as an association taxable
as a corporation or otherwise as an entity for federal income tax purposes,
including, without limitation, making any amendments to this Agreement as the
General Partner in its sole discretion may determine to be necessary or
appropriate to impose such restrictions.
ARTICLE II
DEFINITIONS
The following definitions shall be for all purposes, unless otherwise clearly
indicated to the contrary, applied to the terms used in this Agreement.
"ADDITIONAL LIMITED PARTNER" means a Person admitted to the Partnership as a
Limited Partner pursuant to Section 11.6 and who is shown as such on the books
and records of the Partnership.
"ADJUSTED CAPITAL ACCOUNT" means the Capital Account maintained for each
Partner as of the end of each fiscal year of the Partnership, (a) increased by
any amounts that such Partner is obligated to restore under the standards set by
Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to
restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)), and
(b) decreased by (i) the amount of all losses and deductions that, as of the end
of such fiscal year, are reasonably expected to be allocated to such Partner in
subsequent years under Sections 704(e)(2) and 706(d) of the Code and Treasury
Regulation Section 1.751-1(b)(2)(ii), and (ii) the amount of all distributions
that, as of the end of such fiscal year, are reasonably expected to be made to
such Partner in subsequent years in accordance with the terms of this Agreement
or otherwise to the extent they exceed offsetting increases to such Partner's
Capital Account that are reasonably expected to occur during (or prior to) the
year in which such distributions are reasonably expected to be made (other than
increases as a result of a minimum gain chargeback pursuant to Section 5.1(d)(i)
or 5.1(d)(ii)). The foregoing definition of Adjusted Capital Account is
intended to comply with the provisions of Treasury Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"ADJUSTED PROPERTY" means any property the Carrying Value of which has been
adjusted pursuant to Section 4.5(d)(i) or 4.5(d)(ii). Once an Adjusted Property
is deemed distributed by, and recontributed to, the Partnership for federal
income tax purposes upon a termination thereof pursuant to Section 708
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of the Code, such property shall thereafter constitute a Contributed Property
until the Carrying Value of such property is subsequently adjusted pursuant to
Section 4.5(d)(i) or 4.5(d)(ii).
"AFFILIATE" means, with respect to any Person, any other Person that directly
or indirectly controls, is controlled by or is under common control with, the
Person in question. As used herein, the term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise.
"AGREED ALLOCATION" means any allocation, other than a Required Allocation, of
an item of income, gain, loss or deduction pursuant to the provisions of Section
5.1, including, without limitation, a Curative Allocation (if appropriate to the
context in which the term "Agreed Allocation" is used).
"AGREED VALUE" of any Contributed Property means the fair market value of such
property or other consideration at the time of contribution as determined by the
General Partner using such reasonable method of valuation as it may adopt;
provided, however, that the Agreed Value of any property deemed contributed by
the Partnership for federal income tax purposes upon termination and
reconstitution thereof pursuant to Section 708 of the Code shall be determined
in accordance with Section 4.5(c)(i). Subject to Section 4.5(c)(i), the General
Partner shall, in its sole discretion, use such method as it deems reasonable
and appropriate to allocate the aggregate Agreed Value of Contributed Properties
contributed to the Partnership in a single or integrated transaction among each
separate property on a basis proportional to the fair market value of each
Contributed Property.
"AGREEMENT" means this Agreement of Limited Partnership of Ferrellgas, L.P.,
as it may be amended, supplemented or restated from time to time.
"AUDIT COMMITTEE" means a committee of the Board of Directors of the General
Partner composed entirely of two or more directors who are neither officers nor
employees of the General Partner or any of its Affiliates.
"AVAILABLE CASH" means with respect to any period and without duplication:
(a) the sum of:
(i) all cash receipts of the Partnership during such period from all
sources (including, without limitation, distributions of cash received by the
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Partnership from an OLP Subsidiary) plus, in the case of the Quarter ending
October 31, 1994, the cash balance of the Partnership as of the close of
business on the Closing Date and all cash receipts of the Partnership from all
sources during the Quarter ended July 31, 1994; and
(ii) any reduction in a cash reserve previously established pursuant to
(b)(ii) below (either by reversal or utilization) with respect to such period
from the level of such reserve at the end of the prior period;
(b) less the sum of:
(i) all cash disbursements of the Partnership during such period,
including, without limitation, disbursements for operating expenses, taxes, if
any, debt service (including, without limitation, the payment of principal,
premium and interest), redemption of Partnership Interests, capital
expenditures and contributions, if any, to an OLP Subsidiary (but excluding
all cash distributions to Partners to the extent of Available Cash for the
immediately preceding Quarter); and
(ii) any cash reserves established with respect to such period, and any
increase in cash reserves established with respect to prior periods, in such
amounts as the General Partner determines in its reasonable discretion to be
necessary or appropriate (A) to provide for the proper conduct of the business
of the Partnership (including, without limitation, reserves for future capital
expenditures or capital contributions to an OLP Subsidiary) or (B) because the
distribution of such amounts would be prohibited by applicable law or by any
loan agreement, security agreement, mortgage, debt instrument or other
agreement or obligation to which the Partnership is a party or by which it is
bound or its assets are subject.
Notwithstanding the foregoing (x) disbursements (including, without limitation,
contributions to an OLP Subsidiary or disbursements on behalf of an OLP
Subsidiary) made or reserves established, increased or reduced after the end of
any Quarter but on or before the date on which the Partnership makes its
distribution of Available Cash in respect of such Quarter pursuant to Section
5.3(a) shall be deemed to have been made, established, increased or reduced, for
purposes of determining Available Cash, with respect to such period if the
General Partner so determines and (y) "Available Cash" with respect to any
Quarter
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shall not include any cash receipts or reductions in reserves or take into
account any disbursements made or reserves established after the Liquidation
Date.
"BOOK-TAX DISPARITY" means with respect to any item of Contributed Property or
Adjusted Property, as of the date of any determination, the difference between
the Carrying Value of such Contributed Property or Adjusted Property and the
adjusted basis thereof for federal income tax purposes as of such date. A
Partner's share of the Partnership's Book-Tax Disparities in all of its
Contributed Property and Adjusted Property will be reflected by the difference
between such Partner's Capital Account balance as maintained pursuant to Section
4.5 and the hypothetical balance of such Partner's Capital Account computed as
if it had been maintained strictly in accordance with federal income tax
accounting principles.
"BUSINESS DAY" means Monday through Friday of each week, except that a legal
holiday recognized as such by the government of the United States or the states
of New York or Missouri shall not be regarded as a Business Day.
"CAPITAL ACCOUNT" means the capital account maintained for a Partner pursuant
to Section 4.5.
"CAPITAL CONTRIBUTION" means any cash, cash equivalents or the Net Agreed
Value of Contributed Property that a Partner contributes to the Partnership
pursuant to Section 4.1, 4.2, 4.3, 4.5(c) or 13.8.
"CAPITAL INTERESTS" means, with respect to any corporation, any and all
shares, participations, rights or other equivalent interests in the capital of
the corporation, and with respect to any partnership, any and all partnership
interests (whether general or limited) and any other interests or participations
that confer on a Person the right to receive a share of the profits and losses
of, or distributions of assets of, such partnership.
"CARRYING VALUE" means (a) with respect to a Contributed Property, the Agreed
Value of such property reduced (but not below zero) by all depreciation,
amortization and cost recovery deductions charged to the Partners' Capital
Accounts in respect of such Contributed Property, and (b) with respect to any
other Partnership property, the adjusted basis of such property for federal
income tax purposes, all as of the time of determination. The Carrying Value of
any property shall be adjusted from time to time in accordance with Sections
4.5(d)(i) and 4.5(d)(ii) and to reflect changes, additions or other adjustments
to the Carrying Value for dispositions and acquisitions of Partnership
properties, as deemed appropriate by the General Partner.
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"CERTIFICATE OF LIMITED PARTNERSHIP" means the Certificate of Limited
Partnership filed with the Secretary of State of the State of Delaware as
referenced in Section 6.2, as such Certificate of Limited Partnership may be
amended, supplemented or restated from time to time.
"CLOSING DATE" means the first date on which Common Units are sold by the MLP
to the Underwriters pursuant to the provisions of the MLP Underwriting
Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended and in effect from
time to time, as interpreted by the applicable regulations thereunder. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provision of future law.
"COMMON UNIT" has the meaning assigned to such term in the MLP Agreement.
"CONTRIBUTED PROPERTY" means each property or other asset, in such form as may
be permitted by the Delaware Act, but excluding cash, contributed to the
Partnership (or deemed contributed to the Partnership on termination and
reconstitution thereof pursuant to Section 708 of the Code). Once the Carrying
Value of a Contributed Property is adjusted pursuant to Section 4.5(d), such
property shall no longer constitute a Contributed Property, but shall be deemed
an Adjusted Property.
"CONTRIBUTION AGREEMENT" has the meaning assigned to such term in the MLP
Agreement.
"CURATIVE ALLOCATION" means any allocation of an item of income, gain,
deduction, loss or credit pursuant to the provisions of Section 5.1(d)(ix).
"DELAWARE ACT" means the Delaware Revised Uniform Limited Partnership Act, 6
Del C. (S) 17-101, et seq., as amended, supplemented or restated from time to
time, and any successor to such statute.
"DEPARTING PARTNER" means a former General Partner, from and after the
effective date of any withdrawal or removal of such former General Partner
pursuant to Section 12.1 or Section 12.2.
"ECONOMIC RISK OF LOSS" has the meaning set forth in Treasury Regulation
Section 1.752-2(a).
"EVENT OF WITHDRAWAL" has the meaning assigned to such term in Section
12.1(a).
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"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
supplemented or restated from time to time, and any successor to such statute.
"FERRELL" means Ferrell Companies, Inc., a Kansas corporation.
"FERRELLGAS" means Ferrellgas, Inc., a Delaware corporation and a wholly owned
subsidiary of Ferrell.
"GENERAL PARTNER" means Ferrellgas, and its successors as general partner of
the Partnership.
"IDR" has the meaning assigned to such term in the MLP Agreement.
"INDEMNITEE" means the General Partner, any Departing Partner, any Person who
is or was an Affiliate of the General Partner or any Departing Partner, any
Person who is or was an officer, director, employee, partner, agent or trustee
of the General Partner or any Departing Partner or any such Affiliate, or any
Person who is or was serving at the request of the General Partner or any
Departing Partner or any such Affiliate as a director, officer, employee,
partner, agent or trustee of another Person.
"INITIAL LIMITED PARTNER" means the MLP.
"LIMITED PARTNER" means the Initial Limited Partner, Ferrellgas pursuant to
Section 4.2, each Substituted Limited Partner, if any, each Additional Limited
Partner and any Departing Partner upon the change of its status from General
Partner to Limited Partner pursuant to Section 12.3, but excluding any such
Person from and after the time it withdraws from the Partnership.
"LIQUIDATION DATE" means (a) in the case of an event giving rise to the
dissolution of the Partnership of the type described in clauses (a) and (b) of
the first sentence of Section 13.2, the date on which the applicable time period
during which the Partners have the right to elect to reconstitute the
Partnership and continue its business has expired without such an election being
made, and (b) in the case of any other event giving rise to the dissolution of
the Partnership, the date on which such event occurs.
"LIQUIDATOR" means the General Partner or other Person approved pursuant to
Section 13.3 who performs the functions described therein.
"MERGER AGREEMENT" has the meaning assigned to such term in Section 15.1.
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"MLP" means Ferrellgas Partners, L.P., a Delaware limited partnership.
"MLP AGREEMENT" means the Agreement of Limited Partnership of Ferrellgas
Partners, L.P., as it may be amended, supplemented or restated from time to
time.
"MLP OFFERING" means the initial offering of Common Units to the public, as
described in the MLP Registration Statement.
"MLP REGISTRATION STATEMENT" means the Registration Statement on Form S-1
(Registration No. 33-53383), as it has been or as it may be amended or
supplemented from time to time, filed by the MLP with the Securities and
Exchange Commission under the Securities Act to register the offering and sale
of the Common Units in the MLP Offering.
"MLP SUBSIDIARY" means a Subsidiary of the MLP.
"MLP UNDERWRITING AGREEMENT" means the underwriting agreement dated ________,
1994, among the MLP, the General Partner, Ferrell and the Underwriters named in
Schedule I thereto providing for the purchase of Common Units by such
Underwriters.
"NATIONAL SECURITIES EXCHANGE" means an exchange registered with the
Securities and Exchange Commission under Section 6(a) of the Exchange Act.
"NET AGREED VALUE" means, (a) in the case of any Contributed Property, the
Agreed Value of such property reduced by any liabilities either assumed by the
Partnership upon such contribution or to which such property is subject when
contributed, and (b) in the case of any property distributed to a Partner by the
Partnership, the Partnership's Carrying Value of such property (as adjusted
pursuant to Section 4.5(d)(ii)) at the time such property is distributed,
reduced by any indebtedness either assumed by such Partner upon such
distribution or to which such property is subject at the time of distribution,
in either case, as determined under Section 752 of the Code.
"NET INCOME" means, for any taxable period, the excess, if any, of the
Partnership's items of income and gain (other than those items attributable to
dispositions constituting Termination Capital Transactions) for such taxable
period over the Partnership's items of loss and deduction (other than those
items attributable to dispositions constituting Termination Capital
Transactions) for such taxable period. The items included in the calculation of
Net Income shall be determined in accordance with Section 4.5(b) and shall not
include any items specially allocated under Section 5.1(d). Once an item
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of income, gain, loss or deduction that has been included in the initial
computation of Net Income is subjected to a Required Allocation or a Curative
Allocation, Net Income or Net Loss, whichever the case may be, shall be
recomputed without regard to such item.
"NET LOSS" means, for any taxable period, the excess, if any, of the
Partnership's items of loss and deduction (other than those items attributable
to dispositions constituting Termination Capital Transactions) for such taxable
period over the Partnership's items of income and gain (other than those items
attributable to dispositions constituting Termination Capital Transactions) for
such taxable period. The items included in the calculation of Net Loss shall be
determined in accordance with Section 4.5(b) and shall not include any items
specially allocated under Section 5.1(d). Once an item of income, gain, loss or
deduction that has been included in the initial computation of Net Loss is
subjected to a Required Allocation or a Curative Allocation, Net Income, or Net
Loss, whichever the case may be, shall be recomputed without regard to such
item.
"NET TERMINATION GAIN" means, for any taxable period, the sum, if positive, of
all items of income, gain, loss or deduction recognized by the Partnership
(including, without limitation, such amounts recognized through an OLP
Subsidiary, if applicable) from Termination Capital Transactions occurring in
such taxable period. The items included in the determination of Net Termination
Gain shall be determined in accordance with Section 4.5(b) and shall not include
any items of income, gain or loss specially allocated under Section 5.1(d).
Once an item of income, gain or loss that has been included in the initial
computation of Net Termination Gain is subjected to a Required Allocation or a
Curative Allocation, Net Termination Gain or Net Termination Loss, whichever the
case may be, shall be recomputed without regard to such item.
"NET TERMINATION LOSS" means, for any taxable period, the sum, if negative, of
all items of income, gain, loss or deduction recognized by the Partnership
(including, without limitation, such amounts recognized through an OLP
Subsidiary, if applicable) from Termination Capital Transactions occurring in
such taxable period. The items included in the determination of Net Termination
Loss shall be determined in accordance with Section 4.5(b) and shall not include
any items of income, gain or loss specially allocated under Section 5.1(d).
Once an item of gain or loss that has been included in the initial computation
of Net Termination Loss is subjected to a Required Allocation or a Curative
Allocation, Net Termination Gain or Net Termination Loss, whichever the case may
be, shall be recomputed without regard to such item.
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"NONRECOURSE BUILT-IN GAIN" means with respect to any Contributed Properties
or Adjusted Properties that are subject to a mortgage or pledge securing a
Nonrecourse Liability, the amount of any taxable gain that would be allocated to
the Partners pursuant to Sections 5.2(b)(i)(A), 5.2(b)(ii)(A) or 5.2(b)(iii) if
such properties were disposed of in a taxable transaction in full satisfaction
of such liabilities and for no other consideration.
"NONRECOURSE DEDUCTIONS" means any and all items of loss, deduction or
expenditures (described in Section 705(a)(2)(B) of the Code) that, in accordance
with the principles of Treasury Regulation Section 1.704-(2)(b), are
attributable to a Nonrecourse Liability.
"NONRECOURSE LIABILITY" has the meaning set forth in Treasury Regulation
Section 1.752-1(a)(2).
"OLP OFFERING" means the initial offering of Senior Notes to the public, as
described in the OLP Registration Statement.
"OLP REGISTRATION STATEMENT" means the Registration Statement on Form S-1
(Registration No. 33-53379), as it has been or as it may be amended or
supplemented from time to time, filed by the Partnership and Ferrellgas Finance
Corp. with the Securities and Exchange Commission under the Securities Act to
register the offering and sale of the Senior Notes in the OLP Offering.
"OLP SUBSIDIARY" means a Subsidiary of the Partnership.
"OLP UNDERWRITING AGREEMENT" means the underwriting agreement dated ________,
1994, among the Partnership, Ferrellgas Finance Corp., the General Partner and
the Underwriters named in Schedule A thereto providing for the purchase of
Senior Notes by such Underwriters.
"OPINION OF COUNSEL" means a written opinion of counsel (who may be regular
counsel to the General Partner, any Affiliate of the General Partner, or the
Partnership) acceptable to the General Partner.
"PARTNERS" means the General Partner and the Limited Partner.
"PARTNER NONRECOURSE DEBT" has the meaning set forth in Treasury Regulation
Section 1.704-2(b)(4).
"PARTNER NONRECOURSE DEBT MINIMUM GAIN" has the meaning set forth in
Treasury Regulation Section 1.704-2(i)(2).
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"PARTNER NONRECOURSE DEDUCTIONS" means any and all items of loss, deduction or
expenditure (including, without limitation, any expenditure described in Section
705(a)(2)(B) of the Code) that, in accordance with the principles of Treasury
Regulation Section 1.704-2(i), are attributable to a Partner Nonrecourse Debt.
"PARTNERSHIP" means Ferrellgas, L.P., a Delaware limited partnership,
established by the Certificate of Limited Partnership, and any successor
thereto.
"PARTNERSHIP INTEREST" means the interest of a Partner in the Partnership.
"PARTNERSHIP MINIMUM GAIN" means that amount determined in accordance with the
principles of Treasury Regulation Section 1.704-2(d).
"PERCENTAGE INTEREST" means (a) as to the General Partner, in its capacity as
such, 1.0101% and (b) as to the Limited Partner, 98.9899%.
"PERSON" means an individual or a corporation, partnership, trust,
unincorporated organization, association or other entity.
"QUARTER" means, unless the context requires otherwise, a three-month period
of time ending on October 31, January 31, April 30, or July 31; provided,
however, that the General Partner in its sole discretion may amend such period
as it deems necessary or appropriate in connection with a change in the fiscal
year of the Partnership.
"RECAPTURE INCOME" means any gain recognized by the Partnership (computed
without regard to any adjustment required by Sections 734 or 743 of the Code)
upon the disposition of any property or asset of the Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"REGISTRATION STATEMENTS" means the MLP Registration Statement and the OLP
Registration Statement.
"REQUIRED ALLOCATIONS" means any allocation (or limitation imposed on any
allocation) of an item of income, gain, deduction or loss pursuant to (a)
Section 5.1(b)(i) or (b) Sections 5.1(d)(i)-(vi) and (viii), such allocations
(or limitations thereon) being directly or indirectly required by the Treasury
regulations promulgated under Section 704(b) of the Code.
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"RESIDUAL GAIN" or "RESIDUAL LOSS" means any item of gain or loss, as the case
may be, of the Partnership recognized for federal income tax purposes resulting
from a sale, exchange or other disposition of a Contributed Property or Adjusted
Property, to the extent such item of gain or loss is not allocated pursuant to
Section 5.2(b)(i)(A) or 5.2(b)(ii)(A), respectively, to eliminate Book-Tax
Disparities.
"RESTRICTED ACTIVITIES" means the retail sale of propane to end users within
the continental United States in the manner engaged in by Ferrellgas immediately
prior to the Closing Date.
"SECURITIES ACT" means the Securities Act of 1933, as amended, supplemented or
restated from time to time and any successor to such statute.
"SENIOR NOTES" means the ____% Senior Notes due 2001 in the aggregate
principal amount of $250 million to be issued by the Partnership and Ferrellgas
Finance Corp. and offered and sold in the OLP Offering.
"SPECIAL APPROVAL" means approval by the Audit Committee.
"SUBSIDIARY" means, with respect to any Person, (i) a corporation of which
more than 50% of the voting power of shares of Capital Interests entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors or other governing body of such corporation is owned, directly or
indirectly, by such Person, by one or more Subsidiaries of such Person, or a
combination thereof, (ii) a partnership (whether general or limited) in which
such Person or a Subsidiary of such Person is, at the date of determination, a
general or limited partner of such partnership, but only if more than 50% of the
Capital Interests of such partnership is owned or controlled, directly or
indirectly, by such Person, by one or more Subsidiaries of such Person, or a
combination thereof, or (iii) any other Person (other than a corporation or a
partnership) in which such Person, directly or indirectly, at the date of
determination, has (x) at least a majority ownership interest or (y) the power
to elect or direct the election of a majority of the directors or other
governing body of such Person.
"SUBSTITUTED LIMITED PARTNER" means a Person who is admitted as a Limited
Partner to the Partnership pursuant to Section 11.3 in place of and with all the
rights of a Limited Partner and who is shown as a Limited Partner on the books
and records of the Partnership.
"SURVIVING BUSINESS ENTITY" has the meaning assigned to such term in Section
15.2(b).
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"TERMINATION CAPITAL TRANSACTIONS" means any sale, transfer or other
disposition of property of the Partnership occurring upon or incident to the
liquidation and winding up of the Partnership pursuant to Article XIII.
"UNDERWRITING AGREEMENTS" means the MLP Underwriting Agreement and the OLP
Underwriting Agreement.
"UNIT" has the meaning assigned to such term in the MLP Agreement.
"UNREALIZED GAIN" attributable to any item of Partnership property means, as
of any date of determination, the excess, if any, of (a) the fair market value
of such property as of such date (as determined under Section 4.5(d)) over (b)
the Carrying Value of such property as of such date (prior to any adjustment to
be made pursuant to Section 4.5(d) as of such date).
"UNREALIZED LOSS" attributable to any item of Partnership property means, as
of any date of determination, the excess, if any, of (a) the Carrying Value of
such property as of such date (prior to any adjustment to be made pursuant to
Section 4.5(d) as of such date) over (b) the fair market value of such property
as of such date (as determined under Section 4.5(d)).
"WITHDRAWAL OPINION OF COUNSEL" has the meaning assigned to such term in
Section 12.1(b).
ARTICLE III
PURPOSE
3.1 PURPOSE AND BUSINESS. The purpose and nature of the business to be
conducted by the Partnership shall be (a) to acquire, manage, and operate the
assets described in the Contribution Agreement as being transferred to the
Partnership and any similar assets or properties and to engage directly in, or
to enter into or form any corporation, limited liability company, partnership,
joint venture or other arrangement to engage indirectly in, any type of business
or activity engaged in by Ferrellgas immediately prior to the Closing Date and,
in connection therewith, to exercise all of the rights and powers conferred upon
the Partnership pursuant to the agreements relating to such assets, (b) to
engage directly in, or enter into or form any corporation, limited liability
company, partnership, joint venture or other arrangement to engage indirectly
in, any business activity that is approved by the General Partner and which may
lawfully be conducted by a limited partnership organized pursuant to the
Delaware Act and, in connection therewith, to exercise all of the rights and
powers conferred upon the Partnership pursuant to the agreements relating to
such business activity, and (c) to do anything
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necessary or appropriate to the foregoing, including, without limitation, the
making of capital contributions to any OLP Subsidiary or loans to the MLP, an
MLP Subsidiary or an OLP Subsidiary (including, without limitation, those
contributions or loans that may be required in connection with its involvement
in the activities referred to in clause (b) of this sentence). The General
Partner has no obligation or duty to the Partnership or the Limited Partner to
propose or approve, and in its sole discretion may decline to propose or
approve, the conduct by the Partnership of any business.
3.2 POWERS. The Partnership shall be empowered to do any and all acts and
things necessary, appropriate, proper, advisable, incidental to or convenient
for the furtherance and accomplishment of the purposes and business described in
Section 3.1 and for the protection and benefit of the Partnership.
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.1 INITIAL CONTRIBUTIONS. In connection with the formation of the
Partnership under the Delaware Act, the General Partner has made an initial
Capital Contribution to the Partnership in the amount of $10.10 for an interest
in the Partnership and has been admitted as the general partner of the
Partnership, and the Initial Limited Partner has made an initial Capital
Contribution to the Partnership in the amount of $989.90 for an interest in the
Partnership and has been admitted as a limited partner of the Partnership.
4.2 CONTRIBUTIONS BY FERRELLGAS AND THE MLP. (a) On the Closing Date,
Ferrellgas shall, as a Capital Contribution, contribute, transfer, convey,
assign and deliver to the Partnership the property and other rights described in
the Contribution Agreement as being so contributed, transferred, conveyed,
assigned and delivered in exchange for (i) the continuation of its general
partner interest in the Partnership consisting of a Partnership Interest
representing a 1.0101% Percentage Interest, (ii) a limited partner interest in
the Partnership, which shall be contributed, transferred, conveyed, assigned and
delivered by the General Partner to the MLP as set forth in the Contribution
Agreement, and which, together with the Partnership Interest previously held by
the MLP, will represent a 98.9899% Percentage Interest in the Partnership, and
(iii) the Partnership's assumption of, or taking of assets subject to, certain
indebtedness and other liabilities, including, without limitation, the
Partnership's assumption of the payment obligations of certain indebtedness of
Ferrellgas, all as provided for in the Contribution Agreement.
(b) On the Closing Date, the MLP shall contribute in respect of its
Partnership Interest [approximately $_____ million out of]
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the net proceeds to the MLP from the issuance of the Common Units pursuant to
the MLP Offering.
4.3 ADDITIONAL CAPITAL CONTRIBUTIONS. With the consent of the General
Partner, the Limited Partner may, but shall not be obligated to, make additional
Capital Contributions to the Partnership. Contemporaneously with the making of
any such additional Capital Contributions by the Limited Partner, the General
Partner shall be obligated to make an additional Capital Contribution to the
Partnership in an amount equal to 1.0102% of the additional Capital Contribution
then made by the Limited Partner. Except as set forth in the immediately
preceding sentence and Section 13.8, the General Partner shall not be obligated
to make any additional Capital Contributions to the Partnership.
4.4 NO PREEMPTIVE RIGHTS. Except as provided in Section 4.3, no Person
shall have any preemptive, preferential or other similar right with respect to
(a) additional Capital Contributions; (b) issuance or sale of any class or
series of Partnership Interests, whether unissued, held in the treasury or
hereafter created; (c) issuance of any obligations, evidences of indebtedness or
other securities of the Partnership convertible into or exchangeable for, or
carrying or accompanied by any rights to receive, purchase or subscribe to, any
such Partnership Interests; (d) issuance of any right of subscription to or
right to receive, or any warrant or option for the purchase of, any such
Partnership Interests; or (e) issuance or sale of any other securities that may
be issued or sold by the Partnership.
4.5 CAPITAL ACCOUNTS. (a) The Partnership shall maintain for each Partner
owning a Partnership Interest a separate Capital Account with respect to such
Partnership Interest in accordance with the rules of Treasury Regulation Section
1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of
all Capital Contributions made to the Partnership with respect to such
Partnership Interest pursuant to this Agreement and (ii) all items of
Partnership income and gain (including, without limitation, income and gain
exempt from tax) computed in accordance with Section 4.5(b) and allocated with
respect to such Partnership Interest pursuant to Section 5.1, and decreased by
(x) the amount of cash or the Net Agreed Value of all actual and deemed
distributions of cash or property made with respect to such Partnership Interest
pursuant to this Agreement and (y) all items of Partnership deduction and loss
computed in accordance with Section 4.5(b) and allocated with respect to such
Partnership Interest pursuant to Section 5.1.
(b) For purposes of computing the amount of any item of income, gain, loss or
deduction to be reflected in the Partners' Capital
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Accounts, the determination, recognition and classification of any such item
shall be the same as its determination, recognition and classification for
federal income tax purposes (including, without limitation, any method of
depreciation, cost recovery or amortization used for that purpose), provided,
that:
(i) Solely for purposes of this Section 4.5, the Partnership shall be
treated as owning directly its proportionate share (as determined by the
General Partner) of all property owned by any OLP Subsidiary that is
classified as a partnership for federal income tax purposes.
(ii) All fees and other expenses incurred by the Partnership to promote
the sale of (or to sell) a Partnership Interest that can neither be
deducted nor amortized under Section 709 of the Code, if any, shall, for
purposes of Capital Account maintenance, be treated as an item of
deduction at the time such fees and other expenses are incurred and shall
be allocated among the Partners pursuant to Section 5.1.
(iii) Except as otherwise provided in Treasury Regulation Section 1.704-
1(b)(2)(iv)(m), the computation of all items of income, gain, loss and
deduction shall be made without regard to any election under Section 754
of the Code which may be made by the Partnership and, as to those items
described in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without
regard to the fact that such items are not includable in gross income or
are neither currently deductible nor capitalized for federal income tax
purposes.
(iv) Any income, gain or loss attributable to the taxable disposition of
any Partnership property shall be determined as if the adjusted basis of
such property as of such date of disposition were equal in amount to the
Partnership's Carrying Value with respect to such property as of such
date.
(v) In accordance with the requirements of Section 704(b) of the Code,
any deductions for depreciation, cost recovery or amortization
attributable to any Contributed Property shall be determined as if the
adjusted basis of such property on the date it was acquired by the
Partnership were equal to the Agreed Value of such property. Upon an
adjustment pursuant to Section 4.5(d) to the Carrying Value of any
Partnership property subject to depreciation, cost recovery or
amortization, any further deductions for such depreciation, cost recovery
or amortization attributable to such property shall be determined (A) as
if the adjusted basis of such property were equal to the Carrying Value of
such property immediately following such adjustment and (B) using a rate
of depreciation, cost recovery or amortization derived from the same
method and useful life (or, if applicable, the remaining useful life) as
is applied for federal income tax purposes;
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provided, however, that, if the asset has a zero adjusted basis for
federal income tax purposes, depreciation, cost recovery or amortization
deductions shall be determined using any reasonable method that the
General Partner may adopt.
(vi) If the Partnership's adjusted basis in a depreciable or cost
recovery property is reduced for federal income tax purposes pursuant to
Section 48(q)(1) or 48(q)(3) of the Code, the amount of such reduction
shall, solely for purposes hereof, be deemed to be an additional
depreciation or cost recovery deduction in the year such property is
placed in service and shall be allocated among the Partners pursuant to
Section 5.1. Any restoration of such basis pursuant to Section 48(q)(2) of
the Code shall, to the extent possible, be allocated in the same manner to
the Partners to whom such deemed deduction was allocated.
(c) A transferee of a Partnership Interest shall succeed to a pro rata
portion of the Capital Account of the transferor relating to the Partnership
Interest so transferred; provided, however, that, if the transfer causes a
termination of the Partnership under Section 708(b)(1)(B) of the Code, the
Partnership's properties shall be deemed to have been distributed in liquidation
of the Partnership to the Partners (including any transferee of a Partnership
Interest that is a party to the transfer causing such termination) pursuant to
Sections 13.3 and 13.4 and recontributed by such Partners in reconstitution of
the Partnership. Any such deemed distribution shall be treated as an actual
distribution for purposes of this Section 4.5. In such event, the Carrying
Values of the Partnership properties shall be adjusted immediately prior to such
deemed distribution pursuant to Section 4.5(d)(ii) and such Carrying Values
shall then constitute the Agreed Values of such properties upon such deemed
contribution to the reconstituted Partnership. The Capital Accounts of such
reconstituted Partnership shall be maintained in accordance with the principles
of this Section 4.5.
(d) (i) Consistent with the provisions of Treasury Regulation Section
1.704-1(b)(2)(iv)(f), on an issuance of additional Partnership Interests
for cash or Contributed Property, the Capital Account of all Partners and
the Carrying Value of each Partnership property immediately prior to such
issuance shall be adjusted upward or downward to reflect any Unrealized
Gain or Unrealized Loss attributable to such Partnership property, as if
such Unrealized Gain or Unrealized Loss had been recognized on an actual
sale of each such property immediately prior to such issuance and had been
allocated to the Partners at such time pursuant to Sections 5.1(a) and
5.1(b). In determining such Unrealized Gain or Unrealized Loss, the
aggregate cash amount and fair market value of all Partnership assets
(including, without limitation, cash or cash equivalents) immediately
prior to the issuance of additional
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Partnership Interests shall be determined by the General Partner using
such reasonable method of valuation as it may adopt; provided, however,
that the General Partner, in arriving at such valuation, must take fully
into account the fair market value of the Partnership Interests of all
Partners at such time. The General Partner shall allocate such aggregate
value among the assets of the Partnership (in such manner as it determines
in its sole discretion to be reasonable) to arrive at a fair market value
for individual properties.
(ii) In accordance with Treasury Regulation Section 1.704-
1(b)(2)(iv)(f), immediately prior to any actual or deemed distribution to
a Partner of any Partnership property (other than a distribution of cash
that is not in redemption or retirement of a Partnership Interest), the
Capital Accounts of all Partners and the Carrying Value of such
Partnership property shall be adjusted upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to such Partnership
property, as if such Unrealized Gain or Unrealized Loss had been
recognized in a sale of such property immediately prior to such
distribution for an amount equal to its fair market value, and had been
allocated to the Partners, at such time, pursuant to Section 5.1. Any
Unrealized Gain or Unrealized Loss attributable to such property shall be
allocated in the same manner as Net Termination Gain or Net Termination
Loss pursuant to Section 5.1(c); provided, however, that, in making any
such allocation, Net Termination Gain or Net Termination Loss actually
realized shall be allocated first. In determining such Unrealized Gain or
Unrealized Loss the aggregate cash amount and fair market value of all
Partnership assets (including, without limitation, cash or cash
equivalents) immediately prior to a distribution shall (A) in the case of
a deemed distribution occurring as a result of a termination of the
Partnership pursuant to Section 708 of the Code, be determined and
allocated in the same manner as that provided in Section 4.5(d)(i) or (B)
in the case of a liquidating distribution pursuant to Section 14.3 or
14.4, be determined and allocated by the Liquidator using such reasonable
method of valuation as it may adopt.
4.6 INTEREST. No interest shall be paid by the Partnership on Capital
Contributions or on balances in Partners' Capital Accounts.
4.7 NO WITHDRAWAL. No Partner shall be entitled to withdraw any part of its
Capital Contributions or its Capital Account or to receive any distribution from
the Partnership, except as provided in Articles V, VII, XII and XIII.
4.8 LOANS FROM PARTNERS. Loans by a Partner to the Partnership shall not
constitute Capital Contributions. If any Partner shall advance funds to the
Partnership in excess of the amounts required hereunder to be contributed by it
to the capital of the
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Partnership, the making of such excess advances shall not result in any increase
in the amount of the Capital Account of such Partner. The amount of any such
excess advances shall be a debt obligation of the Partnership to such Partner
and shall be payable or collectible only out of the Partnership assets in
accordance with the terms and conditions upon which such advances are made.
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.1 ALLOCATIONS FOR CAPITAL ACCOUNT PURPOSES. For purposes of maintaining
the Capital Accounts and in determining the rights of the Partners among
themselves, the Partnership's items of income, gain, loss and deduction
(computed in accordance with Section 4.5(b)) shall be allocated among the
Partners in each taxable year (or portion thereof) as provided hereinbelow.
(a) Net Income. After giving effect to the special allocations set forth
in Section 5.1(d), Net Income for each taxable period and all items of
income, gain, loss and deduction taken into account in computing Net
Income for such taxable period shall be allocated as follows:
(i) First, 100% to the General Partner until the aggregate Net Income
allocated to the General Partner pursuant to this Section 5.1(a)(i) for
the current taxable year and all previous taxable years is equal to the
aggregate Net Losses allocated to the General Partner pursuant to
Section 5.1(b)(ii) for all previous taxable years; and
(ii) Second, the balance, if any, 100% to the General Partner and the
Limited Partner in accordance with their respective Percentage
Interests.
(b) Net Losses. After giving effect to the special allocations set forth
in Section 5.1(d), Net Losses for each taxable period and all items of
income, gain, loss and deduction taken into account in computing Net
Losses for such taxable period shall be allocated as follows:
(i) First, 100% to the General Partner and the Limited Partner in
accordance with their respective Percentage Interests; provided, that
Net Losses shall not be allocated pursuant to this Section 5.1(b)(i) to
the extent that such allocation would cause any Limited Partner to have
a deficit balance in its Adjusted Capital Account at the end of such
taxable year (or increase any existing deficit balance in its Adjusted
Capital Account); and
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(ii) Second, the balance, if any, 100% to the General Partner.
(c) Net Termination Gains and Losses. After giving effect to the special
allocations set forth in Section 5.1(d), all items of income, gain, loss
and deduction taken into account in computing Net Termination Gain or Net
Termination Loss for such taxable period shall be allocated in the same
manner as such Net Termination Gain or Net Termination Loss is allocated
hereunder. All allocations under this Section 5.1(c) shall be made after
Capital Account balances have been adjusted by all other allocations
provided under this Section 5.1 and after all distributions of Available
Cash provided under Section 5.3 have been made with respect to the taxable
period ending on the date of the Partnership's liquidation pursuant to
Section 13.3.
(i) If a Net Termination Gain is recognized (or deemed recognized
pursuant to Section 4.5(d)) from Termination Capital Transactions, such
Net Termination Gain shall be allocated between the General Partner and
the Limited Partner in the following manner (and the Adjusted Capital
Accounts of the Partners shall be increased by the amount so allocated in
each of the following subclauses, in the order listed, before an
allocation is made pursuant to the next succeeding subclause):
(A) First, to each Partner having a deficit balance in its Adjusted
Capital Account, in the proportion that such deficit balance bears to
the total deficit balances in the Adjusted Capital Accounts of all
Partners, until each such Partner has been allocated Net Termination
Gain equal to any such deficit balance in its Adjusted Capital Account;
and
(B) Second, the balance, if any, 100% to the General Partner and the
Limited Partner in accordance with their respective Percentage
Interests.
(ii) If a Net Termination Loss is recognized (or deemed recognized
pursuant to Section 4.5(d)) from Termination Capital Transactions, such
Net Termination Loss shall be allocated to the Partners in the following
manner:
(A) First, 100% to the General Partner and the Limited Partner in
proportion to, and to the extent of, the positive balances in their
respective Adjusted Capital Accounts; and
(B) Second, the balance, if any, 100% to the General Partner.
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(d) Special Allocations. Notwithstanding any other provision of this
Section 5.1, the following special allocations shall be made for such
taxable period:
(i) Partnership Minimum Gain Chargeback. Notwithstanding any other
provision of this Section 5.1, if there is a net decrease in
Partnership Minimum Gain during any Partnership taxable period, each
Partner shall be allocated items of Partnership income and gain for
such period (and, if necessary, subsequent periods) in the manner and
amounts provided in Treasury Regulation Sections 1.704-2(f)(6), 1.704-
2(g)(2) and 1.704-2(j)(2)(i), or any successor provision. For purposes
of this Section 5.1(d), each Partner's Adjusted Capital Account balance
shall be determined, and the allocation of income or gain required
hereunder shall be effected, prior to the application of any other
allocations pursuant to this Section 5.1(d) with respect to such
taxable period (other than an allocation pursuant to Sections 5.1(d)(v)
and (vi)). This Section 5.1(d)(i) is intended to comply with the
Partnership Minimum Gain chargeback requirement in Treasury Regulation
Section 1.704-2(f) and shall be interpreted consistently therewith.
(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain.
Notwithstanding the other provisions of this Section 5.1 (other than
Section 5.1(d)(i)), except as provided in Treasury Regulation Section
1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt
Minimum Gain during any Partnership taxable period, any Partner with a
share of Partner Nonrecourse Debt Minimum Gain at the beginning of such
taxable period shall be allocated items of Partnership income and gain
for such period (and, if necessary, subsequent periods) in the manner
and amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and
1.704-2(j)(2)(ii), or any successor provisions. For purposes of this
Section 5.1(d), each Partner's Adjusted Capital Account balance shall
be determined, and the allocation of income or gain required hereunder
shall be effected, prior to the application of any other allocations
pursuant to this Section 5.1(d), other than Section 5.1(d)(i) and other
than an allocation pursuant to Sections 5.1(d)(v) and (vi), with
respect to such taxable period. This Section 5.1(d)(ii) is intended to
comply with the chargeback of items of income and gain requirement in
Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
(iii) Qualified Income Offset. In the event any Partner unexpectedly
receives any adjustments, allocations
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or distributions described in Treasury Regulation Sections 1.704-
1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6),
items of Partnership income and gain shall be specifically allocated to
such Partner in an amount and manner sufficient to eliminate, to the
extent required by the Treasury Regulations promulgated under Section
704(b) of the Code, the deficit balance, if any, in its Adjusted Capital
Account created by such adjustments, allocations or distributions as
quickly as possible, unless such deficit balance is otherwise eliminated
pursuant to Section 5.1(d)(i) or (ii).
(iv) Gross Income Allocations. In the event any Partner has a deficit
balance in its Adjusted Capital Account at the end of any Partnership
taxable period such Partner shall be specially allocated items of
Partnership gross income and gain in the amount of such excess as quickly
as possible; provided, that an allocation pursuant to this Section
5.1(d)(iv) shall be made only if and to the extent that such Partner would
have a deficit balance in its Adjusted Capital Account after all other
allocations provided in this Section 5.1 have been tentatively made as if
this Section 5.1(d)(iv) were not in this Agreement.
(v) Nonrecourse Deductions. Nonrecourse Deductions for any taxable
period shall be allocated to the Partners in accordance with their
respective Percentage Interests. If the General Partner determines in its
good faith discretion that the Partnership's Nonrecourse Deductions must
be allocated in a different ratio to satisfy the safe harbor requirements
of the Treasury Regulations promulgated under Section 704(b) of the Code,
the General Partner is authorized, upon notice to the Limited Partner, to
revise the prescribed ratio to the numerically closest ratio that does
satisfy such requirements.
(vi) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions for
any taxable period shall be allocated 100% to the Partner that bears the
Economic Risk of Loss with respect to the Partner Nonrecourse Debt to
which such Partner Nonrecourse Deductions are attributable in accordance
with Treasury Regulation Section 1.704-2(i). If more than one Partner
bears the Economic Risk of Loss with respect to a Partner Nonrecourse
Debt, such Partner Nonrecourse Deductions attributable thereto shall be
allocated between or among such Partners in accordance with the ratios in
which they share such Economic Risk of Loss.
(vii) Nonrecourse Liabilities. For purposes of Treasury Regulation
Section 1.752-3(a)(3), the Partners
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agree that Nonrecourse Liabilities of the Partnership in excess of the sum
of (A) the amount of Partnership Minimum Gain and (B) the total amount of
Nonrecourse Built-in Gain shall be allocated among the Partners in
accordance with their respective Percentage Interests.
(viii) Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Section 734(b) or
743(b) of the Code is required, pursuant to Treasury Regulation Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis), and such item of
gain or loss shall be specially allocated to the Partners in a manner
consistent with the manner in which their Capital Accounts are required to
be adjusted pursuant to such Section of the Treasury Regulations.
(ix) Curative Allocation.
(A) Notwithstanding any other provision of this Section 5.1, other
than the Required Allocations, the Required Allocations shall be taken
into account in making the Agreed Allocations so that, to the extent
possible, the net amount of items of income, gain, loss and deduction
allocated to each Partner pursuant to the Required Allocations and the
Agreed Allocations, together, shall be equal to the net amount of such
items that would have been allocated to each such Partner under the
Agreed Allocations had the Required Allocations and the related
Curative Allocation not otherwise been provided in this Section 5.1.
Notwithstanding the preceding sentence, Required Allocations relating
to (1) Nonrecourse Deductions shall not be taken into account except to
the extent that there has been a decrease in Partnership Minimum Gain
and (2) Partner Nonrecourse Deductions shall not be taken into account
except to the extent that there has been a decrease in Partner
Nonrecourse Debt Minimum Gain. Allocations pursuant to this Section
5.1(d)(ix)(A) shall only be made with respect to Required Allocations
to the extent the General Partner reasonably determines that such
allocations will otherwise be inconsistent with the economic agreement
among the Partners. Further, allocations pursuant to this Section
5.1(d)(ix)(A) shall be deferred with respect to allocations pursuant to
clauses (1) and (2) hereof to the extent the General Partner reasonably
determines that such allocations are likely to be offset by subsequent
Required Allocations.
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(B) The General Partner shall have reasonable discretion, with
respect to each taxable period, to (1) apply the provisions of Section
5.1(d)(ix)(A) in whatever order is most likely to minimize the
economic distortions that might otherwise result from the Required
Allocations, and (2) divide all allocations pursuant to Section
5.1(d)(ix)(A) among the Partners in a manner that is likely to
minimize such economic distortions.
5.2 ALLOCATIONS FOR TAX PURPOSES. (a) Except as otherwise provided herein,
for federal income tax purposes, each item of income, gain, loss and deduction
shall be allocated among the Partners in the same manner as its correlative item
of "book" income, gain, loss or deduction is allocated pursuant to Section 5.1.
(b) In an attempt to eliminate Book-Tax Disparities attributable to a
Contributed Property or Adjusted Property, items of income, gain, loss,
depreciation, amortization and cost recovery deductions shall be allocated for
federal income tax purposes among the Partners as follows:
(i) (A) In the case of a Contributed Property, such items attributable
thereto shall be allocated among the Partners in the manner provided under
Section 704(c) of the Code that takes into account the variation between
the Agreed Value of such property and its adjusted basis at the time of
contribution; and (B) except as otherwise provided in Section 5.2(b)(iii),
any item of Residual Gain or Residual Loss attributable to a Contributed
Property shall be allocated among the Partners in the same manner as its
correlative item of "book" gain or loss is allocated pursuant to Section
5.1.
(ii) (A) In the case of an Adjusted Property, such items shall (1)
first, be allocated among the Partners in a manner consistent with the
principles of Section 704(c) of the Code to take into account the
Unrealized Gain or Unrealized Loss attributable to such property and the
allocations thereof pursuant to Section 4.5(d)(i) or (ii), and (2) second,
in the event such property was originally a Contributed Property, be
allocated among the Partners in a manner consistent with Section
5.2(b)(i)(A); and (B) except as otherwise provided in Section 5.2(b)(iii),
any item of Residual Gain or Residual Loss attributable to an Adjusted
Property shall be allocated among the Partners in the same manner as its
correlative item of "book" gain or loss is allocated pursuant to Section
5.1.
(iii) The General Partner shall apply the principles of Temporary
Regulation Section 1.704-3T to eliminate Book-Tax Disparities.
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(c) For the proper administration of the Partnership and for the preservation
of uniformity of Units of the MLP (or any class or classes thereof), the General
Partner shall have sole discretion to (i) adopt such conventions as it deems
appropriate in determining the amount of depreciation, amortization and cost
recovery deductions; (ii) make special allocations for federal income tax
purposes of income (including, without limitation, gross income) or deductions;
and (iii) amend the provisions of this Agreement as appropriate (x) to reflect
the proposal or promulgation of Treasury Regulations under Section 704(b) or
Section 704(c) of the Code or (y) otherwise to preserve or achieve uniformity of
Units of the MLP (or any class or classes thereof). The General Partner may
adopt such conventions, make such allocations and make such amendments to this
Agreement as provided in this Section 5.2(c) only if such conventions,
allocations or amendments would not have a material adverse effect on the
Partners, the holders of any class or classes of Units of the MLP issued and
outstanding or the Partnership, and if such allocations are consistent with the
principles of Section 704 of the Code.
(d) The General Partner in its sole discretion may determine to depreciate or
amortize the portion of an adjustment under Section 743(b) of the Code
attributable to unrealized appreciation in any Adjusted Property (to the extent
of the unamortized Book-Tax Disparity) using a predetermined rate derived from
the depreciation or amortization method and useful life applied to the
Partnership's common basis of such property, despite the inconsistency of such
approach with Proposed Treasury Regulation Section 1.168-2(n), Treasury
Regulation Section 1.167(c)-1(a)(6) or the legislative history of Section 197 of
the Code. If the General Partner determines that such reporting position cannot
reasonably be taken, the General Partner may adopt depreciation and amortization
conventions under which all purchasers acquiring Units of the MLP in the same
month would receive depreciation and amortization deductions, based upon the
same applicable rate as if they had purchased a direct interest in the
Partnership's property. If the General Partner chooses not to utilize such
aggregate method, the General Partner may use any other reasonable depreciation
and amortization conventions to preserve the uniformity of the intrinsic tax
characteristics of any class or classes of Units of the MLP that would not have
a material adverse effect on the Limited Partner or the holders of any class or
classes of Units of the MLP.
(e) Any gain allocated to the Partners upon the sale or other taxable
disposition of any Partnership asset shall, to the extent possible, after taking
into account other required allocations of gain pursuant to this Section 5.2, be
characterized as Recapture Income in the same proportions and to the same extent
as such Partners (or their predecessors in interest) have been allocated any
deductions directly or indirectly giving rise to the treatment of such gains as
Recapture Income.
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(f) All items of income, gain, loss, deduction and credit recognized by the
Partnership for federal income tax purposes and allocated to the Partners in
accordance with the provisions hereof shall be determined without regard to any
election under Section 754 of the Code which may be made by the Partnership;
provided, however, that such allocations, once made, shall be adjusted as
necessary or appropriate to take into account those adjustments permitted or
required by Sections 734 and 743 of the Code.
(g) The General Partner may adopt such methods of allocation of income, gain,
loss or deduction between a transferor and a transferee of a Partnership
Interest as it determines necessary, to the extent permitted or required by
Section 706 of the Code and the regulations or rulings promulgated thereunder.
5.3 REQUIREMENT OF DISTRIBUTIONS. (a) Within 45 days following the end of
each Quarter (or following the period from the Closing Date to October 31, 1994)
an amount equal to 100% of Available Cash with respect to such Quarter (or
period) shall be distributed in accordance with this Article V by the
Partnership to the Partners in accordance with their respective Percentage
Interests. The immediately preceding sentence shall not require any
distribution of cash if and to the extent such distribution would be prohibited
by applicable law or by any loan agreement, security agreement, mortgage, debt
instrument or other agreement or obligation to which the Partnership is a party
or by which it is bound or its assets are subject.
(b) Notwithstanding the foregoing, in the event of the dissolution and
liquidation of the Partnership, all proceeds of such liquidation shall be
applied and distributed in accordance with, and subject to the terms and
conditions of, Sections 13.3 and 13.4
ARTICLE VI
MANAGEMENT AND OPERATION OF BUSINESS
6.1 MANAGEMENT. (a) The General Partner shall conduct, direct and manage
all activities of the Partnership. Except as otherwise expressly provided in
this Agreement, all management powers over the business and affairs of the
Partnership shall be exclusively vested in the General Partner, and the Limited
Partner shall have no right of control or management power over the business and
affairs of the Partnership. In addition to the powers now or hereafter granted
a general partner of a limited partnership under applicable law or which are
granted to the General Partner under any other provision of this Agreement, the
General Partner, subject to Section 6.3, shall have full power and authority to
do all things and on such terms as it, in its sole discretion, may deem
necessary or appropriate to conduct the business of the Partnership, to exercise
all powers set forth in Section 3.2 and to
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effectuate the purposes set forth in Section 3.1, including, without limitation,
(i) the making of any expenditures, the lending or borrowing of money, the
assumption or guarantee of, or other contracting for, indebtedness and other
liabilities, the issuance of evidences of indebtedness and the incurring of any
other obligations; (ii) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or other agencies having
jurisdiction over the business or assets of the Partnership; (iii) the
acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or
exchange of any or all of the assets of the Partnership or the merger or other
combination of the Partnership with or into another Person (the matters
described in this clause (iii) being subject, however, to any prior approval
that may be required by Section 6.3); (iv) the use of the assets of the
Partnership (including, without limitation, cash on hand) for any purpose
consistent with the terms of this Agreement, including, without limitation, the
financing of the conduct of the operations of the Partnership, the lending of
funds to other Persons (including, without limitation, an OLP Subsidiary), the
repayment of obligations of the Partnership and the making of capital
contributions to an OLP Subsidiary; (v) the negotiation, execution and
performance of any contracts, conveyances or other instruments (including,
without limitation, instruments that limit the liability of the Partnership
under contractual arrangements to all or particular assets of the Partnership,
with the other party to the contract to have no recourse against the General
Partner or its assets other than its interest in the Partnership, even if same
results in the terms of the transaction being less favorable to the Partnership
than would otherwise be the case); (vi) the distribution of Partnership cash;
(vii) the selection and dismissal of employees and agents (including, without
limitation, employees having titles such as "president," "vice president,"
"secretary" and "treasurer") and agents, outside attorneys, accountants,
consultants and contractors and the determination of their compensation and
other terms of employment or hiring; (viii) the maintenance of such insurance
for the benefit of the Partnership and the Partners (including, without
limitation, the assets of the Partnership) as it deems necessary or appropriate;
(ix) the formation of, or acquisition of an interest in, and the contribution of
property and the making of loans to, any further limited or general
partnerships, joint ventures, corporations, limited liability companies or other
relationships; (x) the control of any matters affecting the rights and
obligations of the Partnership, including, without limitation, the bringing and
defending of actions at law or in equity and otherwise engaging in the conduct
of litigation and the incurring of legal expense and the settlement of claims
and litigation; and (xi) the indemnification of any Person against liabilities
and contingencies to the extent permitted by law.
(b) Notwithstanding any other provision of this Agreement, the MLP Agreement,
the Delaware Act or any applicable law, rule or
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regulation, each of the Partners hereby (i) approves, ratifies and confirms the
execution, delivery and performance by the parties thereto of the MLP Agreement,
the Underwriting Agreements, the Contribution Agreement, the agreements and
other documents filed as exhibits to the Registration Statements, and the other
agreements described in or filed as a part of the Registration Statements, and
the engaging by any Affiliate of the General Partner in business and activities
(other than Restricted Activities) that are in direct competition with the
business and activities of the MLP, the Partnership, any OLP Subsidiary and any
MLP Subsidiary; (ii) agrees that the General Partner (on its own or through any
officer of the Partnership) is authorized to execute, deliver and perform the
agreements referred to in clause (i) of this sentence and the other agreements,
acts, transactions and matters described in the Registration Statements on
behalf of the Partnership without any further act, approval or vote of the
Partners; and (iii) agrees that the execution, delivery or performance by the
General Partner, the MLP, the Partnership or any Affiliate of any of them of
this Agreement or any agreement authorized or permitted under this Agreement, or
the engaging by any Affiliate of the General Partner in any business and
activities (other than Restricted Activities) that are in direct competition
with the business and activities of the MLP, the Partnership, any OLP Subsidiary
and any MLP Subsidiary, shall not constitute a breach by the General Partner of
any duty that the General Partner may owe the Partnership or the Limited
Partners or any other Persons under this Agreement (or any other agreements) or
of any duty stated or implied by law or equity. The term "Affiliate" when used
in this Section 6.1(b) with respect to the General Partner shall not include the
Partnership, the MLP, any OLP Subisidary or any MLP Subsidiary.
6.2 CERTIFICATE OF LIMITED PARTNERSHIP. The General Partner has caused the
Certificate of Limited Partnership of Ferrellgas, L.P. to be filed with the
Secretary of State of the State of Delaware as required by the Delaware Act and
shall use all reasonable efforts to cause to be filed such other certificates or
documents as may be determined by the General Partner in its sole discretion to
be reasonable and necessary or appropriate for the formation, continuation,
qualification and operation of a limited partnership (or a partnership in which
the Limited Partner has limited liability) in the State of Delaware or any other
state in which the Partnership may elect to do business or own property. To the
extent that such action is determined by the General Partner in its sole
discretion to be reasonable and necessary or appropriate, the General Partner
shall file amendments to and restatements of the Certificate of Limited
Partnership and do all things to maintain the Partnership as a limited
partnership (or a partnership in which the Limited Partner has limited
liability) under the laws of the State of Delaware or of any other state in
which the Partnership may elect to do business or own property. Subject to the
terms of Section 7.4(a), the General Partner shall not be required, before or
after filing, to deliver or mail a copy of the
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Certificate of Limited Partnership, any qualification document or any amendment
thereto to the Limited Partner.
6.3 RESTRICTIONS ON GENERAL PARTNER'S AUTHORITY. (a) The General Partner
may not, without written approval of the specific act by the Limited Partner or
by other written instrument executed and delivered by the Limited Partner
subsequent to the date of this Agreement, take any action in contravention of
this Agreement, including, without limitation, (i) any act that would make it
impossible to carry on the ordinary business of the Partnership, except as
otherwise provided in this Agreement; (ii) possess Partnership property, or
assign any rights in specific Partnership property, for other than a Partnership
purpose; (iii) admit a Person as a Partner, except as otherwise provided in this
Agreement; (iv) amend this Agreement in any manner, except as otherwise provided
in this Agreement; or (v) transfer its interest as general partner of the
Partnership, except as otherwise provided in this Agreement.
(b) Except as provided in Articles XIII and XV, the General Partner may not
sell, exchange or otherwise dispose of all or substantially all of the
Partnership's assets in a single transaction or a series of related transactions
without the approval of the Limited Partner; provided, however, that this
provision shall not preclude or limit the General Partner's ability to mortgage,
pledge, hypothecate or grant a security interest in all or substantially all of
the Partnership's assets and shall not apply to any forced sale of any or all of
the Partnership's assets pursuant to the foreclosure of, or other realization
upon, any such encumbrance.
(c) Unless approved by the Limited Partner, the General Partner shall not
take any action or refuse to take any reasonable action the effect of which, if
taken or not taken, as the case may be, would be to cause the Partnership to be
treated as an association taxable as a corporation or otherwise to be taxed as
an entity for federal income tax purposes; provided that this Section 6.3(c)
shall not be construed to apply to amendments to this Agreement (which are
governed by Article XIV) or mergers or consolidations of the Partnership with
any Person (which are governed by Article XV).
(d) At all times while serving as the general partner of the Partnership, the
General Partner shall not make any dividend or distribution on, or repurchase
any shares of, its stock or take any other action within its control if the
effect of such dividend, distribution, repurchase or other action would be to
reduce its net worth below an amount necessary to receive an Opinion of Counsel
that the Partnership will be treated as a partnership for federal income tax
purposes.
6.4 REIMBURSEMENT OF THE GENERAL PARTNER. (a) Except as provided in this
Section 6.4 and elsewhere in this Agreement, the
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General Partner shall not be compensated for its services as general partner of
the Partnership.
(b) The General Partner shall be reimbursed on a monthly basis, or such other
basis as the General Partner may determine in its sole discretion, for (i) all
direct and indirect expenses it incurs or payments it makes on behalf of the
Partnership (including, without limitation, salary, bonus, incentive
compensation and other amounts paid to any Person to perform services for the
Partnership or for the General Partner in the discharge of its duties to the
Partnership) and (ii) all other necessary or appropriate expenses allocable to
the Partnership or otherwise reasonably incurred by the General Partner in
connection with operating the Partnership's business (including, without
limitation, expenses allocated to the General Partner by its Affiliates). The
General Partner shall determine the fees and expenses that are allocable to the
Partnership in any reasonable manner determined by the General Partner in its
sole discretion. Reimbursements pursuant to this Section 6.4 shall be in
addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 6.7.
6.5 OUTSIDE ACTIVITIES. (a) After the Closing Date, the General Partner,
for so long as it is the general partner of the Partnership, (i) agrees that its
sole business will be to act as the general partner of the Partnership, the MLP,
any OLP Subsidiary and any MLP Subsidiary and to undertake activities that are
ancillary or related thereto (including being a limited partner in the MLP),
(ii) shall not enter into or conduct any business or incur any debts or
liabilities except in connection with or incidental to (A) its performance of
the activities required or authorized by this Agreement or the MLP Agreement or
described in or contemplated by the Registration Statements and (B) the
acquisition, ownership or disposition of partnership interests in the
Partnership, the MLP, any OLP Subsidiary and any MLP Subsidiary, except that,
notwithstanding the foregoing, employees of the General Partner may perform
services for Ferrell and its Affiliates and (iii) shall cause its Affiliates not
to engage in any Restricted Activities.
(b) Except as described or provided for in the MLP Agreement, the
Registration Statements or Section 6.5(a), no Indemnitee shall be expressly or
implicitly restricted or proscribed pursuant to the MLP Agreement or this
Agreement or the partnership relationship established hereby or thereby from
engaging in other activities for profit, whether in the businesses engaged in by
the Partnership, an OLP Subsidiary, the MLP or an MLP Subsidiary or anticipated
to be engaged in by the Partnership, an OLP Subsidiary, the MLP, an MLP
Subsidiary or otherwise, including, without limitation, in the case of any
Affiliates of the General Partner those businesses and activities (other than
Restricted Activities) in direct competition with the business and activities of
the Partnership, the MLP, an
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OLP Subsidiary or an MLP Subsidiary or otherwise described in or contemplated by
the Registration Statements. Without limitation of and subject to the foregoing
each Indemnitee (other than the General Partner) shall have the right to engage
in businesses of every type and description and to engage in and possess an
interest in other business ventures of any and every type or description,
independently or with others, including, without limitation, in the case of any
Affiliates of the General Partner, business interests and activities (other than
Restricted Activities) in direct competition with the business and activities of
the Partnership, the MLP, an OLP Subsidiary or an MLP Subsidiary, and none of
the same shall constitute a breach of this Agreement or any duty to the
Partnership, the MLP or any Partners. Neither the Partnership, the MLP, any
Limited Partner nor any other Person shall have any rights by virtue of this
Agreement or the MLP Agreement or the partnership relationship established
hereby or thereby in any business ventures of any Indemnitee (subject, in the
case of the General Partner, to compliance with Section 6.5(c)) and such
Indemnitees shall have no obligation to offer any interest in any such business
ventures to the Partnership, the MLP, any Limited Partner or any other Person.
(c) Subject to the terms of Sections 6.5(a) and (b) but otherwise
notwithstanding anything to the contrary in this Agreement, (i) the competitive
activities of any Indemnitees (other than the General Partner) are hereby
approved by the Partnership and all Partners and (ii) it shall be deemed not to
be a breach of the General Partner's fiduciary duty or any other obligation of
any type whatsoever of the General Partner for the General Partner to permit an
Affiliate of the General Partner to engage, or for any such Affiliate to engage,
in business interests or activities (other than Restricted Activities) in
preference to or to the exclusion of the Partnership.
(d) The term "Affiliates" when used in this Section 6.5 with respect to the
General Partner shall not include the Partnership, the MLP, an OLP Subsidiary or
an MLP Subsidiary.
6.6 LOANS TO AND FROM THE GENERAL PARTNER; CONTRACTS WITH AFFILIATES. (a)
(i) The General Partner, the Limited Partner, an OLP Subsidiary or any of their
Affiliates may lend to the Partnership, and the Partnership may borrow, funds
needed or desired by the Partnership for such periods of time as the General
Partner may determine and (ii) the General Partner, the Limited Partner, an OLP
Subsidiary or any Affiliate thereof may borrow from the Partnership, and the
Partnership may lend to such Persons, excess funds of the Partnership for such
periods of time and in such amounts as the General Partner may determine;
provided, however, that in either such case the lending party may not charge the
borrowing party interest at a rate greater than the rate that would be charged
the borrowing party (without reference to the lending party's financial
abilities or guarantees) by unrelated lenders on comparable loans. The
borrowing party shall reimburse
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the lending party for any costs (other than any additional interest costs)
incurred by the lending party in connection with the borrowing of such funds.
For purposes of this Section 6.6(a) and Section 6.6(b), the term "Partnership"
shall include any Affiliate of the Partnership that is controlled by the
Partnership.
(b) The General Partner may itself, or may enter into an agreement with any
of its Affiliates to, render services to the Partnership or to the General
Partner in the discharge of its duties as general partner of the Partnership.
Any service rendered to the Partnership by the General Partner or any of its
Affiliates shall be on terms that are fair and reasonable to the Partnership;
provided, however, that the requirements of this Section 6.6(b) shall be deemed
satisfied as to (i) any transaction approved by Special Approval, (ii) any
transaction the terms of which are no less favorable to the Partnership than
those generally being provided to or available from unrelated third parties or
(iii) any transaction that, taking into account the totality of the
relationships between the parties involved (including other transactions that
may be particularly favorable or advantageous to the Partnership), is equitable
to the Partnership. The provisions of Section 6.4 shall apply to the rendering
of services described in this Section 6.6(b).
(c) The Partnership may transfer assets to joint ventures, other
partnerships, corporations, limited liability companies or other business
entities in which it is or thereby becomes a participant upon such terms and
subject to such conditions as are consistent with this Agreement and applicable
law.
(d) Neither the General Partner nor any of its Affiliates shall sell,
transfer or convey any property to, or purchase any property from, the
Partnership, directly or indirectly, except pursuant to transactions that are
fair and reasonable to the Partnership; provided, however, that the requirements
of this Section 6.6(d) shall be deemed to be satisfied as to (i) the
transactions effected pursuant to Section 4.2, the Contribution Agreement and
any other transactions described in or contemplated by the Registration
Statements, (ii) any transaction approved by Special Approval, (iii) any
transaction the terms of which are no less favorable to the Partnership than
those generally being provided to or available from unrelated third parties or
(iv) any transaction that, taking into account the totality of the relationships
between the parties involved (including other transactions that may be
particularly favorable or advantageous to the Partnership), is equitable to the
Partnership.
(e) The General Partner and its Affiliates will have no obligation to permit
the Partnership, an OLP Subsidiary or the MLP to use any facilities or assets of
the General Partner and its Affiliates, except as may be provided in contracts
entered into from time to time specifically dealing with such use, nor shall
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there be any obligation on the part of the General Partner or its Affiliates to
enter into such contracts.
(f) Without limitation of Sections 6.6(a) through 6.6(e), and notwithstanding
anything to the contrary in this Agreement, the existence of the conflicts of
interest described in the Registration Statements are hereby approved by all
Partners.
6.7 INDEMNIFICATION. (a) To the fullest extent permitted by law but
subject to the limitations expressly provided in this Agreement, the General
Partner, any Departing Partner, any Person who is or was an officer or director
of the Partnership, the General Partner or any Departing Partner and all other
Indemnitees shall be indemnified and held harmless by the Partnership from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including, without limitation, legal fees and expenses), judgments,
fines, penalties, interest, settlements and other amounts arising from any and
all claims, demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which any Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise, by reason of its status as
(i) the General Partner, a Departing Partner or any of their Affiliates, (ii) an
officer, director, employee, partner, agent or trustee of the Partnership, the
General Partner, any Departing Partner or any of their Affiliates or (iii) a
Person serving at the request of the Partnership in another entity in a similar
capacity, provided, that in each case the Indemnitee acted in good faith and in
a manner which such Indemnitee reasonably believed to be in, or not opposed to,
the best interests of the Partnership and, with respect to any criminal
proceeding, had no reasonable cause to believe its conduct was unlawful;
provided, further, no indemnification pursuant to this Section 6.7 shall be
available to the General Partner with respect to its obligations incurred
pursuant to the Contribution Agreement (other than obligations incurred by the
General Partner on behalf of the Partnership or the MLP). The termination of
any action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere, or its equivalent, shall not create a
presumption that the Indemnitee acted in a manner contrary to that specified
above. Any indemnification pursuant to this Section 6.7 shall be made only out
of the assets of the Partnership, it being agreed that the General Partner shall
not be personally liable for such indemnification and shall have no obligation
to contribute or loan any monies or property to the Partnership to enable it to
effectuate such indemnification.
(b) To the fullest extent permitted by law, expenses (including, without
limitation, legal fees and expenses) incurred by an Indemnitee who is
indemnified pursuant to Section 6.7(a) in defending any claim, demand, action,
suit or proceeding shall, from time to time, be advanced by the Partnership
prior to the final disposition of such claim, demand, action, suit or proceeding
upon
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receipt by the Partnership of an undertaking by or on behalf of the Indemnitee
to repay such amount if it shall be determined that the Indemnitee is not
entitled to be indemnified as authorized in this Section 6.7.
(c) The indemnification provided by this Section 6.7 shall be in addition to
any other rights to which an Indemnitee may be entitled under any agreement,
pursuant to any vote of the Partners, as a matter of law or otherwise, both as
to actions in the Indemnitee's capacity as (i) the General Partner, a Departing
Partner or an Affiliate thereof, (ii) an officer, director, employee, partner,
agent or trustee of the Partnership, the General Partner, any Departing Partner
or an Affiliate thereof or (iii) a Person serving at the request of the
Partnership in another entity in a similar capacity, and as to actions in any
other capacity (including, without limitation, any capacity under the
Underwriting Agreements), and shall continue as to an Indemnitee who has ceased
to serve in such capacity and shall inure to the benefit of the heirs,
successors, assigns and administrators of the Indemnitee.
(d) The Partnership may purchase and maintain (or reimburse the General
Partner or its Affiliates for the cost of) insurance, on behalf of the General
Partner and such other Persons as the General Partner shall determine, against
any liability that may be asserted against or expense that may be incurred by
such Person in connection with the Partnership's activities, regardless of
whether the Partnership would have the power to indemnify such Person against
such liability under the provisions of this Agreement.
(e) For purposes of this Section 6.7, the Partnership shall be deemed to have
requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute "fines"
within the meaning of Section 6.7(a); and action taken or omitted by it with
respect to an employee benefit plan in the performance of its duties for a
purpose reasonably believed by it to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is in, or
not opposed to, the best interests of the Partnership.
(f) In no event may an Indemnitee subject the Limited Partner to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in part
under this Section 6.7 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
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(h) The provisions of this Section 6.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons.
(i) No amendment, modification or repeal of this Section 6.7 or any provision
hereof shall in any manner terminate, reduce or impair the right of any past,
present or future Indemnitee to be indemnified by the Partnership, nor the
obligation of the Partnership to indemnify any such Indemnitee under and in
accordance with the provisions of this Section 6.7 as in effect immediately
prior to such amendment, modification or repeal with respect to claims arising
from or relating to matters occurring, in whole or in part, prior to such
amendment, modification or repeal, regardless of when such claims may arise or
be asserted.
6.8 LIABILITY OF INDEMNITEES. (a) Notwithstanding anything to the contrary
set forth in this Agreement, no Indemnitee shall be liable for monetary damages
to the Partnership, the Limited Partner, or any other Persons who have acquired
interests in the Partnership, for losses sustained or liabilities incurred as a
result of any act or omission if such Indemnitee acted in good faith.
(b) Subject to its obligations and duties as General Partner set forth in
Section 6.1(a), the General Partner may exercise any of the powers granted to it
by this Agreement and perform any of the duties imposed upon it hereunder either
directly or by or through its agents, and the General Partner shall not be
responsible for any misconduct or negligence on the part of any such agent
appointed by the General Partner in good faith.
(c) Any amendment, modification or repeal of this Section 6.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the liability to the Partnership and the Limited Partner of the
General Partner, its directors, officers and employees and any other Indemnitees
under this Section 6.8 as in effect immediately prior to such amendment,
modification or repeal with respect to claims arising from or relating to
matters occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when such claims may arise or be asserted.
6.9 RESOLUTION OF CONFLICTS OF INTEREST. (a) Unless otherwise expressly
provided in this Agreement or the MLP Agreement, whenever a potential conflict
of interest exists or arises between the General Partner or any of its
Affiliates, on the one hand, and the Partnership, the MLP or the Limited
Partner, on the other hand, any resolution or course of action in respect of
such conflict of interest shall be permitted and deemed approved by the Limited
Partner, and shall not constitute a breach of this Agreement, of the MLP
Agreement or of any agreement contemplated herein or
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therein, or of any duty stated or implied by law or equity, if the resolution or
course of action is, or by operation of this Agreement is deemed to be, fair and
reasonable to the Partnership. The General Partner shall be authorized but not
required in connection with its resolution of such conflict of interest to seek
Special Approval of a resolution of such conflict or course of action. Any
conflict of interest and any resolution of such conflict of interest shall be
conclusively deemed fair and reasonable to the Partnership if such conflict of
interest or resolution is (i) approved by Special Approval, (ii) on terms no
less favorable to the Partnership than those generally being provided to or
available from unrelated third parties or (iii) fair to the Partnership, taking
into account the totality of the relationships between the parties involved
(including other transactions that may be particularly favorable or advantageous
to the Partnership). The General Partner may also adopt a resolution or course
of action that has not received Special Approval. The General Partner
(including the Audit Committee in connection with Special Approval) shall be
authorized in connection with its determination of what is "fair and reasonable"
to the Partnership and in connection with its resolution of any conflict of
interest to consider (A) the relative interests of any party to such conflict,
agreement, transaction or situation and the benefits and burdens relating to
such interest; (B) any customary or accepted industry practices and any
customary or historical dealings with a particular Person; (C) any applicable
generally accepted accounting or engineering practices or principles; and (D)
such additional factors as the General Partner (including such Audit Committee)
determines in its sole discretion to be relevant, reasonable or appropriate
under the circumstances. Nothing contained in this Agreement, however, is
intended to nor shall it be construed to require the General Partner (including
such Audit Committee) to consider the interests of any Person other than the
Partnership. In the absence of bad faith by the General Partner, the
resolution, action or terms so made, taken or provided by the General Partner
with respect to such matter shall not constitute a breach of this Agreement, the
MLP Agreement or any other agreement contemplated herein or a breach of any
standard of care or duty imposed herein or therein or under the Delaware Act or
any other law, rule or regulation.
(b) Whenever this Agreement or any other agreement contemplated hereby
provides that the General Partner or any of its Affiliates is permitted or
required to make a decision (i) in its "sole discretion" or "discretion," that
it deems "necessary or appropriate" or under a grant of similar authority or
latitude, the General Partner or such Affiliate shall be entitled to consider
only such interests and factors as it desires and shall have no duty or
obligation to give any consideration to any interest of, or factors affecting,
the Partnership, the MLP, an OLP Subsidiary, the Limited Partner or any limited
partner in the MLP, (ii) it may make such decision in its sole discretion
(regardless of whether there
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is a reference to "sole discretion" or "discretion") unless another express
standard is provided for, or (iii) in "good faith" or under another express
standard, the General Partner or such Affiliate shall act under such express
standard and shall not be subject to any other or different standards imposed by
this Agreement, the MLP Agreement, any other agreement contemplated hereby or
under the Delaware Act or any other law, rule or regulation. In addition, any
actions taken by the General Partner or such Affiliate consistent with the
standards of "reasonable discretion" set forth in the definition of Available
Cash shall not constitute a breach of any duty of the General Partner to the
Partnership or the Limited Partner. The General Partner shall have no duty,
express or implied, to sell or otherwise dispose of any asset of the Partnership
or of an OLP Subsidiary, other than in the ordinary course of business. No
borrowing by the Partnership or the approval thereof by the General Partner
shall be deemed to constitute a breach of any duty of the General Partner to the
Partnership or the Limited Partner by reason of the fact that the purpose or
effect of such borrowing is directly or indirectly to (A) enable the holders of
IDRs to receive distributions under the MLP Agreement or increase the amount of
any such distributions, (B) hasten the termination of the "Subordination Period"
under the MLP Agreement or (C) reduce the "Cumulative Common Unit Arrearage"
under the MLP Agreement in order to hasten the conversion of the "Subordinated
Units" in the MLP into Common Units.
(c) Whenever a particular transaction, arrangement or resolution of a
conflict of interest is required under this Agreement to be "fair and
reasonable" to any Person, the fair and reasonable nature of such transaction,
arrangement or resolution shall be considered in the context of all similar or
related transactions.
6.10 OTHER MATTERS CONCERNING THE GENERAL PARTNER. (a) The General
Partner may rely and shall be protected in acting or refraining from acting upon
any resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, bond, debenture, or other paper or document believed by
it to be genuine and to have been signed or presented by the proper party or
parties.
(b) The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers and other consultants and
advisers selected by it, and any act taken or omitted to be taken in reliance
upon the opinion (including, without limitation, an Opinion of Counsel) of such
Persons as to matters that such General Partner reasonably believes to be within
such Person's professional or expert competence shall be conclusively presumed
to have been done or omitted in good faith and in accordance with such opinion.
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(c) The General Partner shall have the right, in respect of any of its powers
or obligations hereunder, to act through any of its duly authorized officers and
a duly appointed attorney or attorneys-in-fact. Each such attorney shall, to
the extent provided by the General Partner in the power of attorney, have full
power and authority to do and perform each and every act and duty that is
permitted or required to be done by the General Partner hereunder.
(d) Any standard of care and duty imposed by this Agreement or under the
Delaware Act or any applicable law, rule or regulation shall be modified, waived
or limited as required to permit the General Partner to act under this Agreement
or any other agreement contemplated by this Agreement and to make any decision
pursuant to the authority prescribed in this Agreement so long as such action is
not reasonably believed by the General Partner to be in, or not inconsistent
with, the best interests of the Partnership.
6.11 TITLE TO PARTNERSHIP ASSETS. Title to Partnership assets, whether
real, personal or mixed and whether tangible or intangible, shall be deemed to
be owned by the Partnership as an entity, and no Partner, individually or
collectively, shall have any ownership interest in such Partnership assets or
any portion thereof. Title to any or all of the Partnership assets may be held
in the name of the Partnership, the General Partner, one or more of its
Affiliates or one or more nominees, as the General Partner may determine. The
General Partner hereby declares and warrants that any Partnership assets for
which record title is held in the name of the General Partner or one or more of
its Affiliates or one or more nominees shall be held by the General Partner or
such Affiliate or nominee for the use and benefit of the Partnership in
accordance with the provisions of this Agreement; provided, however, that the
General Partner shall use its reasonable efforts to cause record title to such
assets (other than those assets in respect of which the General Partner
determines that the expense and difficulty of conveyancing makes transfer of
record title to the Partnership impracticable) to be vested in the Partnership
as soon as reasonably practicable; provided that, prior to the withdrawal or
removal of the General Partner or as soon thereafter as practicable, the General
Partner shall use reasonable efforts to effect the transfer of record title to
the Partnership and, prior to any such transfer, will provide for the use of
such assets in a manner satisfactory to the Partnership. All Partnership assets
shall be recorded as the property of the Partnership in its books and records,
irrespective of the name in which record title to such Partnership assets is
held.
6.12 RELIANCE BY THIRD PARTIES. Notwithstanding anything to the contrary
in this Agreement, any Person dealing with the Partnership shall be entitled to
assume that the General Partner has full power and authority to encumber, sell
or otherwise use in any manner any and all assets of the Partnership and to
enter into
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any contracts on behalf of the Partnership, and such Person shall be entitled to
deal with the General Partner as if it were the Partnership's sole party in
interest, both legally and beneficially. The Limited Partner hereby waives any
and all defenses or other remedies that may be available against such Person to
contest, negate or disaffirm any action of the General Partner in connection
with any such dealing. In no event shall any Person dealing with the General
Partner or its representatives be obligated to ascertain that the terms of this
Agreement have been complied with or to inquire into the necessity or expedience
of any act or action of the General Partner or its representatives. Each and
every certificate, document or other instrument executed on behalf of the
Partnership by the General Partner or its representatives shall be conclusive
evidence in favor of any and every Person relying thereon or claiming thereunder
that (a) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (b) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and (c)
such certificate, document or instrument was duly executed and delivered in
accordance with the terms and provisions of this Agreement and is binding upon
the Partnership.
ARTICLE VII
RIGHTS AND OBLIGATIONS OF THE LIMITED PARTNER
7.1 LIMITATION OF LIABILITY. The Limited Partner shall have no liability
under this Agreement except as expressly provided in this Agreement or the
Delaware Act.
7.2 MANAGEMENT OF BUSINESS. The Limited Partner, in its capacity as such,
shall not participate in the operation, management or control (within the
meaning of the Delaware Act) of the Partnership's business, transact any
business in the Partnership's name or have the power to sign documents for or
otherwise bind the Partnership. The transaction of any such business by the
Partnership, the General Partner, any of its Affiliates or any officer,
director, employee, partner, agent or trustee of the General Partner or any of
its Affiliates, in its capacity as such, shall not affect, impair or eliminate
the limitations on the liability of the Limited Partner under this Agreement.
7.3 RETURN OF CAPITAL. The Limited Partner shall not be entitled to the
withdrawal or return of its Capital Contribution, except to the extent, if any,
that distributions made pursuant to this Agreement or upon termination of the
Partnership may be considered as such by law and then only to the extent
provided for in this Agreement.
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7.4 RIGHTS OF THE LIMITED PARTNER RELATING TO THE PARTNERSHIP. (a) In
addition to other rights provided by this Agreement or by applicable law, and
except as limited by Section 7.4(b), the Limited Partner shall have the right,
for a purpose reasonably related to the Limited Partner's interest as a limited
partner in the Partnership, upon reasonable demand and at the Limited Partner's
own expense:
(i) to obtain true and full information regarding the status of the
business and financial condition of the Partnership;
(ii) promptly after becoming available, to obtain a copy of the
Partnership's federal, state and local tax returns for each year;
(iii) to have furnished to it, upon notification to the General Partner,
a current list of the name and last known business, residence or mailing
address of each Partner;
(iv) to have furnished to it, upon notification to the General Partner,
a copy of this Agreement and the Certificate of Limited Partnership and
all amendments thereto, together with a copy of the executed copies of all
powers of attorney pursuant to which this Agreement, the Certificate of
Limited Partnership and all amendments thereto have been executed;
(v) to obtain true and full information regarding the amount of cash and
a description and statement of the Agreed Value of any other Capital
Contribution by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a Partner; and
(vi) to obtain such other information regarding the affairs of the
Partnership as is just and reasonable.
(b) Notwithstanding any other provision of this Agreement, the General
Partner may keep confidential from the Limited Partner for such period of time
as the General Partner deems reasonable, any information that the General
Partner reasonably believes to be in the nature of trade secrets or other
information the disclosure of which the General Partner in good faith believes
is not in the best interests of the Partnership or could damage the Partnership
or that the Partnership is required by law or by agreements with third parties
to keep confidential (other than agreements with Affiliates of the General
Partner the primary purpose of which is to circumvent the obligations set forth
in this Section 7.4).
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ARTICLE VIII
BOOKS, RECORDS, ACCOUNTING AND REPORTS
8.1 RECORDS AND ACCOUNTING. The General Partner shall keep or cause to be
kept at the principal office of the Partnership appropriate books and records
with respect to the Partnership's business, including, without limitation, all
books and records necessary to provide to the Limited Partner any information,
lists and copies of documents required to be provided pursuant to Section
7.4(a). Any books and records maintained by or on behalf of the Partnership in
the regular course of its business, including, without limitation, books of
account and records of Partnership proceedings, may be kept on, or be in the
form of, computer disks, hard drives, punch cards, magnetic tape, photographs,
micrographics or any other information storage device, provided, that the books
and records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial reporting purposes, on an accrual basis in accordance
with generally accepted accounting principles.
8.2 FISCAL YEAR. The fiscal year of the Partnership shall be August 1 to
July 31.
ARTICLE IX
TAX MATTERS
9.1 PREPARATION OF TAX RETURNS. The General Partner shall arrange for the
preparation and timely filing of all returns of Partnership income, gains,
deductions, losses and other items required of the Partnership for federal and
state income tax purposes and shall use all reasonable efforts to furnish,
within 90 days of the close of each calendar year, the tax information
reasonably required by the Partners for federal and state income tax reporting
purposes. The classification, realization and recognition of income, gain,
losses and deductions and other items shall be on the accrual method of
accounting for federal income tax purposes. The taxable year of the Partnership
shall be August 1 to July 31.
9.2 TAX ELECTIONS. Except as otherwise provided herein, the General Partner
shall, in its sole discretion, determine whether to make any available election
pursuant to the Code; provided, however, that the General Partner shall make the
election under Section 754 of the Code in accordance with applicable regulations
thereunder. The General Partner shall have the right to seek to revoke any such
election (including, without limitation, the election under Section 754 of the
Code) upon the General Partner's determination in its sole discretion that such
revocation is in the best interests of the Limited Partner.
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9.3 TAX CONTROVERSIES. Subject to the provisions hereof, the General
Partner is designated the Tax Matters Partner (as defined in Section 6231 of the
Code), and is authorized and required to represent the Partnership (at the
Partnership's expense) in connection with all examinations of the Partnership's
affairs by tax authorities, including, without limitation, resulting
administrative and judicial proceedings, and to expend Partnership funds for
professional services and costs associated therewith. The Limited Partner
agrees to cooperate with the General Partner and to do or refrain from doing any
or all things reasonably required by the General Partner to conduct such
proceedings.
9.4 ORGANIZATIONAL EXPENSES. The Partnership shall elect to deduct
expenses, if any, incurred by it in organizing the Partnership ratably over a
60-month period as provided in Section 709 of the Code.
9.5 WITHHOLDING. Notwithstanding any other provision of this Agreement, the
General Partner is authorized to take any action that it determines in its sole
discretion to be necessary or appropriate to cause the Partnership to comply
with any withholding requirements established under the Code or any other
federal, state or local law including, without limitation, pursuant to Sections
1441, 1442, 1445 and 1446 of the Code. To the extent that the Partnership is
required to withhold and pay over to any taxing authority any amount resulting
from the allocation or distribution of income to any Partner (including, without
limitation, by reason of Section 1446 of the Code), the amount withheld shall be
treated as a distribution of cash pursuant to Section 5.3 in the amount of such
withholding from such Partner.
9.6 OPINIONS OF COUNSEL. Notwithstanding any other provision of this
Agreement, if the Partnership is treated as an association taxable as a
corporation at any time or is otherwise taxable for federal income tax purposes
as an entity at any time and, pursuant to the provisions of this Agreement, an
Opinion of Counsel would otherwise be required to the effect that an action will
not cause the Partnership to become so treated as an association taxable as a
corporation or otherwise taxable as an entity for federal income tax purposes,
such requirement for an Opinion of Counsel shall be deemed automatically waived.
ARTICLE X
TRANSFER OF INTERESTS
10.1 TRANSFER. (a) The term "TRANSFER," when used in this Article X with
respect to a Partnership Interest, shall be deemed to refer to a transaction by
which a Partner disposes of its Partnership Interest to another Person and
includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage,
exchange or any other disposition by law or otherwise.
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(b) No Partnership Interest shall be transferred, in whole or in part, except
in accordance with the terms and conditions set forth in this Article X. Any
transfer or purported transfer of a Partnership Interest not made in accordance
with this Article X shall be null and void.
(c) Nothing contained in this Article X shall be construed to prevent a
disposition by the parent entity of the General Partner of any or all of the
issued and outstanding capital stock of the General Partner.
10.2 TRANSFER OF THE GENERAL PARTNER'S PARTNERSHIP INTEREST. If the
general partner of the MLP transfers its partnership interest as the general
partner therein to any Person in accordance with the provisions of the MLP
Agreement, the General Partner shall contemporaneously therewith transfer its
Partnership Interest as the general partner of the Partnership to such Person,
and the Limited Partner hereby expressly consents to such transfer. Except as
set forth in the immediately preceding sentence, the General Partner may not
transfer all or any part of its Partnership Interest as the general partner in
the Partnership.
10.3 TRANSFER OF THE LIMITED PARTNER'S PARTNERSHIP INTEREST. If the
Limited Partner merges, consolidates or otherwise combines into any other Person
or transfers all or substantially all of its assets to another Person, such
Person may become a Substituted Limited Partner pursuant to Article XI. Except
as set forth in the immediately preceding sentence and except for the transfer
by Ferrellgas of its Partnership Interest as a limited partner in the
Partnership to the MLP as provided in the Contribution Agreement and
contemplated by Sections 4.2 and 11.2, a Limited Partner may not transfer all or
any part of its Partnership Interest or withdraw from the Partnership.
ARTICLE XI
ADMISSION OF PARTNERS
11.1 ADMISSION OF INITIAL PARTNERS. Upon the formation of the Partnership
pursuant to the filing of the Certificate of Limited Partnership, Ferrellgas was
admitted to the Partnership as the sole general partner and the MLP was admitted
to the Partnership as the sole limited partner.
11.2 ADMISSION OF FERRELLGAS AS A LIMITED PARTNER. Upon the making by
Ferrellgas of the Capital Contributions described in Section 4.2, Ferrellgas
shall be admitted to the Partnership as a limited partner. Upon the transfer by
Ferrellgas of its Partnership Interest as a limited partner to the MLP as
provided in the Contribution Agreement, Ferrellgas shall cease to be a limited
partner of the Partnership.
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11.3 ADMISSION OF SUBSTITUTED LIMITED PARTNERS. Any person that is the
successor in interest to a Limited Partner as described in Section 10.3 shall be
admitted to the Partnership as a limited partner upon (a) furnishing to the
General Partner (i) acceptance in form satisfactory to the General Partner of
all of the terms and conditions of this Agreement and (ii) such other documents
or instruments as may be required to effect its admission as a limited partner
in the Partnership and (b) obtaining the consent of the General Partner, which
consent may be withheld or granted in the sole discretion of the General
Partner. Such Person shall be admitted to the Partnership as a limited partner
immediately prior to the transfer of the Partnership Interest, and the business
of the Partnership shall continue without dissolution.
11.4 ADMISSION OF SUCCESSOR GENERAL PARTNER. A successor General Partner
approved pursuant to Section 12.1 or 12.2 or the transferee of or successor to
all of the General Partner's Partnership Interest as the general partner in the
Partnership pursuant to Section 10.2 who is proposed to be admitted as a
successor General Partner shall, subject to compliance with the terms of Section
12.3, if applicable, be admitted to the Partnership as the successor General
Partner, effective immediately prior to the withdrawal or removal of the General
Partner pursuant to Section 12.1 or 12.2 or the transfer of the General
Partner's Partnership Interest as the general partner of the Partnership
pursuant to Section 10.2. Any such successor shall, subject to the terms
hereof, carry on the business of the Partnership without dissolution. In each
case, the admission of such successor General Partner to the Partnership shall,
subject to the terms hereof, be subject to the successor General Partner
executing and delivering to the Partnership an acceptance of all of the terms
and conditions of this Agreement and such other documents or instruments as may
be required to effect such admission.
11.5 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP. To
effect the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Delaware Act to amend
the records of the Partnership to reflect such admission and, if necessary, to
prepare as soon as practical an amendment of this Agreement and, if required by
law, to prepare and file an amendment to the Certificate of Limited Partnership
and may for this purpose, among others, exercise the power of attorney granted
pursuant to Section 1.4.
11.6 ADMISSION OF ADDITIONAL LIMITED PARTNERS. (a) A Person (other than
the General Partner, the Initial Limited Partner or a Substituted Limited
Partner) who makes a Capital Contribution to the Partnership in accordance with
this Agreement shall be admitted to the Partnership as an Additional Limited
Partner only upon furnishing to the General Partner (i) evidence of acceptance
in form satisfactory to the General Partner of all of the terms and
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conditions of this Agreement, including, without limitation, the granting of the
power of attorney granted in Section 1.4, and (ii) such other documents or
instruments as may be required in the discretion of the General Partner to
effect such Person's admission as an Additional Limited Partner.
(b) Notwithstanding anything to the contrary in this Section 11.6, no Person
shall be admitted as an Additional Limited Partner without the consent of the
General Partner, which consent may be given or withheld in the General Partner's
sole discretion. The admission of any Person as an Additional Limited Partner
shall become effective on the date upon which the name of such Person is
recorded as such in the books and records of the Partnership, following the
consent of the General Partner to such admission.
ARTICLE XII
WITHDRAWAL OR REMOVAL OF PARTNERS
12.1 WITHDRAWAL OF THE GENERAL PARTNER. (a) The General Partner shall be
deemed to have withdrawn from the Partnership upon the occurrence of any one of
the following events (each such event herein referred to as an "Event of
Withdrawal");
(i) the General Partner voluntarily withdraws from the Partnership by
giving written notice to the Limited Partner;
(ii) the General Partner transfers all of its rights as General Partner
pursuant to Section 10.2;
(iii) the General Partner is removed pursuant to Section 12.2;
(iv) the general partner of the MLP withdraws from, or is removed as the
general partner of, the MLP;
(v) the General Partner (A) makes a general assignment for the benefit
of creditors; (B) files a voluntary bankruptcy petition; (C) files a
petition or answer seeking for itself a reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief
under any law; (D) files an answer or other pleading admitting or failing
to contest the material allegations of a petition filed against the
General Partner in a proceeding of the type described in clauses (A)-(C)
of this Section 12.1(a)(v); or (E) seeks, consents to or acquiesces in the
appointment of a trustee, receiver or liquidator of the General Partner or
of all or any substantial part of its properties;
(vi) a final and non-appealable judgment is entered by a court with
appropriate jurisdiction ruling that the General Partner is bankrupt or
insolvent, or a final and non-appealable
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order for relief is entered by a court with appropriate jurisdiction against the
General Partner, in each case under any federal or state bankruptcy or
insolvency laws as now or hereafter in effect; or
(vii) a certificate of dissolution or its equivalent is filed for the
General Partner, or 90 days expire after the date of notice to the General
Partner of revocation of its charter without a reinstatement of its
charter, under the laws of its state of incorporation.
If an Event of Withdrawal specified in Section 12.1(a)(v), (vi) or (vii) occurs,
the withdrawing General Partner shall give notice to the Limited Partner within
30 days after such occurrence. The Partners hereby agree that only the Events
of Withdrawal described in this Section 12.1 shall result in the withdrawal of
the General Partner from the Partnership.
(b) Withdrawal of the General Partner from the Partnership upon the
occurrence of an Event of Withdrawal shall not constitute a breach of this
Agreement under the following circumstances:
(i) at any time during the period beginning on the Closing Date and
ending at 12:00 Midnight, Central Standard Time, on July 31, 2004 the
General Partner voluntarily withdraws by giving at least 90 days' advance
notice of its intention to withdraw to the Limited Partner, provided, that
prior to the effective date of such withdrawal the Limited Partner
approves such withdrawal and the General Partner delivers to the
Partnership an Opinion of Counsel ("WITHDRAWAL OPINION OF COUNSEL") that
such withdrawal (following the selection of the successor General Partner)
would not result in the loss of the limited liability of the Limited
Partner or cause the Partnership to be treated as an association taxable
as a corporation or otherwise to be taxed as an entity for federal income
tax purposes;
(ii) at any time on or after 12:00 Midnight, Central Standard Time, on
July 31, 2004, the General Partner voluntarily withdraws by giving at
least 90 days' advance notice to the Limited Partner, such withdrawal to
take effect on the date specified in such notice; or
(iii) at any time that the General Partner ceases to be the General
Partner pursuant to Section 12.1(a)(ii), (iii) or (iv). If the General
Partner gives a notice of withdrawal pursuant to Section 12.1(a)(i), the
Limited Partner may, prior to the effective date of such withdrawal or
removal, elect a successor General Partner, provided, that such successor
shall be the same Person, if any, that is elected by the limited partners
of the MLP pursuant to Section 13.1 of the MLP Agreement as the successor
to the General Partner in its
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capacity as general partner of the MLP. If, prior to the effective date of the
General Partner's withdrawal, a successor is not selected by the Limited Partner
as provided herein or the Partnership does not receive a Withdrawal Opinion of
Counsel, the Partnership shall be dissolved in accordance with Section 13.1.
Any successor General Partner elected in accordance with the terms of this
Section 12.1 shall be subject to the provisions of Section 11.4.
12.2 REMOVAL OF THE GENERAL PARTNER. The General Partner shall be removed
if such General Partner is removed as a general partner of the MLP pursuant to
Section 13.2 of the MLP Agreement. Such removal shall be effective concurrently
with the effectiveness of the removal of such General Partner as the general
partner of the MLP pursuant to the terms of the MLP Agreement. If a successor
General Partner is elected in connection with the removal of such General
Partner as a general partner of the MLP, such successor General Partner shall,
upon admission pursuant to Article XI, automatically become a successor General
Partner of the Partnership. The admission of any such successor General Partner
to the Partnership shall be subject to the provisions of Section 11.4.
12.3 INTEREST OF DEPARTING PARTNER AND SUCCESSOR GENERAL PARTNER. The
Partnership Interest of a Departing Partner departing as a result of withdrawal
or removal pursuant to Section 12.1 or 12.2 shall (unless it is otherwise
required to be converted into Common Units pursuant to Section 13.3(b) of the
MLP Agreement) be purchased by the successor to the Departing Partner for cash
in the manner specified in the MLP Agreement. Such purchase (or conversion into
Common Units, as applicable) shall be a condition to the admission to the
Partnership of the successor as the General Partner. Any successor General
Partner shall indemnify the Departing General Partner as to all debts and
liabilities of the Partnership arising on or after the effective date of the
removal of the Departing Partner.
12.4 REIMBURSEMENT OF DEPARTING PARTNER. The Departing Partner shall be
entitled to receive all reimbursements due such Departing Partner pursuant to
Section 6.4, including, without limitation, any employee-related liabilities
(including, without limitation, severance liabilities), incurred in connection
with the termination of any employees employed by such departing Partner for the
benefit of the Partnership.
12.5 WITHDRAWAL OF THE LIMITED PARTNER. Without the prior consent of the
General Partner, which may be granted or withheld in its sole discretion, the
Limited Partner shall not have the right to withdraw from the Partnership.
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ARTICLE XIII
DISSOLUTION AND LIQUIDATION
13.1 DISSOLUTION. The Partnership shall not be dissolved by the admission
of Substituted Limited Partners or Additional Limited Partners or by the
admission of a successor General Partner in accordance with the terms of this
Agreement. Upon the removal or withdrawal of the General Partner any successor
General Partner shall continue the business of the Partnership. The Partnership
shall dissolve and, subject to Section 13.2, its affairs should be wound up,
upon:
(a) the expiration of its term as provided in Section 1.5;
(b) an Event of Withdrawal of the General Partner as provided in Section
12.1(a) (other than Section 12.1(a)(ii)), unless a successor is elected and an
Opinion of Counsel is received as provided in Section 12.1(b) or 12.2 and such
successor is admitted to the Partnership pursuant to Section 11.4;
(c) an election to dissolve the Partnership by the General Partner that is
approved by the Limited Partner;
(d) entry of a decree of judicial dissolution of the Partnership pursuant to
the provisions of the Delaware Act;
(e) the sale of all or substantially all of the assets and properties of the
Partnership; or
(f) the dissolution of the MLP.
13.2 CONTINUATION OF THE BUSINESS OF THE PARTNERSHIP AFTER DISSOLUTION.
Upon (a) dissolution of the Partnership following an Event of Withdrawal caused
by the withdrawal or removal of the General Partner as provided in Section
12.1(a)(i) or (iii) and following a failure of the Limited Partner to appoint a
successor General Partner as provided in Section 12.1 or 12.2, then within 90
days thereafter or (b) dissolution of the Partnership upon an event constituting
an Event of Withdrawal as defined in Section 12.1(a)(v), (vi) or (vii), then
within 180 days thereafter, the Limited Partner may elect to reconstitute the
Partnership and continue its business on the same terms and conditions set forth
in this Agreement by forming a new limited partnership on terms identical to
those set forth in this Agreement and having as a general partner a Person
approved by the Limited Partner. In addition, upon dissolution of the
Partnership pursuant to Section 13.1(f), if the MLP is reconstituted pursuant to
Section 14.2 of the MLP Agreement, the reconstituted MLP may, within 180 days
after such event of dissolution, as the Limited Partner, elect to reconstitute
the Partnership in accordance with the immediately preceding sentence. Upon any
such election by the Limited Partner,
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all Partners shall be bound thereby and shall be deemed to have approved same.
Unless such an election is made within the applicable time period as set forth
above, the Partnership shall conduct only activities necessary to wind up its
affairs. If such an election is so made, then:
(i) the reconstituted Partnership shall continue until the end of the
term set forth in Section 1.5 unless earlier dissolved in accordance with
this Article XIII;
(ii) if the successor General Partner is not the former General Partner,
then the interest of the former General Partner shall be purchased by the
successor General Partner or converted into Common Units of the MLP as
provided in the MLP Agreement; and
(iii) all necessary steps shall be taken to cancel this Agreement and
the Certificate of Limited Partnership and to enter into and, as
necessary, to file a new partnership agreement and certificate of limited
partnership, and the successor General Partner may for this purpose
exercise the powers of attorney granted the General Partner pursuant to
Section 1.4; provided, that the right to approve a successor General
Partner and to reconstitute and to continue the business of the
Partnership shall not exist and may not be exercised unless the
Partnership has received an Opinion of Counsel that (x) the exercise of
the right would not result in the loss of limited liability of the Limited
Partner and (y) neither the Partnership nor the reconstituted limited
partnership would be treated as an association taxable as a corporation or
otherwise be taxable as an entity for federal income tax purposes upon the
exercise of such right to continue.
13.3 LIQUIDATION. Upon dissolution of the Partnership, unless the
Partnership is continued under an election to reconstitute and continue the
Partnership pursuant to Section 13.2, the General Partner, or in the event the
General Partner has been dissolved or removed, become bankrupt as set forth in
Section 12.1 or withdrawn from the Partnership, a liquidator or liquidating
committee approved by the Limited Partner, shall be the Liquidator. The
Liquidator (if other than the General Partner) shall be entitled to receive such
compensation for its services as may be approved by the Limited Partner. The
Liquidator shall agree not to resign at any time without 15 days' prior notice
and (if other than the General Partner) may be removed at any time, with or
without cause, by notice of removal approved by the Limited Partner. Upon
dissolution, removal or resignation of the Liquidator, a successor and
substitute Liquidator (who shall have and succeed to all rights, powers and
duties of the original Liquidator) shall within 30 days thereafter be approved
by the Limited Partner. The right to approve a successor or substitute
Liquidator in the manner
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provided herein shall be deemed to refer also to any such successor or
substitute Liquidator approved in the manner herein provided. Except as
expressly provided in this Article XIII, the Liquidator approved in the manner
provided herein shall have and may exercise, without further authorization or
consent of any of the parties hereto, all of the powers conferred upon the
General Partner under the terms of this Agreement (but subject to all of the
applicable limitations, contractual and otherwise, upon the exercise of such
powers, other than the limitation on sale set forth in Section 6.3(b)) to the
extent necessary or desirable in the good faith judgment of the Liquidator to
carry out the duties and functions of the Liquidator hereunder for and during
such period of time as shall be reasonably required in the good faith judgment
of the Liquidator to complete the winding-up and liquidation of the Partnership
as provided for herein. The Liquidator shall liquidate the assets of the
Partnership, and apply and distribute the proceeds of such liquidation in the
following order of priority, unless otherwise required by mandatory provisions
of applicable law:
(a) the payment to creditors of the Partnership, including, without
limitation, Partners who are creditors, in the order of priority provided by
law; and the creation of a reserve of cash or other assets of the Partnership
for contingent liabilities in an amount, if any, determined by the Liquidator to
be appropriate for such purposes; and
(b) to all Partners in accordance with the positive balances in their
respective Capital Accounts, as determined after taking into account all Capital
Account adjustments (other than those made by reason of this clause) for the
taxable year of the Partnership during which the liquidation of the Partnership
occurs (with the date of such occurrence being determined pursuant to Treasury
Regulation Section 1.704-1(b)(2)(ii)(g)); and such distribution shall be made by
the end of such taxable year (or, if later, within 90 days after said date of
such occurrence).
13.4 DISTRIBUTIONS IN KIND. (a) Notwithstanding the provisions of
Section 13.3, which require the liquidation of the assets of the Partnership,
but subject to the order of priorities set forth therein, if prior to or upon
dissolution of the Partnership the Liquidator determines that an immediate sale
of part or all of the Partnership's assets would be impractical or would cause
undue loss to the Partners, the Liquidator may, in its absolute discretion,
defer for a reasonable time the liquidation of any assets except those necessary
to satisfy liabilities of the Partnership (including, without limitation, those
to Partners as creditors) and/or distribute to the Partners or to specific
classes of Partners, in lieu of cash, as tenants in common and in accordance
with the provisions of Section 13.3, undivided interests in such Partnership
assets as the Liquidator deems not suitable for
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liquidation. Any such distributions in kind shall be made only if, in the good
faith judgment of the Liquidator, such distributions in kind are in the best
interest of the Limited Partner, and shall be subject to such conditions
relating to the disposition and management of such properties as the Liquidator
deems reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair market
value of any property distributed in kind using such reasonable method of
valuation as it may adopt.
(b) In accordance with Section 704(c)(1)(B) of the Code, in the case of any
deemed distribution occurring as a result of a termination of the Partnership
pursuant to Section 708(b)(1)(B) of the Code, to the maximum extent possible
consistent with the priorities of Section 13.3, the General Partner shall have
sole discretion to treat the deemed distribution of Partnership assets to
Partners as occurring in a manner that will not cause a shift of the Book-Tax
Disparity attributable to a Partnership asset existing immediately prior to the
deemed distribution to another asset upon the deemed contribution of assets to
the reconstituted Partnership, including, without limitation, deeming the
distribution of any Partnership assets to be made either to the Partner who
contributed such assets or to the transferee of such Partner.
13.5 CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP. Upon the
completion of the distribution of Partnership cash and property as provided in
Sections 13.3 and 13.4 in connection with the liquidation of the Partnership,
the Partnership shall be terminated and the Certificate of Limited Partnership
and all qualifications of the Partnership as a foreign limited partnership in
jurisdictions other than the State of Delaware shall be cancelled and such other
actions as may be necessary to terminate the Partnership shall be taken.
13.6 REASONABLE TIME FOR WINDING UP. A reasonable time shall be allowed
for the orderly winding up of business and affairs of the Partnership and the
liquidation of its assets pursuant to Section 13.3 in order to minimize any
losses otherwise attendant upon such winding up, and the provisions of this
Agreement shall remain in effect between the Partners during the period of
liquidation.
13.7 RETURN OF CAPITAL. The General Partner shall not be personally
liable for, and shall have no obligation to contribute or loan any monies or
property to the Partnership to enable it to effectuate, the return of the
Capital Contributions of the Limited Partner, or any portion thereof, it being
expressly understood that any such return shall be made solely from Partnership
assets.
13.8 CAPITAL ACCOUNT RESTORATION. No Limited Partner shall have any
obligation to restore any negative balance in its Capital Account upon
liquidation of the Partnership. The General Partner
53
<PAGE>
shall be obligated to restore any negative balance in its Capital Account upon
liquidation of its interest in the Partnership by the end of the taxable year of
the Partnership during which such liquidation occurs, or, if later, within 90
days after the date of such liquidation.
13.9 WAIVER OF PARTITION. Each Partner hereby waives any right to
partition of the Partnership property.
ARTICLE XIV
AMENDMENT OF PARTNERSHIP AGREEMENT
14.1 AMENDMENT TO BE ADOPTED SOLELY BY GENERAL PARTNER. The Limited
Partner agrees that the General Partner (pursuant to its powers of attorney from
the Limited Partner), without the approval of the Limited Partner, may amend any
provision of this Agreement, and execute, swear to, acknowledge, deliver, file
and record whatever documents may be required in connection therewith, to
reflect:
(a) a change in the name of the Partnership, the location of the principal
place of business of the Partnership, the registered agent of the Partnership or
the registered office of the Partnership;
(b) admission, substitution, withdrawal or removal of Partners in accordance
with this Agreement;
(c) a change that, in the sole discretion of the General Partner, is necessary
or appropriate to qualify or continue the qualification of the Partnership as a
limited partnership or a partnership in which the limited partners have limited
liability under the laws of any state or that is necessary or advisable in the
opinion of the General Partner to ensure that the Partnership will not be
treated as an association taxable as a corporation or otherwise taxed as an
entity for federal income tax purposes;
(d) a change (i) that, in the sole discretion of the General Partner, does not
adversely affect the Limited Partner in any material respect, (ii) that is
necessary or desirable to satisfy any requirements, conditions or guidelines
contained in any opinion, directive, order, ruling or regulation of any federal
or state agency or judicial authority or contained in any federal or state
statute (including, without limitation, the Delaware Act), compliance with any
of which the General Partner determines in its sole discretion to be in the best
interests of the Partnership and the Limited Partner, (iii) that is required to
effect the intent of the provisions of this Agreement or is otherwise
contemplated by this Agreement or (iv) that is required to conform the
provisions of this
54
<PAGE>
Agreement with the provisions of the MLP Agreement as the provisions of the MLP
Agreement may be amended, supplemented or restated from time to time;
(e) a change in the fiscal year and taxable year of the Partnership and any
changes that, in the sole discretion of the General Partner, are necessary or
appropriate as a result of a change in the fiscal year and taxable year of the
Partnership including, without limitation, if the General Partner shall so
determine, a change in the definition of "Quarter" and the dates on which
distributions are to be made by the Partnership;
(f) an amendment that is necessary, in the Opinion of Counsel, to prevent the
Partnership or the General Partner or its directors or officers from in any
manner being subjected to the provisions of the Investment Company Act of 1940,
as amended, the Investment Advisers Act of 1940, as amended, or "plan asset"
regulations adopted under the Employee Retirement Income Security Act of 1974,
as amended, whether or not substantially similar to plan asset regulations
currently applied or proposed by the United States Department of Labor;
(g) any amendment expressly permitted in this Agreement to be made by the
General Partner acting alone;
(h) an amendment effected, necessitated or contemplated by a Merger Agreement
approved in accordance with Section 15.3;
(i) an amendment that, in the sole discretion of the General Partner, is
necessary or desirable to reflect, account for and deal with appropriately the
formation by the Partnership of, or investment by the Partnership in, any
corporation, partnership, joint venture, limited liability company or other
entity, in connection with the conduct by the Partnership of activities
permitted by the terms of Section 3.1; or
(j) any other amendments substantially similar to the foregoing.
14.2 AMENDMENT PROCEDURES. Except with respect to amendments of the type
described in Section 14.1, all amendments to this Agreement shall be made in
accordance with the following requirements. Amendments to this Agreement may be
proposed only by or with the consent of the General Partner. Each such proposal
shall contain the text of the proposed amendment. A proposed amendment shall be
effective upon its approval by the Limited Partner.
55
<PAGE>
ARTICLE XV
MERGER
15.1 AUTHORITY. The Partnership may merge or consolidate with one or more
corporations, business trusts or associations, real estate investment trusts,
common law trusts or unincorporated businesses, including, without limitation, a
general partnership or limited partnership, formed under the laws of the State
of Delaware or any other state of the United States of America, pursuant to a
written agreement of merger or consolidation ("Merger Agreement") in accordance
with this Article.
15.2 PROCEDURE FOR MERGER OR CONSOLIDATION. Merger or consolidation of
the Partnership pursuant to this Article requires the prior approval of the
General Partner. If the General Partner shall determine, in the exercise of its
sole discretion, to consent to the merger or consolidation, the General Partner
shall approve the Merger Agreement, which shall set forth:
(a) The names and jurisdictions of formation or organization of each of the
business entities proposing to merge or consolidate;
(b) The name and jurisdictions of formation or organization of the business
entity that is to survive the proposed merger or consolidation (the "Surviving
Business Entity")
(c) The terms and conditions of the proposed merger or consolidation;
(d) The manner and basis of exchanging or converting the equity securities of
each constituent business entity for, or into, cash, property or general or
limited partnership interests, rights, securities or obligations of the
Surviving Business Entity; and (i) if any general or limited partnership
interests, securities or rights of any constituent business entity are not to be
exchanged or converted solely for, or into, cash, property or general or limited
partnership interests, rights, securities or obligations of the Surviving
Business Entity, the cash, property or general or limited partnership interests,
rights, securities or obligations of any limited partnership, corporation, trust
or other entity (other than the Surviving Business Entity) which the holders of
such general or limited partnership interests, securities or rights are to
receive in exchange for, or upon conversion of, their general or limited partner
interests, securities or rights, and (ii) in the case of securities represented
by certificates, upon the surrender of such certificates, which cash, property
or general or limited partnership interests, rights, securities or obligations
of the Surviving Business Entity or any general or limited partnership,
corporation, trust or other entity
56
<PAGE>
(other than the Surviving Business Entity), or evidences thereof, are to be
delivered;
(e) A statement of any changes in the constituent documents or the adoption of
new constituent documents (the articles or certificate of incorporation,
articles of trust, declaration of trust, certificate or agreement of limited
partnership or other similar charter or governing document) of the Surviving
Business Entity to be effected by such merger or consolidation;
(f) The effective time of the merger, which may be the date of the filing of
the certificate of merger pursuant to Section 15.4 or a later date specified in
or determinable in accordance with the Merger Agreement (provided, that if the
effective time of the merger is to be later than the date of the filing of the
certificate of merger, the effective time shall be fixed no later than the time
of the filing of the certificate of merger and stated therein); and
(g) Such other provisions with respect to the proposed merger or consolidation
as are deemed necessary or appropriate by the General Partner.
15.3 APPROVAL BY LIMITED PARTNER OF MERGER OR CONSOLIDATION. (a) The
General Partner of the Partnership, upon its approval of the Merger Agreement,
shall direct that a copy or a summary of the Merger Agreement be submitted to
the Limited Partner for its approval.
(b) The Merger Agreement shall be approved upon receiving the consent of the
Limited Partner. After such approval by the Limited Partner, and at any time
prior to the filing of the certificate of merger pursuant to Section 15.4, the
merger or consolidation may be abandoned pursuant to provisions therefor, if
any, set forth in the Merger Agreement.
15.4 CERTIFICATE OF MERGER. Upon the required approval by the General
Partner and the Limited Partner of a Merger Agreement, a certificate of merger
shall be executed and filed with the Secretary of State of the State of Delaware
in conformity with the requirements of the Delaware Act.
15.5 EFFECT OF MERGER. (a) At the effective time of the certificate of
merger:
(i) all of the rights, privileges and powers of each of the business
entities that has merged or consolidated, and all property, real, personal
and mixed, and all debts due to any of those business entities and all
other things and causes of action belonging to each of those business
entities shall be vested in the Surviving Business Entity and after the
merger
57
<PAGE>
or consolidation shall be the property of the Surviving Business Entity to the
extent they were of each constituent business entity;
(ii) the title to any real property vested by deed or otherwise in any
of those constituent business entities shall not revert and is not in any
way impaired because of the merger or consolidation;
(iii) all rights of creditors and all liens on or security interest in
property of any of those constituent business entities shall be preserved
unimpaired; and
(iv) all debts, liabilities and duties of those constituent business
entities shall attach to the Surviving Business Entity, and may be
enforced against it to the same extent as if the debts, liabilities and
duties had been incurred or contracted by it.
(b) A merger or consolidation effected pursuant to this Article shall
not be deemed to result in a transfer or assignment of assets or
liabilities from one entity to another having occurred.
ARTICLE XVI
GENERAL PROVISIONS
16.1 ADDRESSES AND NOTICES. Any notice, demand, request or report
required or permitted to be given or made to a Partner under this Agreement
shall be in writing and shall be deemed given or made when received by it at the
principal office of the Partnership referred to in Section 1.3.
16.2 REFERENCES. Except as specifically provided otherwise, references to
"Articles" and "Sections" are to Articles and Sections of this Agreement.
16.3 PRONOUNS AND PLURALS. Whenever the context may require, any pronoun
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns, pronouns and verbs shall include
the plural and vice versa.
16.4 FURTHER ACTION. The parties shall execute and deliver all documents,
provide all information and take or refrain from taking action as may be
necessary or appropriate to achieve the purposes of this Agreement.
16.5 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their heirs, executors, administrators,
successors, legal representatives and permitted assigns.
58
<PAGE>
16.6 INTEGRATION. This Agreement constitutes the entire agreement among the
parties hereto pertaining to the subject matter hereof and supersedes all prior
agreements and understandings pertaining thereto.
16.7 CREDITORS. None of the provisions of this Agreement shall be for the
benefit of, or shall be enforceable by, any creditor of the Partnership.
16.8 WAIVER. No failure by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
16.9 COUNTERPARTS. This Agreement may be executed in counterparts, all of
which together shall constitute an agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto, independently of the signature of any other
party.
16.10 APPLICABLE LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Delaware, without regard to the
principles of conflicts of law.
16.11 INVALIDITY OF PROVISIONS. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not be
affected thereby.
59
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
GENERAL PARTNER:
FERRELLGAS, INC.
By: ____________________________
INITIAL LIMITED PARTNER:
FERRELLGAS PARTNERS, L.P.
BY: Ferrellgas, Inc., as general partner
By: ___________________________
LIMITED PARTNER:
FERRELLGAS, INC.
By: ____________________________
60
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Exhibit 5.1
[Andrews & Kurth L.L.P. Letterhead]
June 8, 1994
Board of Directors
Ferrellgas, Inc.
One Liberty Plaza
Liberty, Missouri 60468
Gentlemen:
We have acted as special counsel to Ferrellgas Partners, L.P., a Delaware
limited partnership (the "Partnership"), and Ferrellgas, Inc., a Delaware
corporation and the general partner of the Partnership, in connection with the
registration under the Securities Act of 1933, as amended (the "Act"), of the
offering and sale of up to an aggregate of 15,065,000 common units representing
limited partner interests in the Partnership (the "Common Units").
As the basis for the opinion hereinafter expressed, we have examined such
statutes, regulations, corporate records and documents, certificates of
corporate and public officials, and other instruments as we have deemed
necessary or advisable for the purposes of this opinion. In such examination we
have assumed the authenticity of all documents submitted to us as originals and
the conformity with the original documents of all documents submitted to us as
copies.
Based on the foregoing and on such legal considerations as we deem
relevant, we are of the opinion that:
1. The Partnership has been duly formed and is an existing limited
partnership under the Delaware Revised Uniform Limited Partnership Act.
2. Upon due authorization, execution and delivery of the Agreement of
Limited Partnership of the Partnership (the "Partnership Agreement") in
substantially the form such agreement appears as Appendix A to the
Partnerships' Registration Statement on Form S-1 (No. 33-53383), as amended
(the "Registration Statement"), and upon the issuance by the Partnership of
the 15,065,000 Common Units as described in the Registration Statement, such
Common Units will be duly authorized, validly issued, fully paid and
nonassessable, except as such nonassessability may be affected by the matters
described in the prospectus included in the Registration Statement (the
"Prospectus") under the caption "The Partnership Agreement -- Limited
Liability."
<PAGE>
Board of Directors
Ferrellgas, Inc.
June 8, 1994
Page 2
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Validity of
Common Units" in the Prospectus. In giving the foregoing consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/s/ Andrews & Kurth L.L.P.
1208/1111/2523
<PAGE>
Exhibit 8.1
[ANDREWS & KURTH L.L.P. LETTERHEAD]
June 8, 1994
Ferrellgas Partners, L.P.
One Liberty Plaza
Liberty, Missouri 64068
TAX OPINION
Gentlemen:
We have acted as special counsel to Ferrellgas Partners, L.P. (the
"Partnership") in connection with the offering of up to 15,065,000 common units
representing limited partner interests ("Common Units") in the Partnership
pursuant to the Registration Statement on Form S-1 of the Partnership
(Registration No. 33-53383) relating to the Common Units (the "Registration
Statement").
All statements of legal conclusions contained in the discussion under the
caption "Tax Considerations" in the prospectus included in the Registration
Statement, unless otherwise noted, reflect our opinion with respect to the
matters set forth therein.
In addition, based on the foregoing, we are of the opinion that the
federal income tax discussion in the prospectus included in the Registration
Statement with respect to those matters as to which no legal conclusions are
provided is an accurate discussion of such federal income tax matters (except
for the representations and statements of fact of the Partnership and its
general partner, included in such discussion, as to which we express no
opinion).
We hereby consent to the references to our firm and this opinion contained
in the prospectus included in the Registration Statement.
Very truly yours,
/s/ Andrews & Kurth L.L.P.
<PAGE>
EXHIBIT 10.1
================================================================================
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
DATED AS OF __________________, 1994
AMONG
FERRELLGAS, L.P.,
STRATTON INSURANCE COMPANY,
FERRELLGAS, INC.,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
AS AGENT,
AND
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
ARRANGED BY
BA SECURITIES, INC.
================================================================================
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS
1.01 Certain Defined Terms................................... 1
1.02 Other Interpretive Provisions........................... 31
1.03 Accounting Principles................................... 32
ARTICLE II
THE CREDITS
2.01 Amounts and Terms of Commitments........................ 32
(a) Facility A Revolving Loans, Swingline Loans and
Letters of Credit................................. 32
(b) Facility B Term Loans, Revolving Loans and
Takeout Loans..................................... 33
2.02 Loan Accounts........................................... 34
2.03 Procedure for Borrowing................................. 34
2.04 Conversion and Continuation Elections................... 35
2.05 Voluntary Termination or Reduction of Commitments....... 37
2.06 Optional Prepayments.................................... 37
2.07 Mandatory Prepayments of Loans; Mandatory
Commitment Reductions................................... 38
2.08 Repayment............................................... 39
(a) Facility A Revolving Loans and Swingline Loans.... 39
(b) Facility B Term Loans and Facility B Revolving
Loans............................................. 39
(c) Facility B Takeout Loans.......................... 40
2.09 Interest................................................ 40
2.10 Fees.................................................... 41
(a) Arrangement, Agency Fees.......................... 41
(b) Commitment Fees................................... 41
2.11 Computation of Fees and Interest........................ 42
2.12 Payments by the Borrower................................ 42
2.13 Payments by the Banks to the Agent...................... 42
2.14 Sharing of Payments, Etc................................ 43
2.15 Discretionary Swingline Loans........................... 44
ARTICLE III
THE LETTERS OF CREDIT
3.01 The Letter of Credit Subfacility........................ 45
3.02 Issuance, Amendment and Renewal of Letters of Credit.... 47
3.03 Existing Letters of Credit; Risk Participations,
Drawings and Reimbursements............................. 49
3.04 Repayment of Participations............................. 51
3.05 Role of the Issuing Banks............................... 52
3.06 Obligations Absolute.................................... 53
i
<PAGE>
Section Page
3.07 Cash Collateral Pledge.................................. 54
3.08 Letter of Credit Fees................................... 54
3.09 Uniform Customs and Practice............................ 55
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
4.01 Taxes................................................... 56
4.02 Illegality.............................................. 57
4.03 Increased Costs and Reduction of Return................. 58
4.04 Funding Losses.......................................... 59
4.05 Inability to Determine Rates............................ 60
4.06 Survival................................................ 60
ARTICLE V
CONDITIONS PRECEDENT
5.01 Conditions of Initial Credit Extensions................. 60
(a) Credit Agreement and any Notes.................... 60
(c) Resolutions; Incumbency........................... 60
(d) Organization Documents; Good Standing............. 61
(e) Legal Opinions.................................... 61
(f) Payment of Fees................................... 61
(g) Certificate....................................... 62
(h) Cancellation of Existing Revolving Credit......... 62
(i) Due Diligence Review.............................. 62
(j) No Material Change................................ 62
(k) Insurance Certificate............................. 62
(l) Reorganization.................................... 62
(n) Other Documents................................... 63
5.02 Conditions to All Credit Extensions..................... 63
(a) Notice, Application............................... 63
(b) Continuation of Representations and Warranties.... 63
(c) No Existing Default............................... 63
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.01 Corporate or Partnership Existence and Power............ 64
6.02 Corporate or Partnership Authorization; No Contravention 65
6.03 Governmental Authorization.............................. 65
6.04 Binding Effect.......................................... 65
6.05 Litigation.............................................. 66
6.06 No Default.............................................. 66
6.07 ERISA Compliance........................................ 66
6.08 Use of Proceeds; Margin Regulations..................... 67
6.09 Title to Properties..................................... 67
6.10 Taxes................................................... 67
ii
<PAGE>
Section Page
6.11 Financial Condition..................................... 68
6.12 Environmental Matters................................... 68
6.13 Regulated Entities...................................... 68
6.14 No Burdensome Restrictions.............................. 69
6.15 Copyrights, Patents, Trademarks and Licenses, etc....... 69
6.16 Subsidiaries and Affiliates............................. 69
6.17 Insurance............................................... 69
6.18 Tax Status.............................................. 69
6.19 Full Disclosure......................................... 69
6.20 Fixed Price Supply Contracts............................ 70
6.21 Trading Policies........................................ 70
ARTICLE VII
AFFIRMATIVE COVENANTS
7.01 Financial Statements.................................... 70
7.02 Certificates; Other Information......................... 72
7.03 Notices................................................. 73
7.04 Preservation of Corporate or Partnership Existence, Etc. 74
7.05 Maintenance of Property................................. 74
7.06 Insurance............................................... 75
7.07 Payment of Obligations.................................. 75
7.08 Compliance with Laws.................................... 75
7.09 Inspection of Property and Books and Records............ 75
7.10 Environmental Laws...................................... 76
7.11 Use of Proceeds......................................... 76
7.12 Financial Covenants..................................... 76
7.13 Officer Loans........................................... 76
7.14 Trading Policies........................................ 76
7.15 Other General Partner Obligations....................... 77
7.16 Other Stratton Obligations.............................. 78
7.17 Monetary Judgments...................................... 78
7.18 Maintenance of Subsidiary............................... 78
ARTICLE VIII
NEGATIVE COVENANTS
8.01 Limitation on Liens..................................... 78
8.02 Asset Sales............................................. 80
8.03 Consolidations and Mergers.............................. 81
8.04 Acquisitions............................................ 83
8.05 Limitation on Indebtedness.............................. 83
8.06 Transactions with Affiliates............................ 85
8.07 Use of Proceeds......................................... 86
8.08 Use of Proceeds - Ineligible Securities................. 86
8.09 Contingent Obligations.................................. 86
8.10 Joint Ventures.......................................... 87
8.11 Lease Obligations....................................... 87
8.12 Restricted Payments..................................... 87
iii
<PAGE>
Section Page
8.13 Dividend and Other Payment Restrictions
Affecting Subsidiaries.................................. 89
8.14 Change in Business...................................... 90
8.15 Accounting Changes...................................... 90
8.16 Limitation on Sale and Leaseback Transactions........... 90
8.17 Restrictions On Nature Of Indebtedness And Activities
Of Finance Corp......................................... 90
8.18 Amendments of Organization Documents or Indenture....... 90
8.19 Fixed Price Supply Contracts............................ 91
8.20 Operations through Subsidiaries......................... 91
8.21 Operations of MLP....................................... 91
8.22 Senior Note Purchase Offer.............................. 92
ARTICLE IX
EVENTS OF DEFAULT
9.01 Event of Default........................................ 92
(a) Non-Payment....................................... 92
(b) Representation or Warranty........................ 92
(c) Specific Defaults................................. 92
(d) Other Defaults.................................... 92
(e) Cross-Default..................................... 92
(f) Insolvency; Voluntary Proceedings................. 93
(g) Involuntary Proceedings........................... 93
(h) ERISA............................................. 93
(i) Monetary Judgments................................ 94
(j) Non-Monetary Judgments............................ 94
(k) Loss of Licenses.................................. 94
(l) Adverse Change.................................... 94
(m) Indenture Cross-Defaults.......................... 94
9.02 Remedies................................................ 95
9.03 Rights Not Exclusive.................................... 95
9.04 Certain Financial Covenant Defaults..................... 95
ARTICLE X
THE AGENT
10.01 Appointment and Authorization.......................... 96
10.02 Delegation of Duties................................... 96
10.03 Liability of Agent and Issuing Banks................... 97
10.04 Reliance by Agent and Issuing Banks.................... 97
10.05 Notice of Default...................................... 98
10.06 Credit Decision........................................ 98
10.07 Indemnification........................................ 99
10.08 Agent in Individual Capacity........................... 99
10.09 Successor Agent........................................ 99
10.10 Withholding Tax........................................100
ARTICLE XI
iv
<PAGE>
Section Page
MISCELLANEOUS
11.01 Amendments and Waivers.................................101
11.02 Notices................................................102
11.03 No Waiver; Cumulative Remedies.........................103
11.04 Costs and Expenses.....................................103
11.05 Indemnity..............................................104
11.06 Payments Set Aside.....................................104
11.07 Successors and Assigns.................................105
11.08 Assignments, Participations, Etc.......................105
11.09 Set-off................................................107
[11.10 Automatic Debits of Fees].............................108
11.11 Notification of Addresses, Lending Offices, Etc........108
11.12 Counterparts...........................................108
11.13 Severability...........................................108
11.14 No Third Parties Benefited.............................108
11.15 Governing Law and Jurisdiction.........................109
11.16 Waiver of Jury Trial...................................109
11.17 Entire Agreement.......................................109
v
<PAGE>
SCHEDULES AND EXHIBITS
Schedule 2.01 Commitments
Schedule 3.03 Existing Letters of Credit
Schedule 6.05 Litigation
Schedule 6.07 ERISA
Schedule 6.10 Taxes
Schedule 6.11 Permitted Liabilities
Schedule 6.12 Environmental Matters
Schedule 6.16 Subsidiaries and Minority Interests
Schedule 6.17 Insurance Matters
Schedule 7.13 Affiliates
Schedule 8.01 Permitted Liens
Schedule 8.05 Permitted Indebtedness
Schedule 8.08 Contingent Obligations
Schedule 8.19 Tradenames and Trademarks
Schedule 11.02 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Legal Opinion of Borrower's Counsel
Exhibit E Form of Assignment and Acceptance
Exhibit F Form of Note
Exhibit G Form of Subsidiary Guaranty
Exhibit H Form of Commercial Letter of Credit
Exhibit I Form of Standby Letter of Credit
Exhibit J Alternate Form of Standby Letter of Credit
vi
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of_________, 1994,
among FERRELLGAS, L.P., a Delaware limited partnership (the "Borrower"),
--------
STRATTON INSURANCE COMPANY, a Vermont corporation and a Wholly-Owned Subsidiary
of the Borrower ("Stratton"), FERRELLGAS, INC., a Delaware corporation and the
--------
sole general partner of the Borrower (the "General Partner"), the several
---------------
financial institutions from time to time party to this Agreement (collectively,
the "Banks"; individually, a "Bank"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS
----- ----
ASSOCIATION ("BofA"), as letter of credit issuing bank (in such capacity, an
----
"Issuing Bank"), and as agent for the Banks (in such capacity, the "Agent").
- ------------- -----
WHEREAS, the Banks have agreed to make available to the Borrower and
Stratton certain revolving and term loan credit facilities with a letter of
credit subfacility on the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.01 Certain Defined Terms. The following terms have the following
---------------------
meanings:
"Acquired Debt" means, with respect to any specified Person, (i)
-------------
Indebtedness of any other Person existing at the time such other Person
merged with or into or became a Subsidiary of such specified Person,
including Indebtedness incurred in connection with, or in contemplation of,
such other Person merging with or into or becoming a Subsidiary of such
specified Person and (ii) Indebtedness encumbering any asset acquired by
such specified Person.
"Acquisition" means any transaction or series of related transactions
-----------
for the purpose of or resulting, directly or indirectly, in (a) the
acquisition of all or substantially all of the assets of a Person, or of
any business or division of a Person, (b) the acquisition of in excess of
50% of the capital stock, partnership interests or equity of any Person or
otherwise causing any Person, to become a Subsidiary, or (c) a merger or
consolidation or any other combination with another Person (other than a
Person that is a Subsidiary) provided that the Borrower or the Subsidiary
is the surviving entity.
1
<PAGE>
"Affiliate" means, as to any Person, any other Person which, directly
---------
or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of
the other Person, whether through the ownership of voting securities, by
contract, or otherwise.
"Agent" has the meaning specified in the introductory clause hereto.
-----
References to the "Agent" shall include BofA in its capacity as agent for
the Banks hereunder, and any successor agent arising under Section 10.09.
"Agent-Related Persons" means BofA and any successor Agent arising
---------------------
under Section 10.09, together with their respective Affiliates (including,
in the case of BofA, the Arranger), and the officers, directors, employees,
agents and attorneys-in-fact of such Persons and Affiliates.
"Agent's Payment Office" means the address for payments set forth on
----------------------
the signature page hereto in relation to the Agent, or such other address
as the Agent may from time to time specify.
"Agreement" means this Credit Agreement.
---------
"Applicable Margin" means, for each Type of Loan, effective as of the
-----------------
first day of each fiscal quarter, the percentage per annum (expressed in
basis points) set forth below opposite the Level of the Leverage Ratio
applicable to such fiscal quarter as set forth herein.
<TABLE>
<CAPTION>
Leverage Ratio Base Rate Loans Eurodollar Loans
- ---------------- --------------- ----------------
<S> <C> <C>
Level 1 0 b.p. 62.5 b.p.
Level 2 0 b.p. 87.5 b.p.
Level 3 12.5 b.p. 112.5 b.p.
Level 4 25 b.p. 125 b.p.
</TABLE>
"Arranger" means BA Securities, Inc., a Wholly-Owned Subsidiary of
--------
BankAmerica Corporation. The Arranger is a registered broker-dealer and
permitted to underwrite and deal in certain Ineligible Securities.
"Asset Sale" has the meaning specified in Section 8.02.
----------
"Assignee" has the meaning specified in subsection 11.08(a).
--------
"Attorney Costs" means and includes all reasonable and itemized fees
--------------
and disbursements of any law firm or other external counsel, the allocated
cost of internal legal services and all disbursements of internal counsel.
2
<PAGE>
"Available Cash" has the meaning given to such term in the Partnership
--------------
Agreement, as amended to the date of this Agreement; provided, that (i)
--------
Available Cash shall not include any amount of Net Proceeds of Asset Sales
until the 270-day period following the consummation of the applicable Asset
Sale, (ii) investments, loans and other contributions to a Non-Recourse
Subsidiary are to be treated as "cash disbursements" when made for purposes
of determining the amount of Available Cash and (iii) cash receipts of a
Non-Recourse Subsidiary shall not constitute cash receipts of the Borrower
for purposes of determining the amount of Available Cash until cash is
actually distributed by such Non-Recourse Subsidiary to the Borrower.
"Bank" has the meaning specified in the introductory clause hereto.
----
References to the "Banks" shall include BofA and any other Bank designated
by the Agent as an Issuing Bank from time to time, including in their
respective capacities as Issuing Banks; for purposes of clarification only,
to the extent that an Issuing Bank may have any rights or obligations in
addition to those of a Bank due to its status as an Issuing Bank, its
status as such will be specifically referenced.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11
---------------
U.S.C. (S)101, et seq.).
-------
"Base Rate" means, for any day, the higher of: (a) 0.50% per annum
---------
above the Federal Funds Rate in effect on such day; and (b) the rate of
interest in effect for such day as publicly announced from time to time by
BofA in San Francisco, California, as its "reference rate." (The
"reference rate" is a rate set by BofA based upon various factors including
BofA's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans, which may
be priced at, above, or below such announced rate.) Any change in the
reference rate announced by BofA shall take effect at the opening of
business on the day specified in the public announcement of such change or
if no day is so specified, on the day of the announcement.
"Base Rate Loan" means a Loan that bears interest based on the Base
--------------
Rate.
"BofA" has the meaning specified in the introductory clause hereto.
----
"Borrowing" means a borrowing hereunder consisting of Loans of the
---------
same Type made to the Borrower on the same day by the Banks (or, in the
case of Swingline Loans, by BofA) and, for Eurodollar Rate Loans, having
the same Interest Period, in either case under Article II.
3
<PAGE>
"Borrowing Date" means any date on which a Borrowing occurs.
--------------
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in San Francisco are authorized or required
by law to close and, if the applicable Business Day relates to any
Eurodollar Rate Loan, means such a day on which dealings are carried on in
the London interbank dollar market.
"Capital Adequacy Regulation" means any guideline, request or
---------------------------
directive of any central bank or other Governmental Authority, or any other
law, rule or regulation, whether or not having the force of law, in each
case, regarding capital adequacy of any bank or of any corporation
controlling a bank.
"Capital Interests" means, with respect to any corporation, any and
-----------------
all shares, participations, rights or other equivalent interests in the
capital of the corporation, and with respect to any partnership, any and
all partnership interests (whether general or limited) and other interests
or participations that confer on a Person the right to receive a share of
the profits and losses of, or distributions of assets of, such partnership.
"Capital Lease Obligation" means, at the time any determination
------------------------
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be so required to be capitalized on the
balance sheet in accordance with GAAP.
"Cash Collateralize" means to pledge and deposit with or deliver to
------------------
the Agent, for the benefit of the Agent, the Issuing Banks and the Banks,
as collateral for the L/C Obligations or any outstanding Loan, cash or
deposit account balances pursuant to documentation in form and substance
satisfactory to the Agent (which documents are hereby consented to by the
Banks). Derivatives of such term shall have corresponding meaning. The
Borrower hereby grants to the Agent, for the benefit of the Agent, the
Issuing Banks and the Banks, a security interest in all such cash and
deposit account balances. Cash collateral shall be maintained in blocked,
non-interest bearing deposit accounts at BofA. Such collateral may be
invested from time to time in short-term money market instruments and other
investments with the consent of the Agent and the Majority Banks (which
consent may be given or withheld in their sole and absolute discretion)
provided that the Agent, the Issuing Banks and the Banks shall at all times
have a first priority perfected security interest in such collateral and
the proceeds thereof.
4
<PAGE>
"Cash Costs" means, with respect to any Acquisition, the total costs
----------
thereof to the acquiring Person in such Acquisition, excluding the
aggregate amount of Acquired Debt and all financing provided by the selling
Person or Persons in connection therewith.
"Cash Equivalents" means (i) United States dollars, (ii) securities
----------------
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of
not more than twelve months from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each
case with any Bank or with any other domestic commercial bank having
capital and surplus in excess of $500 million and a Keefe Bank Watch Rating
of "B" or better, (iv) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (ii)
and (iii) entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper or
direct obligations of a Person, provided such Person has publicly
outstanding debt having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and provided
further that such commercial paper or direct obligation matures within nine
months after the date of acquisition, and (vi) investments in money market
funds all of whose assets consist of securities of the types described in
the foregoing clauses (i) through (v), provided that for purposes of this
--------
clause (vi) securities in such money market funds of the type described in
clause (ii) above may have maturities of not more than 13 months from the
date of acquisition.
"Change of Control" means (i) the sale, lease, conveyance or other
-----------------
disposition of all or substantially all of the Borrower's assets to any
Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) other than James E. Ferrell, the Related Parties and any Person of
which James E. Ferrell and the Related Parties beneficially own in the
aggregate 51% or more of the voting Capital Interests (or if such Person is
a partnership, 51% or more of the general partner interests), (ii) the
liquidation or dissolution of the Borrower or the General Partner, (iii)
the occurrence of any transaction, the result of which is that James E.
Ferrell and the Related Parties beneficially own in the aggregate, directly
or indirectly, less than 51% of the total voting power entitled to vote for
the election of directors of the General Partner or less than 20% of the
Equity Interests of the Borrower, and (iv) the occurrence of any
transaction, the result of which
5
<PAGE>
is that the General Partner is no longer the sole general partner of the
Borrower.
"Class" means, with respect to any Loan, whether such Loan is a
-----
Facility A Revolving Loan, Swingline Loan, Facility B Term Loan, Facility B
Revolving Loan or Facility B Takeout Loan.
"Closing Date" means the date on which all conditions precedent set
------------
forth in Section 5.01 are satisfied or waived by all Banks (or, in the case
of subsection 5.01(e), waived by the Person entitled to receive such
payment).
"Code" means the Internal Revenue Code of 1986, as amended, and
----
regulations promulgated thereunder.
"Commercial Letters of Credit" means commercial documentary letters of
----------------------------
credit issued by an Issuing Bank pursuant to Article III.
"Commitment Fee Rate" means, as of any date and based upon the Level
-------------------
of the Leverage Ratio on such date, the percent per annum (expressed in
basis points) set forth below opposite such Level:
Leverage Ratio Commitment Fee Rate
-------------- -------------------
Level 1 27.5 b.p.
Level 2 32.5 b.p.
Level 3 37.5 b.p.
Level 4 37.5 b.p.
"Commitments" means, as to each Bank, collectively, its Facility A
-----------
Commitment and its Facility B Commitment.
"Compliance Certificate" means a certificate signed by a Responsible
----------------------
Officer of the Borrower substantially in the form of Exhibit C,
---------
demonstrating compliance with the covenants contained herein, including
Sections 7.12, 7.14, 7.17 and 8.12 and the 30 day clean-up period contained
in subsection 2.01(a)(ii).
"Consolidated Cash Flow" means, with respect to any Person for any
----------------------
period, the Consolidated Net Income of such Person for such period, plus
(a) an amount equal to any extraordinary loss plus any net loss realized in
connection with an asset sale, to the extent such losses were deducted in
computing Consolidated Net Income, plus (b) provision for taxes based on
income or profits of such Person for such period, to the extent such
provision for taxes was deducted in computing Consolidated Net Income, plus
(c) Consolidated Interest Expense of such Person for such period, whether
paid or accrued (including amortization of original issue
6
<PAGE>
discount, non-cash interest payments and the interest component of any
payments associated with Capital Lease Obligations and net payments (if
any) pursuant to Hedging Obligations), to the extent such expense was
deducted in computing Consolidated Net Income, plus (d) depreciation and
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) of such Person for such period, to the extent such depreciation and
amortization were deducted in computing Consolidated Net Income, in each
case, for such period without duplication on a consolidated basis and
determined in accordance with GAAP.
"Consolidated Interest Expense" means, as of the last day of any
-----------------------------
fiscal period, on a consolidated basis, the sum of (a) all interest, fees
--- --
(including Letter of Credit fees), charges and related expenses paid or
payable (without duplication) for that fiscal period to the Banks hereunder
or to any other lender in connection with borrowed money or the deferred
purchase price of assets that are considered "interest expense" under GAAP,
plus (b) the portion of rent paid or payable (without duplication) for that
----
fiscal period under Capital Lease Obligations that should be treated as
interest in accordance with Financial Accounting Standards Board Statement
No. 13, on a consolidated basis.
"Consolidated Net Income" means, with respect to any Person for any
-----------------------
period, the aggregate of the Net Income of such Person and its Subsidiaries
for such period, on a consolidated basis, determined in accordance with
GAAP; provided, that (i) the Net Income of any Person that is not a
--------
Subsidiary or that is accounted for by the equity method of accounting
shall be included only to the extent of the amount of dividends or
distributions paid to the referent Person or a Wholly-Owned Subsidiary
thereof, (ii) the Net Income of any Person that is a Subsidiary (other than
a Wholly-Owned Subsidiary) shall be included only to the extent of the
amount of dividends or distributions paid to the referent Person or a
Wholly-Owned Subsidiary thereof, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the
date of such acquisition shall be excluded except to the extent otherwise
includable under clause (i) above and (iv) the cumulative effect of a
change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any
----------------------
date, the sum of (i) the consolidated equity of the common stockholders or
partners of such Person and its consolidated Subsidiaries as of such date,
plus (ii) the respective amounts reported on such Person's balance sheet as
of such date with respect to any series of preferred stock (other than
Disqualified Interests) that by its terms is not entitled to the payment of
dividends unless
7
<PAGE>
such dividends may be declared and paid only out of net earnings in respect
of the year of such declaration and payment, but only to the extent of any
cash received by such Person upon issuance of such preferred stock, less
(x) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business
made within 12 months after the acquisition of such business) subsequent to
the Closing Date in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (y) all investments as of such date
in unconsolidated Subsidiaries and in Persons that are not Subsidiaries
(except, in each case, Permitted Investments), and (z) all unamortized debt
discount and expense and unamortized deferred charges as of such date, all
of the foregoing determined in accordance with GAAP.
"Contingent Obligation" means, as to any Person, any direct or
---------------------
indirect liability of that Person, whether or not contingent, with or
without recourse, (a) with respect to any Indebtedness, lease, dividend,
distribution, letter of credit or other obligation (the "primary
obligations") of another Person (the "primary obligor"), including any
obligation of that Person (i) to purchase, repurchase or otherwise acquire
such primary obligations or any security therefor, (ii) to advance or
provide funds for the payment or discharge of any such primary obligation,
or to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency or any balance sheet item,
level of income or financial condition of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation, or (iv)
otherwise to assure or hold harmless the holder of any such primary
obligation against loss in respect thereof (each, a "Guaranty Obligation");
-------------------
(b) with respect to any Surety Instrument (other than any Letter of Credit)
issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments; (c) to purchase
any materials, supplies or other property from, or to obtain the services
of, another Person if the relevant contract or other related document or
obligation requires that payment for such materials, supplies or other
property, or for such services, shall be made regardless of whether
delivery of such materials, supplies or other property is ever made or
tendered, or such services are ever performed or tendered; or (d) in
respect of any Hedging Obligation. The amount of any Contingent Obligation
shall, in the case of Guaranty Obligations, be deemed equal to the stated
or determinable amount of the primary obligation in respect of which such
Guaranty Obligation is made or, if not stated or if indeterminable, the
maximum reasonably anticipated liability
8
<PAGE>
in respect thereof, and in the case of other Contingent Obligations, shall
be equal to the maximum reasonably anticipated liability in respect
thereof.
"Contractual Obligation" means, as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or
agreement to which such Person is a party or by which it or any of its
property is bound.
"Conversion/Continuation Date" means any date on which, under Section
----------------------------
2.04, the Borrower (a) converts Loans of one Type to another Type, or (b)
continues as Loans of the same Type, but with a new Interest Period, Loans
having Interest Periods expiring on such date.
"Credit Extension" means and includes (a) the making of any Loans
----------------
hereunder and (b) the Issuance of any Letters of Credit hereunder.
"Default" means any event or circumstance which, with the giving of
-------
notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"Disqualified Interests" means any Capital Interests which, by their
----------------------
terms (or by the terms of any security into which they are convertible or
for which they are exchangeable), or upon the happening of any event,
mature or are mandatorily redeemable, pursuant to a sinking fund obligation
or otherwise, or redeemable at the option of the holder thereof, in whole
or in part, on or prior to __________.
"Dollars", "dollars" and "$" each mean lawful money of the United
------- ------- -
States.
"Effective Amount" means (i) with respect to any Loans on any date,
----------------
the aggregate outstanding principal amount thereof after giving effect to
any Borrowings and prepayments or repayments of Loans occurring on such
date; and (ii) with respect to any outstanding L/C Obligations on any date,
the amount of such L/C Obligations on such date after giving effect to any
Issuances of Letters of Credit occurring on such date and any other changes
in the aggregate amount of the L/C Obligations as of such date, including
as a result of any reimbursements of outstanding unpaid drawings under any
Letters of Credit or any reductions in the maximum amount available for
drawing under Letters of Credit taking effect on such date. For purposes
of Section 2.07, the Effective Amount shall be determined without giving
effect to any mandatory prepayments to be made under such Section 2.07.
9
<PAGE>
"Eligible Assignee" means (i) a commercial bank organized under the laws of
-----------------
the United States, or any state thereof, and having a combined capital and
surplus of at least $100,000,000; (ii) a commercial bank organized under
the laws of any other country which is a member of the Organization for
Economic Cooperation and Development (the "OECD"), or a political
subdivision of any such country, and having a combined capital and surplus
of at least $200,000,000, provided that such bank is acting through a
branch or agency located in the United States; and (iii) a Person that is
primarily engaged in the business of commercial banking and that is (A) a
Subsidiary of a Bank, (B) a Subsidiary of a Person of which a Bank is a
Subsidiary, or (C) a Person of which a Bank is a Subsidiary.
"Environmental Claims" means all claims, however asserted, by any
--------------------
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or
injury to the environment.
"Environmental Laws" means all federal, state or local laws, statutes,
------------------
common law duties, rules, regulations, ordinances and codes, together with
all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, safety and
land use matters.
"Equity Interests" means Capital Interests and all warrants, options
----------------
or other rights to acquire Capital Interests (but excluding any debt
security that is convertible into, or exchangeable for, Capital Interests).
"ERISA" means the Employee Retirement Income Security Act of 1974, and
-----
regulations promulgated thereunder.
"ERISA Event" means (a) a Reportable Event with respect to a Pension
-----------
Plan; (b) a withdrawal by the Borrower or the General Partner from a
Pension Plan subject to Section 4063 of ERISA during a plan year in which
it was a substantial employer (as defined in Section 4001(a)(2) of ERISA)
or a cessation of operations which is treated as such a withdrawal under
Section 4062(e) of ERISA; (c) the filing of a notice of intent to
terminate, the treatment of a plan amendment as a termination under Section
4041 or 4041A of ERISA or the commencement of proceedings by the PBGC to
terminate a Pension Plan subject to Title IV of ERISA; (d) a failure by the
Borrower or the General Partner to make required contributions to a Pension
Plan or other Plan subject to Section 412 of the Code; (e) an event or
condition which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension
10
<PAGE>
Plan; (f) the imposition of any liability under Title IV of ERISA, other
than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon
the Borrower or the General Partner; or (g) an application for a funding
waiver or an extension of any amortization period pursuant to Section 412
of the Code with respect to any Pension Plan.
"Eurodollar Rate" shall mean, for each Interest Period in respect of
---------------
Eurodollar Rate Loans comprising part of the same Borrowing, an interest
rate per annum (rounded, if necessary, upward to the nearest 1/16th of 1%)
determined pursuant to the following formula:
Eurodollar Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
The Eurodollar Rate shall be adjusted automatically as of the effective
date of any change in the Eurodollar Reserve Percentage.
"Eurodollar Rate Loan" means a Loan that bears interest based on the
--------------------
Eurodollar Rate.
"Eurodollar Reserve Percentage" shall mean the maximum reserve
-----------------------------
percentage (expressed as a decimal, rounded, if necessary, upward to the
nearest 1/100th of 1%) in effect on the date LIBOR for such Interest Period
is determined (whether or not applicable to any Bank) under regulations
issued from time to time by the Federal Reserve Board for determining the
maximum reserve requirement (including any emergency, supplemental or other
marginal reserve requirement) with respect to Eurocurrency funding
(currently referred to as "Eurocurrency liabilities") having a term
comparable to such Interest Period. Without limiting the effect of the
foregoing, the Eurodollar Reserve shall include any other reserves required
to be maintained by any Bank with respect to (a) any category of
liabilities that includes deposits by reference to which the Eurodollar
Rate is to be determined as provided in the definition of "Eurodollar Rate"
in this Section 1.01 or (b) any category of extensions of credit or other
assets that includes Eurodollar Rate Loans.
"Event of Default" means any of the events or circumstances specified
----------------
in Section 9.01.
"Exchange Act" means the Securities Exchange Act of 1934, and
------------
regulations promulgated thereunder.
"Existing Fixed Rate Notes" means the Series B and D Fixed Rate Senior
-------------------------
Notes due 1996 of the General Partner.
"Existing Floating Rate Notes" means the Series A and C Floating Rate
----------------------------
Senior Notes due 1996 of the General Partner.
11
<PAGE>
"Existing Indebtedness" means Indebtedness of the Borrower and its
---------------------
Subsidiaries (other than the Obligations) and certain Indebtedness of the
General Partner with respect to which the Borrower has assumed the General
Partner's repayment obligations, in each case in existence on the Closing
Date and as more fully set forth on Schedule .
-------------
"Existing Letters of Credit" means the letters of credit issued and
--------------------------
outstanding on the Closing Date which are described in Schedule 3.03. Each
-------------
of the Existing Letters of Credit is designated on such schedule as a
standby letter of credit or a commercial documentary letter of credit.
"Existing Senior Notes" means the Existing Fixed Rate Notes and the
---------------------
Existing Floating Rate Notes.
"Existing Subordinated Debentures" means the General Partner's 11 5/8%
--------------------------------
Senior Subordinated Debentures due December 15, 2003.
"Facility A Commitment", as to each Bank, means the amount set forth
---------------------
opposite such Bank's name on Schedule 2.01 hereof under the caption
-------------
"Facility A Commitment", as the same may be reduced under Section 2.05 or
2.07 or as a result of one or more assignments under Section 11.08;
provided, that the maximum aggregate Facility A Commitment of all Banks
--------
shall not exceed $100,000,000 at any time.
"Facility A Revolving Loan" has the meaning specified in Section
-------------------------
2.01(a), and may be a Base Rate Loan or a Eurodollar Rate Loan.
"Facility B Commitment", as to each Bank, means the amount set forth
---------------------
opposite such Bank's name on Schedule 2.01 hereof under the caption
-------------
"Facility B Commitment - Total", as such amount may be reduced under
Section 2.05 or 2.07 or as a result of one or more assignments under
Section 11.08; provided, that the maximum aggregate Facility B Commitment
--------
of all Banks shall not exceed $85,000,000 at any time.
"Facility B Loans" means, collectively, the Facility B Revolving Loans
----------------
and the Facility B Term Loans and, after the Revolving Termination Date if
made in accordance with the terms hereof, the Facility B Takeout Loans.
"Facility B Maximum Amount" as of any date means the excess, if any,
-------------------------
on such date of (x) the sum of (i) the aggregate Cash Costs of all
Permitted Acquisitions by the Borrower and its Subsidiaries during the
period from the Closing Date through the date of calculation plus (ii) the
aggregate Growth-Related Capital Expenditures by the Borrower and its
Subsidiaries during such period, over (y) the sum of (i) the aggregate Net
Proceeds of Asset Sales during the period from the Closing Date to the date
that is
12
<PAGE>
270 days prior to the date of calculation plus (ii) the aggregate Net
Proceeds of MLP New Unit Sales from the Closing Date through the
calculation date.
"Facility B Revolving Loan" has the meaning specified in Section
-------------------------
2.01(b), and may be a Base Rate Loan or a Eurodollar Rate Loan.
"Facility B Revolving Loan Commitment", as to each Bank, means the sum
------------------------------------
of (i) the amount set forth opposite such Bank's name on Schedule 2.01
-------------
hereof under the caption "Facility B Commitment - Revolving Loans" plus
----
(ii) from and after the date 45 days after the Closing Date, the excess, if
any, of such Bank's Facility B Term Loan Commitment over the amount of its
Facility B Term Loan outstanding as of the date 45 days after the Closing
Date, as such sum may be reduced under Section 2.05 or 2.07 or as a result
of one or more assignments under Section 11.08.
"Facility B Takeout Loan" has the meaning specified in Section
-----------------------
2.01(b).
"Facility B Term Loan" has the meaning specified in Section 2.01(b).
--------------------
"Facility B Term Loan Commitment", as to each Bank, means the amount
-------------------------------
set forth opposite such Bank's name on Schedule 2.01 hereof under the
-------------
caption "Facility B Commitment - Term Loan", as the same may be reduced
under Section 2.05 or 2.07 or as a result of one or more assignments under
Section 11.08.
"FDIC" means the Federal Deposit Insurance Corporation, and any
----
Governmental Authority succeeding to any of its principal functions.
"Federal Funds Rate" means, for any day, the rate set forth in the
------------------
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including
any such successor, "H.15(519)") on the preceding Business Day opposite the
caption "Federal Funds (Effective)"; or, if for any relevant day such rate
is not so published on any such preceding Business Day, the rate for such
day will be the arithmetic mean as determined by the Agent of the rates for
the last transaction in overnight Federal funds arranged prior to 9:00 a.m.
(New York City time) on that day by each of three leading brokers of
Federal funds transactions in New York City selected by the Agent.
"Fee Letter" has the meaning specified in subsection 2.10(a).
----------
13
<PAGE>
"Finance Corp." means Ferrellgas Finance Corp., a Delaware corporation
-------------
and a Wholly-Owned Subsidiary of the Borrower.
"Fixed Charge Coverage Ratio" means with respect to any Person for
---------------------------
any period, the ratio of Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event
that the reference Person or any of its Subsidiaries incurs, assumes,
guarantees, redeems or repays any Indebtedness (other than revolving credit
borrowings including, with respect to the Borrower, Swingline Loans,
Facility A Revolving Loans and Facility B Revolving Loans) subsequent to
the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated but prior to the date of the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation
Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect to such incurrence, assumption, guarantee, redemption or
repayment of Indebtedness, as if the same had occurred at the beginning of
the applicable reference period. The foregoing calculation of the Fixed
Charge Coverage Ratio shall also give pro forma effect to Acquisitions
(including all mergers and consolidations), dispositions and
discontinuances of businesses or assets that have been made by the
reference Person or any of its Subsidiaries during the reference period or
subsequent to such reference period and on or prior to the Calculation Date
assuming that all such Acquisitions, dispositions and discontinuances of
businesses or assets had occurred on the first day of the reference period;
provided, however, that with respect to the Borrower, (a) Fixed Charges
-------- -------
shall be reduced by amounts attributable to businesses or assets that are
so disposed of or discontinued only to the extent that the obligations
giving rise to such Fixed Charges would no longer be obligations
contributing to the Fixed Charges of the Borrower subsequent to the
Calculation Date and (b) Consolidated Cash Flow generated by an acquired
business or asset shall be determined by the actual gross profit (revenues
minus costs of goods sold) of such acquired business or asset during the
immediately preceding number of full fiscal quarters as in the reference
period minus the pro forma expenses that would have been incurred by the
Borrower in the operation of such acquired business or asset during such
period computed on the basis of (i) personnel expenses for employees
retained by the Borrower in the operation of the acquired business or asset
and (ii) non-personnel costs and expenses incurred by the Borrower on a per
gallon basis in the operation of the Borrower's business at similarly
situated Borrower facilities. If the applicable reference period for any
calculation of the Fixed Charge Coverage Ratio with respect to the Borrower
shall include a portion prior to the Closing Date, then such Fixed Charge
Coverage Ratio shall be calculated based upon the
14
<PAGE>
Consolidated Cash Flow and the Fixed Charges of the General Partner for
such portion of the reference period prior to the Closing Date and the
Consolidated Cash Flow and the Fixed Charges of the Borrower for the
remaining portion of the reference period on and after the Closing Date,
giving pro forma effect, as described in the two foregoing sentences, to
all applicable transactions occurring on the date of this Agreement or
otherwise.
"Fixed Charges" means, with respect to any Person for any period, the
-------------
sum, without duplication, of (a) consolidated interest expense of such
Person for such period, whether paid or accrued, to the extent such expense
was deducted in computing Consolidated Net Income (including amortization
of original issue discounts, non-cash interest payments, the interest
component of all payments associated with Capital Lease Obligations and net
payments (if any) pursuant to Hedging Obligations permitted hereunder), (b)
commissions, discounts and other fees and charges incurred with respect to
letters of credit, (c) any interest expense on Indebtedness of another
Person that is guaranteed by such Person or secured by a Lien on assets of
such Person, and (d) the product of (i) all cash dividend payments (and
non-cash dividend payments in the case of a Person that is a Subsidiary) on
any series of preferred stock of such Person, times (ii) a fraction, the
numerator of which is one and the denominator of which is one minus the
then current combined federal, state and local statutory tax rate of such
Person, expressed as a decimal, determined, in each case, on a consolidated
basis and in accordance with GAAP.
"FRB" means the Board of Governors of the Federal Reserve System, and
---
any Governmental Authority succeeding to any of its principal functions.
"Funded Debt" means all Indebtedness of Borrower, excluding all
-----------
Contingent Obligations of Borrower under or in connection with Letters of
Credit outstanding from time to time.
"GAAP" means generally accepted accounting principles set forth from
----
time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants
and statements and pronouncements of the Financial Accounting Standards
Board (or agencies with similar functions of comparable stature and
authority within the U.S. accounting profession), which are applicable to
the circumstances as of the date of determination.
"General Partner" has the meaning specified in the introductory clause
---------------
hereto.
15
<PAGE>
"Governmental Authority" means any nation or government, any state or
----------------------
other political subdivision thereof, any central bank (or similar monetary
or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"Growth-Related Capital Expenditures" means, with respect to any
-----------------------------------
Person, all capital expenditures by such Person made to improve or enhance
the existing capital assets or to increase the customer base of such Person
or to acquire or construct new capital assets (but excluding capital
expenditures made to maintain, up to the level thereof that existed at the
time of such expenditure, the operating capacity of the capital assets of
such Person as such assets existed at the time of such expenditure).
"Guarantor" means each Person that executes a Guaranty and its
---------
successors and assigns, and includes Finance Corp.
"Guaranty" means a continuing guaranty of the Obligations in favor of
--------
the Agent on behalf of the Banks, in form and substance satisfactory to the
Agent.
"Guaranty Obligation" has the meaning specified in the definition of
-------------------
"Contingent Obligation."
"Hedging Obligations" means, with respect to any Person, the
-------------------
obligations of such Person under (i) interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii)
other agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"Honor Date" has the meaning specified in subsection 3.03(c).
----------
"Indebtedness" of any Person means, without duplication, (a) all
------------
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business on ordinary
terms); (c) all non-contingent reimbursement or payment obligations with
respect to Surety Instruments; (d) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets
or businesses; (e) all indebtedness created or arising under any
conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by the Person
(even
16
<PAGE>
though the rights and remedies of the seller or bank under such agreement
in the event of default are limited to repossession or sale of such
property); (f) all Capital Lease Obligations; (g) all Hedging Obligations;
(h) all indebtedness referred to in clauses (a) through (g) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including accounts and contracts rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
Indebtedness; and (i) all Guaranty Obligations in respect of indebtedness
or obligations of others of the kinds referred to in clauses (a) through
(h) above.
"Indemnified Liabilities" has the meaning specified in Section 11.05.
-----------------------
"Indemnified Person" has the meaning specified in Section 11.05.
------------------
"Indenture" means the Indenture dated as of ______________, 1994,
---------
among the Borrower, Finance Corp. and Norwest Bank Minnesota, National
Association, pursuant to which the Senior Notes are to be issued, as it may
be amended from time to time.
"Independent Auditor" has the meaning specified in subsection 7.01(a).
-------------------
"Ineligible Securities" means securities which may not be underwritten
---------------------
or dealt in by member banks of the Federal Reserve System under Section 16
of the Banking Act of 1933 (12 U.S.C. (S) 24, Seventh), as amended.
"Insolvency Proceeding" means (a) any case, action or proceeding
---------------------
before any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the
benefit of creditors, composition, marshalling of assets for creditors, or
other, similar arrangement in respect of a Person's creditors generally or
any substantial portion of a Person's creditors; undertaken under U.S.
Federal, state or foreign law, including the Bankruptcy Code.
"Interest Payment Date" means, as to any Eurodollar Rate Loan, the
---------------------
last day of each Interest Period applicable to such Loan and, as to any
Base Rate Loan, the first Business Day of each fiscal quarter of the
Borrower, provided, however, that if any Interest Period for a Eurodollar
-------- -------
Rate Loan exceeds three months, the date that is three months after the
beginning of such Interest Period and after each Interest Payment Date
thereafter is also an Interest Payment Date, provided, that if there is no
17
<PAGE>
numerically corresponding day in the calendar month during which an
Interest Payment Date is to occur, such Interest Payment Date shall occur
on the last Business Day of such calendar month.
"Interest Period" means, as to any Eurodollar Rate Loan, the period
---------------
commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as a Eurodollar Rate Loan, and ending on the date one, two, three
or six months thereafter as selected by the Borrower in its Notice of
Borrowing or Notice of Conversion/Continuation;
provided that:
--------
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month, in which event
such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of the calendar month at
the end of such Interest Period;
(iii) no Interest Period for any Facility A Revolving Loan,
Facility B Term Loan or Facility B Revolving Loan shall extend beyond
June 30, 1997; and
(iv) no Interest Period applicable to a Facility B Takeout Loan
or portion thereof shall extend beyond any date upon which is due any
scheduled principal payment in respect thereof unless the aggregate
principal amount of Facility B Takeout Loans represented by Base Rate
Loans, or by Eurodollar Rate Loans having Interest Periods that will
expire on or before such date, equals or exceeds the amount of such
principal payment.
"IRS" means the Internal Revenue Service, and any Governmental
---
Authority succeeding to any of its principal functions.
"Issuance Date" has the meaning specified in subsection 3.01(a).
-------------
"Issue" means, with respect to any Letter of Credit, to issue or to
-----
extend the expiry of, or to renew or increase the amount of, such Letter of
Credit; and the terms
18
<PAGE>
"Issued," "Issuing" and "Issuance" have corresponding meanings.
------ ------- --------
"Issuing Banks" means BofA and any other Bank designated by the Agent
-------------
to Issue Letters of Credit, in their respective capacities as issuers of
one or more Letters of Credit hereunder, together with any replacement
Letter of Credit issuer arising under subsection 10.01(b) or Section 10.09.
"Joint Venture" means a single-purpose corporation, partnership, joint
-------------
venture or other similar legal arrangement (whether created by contract or
conducted through a separate legal entity) now or hereafter formed by the
Borrower or any of its Subsidiaries with another Person in order to conduct
a common venture or enterprise with such Person.
"L/C Advance" means each Bank's participation in any L/C Borrowing in
-----------
accordance with its Pro Rata Share.
"L/C Amendment Application" means an application form for amendment of
-------------------------
outstanding Standby Letters of Credit or Commercial Letters of Credit as
shall at any time be in use at the applicable Issuing Bank, as such Issuing
Bank shall request.
"L/C Application" means an application form for issuances of Standby
---------------
Letters of Credit or Commercial Letters of Credit as shall at any time be
in use at the applicable Issuing Bank, as such Issuing Bank shall request.
"L/C Borrowing" means an extension of credit resulting from a drawing
-------------
under any Letter of Credit which shall not have been reimbursed on the date
when made nor converted into a Borrowing of Facility A Revolving Loans
under subsection 3.03(c).
"L/C Commitment" means the commitment of the Issuing Banks to Issue,
--------------
and the commitment of the Banks severally to participate in, Letters of
Credit from time to time Issued or outstanding under Article III, in an
aggregate amount not to exceed on any date the lesser of $50,000,000 and
the aggregate Facility A Commitment, as such amount may be reduced as a
result of a reduction in the L/C Commitment pursuant to Section 2.05;
provided that the L/C Commitment is a part of the aggregate Facility A
--------
Commitment, rather than a separate, independent commitment.
"L/C Obligations" means at any time the sum of (a) the aggregate
---------------
undrawn amount of all Letters of Credit then outstanding, plus (b) the
amount of all unreimbursed drawings under all Letters of Credit, including
all outstanding L/C Borrowings, plus (c) all other Obligations
19
<PAGE>
of the Borrower and Stratton under or in connection with the L/C-Related
Documents, to the extent not included within clauses (a) and (b) hereof.
"L/C-Related Documents" means the Letters of Credit, the L/C
---------------------
Applications, the L/C Amendment Applications and any other document
relating to any Letter of Credit, including any of the Issuing Banks'
standard form reimbursement agreements and other documents for letter of
credit issuances.
"Lending Office" means, as to any Bank, the office or offices of such
--------------
Bank specified as its "Lending Office" or "Domestic Lending Office" or
"Eurodollar Lending Office", as the case may be, on Schedule 11.02, or such
--------------
other office or offices as such Bank may from time to time notify the
Borrower and the Agent.
"Letters of Credit" means, collectively, Standby Letters of Credit and
-----------------
Commercial Letters of Credit.
"Level" means, at any time, Level 1, Level 2, Level 3 or Level 4,
-----
based on the amount of the Leverage Ratio at such time. For purposes of
this Agreement, the following "Levels" of Leverage Ratio (LR) shall apply:
<TABLE>
<CAPTION>
Level Leverage Ratio
- ---------------- --------------------------------------------------------------
<S> <C>
Level 1 LR (LESS THAN) 2.0
Level 2 2.0 (LESS THAN OR EQUAL TO) LR (LESS THAN) 2.5
Level 3 2.5 (LESS THAN OR EQUAL TO) LR (LESS THAN) 3.25
Level 4 LR (GREATER THAN OR EQUAL TO) 3.25
</TABLE>
The level of the Leverage Ratio for the period from the Closing Date to the
end of the fiscal quarter of the Borrower during which the Closing Date
occurs shall be equal to Level 3. Any change in the Level of the Leverage
Ratio shall be determined by the Agent based upon the financial information
required to be contained in the Compliance Certificates delivered by the
Borrower to the Agent with respect to each fiscal quarter of the Borrower
and shall become effective as of the first day of the fiscal quarter
following the fiscal quarter for which such Compliance Certificate was
delivered. Upon any failure of the Borrower to deliver a Compliance
Certificate for any fiscal quarter prior to 10 days after the date on which
such Compliance Certificate is required to be delivered to the Agent, and
without limiting the other rights and remedies of the Agent and the Banks
hereunder, the Leverage Ratio shall be deemed to be Level 4 as of the first
day of the fiscal quarter beginning after the fiscal quarter for which such
Compliance Certificate was due.
20
<PAGE>
"Leverage Ratio" means, with respect to any Person for any period, the
--------------
ratio of Funded Debt of such Person to Consolidated Cash Flow of such
Person. In the event that the reference Person or any of its Subsidiaries
incurs, assumes, guarantees, redeems or repays any Indebtedness (other than
revolving credit borrowings) subsequent to the commencement of the period
for which the Leverage Ratio is being calculated but prior to the date on
which the calculation of the Leverage Ratio is made (the "Leverage Ratio
Calculation Date"), then the Leverage Ratio shall be calculated giving pro
forma effect to such incurrence, assumption, guarantee, redemption or
repayment of Indebtedness, as if the same had occurred at the beginning of
the applicable reference period. The foregoing calculation of the Leverage
Ratio shall also give pro forma effect to Acquisitions (including all
mergers and consolidations), Asset Sales and other dispositions and
discontinuances of businesses or assets that have been made by the
reference Person or any of its Subsidiaries during the reference period or
subsequent to such reference period and on or prior to the Leverage Ratio
Calculation Date assuming that all such Acquisitions, Asset Sales and other
dispositions and discontinuances of businesses or assets had occurred on
the first day of the reference period; provided, however, that with respect
-------- -------
to the Borrower and its Subsidiaries, (a) Funded Debt shall be reduced by
amounts attributable to businesses or assets that are so disposed of or
discontinued only to the extent that the Indebtedness included within such
Funded Debt would no longer be an obligation of the Borrower or its
Subsidiaries subsequent to the Leverage Ratio Calculation Date and (b)
Consolidated Cash Flow generated by an acquired business or asset shall be
determined by the actual gross profit (revenues minus costs of goods sold)
of such acquired business or asset during the immediately preceding number
of full fiscal quarters as in the reference period minus the pro forma
expenses that would have been incurred by the Borrower and its Subsidiaries
in the operation of such acquired business or asset during such period
computed on the basis of (i) personnel expenses for employees retained by
the Borrower and its Subsidiaries in the operation of the acquired business
or asset and (ii) non-personnel costs and expenses incurred by the Borrower
and its Subsidiaries on a per gallon basis in the operation of the
Borrower's business at similarly situated facilities of the Borrower. If
the applicable reference period for any calculation of the Leverage Ratio
with respect to the Borrower and its Subsidiaries shall include a portion
prior to the Closing Date, then such Leverage Ratio shall be calculated
based upon the Consolidated Cash Flow and Funded Debt of the Borrower and
its Subsidiaries for such portion of the reference period prior to the
Closing Date and the Consolidated Cash Flow and the Funded Debt of the
Borrower for the remaining portion of the reference period on and
21
<PAGE>
after the Closing Date, giving pro forma effect, as described in the two
foregoing sentences, to all applicable transactions occurring on the
Closing Date or otherwise.
"LIBOR" means the rate of interest per annum determined by the Agent
-----
to be the arithmetic mean (rounded upward to the next 1/16th of 1%) of the
rates of interest per annum notified to the Agent by BofA as the rate of
interest at which dollar deposits in the approximate amount of the amount
of the Loan to be made or continued as, or converted into, a Eurodollar
Rate Loan by BofA and having a maturity comparable to such Interest Period
would be offered to major banks in the London interbank market at their
request at approximately 11:00 a.m. (London time) two Business Days prior
to the commencement of such Interest Period.
"Lien" means any security interest, mortgage, deed of trust, pledge,
----
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising
under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease, any financing
lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the owner of the
asset to which such lien relates as debtor, under the Uniform Commercial
Code or any comparable law) and any contingent or other agreement to
provide any of the foregoing, but not including the interest of a lessor
under an operating lease.
"Loan" means an extension of credit by a Bank to the Borrower under
----
Article II or Article III in the form of a Facility A Revolving Loan, L/C
Advance, Facility B Term Loan, Facility B Revolving Loan, Facility B
Takeout Loan or (in the case of BofA) Swingline Loan.
"Loan Documents" means this Agreement, any Notes, the Fee Letters, the
--------------
L/C-Related Documents, the Guaranties and all other documents delivered to
the Agent or any Bank in connection herewith.
"Majority Banks" means at any time Banks then holding 51% or more of
--------------
the then aggregate unpaid principal amount of the Loans (other than the
Swingline Loans), or, if no such principal amount is then outstanding,
Banks then having 51% or more of the aggregate Commitments.
"Margin Stock" means "margin stock" as such term is defined in
------------
Regulation U of the FRB.
"Material Adverse Effect" means (a) a material adverse change in, or a
-----------------------
material adverse effect upon, the operations, business, properties,
condition (financial or
22
<PAGE>
otherwise) or prospects of the Borrower or the Borrower and its
Subsidiaries taken as a whole; (b) a material impairment of the ability of
the Borrower or any Subsidiary to perform under any Loan Document or
otherwise to avoid any Event of Default; or (c) a material adverse effect
upon the legality, validity, binding effect or enforceability against the
Borrower or any Subsidiary of any Loan Document.
"Maximum Amount Certificate" means a certificate delivered to the
--------------------------
Agent pursuant to subsection 7.02(c).
"MLP" means Ferrellgas Partners, L.P., a Delaware limited partnership
---
and the sole limited partner of the Borrower.
"MLP New Units" means any units of limited partner interests of MLP
-------------
sold by MLP other than those registered pursuant to the MLP Registration
Statement (including the overallotment provisions thereof).
"MLP Registration Statement" means the Ferrellgas Partners, L.P., Form
--------------------------
S-1 Registration Statement No. 33-53383, as amended from time to time.
"Net Income" means, with respect to any Person, the net income (loss)
----------
of such Person, determined in accordance with GAAP and before any reduction
in respect of preferred stock dividends, excluding, however, (a) any gain
(but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (i) any asset sale (including,
without limitation, dispositions pursuant to sale and leaseback
transactions), or (ii) the disposition of any securities or the
extinguishment of any Indebtedness of such Person or any of its
Subsidiaries, and (b) any extraordinary gain (but not loss), together with
any related provision for taxes on such extraordinary gain (but not loss),
provided, however, that all costs and expenses with respect to the
-------- -------
retirement of the Existing Senior Notes and the Existing Subordinated
Debentures, including, without limitation, cash premiums, tender offer
premiums, consent payments and all fees and expenses in connection
therewith, shall be added back to Net Income to the extent that the same
were deducted from the Net Income of the Borrower or its Subsidiaries in
accordance with GAAP.
"Net Proceeds from MLP New Unit Sales" means the aggregate amount of
------------------------------------
all cash proceeds of the sale of any MLP New Units sold after the Closing
Date net of the direct costs relating to such sale (including, without
limitation, legal, accounting and investment banking fees and sales
commissions) and taxes paid or payable as a result thereof unless and to
the extent such net amount is contributed or invested in a Person other
than the Borrower, other than the issuance of up to 500,000 MLP New Units
(as adjusted to
23
<PAGE>
reflect distributions of equity and similar transactions) upon the exercise
of options to purchase such units granted to employees of the General
Partner from time to time pursuant to an option plan.
"Net Proceeds of Asset Sale" means the aggregate cash proceeds
--------------------------
received by the Borrower or any of its Subsidiaries in respect of any Asset
Sale, net of the direct costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees, and
sales commissions) and any relocation expenses incurred as a result
thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), and amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets the subject of such
Asset Sale.
"Non-Recourse Subsidiary" means any Person that would otherwise be a
-----------------------
Subsidiary of the Borrower but is designated as a Non-Recourse Subsidiary
in a resolution of the Board of Directors of the General Partner, so long
as each of the following remains true: (a) no portion of the Indebtedness
or any other obligation (contingent or otherwise) of such Person (i) is a
Contingent Obligation of the Borrower or any of its Subsidiaries, (ii) is
recourse or obligates the Borrower or any of its Subsidiaries in any way or
(iii) subjects any property or asset of the Borrower or any of its
Subsidiaries, directly or indirectly, contingently or otherwise, to
satisfaction thereof, (b) neither the Borrower nor any of its Subsidiaries
has any contract, agreement, arrangement or understanding or is subject to
an obligation of any kind, written or oral, with such Person other than on
terms no less favorable to the Borrower and its Subsidiaries than those
that might be obtained at the time from persons who are not Affiliates of
the Borrower, (c) neither the Borrower nor any of its Subsidiaries has any
obligation with respect to such Person (i) to subscribe for additional
shares of capital stock, Capital Interests or other Equity Interest therein
or (ii) maintain or preserve such Person's financial condition or to cause
such Person to achieve certain levels of operating or other financial
results, (d) such Person has no more than $1,000 of assets at the time of
such designation, (e) such Person is in compliance with the restrictions
applicable to Affiliates of the MLP under Section 8.21 hereof and (f) such
Person takes steps designed to assure that neither the Borrower nor any of
its Subsidiaries will be liable for any portion of the Indebtedness or
other obligations of such Person, including maintenance of a corporate or
limited partnership structure and observance of applicable formalities such
as regular meetings and maintenance of minutes, a substantial and
meaningful capitalization and the use of a corporate or
24
<PAGE>
partnership name, trade name or trademark not misleadingly similar to those
of the Borrower.
"Note" means a promissory note executed by the Borrower in favor of a
----
Bank pursuant to subsection 2.02(b), in substantially the form of Exhibit
-------
F.
"Notice of Borrowing" means a notice in substantially the form of
-------------------
Exhibit A.
---------
"Notice of Conversion/Continuation" means a notice in substantially
---------------------------------
the form of Exhibit B.
---------
"Obligations" means all advances, debts, liabilities, obligations,
-----------
covenants and duties arising under any Loan Document, owing by the Borrower
to any Bank, the Agent, or any Indemnified Person, whether direct or
indirect (including those acquired by assignment), absolute or contingent,
due or to become due, now existing or hereafter arising including, without
limitation, all Indebtedness of the Borrower to the Banks for the payment
of principal of and interest on all outstanding Loans and all obligations
of the Borrower to the Issuing Banks for reimbursement of drawings under
Letters of Credit from time to time.
"Organization Documents" means, for any corporation, the certificate
----------------------
or articles of incorporation, the bylaws, any certificate of determination
or instrument relating to the rights of preferred shareholders of such
corporation, any shareholder rights agreement, and all applicable
resolutions of the board of directors (or any committee thereof) of such
corporation and, for any general or limited partnership, the partnership
agreement of such partnership and all amendments thereto and any
agreements otherwise relating to the rights of the partners thereof.
"Other Taxes" means any present or future stamp or documentary taxes
-----------
or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other
Loan Documents.
"Participant" has the meaning specified in subsection 11.08(d).
-----------
"Partners' Equity" means the partners' equity as shown on a balance
----------------
sheet prepared in accordance with GAAP for any partnership.
"Partnership Agreement" shall mean the Agreement of Limited
---------------------
Partnership of the Borrower dated ________, 1994, as amended from time to
time.
25
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation, or any
----
Governmental Authority succeeding to any of its principal functions under
ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
------------
ERISA) subject to Title IV of ERISA which the Borrower or the General
Partner sponsors, maintains, or to which it makes, is making, or is
obligated to make contributions, or in the case of a multiple employer plan
(as described in Section 4064(a) of ERISA) has made contributions at any
time during the immediately preceding five (5) plan years.
"Permitted Acquisitions" means Acquisitions by the Borrower and its
----------------------
Subsidiaries which comply with the provisions of Section 8.04.
"Permitted Investments" means (a) any Investments in Cash Equivalents;
---------------------
(b) any Investments in the Borrower or in a Wholly-Owned Subsidiary of the
Borrower that is a Guarantor; (c) Investments by the Borrower or any
Subsidiary of the Borrower in a Person, if as a result of such Investment
(i) such Person becomes a Wholly-Owned Subsidiary of the Borrower and a
Guarantor or (ii) such Person is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Borrower or a Wholly-Owned Subsidiary of the Borrower
that is a Guarantor; and (d) other Investments in Non-Recourse Subsidiaries
of the Borrower that do not exceed $30 million in the aggregate.
"Permitted Liens" has the meaning specified in Section 8.01.
---------------
"Permitted Refinancing Indebtedness" means any Indebtedness of the
----------------------------------
Borrower or any Subsidiary of the Borrower issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace,
defease or refund other Indebtedness of the Borrower or any of its
Subsidiaries (other than Indebtedness under the Senior Notes) or the
Indebtedness represented by the then outstanding Existing Subordinated
Debentures; provided that (a) the principal amount of such Indebtedness
--------
does not exceed the principal amount of the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (the "Prior
Indebtedness") (plus the amount of reasonable expenses incurred in
connection therewith), and the effective interest rate per annum on such
Indebtedness does not or is not likely to exceed the effective interest
rate per annum of the Prior Indebtedness, as determined by the Agent in its
sole discretion; (b) such Indebtedness has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of
the Prior Indebtedness; (c) such Indebtedness is subordinated in right
26
<PAGE>
of payment to the Obligations on terms at least as favorable to the Banks
as those, if any, contained in the documentation governing the Prior
Indebtedness; and (d) such Indebtedness (other than Indebtedness incurred
to refinance, replace, defease or refund the Existing Subordinated
Debentures) is incurred by the Borrower or the Subsidiary who is the
obligor on the Prior Indebtedness.
"Permitted Senior Debt" means, with respect to any Person, (i) any
---------------------
Acquired Debt of such Person, (ii) any Indebtedness incurred by such
Person, the proceeds of which are applied solely to finance Growth-Related
Capital Expenditures and (iii) any Indebtedness incurred by such Person,
the proceeds of which are used solely for working capital purposes.
"Person" means an individual, partnership, corporation, business
------
trust, joint stock company, trust, unincorporated association, Joint
Venture or Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
----
ERISA) which the Borrower sponsors or maintains or to which the Borrower or
the General Partner makes, is making, or is obligated to make contributions
and includes any Pension Plan.
"Pro Rata Share" means, as to any Bank at any time, the percentage set
--------------
forth on Schedule 2.01 hereto as its "Pro Rata Share", as such amount may
-------------
be adjusted by assignments under Section 11.08.
"Registration Statements" means, collectively, the MLP Registration
-----------------------
Statement and the Senior Note Registration Statement.
"Related Party" means (i) the spouse or any lineal descendant of James
-------------
E. Ferrell, (ii) any trust for his benefit or for the benefit of his spouse
or any such lineal descendants or (iii) any corporation, partnership or
other entity in which James E. Ferrell and/or such other Persons referred
to in the foregoing clauses (i) and (ii) are the direct record and
beneficial owners of all of the voting and nonvoting Equity Interests.
"Reorganization" has the meaning specified in subsection 5.01(l).
--------------
"Reportable Event" means, any of the events set forth in Section
----------------
4043(b) of ERISA or the regulations thereunder, other than any such event
for which the 30-day notice requirement under ERISA has been waived in
regulations issued by the PBGC.
27
<PAGE>
"Requirement of Law" means, as to any Person, any law (statutory or
------------------
common), treaty, rule or regulation or determination of an arbitrator or of
a Governmental Authority, in each case applicable to or binding upon the
Person or any of its property or to which the Person or any of its property
is subject.
"Responsible Officer" means the chief executive officer or the
-------------------
president of the General Partner or any other officer having substantially
the same authority and responsibility to act for the General Partner on
behalf of the Borrower; or, with respect to compliance with financial
covenants, the chief financial officer or the treasurer of the General
Partner or any other officer having substantially the same authority and
responsibility to act for the General Partner on behalf of the Borrower.
"Revolving Commitment" means, as to each Bank, collectively, its
--------------------
Facility A Commitment and its Facility B Revolving Loan Commitment.
"Revolving Termination Date" means the earlier to occur of:
--------------------------
(a) June 30, 1997; and
(b) the date on which the Facility A Commitment and the Facility
B Revolving Loan Commitment terminate in accordance with the
provisions of this Agreement.
"Risk Participation Percentage" means, as of any date and based upon
-----------------------------
the Level of the Leverage Ratio on such date, the percent per annum
(expressed in basis points) set forth below opposite such Level:
Leverage Ratio Risk Participation Percentage
-------------- -----------------------------
Level 1 50 b.p.
Level 2 75 b.p.
Level 3 100 b.p.
Level 4 112.5 b.p.
"SEC" means the Securities and Exchange Commission, or any
---
Governmental Authority succeeding to any of its principal functions.
"Senior Debt" means, without duplication, (i) the Obligations, (ii)
-----------
all other Indebtedness of the Borrower or Finance Corp., unless the
instrument under which such Indebtedness is incurred expressly provides
that it is subordinated in right of payment to the Obligations and (iii)
all Indebtedness of Subsidiaries of the Borrower, other than Finance Corp.
28
<PAGE>
"Senior Note Registration Statement" means the Ferrellgas, L.P., and
----------------------------------
Ferrellgas Finance Corp. Form S-1 Registration Statement No. 33-53379, as
amended from time to time.
"Senior Notes" means the ____% Senior Notes due 2001, as amended or
------------
supplemented from time to time, offered and sold by the Borrower and
Finance Corp., as issuers, pursuant to the Senior Note Registration
Statement and the Indenture.
"Significant Subsidiary" means any Subsidiary of the Borrower that
----------------------
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such Regulation is in
effect on the date hereof.
"Solvent" shall mean, with respect to any Person on any date, that on
-------
such date (a) the fair value of the property of such Person is greater than
the fair value of the liabilities (including, without limitation,
contingent liabilities) of such Person, (b) such Person does not intend to,
and does not believe that it will, incur debts and liabilities beyond such
Person's ability to pay as such debts and liabilities mature and (c) such
Person is not engaged in business or a transaction, and is not about to
engage in a business or a transaction, for which such Person's property
would constitute an unreasonably small capital.
"Standby Letters of Credit" means standby letters of credit Issued by
-------------------------
an Issuing Bank pursuant to Article III.
"Subsidiary" means, with respect to any Person, any corporation,
----------
association or other business entity of which more than 50% of the total
voting power of shares of Capital Interests entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof (or, in the case of a limited partnership,
more than 50% of either the general partners' Capital Interests or the
limited partners' Capital Interests) is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person or a combination thereof. Notwithstanding the
foregoing, any Subsidiary of the Borrower that is designated a Non-Recourse
Subsidiary pursuant to the definition thereof shall, for so long as all of
the statements in the definition thereof remain true, not be deemed a
Subsidiary of the Borrower.
"Surety Instruments" means all letters of credit (including standby
------------------
and commercial), bankers' acceptances, bank guaranties, shipside bonds,
surety bonds and similar instruments.
29
<PAGE>
"Swingline Loan" has the meaning specified in Section 2.15.
--------------
"Tax Audit" means the adjustments and disallowances proposed by the
---------
IRS relating to purchase price allocations for the acquisition of _______
in 1987.
"Taxes" means any and all present or future taxes, levies, imposts,
-----
deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Bank and the Agent, such taxes
(including income taxes or franchise taxes) as are imposed on or measured
by each Bank's net income by the jurisdiction (or any political subdivision
thereof) under the laws of which such Bank or the Agent, as the case may
be, is organized or maintains a lending office.
"Type" means, with respect to any Loan, whether such Loan is a Base
----
Rate Loan or a Eurodollar Rate Loan.
"UCP" has the meaning specified in Section 3.09.
---
"Unfunded Pension Liability" means the excess of a Plan's benefit
--------------------------
liabilities under Section 4001(a)(16) of ERISA, over the current value of
that Plan's assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the
applicable plan year.
"United States" and "U.S." each means the United States of America.
------------- ----
"Weighted Average Life to Maturity" means, when applied to any
---------------------------------
Indebtedness at any date, the number of years obtained by dividing (a) the
sum of the products obtained by multiplying (x) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (y) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment, by (b)
the then outstanding principal amount of such Indebtedness.
"Wholly-Owned Subsidiary" means any corporation or partnership of
-----------------------
which 100% of the Capital Interests (other than directors' qualifying
shares required by law), at the time as of which any determination is being
made, is owned, beneficially and of record, by the Borrower, or by one or
more of the other Wholly-Owned Subsidiaries, or both.
30
<PAGE>
1.02 Other Interpretive Provisions.
-----------------------------
(a) The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words refer
to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including";
the words "to" and "until" each mean "to but excluding", and the word
"through" means "to and including."
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(e) The captions and headings of this Agreement are for convenience
of reference only and shall not affect the interpretation of this Agreement.
(f) This Agreement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms.
(g) Unless otherwise expressly provided herein, financial
calculations applicable to the Borrower shall be made on a consolidated basis.
(h) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agent, the Borrower
and the other parties, and are the products of all parties. Accordingly, they
shall not be
31
<PAGE>
construed against the Banks or the Agent merely because of the Agent's or Banks'
involvement in their preparation.
1.03 Accounting Principles.
---------------------
(a) Unless the context otherwise clearly requires, all accounting
terms not expressly defined herein shall be construed, and all financial
computations required under this Agreement shall be made, in accordance with
GAAP, consistently applied. In the event that GAAP changes during the term of
this Agreement such that the covenants contained in Section 7.12 would then be
calculated in a different manner or with different components, (i) the Borrower
and the Banks agree to amend this Agreement in such respects as are necessary to
conform those covenants as criteria for evaluating Borrower's financial
condition to substantially the same criteria as were effective prior to such
change in GAAP and (ii) the Borrower shall be deemed to be in compliance with
the covenants contained in Section 7.12 during the 90-day period following any
such change in GAAP if and to the extent that the Borrower would have been in
compliance therewith under GAAP as in effect immediately prior to such change.
(b) References herein to "fiscal year" and "fiscal quarter" refer to
such fiscal periods of the Borrower.
ARTICLE II
THE CREDITS
-----------
2.01 Amounts and Terms of Commitments.
--------------------------------
(a) Facility A Revolving Loans, Swingline Loans and Letters of Credit.
-----------------------------------------------------------------
(i) Each Bank severally agrees, on the terms and subject to the
conditions set forth herein, to make loans to the Borrower (each such loan,
a "Facility A Revolving Loan") from time to time on any Business Day during
-------------------------
the period from the Closing Date to the Revolving Termination Date, in an
aggregate principal amount not to exceed at any time outstanding such
Bank's Facility A Commitment as in effect from time to time; provided,
--------
however, that, after giving effect to any Borrowing of Facility A Revolving
-------
Loans, the sum of the Effective Amount of all outstanding Facility A
Revolving Loans plus the Effective Amount of all L/C Obligations plus the
Effective Amount of all Swingline Loans shall not at any time exceed the
combined Facility A Commitments, and the Effective Amount of the Facility A
Revolving Loans of any Bank plus the participation of such Bank in the
Effective Amount of all L/C Obligations plus such Bank's Pro Rata Share of
the Effective Amount of all outstanding Swingline Loans shall not at any
time exceed such Bank's Facility A Commitment.
32
<PAGE>
(ii) Within the limits of each Bank's Facility A Commitment and on the
other terms and subject to the other conditions hereof, the Borrower may
borrow under this Section 2.01(a), prepay under Section 2.06 and reborrow
under this Section 2.01(a); provided, that the Borrower shall cause the
--------
aggregate outstanding principal amount of Facility A Revolving Loans and
Swingline Loans not to exceed $25,000,000 for at least one period of 30
consecutive days during each fiscal year of Borrower, commencing with its
fiscal year beginning August 1, 1994.
(iii) As a subfacility of the Banks' Facility A Commitments, the
Borrower and Stratton may request the Issuing Banks to Issue Letters of
Credit from time to time pursuant to Article III.
(iv) In addition, the Borrower may request BofA to make
Swingline Loans to the Borrower from time to time pursuant to Section 2.15.
(b) Facility B Term Loans, Revolving Loans and Takeout Loans.
--------------------------------------------------------
(i) Tranche I - Facility B Term Loans. Each Bank severally agrees,
---------------------------------
on the terms and subject to the conditions set forth herein, to make a single
loan to the Borrower (each such loan, a "Facility B Term Loan") on the Closing
--------------------
Date in a principal amount not to exceed such Bank's Facility B Term Loan
Commitment. Amounts borrowed as Facility B Term Loans which are repaid or
prepaid by the Borrower may not be reborrowed.
(ii) Tranche II - Facility B Revolving Loans. Each Bank severally
---------------------------------------
agrees, on the terms and subject to the conditions set forth herein, to make
loans to the Borrower (each such loan, a "Facility B Revolving Loan") from time
-------------------------
to time on any Business Day during the period from the Closing Date to the
Revolving Termination Date, in an aggregate principal amount not to exceed at
any time outstanding the lesser of (x) such Bank's Facility B Revolving Loan
Commitment as in effect at such time, and (y) such Bank's Pro Rata Share of the
Facility B Maximum Amount as in effect at such time; provided, however, that,
-------- -------
after giving effect to any Borrowing of Facility B Revolving Loans, the
Effective Amount of all outstanding Facility B Revolving Loans shall not at any
time exceed the lesser of (a) the aggregate Facility B Revolving Loan
Commitments, and (b) the Facility B Maximum Amount, and the Effective Amount of
all outstanding Facility B Revolving Loans of any Bank shall not at any time
exceed the lesser of (A) such Bank's Facility B Revolving Loan Commitment, and
(B) such Bank's Pro Rata Share of the Facility B Maximum Amount then in effect.
Within the limits of each Bank's Facility B Revolving Loan Commitment, and on
the other terms and subject to the other terms and conditions hereof, the
Borrower may borrow under this Section 2.01(b)(ii), prepay under Section 2.06
and reborrow under this Section 2.01(b)(ii).
33
<PAGE>
(iii) Facility B Takeout Loan. Each Bank severally agrees, on the
-----------------------
terms and subject to the conditions set forth herein, to make a single loan to
the Borrower (each such loan, a "Facility B Takeout Loan") on the Revolving
-----------------------
Termination Date in an aggregate amount not to exceed the lesser of (x) the
aggregate outstanding Effective Amount of such Bank's Facility B Loans on the
Revolving Termination Date and (y) such Bank's Facility B Commitment. Amounts
borrowed as Facility B Takeout Loans which are repaid or prepaid by the Borrower
may not be reborrowed.
2.02 Loan Accounts. (a) The Loans made by each Bank and the Letters of
-------------
Credit Issued by the Issuing Banks shall be evidenced by one or more accounts or
records maintained by such Bank or Issuing Bank, as the case may be, in the
ordinary course of business. The accounts or records maintained by the Agent,
the Issuing Banks and each Bank shall be conclusive absent manifest error of the
amount of the Loans made by the Banks to the Borrower and the Letters of Credit
Issued for the account of the Borrower, and the interest and payments thereon.
Any failure so to record or any error in doing so shall not, however, limit or
otherwise affect the obligation of the Borrower hereunder to pay any amount
owing with respect to the Loans or any Letter of Credit.
(b) Upon the request of any Bank made through the Agent, the Loans
made by such Bank may be evidenced by one or more Notes, instead of loan
accounts. Each such Bank shall endorse on the schedules annexed to its Note(s)
the date, amount and maturity of each Loan made by it and the amount of each
payment of principal made by the Borrower with respect thereto. Each such Bank
is irrevocably authorized by the Borrower to endorse its Note(s) and each Bank's
record shall be conclusive absent manifest error; provided, however, that the
-------- -------
failure of a Bank to make, or an error in making, a notation thereon with
respect to any Loan shall not limit or otherwise affect the obligations of the
Borrower hereunder or under any such Note to such Bank.
2.03 Procedure for Borrowing. (a) Each Borrowing of Loans shall be made
-----------------------
upon the Borrower's irrevocable written notice delivered to the Agent in the
form of a Notice of Borrowing (which notice must be received by the Agent prior
to 10:00 a.m. San Francisco time (i) three Business Days prior to the requested
Borrowing Date, in the case of Eurodollar Rate Loans, and (ii) one Business Day
prior to the requested Borrowing Date, in the case of Base Rate Loans,
specifying:
(A) the amount of the Borrowing, which shall be in an
aggregate minimum amount of $3,000,000 or any multiple of $1,000,000
in excess thereof for Eurodollar Loans, or $1,000,000 or any multiple
of $100,000 in excess thereof for Base Rate Loans;
34
<PAGE>
(B) the requested Borrowing Date, which shall be a Business
Day;
(C) the Type and Class of Loans comprising the Borrowing;
and
(D) the duration of the Interest Period applicable to any
Eurodollar Rate Loans included in such notice. If the Notice of
Borrowing fails to specify the duration of the Interest Period for any
Borrowing comprised of Eurodollar Rate Loans, such Interest Period
shall be one month.
(b) The Agent will promptly notify each Bank of the Agent's receipt
of any Notice of Borrowing and of the amount of such Bank's Pro Rata Share of
that Borrowing.
(c) Each Bank will make the amount of its Pro Rata Share of each
Borrowing available to the Agent for the account of the Borrower at the Agent's
Payment Office by 10:00 a.m. San Francisco time on the Borrowing Date requested
by the Borrower in funds immediately available to the Agent. The proceeds of
all such Loans will then be made available to the Borrower by the Agent at such
office by crediting the account of the Borrower on the books of BofA with the
aggregate of the amounts made available to the Agent by the Banks and in like
funds as received by the Agent.
(d) After giving effect to any Borrowing, there may not be more than
ten different Interest Periods in effect with respect to Eurodollar Rate Loans.
2.04 Conversion and Continuation Elections. (a) The Borrower may, upon
-------------------------------------
irrevocable written notice to the Agent in accordance with subsection 2.04(b):
(i) elect, as of any Business Day, in the case of Base Rate
Loans, or as of the last day of the applicable Interest Period, in the case
of Eurodollar Rate Loans, to convert any such Loans (or any part thereof in
an amount not less than $3,000,000, or that is in an integral multiple of
$1,000,000 in excess thereof) into Loans of the other Type; or
(ii) elect as of the last day of the applicable Interest Period,
to continue as Eurodollar Rate Loans any Loans having Interest Periods
expiring on such day (or any part thereof in an amount not less than
$3,000,000, or that is in an integral multiple of $1,000,000 in excess
thereof);
provided, that if at any time the aggregate amount of Eurodollar Rate Loans in
- --------
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $3,000,000, such Eurodollar Rate Loans shall
automatically
35
<PAGE>
convert into Base Rate Loans, and on and after such date the right of the
Borrower to continue such Loans as, and convert such Loans into, Eurodollar Rate
Loans shall terminate.
(b) The Borrower shall deliver a Notice of Conversion/Continuation to
be received by the Agent not later than 10:00 a.m. San Francisco time at least
(i) three Business Days in advance of the Conversion/Continuation Date, if the
Loans are to be converted into or continued as Eurodollar Rate Loans; and (ii)
one Business Day in advance of the Conversion/Continuation Date, if the Loans
are to be converted into Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount and Class of Loans to be
converted or renewed;
(C) the Type of Loans resulting from the proposed
conversion or continuation; and
(D) other than in the case of conversions into Base Rate
Loans, the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to
Eurodollar Rate Loans, the Borrower has failed to select a new Interest Period
within the time period specified in subsection 2.04(b) to be applicable to such
Eurodollar Rate Loans, or if any Default or Event of Default then exists, the
Borrower shall be deemed to have elected to convert such Eurodollar Rate Loans
into Base Rate Loans effective as of the expiration date of such Interest
Period.
(d) The Agent will promptly notify each Bank of its receipt of a
Notice of Conversion/Continuation, or, if no notice is provided by the Borrower
within the time period specified in subsection 2.04(b), the Agent will promptly
notify each Bank of the details of any automatic conversion. All conversions
and continuations shall be made ratably according to the respective outstanding
principal amounts of the Loans with respect to which the notice was given held
by each Bank.
(e) Unless the Majority Banks otherwise agree, during the existence
of a Default or Event of Default, the Borrower may not elect to have a Loan
converted into or continued as a Eurodollar Rate Loan.
(f) After giving effect to any conversion or continuation of Loans,
there may not be more than ten different Interest Periods in effect.
36
<PAGE>
2.05 Voluntary Termination or Reduction of Commitments.
-------------------------------------------------
(a) The Borrower may, not later than 10:00 a.m. San Francisco time at
least three Business Days prior to its effective date by notice to the Agent,
terminate or permanently reduce the Facility A Commitments by an aggregate
minimum amount of $5,000,000 or any multiple of $5,000,000 in excess thereof;
unless, after giving effect thereto and to any prepayments of Loans made on the
- ------
effective date thereof, (i) the Effective Amount of all Facility A Revolving
Loans, Swingline Loans and L/C Obligations together would exceed the amount of
the combined Facility A Commitments then in effect, or (ii) the Effective Amount
of all L/C Obligations then outstanding would exceed the L/C Commitment.
(b) The Borrower may, not later than 10:00 a.m. San Francisco time at
least three Business Days prior to its effective date by notice to the Agent,
terminate or permanently reduce the Facility B Commitments by an aggregate
minimum amount of $5,000,000 or any multiple of $5,000,000 in excess thereof;
unless, after giving effect thereto and to any prepayments of Loans made on the
- ------
effective date thereof, the Effective Amount of all Facility B Term Loans and
all Facility B Revolving Loans together would exceed the amount of the combined
Facility B Commitments then in effect.
(c) Once reduced in accordance with this Section, the Commitments may
not be increased. Any reduction of the Facility A Commitments or the Facility B
Commitments shall be applied to each Bank according to its Pro Rata Share.
2.06 Optional Prepayments. (a) Subject to Section 4.04, the Borrower may,
--------------------
at any time or from time to time, not later than 10:00 a.m. San Francisco time
at least three (3) Business Days prior to its effective date by irrevocable
notice to the Agent, in the case of Eurodollar Rate Loans, and not later than
10:00 a.m. San Francisco time at least one (1) Business Day prior to its
effective date by irrevocable notice to the Agent, in the case of Base Rate
Loans, ratably prepay Loans in whole or in part, in minimum amounts of
$3,000,000 or any multiple of $1,000,000 in excess thereof, for Eurodollar Rate
Loans, and in minimum amounts of $1,000,000 or any multiple of $100,000 in
excess thereof, for Base Rate Loans.
(b) Any such notice of prepayment shall specify the date and amount
of such prepayment and the Type(s) and, with respect to voluntary prepayments
occurring on or prior to the Revolving Termination Date, the Class(es), of Loans
to be prepaid. Prepayments of Base Rate Loans of any Class may be made
hereunder on any Business Day. Prepayments of Eurodollar Rate Loans of any
Class may be made hereunder only on the last day of any applicable Interest
Period; provided, that prepayments of Eurodollar Rate Loans may be made on a day
--------
other than the last day of the applicable Interest Period only with payment by
the
37
<PAGE>
Borrower of the aggregate amount of any associated funding losses of any
affected Banks pursuant to Section 4.04. The Agent will promptly notify each
Bank of its receipt of any such notice, and of such Bank's Pro Rata Share of
such prepayment.
(c) If any such notice is given by the Borrower, the Borrower shall
make such prepayment and the payment amount specified in such notice shall be
due and payable on the date specified therein, together, in the case of a
Eurodollar Rate Loan, with accrued interest to each such date on the amount
prepaid and any amounts required pursuant to Section 4.04. Optional prepayments
occurring after the Revolving Termination Date shall be applied to the Facility
B Takeout Loan in inverse order of maturity.
2.07 Mandatory Prepayments of Loans; Mandatory Commitment Reductions. (a)
---------------------------------------------------------------
If on any date the Effective Amount of L/C Obligations exceeds the L/C
Commitment, the Borrower shall Cash Collateralize on such date the outstanding
Letters of Credit in an amount equal to the excess of the aggregate maximum
amount then available to be drawn under the Letters of Credit over the L/C
Commitment. Subject to Section 4.04, if on any date after giving effect to any
Cash Collateralization made on such date pursuant to the preceding sentence, the
Effective Amount of all Swingline Loans and Facility A Revolving Loans then
outstanding plus the Effective Amount of all L/C Obligations exceeds the
combined Facility A Commitments, the Borrower shall immediately, and without
notice or demand, prepay the outstanding principal amount of the Swingline
Loans, Facility A Revolving Loans and any L/C Advances by an aggregate amount
equal to the applicable excess.
(b) Subject to Section 4.04, if on any date on or prior to the
Revolving Termination Date the Effective Amount of the Facility B Revolving
Loans exceeds the lesser of (i) the aggregate Facility B Revolving Loan
Commitment, and (ii) the Facility B Maximum Amount then in effect, then the
Borrower shall immediately, and without notice or demand, prepay the outstanding
principal amount of the Facility B Revolving Loans in an aggregate amount equal
to such excess. If on any date after the Revolving Termination Date, the
Effective Amount of Facility B Takeout Loans exceeds the Facility B Maximum
Amount, then the Borrower shall immediately, and without notice or demand,
prepay the outstanding principal amount of the Facility B Takeout Loans in an
aggregate amount equal to such excess, in the inverse order of maturity.
(c) If on any date, (x) the sum of (i) aggregate Net Proceeds from
MLP New Unit Sales from the Closing Date through such date plus (ii) aggregate
Net Proceeds of Asset Sales during the period from the Closing Date through the
date that is 270 days prior to such date, exceeds (y) the aggregate Cash Costs
of Permitted Acquisitions during the period from the Closing Date through such
date plus aggregate Growth-Related Capital
38
<PAGE>
Expenditures of the Borrower and its Subsidiaries during such period (any such
excess being referred to herein as a "Downsize Amount"), then (A) if such date
---------------
is on or prior to the Revolving Termination Date and after giving effect to any
mandatory Cash Collateralization or prepayment of outstanding Facility B
Revolving Loans under subsection 2.07(b) above, the Borrower shall immediately,
and without notice or demand, prepay the Obligations in an aggregate amount
equal to the Downsize Amount as follows: first, Facility B Term Loans, second,
Swingline Loans, third, Facility A Revolving Loans, and fourth, L/C Obligations;
and (B) if such date is after the Revolving Termination Date, the Borrower shall
immediately, and without notice or demand, prepay payments due under the
Facility B Takeout Loan in an aggregate amount equal to the Downsize Amount, in
the inverse order of maturity.
(d) In the event that prior to the Revolving Termination Date any
portion of the Downsize Amount remains after the Facility B Maximum Amount has
been reduced to zero, the Facility A Commitment shall be automatically reduced
by an aggregate amount equal to such remaining portion of the Downsize Amount.
(e) The Borrower shall immediately, and without notice or demand,
prepay the Obligations in full, including, without limitation, the aggregate
principal amount of all outstanding Loans, all accrued and unpaid interest
thereon and all amounts payable under Section 4.04 hereof, and all of the
Commitments shall be automatically reduced to zero, in each case on the 30th day
after any Change in Control shall have occurred and be continuing.
(f) If and to the extent that the Facility A Commitment and the
Facility B Revolving Commitment are not equal to zero on the Revolving
Termination Date, each such amount shall be automatically reduced to zero on the
Revolving Termination Date.
2.08 Repayment.
---------
(a) Facility A Revolving Loans and Swingline Loans. The Borrower
----------------------------------------------
shall repay to the Banks in full on the Revolving Termination Date the aggregate
principal amount of Facility A Revolving Loans outstanding on such date together
with all accrued and unpaid interest thereon. The Borrower shall repay to BofA
in full on the Revolving Termination Date the aggregate principal amount of
Swingline Loans outstanding on such date, together with all accrued and unpaid
interest thereon.
(b) Facility B Term Loans and Facility B Revolving Loans. Subject to
----------------------------------------------------
the provisions of subsection 2.08(c), the Borrower shall repay in full on the
Revolving Termination Date the aggregate principal amount of Facility B Term
Loans and
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<PAGE>
Facility B Revolving Loans outstanding on such date together with all accrued
and unpaid interest thereon.
(c) Facility B Takeout Loans. At the Borrower's option, to be
------------------------
exercised by the giving of an appropriate Notice of Borrowing to the Agent in
the manner set forth herein and subject to the conditions set forth in Section
2.01(b)(iii), the Borrower may request the Banks to make Facility B Takeout
Loans to the Borrower on the Revolving Termination Date in repayment of up to
all of the aggregate principal amount of Facility B Term Loans and Facility B
Revolving Loans outstanding on such date. If and to the extent that the
Borrower shall have borrowed the Facility B Takeout Loan on the terms and
subject to the conditions set forth herein, the Borrower shall repay the
aggregate principal amount of the Facility B Takeout Loan in twelve (12) equal
quarterly installments commencing on September 30, 1997, and continuing on the
last day of every third calendar month thereafter through June 30, 2000;
provided, that all outstanding principal and accrued and unpaid interest on the
- --------
Facility B Takeout Loans shall be repaid in full on or prior to June 30, 2000.
2.09 Interest. (a) Each Loan shall bear interest on the outstanding
--------
principal amount thereof from the applicable Borrowing Date at a rate per annum
equal to the Eurodollar Rate (other than with respect to Swingline Loans) or the
Base Rate, as the case may be (and subject to the Borrower's right to convert to
other Types of Loans under Section 2.04), plus the Applicable Margin.
----
(b) Interest on each Loan shall be paid in arrears on each applicable
Interest Payment Date. Interest in all cases shall also be paid on the date of
any prepayment of Loans under subsection 2.07(e) and interest on Eurodollar Rate
Loans shall also be paid on the date of prepayment of Loans in all other
circumstances under Section 2.06 or 2.07, in each case for the portion of the
Loans so prepaid and upon payment (including prepayment) in full thereof and,
during the existence of any Event of Default, interest shall be paid on demand
of the Agent at the request or with the consent of the Majority Banks.
(c) Notwithstanding subsection (a) of this Section, while any Event
of Default exists or after acceleration, the Borrower shall pay interest (after
as well as before entry of judgment thereon to the extent permitted by law) on
the principal amount of all outstanding Obligations, at a rate per annum which
is determined by adding 2% per annum to the Applicable Margin then in effect for
such Loans and, in the case of Obligations not subject to an Applicable Margin,
including, without limitation, all letter of credit and commitment fees provided
herein, at a rate per annum equal to the Base Rate plus the Applicable Margin
plus 2%; provided, however, that, on and after the expiration of any Interest
-------- -------
Period applicable to any Eurodollar Rate Loan outstanding on the date of
occurrence of such Event of Default or
40
<PAGE>
acceleration, the principal amount of such Loan shall, during the continuation
of such Event of Default or after acceleration, bear interest at a rate per
annum equal to the Base Rate plus the Applicable Margin plus 2%.
(d) Anything herein to the contrary notwithstanding, the obligations
of the Borrower to any Bank hereunder shall be subject to the limitation that
payments of interest shall not be required for any period for which interest is
computed hereunder, to the extent (but only to the extent) that contracting for
or receiving such payment by such Bank would be contrary to the provisions of
any law applicable to such Bank limiting the highest rate of interest that may
be lawfully contracted for, charged or received by such Bank, and in such event
the Borrower shall pay such Bank interest at the highest rate permitted by
applicable law.
2.10 Fees. In addition to certain fees described in Section 3.08:
----
(a) Arrangement, Agency Fees. The Borrower shall pay an arrangement
------------------------
fee to the Arranger for the Arranger's own account, and shall pay an agency fee
to the Agent for the Agent's own account, as required by the letter agreement
("Fee Letter") between the Borrower and the Arranger and Agent dated May 11,
- ------------
1994.
(b) Commitment Fees. The Borrower shall pay to the Agent for the
---------------
account of each Bank a commitment fee with respect to such Bank's Facility A
Commitment equal to the Commitment Fee Rate per annum times the daily average
amount by which such Bank's Facility A Commitment exceeded the sum of the
aggregate Effective Amount of its Facility A Revolving Loans plus its Pro Rata
Share of the Effective Amount of L/C Obligations (other than with respect to
Commercial Letters of Credit). The Borrower shall pay to the Agent for the
account of each Bank a commitment fee with respect to such Bank's Facility B
Commitment, equal to the Commitment Fee rate per annum times the daily average
amount by which such Bank's Facility B Revolving Commitment exceeded the
aggregate Effective Amount of its Facility B Revolving Loans. Such commitment
fees shall accrue from the date of this Agreement to the Revolving Termination
Date and shall be due and payable quarterly in arrears on the first Business Day
of each fiscal quarter following the quarter for which payment is to be made,
commencing on August 1, 1994 through the Revolving Termination Date, with the
final payment to be made on the Revolving Termination Date; provided that, in
--------
connection with the full termination of Commitments under Section 2.05 or
Section 2.07, the accrued commitment fees calculated for the period ending on
such date shall also be paid on the date of such termination. The commitment
fees provided in this subsection shall accrue at all times after the above-
mentioned commencement date, including at any time during which one or more
conditions in Article V are not met.
41
<PAGE>
2.11 Computation of Fees and Interest. (a) All computations of interest
--------------------------------
for Base Rate Loans when the Base Rate is determined by BofA's "reference rate"
shall be made on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed. All other computations of fees and interest shall be made
on the basis of a 360-day year and actual days elapsed (which results in more
interest being paid than if computed on the basis of a 365-day year). Interest
and fees shall accrue during each period during which interest or such fees are
computed from the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Agent shall be
conclusive and binding on the Borrower and the Banks in the absence of manifest
error.
2.12 Payments by the Borrower. (a) All payments to be made by the
------------------------
Borrower shall be made without set-off, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by the Borrower shall be made
to the Agent for the account of the Banks at the Agent's Payment Office, and
shall be made in dollars and in immediately available funds, no later than 10:00
a.m. (San Francisco time) on the date specified herein. The Agent will promptly
distribute to each Bank its Pro Rata Share (or other applicable share as
expressly provided herein) of such payment in like funds as received. Any
payment received by the Agent later than 10:00 a.m. (San Francisco time) shall
be deemed to have been received on the following Business Day and any applicable
interest or fee shall continue to accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Agent receives notice from the Borrower prior to the
date on which any payment is due to the Banks that the Borrower will not make
such payment in full as and when required, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date in immediately
available funds and the Agent may (but shall not be so required), in reliance
upon such assumption, distribute to each Bank on such due date an amount equal
to the amount then due such Bank. If and to the extent the Borrower has not
made such payment in full to the Agent, each Bank shall repay to the Agent on
demand such amount distributed to such Bank, together with interest thereon at
the Federal Funds Rate for each day from the date such amount is distributed to
such Bank until the date repaid.
2.13 Payments by the Banks to the Agent. (a) Unless the Agent receives
----------------------------------
notice from a Bank on or prior to the Closing Date or, with respect to any
Borrowing after the Closing Date, at
42
<PAGE>
least one (1) Business Day prior to the date of such Borrowing, that such Bank
will not make available as and when required hereunder to the Agent for the
account of the Borrower the amount of that Bank's Pro Rata Share of the
Borrowing, the Agent may assume that each Bank has made such amount available to
the Agent in immediately available funds on the Borrowing Date and the Agent may
(but shall not be so required), in reliance upon such assumption, make available
to the Borrower on such date a corresponding amount. If and to the extent any
Bank shall not have made its full amount available to the Agent in immediately
available funds and the Agent in such circumstances has made available to the
Borrower such amount, that Bank shall on the Business Day following such
Borrowing Date make such amount available to the Agent, together with interest
at the Federal Funds Rate for each day during such period. A notice of the
Agent submitted to any Bank with respect to amounts owing under this subsection
(a) shall be conclusive, absent manifest error. If such amount is so made
available, such payment to the Agent shall constitute such Bank's Loan on the
date of Borrowing for all purposes of this Agreement. If such amount is not
made available to the Agent on the Business Day following the Borrowing Date,
the Agent will notify the Borrower of such failure to fund and, upon demand by
the Agent, the Borrower shall pay such amount to the Agent for the Agent's
account, together with interest thereon for each day elapsed since the date of
such Borrowing, at a rate per annum equal to the interest rate applicable at the
time to the Loans comprising such Borrowing.
(b) The failure of any Bank to make any Loan on any Borrowing Date
shall not relieve any other Bank of any obligation hereunder to make a Loan on
such Borrowing Date, but no Bank shall be responsible for the failure of any
other Bank to make the Loan to be made by such other Bank on any Borrowing Date.
2.14 Sharing of Payments, Etc. If, other than as expressly provided
-------------------------
elsewhere herein, any Bank shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its Pro Rata Share, such Bank shall
immediately (a) notify the Agent of such fact, and (b) purchase from the other
Banks such participations in the Loans made by them as shall be necessary to
cause such purchasing Bank to share the excess payment pro rata with each of
them; provided, however, that if all or any portion of such excess payment is
-------- -------
thereafter recovered from the purchasing Bank, such purchase shall to that
extent be rescinded and each other Bank shall repay to the purchasing Bank the
purchase price paid therefor, together with an amount equal to such paying
Bank's ratable share (according to the proportion of (i) the amount of such
paying Bank's required repayment to (ii) the total amount so recovered from the
purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. The Borrower
agrees that any Bank so purchasing a participation from another Bank may, to the
fullest extent
43
<PAGE>
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Bank were the
direct creditor of the Borrower in the amount of such participation. The Agent
will keep records (which shall be conclusive and binding in the absence of
manifest error) of participations purchased under this Section and will in each
case notify the Banks following any such purchases or repayments.
2.15 Discretionary Swingline Loans.
-----------------------------
(a) From time to time, subject to the conditions set forth below, at
the request of the Borrower, made through the Agent as set forth below, BofA in
its sole and absolute discretion may make short-term loans to the Borrower not
to exceed in the aggregate at any one time outstanding the principal sum of
$10,000,000, to be used by the Borrower to cover overdrafts, for cash management
purposes, or for other general working capital needs of the Borrower (each, a
"Swingline Loan"). The availability of Swingline Loans is conditioned on the
- ---------------
satisfaction of each of the following conditions: (i) it shall be in the sole
and absolute discretion of BofA, on each occasion that a Swingline Loan is
requested, whether to make such Swingline Loan; (ii) each Swingline Loan shall
bear interest from the time made until the time repaid, or until the time, if
any, that such Swingline Loan is converted into a Base Rate Loan as provided
below, at the rate(s) from time to time applicable to Base Rate Loans hereunder;
(iii) at the time of making of any Swingline Loan, the aggregate Effective
Amount of all Swingline Loans, together with the aggregate Effective Amount of
all Facility A Revolving Loans and the Effective Amount of all L/C Obligations,
without duplication, shall not exceed the aggregate Facility A Commitment; (iv)
each Swingline Loan, when made, all interest accrued thereon, and all
reimbursable costs and expenses incurred or payable in connection therewith,
shall constitute an Obligation of Borrower hereunder; and (v) each request for a
Swingline Loan from BofA pursuant to this Section 2.15 shall be made by the
Borrower to the Agent, shall be funded by BofA through the Agent, and shall be
repaid by the Borrower through the Agent (in order that the Agent may keep an
accurate record of the outstanding balance at any time of Swingline Loans so as
to monitor compliance with the terms and provisions hereof), and each such
request shall be in writing unless the Agent in its sole discretion accepts an
oral or telephonic request. Each Swingline Loan shall be made upon the
Borrower's irrevocable written notice delivered to the Agent substantially in
the form of a Notice of Borrowing (which notice must be received by the Agent
prior to 10:00 a.m. (San Francisco time) on the requested date of such Swingline
Loan, specifying:
(i) the amount of the Swingline Loan, which shall be in a
minimum amount of $250,000 or any multiple of $100,000 in excess
thereof; and
44
<PAGE>
(ii) the requested date of such Swingline Loan, which shall
be a Business Day;
(b) If any Swingline Loan made pursuant to this Section 2.15, and in
compliance with the conditions set forth in the immediately preceding paragraph
of this Section 2.15, is not repaid by the Borrower on or before the seventh
calendar day following the day that it was funded by BofA, BofA shall have the
right in BofA's sole and absolute discretion, by giving notice to the Borrower
and the Banks, to cause such Swingline Loan automatically upon the giving of
such notice to be converted into a Facility A Revolving Loan which is a Base
Rate Loan, and upon receipt of such notice each Bank shall fund to the Agent,
for the account of BofA, such Bank's ratable share of such Facility A Revolving
Loan, based on such Bank's Pro Rata Share; provided, that if any Insolvency
--------
Proceeding has been commenced with respect to the Borrower on or prior to the
date on which such Swingline Loan is due, and in lieu of funding its Pro Rata
Share of a Facility A Revolving Loan, each Bank shall be deemed to, and hereby
irrevocably and unconditionally agrees to, purchase from BofA a participation in
such Swingline Loan equal to the product of such Bank's Pro Rata Share times the
amount of such Swingline Loan.
(c) Each Bank's obligation in accordance with this Agreement to make
Facility A Revolving Loans upon the failure of a Swingline Loan to be repaid in
full when due, or to purchase participations in such Swingline Loans, shall, in
each case, be absolute and unconditional and without recourse to BofA and shall
not be affected by any circumstance, including (i) any set-off, counterclaim,
recoupment, defense or other right which such Bank may have against BofA, the
Borrower or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of a Default, an Event of Default or a Material Adverse Effect; or
(iii) any other circumstance, happening or event whatsoever, whether or not
similar to any of the foregoing.
ARTICLE III
THE LETTERS OF CREDIT
---------------------
3.01 The Letter of Credit Subfacility. (a) On the terms and subject to
--------------------------------
the conditions set forth herein and as a subfacility of the Facility A
Commitment, (i) the Issuing Banks agree, from time to time on any Business Day
during the period from the Closing Date to the date that is 30 days prior to the
Revolving Termination Date to issue Letters of Credit for the account of the
Borrower and Stratton and to amend or renew Letters of Credit previously issued
by them, in each case in accordance with subsections 3.02(c) and 3.02(d); and
(ii) the Banks severally agree to participate in Letters of Credit Issued for
the account of the Borrower and Stratton; provided, that the Issuing Banks shall
--------
not be obligated to Issue, and no Bank shall
45
<PAGE>
be obligated to participate in, any Letter of Credit if, as of the date of
Issuance of such Letter of Credit (the "Issuance Date"), (1) the Effective
-------------
Amount of all L/C Obligations plus the Effective Amount of all Facility A
Revolving Loans plus the Effective Amount of all Swingline Loans exceeds the
combined Facility A Commitments, or (2) the Effective Amount of L/C Obligations
exceeds the L/C Commitment. Within the foregoing limits, and subject to the
other terms and conditions hereof, the ability of the Borrower and Stratton to
obtain Letters of Credit shall be fully revolving, and, accordingly, the
Borrower and Stratton may, during the foregoing period, obtain Letters of Credit
to replace Letters of Credit which have expired or which have been drawn upon
and reimbursed.
(b) No Issuing Bank is under any obligation to Issue any Letter of
Credit if:
(i) any order, judgment or decree of any Governmental Authority
or arbitrator shall by its terms purport to enjoin or restrain such Issuing
Bank from Issuing such Letter of Credit, or any Requirement of Law
applicable to such Issuing Bank or any request or directive (whether or not
having the force of law) from any Governmental Authority with jurisdiction
over such Issuing Bank shall prohibit, or request that such Issuing Bank
refrain from, the Issuance of letters of credit generally or such Letter of
Credit in particular or shall impose upon such Issuing Bank with respect to
such Letter of Credit any restriction, reserve or capital requirement (for
which such Issuing Bank is not otherwise compensated hereunder) not in
effect on the Closing Date, or shall impose upon such Issuing Bank any
unreimbursed loss, cost or expense which was not applicable on the Closing
Date and which such Issuing Bank in good faith deems material to it;
(ii) such Issuing Bank has received written notice from any
Bank, the Agent, the Borrower or Stratton, on or prior to the Business Day
prior to the requested date of Issuance of such Letter of Credit, that one
or more of the applicable conditions contained in Article V is not then
satisfied;
(iii) the expiry date of any requested Letter of Credit is (A)
with respect to Commercial Letters of Credit supporting the purchase of
inventory by the Borrower, more than (1) 180 days after the date of
Issuance or (2) 30 days prior to the Revolving Termination Date, unless the
Majority Banks have approved such expiry date in writing, or (B) with
respect to any other Letter of Credit, 30 days prior to the Revolving
Termination Date, unless all of the Banks have approved such expiry date in
writing;
(iv) the expiry date of any requested Letter of Credit is prior
to the maturity date of any financial
46
<PAGE>
obligation to be supported by the requested Letter of Credit;
(v) any requested Letter of Credit does not provide for drafts
(unless there is a demand for payment in the documentation required to be
delivered in connection with any drawing), or is not otherwise in form and
substance acceptable to such Issuing Bank, or the Issuance of a Letter of
Credit shall violate any applicable policies of such Issuing Bank;
(vi) any Standby Letter of Credit is for the purpose of
supporting the issuance of any letter of credit by any other Person other
than with respect to any Existing Letter of Credit so designated in
Schedule 3.03; or
(vii) such Letter of Credit is to be used for a purpose other
than working capital or any permitted use of the proceeds of Facility B
Revolving Loans as set forth in Section 7.11.
3.02 Issuance, Amendment and Renewal of Letters of Credit. (a) Each
----------------------------------------------------
Letter of Credit shall be issued upon the irrevocable written request of the
Borrower and, if Stratton is the applicant, Stratton, received by the Issuing
Bank (with a copy sent by the Borrower or Stratton to the Agent) prior to 10:00
a.m. (San Francisco time) on the proposed date of Issuance for Letters of Credit
in the form of Exhibit H, I or J hereto and at least four days prior to the
proposed date of Issuance for other forms of Letters of Credit. Each such
request for issuance of a Letter of Credit shall be by facsimile, confirmed by
telephone, in the form of an L/C Application, and shall specify in form and
detail satisfactory to the applicable Issuing Bank: (i) the proposed date of
issuance of the Letter of Credit (which shall be a Business Day); (ii) the face
amount of the Letter of Credit; (iii) the expiration date of the Letter of
Credit; (iv) the name and address of the beneficiary thereof; (v) the documents
to be presented by the beneficiary of the Letter of Credit in case of any
drawing thereunder; (vi) the full text of any certificate to be presented by the
beneficiary in case of any drawing thereunder; and (vii) such other matters as
the Issuing Bank may require.
(b) Prior to the Issuance of any Letter of Credit, the applicable
Issuing Bank will confirm with the Agent (by telephone or in writing) that the
Agent has received a copy of the L/C Application or L/C Amendment Application
from the Borrower and, if Stratton is the applicant, from Stratton and, if not,
such Issuing Bank will provide the Agent with a copy thereof. Unless such
Issuing Bank has received notice on or before 10:00 a.m. (San Francisco time) on
the date such Issuing Bank is to issue a requested Letter of Credit from the
Agent (A) directing such Issuing Bank not to issue such Letter of Credit because
such issuance is not then permitted under subsection 3.01(a) as a
47
<PAGE>
result of the limitations set forth in clauses (i)(1) or (i)(2) thereof or
subsection 3.01(b)(ii); or (B) that one or more conditions specified in Article
V are not then satisfied; then, subject to the terms and conditions hereof, such
Issuing Bank shall, on the requested date, issue a Letter of Credit for the
account of the Borrower and Stratton in accordance with such Issuing Bank's
usual and customary business practices.
(c) From time to time while a Letter of Credit is outstanding and
prior to the Revolving Termination Date, any Issuing Bank will, upon the written
request of the Borrower and, if Stratton is the applicant, Stratton, received by
such Issuing Bank (with a copy sent by the Borrower or Stratton to the Agent) at
least four days (or such shorter time as such Issuing Bank may agree in a
particular instance in its sole discretion) prior to the proposed date of
amendment, amend any Letter of Credit issued by it. Each such request for
amendment of a Letter of Credit shall be made by facsimile, confirmed by
telephone, made in the form of an L/C Amendment Application and shall specify in
form and detail satisfactory to such Issuing Bank: (i) the Letter of Credit to
be amended; (ii) the proposed date of amendment of the Letter of Credit (which
shall be a Business Day); (iii) the nature of the proposed amendment; and (iv)
such other matters as such Issuing Bank may require. The applicable Issuing
Bank shall be under no obligation to amend any Letter of Credit if: (A) such
Issuing Bank would have no obligation at such time to issue such Letter of
Credit in its amended form under the terms of this Agreement; or (B) the
beneficiary of any such letter of Credit does not accept the proposed amendment
to the Letter of Credit. The Agent will promptly notify the Banks of the
receipt by it of any L/C Application or L/C Amendment Application.
(d) The Issuing Banks and the Banks agree that, while a Letter of
Credit is outstanding and prior to the Revolving Termination Date, at the option
of the Borrower and Stratton and upon the written request of the Borrower and,
if Stratton is the applicant, Stratton, received by the applicable Issuing Bank
(with a copy sent by the Borrower or Stratton to the Agent) at least four days
(or such shorter time as such Issuing Bank may agree in a particular instance in
its sole discretion) prior to the proposed date of notification of renewal, such
Issuing Bank shall be entitled to authorize the automatic renewal of any Letter
of Credit issued by it. Each such request for renewal of a Letter of Credit
shall be made by facsimile, confirmed by telephone, in the form of an L/C
Amendment Application, and shall specify in form and detail satisfactory to such
Issuing Bank: (i) the Letter of Credit to be renewed; (ii) the proposed date of
notification of renewal of the Letter of Credit (which shall be a Business Day);
(iii) the revised expiry date of the Letter of Credit; and (iv) such other
matters as such Issuing Bank may require. The applicable Issuing Bank shall be
under no obligation so to renew any Letter of Credit if: (A) such Issuing Bank
would have no obligation at such time to issue or amend such Letter of Credit in
its renewed form under the terms of this
48
<PAGE>
Agreement; or (B) the beneficiary of any such Letter of Credit does not accept
the proposed renewal of the Letter of Credit. If any outstanding Letter of
Credit shall provide that it shall be automatically renewed unless the
beneficiary thereof receives notice from the applicable Issuing Bank that such
Letter of Credit shall not be renewed, and if at the time of renewal such
Issuing Bank would be entitled to authorize the automatic renewal of such Letter
of Credit in accordance with this subsection 3.02(d) upon the request of either
or both of the Borrower and Stratton, as applicable, but such Issuing Bank shall
not have received any L/C Amendment Application with respect to such renewal or
other written direction by either or both of the Borrower and Stratton, as
applicable, with respect thereto, such Issuing Bank shall nonetheless be
permitted to allow such Letter of Credit to renew, and the Borrower and Stratton
and the Banks hereby authorize such renewal, and, accordingly, such Issuing Bank
shall be deemed to have received an L/C Amendment Application from either or
both of the Borrower and Stratton, as applicable, requesting such renewal.
(e) The Issuing Banks may, at their election (or as required by the
Agent at the direction of the Majority Banks), deliver any notices of
termination or other communications to any Letter of Credit beneficiary or
transferee, and take any other action as necessary or appropriate, at any time
and from time to time, in order to cause the expiry date of such Letter of
Credit to be a date not later than the Revolving Termination Date.
(f) This Agreement shall control in the event of any conflict with
any L/C-Related Document (other than any Letter of Credit).
(g) The Issuing Banks will also deliver to the Agent, concurrently or
promptly following delivery of a Letter of Credit, or amendment to or renewal of
a Letter of Credit, to an advising bank or a beneficiary, a true and complete
copy of each such Letter of Credit or amendment to or renewal of a Letter of
Credit.
3.03 Existing Letters of Credit; Risk Participations, Drawings and
-------------------------------------------------------------
Reimbursements. (a) On and after the Closing Date, the Existing Letters of
- --------------
Credit shall be deemed for all purposes, including for purposes of the fees to
be collected pursuant to subsections 3.08(a) and 3.08(c), and reimbursement
costs and expenses to the extent provided herein, Letters of Credit outstanding
under this Agreement and entitled to the benefits of this Agreement and the
other Loan Documents, and shall be governed by the applications and agreements
pertaining thereto and by this Agreement. Each Existing Letter of Credit
designated as a "standby letter of credit" on Schedule 3.03 shall be deemed to
be a Standby Letter of Credit, and each Existing Letter of Credit designated as
a "commercial documentary letter of credit" on Schedule 3.03 shall be deemed to
be a Commercial Letter of Credit. Each Bank shall be deemed to, and hereby
irrevocably and
49
<PAGE>
unconditionally agrees to, purchase from the Issuing Banks on the Closing Date a
participation in each such Letter of Credit and each drawing thereunder in an
amount equal to the product of (i) such Bank's Pro Rata Share times (ii) the
maximum amount available to be drawn under such Letter of Credit and the amount
of such drawing, respectively. For purposes of subsection 2.01(b) and
subsection 2.10(b), the Existing Letters of Credit shall be deemed to utilize
the Pro Rata Share of each Bank.
(b) Immediately upon the Issuance of each Letter of Credit in
addition to those described in subsection 3.03(a), each Bank shall be deemed to,
and hereby irrevocably and unconditionally agrees to, purchase from the
applicable Issuing Bank a participation in such Letter of Credit and each
drawing thereunder in an amount equal to the product of (i) the Pro Rata Share
of such Bank, times (ii) the maximum amount available to be drawn under such
Letter of Credit and the amount of such drawing, respectively. For purposes of
subsection 2.01(a), each Issuance of a Letter of Credit shall be deemed to
utilize the Facility A Commitment of each Bank by an amount equal to the amount
of such participation.
(c) In the event of any request for a drawing under a Letter of
Credit by the beneficiary or transferee thereof, the applicable Issuing Bank
will promptly notify the Borrower and, if Stratton is the applicant, Stratton.
The Borrower or Stratton shall reimburse such Issuing Bank prior to 10:00 a.m.
(San Francisco time), on each date that any amount is paid by such Issuing Bank
under any Letter of Credit (each such date, an "Honor Date"), in an amount equal
----------
to the amount so paid by such Issuing Bank. In the event the Borrower or
Stratton fails to reimburse such Issuing Bank of any Letter of Credit for the
full amount of any drawing under such Letter of Credit by 10:00 a.m. (San
Francisco time) on the Honor Date, such Issuing Bank will promptly notify the
Agent and the Agent will promptly notify each Bank thereof, and the Borrower
shall be deemed to have requested that Base Rate Loans be made by the Banks to
be disbursed on the Honor Date under such Letter of Credit, subject to the
conditions set forth in Section 5.02 (including, without limitation, the
condition that no Insolvency Proceeding shall have been commenced by or against
the Borrower or Stratton on the Honor Date). Any notice given by an Issuing
Bank or the Agent pursuant to this subsection 3.03(c) may be oral if immediately
confirmed in writing (including by facsimile); provided that the lack of such an
immediate confirmation shall not affect the conclusiveness or binding effect of
such notice.
(d) Each Bank shall upon any notice pursuant to subsection 3.03(c)
make available to the Agent for the account of the applicable Issuing Bank an
amount in Dollars and in immediately available funds equal to its Pro Rata Share
of the amount of the drawing, whereupon the participating Banks shall (subject
to subsection 3.03(e)) each be deemed to have made a
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Facility A Revolving Loan consisting of a Base Rate Loan to the Borrower in that
amount. If any Bank so notified fails to make available to the Agent for the
account of the applicable Issuing Bank the amount of such Bank's Pro Rata Share
of the amount of the drawing by no later than _____________ (San Francisco time)
on the Honor Date, then interest shall accrue on such Bank's obligation to make
such payment, from the Honor Date to the date such Bank makes such payment, at a
rate per annum equal to the Federal Funds Rate in effect from time to time
during such period. The Agent will promptly give notice of the occurrence of
the Honor Date, but failure of the Agent to give any such notice on the Honor
Date or in sufficient time to enable any Bank to effect such payment on such
date shall not relieve such Bank from its obligations under this Section 3.03.
(e) With respect to any unreimbursed drawing that is not converted
into Facility A Revolving Loans consisting of Base Rate Loans to the Borrower in
whole or in part, because of the Borrower's failure to satisfy the conditions
set forth in Section 5.02 or for any other reason, the Borrower and Stratton
shall be deemed to have incurred from an Issuing Bank an L/C Borrowing in the
amount of such drawing, which L/C Borrowing shall be due and payable on demand
(together with interest) and shall bear interest at a rate per annum equal to
the Base Rate plus the Applicable Margin plus 2% per annum, and each Bank's
payment to such Issuing Bank pursuant to subsection 3.03(d) shall be deemed
payment in respect of its participation in such L/C Borrowing and shall
constitute an L/C Advance from such Bank in satisfaction of its participation
obligation under this Section 3.03.
(f) Each Bank's obligation in accordance with this Agreement to make
the Facility A Revolving Loans or L/C Advances, as contemplated by this Section
3.03, as a result of a drawing under a Letter of Credit, shall be absolute and
unconditional and without recourse to the Issuing Banks and shall not be
affected by any circumstance, including (i) any set-off, counterclaim,
recoupment, defense or other right which such Bank may have against any Issuing
Bank, the Borrower, Stratton or any other Person for any reason whatsoever; (ii)
the occurrence or continuance of a Default, an Event of Default or a Material
Adverse Effect; or (iii) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.
3.04 Repayment of Participations. (a) Upon (and only upon) receipt by the
---------------------------
Agent for the account of an Issuing Bank of immediately available funds from the
Borrower or Stratton (i) in reimbursement of any payment made by such Issuing
Bank under the Letter of Credit with respect to which any Bank has paid the
Agent for the account of such Issuing Bank for such Bank's participation in the
Letter of Credit pursuant to Section 3.03 or (ii) in payment of interest
thereon, the Agent will pay to each Bank, in the same funds as those received by
the Agent for the account of such Issuing Bank, the amount of such Bank's Pro
Rata Share of such funds, and such Issuing Bank shall receive the
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amount of the Pro Rata Share of such funds of any Bank that did not so pay the
Agent for the account of such Issuing Bank.
(b) If the Agent or any Issuing Bank is required at any time to
return to the Borrower or Stratton, or to a trustee, receiver, liquidator,
custodian, or any official in any Insolvency Proceeding, any portion of the
payments made by the Borrower or Stratton to the Agent for the account of such
Issuing Bank pursuant to subsection 3.04(a) in reimbursement of a payment made
under the Letter of Credit or interest or fee thereon, each Bank shall, on
demand of the Agent, forthwith return to the Agent or such Issuing Bank the
amount of its Pro Rata Share of any amounts so returned by the Agent or such
Issuing Bank plus interest thereon from the date such demand is made to the date
such amounts are returned by such Bank to the Agent or such Issuing Bank, at a
rate per annum equal to the Federal Funds Rate in effect from time to time.
3.05 Role of the Issuing Banks. (a) Each Bank, the Borrower and Stratton
-------------------------
agree that, in paying any drawing under a Letter of Credit, the applicable
Issuing Bank shall not have any responsibility to obtain any document (other
than any sight draft and certificates expressly required by the Letter of
Credit) or to ascertain or inquire as to the validity or accuracy of any such
document or the authority of the Person executing or delivering any such
document.
(b) No Agent-Related Person nor any of the respective correspondents,
participants or assignees of an Issuing Bank shall be liable to any Bank for:
(i) any action taken or omitted in connection herewith at the request or with
the approval of the Banks (including the Majority Banks, as applicable); (ii)
any action taken or omitted in the absence of gross negligence or willful
misconduct; or (iii) the due execution, effectiveness, validity or
enforceability of any L/C-Related Document.
(c) The Borrower and Stratton hereby assume all risks of the acts or
omissions of any beneficiary or transferee with respect to its use of any Letter
of Credit; provided, however, that this assumption is not intended to, and shall
--------
not, preclude the Borrower's or Stratton's pursuing such rights and remedies as
either may have against the beneficiary or transferee at law or under any other
agreement. No Agent-Related Person, nor any of the respective correspondents,
participants or assignees of any Issuing Bank, shall be liable or responsible
for any of the matters described in clauses (i) through (vii) of Section 3.06;
provided, however, anything in such clauses to the contrary notwithstanding,
- --------
that the Borrower and Stratton may have a claim against an Issuing Bank, and an
Issuing Bank may be liable to the Borrower and Stratton, to the extent, but only
to the extent, of any direct, as opposed to consequential or exemplary, damages
suffered by the Borrower and Stratton which the Borrower and Stratton prove were
caused by an Issuing Bank's willful misconduct or gross negligence or an Issuing
Bank's willful
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failure to pay under any Letter of Credit after the presentation to it by the
beneficiary of a sight draft and certificate(s) strictly complying with the
terms and conditions of a Letter of Credit. In furtherance and not in
limitation of the foregoing: (i) an Issuing Bank may accept documents that
appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary; and (ii)
an Issuing Bank shall not be responsible for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign a
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason.
3.06 Obligations Absolute. The obligations of the Borrower and Stratton
--------------------
under this Agreement and any L/C-Related Document to reimburse the Issuing Banks
for drawings under Letters of Credit, and to repay any L/C Borrowing and any
drawings under Letters of Credit converted into Facility A Revolving Loans,
shall be unconditional and irrevocable, and shall be paid strictly in accordance
with the terms of this Agreement and each such other L/C-Related Document under
all circumstances, including the following:
(i) any lack of validity or enforceability of this Agreement or
any L/C-Related Document;
(ii) any change in the time, manner or place of payment of, or
in any other term of, all or any of the obligations of the Borrower and
Stratton in respect of any Letter of Credit or any other amendment or
waiver of or any consent to departure from all or any of the L/C-Related
Documents;
(iii) the existence of any claim, set-off, defense or other
right that the Borrower or Stratton may have at any time against any
beneficiary or any transferee of any Letter of Credit (or any Person for
whom any such beneficiary or any such transferee may be acting), an Issuing
Bank or any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by the L/C-Related Documents or any
unrelated transaction;
(iv) any draft, demand, certificate or other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect; or any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any
Letter of Credit;
(v) any payment by an Issuing Bank under any Letter of Credit
against presentation of a draft or certificate that does not strictly
comply with the terms of
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any Letter of Credit; or any payment made by an Issuing Bank under any
Letter of Credit to any Person purporting to be a trustee in bankruptcy,
debtor-in-possession, assignee for the benefit of creditors, liquidator,
receiver or other representative of or successor to any beneficiary or any
transferee of any Letter of Credit, including any arising in connection
with any Insolvency Proceeding;
(vi) any exchange, release or non-perfection of any collateral,
or any release or amendment or waiver of or consent to departure from any
other guarantee, for all or any of the obligations of the Borrower or
Stratton in respect of any Letter of Credit; or
(vii) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing, including any other circumstance that
might otherwise constitute a defense available to, or a discharge of, the
Borrower, Stratton or a guarantor.
3.07 Cash Collateral Pledge. Upon (i) the request of the Agent, (A) if an
----------------------
Issuing Bank has honored any full or partial drawing request on any Letter of
Credit and such drawing has resulted in an L/C Borrowing hereunder, or (B) if,
as of the Revolving Termination Date, any Letters of Credit may for any reason
remain outstanding and partially or wholly undrawn, or (ii) the occurrence of
the circumstances described in subsection 2.07(a) requiring the Borrower to Cash
Collateralize Letters of Credit, then, the Borrower shall immediately Cash
Collateralize the L/C Obligations in an amount equal to the L/C Obligations.
3.08 Letter of Credit Fees. (a) The Borrower and Stratton jointly and
---------------------
severally agree to pay to the Agent for the account of each of the Banks based
on their respective Pro Rata Shares a letter of credit fee with respect to the
Standby Letters of Credit equal to the Risk Participation Percentage of the
average daily maximum amount available to be drawn of the outstanding Standby
Letters of Credit, computed on a quarterly basis in arrears on the last Business
Day of each fiscal quarter based upon Standby Letters of Credit outstanding for
that quarter as calculated by the Agent. Such letter of credit fees shall be
due and payable quarterly in arrears on the first Business Day following each
fiscal quarter during which Standby Letters of Credit are outstanding,
commencing on the first such quarterly date to occur after the Closing Date,
through the Revolving Termination Date (or such later date upon which the
outstanding Standby Letters of Credit shall expire), with the final payment to
be made on the Revolving Termination Date (or such later expiration date).
(b) The Borrower and Stratton jointly and severally agree to pay to
the applicable Issuing Bank for its sole account a letter of credit fronting fee
for each Standby Letter of Credit
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Issued by such Issuing Bank, equal to 0.15% per annum of the face amount (or
increased face amount, as the case may be) of such Standby Letter of Credit.
Such Letter of Credit fronting fee shall be due and payable quarterly in arrears
on the first Business Day following each fiscal quarter during which such Letter
of Credit is outstanding, commencing on the first such quarterly date to occur
after the Closing Date.
(c) The Borrower and Stratton jointly and severally agree to pay to
the Issuing Banks from time to time on demand the normal issuance, presentation,
amendment and other processing fees, and other standard costs and charges, of
the Issuing Banks relating to Standby Letters of Credit and Commercial Letters
of Credit as from time to time in effect.
3.09 Uniform Customs and Practice. The Uniform Customs and Practice for
----------------------------
Documentary Credits as published by the International Chamber of Commerce
("UCP") most recently at the time of issuance of any Letter of Credit shall
---
(unless otherwise expressly provided in the Letters of Credit) apply to such
Letter of Credit.
3.10 Acknowledgment of Accommodation; Waiver of Defenses. (a) For the
---------------------------------------------------
purposes of implementing the provisions of this Article III, the Borrower and
Stratton each irrevocably appoints the other as its agent and attorney-in-fact
for all purposes, including the giving and receiving of notices and other
communications.
(b) Each of the Borrower and Stratton acknowledges and agrees that
the Letter of Credit subfacility provided for herein has been established on a
joint and several basis as an accommodation to the Borrower and Stratton and at
their request, and that each is benefited thereby.
(c) The Borrower shall be absolutely and unconditionally liable for
the repayment of all L/C Obligations, whether incurred by the Borrower or
Stratton, all as if the Borrower was the primary beneficiary of all Letters of
Credit.
(d) Each of the Borrower and Stratton authorizes the Agent and the
Banks, without notice or demand and without affecting the liability of either
hereunder, from time to time, either before or after the termination of this
Agreement, to (i) renew, compromise, extend, accelerate or otherwise change the
time for payment of, or otherwise change the terms of the L/C Obligations or any
other Obligation or any part thereof including any increase or decrease of the
rate of interest thereon; (ii) receive and hold security for the payment of the
L/C Obligations or any other Obligation, and exchange, enforce, waive, release,
fail to perfect, sell, or otherwise dispose of any such security; (iii) apply
such security and direct the order or manner of sale thereof as the Agent in its
discretion may determine; and (iv) release Stratton or any other party and hold
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<PAGE>
the Borrower liable for all L/C Obligations or other Obligations or other
Obligations of Stratton.
(e) Each of the Borrower and Stratton waives any right to require the
Agent to (i) proceed against the Borrower or Stratton in any particular order or
proceed first or concurrently against any other party; (ii) proceed against or
exhaust any security held from the Borrower or Stratton or any other party; or
(iii) pursue any other remedy in the Agent's or the Banks' power whatsoever.
Each of the Borrower and Stratton waives any defense arising by reason of any
disability or other defense, or the cessation from any cause whatsoever of the
liability of the Borrower or Stratton or any other party, or any claim that the
obligations of one exceed or are more burdensome than those of the other. Each
of the Borrower and Stratton waives any right of subrogation, reimbursement,
indemnification and contribution (contractual, statutory or otherwise),
including without limitation, any claim or right of subrogation under the
Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute, arising
from the existence or performance of its obligations hereunder, and each waives
any right to enforce any remedy which the Agent or the Banks now have or may
hereafter have against either of them, and waives any benefit of and any right
to participate in any security now or hereafter held by the Agent or the Banks.
Each of the Borrower and Stratton waives all presentments, demands for
performance, notices of nonperformance, protests, notices of protest, notices of
dishonor, and notices of acceptance of this Agreement and of the existence,
creation, or incurrence of new or additional indebtedness.
(f) Each of the Borrower and Stratton warrants and agrees that the
waivers and consents set forth in this Section 3.10 are made with full knowledge
of their significance and with the understanding that events giving rise to any
defense waived may diminish, destroy or otherwise adversely affect rights which
the Borrower or Stratton may have against each other, the Agent, the Banks or
others.
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
--------------------------------------
4.01 Taxes. (a) Any and all payments by the Borrower to each Bank or the
-----
Agent under this Agreement and any other Loan Document shall be made free and
clear of, and without deduction or withholding for any Taxes. In addition, the
Borrower shall pay all Other Taxes.
(b) The Borrower agrees to indemnify and hold harmless each Bank and
the Agent for the full amount of Taxes or Other Taxes (including any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this Section)
paid by the Bank or the Agent and any liability (including interest,
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additions to tax and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Payment under this indemnification shall be made within 30 days after the date
the Bank or the Agent makes written demand therefor.
(c) If the Borrower shall be required by law to deduct or withhold
any Taxes or Other Taxes from or in respect of any sum payable hereunder to any
Bank or the Agent, then:
(i) the sum payable shall be increased as necessary so that
after making all required deductions and withholdings (including deductions
and withholdings applicable to additional sums payable under this Section)
such Bank or the Agent, as the case may be, receives an amount equal to the
sum it would have received had no such deductions or withholdings been
made;
(ii) the Borrower shall make such deductions and withholdings;
(iii) the Borrower shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in accordance
with applicable law; and
(iv) the Borrower shall also pay to each Bank or the Agent for
the account of such Bank, at the time interest is paid, all additional
amounts which the respective Bank specifies as necessary to preserve the
after-tax yield the Bank would have received if such Taxes or Other Taxes
had not been imposed.
(d) Within 30 days after the date of any payment by the Borrower of
Taxes or Other Taxes, the Borrower shall furnish the Agent the original or a
certified copy of a receipt evidencing payment thereof, or other evidence of
payment satisfactory to the Agent.
(e) If the Borrower is required to pay additional amounts to any Bank
or the Agent pursuant to subsection (c) of this Section, then such Bank shall
use reasonable efforts (consistent with legal and regulatory restrictions) to
change the jurisdiction of its Lending Office so as to eliminate any such
additional payment by the Borrower which may thereafter accrue, if such change
in the judgment of such Bank is not otherwise disadvantageous to such Bank.
4.02 Illegality. (a) If any Bank determines that the introduction of any
----------
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for any Bank or its applicable Lending Office to make
Eurodollar Rate Loans, then, on notice thereof by the Bank to the
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Borrower through the Agent, any obligation of that Bank to make Eurodollar Rate
Loans shall be suspended until the Bank notifies the Agent and the Borrower that
the circumstances giving rise to such determination no longer exist.
(b) If a Bank determines that it is unlawful to maintain any
Eurodollar Rate Loan, the Borrower shall, upon its receipt of notice of such
fact and demand from such Bank (with a copy to the Agent), prepay in full such
Eurodollar Rate Loans of that Bank then outstanding, together with interest
accrued thereon and amounts required under Section 4.04, either on the last day
of the Interest Period thereof, if the Bank may lawfully continue to maintain
such Eurodollar Rate Loans to such day, or immediately, if the Bank may not
lawfully continue to maintain such Eurodollar Rate Loan. If the Borrower is
required to so prepay any Eurodollar Rate Loan, then concurrently with such
prepayment, the Borrower shall borrow from the affected Bank, in the amount of
such repayment, a Base Rate Loan.
(c) If the obligation of any Bank to make or maintain Eurodollar Rate
Loans has been so terminated or suspended, the Borrower may elect, by giving
notice to the Bank through the Agent that all Loans which would otherwise be
made by the Bank as Eurodollar Rate Loans shall be instead Base Rate Loans.
(d) Before giving any notice to the Agent under this Section, the
affected Bank shall designate a different Lending Office with respect to its
Eurodollar Rate Loans if such designation will avoid the need for giving such
notice or making such demand and will not, in the judgment of the Bank, be
illegal or otherwise disadvantageous to the Bank.
4.03 Increased Costs and Reduction of Return. (a) If any Bank determines
---------------------------------------
that, due to either (i) the introduction of or any change (other than any change
by way of imposition of or increase in reserve requirements included in the
calculation of the Eurodollar Rate or in respect of the assessment rate payable
by any Bank to the FDIC for insuring U.S. deposits) in or in the interpretation
of any law or regulation or (ii) the compliance by that Bank with any guideline
or request from any central bank or other Governmental Authority (whether or not
having the force of law), there shall be any increase in the cost to such Bank
of agreeing to make or making, funding or maintaining any Eurodollar Rate Loans
or participating in Letters of Credit, or, in the case of any Issuing Bank, any
increase in the cost to such Issuing Bank of agreeing to issue, issuing or
maintaining any Letter of Credit or of agreeing to make or making, funding or
maintaining any unpaid drawing under any Letter of Credit, then the Borrower
shall be liable for, and shall from time to time, upon demand (with a copy of
such demand to be sent to the Agent), pay to the Agent for the account of such
Bank, additional amounts as are sufficient to compensate such Bank for such
increased costs.
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(b) If any Bank shall have determined that (i) the introduction of
any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of any
Capital Adequacy Regulation by any central bank or other Governmental Authority
charged with the interpretation or administration thereof, or (iv) compliance by
the Bank (or its Lending Office) or any corporation controlling the Bank with
any Capital Adequacy Regulation, affects or would affect the amount of capital
required or expected to be maintained by the Bank or any corporation controlling
the Bank and (taking into consideration such Bank's or such corporation's
policies with respect to capital adequacy and such Bank's desired return on
capital) determines that the amount of such capital is increased as a
consequence of its Commitments, loans, credits or obligations under this
Agreement, then, upon demand of such Bank to the Borrower through the Agent, the
Borrower shall pay to the Bank, from time to time as specified by the Bank,
additional amounts sufficient to compensate the Bank for such increase.
4.04 Funding Losses. The Borrower shall reimburse each Bank and hold each
--------------
Bank harmless from any loss or expense which the Bank may sustain or incur as a
consequence of:
(a) the failure of the Borrower to make on a timely basis any payment
of principal of any Eurodollar Rate Loan;
(b) the failure of the Borrower to borrow, continue or convert a Loan
after the Borrower has given (or is deemed to have given) a Notice of Borrowing
or a Notice of Conversion/ Continuation;
(c) the failure of the Borrower to make any prepayment in accordance
with any notice delivered under Section 2.06;
(d) the prepayment (including pursuant to Section 2.07) or other
payment (including after acceleration thereof) of a Eurodollar Rate Loan on a
day that is not the last day of the relevant Interest Period; or
(e) the automatic conversion under Section 2.04 of any Eurodollar
Rate Loan to a Base Rate Loan on a day that is not the last day of the relevant
Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Eurodollar Rate Loans or from fees
payable to terminate the deposits from which such funds were obtained. For
purposes of calculating amounts payable by the Borrower to the Banks under this
Section and under subsection 4.03(a), each Eurodollar Rate Loan made by a Bank
(and each related reserve, special deposit or similar requirement) shall be
conclusively deemed to have been funded at the LIBOR used in determining the
Eurodollar Rate for such Eurodollar Rate Loan by a matching deposit or other
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borrowing in the interbank eurodollar market for a comparable amount and for a
comparable period, whether or not such Eurodollar Rate Loan is in fact so
funded.
4.05 Inability to Determine Rates. If the Agent determines that for any
----------------------------
reason adequate and reasonable means do not exist for determining the Eurodollar
Rate for any requested Interest Period with respect to a proposed Eurodollar
Rate Loan or that the Eurodollar Rate applicable pursuant to subsection 2.09(a)
for any requested Interest Period with respect to a proposed Eurodollar Rate
Loan does not adequately and fairly reflect the cost to such Banks of funding
such Loan, the Agent will promptly so notify the Borrower and each Bank.
Thereafter, the obligation of the Banks to make or maintain Eurodollar Rate
Loans, hereunder shall be suspended until the Agent upon the instruction of the
Majority Banks revokes such notice in writing. Upon receipt of such notice, the
Borrower may revoke any Notice of Borrowing or Notice of Conversion/Continuation
then submitted by it. If the Borrower does not revoke such Notice, the Banks
shall make, convert or continue the Loans, as proposed by the Borrower, in the
amount specified in the applicable notice submitted by the Borrower, but such
Loans shall be made, converted or continued as Base Rate Loans instead of
Eurodollar Rate Loans.
4.06 Survival. The agreements and obligations of the Borrower in this
--------
Article IV shall survive the payment of all other Obligations.
ARTICLE V
CONDITIONS PRECEDENT
--------------------
5.01 Conditions of Initial Credit Extensions. The obligation of each Bank
---------------------------------------
to make its initial Credit Extension hereunder is subject to the condition that
the Agent have received on or before the Closing Date all of the following, in
form and substance satisfactory to the Agent and each Bank, and in sufficient
copies for each Bank:
(a) Credit Agreement and any Notes. This Agreement and any Notes
------------------------------
requested by the Banks, executed by each party thereto;
(b) Guaranty. A Guaranty in the form of Exhibit G hereto executed by
--------
Finance Corp.;
(c) Resolutions; Incumbency.
-----------------------
(i) Copies of partnership authorizations for the Borrower and
the MLP and resolutions of the board of directors of the General Partner
and Finance Corp. authorizing the transactions contemplated hereby and by
the Guaranties, certified as of the Closing Date by the
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Secretary or an Assistant Secretary of the General Partner; and
(ii) A certificate of the Secretary or Assistant Secretary of
the General Partner certifying the names and true signatures of the
officers of the General Partner authorized to execute, deliver and perform,
as applicable, on behalf of the Borrower, this Agreement and all other Loan
Documents to be delivered by the Borrower hereunder;
(d) Organization Documents; Good Standing. Each of the following
-------------------------------------
documents:
(i) the articles or certificate of incorporation and the bylaws
of the General Partner and the Limited Partnership Agreement of the
Borrower, in each case as in effect on the Closing Date, certified by the
Secretary or Assistant Secretary of the General Partner as of the Closing
Date; and
(ii) a good standing and tax good standing certificate for the
General Partner and the Borrower from the Secretary of State (or similar,
applicable Governmental Authority) of its state of incorporation or
organization, as applicable, and each state where the General Partner or
the Borrower is qualified to do business as a foreign entity as of a recent
date, together with bring-down certificates by facsimile, dated the Closing
Date;
(e) Legal Opinions.
--------------
(i) opinions of Smith, Gill, Fisher & Butts, P.C. and of Andrews
& Kurth, LLP., counsel to the Borrower, the General Partner and the
Guarantor, addressed to the Agent and the Banks, substantially in the form
of Exhibit D;
---------
(ii) a favorable opinion of Orrick, Herrington & Sutcliffe,
special counsel to the Agent;
(iii) opinions delivered in connection with the Reorganization,
upon which the Agent and the Banks may rely;
(f) Payment of Fees. Evidence of payment by the Borrower of all
---------------
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with Attorney Costs of the Agent to the extent
invoiced prior to or on the Closing Date, plus such additional amounts of
Attorney Costs as shall constitute the Agent's reasonable estimate of Attorney
Costs incurred or to be incurred by it through the closing proceedings (provided
that such estimate shall not thereafter preclude final settling of accounts
between the Borrower and the Agent); including any such costs, fees and expenses
arising under or referenced in the Fee Letter or otherwise in Sections 2.10 and
11.04;
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(g) Certificate. A certificate signed by a Responsible Officer,
-----------
dated as of the Closing Date, stating that:
(i) the representations and warranties contained in Article VI
are true and correct on and as of such date, as though made on and as of
such date;
(ii) no Default or Event of Default exists or would result from
the Credit Extension;
(iii) there has occurred since April 30, 1994, no event or
circumstance that has resulted or could reasonably be expected to result in
a Material Adverse Effect; and
(iv) the Reorganization has been consummated.
(h) Cancellation of Existing Revolving Credit. Evidence that all
-----------------------------------------
outstanding obligations and other liabilities of the General Partner under the
Amended and Restated Loan Agreement dated as of May 10, 1993 among the General
Partner, certain of its subsidiaries, Ferrell Companies, Inc. and One Liberty
Oil Company, as guarantors, the banks listed therein and Wells Fargo Bank,
National Association, as agent, have been paid in full and the obligations of
all parties under each of the documents executed and delivered in connection
therewith have been terminated, except for such provisions as shall by their
terms survive such termination;
(i) Due Diligence Review. The Agent, BA Securities and each of the
--------------------
Banks shall have completed their normal and customary due diligence for
transactions in the nature contemplated by the Loan Documents, including,
without limitation, review of the terms and conditions of each of the
Organizational Documents of the Borrower and each of its Affiliates, the
Registration Statements, the Indenture and the Senior Notes, and the proposed
capital structure of the Borrower and its Affiliates, and such due diligence
review shall be satisfactory to each of them in their sole and absolute
discretion;
(j) No Material Change. There shall have been no Material Adverse
------------------
Effect between April 30, 1994 and the Closing Date, and there shall have been no
material adverse change in the financial markets since May 12, 1994;
(k) Insurance Certificate. A certificate from the Borrower's
---------------------
insurance broker, dated the Closing Date, setting forth in such detail as the
Agent or any Bank shall reasonably request the types, amounts, deductibles,
principal exclusions and other material terms of the insurance then in effect
for the Borrower and its Subsidiaries;
(l) Reorganization. Each of the transactions contemplated by the
--------------
Registration Statements to be consummated on
62
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the Closing Date has been consummated and remains in effect according to the
terms and conditions described in the Registration Statements and all applicable
laws, including, without limitation, the contribution by the General Partner to
the Borrower of substantially all of its assets and liabilities in connection
with the business of the General Partner as operated on the Closing Date, and
the issuance and sale of the Senior Notes and the MLP Units in amounts and on
such terms and conditions as are acceptable to the Agent and the Banks in their
sole and absolute discretion (collectively, the "Reorganization").
--------------
(m) Trading Policies. The commodities trading and supply policies as
----------------
in effect on the Closing Date, as evidenced by the written policies delivered to
the Agent, shall be satisfactory to the Agent and the Majority Banks.
(n) Other Documents. Such other approvals, opinions, documents or
---------------
materials as the Agent or any Bank may request.
5.02 Conditions to All Credit Extensions. The obligation of each Bank to
-----------------------------------
make any Loan, to be made by it (including its initial Loan) or to continue or
convert any Loan under Section 2.04 and the obligation of the Issuing Banks to
Issue any Letters of Credit (including any initial Letters of Credit) is subject
to the satisfaction of the following conditions precedent on the relevant
Borrowing Date, Conversion/Continuation Date or Issuance Date:
(a) Notice, Application. The Agent shall have received (with, in the
-------------------
case of the initial Loans only, a copy for each Bank) a Notice of Borrowing or a
Notice of Conversion/Continuation, as applicable, or in the case of any Issuance
of any Letter of Credit, the applicable Issuing Bank and the Agent shall have
received an L/C Application or L/C Amendment Application, as required under
Section 3.02;
(b) Continuation of Representations and Warranties. The
----------------------------------------------
representations and warranties in Article VI shall be true and correct on and as
of such Borrowing Date, Conversion/Continuation Date or Issuance Date with the
same effect as if made on and as of such Borrowing Date, Conversion/Continuation
Date or Issuance Date (except to the extent such representations and warranties
expressly refer to an earlier date, in which case they shall be true and correct
as of such earlier date);
(c) No Existing Default. No Default or Event of Default shall exist
-------------------
or shall result from such Borrowing, continuation or conversion or Issuance; and
(d) Facility B Revolving Loans. With respect only to Borrowings of
--------------------------
Facility B Revolving Loans and in addition to all other terms and conditions set
forth herein, the amount of such Borrowing shall not exceed the excess, if any,
of (i) the sum of
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the aggregate Cash Costs of Permitted Acquisitions by the Borrower and its
Subsidiaries from the Closing Date through the Borrowing Date plus the aggregate
Growth-Related Capital Expenditures by the Borrower and its Subsidiaries during
such period, over (ii) the sum of (x) the aggregate Net Proceeds of Asset Sales
received by the Borrower and its Subsidiaries during the period from the Closing
Date through the Borrowing Date plus (y) the aggregate Net Proceeds from MLP New
Unit Sales from the Closing Date through the Borrowing Date plus (z) the
Effective Amount of Facility B Revolving Loans outstanding on the Borrowing Date
(without regard to such Borrowing), and the Borrower shall have delivered to the
Agent a Maximum Amount Certificate dated the Borrowing Date which shall
demonstrate compliance with the foregoing test.
Each Notice of Borrowing, Notice of Conversion/Continuation and L/C Application
or L/C Amendment Application submitted by the Borrower hereunder shall
constitute a representation and warranty by the Borrower hereunder, as of the
date of each such notice and as of each Borrowing Date, Conversion/Continuation
Date or Issuance Date, as applicable, that the conditions in Section 5.02 are
satisfied.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
------------------------------
Each of the Borrower, the General Partner and Stratton represents and
warrants to the Agent and each Bank that:
6.01 Corporate or Partnership Existence and Power. The General Partner,
--------------------------------------------
Stratton, the MLP, the Borrower and each of its Subsidiaries:
(a) is a corporation or partnership duly organized, validly existing
and in good standing under the laws of the jurisdiction of its formation;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its business
in the manner contemplated by the Registration Statements and to execute,
deliver, and perform its obligations under the Loan Documents and such
additional obligations as are contemplated by the Registration Statements;
(c) is duly qualified as a foreign corporation or partnership and is
licensed and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification or license or where the failure so to qualify would
not have a Material Adverse Effect; and
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(d) is in compliance with all material Requirements of Law.
6.02 Corporate or Partnership Authorization; No Contravention. The
--------------------------------------------------------
execution, delivery and performance by the Borrower, the General Partner and
Stratton of this Agreement and each other Loan Document to which the General
Partner, the MLP, the Borrower or any Subsidiary is party, have been duly
authorized by all necessary partnership action on behalf of the Borrower and the
MLP and all necessary corporate action on behalf of the General Partner and any
Subsidiary, and do not and will not:
(a) contravene the terms of any of the General Partner's, the MLP's,
the Borrower's or any Subsidiary's Organization Documents;
(b) conflict with or result in any breach or contravention of, or the
creation of any Lien under, any document evidencing any Contractual Obligation
to which the General Partner, the MLP, the Borrower or any Subsidiary is a party
or any order, injunction, writ or decree of any Governmental Authority to which
such Person or its property is subject where such conflict, breach,
contravention or Lien could reasonably be expected to have a Material Adverse
Effect; or
(c) violate any material Requirement of Law.
6.03 Governmental Authorization. No approval, consent, exemption,
--------------------------
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with (a) the
consummation of the Reorganization according to the terms and conditions
described in the Registration Statements and in accordance with applicable law,
(b) the execution, delivery or performance by, or enforcement against, the
General Partner, the Borrower or any Subsidiary of this Agreement or any other
Loan Document, or (c) the continued operation of Borrower's business as
contemplated to be conducted after the date hereof by the Loan Documents and the
Registration Statements except in each case such approvals, consents,
exemptions, authorizations or other actions, notices or filings (i) as have been
obtained, (ii) as may be required under state securities or Blue Sky laws, (iii)
as are of a routine or administrative nature and are either (A) not customarily
obtained or made prior to the consummation of transactions such as the
transactions described in clauses (a), (b) or (c) or (B) expected in the
judgment of the Borrower to be obtained in the ordinary course of business
subsequent to the consummation of the transactions described in clauses (a), (b)
or (c), (iv) that, if not obtained, could reasonably be expected to have a
Material Adverse Effect.
6.04 Binding Effect. This Agreement and each other Loan Document to which
--------------
the General Partner, the Borrower or any
65
<PAGE>
Subsidiary is a party constitute the legal, valid and binding obligations of
such Person, enforceable against such Person in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
6.05 Litigation. Except as specifically disclosed in Schedule 6.05, there
---------- -------------
are no actions, suits, proceedings, claims or disputes pending, or to the best
knowledge of the Borrower, threatened or contemplated, at law, in equity, in
arbitration or before any Governmental Authority, against the General Partner,
the MLP, the Borrower or any of its Subsidiaries or any of their respective
properties which:
(a) purport to affect or pertain to this Agreement or any other Loan
Document, the Registration Statements or any of the transactions contemplated
hereby or thereby; or
(b) if determined adversely to the Borrower or its Subsidiaries,
would reasonably be expected to have a Material Adverse Effect. No injunction,
writ, temporary restraining order or any order of any nature has been issued by
any court or other Governmental Authority purporting to enjoin or restrain the
execution, delivery or performance of this Agreement or any other Loan Document
or any of the transactions contemplated by the Registration Statements, or
directing that the transactions provided for herein or therein not be
consummated as herein or therein provided.
6.06 No Default. No Default or Event of Default exists or would result
----------
from the incurring, continuing or converting of any Obligations by the Borrower.
As of the Closing Date, neither the Borrower nor any Affiliate of the Borrower
is in default under or with respect to any Contractual Obligation in any respect
which, individually or together with all such defaults, could reasonably be
expected to have a Material Adverse Effect, or that would, if such default had
occurred after the Closing Date, create an Event of Default under subsection
9.01(e) other than a default under Section 4.09 of the Indenture relating to the
Existing Senior Notes.
6.07 ERISA Compliance. (a) Except as specifically disclosed in Schedule
---------------- --------
6.07, each Plan is in compliance in all material respects with the applicable
- ----
provisions of ERISA, the Code and other federal or state law. Each Plan which
is intended to qualify under Section 401(a) of the Code has received a favorable
determination letter from the IRS and to the best knowledge of the Borrower,
nothing has occurred which would cause the loss of such qualification.
(b) There are no pending, or to the best knowledge of Borrower,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has
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<PAGE>
resulted or could reasonably be expected to result in a Material Adverse Effect.
There has been no prohibited transaction or other violation of the fiduciary
responsibility rule with respect to any Plan which could reasonably result in a
Material Adverse Effect.
(c) Except as specifically disclosed in Schedule 6.07, no ERISA Event
-------------
has occurred or is reasonably expected to occur with respect to any Pension
Plan.
(d) No Pension Plan has any Unfunded Pension Liability.
(e) Except as specifically disclosed in Schedule 6.07, the Borrower
-------------
has not incurred, nor does it reasonably expect to incur, any liability under
Title IV of ERISA with respect to any Pension Plan (other than premiums due and
not delinquent under Section 4007 of ERISA).
(f) Except as specifically disclosed in Schedule 6.07, the Borrower
-------------
has not transferred any Unfunded Pension Liability to any Person or otherwise
engaged in a transaction that could be subject to Section 4069 of ERISA.
(g) No trade or business (whether or not incorporated under common
control with the Borrower within the meaning of Section 414(b), (c), (m) or (o)
of the Code) maintains or contributes to any Pension Plan or other Plan subject
to Section 412 of the Code. Neither the Borrower nor any Person under common
control with the Borrower (as defined in the preceding sentence) has ever
contributed to any multiemployer plan within the meaning of Section 4001(a)(3)
of ERISA.
6.08 Use of Proceeds; Margin Regulations. The proceeds of the Loans are
-----------------------------------
to be used solely for the purposes set forth in and permitted by Section 7.11
and Section 8.07. Neither the Borrower nor any Affiliate of the Borrower is
generally engaged in the business of purchasing or selling Margin Stock or
extending credit for the purpose of purchasing or carrying Margin Stock.
6.09 Title to Properties. Except as set forth in Schedule 6.09 hereto or
------------------- -------------
provided for in Section 7.05, the Borrower and each Subsidiary have (or will
have within the time period specified in Section 7.05) good record and
marketable title in fee simple to, or valid leasehold interests in, all real
property necessary or used in the ordinary conduct their respective businesses,
except for such defects in title as could not, individually or in the aggregate,
have a Material Adverse Effect. As of the Closing Date and subject to the
preceding sentence, the property of the Borrower and its Subsidiaries is subject
to no Liens other than Permitted Liens.
6.10 Taxes. The General Partner has filed all Federal and other material
-----
tax returns and reports required to be filed, for
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<PAGE>
itself and for the Borrower, and has paid all Federal and other material taxes,
assessments, fees and other governmental charges levied or imposed upon it or
its properties, income or assets otherwise due and payable, except those which
are being contested in good faith by appropriate proceedings and for which
adequate reserves have been provided in accordance with GAAP. There is no
proposed tax assessment against the Borrower that would, if made, have a
Material Adverse Effect except with respect to the Tax Audit as described in
Schedule 6.10 hereof.
- -------------
6.11 Financial Condition. (a) The audited consolidated financial
-------------------
statements of the General Partner and its Subsidiaries dated April 30, 1994, and
the pro forma consolidated financial statements of the Borrower dated
____________, 1994, in each case together with the related consolidated
statements of income or operations, shareholders' equity and cash flows for the
fiscal periods ended on those respective dates:
(i) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly noted
therein, [subject to ordinary, good faith year end audit adjustments];
(ii) fairly present the financial condition of the Borrower and
its Subsidiaries as of the date thereof and results of operations for the
period covered thereby; and
(iii) except as specifically disclosed in Schedule 6.11, show
-------------
all material indebtedness and other liabilities, direct or contingent, of
the Borrower and its consolidated Subsidiaries as of the date thereof,
including liabilities for taxes, material commitments and Contingent
Obligations.
(b) Since April 30, 1994, there has been no Material Adverse Effect.
(c) The General Partner, the MLP, the Borrower and each of the other
Subsidiaries of the Borrower are each Solvent, both before and after giving
effect to the consummation of the Reorganization and each of the other
transactions contemplated by the Loan Documents, and any Acquisitions; and each
of such Persons delivered fair consideration for all assets acquired by it in
connection with the Reorganization and such transactions and Acquisitions, in
each case in arm's length transactions.
6.12 Environmental Matters. The Borrower conducts in the ordinary course
---------------------
of business a review of the effect of existing Environmental Laws and existing
Environmental Claims on its business, operations and properties, and as a result
thereof the Borrower has reasonably concluded that, except as specifically
disclosed in Schedule 6.12, such Environmental Laws and Environmental Claims
-------------
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
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<PAGE>
6.13 Regulated Entities. None of the Borrower or any Affiliate of the
------------------
Borrower, is an "Investment Company" within the meaning of the Investment
Company Act of 1940. The Borrower is not subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act, any state public utilities code, or any other Federal or state
statute or regulation limiting its ability to incur Indebtedness.
6.14 No Burdensome Restrictions. Neither the Borrower nor any Subsidiary
--------------------------
is a party to or bound by any Contractual Obligation, or subject to any
restriction in any Organization Document, or any Requirement of Law, which could
reasonably be expected to have a Material Adverse Effect.
6.15 Copyrights, Patents, Trademarks and Licenses, etc. The Borrower or
-------------------------------------------------
its Subsidiaries own or are licensed or otherwise has the right to use all of
the patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably necessary for
the operation of their respective businesses, without conflict with the rights
of any other Person. To the best knowledge of the Borrower, no slogan or other
advertising device, product, process, method, substance, part or other material
now employed, or now contemplated to be employed, by the Borrower or any
Subsidiary infringes upon any rights held by any other Person. Except as
specifically disclosed in Schedule 6.05, no claim or litigation regarding any of
-------------
the foregoing is pending or threatened, and no patent, invention, device,
application, principle or any statute, law, rule, regulation, standard or code
is pending or, to the knowledge of the Borrower, proposed, which, in either
case, could reasonably be expected to have a Material Adverse Effect.
6.16 Subsidiaries and Affiliates. The Borrower has no Subsidiaries or
---------------------------
other Affiliates other than those specifically disclosed in part (a) of Schedule
--------
6.16 hereto and has no equity investments in any other corporation or entity
- ----
other than those Permitted Investments specifically disclosed in part (b) of
Schedule 6.16.
- -------------
6.17 Insurance. Except as specifically disclosed in Schedule 6.17, the
--------- -------------
properties of the Borrower and its Subsidiaries are insured with financially
sound and reputable insurance companies not Affiliates of the Borrower, in such
amounts, with such deductibles and covering such risks as are customarily
carried by companies engaged in similar businesses and owning similar properties
in localities where the Borrower or such Subsidiary operates.
6.18 Tax Status. The Borrower is subject to taxation under the Code only
----------
as a partnership and not as a corporation.
6.19 Full Disclosure. None of the representations or warranties made by
---------------
the Borrower or any Affiliate of the Borrower
69
<PAGE>
in the Loan Documents or any of the Registration Statements as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Borrower or any Affiliate of the Borrower in connection
with the Loan Documents or the Registration Statements (including the other
offering and disclosure materials delivered by or on behalf of the Borrower to
the Banks prior to the Closing Date), contains any untrue statement of a
material fact or omits any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they are made, not misleading as of the time when made or delivered.
6.20 Fixed Price Supply Contracts. None of the Borrower and its
----------------------------
Subsidiaries is a party to any contract for the supply of propane or other
product in which the price is set without reference to a spot index or indices
substantially contemporaneously with the delivery of such product, other than
_______________.
6.21 Trading Policies. The Borrower has provided to the Agent an accurate
----------------
and complete summary of its commodities trading policies and supply policies and
the Borrower has complied in all respects with such policies.
ARTICLE VII
AFFIRMATIVE COVENANTS
---------------------
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Majority Banks waive compliance in writing:
7.01 Financial Statements. The Borrower shall deliver to the Agent, in
--------------------
form and detail satisfactory to the Agent and the Majority Banks and, in any
event at least, consistent with the form and detail of financial statements and
projections provided to the Agent by the Borrower and its Affiliates prior to
the Closing Date, with sufficient copies for each Bank:
(a) as soon as available, but not later than 100 days after the end
of each fiscal year (commencing with the fiscal year ended July 31, 1994), a
copy of the audited consolidated balance sheet of the Borrower and its
Subsidiaries as at the end of such year and the related consolidated statements
of income or operations, partners' or shareholders' equity and cash flows for
such year, setting forth in each case in comparative form the figures for the
previous fiscal year, and accompanied by the opinion of a nationally-recognized
independent public accounting firm ("Independent Auditor") which report shall
-------------------
state that such consolidated financial statements present fairly the financial
70
<PAGE>
position for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years. Such opinion shall not be qualified or limited in
any manner, including on account of any limitation on it because of a restricted
or limited examination by the Independent Auditor of any material portion of the
Borrower's or any Subsidiary's records.
(b) as soon as available, but not later than 45 days after the end of
each of the first three fiscal quarters of each fiscal year (commencing with the
fiscal quarter ended October 31, 1994), a copy of the unaudited consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of such quarter
and the related consolidated statements of income, partners' or shareholders'
equity and cash flows for the period commencing on the first day and ending on
the last day of such quarter, and certified by a Responsible Officer as fairly
presenting, in accordance with GAAP (subject to ordinary, good faith year-end
audit adjustments), the financial position and the results of operations of the
Borrower and the Subsidiaries;
(c) as soon as available, but not later than 100 days after the end
of each fiscal year (commencing with the first fiscal year during all or any
part of which the Borrower had one or more Significant Subsidiaries, a copy of
an unaudited consolidating balance sheet of the Borrower and its Subsidiaries as
at the end of such year and the related consolidating statement of income,
partners' or shareholders' equity and cash flows for such year, certified by a
Responsible Officer as having been developed and used in connection with the
preparation of the financial statements referred to in subsection 7.01(a);
(d) as soon as available, but not later than 45 days after the end of
each of the first three fiscal quarters of each fiscal year (commencing with the
first fiscal quarter during all or any part of which the Borrower had one or
more Significant Subsidiaries, a copy of the unaudited consolidating balance
sheets of the Borrower and its Subsidiaries, and the related consolidating
statements of income, partners' or shareholders' equity and cash flows for such
quarter, all certified by a Responsible Officer as having been developed and
used in connection with the preparation of the financial statements referred to
in subsection 7.01(b);
(e) as soon as available, but not later than 60 days after the end of
each fiscal year (commencing with the fiscal year beginning August 1, 1994),
projected consolidated balance sheets of the Borrower and its Subsidiaries as at
the end of each of the current and following two fiscal years and related
projected consolidated statements of income, partners' or shareholders' equity
and cash flows for each such fiscal year, including therein a budget for the
current fiscal year, certified by a Responsible Officer as having been developed
and prepared by the Borrower in good faith and based upon the Borrower's best
estimates and best available information; and
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(f) as soon as available, but not later than 100 days after the end
of each fiscal year of the General Partner, commencing with the fiscal year
ended July 31, 1994, a copy of the unaudited (or audited, if available)
consolidated balance sheets of the General Partner as of the end of such fiscal
year and the related consolidated statements of income, shareholders' equity and
cash flows for such fiscal year, certified by a Responsible Officer as fairly
presenting, in accordance with GAAP, the financial position and the results of
operations of the General Partner and its Subsidiaries (or, if available,
accompanied by an opinion of an Independent Auditor as described in Section
7.01(a)).
7.02 Certificates; Other Information. The Borrower shall furnish to the
-------------------------------
Agent, with sufficient copies for each Bank:
(a) concurrently with the delivery of the financial statements
referred to in subsection 7.01(a), a certificate of the Independent Auditor
stating that in making the examination necessary therefor no knowledge was
obtained of any Default or Event of Default, except as specified in such
certificate;
(b) concurrently with the delivery of the financial statements
referred to in subsections 7.01(a) and (b), a Compliance Certificate executed by
a Responsible Officer with respect to the periods covered by such financial
statements together with supporting calculations and such other supporting
detail as the Agent and Majority Banks shall require;
(c) concurrently with the delivery of the financial statements
referred to in subsections 7.01(a) and (b), and at such other times as the Agent
shall request in its sole discretion from time to time or as the Borrower shall
provide in its discretion, a certificate (a "Maximum Amount Certificate")
--------------------------
executed by a Responsible Officer pursuant to which the Borrower shall certify
to the Agent, for the benefit of the Banks and in such form and detail as the
Agent shall request and in each case, compared to the applicable amounts set
forth in the previously delivered Maximum Amount Certificate, (i) the aggregate
Cash Costs of all Permitted Acquisitions by the Borrower and its Subsidiaries
(together with the aggregate amount of any Acquired Debt and seller financing
associated therewith and the amount of such Cash Costs which were or could have
been financed with Facility B Revolving Loans) during the periods from the
Closing Date to the date that is 270 days prior to the date of such Maximum
Amount Certificate (the "Hold Period Date"), and from the Hold Period Date
----------------
through the date of the such Maximum Amount Certificate, and the total amount;
(ii) the aggregate Growth-Related Capital Expenditures by the Borrower and its
Subsidiaries during the period from the Closing Date through the date of such
Maximum Amount Certificate; (iii) the aggregate Net Proceeds of Asset Sales
during the periods from the Closing Date through the Hold Period Date and from
the Hold Period Date through the date of such Maximum Amount Certificate, and
the total; (iv) the
72
<PAGE>
aggregate Net Proceeds of MLP New Unit Sales during the period from the Closing
Date through the date of such Maximum Amount Certificate; and (v) a calculation
of the Facility B Maximum Amount as of the date of such Maximum Amount
Certificate, based on the information contained therein.
(d) promptly, copies of all financial statements and reports that the
Borrower, the General Partner, the MLP or Finance Corp. or any other Subsidiary
sends to its partners or shareholders, and copies of all financial statements
and regular, periodic or special reports (including Forms 10-K, 10-Q and 8-K)
that the Borrower or any Affiliate of the Borrower, the General Partner, the MLP
or Finance Corp. or any other Subsidiary may make to, or file with, the SEC; and
(e) promptly, such additional information regarding the business,
financial or corporate affairs of the Borrower, the General Partner, the MLP or
Finance Corp. or any other Subsidiary as the Agent, at the request of any Bank,
may from time to time request.
7.03 Notices. The Borrower shall promptly notify the Agent and each Bank:
-------
(a) of the occurrence of any Default or Event of Default, and of the
occurrence or existence of any event or circumstance that foreseeably will
become a Default or Event of Default;
(b) of any matter that has resulted or may reasonably be expected to
result in a Material Adverse Effect, including (i) breach or non-performance of,
or any default under, a Contractual Obligation of the Borrower, the General
Partner, the MLP or Finance Corp. or any other Subsidiary; (ii) any dispute,
litigation, investigation, proceeding or suspension between the Borrower, the
General Partner, the MLP or Finance Corp. or any other Subsidiary and any
Governmental Authority; or (iii) the commencement of, or any material
development in, any litigation or proceeding affecting the Borrower, the General
Partner, the MLP or Finance Corp. or any other Subsidiary, including pursuant to
any applicable Environmental Laws;
(c) of any of the following events affecting the Borrower, the
General Partner, the MLP or Finance Corp. or any other Subsidiary, together with
a copy of any notice with respect to such event that may be required to be filed
with a Governmental Authority and any notice delivered by a Governmental
Authority to such Person with respect to such event:
(i) an ERISA Event;
(ii) if any of the representations and warranties in Section
6.07 ceases to be true and correct;
73
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(iii) the adoption of any new Pension Plan or other Plan subject
to Section 412 of the Code;
(iv) the adoption of any amendment to a Pension Plan or other
Plan subject to Section 412 of the Code, if such amendment results in a
material increase in contributions or Unfunded Pension Liability; or
(v) the commencement of contributions to any Pension Plan or
other Plan subject to Section 412 of the Code; and
(d) of any material change in accounting policies or financial
reporting practices by the Borrower or any of its consolidated Subsidiaries.
Each notice under this Section shall be accompanied by a written
statement by a Responsible Officer setting forth details of the occurrence
referred to therein, and stating what action the Borrower or any affected
Affiliate proposes to take with respect thereto and at what time. Each notice
under subsection 7.03(a) shall describe with particularity any and all clauses
or provisions of this Agreement or other Loan Document that have been (or
foreseeably will be) breached or violated.
7.04 Preservation of Corporate or Partnership Existence, Etc. The General
-------------------------------------------------------
Partner and the Borrower shall, and the Borrower shall cause each Subsidiary to:
(a) preserve and maintain in full force and effect its partnership or
corporate existence and good standing under the laws of its state or
jurisdiction of organization or incorporation;
(b) preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises necessary
or desirable in the normal conduct of its business except in connection with
transactions permitted by Section 8.03 and sales of assets permitted by Section
8.02;
(c) use reasonable efforts, in the ordinary course of business, to
preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents, trademarks,
trade names and service marks, the non-preservation of which could reasonably be
expected to have a Material Adverse Effect.
7.05 Maintenance of Property. The Borrower shall maintain, and shall
-----------------------
cause each Subsidiary to maintain, and preserve all its property which is used
or useful in its business in good working order and condition, ordinary wear and
tear excepted. The Borrower and each Subsidiary shall use the standard of care
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typical in the industry in the operation and maintenance of its facilities. By
December 31, 1994, the Borrower shall have good and marketable title to all
material properties and other assets which by the terms of the Reorganization
are to be transferred to the Borrower and its Subsidiaries.
7.06 Insurance. The Borrower shall maintain, and shall cause each
---------
Subsidiary to maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons.
7.07 Payment of Obligations. The Borrower, the General Partner and
----------------------
Stratton shall, and shall cause each Subsidiary to, pay and discharge as the
same shall become due and payable (except to the extent the failure to so pay
and discharge could not reasonably be expected to have a Material Adverse
Effect), all their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being contested
in good faith by appropriate proceedings and adequate reserves in accordance
with GAAP are being maintained by the Borrower or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law become a Lien
upon its property, unless such claims are being contested in good faith by
appropriate proceedings and adequate reserves in accordance with GAAP are being
maintained by the Borrower or such Subsidiary; and
(c) all Indebtedness, as and when due and payable, but subject to any
subordination provisions contained in any instrument or agreement evidencing
such Indebtedness.
7.08 Compliance with Laws. The Borrower shall comply, and shall cause
--------------------
each Subsidiary to comply, in all material respects with all Requirements of Law
of any Governmental Authority having jurisdiction over it or its business
(including the Federal Fair Labor Standards Act), except such as may be
contested in good faith or as to which a bona fide dispute may exist.
7.09 Inspection of Property and Books and Records. The Borrower shall
--------------------------------------------
maintain and shall cause each Subsidiary to maintain proper books of record and
account, in which full, true and correct entries in conformity with GAAP
consistently applied shall be made of all financial transactions and matters
involving the assets and business of the Borrower and such Subsidiary. The
Borrower shall permit, and shall cause each Subsidiary to permit,
representatives and independent contractors of the Agent or any Bank to visit
and inspect any of their respective properties, to
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examine their respective corporate, financial and operating records, and make
copies thereof or abstracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective directors, officers, and independent
public accountants, all at the expense of the Borrower and at such reasonable
times during normal business hours and as often as may be reasonably desired,
upon reasonable advance notice to the Borrower; provided, however, when an Event
-------- -------
of Default exists the Agent or any Bank may do any of the foregoing at the
expense of the Borrower at any time during normal business hours and without
advance notice.
7.10 Environmental Laws. The Borrower shall, and shall cause each
------------------
Subsidiary to, conduct its operations and keep and maintain its property in
compliance with all Environmental Laws.
7.11 Use of Proceeds. The Borrower (and Stratton, with respect to Letters
---------------
of Credit) shall use the proceeds of the Facility A Revolving Loans and Facility
B Revolving Loans for working capital and other general partnership purposes, in
each case not in contravention of any Requirement of Law or of any Loan
Document; the Borrower shall use the proceeds of the Facility B Term Loans for
the purpose of repaying up to $25,000,000 in outstanding amount of Existing Debt
on the Closing Date; and the Borrower shall use the proceeds of all Facility B
Takeout Loans to repay up to all of the aggregate outstanding principal amount
of the Facility B Loans on the Revolving Termination Date.
7.12 Financial Covenants.
-------------------
(a) Leverage Ratio. The Borrower shall maintain as of the last day
--------------
of each fiscal quarter a Leverage Ratio for the fiscal period consisting of such
fiscal quarter and the three immediately preceding fiscal quarters, equal to or
less than 4.00 to 1.00; provided, that to the extent the Borrower borrows Loans
--------
to make Restricted Payments within 45 days after the end of any fiscal quarter,
the aggregate amount of Loans so borrowed shall be added to the amount of Funded
Debt outstanding at the end of such quarter for purposes of determining the
Leverage Ratio at the end of such quarter.
(b) Minimum Partners' Equity. The Borrower shall maintain at all
------------------------
times a minimum Partners' Equity of not less than [$50,000,000].
7.13 Officer Loans. The Borrower shall cause the loans made by the
-------------
General Partner or its Affiliates to James Ferrell or his Affiliates listed in
Schedule 7.13 to be repaid within 60 days after the Closing Date.
- -------------
7.14 Trading Policies. The Borrower and its Affiliates shall comply with
----------------
the Borrower's trading policy and supply policy guidelines as in effect on the
Closing Date, copies of which have
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been provided to the Agent on or prior to the Closing Date. Not later than 45
days after the end of each fiscal quarter, the Borrower shall deliver to the
Agent a summary of its trading activities for such quarter, including
__________.
7.15 Other General Partner Obligations.
---------------------------------
(a) The General Partner shall cause the Borrower to pay and perform
each of its Obligations when due. The General Partner acknowledges and agrees
that it is executing this Agreement as a principal as well as the general
partner on behalf of the Borrower, and that its obligations hereunder as general
partner are full recourse obligations to the same extent as those of the
Borrower.
(b) The General Partner represents, warrants and covenants that it is
Solvent, both before and after giving effect to the consummation of the
Reorganization and each of the other transactions contemplated by the Loan
Documents, and that it will remain Solvent until all Obligations hereunder shall
have been repaid in full and all commitments shall have terminated, and will
retain sufficient assets upon the consummation of the transactions contemplated
by the Registration Statements and from time to time thereafter to pay, in full,
the maximum potential liability of the General Partner under or in connection
with the Tax Audits. The General Partner shall advise the Agent in writing from
time to time of all material developments in connection with the Tax Audit,
including, without limitation, any material change in the maximum potential
liability of the General Partner in connection therewith or any material change
in the amount of assets retained by the General Partner regarding such liability
pursuant to this Section 7.15.
(c) The General Partner, for so long as it is the general partner of
the Borrower, (i) agrees that its sole business will be to act as the general
partner of the Borrower, the MLP and any further limited partnership of which
the Borrower or the MLP is, directly or indirectly, a limited partner and to
undertake activities that are ancillary or related thereto (including being a
limited partner in the Borrower), (ii) shall not enter into or conduct any
business or incur any debts or liabilities except in connection with or
incidental to (A) its performance of the activities required or authorized by
the MLP Partnership Agreement or the Borrower's Partnership Agreement or
described in or contemplated by the MLP Registration Statement and (B) the
acquisition, ownership or disposition of Partnership Interests in the Borrower
or partnership interests in the MLP or any further limited partnership of which
the Borrower or the MLP is, directly or indirectly, a limited partner, except
that, notwithstanding the foregoing, employees of the General Partner may
perform services for Ferrell and its Affiliates.
(d) The General Partner agrees that, until all Obligations hereunder
shall have been repaid in full and all
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commitments shall have terminated, it will not exercise any rights it may have
(at law, in equity, by contract or otherwise) to terminate, limit or otherwise
restrict (whether through repurchase or otherwise and whether or not the General
Partner shall remain a general partner in the Borrower) the ability of the
Borrower to use the name "Ferrellgas".
(e) The General Partner shall not take any action or refuse to take
any reasonable action the effect of which, if taken or not taken, as the case
may be, would be to cause the Borrower to be treated as an association taxable
as a corporation or otherwise to be taxed as an entity other than a partnership
for federal income tax purposes.
7.16 Other Stratton Obligations. Stratton shall not engage in any
--------------------------
business other than [the insurance business].
7.17 Monetary Judgments. If one or more judgments, orders, decrees or
------------------
arbitration awards is entered against the Borrower or any Subsidiary involving
in the aggregate a liability (to the extent not covered by independent third-
party insurance as to which the insurer does not dispute coverage other than
through a standard reservation of rights letter) as to any single or related
series of transactions, incidents or conditions, of more than $10 million, then
the Borrower shall reserve for such amount in excess of $10 million, on a
quarterly basis, with each quarterly reserve being at least equal to one-twelfth
of such amount in excess of $10 million. Such amount so reserved shall be
treated as establishment of a reserve for purposes of calculating Available Cash
hereunder.
7.18 Maintenance of Subsidiary. The Borrower agrees at all times to
-------------------------
maintain Stratton as a Wholly-Owned Subsidiary.
ARTICLE VIII
NEGATIVE COVENANTS
------------------
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Majority Banks waive compliance in writing:
8.01 Limitation on Liens. The Borrower shall not, and shall not suffer or
-------------------
permit any Subsidiary to, directly or indirectly, make, create, incur, assume or
suffer to exist any Lien upon or with respect to any part of its property or
sell any of its accounts receivable, whether now owned or hereafter acquired,
other than the following ("Permitted Liens"):
---------------
(a) Liens existing on the Closing Date set forth in Schedule 8.01;
-------------
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<PAGE>
(b) Liens in favor of the Borrower or Liens to secure Indebtedness of
a Subsidiary to the Borrower or a Wholly-Owned Subsidiary;
(c) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Borrower or any Subsidiary, provided that
--------
such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the Person
merged into or consolidated with the Borrower;
(d) Liens on property existing at the time acquired by the Borrower or
any Subsidiary, provided that such Liens were in existence prior to the
--------
contemplation of such acquisition and do not extend to any assets other than
those of the Person acquired;
(e) Liens on any property or asset acquired by the Borrower or any
Subsidiary in favor of the seller of such property or asset and construction
mortgages on property, in each case, created within six months after the date of
acquisition, construction or improvement of such property or asset by the
Borrower or such Subsidiary to secure the purchase price or other obligation of
the Borrower or such Subsidiary to the seller of such property or asset or the
construction or improvement cost of such property in an amount up to 80% of the
total cost of the acquisition, construction or improvement of such property or
asset; provided that in each case, such Lien does not extend to any other
--------
property or asset of the Borrower and its Subsidiaries;
(f) Liens incurred or pledges and deposits made in connection with
worker's compensation, unemployment insurance and other social security benefits
and Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature, in each case,
incurred in the ordinary course of business;
(g) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded, provided
--------
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor;
(h) Liens imposed by law, such as mechanics', carriers',
warehousemen's, materialmen's, and vendors' Liens, incurred in good faith in the
ordinary course of business with respect to amounts not yet delinquent or being
contested in good faith by appropriate proceedings if a reserve or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made therefor;
(i) zoning restrictions, easements, licenses, covenants, reservations,
restrictions on the use of real property or minor irregularities of title
incident thereto that do not, in
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the aggregate, materially detract from the value of the property or the assets
of the Borrower or any of its Subsidiaries or impair the use of such property in
the operation of the business of the Borrower or any of its Subsidiaries;
(j) Liens of landlords or mortgages of landlords, arising solely by
operation of law, on fixtures and movable property located on premises leased by
the Borrower or any of its Subsidiaries in the ordinary course of business;
(k) financing statements filed or recorded with respect to personal
property leased by the Borrower and its Subsidiaries in the ordinary course of
business to the owners of such personal property, provided that such financing
--------
statements are filed or recorded solely in connection with such leases and not
the borrowing of money or the obtaining of advances or credit or Capital Lease
Obligations;
(l) judgment Liens to the extent that such judgments do not cause or
constitute a Default or an Event of Default;
(m) Liens incurred in the ordinary course of business of the Borrower
or any Subsidiary with respect to obligations that do not exceed $5,000,000 in
the aggregate at any one time outstanding and that (i) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (ii) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Borrower or such
Subsidiary;
(n) Liens securing Indebtedness incurred to refinance Indebtedness
that has been secured by a Lien otherwise permitted under this Agreement,
provided that (i) any such Lien shall not extend to or cover any assets or
- --------
property not securing the Indebtedness so refinanced and (ii) the refinancing
Indebtedness secured by such Lien shall have been permitted to be incurred under
Section 8.05 hereof and shall not have a principal amount in excess of the
Indebtedness so refinanced;
(o) any extension or renewal, or successive extensions or renewals, in
whole or in part, of Liens permitted pursuant to the foregoing clauses (a)
through (n); provided that no such extension or renewal Lien shall (i) secure
--------
more than the amount of Indebtedness or other obligations secured by the Lien
being so extended or renewed or (ii) extend to any property or assets not
subject to the Lien being so extended or renewed; and
(p) Liens in favor of the Agent, any Issuing Bank and the Banks
relating to the Cash Collateralization of the Borrower's Obligations.
8.02 Asset Sales. The Borrower shall not, and shall not permit any of
-----------------
its Subsidiaries to, (i) sell, lease, convey or
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<PAGE>
otherwise dispose of any assets (including by way of a sale-and-leaseback) other
than sales of inventory in the ordinary course of business consistent with past
practice (provided that the sale, lease, conveyance or other disposition of all
--------
or substantially all of the assets of the Borrower shall be governed by the
provisions of Section 8.03 hereof and not by the provisions of this Section
8.02), or (ii) issue or sell Equity Interests of any of its Subsidiaries, in the
case of either clause (i) or (ii) above, whether in a single transaction or a
series of related transactions, (A) that have a fair market value in excess of
$5,000,000, or (B) for net proceeds in excess of $5,000,000 (each of the
foregoing, an "Asset Sale"), unless (X) the Borrower (or the Subsidiary, as the
----------
case may be) receives consideration at the time of such Asset Sale at least
equal to the fair market value (evidenced by a resolution of the board of
directors of the General Partner (and, if applicable, the audit committee of
such board of directors) set forth in a certificate signed by a Responsible
Officer and delivered to the Agent) of the assets sold or otherwise disposed of
and (Y) at least 80% of the consideration therefor received by the Borrower or
such Subsidiary is in the form of cash; provided, however, that the amount of
-------- -------
(1) any liabilities (as shown on the Borrower's or such Subsidiary's most recent
balance sheet or in the notes thereto), of the Borrower or any Subsidiary (other
than liabilities that are by their terms subordinated in right of payment to the
Obligations hereunder) that are assumed by the transferee of any such assets and
(2) any notes or other obligations received by the Borrower or any such
Subsidiary from such transferee that are immediately converted by the Borrower
or such Subsidiary into cash (to the extent of the cash received), shall be
deemed to be cash for purposes of this provision; and provided, further, that
-------- -------
the 80% limitation referred to in this clause (Y) shall not apply to any Asset
Sale in which the cash portion of the consideration received therefrom,
determined in accordance with the foregoing proviso, is equal to or greater than
-------
what the after-tax proceeds would have been had such Asset Sale complied with
the aforementioned 80% limitation. Notwithstanding the foregoing, Asset Sales
shall not be deemed to include (x) any transfer of assets by the Borrower or any
of its Subsidiaries to a Subsidiary of the Borrower that is a Guarantor, (y) any
transfer of assets by the Borrower or any of its Subsidiaries to any Person in
exchange for other assets used in a line of business permitted under Section
8.14 hereof and having a fair market value not less than that of the assets so
transferred and (z) any transfer of assets pursuant to a Permitted Investment.
8.03 Consolidations and Mergers.
--------------------------
(a) The Borrower shall not consolidate or merge with or into (whether
or not the Borrower is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions, to another Person unless (i) the
Borrower is the surviving Person, or the Person formed by or
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<PAGE>
surviving any such consolidation or merger (if other than the Borrower) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation or partnership organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
and (ii) the Person formed by or surviving any such consolidation or merger (if
other than the Borrower) or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
Obligations of the Borrower pursuant to an assumption agreement in a form
reasonably satisfactory to the Agent, under this Agreement; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) the
Borrower or any Person formed by or surviving any such consolidation or merger,
or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made (A) shall have Consolidated Net Worth
(immediately after the transaction but prior to any purchase accounting
adjustments resulting from the transaction) equal to or greater than the
Consolidated Net Worth of the Borrower immediately preceding the transaction and
(B) shall, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test.
(b) Finance Corp. may not consolidate or merge with or into (whether
or not Finance Corp. is the surviving Person), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another Person unless such
transaction shall be permitted under the terms and conditions of the Indenture.
(c) The Borrower or Finance Corp., as the case may be, shall deliver
to the Agent prior to the consummation of the proposed transaction pursuant to
the foregoing paragraphs (a) and (b) an Officers' certificate to the foregoing
effect signed by a Responsible Officer and an opinion of counsel satisfactory to
the Agent stating that the proposed transaction complies with this Agreement.
The Agent and the Banks shall be entitled to conclusively rely upon such
officer's certificate and opinion of counsel.
(d) Upon any consolidation or merger, or any sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the assets of the Borrower in accordance with this Section 8.03, the successor
Person formed by such consolidation or into or with which the Borrower is merged
or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Agreement referring to the "Borrower" shall
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<PAGE>
refer to or include instead the successor Person and not the Borrower), and may
exercise every right and power of the Borrower under this Agreement with the
same effect as if such successor Person had been named as the Borrower herein;
provided, however, that the predecessor Borrower shall not be relieved from the
- -------- -------
obligation to pay the principal of, premium, if any, and interest on the
Obligations except in the case of a sale of all of such Borrower's assets that
meets the requirements of Section 8.03 hereof.
8.04 Acquisitions. Without limiting the generality of any other provision
------------
of this Agreement, neither the Borrower nor any Subsidiary shall consummate any
Acquisition unless (i) the acquiree is primarily a retail propane distribution
business; (ii) such Acquisitions are undertaken in accordance with all
applicable Requirements of Law; (iii) the prior, effective written consent or
approval to such Acquisition of the board of directors or equivalent governing
body of the acquiree is obtained; and (iv) immediately after giving effect
thereto, no Default or Event of Default will occur or be continuing and each of
the representations and warranties of the Borrower herein is true on and as of
the date of such Acquisition, both before and after giving effect thereto.
8.05 Limitation on Indebtedness. The Borrower shall not, and shall not
--------------------------
permit any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to (collectively, "incur") any Indebtedness (including Acquired Debt) and the
Borrower shall not issue any Disqualified Interests and shall not permit any of
its Subsidiaries to issue any shares of preferred stock; provided, however, that
-------- -------
the Borrower may incur Indebtedness and any Subsidiary of the Borrower may incur
Acquired Debt if:
(a) the Fixed Charge Coverage Ratio for the Borrower's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred would have been at least 2.75 to 1 if such date is
on or prior to July 31, 1996 and 3.00 to 1 if such date is after July 31,
1996, in each case, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred at the beginning of such four-quarter
period; and
(b) either (x) such Indebtedness shall be subordinated in right of
payment to the Obligations and no principal payment thereon shall be
required prior to July 1, 2000, whether upon stated maturity, mandatory
prepayment, acceleration or otherwise, or (y) such Indebtedness shall be
Permitted Senior Debt and the Senior Debt Ratio Test shall have been met at
the time of incurrence thereof.
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<PAGE>
The foregoing limitations of this Section 8.05 will not apply to: (i)
the Indebtedness represented by the Senior Notes and any Subsidiary Note
Guarantees; (ii) the Obligations; (iii) the incurrence by the Borrower of
Indebtedness in respect of Capitalized Lease Obligations in an aggregate
principal amount not to exceed $15,000,000; (iv) the Existing Indebtedness; (v)
the incurrence by the Borrower or any of its Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the proceeds of which are used to
extend, refinance, renew, replace, defease or refund any then outstanding
Indebtedness of the Borrower on such Subsidiary not incurred in violation of
this Agreement; (vi) Hedging Obligations with respect to any floating rate
Indebtedness that is permitted by the terms of this Agreement to be outstanding;
(vii) Indebtedness of any Subsidiary of the Borrower to the Borrower [or any of
its Wholly-Owned Subsidiaries]; (viii) the incurrence by the Borrower or
Stratton of Indebtedness owing directly to its insurance carriers (without
duplication) in connection with the Borrower's, its Subsidiaries' or its
Affiliates' self-insurance programs or other similar forms of retained insurable
rights for their respective retail propane businesses, consisting of reinsurance
agreements and indemnification agreements (and guarantees of the foregoing)
secured by Letters of Credit, provided that the Indebtedness evidenced by such
reinsurance agreements, indemnification agreements, guarantees and Letters of
Credit shall be counted (without duplication) for purposes of all calculations
pursuant to the Fixed Charge Coverage Ratio test; (ix) Surety Instruments
required in the ordinary course of business or in connection with the
enforcement of rights or claims of the Borrower or any of its Subsidiaries or in
connection with judgments that do not result in a Default or Event of Default;
(x) subject to the provisions of Section 8.04, the incurrence by the Borrower
(or any Subsidiary of the Borrower that is a Guarantor) of Indebtedness in
connection with Acquisitions of retail propane businesses in favor of the
sellers of such businesses in a principal amount not to exceed $15,000,000 in
any fiscal year or $45,000,000 in the aggregate outstanding at any one time,
provided that the principal amount of such Indebtedness incurred in connection
- --------
with any such acquisition shall not exceed the fair market value of the assets
so acquired, and the Borrower shall deliver an officer's certificate to the
Agent, signed by a Responsible Officer, stating that the acquiring Person is
Solvent, both before and after giving effect to the Acquisition; and (xi) in
addition to the Indebtedness permitted under the foregoing clauses (i) through
(x), the incurrence by the Borrower of Indebtedness in an aggregate principal
amount outstanding not to exceed $15,000,000 at any time, provided that any
--------
Indebtedness incurred pursuant to this clause (xi) shall be subordinated in
right of payment to the Obligations and no principal payment thereon shall be
required prior to July 1, 2000, whether upon stated maturity, mandatory
prepayment, acceleration or otherwise.
The "Senior Debt Ratio Test" will be met with respect to the
incurrence of any Indebtedness by the Borrower or any
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Subsidiary of the Borrower if the ratio of (1) the aggregate outstanding
principal amount of Senior Debt on the date of and after giving effect to the
incurrence of such Indebtedness (the "Incurrence Date") to (2) Consolidated Cash
Flow for the Borrower's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the Incurrence
Date would have been 2.50 to 1 or less. For purposes of the computation in
clause (1) of the foregoing sentence, the outstanding principal amount of
Indebtedness under this Agreement shall be deemed to equal the aggregate amount
of the Commitments hereunder. The foregoing calculation of Consolidated Cash
Flow shall give pro forma effect to Acquisitions (including all mergers and
consolidations), Asset Sales and other dispositions and discontinuances of
operations that have been made by the Borrower or any of its Subsidiaries during
the four-quarter reference period or subsequent to such reference period and on
or prior to the Incurrence Date in the manner set forth in the definition of
Leverage Ratio.
For purposes of this Section 8.05, any revolving Indebtedness (under
this Agreement or otherwise) shall be deemed to have been incurred only at such
time at which the agreements and instruments (or any amendments thereto that
increase the amount of such revolving Indebtedness) are executed, in an amount
equal to the maximum amount of such revolving Indebtedness permitted to be
borrowed thereunder.
8.06 Transactions with Affiliates. The Borrower shall not, and shall not
----------------------------
permit any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from, or
enter into any contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate, including any Non-Recourse
Subsidiary (each of the foregoing, an "Affiliate Transaction"), unless (a) such
---------------------
Affiliate Transaction is on terms that are no less favorable to the Borrower or
the relevant Subsidiary than those that would have been obtained in a comparable
transaction by the Borrower or such Subsidiary with an unrelated Person and (b)
with respect to (i) any Affiliate Transaction with an aggregate value in excess
of $500,000, a majority of the directors of the General Partner having no direct
or indirect economic interest in such Affiliate Transaction determines by
resolution that such Affiliate Transaction complies with clause (a) above and
approves such Affiliate Transaction and (ii) any Affiliate Transaction involving
the purchase or other acquisition or sale, lease, transfer or other disposition
of properties or assets other than in the ordinary course of business, in each
case, having a fair market value or for net proceeds in excess of $15,000,000,
the Borrower delivers to the Agent an opinion as to the fairness to the Borrower
or such Subsidiary from a financial point of view issued by an investment
banking firm of national standing; provided, however, that (i) any employment
-------- -------
agreement or stock option agreement entered into by the Borrower or any of its
Subsidiaries in the ordinary
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course of business and consistent with the past practice of the Borrower (or the
General Partner) or such Subsidiary, Restricted Payments permitted by the
provisions of Section 8.12, and transactions entered into by the Borrower or
Stratton in the ordinary course of business in connection with reinsuring the
self-insurance programs or other similar forms of retained insurable risks of
the retail propane businesses operated by the Borrower, its Subsidiaries and its
Affiliates, in each case, shall not be deemed Affiliate Transactions, and (ii)
nothing herein shall authorize the payments by the Borrower to the General
Partner or any other Affiliate of the Borrower for administrative expenses
incurred by such Person other than such out-of-pocket administrative expenses as
such Person shall incur and the Borrower shall pay in the ordinary course of
business.
8.07 Use of Proceeds. The Borrower shall not, and shall not suffer or
---------------
permit any Subsidiary to, use any portion of the Loan proceeds or any Letter of
Credit, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to
repay or otherwise refinance indebtedness of the Borrower or others incurred to
purchase or carry Margin Stock, (iii) to extend credit for the purpose of
purchasing or carrying any Margin Stock, or (iv) to acquire any security in any
transaction that is subject to Section 13 or 14 of the Exchange Act.
8.08 Use of Proceeds - Ineligible Securities. The Borrower shall not,
---------------------------------------
directly or indirectly, use any portion of the Loan proceeds or any Letter of
Credit (i) knowingly to purchase Ineligible Securities from the Arranger during
any period in which the Arranger makes a market in such Ineligible Securities,
(ii) knowingly to purchase during the underwriting or placement period
Ineligible Securities being underwritten or privately placed by the Arranger, or
(iii) to make payments of principal or interest on Ineligible Securities
underwritten or privately placed by the Arranger and issued by or for the
benefit of the Borrower or any Affiliate of the Borrower.
8.09 Contingent Obligations. The Borrower shall not, and shall not suffer
----------------------
or permit any Subsidiary to, create, incur, assume or suffer to exist any
Contingent Obligations except:
(a) endorsements for collection or deposit in the ordinary course of
business;
(b) subject to compliance with the trading policies in effect on the
Closing Date as submitted to the Agent, Hedging Obligations entered into in the
ordinary course of business as bona fide hedging transactions;
(c) Contingent Obligations of the Borrower and its Subsidiaries
existing as of the Closing Date and listed in Schedule 8.09; and
-------------
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(d) Subsidiary Note Guaranties, under the terms and conditions set
forth in the Indenture and the Guaranties hereunder.
8.10 Joint Ventures. The Borrower shall not, and shall not suffer or
--------------
permit any Subsidiary to enter into any Joint Venture.
8.11 Lease Obligations. The aggregate obligations of the Borrower and its
-----------------
Subsidiaries for the payment of rent for any property under lease or agreement
to lease for any [fiscal year] [twelve month period] shall not exceed the
greater of $15 million or 15% of Consolidated Cash Flow for such [fiscal year]
[twelve-month period].
8.12 Restricted Payments. The Borrower shall not and shall not permit any
-------------------
of its Subsidiaries to, directly or indirectly (i) declare or pay any dividend
or make any distribution on account of the Borrower's or any Subsidiary's Equity
Interests (other than (x) dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Borrower, (y) dividends or distributions
payable to the Borrower or a Wholly-Owned Subsidiary of the Borrower or (z)
distributions or dividends payable pro rata to all holders of Capital Interests
of any such Subsidiary); (ii) purchase, redeem, call or otherwise acquire or
retire for value any Equity Interests of the Borrower or any Subsidiary or other
Affiliate of the Borrower; (iii) purchase, redeem, call or otherwise acquire or
retire for value any Indebtedness that is subordinated to the Obligations; (iv)
make any Investment other than a Permitted Investment; or (v) prepay, purchase,
redeem, retire, defease or refinance the Senior Notes, (all such payments and
other actions set forth in clauses (i) through (v) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof and each of the
representations and warranties of the Borrower set forth herein is true on
and as of the date of such Restricted Payment both before and after giving
effect thereto; and
(b) the Fixed Charge Coverage Ratio of the Borrower for the Borrower's
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
Restricted Payment is made, calculated on a pro forma basis as if such
Restricted Payment had been made at the beginning of such four-quarter
period, would have been more than 2.25 to 1; and
(c) such Restricted Payment (the amount of any such payment, if other
than cash, to be determined by the Board of Directors, whose determination
shall be conclusive and
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evidenced by a resolution in an officer's certificate signed by a
Responsible Officer and delivered to the Agent), together with the
aggregate of all other Restricted Payments (including any Restricted
Payments permitted by the provisions, other than clause (iv), of the
immediately succeeding paragraph) made by the Borrower and its Subsidiaries
in the fiscal quarter during which such Restricted Payment is made
(including Restricted Payments permitted by the next succeeding paragraph),
shall not exceed the amount of Available Cash of the Borrower for the
immediately preceding fiscal quarter (or, with respect to the first fiscal
quarter during which Restricted Payments are made, the amount of Available
Cash of the Borrower for the period commencing on the date of this
Indenture and ending on the last day of the immediately preceding fiscal
quarter); provided that for purposes of this clause (c), the principal
--------
amount of any working capital Indebtedness (net of repayments) incurred by
the Borrower during the first 45 days of any fiscal quarter (including
Swingline Loans and Facility A Revolving Loans) may be included in the
amount of Available Cash for the immediately preceding fiscal quarter so
long as (i) the Borrower would have been permitted to incur such working
capital Indebtedness on the last day of such immediately preceding fiscal
quarter under the terms of this Agreement and any other agreements and
instruments governing its outstanding Indebtedness on such date and (ii)
the principal amount of such working capital Indebtedness so included (but
not reborrowings thereof after repayment) shall be excluded from the amount
of Available Cash for purposes of determining the amount of Restricted
Payments permitted in any subsequent fiscal quarter; and provided, further,
-------- -------
that for purposes of this clause (c), the amount of any cash receipts of
the Borrower during the first 45 days of any fiscal quarter may be included
in the amount of Available Cash for the immediately preceding fiscal
quarter so long as (i) the amount so included does not exceed the lesser of
(A) the amount of unused available working capital Indebtedness that the
Borrower would have been permitted to incur on the last day of such
immediately preceding fiscal quarter under the terms of this Agreement and
instruments governing its outstanding Indebtedness on such date and (B) the
amount of unused available working capital Indebtedness that the Borrower
would have been permitted to incur on the 45th day of such fiscal quarter
under the terms of this Agreement on such date and (ii) the amount of such
cash receipts so included shall be excluded from the amount of Available
Cash for purposes of determining the amount of Restricted Payments
permitted in any subsequent fiscal quarter.
The foregoing provisions will not prohibit (i) the payment of any
distribution within 60 days after the date on which the Borrower becomes
committed to make such distribution, if at said date of commitment such payment
would have complied
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with the provisions of this Agreement; (ii) the redemption, repurchase,
retirement or other acquisition of any Equity Interests of the Borrower in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Borrower) of other Equity Interests of the
Borrower (other than any Disqualified Interests); (iii) the defeasance,
redemption or repurchase of subordinated Indebtedness with the proceeds of
Permitted Refinancing Indebtedness; (iv) the defeasance, redemption or
repurchase of any Existing Subordinated Debentures of the General Partner
outstanding on the date of this Agreement and the payment of all costs and
expenses in connection therewith; and (v) any payment of Excess Proceeds to the
holders of the Senior Notes pursuant to the provisions of Section 8.02(b).
Not later than the date of making any Restricted Payment, the General
Partner shall deliver to the Agent an officer's certificate signed by a
Responsible Officer stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this Section
8.12 were computed, which calculations may be based upon the Borrower's latest
available financial statements.
8.13 Dividend and Other Payment Restrictions Affecting Subsidiaries. The
--------------------------------------------------------------
Borrower shall not, and shall not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any Subsidiary to (a) pay dividends
or make any other distributions to the Borrower or any of its Subsidiaries (1)
on its Capital Interests or (2) with respect to any other interest or
participation in, or measured by, its profits, (b) pay any indebtedness owed to
the Borrower or any of its Subsidiaries, (c) make loans or advances to the
Borrower or any of its Subsidiaries or (d) transfer any of its properties or
assets to the Borrower or any of its Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of (i) Existing Indebtedness, (ii)
the Indenture and the Senior Notes, (iii) applicable law, (iv) any instrument
governing Indebtedness or Capital Interests of a Person acquired by the Borrower
or any of its Subsidiaries as in effect at the time of such Acquisition (except
to the extent such Indebtedness was incurred in connection with or in
contemplation of such Acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that
--------
the Consolidated Cash Flow of such Person to the extent that dividends,
distributions, loans, advances or transfers thereof is limited by such
encumbrance or restriction on the date of acquisition is not taken into account
in determining whether such acquisition was permitted by the terms of the this
Agreement, (v) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (vi) purchase
money obligations for property acquired in the
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ordinary course of business that impose restrictions of the nature described in
clause (d) above on the property so acquired, or (vii) Permitted Refinancing
Indebtedness of any Existing Indebtedness, provided that the restrictions
--------
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive than those contained in the agreements governing the
Indebtedness being refinanced.
8.14 Change in Business. The Borrower shall not, and shall not suffer or
------------------
permit any Subsidiary to, engage in any material line of business substantially
different from those lines of business carried on by the Borrower and its
Subsidiaries on the date hereof.
8.15 Accounting Changes. The Borrower shall not, and shall not suffer or
------------------
permit any Subsidiary to, make any significant change in accounting treatment or
reporting practices, except as required by GAAP, or change the fiscal year of
the Borrower or of any Subsidiary except as required by the Code.
8.16 Limitation on Sale and Leaseback Transactions. The Borrower will
---------------------------------------------
not, and will not permit any of its Subsidiaries to, enter into any arrangement
with any Person providing for the leasing by the Borrower or such Subsidiary of
any property that has been or is to be sold or transferred by the Borrower or
such Subsidiary to such Person in contemplation of such leasing; provided,
--------
however, that the Borrower or such Subsidiary may enter into such sale and
- -------
leaseback transaction if (i) the Borrower could have (A) incurred Indebtedness
in an amount equal to the Attributable Debt relating to such sale and leaseback
transaction pursuant to the Fixed Charge Coverage Ratio Test set forth in
paragraph (a) of Section 8.05 and (B) secured a Lien on such Indebtedness
pursuant to Section 8.01 or (ii) the lease in such sale and leaseback
transaction is for a term not in excess of the lesser of (A) three years and (B)
60% of the useful remaining life of such property.
8.17 Restrictions On Nature Of Indebtedness And Activities Of Finance
----------------------------------------------------------------
Corp. Notwithstanding the provisions of Section 8.05 hereof, Finance Corp.
- -----
shall not incur any Indebtedness unless (a) the Borrower is a co-obligor or
guarantor of such Indebtedness or (b) the net proceeds of such Indebtedness are
lent to the Borrower, used to acquire outstanding debt securities issued by the
Borrower or used directly or indirectly to refinance or discharge Indebtedness
permitted under the limitations of this paragraph. Finance Corp. shall not
engage in any business not related directly or indirectly to obtaining money or
arranging financing for the Borrower.
8.18 Amendments of Organization Documents or Indenture. The Borrower
-------------------------------------------------
shall not modify, amend, supplement or replace, nor permit any modification,
amendment, supplement or replacement of the Organization Documents of the
General Partner, the MLP, Borrower or any Subsidiary of the Borrower, the
Indenture, any
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Senior Note, any Existing Subordinated Debenture or any document executed and
delivered in connection with any of the foregoing, in each case without the
prior written consent of the Agent and the Majority Banks.
8.19 Fixed Price Supply Contracts. None of the Borrower and its
----------------------------
Subsidiaries shall at any time be a party or subject to any contract for the
supply of propane or other product in which the price is set without reference
to a spot index or indices substantially contemporaneously with the delivery of
such product, other than ____________________.
8.20 Operations through Subsidiaries. The Borrower shall not conduct any
-------------------------------
of its operations through Subsidiaries unless: (a) such Subsidiary executes a
Guaranty substantially in the form of Exhibit G guaranteeing payment of the
Obligations, accompanied by an opinion of counsel to the Subsidiary addressed to
the Agent and the Banks as to the due authorization, execution, delivery and
enforceability of the Guaranty; (b) such Subsidiary agrees not to incur any
Indebtedness other than trade debt; (c) the Consolidated Cash Flow of such
Subsidiary, when added to Consolidated Cash Flow of all other Subsidiaries for
any fiscal year, shall not exceed 10% of the Consolidated Cash Flow of the
Borrower and its Subsidiaries for such fiscal year; and (d) the value of the
assets of such Subsidiary, when added to the value of the assets of all other
Subsidiaries for any fiscal year, shall not exceed 100% of the consolidated
value of the assets of the Borrower and its Subsidiaries for such fiscal year,
as determined in accordance with GAAP.
8.21 Operations of MLP. The General Partner and the Borrower shall not
-----------------
permit the MLP or any of its Affiliates (including any Non-Recourse Subsidiary)
to operate or conduct any business substantially similar to that conducted by
the Borrower and its Subsidiaries within a 25 mile radius of any business
conducted by the Borrower and its Subsidiaries. In order to comply with this
Section 8.21, the Borrower may enter into one or more transactions by which its
assets and properties are "swapped" or "exchanged" for assets and properties of
another Person prior to or concurrently with another transaction which, but for
such swap or exchange would violate this Section, provided that (i) if the value
--------
of the MLP's assets or units to be so swapped or exchanged exceeds $15 million,
the Borrower shall have first obtained at its expense an opinion from a
nationally recognized investment banking firm, addressed to it, the Agent and
the Banks and opining without qualification and based on assumptions that are
realistic at the time as determined by the Majority Banks in their reasonable
discretion, that the exchange or swap transactions are fair to the Borrower and
its Subsidiaries, and (ii) if the value of the MLP's assets or units to be so
swapped or exchanged exceeds $50 million, the Agent shall have first retained,
at the Borrower's expense, an investment banking firm on behalf of the Banks who
shall also
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have rendered an opinion containing the statements and content referred to in
clause (i).
8.22 Senior Note Purchase Offer. The Borrower shall not make any
--------------------------
Purchase Offer (as defined in the Indenture) to holders of Senior Notes unless
the Borrower shall have terminated the Facility A Commitment and the Facility B
Commitment and there shall then exist no Default or Event of Default.
ARTICLE IX
EVENTS OF DEFAULT
-----------------
9.01 Event of Default. Any of the following shall constitute an "Event of
---------------- --------
Default":
- -------
(a) Non-Payment. The Borrower fails to pay, (i) when and as required
-----------
to be paid herein, any amount of principal of any Loan or of any L/C Obligation,
or (ii) within 5 days after the same becomes due, any interest, fee or any other
amount payable hereunder or under any other Loan Document; or
(b) Representation or Warranty. Any representation or warranty by
--------------------------
the Borrower or any Subsidiary made or deemed made herein, in any other Loan
Document, or which is contained in any certificate, document or financial or
other statement by the Borrower, any Subsidiary, or any Responsible Officer,
furnished at any time under this Agreement, or in or under any other Loan
Document, is incorrect in any material respect on or as of the date made or
deemed made; or
(c) Specific Defaults. The Borrower fails to perform or observe any
-----------------
term, covenant or agreement contained in any of Sections 2.01(a)(ii), 7.01,
7.02, 7.03, 7.04, 7.06, 7.09, 7.12, 7.14, 7.17 or in any Section in Article
VIII; or
(d) Other Defaults. The Borrower fails to perform or observe any
--------------
other term or covenant contained in this Agreement or any other Loan Document,
and such default shall continue unremedied for a period of 20 days after the
earlier of (i) the date upon which a Responsible Officer knew or reasonably
should have known of such failure or (ii) the date upon which written notice
thereof is given to the Borrower by the Agent or any Bank; or
(e) Cross-Default. The Borrower or any Subsidiary (i) fails to make
-------------
any payment in respect of any Indebtedness or Contingent Obligation having an
aggregate principal amount (including undrawn committed or available amounts and
including amounts owing to all creditors under any combined or syndicated credit
arrangement) of more than $10,000,000 when due (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise) and such failure
continues after the applicable grace
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or notice period, if any, specified in the relevant document on the date of such
failure; or (ii) fails to perform or observe any other condition or covenant, or
any other event shall occur or condition exist, under any agreement or
instrument relating to any such Indebtedness or Contingent Obligation, and such
failure continues after the applicable grace or notice period, if any, specified
in the relevant document on the date of such failure if the effect of such
failure, event or condition is to cause, or to permit the holder or holders of
such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a
trustee or agent on behalf of such holder or holders or beneficiary or
beneficiaries) to cause such Indebtedness to be declared to be due and payable
prior to its stated maturity or to cause such Indebtedness or Contingent
Obligation to be prepaid, purchased or redeemed by the Borrower, the MLP, the
General Partner or any Subsidiary, or such Contingent Obligation to become
payable or cash collateral in respect thereof to be demanded, excluding any
acceleration of maturity of Indebtedness represented by the Existing Senior
Notes to the extent that such Indebtedness shall be redeemed on or prior to the
40th day after the Closing Date; or
(f) Insolvency; Voluntary Proceedings. The General Partner, the MLP,
---------------------------------
the Borrower or any Subsidiary (i) ceases or fails to be solvent, or generally
fails to pay, or admits in writing its inability to pay, its debts as they
become due, subject to applicable grace periods, if any, whether at stated
maturity or otherwise; (ii) voluntarily ceases to conduct its business in the
ordinary course; (iii) commences any Insolvency Proceeding with respect to
itself; or (iv) takes any action to effectuate or authorize any of the
foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency
-----------------------
Proceeding is commenced or filed against the General Partner, the MLP, the
Borrower or any Subsidiary, or any writ, judgment, warrant of attachment,
execution or similar process, is issued or levied against a substantial part of
any such Person's properties, and any such proceeding or petition shall not be
dismissed, or such writ, judgment, warrant of attachment, execution or similar
process shall not be released, vacated or fully bonded within 60 days after
commencement, filing or levy; (ii) the General Partner, the MLP, the Borrower or
any Subsidiary admits the material allegations of a petition against it in any
Insolvency Proceeding, or an order for relief (or similar order under non-U.S.
law) is ordered in any Insolvency Proceeding; or (iii) the General Partner, the
MLP, the Borrower or any Subsidiary acquiesces in the appointment of a receiver,
trustee, custodian, conservator, liquidator, mortgagee in possession (or agent
therefor), or other similar Person for itself or a substantial portion of its
property or business; or
(h) ERISA. (i) An ERISA Event occurs with respect to a Pension Plan
-----
which has resulted or could reasonably be expected to result in liability of the
Borrower or the General Partner under Title IV of ERISA to the Pension Plan or
the PBGC in an
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aggregate amount in excess of $5 million; or (ii) the commencement or increase
of contributions to, or the adoption of or the amendment of a Pension Plan by
the Borrower, the General Partner or any of their Affiliates which has resulted
or could reasonably be expected to result in an increase in Unfunded Pension
Liability among all Pension Plans in an aggregate amount in excess of $5
million.
(i) Monetary Judgments. One or more judgments, orders, decrees or
------------------
arbitration awards is entered against the Borrower or any Subsidiary involving
in the aggregate a liability (to the extent not covered by independent third-
party insurance as to which the insurer does not dispute coverage) as to any
single or related series of transactions, incidents or conditions, of more than
$40,000,000; or
(j) Non-Monetary Judgments. Any non-monetary judgment, order or
----------------------
decree is entered against the Borrower or any Subsidiary which does or would
reasonably be expected to have a Material Adverse Effect, and there shall be any
period of 60 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect; or
(k) Loss of Licenses. Any Governmental Authority revokes or fails to
----------------
renew any material license, permit or franchise of the Borrower or any
Subsidiary, or the Borrower or any Subsidiary for any reason loses any material
license, permit or franchise, or the Borrower or any Subsidiary suffers the
imposition of any restraining order, escrow, suspension or impound of funds in
connection with any proceeding (judicial or administrative) with respect to any
material license, permit or franchise; or
(l) Adverse Change. There occurs a Material Adverse Effect; or
--------------
(m) Indenture Cross-Defaults. To the extent not otherwise within the
------------------------
scope of subsection 9.01(e) above, any "Event of Default" shall occur and be
continuing under and as defined in the Indenture; or
(n) Guarantor Defaults. Any Guarantor fails in any material respect
------------------
to perform or observe any term, covenant or agreement in its Guaranty; or any
Guaranty is for any reason partially (including with respect to future advances)
or wholly revoked or invalidated, or otherwise ceases to be in full force and
effect, or any Guarantor or any other Person contests in any manner the validity
or enforceability thereof or denies that it has any further liability or
obligation thereunder; or any event described at subsections (f) or (g) of this
Section occurs with respect to the Guarantor.
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9.02 Remedies. If any Event of Default occurs, the Agent shall, at the
--------
request of, or may, with the consent of, the Majority Banks,
(a) declare the commitment of each Bank to make Loans and any
obligation of an Issuing Bank to Issue Letters of Credit to be terminated,
whereupon such commitments and obligation shall be terminated;
(b) declare an amount equal to the maximum aggregate amount that is
or at any time thereafter may become available for drawing under any outstanding
Letters of Credit (whether or not any beneficiary shall have presented, or shall
be entitled at such time to present, the drafts or other documents required to
draw under such Letters of Credit) to be immediately due and payable;
(c) declare the unpaid principal amount of all outstanding Loans, all
interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable
(including, without limitation, amounts due under Section 4.04), without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrower; and
(d) exercise on behalf of itself and the Banks all rights and
remedies available to it and the Banks under the Loan Documents or applicable
law;
provided, however, that upon the occurrence of any event specified in subsection
- -------- -------
(f) or (g) of Section 9.01 (in the case of clause (i) of subsection (g) upon the
expiration of the 60-day period mentioned therein), the obligation of each Bank
to make Loans and any obligation of the Issuing Banks to Issue Letters of Credit
shall automatically terminate and the unpaid principal amount of all outstanding
Loans and all interest and other amounts as aforesaid shall automatically become
due and payable without further act of the Agent, any Issuing Bank or any Bank.
9.03 Rights Not Exclusive. The rights provided for in this Agreement and
--------------------
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
9.04 Certain Financial Covenant Defaults. In the event that, after taking
-----------------------------------
into account any extraordinary charge to earnings taken or to be taken as of the
end of any fiscal period of the Borrower (a "Charge"), and if solely by virtue
------
of such Charge, there would exist an Event of Default due to the breach of any
of subsections 7.12(a) or 7.12(b) as of such fiscal period end date, such Event
of Default shall be deemed to arise upon the earlier of (a) the date after such
fiscal period end date on which the Borrower announces publicly it will take, is
taking or
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has taken such Charge (including an announcement in the form of a statement in a
report filed with the SEC) or, if such announcement is made prior to such fiscal
period end date, the date that is such fiscal period end date, and (b) the date
the Borrower delivers to the Agent its audited annual or unaudited quarterly
financial statements in respect of such fiscal period reflecting such Charge as
taken.
ARTICLE X
THE AGENT
---------
10.01 Appointment and Authorization. (a) Each of the Banks and each
-----------------------------
Issuing Bank hereby irrevocably appoints, designates and authorizes the Agent to
take such action on its behalf under the provisions of this Agreement and each
other Loan Document and to exercise such powers and perform such duties as are
expressly delegated to it by the terms of this Agreement or any other Loan
Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall the Agent
have or be deemed to have any fiduciary relationship with any Bank or any
Issuing Bank, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against the Agent.
(b) Each Issuing Bank shall act on behalf of the Banks with respect
to any Letters of Credit Issued by it and the documents associated therewith
until such time and except for so long as the Agent may agree at the request of
the Majority Lenders to act for such Issuing Bank with respect thereto;
provided, however, that such Issuing Bank shall have all of the benefits and
- -------- -------
immunities (i) provided to the Agent in this Article X with respect to any acts
taken or omissions suffered by such Issuing Bank in connection with Letters of
Credit Issued by it or proposed to be Issued by it and the application and
agreements for letters of credit pertaining to the Letters of Credit as fully as
if the term "Agent", as used in this Article X, included such Issuing Bank with
respect to such acts or omissions, and (ii) as additionally provided in this
Agreement with respect to such Issuing Bank.
10.02 Delegation of Duties. The Agent may execute any of its duties under
--------------------
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
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10.03 Liability of Agent and Issuing Banks. None of the Agent-Related
------------------------------------
Persons and Issuing Banks shall (i) be liable for any action taken or omitted to
be taken by any of them under or in connection with this Agreement or any other
Loan Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct), or (ii) be responsible in any manner to any
of the Banks for any recital, statement, representation or warranty made by the
Borrower or any Subsidiary or Affiliate of the Borrower, or any officer thereof,
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Loan Document, or the validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or any other Loan Document, or for any failure
of the Borrower or any other party to any Loan Document to perform its
obligations hereunder or thereunder. No Agent-Related Person shall be under any
obligation to any Bank to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement or any other Loan Document, or to inspect the properties, books or
records of the Borrower or any of the Borrower's Subsidiaries or Affiliates.
10.04 Reliance by Agent and Issuing Banks. (a) The Agent and each Issuing
-----------------------------------
Bank shall be entitled to rely, and shall be fully protected in relying, upon
any writing, resolution, notice, consent, certificate, affidavit, letter,
telegram, facsimile, telex or telephone message, statement or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons, and upon advice and statements of
legal counsel (including counsel to the Borrower), independent accountants and
other experts selected by the Agent or applicable Issuing Bank. The Agent and
each Issuing Bank shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Majority Banks as it deems appropriate
and, if it so requests, it shall first be indemnified to its satisfaction by the
Banks against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Agent and each
Issuing Bank shall in all cases be fully protected in acting, or in refraining
from acting, under this Agreement or any other Loan Document in accordance with
a request or consent of the Majority Banks and such request and any action taken
or failure to act pursuant thereto shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the conditions
specified in Section 5.01, each Bank that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by the Agent or an Issuing Bank to such
Bank for consent, approval, acceptance or satisfaction, or required
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thereunder to be consented to or approved by or acceptable or satisfactory to
the Bank.
10.05 Notice of Default. The Agent shall not be deemed to have knowledge
-----------------
or notice of the occurrence of any Default or Event of Default, except with
respect to defaults in the payment of principal, interest and fees required to
be paid to the Agent for the account of the Banks, unless the Agent shall have
received written notice from a Bank or the Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". The Agent will notify the Banks of its receipt of any such
notice. The Agent shall take such action with respect to such Default or Event
of Default as may be requested by the Majority Banks in accordance with Article
IX; provided, however, that unless and until the Agent has received any such
-------- -------
request, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable or in the best interest of the Banks.
10.06 Credit Decision. Each Bank acknowledges that none of the Agent-
---------------
Related Persons or any Issuing Bank has made any representation or warranty to
it, and that no act by the Agent or any Issuing Bank hereinafter taken,
including any review of the affairs of the Borrower and its Subsidiaries, shall
be deemed to constitute any representation or warranty by any Agent-Related
Person or any Issuing Bank to any Bank. Each Bank represents to the Agent and
the Issuing Banks that it has, independently and without reliance upon any
Agent-Related Person or any Issuing Bank and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial and
other condition and creditworthiness of the Borrower and its Subsidiaries, and
all applicable bank regulatory laws relating to the transactions contemplated
hereby, and made its own decision to enter into this Agreement and to extend
credit to the Borrower hereunder. Each Bank also represents that it will,
independently and without reliance upon any Agent-Related Person or any Issuing
Bank and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigations as it deems necessary to inform itself as to the
business, prospects, operations, property, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly herein required to be furnished to the Banks by the Agent or
any Issuing Bank, neither the Agent nor any Issuing Bank shall have any duty or
responsibility to provide any Bank with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of the Borrower which may come into the possession
of any of the Agent-Related Persons or any Issuing Bank.
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10.07 Indemnification. Whether or not the transactions contemplated
---------------
hereby are consummated, the Banks shall indemnify upon demand the Agent-Related
Persons and the Issuing Banks (to the extent not reimbursed by or on behalf of
the Borrower and without limiting the obligation of the Borrower to do so), pro
rata, from and against any and all Indemnified Liabilities; provided, however,
-------- -------
that no Bank shall be liable for the payment to the Agent-Related Persons or the
Issuing Banks of any portion of such Indemnified Liabilities resulting solely
from such Person's gross negligence or willful misconduct. Without limitation
of the foregoing, each Bank shall reimburse the Agent and the Issuing Banks upon
demand for their ratable share of any costs or out-of-pocket expenses (including
Attorney Costs) incurred by them in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement, any other Loan
Document, or any document contemplated by or referred to herein, to the extent
that the Agent or the applicable Issuing Bank is not reimbursed for such
expenses by or on behalf of the Borrower. The undertaking in this Section shall
survive the payment of all Obligations hereunder and the resignation or
replacement of the Agent or any Issuing Bank.
10.08 Agent in Individual Capacity. BofA and its Affiliates may make
----------------------------
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Borrower and its
Subsidiaries and Affiliates as though BofA were not the Agent or an Issuing Bank
hereunder and without notice to or consent of the Banks. The Banks acknowledge
that, pursuant to such activities, BofA or its Affiliates may receive
information regarding the Borrower or its Affiliates (including information that
may be subject to confidentiality obligations in favor of the Borrower or such
Subsidiary) and acknowledge that the Agent shall be under no obligation to
provide such information to them. With respect to its Loans and participations
in Letters of Credit, BofA shall have the same rights and powers under this
Agreement as any other Bank and may exercise the same as though it were not the
Agent or an Issuing Bank.
10.09 Successor Agent. The Agent may, and at the request of the Majority
---------------
Banks shall, resign as Agent upon 30 days' notice to the Banks. If the Agent
resigns under this Agreement, the Majority Banks shall appoint from among the
Banks a successor agent for the Banks. If no successor agent is appointed prior
to the effective date of the resignation of the Agent, the Agent may appoint,
after consulting with the Banks and the Borrower, a successor agent from among
the Banks. Upon the acceptance of its appointment as successor agent hereunder,
such successor agent shall succeed to all the rights, powers and duties of the
retiring Agent and the term "Agent" shall mean such successor
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agent and the retiring Agent's appointment, powers and duties as Agent shall be
terminated. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article X and Sections 11.04 and 11.05 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement. If no successor agent has accepted appointment as Agent
by the date which is 30 days following a retiring Agent's notice of resignation,
the retiring Agent's resignation shall nevertheless thereupon become effective
and the Banks shall perform all of the duties of the Agent hereunder until such
time, if any, as the Majority Banks appoint a successor agent as provided for
above. Notwithstanding the foregoing, however, BofA may not be removed as the
Agent at the request of the Majority Banks unless BofA shall also simultaneously
be replaced as an "Issuing Bank" hereunder pursuant to documentation in form
and substance reasonably satisfactory to BofA.
10.10 Withholding Tax. (a) If any Bank is a "foreign corporation,
---------------
partnership or trust" within the meaning of the Code and such Bank claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the Code, such Bank agrees with and in favor of the Agent, to deliver to
the Agent:
(i) if such Bank claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, properly completed IRS
Forms 1001 and W-8 before the payment of any interest in the first calendar
year and before the payment of any interest in each third succeeding
calendar year during which interest may be paid under this Agreement;
(ii) if such Bank claims that interest paid under this Agreement
is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Bank, two properly
completed and executed copies of IRS Form 4224 before the payment of any
interest is due in the first taxable year of such Bank and in each
succeeding taxable year of such Bank during which interest may be paid
under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under the Code
or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
(b) If any Bank claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such Bank
sells, assigns, grants a
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participation in, or otherwise transfers all or part of the Obligations of the
Borrower to such Bank, such Bank agrees to notify the Agent of the percentage
amount in which it is no longer the beneficial owner of Obligations of the
Borrower to such Bank. To the extent of such percentage amount, the Agent will
treat such Bank's IRS Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States withholding tax
by filing IRS Form 4224 with the Agent sells, assigns, grants a participation
in, or otherwise transfers all or part of the Obligations of the Borrower to
such Bank, such Bank agrees to undertake sole responsibility for complying with
the withholding tax requirements imposed by Sections 1441 and 1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Bank
an amount equivalent to the applicable withholding tax after taking into account
such reduction. If the forms or other documentation required by subsection (a)
of this Section are not delivered to the Agent, then the Agent may withhold from
any interest payment to such Bank not providing such forms or other
documentation an amount equivalent to the applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Agent did not properly
withhold tax from amounts paid to or for the account of any Bank (because the
appropriate form was not delivered, was not properly executed, or because such
Bank failed to notify the Agent of a change in circumstances which rendered the
exemption from, or reduction of, withholding tax ineffective, or for any other
reason) such Bank shall indemnify the Agent fully for all amounts paid, directly
or indirectly, by the Agent as tax or otherwise, including penalties and
interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this Section, together with all costs and expenses
(including Attorney Costs). The obligation of the Banks under this subsection
shall survive the payment of all Obligations and the resignation or replacement
of the Agent.
ARTICLE XI
MISCELLANEOUS
-------------
11.01 Amendments and Waivers. No amendment or waiver of any provision of
----------------------
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Borrower or the General Partner therefrom, shall be effective
unless the same shall be in writing and signed by the Majority Banks (or by the
Agent at the written request of the Majority Banks) and the Borrower and
acknowledged by the Agent, and then any such waiver or consent shall be
effective only in the specific instance and
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for the specific purpose for which given; provided, however, that no such
-------- -------
waiver, amendment, or consent shall, unless in writing and signed by all the
Banks, the Borrower and the General Partner and acknowledged by the Agent, do
any of the following:
(a) increase or extend the Commitment of any Bank (or reinstate any
Commitment terminated pursuant to Section 8.02);
(b) postpone or delay any date fixed by this Agreement or any other
Loan Document for any payment of principal, interest, fees or other amounts due
to the Banks (or any of them) hereunder or under any other Loan Document;
(c) reduce the principal of, or the rate of interest specified herein
on any Loan, or (subject to clause (ii) below) any fees or other amounts payable
hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans which is required for the Banks or any of
them to take any action hereunder;
(e) amend this Section, or Section 2.14, or any provision herein
providing for consent or other action by all Banks; or
(f) release any of the Guaranties;
and, provided further, that (i) no amendment, waiver or consent shall, unless in
-------- -------
writing and signed by the Issuing Banks in addition to the Majority Banks or all
the Banks, as the case may be, affect the rights or duties of the Issuing Banks
under this Agreement or any L/C-Related Document relating to any Letter of
Credit Issued or to be Issued by any such Issuing Bank, (ii) no amendment,
waiver or consent shall, unless in writing and signed by the Agent in addition
to the Majority Banks or all the Banks, as the case may be, affect the rights or
duties of the Agent under this Agreement or any other Loan Document, and (iii)
the Fee Letter may be amended, or rights or privileges thereunder waived, in a
writing executed solely by the parties thereto.
11.02 Notices. (a) Except as otherwise specifically provided in Section
-------
3.02, all notices, requests and other communications shall be in writing
(including, unless the context expressly otherwise provides, by facsimile
transmission, provided that any matter transmitted by the Borrower by facsimile
(i) shall be immediately confirmed by a telephone call to the recipient at the
number specified on Schedule 11.02, and (ii) shall be followed promptly by
--------------
delivery of a hard copy original thereof) and mailed, faxed or delivered, to the
address or facsimile number specified for notices on Schedule 11.02; or, as
--------------
directed to the Borrower or the Agent, to such other address as shall be
designated by such party in a written notice to the other parties, and as
directed to any other party, at such other
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address as shall be designated by such party in a written notice to the Borrower
and the Agent.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to Article II, III or X shall not be effective until actually
received by the Agent, and notices pursuant to Article III to any Issuing Bank
shall not be effective until actually received by such Issuing Bank at the
address specified for the "Issuing Banks" on the applicable signature page
hereof.
(c) Any agreement of the Agent and the Banks herein to receive
certain notices by telephone or facsimile is solely for the convenience and at
the request of the Borrower. The Agent and the Banks shall be entitled to rely
on the authority of any Person purporting to be a Person authorized by the
Borrower to give such notice and the Agent and the Banks shall not have any
liability to the Borrower or other Person on account of any action taken or not
taken by the Agent or the Banks in reliance upon such telephonic or facsimile
notice. The obligation of the Borrower to repay the Loans and L/C Obligations
shall not be affected in any way or to any extent by any failure by the Agent
and the Banks to receive written confirmation of any telephonic or facsimile
notice or the receipt by the Agent and the Banks of a confirmation which is at
variance with the terms understood by the Agent and the Banks to be contained in
the telephonic or facsimile notice.
11.03 No Waiver; Cumulative Remedies. No failure to exercise and no delay
------------------------------
in exercising, on the part of the Agent or any Bank, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.
11.04 Costs and Expenses. The Borrower shall:
------------------
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse BofA (including in its capacity as Agent and an
Issuing Bank) within five Business Days after demand (subject to subsection
5.01(e)) for all costs and expenses incurred by BofA (including in its capacity
as Agent and an Issuing Bank) in connection with the development, preparation,
delivery, administration and execution of, and any amendment, supplement, waiver
or modification to (in each case, whether or not consummated), this Agreement,
any Loan Document and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby,
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including reasonable (giving due regard to the prevailing circumstances)
Attorney Costs incurred by BofA (including in its capacity as Agent and an
Issuing Bank) with respect thereto; and
(b) pay or reimburse the Agent, the Arranger, each Issuing Bank and
each Bank within five Business Days after demand for all costs and expenses
(including Attorney Costs) incurred by them in connection with the enforcement,
attempted enforcement, or preservation of any rights or remedies under this
Agreement or any other Loan Document during the existence of an Event of Default
or after acceleration of the Loans (including in connection with any "workout"
or restructuring regarding the Loans, and including in any Insolvency Proceeding
or appellate proceeding).
11.05 Indemnity. Whether or not the transactions contemplated hereby are
---------
consummated, the Borrower shall indemnify and hold the Agent-Related Persons,
the Issuing Banks, and each Bank and each of their respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
- -------------------
obligations, losses, damages, penalties, actions, judgments, suits and
reasonable (giving due regard to the prevailing circumstances) costs, charges,
expenses and disbursements (including Attorney Costs) of any kind or nature
whatsoever which may at any time (including at any time following repayment of
the Loans, the termination of the Letters of Credit and the termination,
resignation or replacement of the Agent or replacement of any Bank or Issuing
Bank) be imposed on, incurred by or asserted against any such Person in any way
relating to or arising out of this Agreement or any document contemplated by or
referred to herein, or the transactions contemplated hereby, or any action taken
or omitted by any such Person under or in connection with any of the foregoing,
including with respect to any investigation, litigation or proceeding (including
any Insolvency Proceeding or appellate proceeding) related to or arising out of
this Agreement or the Loans or Letters of Credit or the use of the proceeds
thereof, whether or not any Indemnified Person is a party thereto (all the
foregoing, collectively, the "Indemnified Liabilities"); provided, that the
----------------------- --------
Borrower shall have no obligation hereunder to any Indemnified Person with
respect to Indemnified Liabilities resulting solely from the gross negligence or
willful misconduct of such Indemnified Person. The agreements in this Section
shall survive payment of all other Obligations.
11.06 Payments Set Aside. To the extent that the Borrower makes a payment
------------------
to the Agent or the Banks, or the Agent or the Banks exercise their right of
set-off, and such payment or the proceeds of such set-off or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required (including pursuant to any settlement entered into by the
Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any
other party, in connection with any
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Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such set-off had not occurred, and (b) each Bank severally agrees to pay to the
Agent upon demand its pro rata share of any amount so recovered from or repaid
by the Agent.
11.07 Successors and Assigns. The provisions of this Agreement shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Agent and each Bank. Any attempted or purported assignment in
contravention of the preceding sentence shall be null and void.
11.08 Assignments, Participations, Etc. (a) Any Bank may, with the
---------------------------------
written consent of the Borrower (at all times other than during the existence of
an Event of Default), the Agent and the applicable Issuing Bank(s), which
consents shall not be unreasonably withheld, at any time assign and delegate to
one or more Eligible Assignees (provided that no written consent of the
Borrower, the Agent or an Issuing Bank shall be required in connection with any
assignment and delegation by a Bank to an Eligible Assignee that is an Affiliate
of such Bank) (each an "Assignee") all, or any ratable part of all, of the
--------
Loans, the Commitments, the L/C Obligations and the other rights and obligations
of such Bank hereunder with respect to Facility A and Facility B, in an
aggregate minimum amount of $10,000,000, pro-rated between Facility A and
Facility B; provided that such Bank shall retain an aggregate amount of not less
--------
than $10,000,000 in respect thereof, unless such Bank assigns and delegates all
of its rights and obligations hereunder to one or more Eligible Assigners on the
time and subject to the conditions set forth herein; and provided, further,
-------- -------
however, that the Borrower and the Agent may continue to deal solely and
- -------
directly with such Bank in connection with the interest so assigned to an
Assignee until (i) written notice of such assignment, together with payment
instructions, addresses and related information with respect to the Assignee,
shall have been given to the Borrower and the Agent by such Bank and the
Assignee; (ii) such Bank and its Assignee shall have delivered to the Borrower
and the Agent an Assignment and Acceptance in the form of Exhibit E ("Assignment
--------- ----------
and Acceptance"), together with any Note or Notes subject to such assignment;
- --------------
and (iii) the assignor Bank or Assignee has paid to the Agent a processing fee
in the amount of $3,500.
(b) From and after the date that the Agent notifies the assignor Bank
that it has received (and provided its consent with respect to) an executed
Assignment and Acceptance and payment of the above-referenced processing fee,
(i) the Assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to
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such Assignment and Acceptance, shall have the rights and obligations of a Bank
under the Loan Documents, and (ii) the assignor Bank shall, to the extent that
rights and obligations hereunder and under the other Loan Documents have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under the Loan Documents.
(c) Within five Business Days after its receipt of notice by the
Agent that it has received an executed Assignment and Acceptance and payment of
the processing fee, (and provided that it consents to such assignment in
accordance with subsection 11.08(a)), if the Assignee so requests, the Borrower
shall execute and deliver to the Agent, new Notes evidencing such Assignee's
assigned Loans and Commitment and, if the assignor Bank has retained a portion
of its Loans and its Commitment and so requests, replacement Notes in the
principal amount or amounts of the Loans retained by the assignor Bank (such
Notes to be in exchange for, but not in payment of, the Notes held by such
Bank). Immediately upon each Assignee's making its processing fee payment under
the Assignment and Acceptance, this Agreement shall be deemed to be amended to
the extent, but only to the extent, necessary to reflect the addition of the
Assignee and the resulting adjustment of the Commitments arising therefrom. The
Commitment allocated to each Assignee shall reduce such Commitments of the
assigning Bank pro tanto and the Agent shall promptly prepare and distribute a
--- -----
new Schedule 2.01 reflecting the new commitments.
-------------
(d) Any Bank may at any time sell to one or more commercial banks or
other Persons not Affiliates of the Borrower (a "Participant") participating
-----------
interests in any Loans, the Commitment of that Bank and the other interests of
that Bank (the "originating Bank") hereunder and under the other Loan Documents;
provided, however, that (i) the originating Bank's obligations under this
- -------- -------
Agreement shall remain unchanged, (ii) the originating Bank shall remain solely
responsible for the performance of such obligations, (iii) the Borrower, the
Issuing Banks and the Agent shall continue to deal solely and directly with the
originating Bank in connection with the originating Bank's rights and
obligations under this Agreement and the other Loan Documents, and (iv) no Bank
shall transfer or grant any participating interest under which the Participant
has rights to approve any amendment to, or any consent or waiver with respect
to, this Agreement or any other Loan Document, except to the extent such
amendment, consent or waiver would require unanimous consent of the Banks as
described in the first proviso to Section 11.01. In the case of any such
----- -------
participation, the Participant shall be entitled to the benefit of Sections
4.01, 4.03 and 11.05 as though it were also a Bank hereunder, and if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of set-off in respect of its
participating interest in
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amounts owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under this Agreement.
(e) Each Bank agrees to take normal and reasonable precautions and
exercise due care to maintain the confidentiality of all information identified
as "confidential" or "secret" by the Borrower and provided to it by the
Borrower or any Subsidiary, or by the Agent on such Borrower's or Subsidiary's
behalf, under this Agreement or any other Loan Document, and neither it nor any
of its Affiliates shall use any such information other than in connection with
or in enforcement of this Agreement and the other Loan Documents; except to the
extent such information (i) was or becomes generally available to the public
other than as a result of disclosure by the Bank, or (ii) was or becomes
available on a non-confidential basis from a source other than the Borrower,
provided that such source is not bound by a confidentiality agreement with the
Borrower known to the Bank; provided, however, that any Bank may disclose such
-------- -------
information (A) at the request or pursuant to any requirement of any
Governmental Authority to which the Bank is subject or in connection with an
examination of such Bank by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the Agent, any
Bank or their respective Affiliates may be party; (E) to the extent reasonably
required in connection with the exercise of any remedy hereunder or under any
other Loan Document; (F) to such Bank's independent auditors and other
professional advisors; (G) to any Affiliate of such Bank, or to any Participant
or Assignee, actual or potential, provided that such Affiliate, Participant or
Assignee agrees to keep such information confidential to the same extent
required of the Banks hereunder, and (H) as to any Bank, as expressly permitted
under the terms of any other document or agreement regarding confidentiality to
which the Borrower is party or is deemed party with such Bank.
(f) Notwithstanding any other provision in this Agreement, any Bank
may at any time create a security interest in, or pledge, all or any portion of
its rights under and interest in this Agreement and any Note held by it in favor
of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S.
Treasury Regulation 31 CFR (S)203.14, and such Federal Reserve Bank may enforce
such pledge or security interest in any manner permitted under applicable law.
11.09 Set-off. In addition to any rights and remedies of the Banks
-------
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Bank is authorized at any time and from time to time, without
prior notice to the Borrower, any such notice being waived by the Borrower to
the fullest extent permitted by law, to set off and apply any and all deposits
107
<PAGE>
(general or special, time or demand, provisional or final) at any time held by,
and other indebtedness at any time owing by, such Bank to or for the credit or
the account of the Borrower against any and all Obligations owing to such Bank,
now or hereafter existing, irrespective of whether or not the Agent or such Bank
shall have made demand under this Agreement or any Loan Document and although
such Obligations may be contingent or unmatured. Each Bank agrees promptly to
notify the Borrower and the Agent after any such set-off and application made by
such Bank; provided, however, that the failure to give such notice shall not
-------- -------
affect the validity of such set-off and application.
[11.10 Automatic Debits of Fees]. With respect to any commitment fee,
------------------------
arrangement fee, letter of credit fee or other fee, or any other cost or expense
(including Attorney Costs) due and payable to the Agent, any Issuing Bank, BofA
or the Arranger under the Loan Documents, the Borrower hereby irrevocably
authorizes BofA to debit any deposit account of the Borrower with BofA in an
amount such that the aggregate amount debited from all such deposit accounts
does not exceed such fee or other cost or expense. If there are insufficient
funds in such deposit accounts to cover the amount of the fee or other cost or
expense then due, such debits will be reversed (in whole or in part, in BofA's
sole discretion) and such amount not debited shall be deemed to be unpaid. No
such debit under this Section shall be deemed a set-off.]
11.11 Notification of Addresses, Lending Offices, Etc. Each Bank shall
------------------------------------------------
notify the Agent in writing of any changes in the address to which notices to
the Bank should be directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as the Agent shall reasonably request.
11.12 Counterparts. This Agreement may be executed in any number of
------------
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
11.13 Severability. The illegality or unenforceability of any provision
------------
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
11.14 No Third Parties Benefited. This Agreement is made and entered into
--------------------------
for the sole protection and legal benefit of the Borrower, the Banks, the Agent
and the Agent-Related Persons, and their permitted successors and assigns, and
no other Person shall be a direct or indirect legal beneficiary of, or have any
direct or indirect cause of action or claim in connection with, this Agreement
or any of the other Loan Documents.
108
<PAGE>
11.15 Governing Law and Jurisdiction. (a) THIS AGREEMENT AND ALL NOTES
------------------------------
ISSUED HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW
OF THE STATE OF NEW YORK; PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL
RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR
OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWER, THE AGENT AND THE BANKS
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE BORROWER, THE AGENT AND THE BANKS
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
--------------------
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE BORROWER, THE AGENT AND
THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW.
11.16 Waiver of Jury Trial. THE BORROWER, THE BANKS AND THE AGENT EACH
--------------------
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER
WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER, THE
BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
11.17 Entire Agreement. From and after the Closing Date (if it shall
----------------
occur), this Agreement, together with the other Loan Documents, embodies the
entire agreement and understanding between and among the Borrower, the Banks and
the Agent, and supersedes all prior or contemporaneous agreements and
understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
109
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
FERRELLGAS, L.P.,
as Borrower
By: Ferrellgas, Inc.,
General Partner
By: ______________________
Title: ___________________
By: ______________________
Title: ___________________
FERRELLGAS, INC.,
as General Partner
By: ______________________
Title: ___________________
By: ______________________
Title: ___________________
STRATTON INSURANCE COMPANY
By: ______________________
Title: ___________________
110
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: _________________________
Title: ______________________
Address for notices:
1455 Market Street, 12th Floor
San Francisco, CA 94103
Attn: Global Agency #5596
Facsimile:
Tel:
Address for payments:
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Issuing Bank
By: _________________________
Title: ______________________
By: _________________________
Title: ______________________
Address for notices:
International Trade
Banking Division #5655
333 S. Beaudry Ave., 19th Floor
Los Angeles, CA 90017
Copies to:
111
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Bank
By: _________________________
Title: ______________________
Address for notices:
Domestic and Eurodollar Lending Office:
1850 Gateway Boulevard
Concord, CA 94520
[OTHER BANKS]
112
<PAGE>
SCHEDULE 2.01
-------------
<TABLE>
<CAPTION>
Facility A Facility B Commitment
-------------------------------------------------
Tranche I Tranche II Pro Rata
Bank Commitment Term Loan Revolving Loans Total Share
- ------------ --------------- -------------- ---------------- ----- -----
<S> <C> <C> <C> <C> <C>
Bank of
America __________ __________ ________*
_________ __________ __________ ________*
_________ __________ __________ ________*
Total: $100,000,000.00 $25,000,000.00 $60,000,000*
</TABLE>
* Any unused portion of a Bank's Facility B Term Loan Commitment or any
amount of the Facility B Term Loan prepaid within 45 days of the Closing
Date as a result of the partial or full exercise of the underwriters'
overallotment option, as described in the MLP Registration Statement, will
be transferred to such Bank's Facility B Revolving Loan Commitment on the
Closing Date pursuant to the terms and subject to the conditions set forth
in Section _____.
113
<PAGE>
SCHEDULE 6.10
-------------
[Description of 1986 and 1987 IRS audits of the General Partner, and scope
of potential liability.]
114
<PAGE>
SCHEDULE 11.02
--------------
EURODOLLAR AND DOMESTIC LENDING OFFICES,
----------------------------------------
ADDRESSES FOR NOTICES
---------------------
Attention:
Telephone:
Facsimile:
BANK OF AMERICA NATIONAL TRUST
- ------------------------------
AND SAVINGS ASSOCIATION,
- -----------------------
as Agent
Bank of America National Trust
and Savings Association
Global Agency #5596
1455 Market Street, 12th Floor
San Francisco, California 94103
Attention:
Vice President
Telephone: (415) 622-
Facsimile: (415) 622-4894
BANK OF AMERICA NATIONAL TRUST
- ------------------------------
AND SAVINGS ASSOCIATION,
- -----------------------
as a Bank
Domestic and Eurodollar Lending Office:
1850 Gateway Boulevard, Fourth Floor
Concord, California 94520
Notices (other than Borrowing notices and Notices of
Conversion/Continuation):
Bank of America National Trust
and Savings Association
[Address]
115
<PAGE>
EXHIBIT C
---------
COMPLIANCE CERTIFICATE
1. Financial covenant compliance
- Consolidated Cash Flow (rolling four quarters)
- Funded Debt
- Leverage Ratio / Level
- Partners' Equity
- Amount of additional Indebtedness that the Borrower may incur
2. [No Default or Event of Default]
3. Attached hereto is a summary of results of the customer satisfaction survey
for the quarter, if any, conducted by or on behalf of the General Partner.
C-1
<PAGE>
EXHIBIT H
---------
[FORM OF COMMERCIAL LETTER OF CREDIT]
[ISSUING BANK]
_______________(1)_________________
Irrevocable Letter of Credit Number (2)
(3)
Ladies and Gentlemen:
We hereby open our irrevocable documentary letter of credit number (2)
in your favor and authorize you to draw at sight on [Issuing Bank] [location],
(4)(5)(6) for the account of (7).
Drafts are to be accompanied by:
1. This Letter of Credit.
2. Original of (8).
Partial drawings and/or shipments are permitted.
This Letter of Credit expires (9) at our counters.
Drafts under this Letter of Credit must bear on their face the clause
"Drawn under the [Issuing Bank] Letter of Credit Number (2) dated (1)".
We hereby agree with bona fide holders that all drafts under and in
compliance with the terms of this credit will be duly honored upon compliance if
presented on or before the expiration date.
This credit is subject to the Uniform Customs and Practice for
Documentary Credit (1993 Revision in force as from January 1, 1994)
International Chamber of Commerce Publication No. 500.
Best Regards,
[ISSUING BANK]
By: ___________________________________
Title: ________________________________
H-1
<PAGE>
______________________________
(1) Date of Letter of Credit.
(2) Letter of Credit Number.
(3) Name and address of Beneficiary.
(4) Insert one of the phrases identified in clauses (a) through (d):
a. an amount
b. up to an amount of US$ (5)(6)
c. approximately US$ (5)(6)
d. US$ (5)(6), plus or minus [insert number]%
(5) Aggregate initial stated amount of Letter of Credit.
(6) Aggregate initial stated amount of Letter of Credit stated in words.
(7) Ferrellgas, L.P.
(8) Description of applicable invoice and/or product movement documentation.
(9) Insert a date not later than 90 days from the date of issuance.
H-2
<PAGE>
EXHIBIT I
---------
[FORM OF STANDBY LETTER OF CREDIT]
[ISSUING BANK]
_______________(1)_________________
Irrevocable Letter of Credit Number (2)
(3)
Ladies and Gentlemen:
We hereby open our irrevocable standby letter of credit number (2) in
your favor and authorize you to draw at sight on [Issuing Bank] [location],
(4)(5)(6) for the account of (7).
Drafts are to be accompanied by:
1. This Letter of Credit.
OPTIONAL: 2. Copy of (8).
- --------
3. A signed statement by an authorized officer of (3) certifying
that the product has been delivered and that although the invoice(s) presented
under this Letter of Credit was (were) due according to contract terms, (7)
failed to make payment and payment remains outstanding at time of drawing.
Partial drawings and/or shipments are permitted.
This Letter of Credit expires (9) at our counters.
Drafts drawn under this Letter of Credit must bear on their face the
clause "Drawn under the [Issuing Bank] Letter of Credit Number (2) dated (1)".
OPTIONAL: The amount available for drawing under this letter of credit will be
- --------
reduced by the amount of any payments made outside the letter of
credit to _______________ for this product if such payments are made
by [Issuing Bank], [location] and make reference to this letter of
credit number.
We hereby agree with bona fide holders that all drafts drawn under and
in compliance with the terms of this credit will be duly honored upon compliance
if presented on or before the expiration date.
I-1
<PAGE>
This credit is subject to the Uniform Customs and Practice for
Documentary Credits (1993 Revision in force as from January 1, 1994)
International Chamber of Commerce Publication NO. 500.
Best Regards,
[ISSUING BANK]
By: ______________________________
Title:___________________________
______________________________
(1) Date of Letter of Credit.
(2) Letter of Credit Number.
(3) Name and address of Beneficiary.
(4) Insert one of the phrases identified in clauses (a) through (d):
a. an amount of US$ (5)(6)
b. up to an amount of US$ (5)(6)
c. approximately US$ (5)(6)
d. US$ (5)(6), plus or minus [insert number]%
(5) Aggregate initial stated amount of Letter of Credit.
(6) Aggregate initial stated amount of Letter of Credit stated in words.
(7) Ferrellgas, L.P. or Stratton Insurance Company, Inc. (as the case may be).
(8) Description of applicable invoice and/or product movement documentation.
(9) Insert a date not later than 180 days from the date of issuance.
I-2
<PAGE>
EXHIBIT J
---------
[ALTERNATIVE FORM OF STANDBY LETTER OF CREDIT]
_______________(1)_________________
Irrevocable Letter of Credit Number (2)
(3)
Ladies and Gentlemen:
We hereby establish our irrevocable standby Letter of Credit Number
(2) in your favor by order and for the account of Ferrellgas, L.P. for (4)(5)(6)
available at [Issuing Bank] [Location] by payment against your drafts at sight
to be accompanied by:
1. Signed statement by a representative of (3) that the amount drawn
under this letter of credit (2) represents an amount due and owing to (3) and
unpaid or defaulted by Ferrellgas, L.P.
Drafts must be presented no later than (7).
Special Conditions:
A. Partial drawings are permitted.
B. Notwithstanding the above, this letter of credit shall also be
available at [Issuing Bank] [Location] by payment against drafts of (3) at sight
accompanied by:
Signed statement by a representative of (3) that:
(i) as a result of pending or possible bankruptcy,
reorganization or insolvency proceedings involving Ferrellgas, L.P. (3) has
tendered to an escrow agent designated by (3) payments or deliveries (3)
reasonably believes are or may be subject to the aforementioned
proceedings;
(ii) the amount drawn under this letter of credit represents or
corresponds to such payments or deliveries; and
(iii) the escrow agent designated by (3) has been instructed to
release such payments or deliveries to Ferrellgas, L.P. upon receipt by (3)
of the amount drawn under this letter of credit.
J-1
<PAGE>
We hereby engage with you that all drawings made under and in
conformity with the terms of this letter of credit will be duly honored upon
presentation to us as specified.
This letter of credit is subject to the Uniform Customs and Practice
for Documentary Credits (1993 Revision) International Chamber of Commerce
Publication No. 500.
Very truly yours,
[ISSUING BANK]
By: ____________________________________
Title: _________________________________
- -----------------------------
(1) Date of Letter of Credit,
(2) Letter of Credit Number.
(3) Insert either (a) Exxon Company USA [and its address the first time its
name appears], or (b) Exxon Supply Company [and its address the first time
its name appears], as the case may be.
(4) Insert one of the phrases identified in clauses (a) through (d):
a. an amount of US$ (5)(6)
b. up to an amount of US$ (5)(6)
c. approximately US$ (5)(6)
d. US$ (5)(6), plus or minus [insert number]%.
(5) Aggregate initial stated amount of Letter of Credit.
(6) Aggregate initial stated amount of Letter of Credit stated in words.
(7) Date by which drafts must be presented.
J-2
<PAGE>
EXHIBIT 10.2
================================================================================
FERRELLGAS, L.P.
FERRELLGAS FINANCE CORP.
__% SENIOR NOTES DUE 2001
_________________
INDENTURE
Dated as of ________ __, 1994
_________________
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Trustee
================================================================================
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
310 (a)(1)..................................................... 7.10
(a)(2)..................................................... 7.10
(a)(3)..................................................... N.A.
(a)(4)..................................................... N.A.
(a)(5)..................................................... 7.10
(b) ....................................................... 7.10
(c) ....................................................... N.A.
311 (a) ....................................................... 7.11
(b) ....................................................... 7.11
(c) ....................................................... N.A.
312 (a)........................................................ 2.05
(b)........................................................ 11.03
(c) ....................................................... 11.03
313 (a) ....................................................... 7.06
(b) ....................................................... 7.06
(c) ....................................................... 7.06;11.02
(d)........................................................ 7.06
314 (a) ....................................................... 4.03;11.05
(b) ....................................................... 10.02
(c)(1) .................................................... 11.04
(c)(2) .................................................... 11.04
(c)(3) .................................................... N.A.
(d)........................................................ N.A.
(e)........................................................ 11.05
(f)........................................................ N.A.
315 (a)........................................................ 7.01
(b)........................................................ 7.05,11.02
(c)........................................................ 7.01
(d)........................................................ 7.01
(e)........................................................ 6.11
316 (a)(last sentence) ........................................ 2.09
(a)(1)(A).................................................. 6.05
(a)(1)(B) ................................................. 6.04
(a)(2) .................................................... N.A.
(b) ....................................................... 6.07
(c) ....................................................... 2.12
317 (a)(1)..................................................... 6.08
(a)(2)..................................................... 6.09
(b) ....................................................... 2.04
318 (a)........................................................ 11.01
(b)........................................................ N.A.
(c)........................................................ 11.01
</TABLE>
N.A. means not applicable.
*This Cross-Reference Table is not part of this Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 -- DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions......................................... 1
Section 1.02. Other Definitions................................... 11
Section 1.03. Incorporation by Reference of Trust
Indenture Act....................................... 11
Section 1.04. Rules of Construction............................... 12
ARTICLE 2 -- THE NOTES
Section 2.01. Form and Dating..................................... 12
Section 2.02. Execution and Authentication........................ 12
Section 2.03. Registrar and Paying Agent.......................... 13
Section 2.04. Paying Agent to Hold Money in Trust................. 13
Section 2.05. Lists of Holders of the Notes....................... 14
Section 2.06. Transfer and Exchange............................... 14
Section 2.07. Replacement Notes................................... 15
Section 2.08. Outstanding Notes................................... 15
Section 2.09. Treasury Notes...................................... 15
Section 2.10. Temporary Notes..................................... 16
Section 2.11. Cancellation........................................ 16
Section 2.12. Defaulted Interest.................................. 16
Section 2.13. Record Date......................................... 16
Section 2.14. CUSIP Number........................................ 16
ARTICLE 3 -- REDEMPTION AND OFFERS TO PURCHASE
Section 3.01. Notices to Trustee.................................. 17
Section 3.02. Selection of Notes to Be Purchased or Redeemed...... 17
Section 3.03. Notice of Redemption................................ 18
Section 3.04. Effect of Notice of Redemption...................... 18
Section 3.05. Deposit of Redemption Price......................... 19
Section 3.06. Notes Redeemed in Part.............................. 19
Section 3.07. Optional Redemption................................. 19
Section 3.08. Mandatory Redemption................................ 19
Section 3.09. Offers to Purchase.................................. 19
ARTICLE 4 -- COVENANTS
Section 4.01. Payment of Notes.................................... 21
Section 4.02. Maintenance of Office or Agency..................... 21
Section 4.03. Reports............................................. 22
Section 4.04. Compliance Certificate.............................. 22
Section 4.05. Taxes............................................... 23
Section 4.06. Stay, Extension and Usury Laws...................... 23
Section 4.07. Restricted Payments................................. 23
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 4.08. Dividend and Other Payment Restrictions Affecting
Subsidiaries........................................ 24
Section 4.09. Incurrence of Indebtedness and Issuance of
Disqualified Interests.............................. 25
Section 4.10. Asset Sales......................................... 27
Section 4.11. Transactions with Affiliates........................ 28
Section 4.12. Liens............................................... 28
Section 4.13. Subsidiary Note Guarantees.......................... 28
Section 4.14. Offer to Purchase Upon Change of Control............ 29
Section 4.15. Partnership or Corporate Existence.................. 29
Section 4.16. Line of Business.................................... 29
Section 4.17. Limitation on Sale and Leaseback Transactions....... 29
Section 4.18. Restrictions on Nature of Indebtedness and
Activities of Finance Corp.......................... 30
ARTICLE 5 -- SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets............ 30
Section 5.02. Successor Person Substituted........................ 31
ARTICLE 6 -- DEFAULTS AND REMEDIES
Section 6.01. Events of Default................................... 31
Section 6.02. Acceleration........................................ 33
Section 6.03. Other Remedies...................................... 33
Section 6.04. Waiver of Past Defaults............................. 34
Section 6.05. Control by Majority................................. 34
Section 6.06. Limitation on Suits................................. 34
Section 6.07. Rights of Holders of Notes to Receive Payment....... 35
Section 6.08. Collection Suit by Trustee.......................... 35
Section 6.09. Trustee May File Proofs of Claim.................... 35
Section 6.10. Priorities.......................................... 36
Section 6.11. Undertaking for Costs............................... 36
ARTICLE 7 - TRUSTEE
Section 7.01. Duties of Trustee................................... 36
Section 7.02. Rights of Trustee................................... 37
Section 7.03. Individual Rights of Trustee........................ 38
Section 7.04. Trustee's Disclaimer................................ 38
Section 7.05. Notice of Defaults.................................. 38
Section 7.06. Reports by Trustee to Holders of the Notes.......... 38
Section 7.07. Compensation and Indemnity.......................... 39
Section 7.08. Replacement of Trustee.............................. 39
Section 7.09. Successor Trustee by Merger, etc.................... 40
Section 7.10. Eligibility; Disqualification....................... 40
Section 7.11. Preferential Collection of Claims Against Issuers... 41
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE 8 - LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance.......................................... 41
Section 8.02. Legal Defeasance and Discharge...................... 41
Section 8.03. Covenant Defeasance................................. 41
Section 8.04. Conditions to Legal or Covenant Defeasance.......... 42
Section 8.05. Deposited Money and Government Securities to be
Held in Trust; Other Miscellaneous Provisions....... 43
Section 8.06. Repayment to Issuers................................ 44
Section 8.07. Reinstatement....................................... 44
ARTICLE 9 - AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes................. 44
Section 9.02. With Consent of Holders of Notes.................... 45
Section 9.03. Compliance with Trust Indenture Act................. 46
Section 9.04. Revocation and Effect of Consents................... 47
Section 9.05. Notation on or Exchange of Notes.................... 47
Section 9.06. Trustee to Sign Amendments, etc..................... 47
ARTICLE 10 - NOTE GUARANTEES
Section 10.01. Note Guarantee..................................... 47
Section 10.02. Limitation of Guarantor's Liability................ 49
Section 10.03. Guarantors May Consolidate, etc., on Certain Terms. 49
Section 10.04. Releases Following Sale of Assets.................. 49
ARTICLE 11 - MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls........................ 50
Section 11.02. Notices............................................. 50
Section 11.03. Communication by Holders of Notes with Other
Holders of Notes.................................... 51
Section 11.04. Certificate and Opinion as to Conditions Precedent.. 51
Section 11.05. Statements Required in Certificate or Opinion....... 52
Section 11.06. Rules by Trustee and Agents......................... 52
Section 11.07. No Personal Liability of Directors, Officers,
Employees and Stockholders.......................... 52
Section 11.08. Governing Law....................................... 52
Section 11.09. No Adverse Interpretation of Other Agreements....... 52
Section 11.10. Successors.......................................... 52
Section 11.11. Severability........................................ 53
Section 11.12. Counterpart Originals............................... 53
Section 11.13. Table of Contents, Headings, etc.................... 53
</TABLE>
iii
<PAGE>
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF SUPPLEMENTAL INDENTURE
Exhibit C FORM OF NOTATION ON SENIOR SUBORDINATED
NOTE RELATING TO NOTE GUARANTEE
iv
<PAGE>
INDENTURE dated as of __________ __, 1994 between Ferrellgas, L.P., a
Delaware limited partnership (the "Partnership"), Ferrellgas Finance Corp., a
Delaware corporation ("Finance Corp." and, together with the Partnership, the
"Issuers") and Norwest Bank Minnesota, National Association, as trustee (the
"Trustee").
The Partnership, Finance Corp. and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders of
the __% Senior Notes due 2001:
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person
and (ii) Indebtedness encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Attributable Debt" means, in respect of a sale and leaseback arrangement
of any property, as at the time of determination, the present value (calculated
using a discount rate equal to the interest rate of the Notes and annual
compounding) of the total obligations of the lessee for rental payments during
the remaining term of the lease included in such arrangement (including any
period for which such lease has been extended).
"Available Cash" has the meaning given to such term in the Partnership
Agreement, as amended to the date of the Indenture.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Board of Directors" means the Board of Directors of the General Partner
(as defined below), or any authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
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"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Interests" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock, including,
without limitation, with respect to partnerships, partnership interests (whether
general or limited) and any other interest or participation that confers on a
Person the right to receive a share of the profits and losses of, or
distributions of assets of, such partnership.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to the Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) entered into with
any financial institution meeting the qualifications specified in clause (iii)
above and (v) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within six months after the date of acquisition and (vi) investments in
money market funds all of whose assets consist of securities of the types
described in the foregoing clauses (i) through (v).
"Change of Control" means (i) the sale, lease, conveyance or other
disposition of all or substantially all of the Partnership's assets to any
Person or group (as such term is used in Section 13(d)(3) of the Exchange Act)
other than James E. Ferrell, the Related Parties and any Person of which James
E. Ferrell and the Related Parties beneficially own in the aggregate 51% or more
of the voting Capital Interests (or if such Person is a partnership, 51% or more
of the general partner interests), (ii) the liquidation or dissolution of the
Partnership or the General Partner, (iii) the occurrence of any transaction, the
result of which is that James E. Ferrell and the Related Parties beneficially
own in the aggregate, directly or indirectly, less than 51% of the total voting
power entitled to vote for the election of directors of the General Partner and
(iv) the occurrence of any transaction, the result of which is that the General
Partner is no longer the sole general partner of the Partnership.
"Common Units" means the common units, representing limited partner
interests, being offered by the Master Partnership contemporaneously with the
sale of the Notes.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period, plus (a) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
asset sale, to the extent such losses were deducted in computing Consolidated
Net Income, plus (b) provision for taxes based on income or profits of such
Person for such period, to the extent such provision for taxes was deducted in
computing Consolidated Net Income, plus (c) Consolidated Interest Expense of
such Person for such period, whether paid or accrued (including amortization of
original issue discount, non-cash interest payments and the interest component
of any payments associated with Capital Lease Obligations and net payments (if
any) pursuant to Hedging Obligations), to the extent such expense was deducted
in computing Consolidated Net Income, plus (d) depreciation and amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) of such
Person for such period,
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to the extent such depreciation and amortization were deducted in computing
Consolidated Net Income, in each case, for such period without duplication on a
consolidated basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, that (i) the Net Income of any Person that is not a Subsidiary or that
is accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid to the referent
Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any Person
that is a Subsidiary (other than a Wholly Owned Subsidiary) shall be included
only to the extent of the amount of dividends or distributions paid to the
referent Person or a Wholly Owned Subsidiary thereof, (iii) the Net Income of
any Person acquired in a pooling of interests transaction for any period prior
to the date of such acquisition shall be excluded (except to the extent
otherwise includable under clause (i) above) and (iv) the cumulative effect of a
change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Interests) that by its
terms is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of this Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 12.02 hereof or such other address as to which the
Trustee may give notice to the Partnership.
"Credit Facility" means the credit facility under that certain Credit
Agreement, dated as of , 1994, by and among the Partnership and
_____________, providing for up to $185 million of credit borrowings and letters
of credit, including any related notes, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Disqualified Interests" means any Capital Interests which, by their terms
(or by the terms of any security into which they are convertible or for which
they are exchangeable), or upon the happening of any event, mature or are
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the Holder thereof, in whole or in part, on or prior
to __________.
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"Distribution" means, for purposes of Article 10, a distribution
consisting of cash, securities or other property, by set off or otherwise.
"Equity Interests" means Capital Interests and all warrants, options or
other rights to acquire Capital Interests (but excluding any debt security that
is convertible into, or exchangeable for, Capital Interests).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Fixed Rate Notes" means the Series B and D Fixed Rate Senior
Notes due 1996 of the General Partner.
"Existing Floating Rate Notes" means the Series A and C Floating Rate
Senior Notes due 1996 of the General Partner.
"Existing Indebtedness" means up to $___ million in aggregate principal
amount of Indebtedness of the Partnership and its Subsidiaries (other than under
the Credit Facility) in existence on the date of this Indenture, until such
amounts are repaid.
"Existing Senior Notes" means the Existing Fixed Rate Notes and the
Existing Floating Rate Notes.
"Existing Subordinated Debentures" means the General Partner's 11 5/8%
Senior Subordinated Debentures due December 15, 2003.
"Finance Corp." means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means the
successor.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
reference Person or any of its Subsidiaries incurs, assumes, guarantees, redeems
or repays any Indebtedness (other than revolving credit borrowings) subsequent
to the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated but prior to the date of the event for which the calculation of
the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, guarantee, redemption or repayment of Indebtedness, as
if the same had occurred at the beginning of the applicable reference period.
The foregoing calculation of the Fixed Charge Coverage Ratio shall also give pro
forma effect to acquisitions (including all mergers and consolidations),
dispositions and discontinuance of businesses or assets that have been made by
the reference Person or any of its Subsidiaries during the reference period or
subsequent to such reference period and on or prior to the Calculation Date
assuming that all such acquisitions, dispositions and discontinuance of
businesses or assets had occurred on the first day of the reference period;
provided, however, that (a) Fixed Charges shall be reduced by amounts
attributable to businesses or assets that are so disposed of or discontinued
only to the extent that the obligations giving rise to such Fixed Charges would
no longer be obligations contributing to the Partnership's Fixed Charges
subsequent to the Calculation Date and (b) Consolidated Cash Flow generated by
an acquired business or asset shall be determined by the actual gross profit
(revenues minus costs of goods sold) of such acquired business or asset during
the immediately preceding number of full fiscal quarters as in the reference
period minus the pro forma expenses that would have been incurred by the
Partnership in the operation of such
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acquired business or asset during such period computed on the basis of (i)
personnel expenses for employees retained by the Partnership in the operation of
the acquired business or asset and (ii) non-personnel costs and expenses
incurred by the Partnership on a per gallon basis in the operation of the
Partnership's business at similarly situated Partnership facilities. If the
applicable reference period for any calculation of the Fixed Charge Coverage
Ratio with respect to the Partnership shall include a portion prior to the date
of this Indenture, then such Fixed Charge Coverage Ratio shall be calculated
based upon the Consolidated Cash Flow and the Fixed Charges of the General
Partner for such portion of the reference period prior to this date of this
Indenture and the Consolidated Cash Flow and the Fixed Charges of the
Partnership for the remaining portion of the reference period on and after the
date of the Indenture, giving pro forma effect, as described in the two
foregoing sentences, to all applicable transactions occurring on the date of the
Indenture or otherwise.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (a) consolidated interest expense of such person for
such period, whether paid or accrued, to the extent such expense was deducted in
computing Consolidated Net Income (including amortization of original issue
discount, non-cash interest payments, the interest component of all payments
associated with Capital Lease Obligations and net payments (if any) pursuant to
Hedging Obligations), (b) commissions, discounts and other fees and charges
incurred with respect to letters of credit and bankers' acceptances financing,
(c) any interest expense on Indebtedness of another Person that is Guaranteed by
such Person or secured by a Lien on assets of such Person, and (d) the product
of (i) all cash dividend payments (and non-cash dividend payments in the case of
a Person that is a Subsidiary) on any series of preferred stock of such Person,
times (ii) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local statutory
tax rate of such Person, expressed as a decimal, determined, in each case, on a
consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect in the United States on the date of this
Indenture.
"General Partner" means Ferrellgas, Inc., a Delaware corporation and the
sole General Partner of the Partnership.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States of America is
pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means any Subsidiary of the Partnership that executes a Note
Guarantee in accordance with the provisions of Section 4.13 hereof, and their
respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
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"Holder" means a Person in whose name a Note is registered.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing Capital Lease
Obligations or the balance deferred and unpaid of the purchase price of any
property or representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any of the
foregoing indebtedness (other than letters of credit and Hedging Obligations)
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, as well as all indebtedness of others secured by a Lien on
any asset of such Person (whether or not such indebtedness is assumed by such
Person) and, to the extent not otherwise included, the Guarantee by such Person
of any Indebtedness of any other Person.
"Indenture" means this Indenture, as amended or supplemented from time to
time.
"Insurance Company Subsidiary" means Stratton Insurance Company, a Vermont
corporation, a wholly owned subsidiary of the Partnership.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans (including
Guarantees), advances or capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Issuers" means the parties named as such in this Indenture until a
successor replaces any such Issuer pursuant to this Indenture and thereafter
means the remaining Issuer and the successor.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Master Partnership" means Ferrellgas Partners, L.P., a Delaware limited
partnership and the sole limited partner of the Partnership.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (a) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (i) any asset sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), or (ii)
the disposition of any securities or the extinguishment
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of any Indebtedness of such Person or any of its Subsidiaries, and (b) any
extraordinary gain (but not loss), together with any related provision for taxes
on such extraordinary gain (but not loss), provided, however, that all costs and
expenses with respect to the retirement of the Existing Senior Notes and the
Existing Subordinated Debentures, including, without limitation, cash premiums,
tender offer premiums, consent payments and all fees and expenses in connection
therewith, shall be added back to the Net Income of the General Partner, the
Partnership or their Subsidiaries to the extent that the same were deducted from
such Net Income in accordance with GAAP.
"Net Proceeds" means the aggregate cash proceeds received by the
Partnership or any of its Subsidiaries in respect of any Asset Sale, net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets the
subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets.
"Non-Recourse Subsidiary" means (1) the Insurance Company Subsidiary and
(2) any other Person that would otherwise be a Subsidiary of the Partnership but
is designated as a Non-Recourse Subsidiary in a resolution of the Board of
Directors of the General Partner, so long as (a) no portion of the Indebtedness
or any other obligation (contingent or otherwise) of such Person (i) is
guaranteed by the Partnership or any of its Subsidiaries, (ii) is recourse or
obligates the Partnership or any of its Subsidiaries in any way or (iii)
subjects any property or asset of the Partnership or any of its Subsidiaries,
directly or indirectly, contingently or otherwise, to satisfaction thereof, (b)
neither the Partnership nor any of its Subsidiaries has any contract, agreement,
arrangement or understanding or is subject to an obligation of any kind, written
or oral, with such Person other than on terms no less favorable to the
Partnership and its Subsidiaries than those that might be obtained at the time
from persons who are not Affiliates of the Partnership, (c) neither the
Partnership nor any of its Subsidiaries has any obligation with respect to such
Person (i) to subscribe for additional shares of capital stock, Capital
Interests or other Equity Interests therein or (ii) maintain or preserve such
Person's financial condition or to cause such Person to achieve certain levels
of operating or other financial results, and (d) such Person has no more than
$1,000 of assets at the time of such designation.
"Notes" means the ___% Senior Notes due 2001, as amended or supplemented
from time to time pursuant to the terms hereof, that are issued under this
Indenture.
"Note Guarantee" means each guarantee of the Notes by a Guarantor pursuant
to Article 10 hereof.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person; provided, however, that any
reference to an Officer with respect to the Partnership shall mean the
respective Officer of the General Partner.
"Officers' Certificate" means a certificate signed on behalf of (i) the
General Partner (acting on behalf of the Partnership) by two Officers of the
General Partner, one of whom must be the principal
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executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the General Partner, or (ii) Finance Corp. by
two Officers of Finance Corp., one of whom must be the principal executive
officer, the principal financial officer, the treasurer or the principal
accounting officer of Finance Corp., in either case that meets the requirements
of Section 12.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee, that meets the requirements of Section 12.05 hereof.
The counsel may be an employee of or counsel to the Partnership, the General
Partner, Finance Corp., any of their respective Subsidiaries or the Trustee.
"Partnership Agreement" means __________________________________________.
"Partnership" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means the
successor.
"Permitted Investments" means (a) any Investments in Cash Equivalents; (b)
any Investments in the Partnership or in a Wholly Owned Subsidiary of the
Partnership that is a Guarantor; (c) Investments by the Partnership or any
Subsidiary of the Partnership in a Person, if as a result of such Investment (i)
such Person becomes a Wholly Owned Subsidiary of the Partnership and a Guarantor
or (ii) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Partnership or a Wholly Owned Subsidiary of the Partnership that is a
Guarantor; and (d) other Investments in Non-Recourse Subsidiaries of the
Partnership that do not exceed $30 million at any time outstanding.
"Permitted Liens" means (a) Liens existing on the date of the Indenture;
(b) Liens in favor of the Issuers or Liens to secure Indebtedness of a
Subsidiary of the Partnership to the Partnership or a Wholly Owned Subsidiary of
the Partnership; (c) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Partnership or any Subsidiary of
the Partnership, provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the Partnership;
(d) Liens on property existing at the time of acquisition thereof by the
Partnership or any Subsidiary of the Partnership, provided that such Liens were
in existence prior to the contemplation of such acquisition; (e) Liens on any
property or asset acquired by the Partnership or any of its Subsidiaries in
favor of the seller of such property or asset and construction mortgages on
property, in each case, created within six months after the date of acquisition,
construction or improvement of such property or asset by the Partnership or such
Subsidiary to secure the purchase price or other obligation of the Partnership
or such Subsidiary to the seller of such property or asset or the construction
or improvement cost of such property in an amount up to 80% of the total cost of
the acquisition, construction or improvement of such property or asset; provided
that in each case, such Lien does not extend to any other property or asset of
the Partnership and its Subsidiaries; (f) Liens incurred or pledges and deposits
made in connection with worker's compensation, unemployment insurance and other
social security benefits and Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of a
like nature, in each case, incurred in the ordinary course of business; (g)
Liens for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (h) Liens imposed by law, such as mechanics', carriers',
warehousemen's, materialmen's, and vendors' Liens, incurred in good faith in the
ordinary course of business with respect to amounts not yet delinquent or being
contested in good faith by appropriate proceedings if a reserve or other
appropriate provisions,
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if any, as shall be required by GAAP shall have been made therefor; (i) zoning
restrictions, easements, licenses, covenants, reservations, restrictions on the
use of real property or minor irregularities of title incident thereto that do
not, in the aggregate, materially detract from the value of the property or the
assets of the Partnership or impair the use of such property in the operation of
the business of the Partnership or any of its Subsidiaries; (j) Liens of
landlords or mortgages of landlords, arising solely by operation of law, on
fixtures and movable property located on premises leased by the Partnership or
any of its Subsidiaries in the ordinary course of business; (k) financing
statements granted with respect to personal property leased by the Partnership
and its Subsidiaries in the ordinary course of business to the owners of such
personal property, provided that such financing statements are granted solely in
connection with such leases and not the borrowing of money or the obtaining of
advances or credit; (l) judgment Liens to the extent that such judgments do not
cause or constitute a Default or an Event of Default; (m) Liens incurred in the
ordinary course of business of the Partnership or any Subsidiary of the
Partnership with respect to obligations that do not exceed $5 million in the
aggregate in any one time outstanding and that (i) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (ii) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Partnership or such
Subsidiary; (n) Liens securing Indebtedness incurred to refinance Indebtedness
that has been secured by a Lien permitted under the Indenture, provided that (i)
any such Lien shall not extend to or cover any assets or property not securing
the Indebtedness so refinanced and (ii) the refinancing Indebtedness secured by
such Lien shall have been permitted to be incurred under Section 4.09 hereof and
shall not have a principal amount in excess of the Indebtedness so refinanced;
and (o) any extension or renewal, or successive extensions or renewals, in whole
or in part, of Liens permitted pursuant to the foregoing clauses (a) through
(n); provided that no such extension or renewal Lien shall (i) secure more than
the amount of Indebtedness or other obligations secured by the Lien being so
extended or renewed or (ii) extend to any property or assets not subject to the
Lien being so extended or renewed.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Partnership or any Subsidiary of the Partnership issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Partnership or any of its Subsidiaries (other
than Indebtedness under the Credit Facility) or the Indebtedness represented by
the then outstanding Existing Subordinated Debentures of the General Partner;
provided that (a) the principal amount of such Indebtedness does not exceed the
principal amount of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith); (b) such Indebtedness has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (c) such Indebtedness is subordinated in right of payment to the Notes
on terms at least as favorable to the Holders of Notes as those, if any,
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (d) such Indebtedness
(other than indebtedness incurred to refinance, replace, defease or refund the
Existing Subordinated Debentures) is incurred by the Partnership or the
Subsidiary who is the obligor on the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded.
"Permitted Senior Debt" means, with respect to any Person, (i) any
Acquired Debt of such Person, (ii) any Indebtedness incurred by such Person, the
proceeds of which are applied solely to finance capital expenditures made to
improve or enhance the existing capital assets of such Person or to acquire or
construct new capital assets (but excluding capital expenditures necessary to
maintain the existing capital assets of such Person) and (iii) any Indebtedness
incurred by such Person, the proceeds of which are used solely for working
capital purposes.
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"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof.
"Related Party" means (i) the spouse or any lineal descendant of James E.
Ferrell, (ii) any trust for his benefit or for the benefit of his spouse or any
such lineal descendants or (iii) any corporation, partnership or other entity in
which James E. Ferrell and/or such other Persons referred to in the foregoing
clauses (i) and (ii) are the direct record and beneficial owners of all of the
voting and nonvoting Equity Interests.
"Responsible Officer" when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means, without duplication, (i) the Notes, (ii) all other
Indebtedness of the Partnership or Finance Corp., unless the instrument under
which such Indebtedness is incurred expressly provides that it is subordinated
in right of payment to the Notes and (iii) all Indebtedness of Subsidiaries of
the Partnership, other than Finance Corp.
"Significant Subsidiary" means any Subsidiary of the Partnership that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect
on the date hereof.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Interests entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or trustees
thereof or, in the case of a limited partnership, more than 50% of the partners'
Capital Interests, is at the time owned or controlled, directly or indirectly,
by such Person or one or more of the other Subsidiaries of that Person or a
combination thereof. Notwithstanding the foregoing, any Subsidiary of the
Partnership that is designated a Non-Recourse Subsidiary pursuant to the
definition thereof shall not thereafter be deemed a Subsidiary of the
Partnership.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb) as in effect on the date on which this Indenture is qualified under the
TIA.
"Trustee" means the party named as such above until a successor replaces
it in accordance with the applicable provisions of this Indenture and thereafter
means the successor serving hereunder.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the
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nearest one-twelfth) that will elapse between such date and the making of such
payment, by (b) the then outstanding principal amount of such Indebtedness;
provided, however, that with respect to any revolving Indebtedness, the
foregoing calculation of Weighted Average Life to Maturity shall be determined
based upon the total available commitments and the required reductions of
commitments in lieu of the outstanding principal amount and the required
payments of principal, respectively.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Interests or other ownership interests or, in the
case of a limited partnership, all of the partners' Capital Interests (other
than up to a 1% general partner interest), of which (other than directors'
qualifying shares) shall at the time be owned by such Person or by one or more
Wholly Owned Subsidiaries of such Person and one or more Wholly Owned
Subsidiaries of such Person.
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
<S> <C>
"Affiliate Transaction"..... 4.11
"Asset Sale"................ 4.10
"Benefitted Party".......... 10.01
"Covenant Defeasance"....... 8.03
"Commencement Date"......... 3.09
"Event of Default".......... 6.01
"Excess Proceeds"........... 4.10
"Guarantor"................. 10.01
"incur"..................... 4.09
"Incurrence Date"........... 4.09
"Legal Defeasance".......... 8.02
"Offer Amount".............. 3.09
"Offer Period".............. 3.09
"Paying Agent".............. 2.03
"Payment Default"........... 6.01
"Permitted Refinancing"..... 4.09
"Purchase Date"............. 3.09
"Purchase Offer"............ 3.09
"Refinancing Indebtedness".. 4.09
"Registrar"................. 2.03
"Restricted Payments"....... 4.07
"Senior Debt Ratio Test".... 4.09
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture, other than those
provisions of the TIA that may be excluded herein, which provision shall be
excluded to the extent specifically excluded in this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes and the Note Guarantees, if any;
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"indenture security holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Issuers, the Guarantors, if any, and any
successor obligor upon the Notes or any Note Guarantee, as the case may be.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by a rule or regulation
promulgated by the SEC under the TIA have the meanings so assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned to
it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural include
the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act or the
Exchange Act shall be deemed to include substitute, replacement or successor
sections or rules adopted by the SEC from time to time.
ARTICLE 2
THE NOTES
Section 2.01. Form and Dating.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A hereto, the terms of which are
incorporated in and made a part of this Indenture. The Notes may have
notations, legends or endorsements approved as to form by the Issuers and
required by law, stock exchange rule, agreements to which the Issuers or each
Guarantor, if any, is subject, or usage. Each Note shall be dated the date
of its authentication. The Notes shall be issuable only in denominations of
$1,000 and integral multiples thereof.
Section 2.02. Execution and Authentication.
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Two Officers of each of the General Partner (in the case of the
Partnership) and Finance Corp. shall sign the Notes for the Issuers by manual or
facsimile signature. The seal of each Issuer shall be reproduced on the Notes
and may be in facsimile form.
If an Officer of the General Partner or Finance Corp. whose signature is
on a Note no longer holds that office at the time the Note is authenticated, the
Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature of
the Trustee. The signature of the Trustee shall be conclusive evidence that the
Note has been authenticated under this Indenture. The form of Trustee's
certificate of authentication to be borne by the Notes shall be substantially as
set forth in Exhibit A hereto.
The Trustee shall, upon a written order of the Issuers signed by two
Officers of the General Partner and Finance Corp., authenticate Notes for
original issue up to an aggregate principal amount stated in paragraph 4 of the
Notes. The aggregate principal amount of Notes outstanding at any time shall
not exceed the amount set forth herein except as provided in Section 2.07
hereof.
The Trustee may appoint an authenticating agent acceptable to the Issuers
to authenticate Notes. Unless limited by the terms of such appointment, an
authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Partnership or Finance Corp. or an Affiliate of the
Partnership or Finance Corp.
Section 2.03. Registrar and Paying Agent.
The Issuers shall maintain (i) an office or agency where Notes may be
presented for registration of transfer or for exchange (including any co-
registrar, the "Registrar") and (ii) an office or agency where Notes may be
presented for payment ("Paying Agent"). The Registrar shall keep a register of
the Notes and of their transfer and exchange. The Issuers may appoint one or
more co-registrars and one or more additional paying agents. The term "Paying
Agent" includes any additional paying agent. The Issuers may change any Paying
Agent, Registrar or co-registrar without prior notice to any Holder of a Note.
The Issuers shall notify the Trustee and the Trustee shall notify the Holders of
the Notes of the name and address of any Agent not a party to this Indenture.
The Partnership, Finance Corp. or any Guarantor may act as Paying Agent,
Registrar or co-registrar. The Issuers shall enter into an appropriate agency
agreement with any Agent not a party to this Indenture, which shall be subject
to any obligations imposed by the provisions of the TIA. The agreement shall
implement the provisions of this Indenture that relate to such Agent. The
Issuers shall notify the Trustee of the name and address of any such Agent. If
the Issuers fail to maintain a Registrar or Paying Agent, or fails to give the
foregoing notice, the Trustee shall act as such, and shall be entitled to
appropriate compensation in accordance with Section 7.07 hereof.
The Issuers initially appoints the Trustee as Registrar, Paying Agent and
agent for service of notices and demands in connection with the Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
The Issuers shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for the benefit of
the Holders of the Notes or the Trustee all money held by the Paying Agent for
the payment of principal of, premium, if any, and interest on the Notes, and
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shall notify the Trustee of any Default by the Issuers or any Guarantors in
making any such payment. While any such Default continues, the Trustee may
require a Paying Agent to pay all money held by it to the Trustee. The Issuers
at any time may require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the
Partnership, Finance Corp. or a Guarantor) shall have no further liability for
the money delivered to the Trustee. If the Partnership, Finance Corp. or any
Guarantor acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders of the Notes all money held by it as Paying
Agent. Upon any bankruptcy or reorganization proceeding relating to the
Partnership, Finance Corp. or any Guarantor, the Trustee shall serve as Paying
Agent for the Notes.
Section 2.05. Lists of Holders of the Notes.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders of the Notes and shall otherwise comply with TIA (S) 312(a). If the
Trustee is not the Registrar, the Issuers and/or any Guarantors shall furnish to
the Trustee at least seven Business Days before each interest payment date and
at such other times as the Trustee may request in writing a list in such form
and as of such date as the Trustee may reasonably require of the names and
addresses of Holders of the Notes, including the aggregate principal amount of
the Notes held by each thereof, and the Issuers and each Guarantor, if any,
shall otherwise comply with TIA (S) 312(a).
Section 2.06. Transfer and Exchange.
When Notes are presented to the Registrar with a request to register the
transfer or to exchange them for an equal principal amount of Notes of other
denominations, the Registrar shall register the transfer or make the exchange if
its requirements for such transactions are met; provided, however, that any Note
presented or surrendered for registration of transfer or exchange shall be duly
endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Registrar and the Trustee duly executed by the Holder
thereof or by his attorney duly authorized in writing. To permit registrations
of transfer and exchanges, the Issuers shall issue and the Trustee shall
authenticate Notes at the Registrar's request, subject to such rules as the
Trustee may reasonably require.
Neither the Issuers nor the Registrar shall be required to (i) issue,
register the transfer of or exchange Notes during a period beginning at the
opening of business on a Business Day 15 days before the day of any selection of
Notes for redemption under Section 3.02 hereof or (ii) register the transfer of
or exchange any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
No service charge shall be made to any Holder of a Note for any
registration of transfer or exchange (except as otherwise expressly permitted
herein), but the Issuers may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith
(other than such transfer tax or similar governmental charge payable upon
exchanges pursuant to Sections 2.10, 3.06 or 9.05 hereof, which shall be paid by
the Issuers).
Prior to due presentment to the Trustee for registration of the transfer
of any Note, the Trustee, any Agent, the Issuers and each Guarantor, if any, may
deem and treat the Person in whose name any Note is registered as the absolute
owner of such Note for the purpose of receiving payment of principal of,
premium, if any, and interest on such Note and for all other purposes
whatsoever, whether or not
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such Note is overdue, and none of the Trustee, any Agent, the Issuers or any
Guarantor shall be affected by notice to the contrary.
Section 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee, or the Issuers and
the Trustee receive evidence to their satisfaction of the destruction, loss or
theft of any Note, the Issuers shall issue and the Trustee, upon the written
order of the Issuers signed by (i) two Officers of the General Partner and (ii)
two Officers of Finance Corp., shall authenticate a replacement Note if the
Trustee's requirements for replacements of Notes are met. If required by the
Trustee, the Issuers or the Guarantors, if any, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the Trustee, the
Issuers and the Guarantors to protect the Issuers, the Guarantors, the Trustee,
any Agent or any authenticating agent from any loss which any of them may suffer
if a Note is replaced. Each of the Partnership, Finance Corp, each Guarantor
and the Trustee may charge for its expenses in replacing a Note.
Every replacement Note is an additional obligation of the Issuers and the
Guarantors, if any, and shall be entitled to all of the benefits of this
Indenture equally and ratably with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those cancelled by it, those delivered to it for cancellation
and those described in this Section 2.08 as not outstanding. If a Note is
replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the
Trustee receives proof satisfactory to it that the replaced Note is held by a
bona fide purchaser. If the principal amount of any Note is considered paid
under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases
to accrue. Subject to Section 2.09 hereof, a Note does not cease to be
outstanding because the Partnership, Finance Corp., any Guarantor, a Subsidiary
of the Partnership, Finance Corp. or any Guarantor or an Affiliate of the
Partnership, Finance Corp. or any Guarantor holds the Note.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Partnership, Finance Corp., any Guarantor, any of their respective Subsidiaries
or any Affiliate of the Partnership, Finance Corp. or any Guarantor shall be
considered as though not outstanding, except that for purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Notes which a Responsible Officer knows to be so owned shall be
so considered. Notwithstanding the foregoing, Notes that are to be acquired by
the Partnership, Finance Corp., any Guarantor, any Subsidiary of the
Partnership, Finance Corp. or any Guarantor or an Affiliate of the Partnership,
Finance Corp. or any Guarantor pursuant to an exchange offer, tender offer or
other agreement shall not be deemed to be owned by the Partnership, Finance
Corp., such Guarantor, a Subsidiary of the Partnership, Finance Corp. or such
Guarantor or an Affiliate of the Partnership, Finance Corp. or such Guarantor
until legal title to such Notes passes to the Partnership, Finance Corp., such
Guarantor, Subsidiary of the Partnership, Finance Corp. or such Guarantor or
Affiliate of the Partnership, Finance Corp. or such Guarantor, as the case may
be.
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Section 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Issuers may prepare and
the Trustee shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Issuers and the Trustee consider appropriate for temporary Notes. Without
unreasonable delay, the Issuers shall prepare and the Trustee, upon receipt of
the written order of the Issuers signed by (i) two Officers of the General
Partner and (ii) two Officers of Finance Corp., shall authenticate definitive
Notes in exchange for temporary Notes. Until such exchange, temporary Notes
shall be entitled to the same rights, benefits and privileges as definitive
Notes.
Section 2.11. Cancellation.
The Issuers at any time may deliver Notes to the Trustee for cancellation.
The Registrar and Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment. The
Trustee shall cancel all Notes surrendered for registration of transfer,
exchange, payment, replacement or cancellation and shall destroy cancelled Notes
(subject to the record retention requirement of the Exchange Act), unless the
Issuers direct cancelled Notes to be returned to them. The Issuers may not
issue new Notes to replace Notes that they have redeemed or paid or that have
been delivered to the Trustee for cancellation. All cancelled Notes held by the
Trustee shall be destroyed and certification of their destruction delivered to
the Issuers, unless by a written order, signed by (i) two Officers of the
General Partner and (ii) two Officers of Finance Corp., the Issuers shall direct
that cancelled Notes be returned to them.
Section 2.12. Defaulted Interest.
If the Issuers or any Guarantor defaults in a payment of interest on the
Notes, the Issuers or such Guarantor (to the extent of its obligations under its
Note Guarantees) shall pay the defaulted interest in any lawful manner plus, to
the extent lawful, interest payable on the defaulted interest, to the Persons
who are Holders of the Notes on a subsequent special record date, which date
shall be at the earliest practicable date but in all events at least five
Business Days prior to the payment date, in each case at the rate provided in
the Notes and in Section 4.01 hereof. The Issuers shall fix or cause to be
fixed each such special record date and payment date, and shall, promptly
thereafter, notify the Trustee of any such date. At least 15 days before the
special record date, the Issuers (or the Trustee, in the name of and at the
expense of the Issuers) shall mail to Holders of the Notes a notice that states
the special record date, the related payment date and the amount of such
interest to be paid.
Section 2.13. Record Date.
The record date for purposes of determining the identity of Holders of the
Notes entitled to vote or consent to any action by vote or consent authorized or
permitted under this Indenture shall be determined as provided for in TIA (S)
316(c).
Section 2.14. CUSIP Number.
The Issuers in issuing the Notes may use a "CUSIP" number and, if they do
so, the Trustee shall use the CUSIP number in notices of redemption or exchange
as a convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Notes and that reliance may be placed only on
the other
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identification numbers printed on the Notes. The Issuers will promptly notify
the Trustee of any change in the CUSIP number.
ARTICLE 3
REDEMPTION AND OFFERS TO PURCHASE
Section 3.01. Notices to Trustee.
If the Issuers elect to redeem Notes pursuant to the optional redemption
provisions of Section 3.07 hereof, they shall furnish to the Trustee, at least
30 days but not more than 75 days before a redemption date, an Officers'
Certificate setting forth (i) the clause of this Indenture pursuant to which the
redemption shall occur, (ii) the redemption date, (iii) the principal amount of
Notes to be redeemed and (iv) the redemption price.
If the Issuers are required to make an offer to purchase Notes pursuant to
the provisions of Sections 4.10 or 4.15 hereof, they shall furnish to the
Trustee, at least 30 days before the scheduled Purchase Date, an Officers'
Certificate setting forth (i) the Section of this Indenture pursuant to which
the offer to purchase shall occur, (ii) the terms of the offer, (iii) the
purchase price, (iv) the principal amount of the Notes to be purchased, and (v)
further setting forth a statement to the effect that (a) the Partnership or one
of its Subsidiaries has made an Asset Sale and there are Excess Proceeds
aggregating more than $15 million and the amount of such Excess Proceeds, or (b)
a Change of Control has occurred, as applicable.
Section 3.02. Selection of Notes to Be Purchased or Redeemed.
If less than all of the Notes are to be redeemed at any time, the Trustee
shall select the Notes to be redeemed among the applicable Holders of the Notes
in compliance with the requirements of the principal national securities
exchange, if any, or the Nasdaq National Market on which the Notes are listed or
quoted, as applicable or, if the Notes are not so listed or quoted, on a pro
rata basis, by lot or in accordance with any other method the Trustee considers
fair and appropriate, provided that no Notes of $1,000 or less shall be redeemed
in part. In the event of partial redemption by lot, the particular Notes to be
redeemed shall be selected, unless otherwise provided herein, not less than 30
nor more than 60 days prior to the redemption date by the Trustee from the
outstanding Notes not previously called for redemption. In the event that less
than all of the Notes properly tendered in a Purchase Offer pursuant to Section
4.10 hereof are to be purchased, the Trustee shall select the particular Notes
to be purchased on a pro rata basis among the applicable Holders of Notes
promptly upon the expiration of such Purchase Offer.
The Trustee shall promptly notify the Issuers in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
purchase or redemption, the principal amount thereof to be purchased or
redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or
whole multiples of $1,000; except that if all of the Notes of a Holder are to be
purchased or redeemed, the entire outstanding amount of Notes held by such
Holder, even if not a multiple of $1,000, shall be purchased or redeemed.
Except as provided in the preceding sentence, provisions of this Indenture that
apply to Notes called for redemption also apply to portions of Notes called for
redemption.
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In the event the Issuers are required to make a Purchase Offer pursuant to
Section 4.10 hereof and the amount of Excess Proceeds to be applied to such
purchase would result in the purchase of a principal amount of Notes which is
not evenly divisible by $1,000, the Trustee shall promptly refund to the Issuers
the portion of such Excess Proceeds that is not necessary to purchase the
immediately lesser principal amount of Notes that is so divisible.
Section 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a purchase or redemption
date, the Issuers shall mail or cause to be mailed, by first class mail, a
notice of redemption to each Holder whose Notes are to be redeemed at its
registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption
date upon surrender of such Note, a new Note or Notes in principal amount
equal to the unredeemed portion shall be issued upon cancellation of the
original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the Paying
Agent to collect the redemption price;
(f) that, unless the Issuers default in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Issuers' request, the Trustee shall give the notice of redemption
in the Issuers' name and at their expense; provided, however, that the Issuers
shall have delivered to the Trustee, at least 45 days prior to the redemption
date, an Officers' Certificate requesting that the Trustee give such notice and
setting forth the information to be stated in such notice as provided in the
preceding paragraph (which request may be revoked by so notifying the Trustee in
writing on or before the Business Day immediately preceding the date requested
for the mailing of such notice).
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
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Section 3.05. Deposit of Redemption Price.
One Business Day prior to the redemption date, the Issuers shall deposit
with the Trustee or with the Paying Agent money sufficient to pay the redemption
price of and accrued interest on all Notes to be redeemed on that date. The
Trustee or the Paying Agent shall promptly return to the Issuers any money
deposited with the Trustee or the Paying Agent by the Issuers in excess of the
amounts necessary to pay the redemption price of, and accrued interest on, all
Notes to be redeemed.
If the Issuers comply with the provisions of the preceding paragraph, on
and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Issuers to comply with the preceding paragraph,
interest shall be paid on the unpaid principal, from the redemption date until
such principal is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case at the rate provided in the Notes and in
Section 4.01 hereof.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Issuers shall issue
and, upon the Issuers' written request, the Trustee shall authenticate for the
Holder at the expense of the Issuers a new Note equal in principal amount to the
unredeemed portion of the Note surrendered.
Section 3.07. Optional Redemption.
The Notes shall not be redeemable at the Issuers' option prior to
__________, 1998. Thereafter, the Notes shall be subject to redemption at the
option of the Issuers, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on __________ of the years indicated below:
YEAR PERCENTAGE
1998 ___.__%
1999 ___.__%
2000 100.00%
Section 3.08. Mandatory Redemption.
Except as set forth below under Section 4.10 and Section 4.14 hereof, the
Issuers shall not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
Section 3.09. Offers to Purchase.
(a) In the event that, pursuant to Section 4.10 or Section 4.14 hereof,
the Issuers shall be required to commence an offer to all Holders to purchase
Notes (each, a "Purchase Offer"), it shall follow the procedures specified in
this Section 3.09.
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(b) The Purchase Offer shall commence on the date (the "Commencement
Date") specified in Section 4.10 or Section 4.14 hereof, as the case may be,
remain open for a period specified by the Issuers, which shall be in accordance
with Section 4.10 or Section 4.14 hereof, as the case may be, except to the
extent that a longer period is required by applicable law (the "Offer Period").
No later than five Business Days after the termination of the Offer Period (the
"Purchase Date"), the Issuers shall purchase the principal amount of Notes
required to be purchased pursuant to Section 4.10 or 4.14 hereof (the "Offer
Amount") or, if less than the Offer Amount has been tendered, all Notes tendered
in response to such Purchase Offer. Payment for any Notes so purchased shall be
made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest, if
any, shall be paid to the Person in whose name a Note is registered at the close
of business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to such Purchase Offer.
Upon the commencement of a Purchase Offer, the Issuers shall send, by
first class mail, a notice to the Trustee and each of the Holders. The notice
shall contain all instructions and materials necessary to enable such Holders to
tender Notes pursuant to such Purchase Offer. The Purchase Offer shall be made
to all Holders. The notice, which shall govern the terms of the Purchase Offer,
shall state:
(a) that the Purchase Offer is being made pursuant to Section 4.10 or
Section 4.14 hereof, as the case may be, the Offer Period, and the expiration
date of the Offer Period;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered and accepted for payment shall continue
to accrue interest;
(d) that, unless the Issuers default in making such payment, any Note
accepted for payment pursuant to the Purchase Offer shall cease to accrue
interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to any
Purchase Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Issuers, a depositary, if appointed by the Issuers, or a
Paying Agent at the address specified in the notice prior to the close of the
Offer Period;
(g) that Holders shall be entitled to withdraw their election if the
Issuers, the depositary or the Paying Agent, as the case may be, receives,
not later than the close of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that
such Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Issuers shall select the Notes to be
purchased pursuant to the terms of Section 3.02 hereof, and that Holders
whose Notes were purchased only in part shall be issued new Notes
(accompanied by a notation of the Note Guarantees duly endorsed by each
Guarantor) equal in principal amount to the unpurchased portion of the Notes
surrendered; and
(i) (x) if such Purchase Offer was pursuant to Section 4.14 hereof,
the circumstances and material facts regarding such Change of Control,
including but not limited to, information with
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respect to pro forma and historical financial information after giving effect
to such Change of Control, and information regarding the Person or Persons
acquiring control and (y) if such Purchase Offer was pursuant to Section 4.10
hereof, the circumstances and material facts regarding the Asset Sale or
Asset Sales giving rise to such Purchase Offer, including but not limited to,
information with respect to pro forma and historical financial information if
material operations of the Partnership or any Subsidiary were divested in
such Asset Sale or Asset Sales.
On or before the Purchase Date, the Issuers shall, to the extent lawful,
accept for payment, pursuant to the terms of Section 3.02 hereof, the Offer
Amount of Notes or portions thereof tendered pursuant to the Purchase Offer, or
if less than the Offer Amount has been tendered, all Notes tendered, and shall
deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Issuers in accordance with the
terms of this Section 3.09. The Issuers, the depositary or the Paying Agent, as
the case may be, shall promptly (but in any case not later than five days after
the Purchase Date) mail or deliver to each tendering Holder an amount equal to
the purchase price of the Notes tendered by such Holder and accepted by the
Issuers for purchase, and the Issuers shall promptly issue a new Note, and the
Trustee, upon written request from the Issuers shall authenticate and mail or
deliver such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Issuers to the Holder thereof. The Issuers
shall publicly announce the results of such Purchase Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof to the extent applicable.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Notes.
The Issuers shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Issuers or any Guarantor, holds
as of 10:00 a.m. Eastern Time on the due date money deposited by the Issuers in
immediately available funds and designated for and sufficient to pay all
principal, premium, if any, and interest then due.
The Issuers shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace period) at the same rate to the extent
lawful.
Section 4.02. Maintenance of Office or Agency.
The Issuers shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and
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demands to or upon the Issuers or any Guarantor in respect of the Notes and this
Indenture may be served. The Issuers shall give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Issuers shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Issuers may also from time to time designate one or more other offices
or agencies where the Notes may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
that no such designation or rescission shall in any manner relieve the Issuers
of their obligation to maintain an office or agency in the Borough of Manhattan,
the City of New York for such purposes. The Issuers shall give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Issuers hereby designate the Corporate Trust Office of the Trustee as
one such office or agency of the Issuers in accordance with Section 2.03 hereof.
Section 4.03. Reports.
Whether or not required by the rules and regulations of the SEC, so long
as any Notes are outstanding, the Issuers will furnish to the Holders of Notes
(i) all quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if the Issuers were
required to file such Forms, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and, with respect to the
annual information only, a report thereon by the Issuers' certified independent
accountants and (ii) all reports that would be required to be filed with the SEC
on Form 8-K if the Issuers were required to file such reports. In addition,
whether or not required by the rules and regulations of the SEC, the Issuers
will file a copy of all such information with the SEC for public availability
(unless the SEC will not accept such a filing) and make such information
available to investors who request it in writing.
Section 4.04. Compliance Certificate.
(a) Each Issuer shall deliver to the Trustee, within 90 days after the
end of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Partnership and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether each Issuer, each Guarantor, if any, and each obligor on the
Notes and this Indenture has kept, observed, performed and fulfilled its
obligations under this Indenture (including with respect to any Restricted
Payments made during such year, the basis upon which the calculations required
by Section 4.07 hereof were computed, which calculations may be based on the
Partnership's latest available financial statements), and further stating, as to
each such Officer signing such certificate, that to the best of his or her
knowledge, each Issuer, each Guarantor, if any, and each such obligor has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions of this Indenture (or, if a Default or Event of
Default shall have occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action each Issuer, each
Guarantor, if any, or each such obligor, as the case may be, is taking or
proposes to take with respect thereto) and that to the best of his or her
knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, if any, on the Notes is
prohibited or if such event has occurred, a description of the event and what
action each Issuer, each Guarantor, if any, or each such obligor, as the case
may be, is taking or proposes to take with respect thereto.
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(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03 hereof shall be accompanied by a
written statement of the Partnership's independent public accountants (who shall
be a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Issuers have violated
any provisions of Article Four or Article Five hereof or, if any such violation
has occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) Each Issuer shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer of such Issuer (or of the
General Partner, in the case of the Partnership) becoming aware of any Default
or Event of Default, an Officers' Certificate specifying such Default or Event
of Default and what action such Issuer is taking or proposes to take with
respect thereto.
Section 4.05. Taxes.
The Issuers shall pay, and shall cause each of their Subsidiaries to pay,
prior to delinquency, all material taxes, assessments, and governmental levies
except such as are contested in good faith and by appropriate proceedings or
where the failure to effect such payment is not adverse in any material respect
to the Holders of the Notes.
Section 4.06. Stay, Extension and Usury Laws.
Each of the Issuers and each of the Guarantors, if any, covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law wherever enacted, now or at any time hereafter
in force, that may affect the covenants or the performance of this Indenture;
and each of the Issuers and each of the Guarantors, if any (to the extent that
it may lawfully do so), hereby expressly waives all benefit or advantage of any
such law, and covenants that it shall not, by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the Trustee, but
shall suffer and permit the execution of every such power as though no such law
had been enacted.
Section 4.07. Restricted Payments.
The Partnership shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly: (i) declare or pay any dividend or make any
distribution on account of the Partnership's or any Subsidiary's Equity
Interests (other than (x) dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Partnership, (y) dividends or
distributions payable to the Partnership or a Wholly Owned Subsidiary of the
Partnership that is a Guarantor or (z) distributions or dividends payable pro
rata to all holders of Capital Interests of any such Subsidiary); (ii) purchase,
redeem or otherwise acquire or retire for value any Equity Interests of the
Partnership or any Subsidiary or other Affiliate of the Partnership (other than
any such Equity Interests owned by the Partnership or a Wholly Owned Subsidiary
of the Partnership that is a Guarantor); (iii) purchase, redeem or otherwise
acquire or retire for value any Indebtedness that is subordinated to the Notes;
or (iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
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(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Fixed Charge Coverage Ratio of the Partnership for the
Partnership's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such Restricted Payment is made, calculated on a pro forma basis as if
such Restricted Payment had been made at the beginning of such four-quarter
period, would have been more than 2.25 to 1; and
(c) such Restricted Payment (the amount of any such payment, if other
than cash, to be determined by the Board of Directors, whose determination
shall be conclusive and evidenced by a resolution in an Officers' Certificate
delivered to the Trustee), together with the aggregate of all other
Restricted Payments (including any Restricted Payments permitted by the
provisions, other than clause (iv), of the immediately succeeding paragraph)
made by the Partnership and its Subsidiaries in the fiscal quarter during
which such Restricted Payment is made (including Restricted Payments
permitted by the next succeeding paragraph), shall not exceed the amount of
Available Cash of the Partnership for the immediately preceding fiscal
quarter (or, with respect to the first fiscal quarter during which Restricted
Payments are made, the amount of Available Cash of the Partnership for the
period commencing on the date of this Indenture and ending on the last day of
the immediately preceding fiscal quarter); provided that for purposes of this
clause (c), the amount of any Available Cash of the Partnership during the
first 45 days of any fiscal quarter may be included in the amount of
Available Cash for the immediately preceding fiscal quarter so long as (1)
the amount of such Available Cash so included does not exceed the amount of
unused available working capital Indebtedness that the Partnership would have
been permitted to incur on the last day of such immediately preceding fiscal
quarter under the terms of the agreements and instruments governing its
outstanding Indebtedness on such date and (2) the amount of such Available
Cash so included shall be excluded from the amount of Available Cash for
purposes of determining the amount of Restricted Payments permitted in any
subsequent fiscal quarter.
The foregoing provisions will not prohibit (i) the payment of any
distribution within 60 days after the date on which the Partnership becomes
committed to make such distribution, if at said date of commitment such payment
would have complied with the provisions of this Indenture; (ii) the redemption,
repurchase, retirement or other acquisition of any Equity Interests of the
Partnership in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Partnership) of other Equity
Interests of the Partnership (other than any Disqualified Interests); (iii) the
defeasance, redemption or repurchase of subordinated Indebtedness with the
proceeds of Permitted Refinancing Indebtedness; and (iv) the defeasance,
redemption or repurchase of any Existing Subordinated Debentures of the General
Partner and the payment of all costs and expenses in connection therewith.
Not later than the date of making any Restricted Payment, the General
Partner shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.07 were computed, which calculations may
be based upon the Partnership's latest available financial statements.
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Partnership shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Subsidiary
to (a) pay dividends or make any other distributions to the Partnership or any
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of its Subsidiaries (1) on its Capital Interests or (2) with respect to any
other interest or participation in, or measured by, its profits, (b) pay any
indebtedness owed to the Partnership or any of its Subsidiaries, (c) make loans
or advances to the Partnership or any of its Subsidiaries or (d) transfer any of
its properties or assets to the Partnership or any of its Subsidiaries, except
for such encumbrances or restrictions existing under or by reason of (i)
Existing Indebtedness as in effect on the date of this Indenture, (ii) this
Indenture and the Notes, (iii) applicable law, (iv) any instrument governing
Indebtedness or Capital Interests of a Person acquired by the Partnership or any
of its Subsidiaries as in effect at the time of such acquisition (except to the
extent such Indebtedness was incurred in connection with or in contemplation of
such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that the Consolidated
Cash Flow of such Person to the extent that dividends, distributions, loans,
advances or transfers thereof is limited by such encumbrance or restriction on
the date of acquisition is not taken into account in determining whether such
acquisition was permitted by the terms of the Indenture, (v) customary non-
assignment provisions in leases entered into in the ordinary course of business
and consistent with past practices, (vi) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (d) above on the property so acquired, or (vii)
Permitted Refinancing Indebtedness of any Existing Indebtedness, provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced.
Section 4.09. Incurrence of Indebtedness and Issuance of Disqualified Interests.
The Partnership shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and the Partnership shall not issue any
Disqualified Interests and shall not permit any of its Subsidiaries to issue any
shares of preferred stock; provided, however, that the Partnership may incur
Indebtedness and any Subsidiary of the Partnership may incur Acquired Debt if:
(a) the Fixed Charge Coverage Ratio for the Partnership's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred would have been at least 2.75 to 1 if such date is
on or prior to , 1996 and 3.00 to 1 if such date is after ,
1996, in each case, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred at the beginning of such four-quarter period; and
(b) either (x) such Indebtedness shall be subordinated in right of
payment to the Notes and shall have a Weighted Average Life to Maturity
greater than the remaining Weighted Average Life to Maturity of the Notes or
(y) such Indebtedness shall be Permitted Senior Debt and the Senior Debt
Ratio Test shall have been met at the time of incurrence thereof.
The foregoing limitations of this Section 4.09 will not apply to: (i) the
Indebtedness represented by the Notes and any Note Guarantees; (ii) the
incurrence by the Partnership of Indebtedness pursuant to the Credit Facility in
an aggregate principal amount at any time outstanding not to exceed $185
million; (iii) revolving Indebtedness incurred solely for working capital
purposes in an aggregate outstanding principal amount not to exceed $20 million
at any time on or prior to __________, 1996 and $40 million thereafter,
provided, in each case, that the outstanding principal balance of such revolving
Indebtedness (or, if such revolving Indebtedness is incurred as an addition or
extension to the Credit
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Facility, the outstanding principal balance under the Credit Facility in excess
of the limits set forth in clause (ii) above) shall be reduced to zero for a
period of 30 consecutive days during each fiscal year; (iv) the incurrence by
the Partnership of Indebtedness in respect of Capitalized Lease Obligations in
an aggregate principal amount not to exceed $15 million; (v) the Existing
Indebtedness; (vi) the incurrence by the Partnership or any of its Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the proceeds of which
are used to extend, refinance, renew, replace, defease or refund any then
outstanding Indebtedness of the Partnership or such Subsidiary not incurred in
violation of the Indenture; (vii) Hedging Obligations that are incurred for the
purpose of fixing or hedging interest rate risk with respect to any floating
rate Indebtedness that is permitted by the terms of the Indenture to be
outstanding; (viii) Indebtedness of any Subsidiary of the Partnership to the
Partnership or any of its Wholly Owned Subsidiaries; (ix) the incurrence by the
Partnership or the Insurance Company Subsidiary of Indebtedness owing directly
to its insurance carriers (without duplication) in connection with the
Partnership's, its Subsidiaries' or its Affiliates' self-insurance programs or
other similar forms of retained insurable rights for their respective retail
propane businesses, consisting of reinsurance agreements and indemnification
agreements (and guarantees of the foregoing) secured by letters of credit,
provided that the Indebtedness evidenced by such reinsurance agreements,
indemnification agreements, guarantees and letters of credit shall be counted
(without duplication) for purposes of all calculations pursuant to the Fixed
Charge Coverage Ratio test above; (x) surety bonds and appeal bonds required in
the ordinary course of business or in connection with the enforcement of rights
or claims of the Partnership or any of its Subsidiaries or in connection with
judgments that do not result in a Default or Event of Default; (xi) the
incurrence by the Partnership (or any Subsidiary of the Partnership that is a
Guarantor) of Indebtedness in connection with acquisitions of retail propane
businesses in favor of the sellers of such businesses in a principal amount not
to exceed $15 million in any fiscal year or $45 million in the aggregate
outstanding at any one time, provided that the principal amount of such
Indebtedness incurred in connection with any such acquisition shall not exceed
the fair market value of the assets so acquired; and (xii) in addition to the
Indebtedness permitted under the foregoing clauses (i) through (xi), the
incurrence by the Partnership of Indebtedness in an aggregate principal amount
outstanding not to exceed $15 million at any time, provided that any
Indebtedness incurred pursuant to this clause (xii) shall be subordinated in
right of payment to the Notes and shall have a Weighted Average Life to Maturity
greater than the remaining Weighted Average Life to Maturity of the Notes.
The "Senior Debt Ratio Test" will be met with respect to the incurrence of
any Indebtedness by the Partnership or any Subsidiary of the Partnership if the
ratio of (1) the aggregate outstanding principal amount of Senior Debt on the
date of and after giving effect to the incurrence of such Indebtedness (the
"Incurrence Date") to (2) the Consolidated Cash Flow for the Partnership's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the Incurrence Date would have been 2.50 to
1 or less. For purposes of the computation in clause (1) of the foregoing
sentence, the outstanding principal amount of Indebtedness under the Credit
Facility shall be deemed to equal the principal amount of such Indebtedness
actually outstanding plus the maximum additional principal amount of such
Indebtedness available thereunder, and letters of credit shall be deemed to have
a principal amount equal to the maximum potential liability of the Partnership
or any of its Subsidiaries thereunder. The foregoing calculation of
Consolidated Cash Flow shall give pro forma effect to acquisitions (including
all mergers and consolidations), dispositions and discontinuance of operations
that have been made by the Partnership or any of its Subsidiaries during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Incurrence Date assuming that all such acquisitions, dispositions
and discontinuance of operations had occurred on the first day of the four-
quarter reference period in the same manner as described in the definition of
"Fixed Charge Coverage Ratio".
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For purposes of this Section 4.09, any revolving Indebtedness (under the
Credit Agreement or otherwise) shall be deemed to have been incurred only at
such time at which the agreements and instruments (or any amendments thereto
that increase the amount, reduce the Weighted Average Life to Maturity, change
any subordination provisions or create any additional obligor of such revolving
Indebtedness) are executed, in an amount equal to the maximum amount of such
revolving Indebtedness permitted to be borrowed thereunder, and the
Partnership's ability to borrow or reborrow such revolving Indebtedness up to
such maximum permitted amount shall not thereafter be limited by the provisions
of this Section 4.09 (other than the proviso set forth in clause (iii) of the
second paragraph of this Section 4.09).
Section 4.10. Asset Sales.
The Partnership shall not, and shall not permit any of its Subsidiaries
to, (i) sell, lease, convey or otherwise dispose of any assets (including by way
of a sale-and-leaseback) other than sales of inventory in the ordinary course of
business consistent with past practice (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of the
Partnership shall be governed by the provisions of Sections 4.14 and/or 5.01
hereof and not by the provisions of this Section 4.10), or (ii) issue or sell
Equity Interests of any of its Subsidiaries, in the case of either clause (i) or
(ii) above, whether in a single transaction or a series of related transactions,
(a) that have a fair market value in excess of $5 million, or (b) for net
proceeds in excess of $5 million (each of the foregoing, an "Asset Sale"),
unless (x) the Partnership (or the Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets sold or otherwise
disposed of and (y) at least 80% of the consideration therefor received by the
Partnership or such Subsidiary is in the form of cash; provided, however, that
the amount of (A) any liabilities (as shown on the Partnership's or such
Subsidiary's most recent balance sheet or in the notes thereto), of the
Partnership or any Subsidiary (other than liabilities that are by their terms
subordinated in right of payment to the Notes) that are assumed by the
transferee of any such assets and (B) any notes or other obligations received by
the Partnership or any such Subsidiary from such transferee that are immediately
converted by the Partnership or such Subsidiary into cash (to the extent of the
cash received), shall be deemed to be cash for purposes of this provision; and
provided, further, that the 80% limitation referred to in this clause (y) shall
not apply to any Asset Sale in which the cash portion of the consideration
received therefrom, determined in accordance with the foregoing proviso, is
equal to or greater than what the after-tax proceeds would have been had such
Asset Sale complied with the aforementioned 80% limitation. Notwithstanding the
foregoing, Asset Sales shall not be deemed to include (1) any transfer of assets
by the Partnership or any of its Subsidiaries to a Subsidiary of the Partnership
that is a Guarantor, (2) any transfer of assets by the Partnership or any of its
Subsidiaries to any Person in exchange for other assets used in a line of
business permitted under Section 4.17 hereof and having a fair market value not
less than that of the assets so transferred and (3) any transfer of assets
pursuant to a Permitted Investment.
Within 270 days after any Asset Sale, the Partnership may apply the Net
Proceeds from such Asset Sale to (a) permanently reduce Indebtedness outstanding
under the Credit Facility (with a permanent reduction of availability in the
case of revolving Indebtedness) or (b) an investment in capital expenditures or
other long-term tangible assets, in each case, in the same line of business as
the Partnership was engaged in on the date of this Indenture. Pending the final
application of any such Net Proceeds, the Partnership may temporarily reduce
borrowings under the Credit Facility or otherwise invest such Net Proceeds in
any manner that is not prohibited by this Indenture. Any Net Proceeds from the
Asset Sale that are not applied or invested as provided in the first sentence of
this paragraph will be deemed to
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constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $15 million, the Issuers shall make a Purchase Offer to all Holders of
Notes to purchase the maximum principal amount of Notes that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to 100%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase, in accordance with the procedures set forth in Article 3
hereof. The Issuers shall commence a Purchase Offer with respect to Excess
Proceeds within 10 Business Days after the date that Excess Proceeds exceeds $15
million by mailing the notice required in Section 3.09 hereof to the Holders.
The Offer Period shall be not less than 30 days and not more than 40 days,
unless a longer period is required by law. The Issuers shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with such Purchase Offer. To the extent that the
aggregate amount of Notes tendered pursuant to such Purchase Offer is less than
the Excess Proceeds, the Partnership may use such deficiency for general
business purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Upon completion of such Purchase
Offer, the amount of Excess Proceeds shall be reset at zero.
Section 4.11. Transactions with Affiliates.
The Partnership shall not, and shall not permit any of its Subsidiaries
to, sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter into any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate, including any Non-Recourse Subsidiary (each of the foregoing,
an "Affiliate Transaction"), unless (a) such Affiliate Transaction is on terms
that are no less favorable to the Partnership or the relevant Subsidiary than
those that would have been obtained in a comparable transaction by the
Partnership or such Subsidiary with an unrelated Person and (b) with respect to
(i) any Affiliate Transaction with an aggregate value in excess of $500,000, a
majority of the directors of the General Partner having no direct or indirect
economic interest in such Affiliate Transaction determines by resolution that
such Affiliate Transaction complies with clause (a) above and approves such
Affiliate Transaction and (ii) any Affiliate Transaction involving the purchase
or other acquisition or sale, lease, transfer or other disposition of properties
or assets other than in the ordinary course of business, in each case, having a
fair market value or for net proceeds in excess of $15 million, the Partnership
delivers to the Trustee an opinion as to the fairness to the Partnership or such
Subsidiary from a financial point of view issued by an investment banking firm
of national standing; provided, however, that (i) any employment agreement or
stock option agreement entered into by the Partnership or any of its
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Partnership (or the General Partner) or such Subsidiary, (ii)
Restricted Payments permitted by the provisions of Section 4.07 hereof, and
(iii) transactions entered into by the Partnership or the Insurance Company
Subsidiary in the ordinary course of business in connection with reinsuring the
self-insurance programs or other similar forms of retained insurable risks of
the retail propane businesses operated by the Partnership, its Subsidiaries and
its Affiliates, in each case, shall not be deemed Affiliate Transactions.
Section 4.12. Liens.
The Partnership shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien on
any asset now owned or hereafter acquired, or any income or profits therefrom or
assign or convey any right to receive income therefrom, except Permitted Liens.
Section 4.13. Subsidiary Note Guarantees.
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The Partnership may, at any time that it transfers or causes to be
transferred to any of its Subsidiaries assets, businesses or properties having a
fair market value (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a resolution of such Board)
of $5 million or more, cause such Subsidiary to unconditionally guarantee,
jointly and severally, the Issuers' payment obligations under the Notes as
provided in Article 10 hereof, together with an Opinion of Counsel to the effect
that such supplemental indenture has been duly executed and delivered by such
Subsidiary and is in compliance with the terms of this Indenture.
Section 4.14. Offer to Purchase Upon Change of Control.
Upon the occurrence of a Change of Control, the Issuers shall make a
Purchase Offer to each Holder to purchase all or any part of such Holder's Notes
at an offer price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase. Such
Purchase Offer shall be made in accordance with the procedures set forth in
Article 3 hereof. The Issuers shall commence such Purchase Offer within 10 days
following any Change of Control by mailing the notice set forth in Section 3.09
hereof to the Holders. The Offer Period shall be not less than 30 days and not
more than 40 days, unless a longer period is required by law. The Issuers shall
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with such Purchase Offer.
Section 4.15. Partnership or Corporate Existence.
Subject to Article 5 and Article 10 hereof, as the case may be, each
Issuer and each of the Guarantors, if any, shall do or cause to be done all
things necessary to preserve and keep in full force and effect (i) its corporate
or partnership existence, and the corporate or partnership existence of each of
their Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of each Issuer, any such
Guarantor or any such Subsidiary, as the case may be, and (ii) the rights
(charter and statutory), licenses and franchises of each Issuer, the Guarantors
and their respective Subsidiaries; provided, however, that the Issuers and the
Guarantors shall not be required to preserve any such right, license or
franchise, or the corporate, partnership or other existence of any of their
respective Subsidiaries, if an officer of the General Partner or Finance Corp.,
as the case may be, shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Issuers, the Guarantors and
their Subsidiaries, taken as a whole and that the loss thereof is not adverse in
any material respect to the Holders of the Notes.
Section 4.16. Line of Business.
For so long as any Notes are outstanding, the Partnership and its
Subsidiaries will not materially or substantially engage in any business other
than that in which the Partnership and its Subsidiaries were engaged on the date
of this Indenture.
Section 4.17. Limitation on Sale and Leaseback Transactions.
The Partnership will not, and will not permit any of its Subsidiaries to,
enter into any arrangement with any Person providing for the leasing by the
Partnership or such Subsidiary of any property that has been or is to be sold or
transferred by the Partnership or such Subsidiary to such Person in
contemplation of such leasing; provided, however, that the Partnership or such
Subsidiary may enter into such sale and leaseback transaction if (i) the
Partnership could have (A) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the Fixed
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Charge Coverage Ratio Test set forth in paragraph (a) of Section 4.09 and (B)
secured a Lien on such Indebtedness pursuant to Section 4.12, or (ii) the lease
in such sale and leaseback transaction is for a term not in excess of the lesser
of (A) three years and (B) 60% of the useful remaining life of such property.
Section 4.18. Restrictions on Nature of Indebtedness and Activities of Finance
Corp.
Notwithstanding the provisions of Section 4.09 hereof, Finance Corp. shall
not incur any Indebtedness unless (a) the Partnership is a co-obligor or
guarantor of such Indebtedness or (b) the net proceeds of such Indebtedness are
lent to the Partnership, used to acquire outstanding debt securities issued by
the Partnership or used directly or indirectly to refinance or discharge
Indebtedness permitted under the limitations of this Section 4.18. Finance
Corp. shall not engage in any business not related directly or indirectly to
obtaining money or arranging financing for the Partnership.
ARTICLE 5
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.
(a) The Partnership shall not consolidate or merge with or into (whether
or not the Partnership is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions, to another Person unless (i) the
Partnership is the surviving Person, or the Person formed by or surviving any
such consolidation or merger (if other than the Partnership) or to which such
sale, assignment, transfer, lease, conveyance or other disposition shall have
been made is a corporation or partnership organized or existing under the laws
of the United States, any state thereof or the District of Columbia; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
the Partnership) or Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the obligations
of the Partnership pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under the Notes and this Indenture; (iii)
immediately after such transaction no Default or Event of Default exists; and
(iv) the Partnership or any Person formed by or surviving any such consolidation
or merger, or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made (A) shall have Consolidated Net Worth
(immediately after the transaction but prior to any purchase accounting
adjustments resulting from the transaction) equal to or greater than the
Consolidated Net Worth of the Partnership immediately preceding the transaction
and (B) shall, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
Section 4.09 hereof.
(b) Finance Corp. may not consolidate or merge with or into (whether or
not Finance Corp. is the surviving Person), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another Person unless (i) Finance
Corp. is the surviving Person, or the Person formed by or surviving any such
consolidation or merger (if other than Finance Corp.) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia and a Wholly Owned Subsidiary of
the Partnership; (ii) the Person formed by or surviving any such consolidation
or merger (if other than Finance Corp.) or the Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have
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been made assumes all the obligations of Finance Corp., pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee, under
the Notes and the Indenture; and (iii) immediately after such transaction no
Default or Event of Default exists.
(c) The Partnership or Finance Corp., as the case may be, shall deliver
to the Trustee prior to the consummation of the proposed transaction pursuant to
the foregoing paragraphs (a) and (b) an Officers' Certificate to the foregoing
effect and an Opinion of Counsel stating that the proposed transaction and such
supplemental indenture comply with this Indenture. The Trustee shall be
entitled to conclusively rely upon such Officers' Certificate and Opinion of
Counsel.
Section 5.02. Successor Person Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Partnership or Finance Corp. in accordance with Section 5.01 hereof, the
successor Person formed by such consolidation or into or with which the
Partnership or Finance Corp. is merged or to which such sale, assignment,
transfer, lease, conveyance or other disposition is made shall succeed to, and
be substituted for (so that from and after the date of such consolidation,
merger, sale, lease, conveyance or other disposition, the provisions of this
Indenture referring to the "Partnership," "Finance Corp.," or the "Issuers," as
the case may be shall refer to or include instead the successor Person and not
the Partnership or Finance Corp., as the case may be), and may exercise every
right and power of the Partnership or Finance Corp., as the case may be under
this Indenture with the same effect as if such successor Person had been named
as the Partnership or Finance Corp., as the case may be, herein; provided,
however, that the predecessor Issuer shall not be relieved from the obligation
to pay the principal of, premium, if any, and interest on the Notes except in
the case of a sale of all of such Issuer's assets that meets the requirements of
Section 5.01 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
An "Event of Default" occurs if:
(a) the Issuers or the Guarantors default in the payment of interest
on the Notes when the same becomes due and payable and such default continues
for a period of 30 days;
(b) the Issuers or the Guarantors default in the payment of principal
of or premium, if any, on the Notes when the same becomes due and payable at
maturity, upon redemption (including in connection with an offer to purchase)
or otherwise;
(c) the Issuers fail for a period of 20 days to observe or perform any
covenant, condition or agreement on the part of the Issuers to be observed or
performed pursuant to Sections 4.07, 4.09, 4.10, 4.15 and 5.01 hereof;
(d) the Issuers or any Guarantor fails to comply with any of their
other respective agreements or covenants in, or provisions of, the Notes, the
Note Guarantees or this Indenture and the Default continues for the period
and after the notice specified below;
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(e) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Partnership or any of its Subsidiaries
(or the payment of which is Guaranteed by the Partnership or any of its
Subsidiaries), whether such Indebtedness or Guarantee now exists or shall be
created hereafter, which default (i) is caused by a failure to pay principal
of or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness (a "Payment
Default") or (ii) results in the acceleration of such Indebtedness prior to
its express maturity and, in each case, the principal amount of such
Indebtedness, together with the principal amount of any other Indebtedness as
to which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $10 million or more, excluding any acceleration of
maturity of the Indebtedness represented by the General Partner's Existing
Floating Rate Notes and Existing Fixed Rate Notes to the extent that such
Indebtedness shall be redeemed on or prior to the 40th day after the date of
the Indenture;
(f) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the
Partnership or any of its Subsidiaries and such judgments are not paid,
discharged or stayed for a period of 60 days, provided that the aggregate of
all such undischarged judgments exceeds $10 million;
(g) except as otherwise permitted hereunder, any Note Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor (or its
successors or assigns), or any Person acting on behalf of any Guarantor (or
its successors or assigns), shall deny or disaffirm its obligations under its
Note Guarantee;
(h) the Partnership or any of its Subsidiaries pursuant to or within
the meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an
involuntary case,
(iii) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors, or
(v) generally is not paying its debts as they become due; or
(i) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Partnership or any Subsidiary of the
Partnership in an involuntary case,
(ii) appoints a Custodian of the Partnership or any Subsidiary of
the Partnership or for all or substantially all of the property of the
Partnership or any Subsidiary of the Partnership, or
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(iii) orders the liquidation of the Partnership or any Subsidiary of
the Partnership,
and the order or decree remains unstayed and in effect for 60 consecutive
days.
A Default under clause (d) is not an Event of Default until the Trustee
notifies the Issuers, or the Holders of at least 25% in principal amount of the
then outstanding Notes notify the Issuers and the Trustee, of the Default and
the Issuers do not cure the Default within 60 days after receipt of the notice.
The notice must specify the Default, demand that it be remedied and state that
the notice is a "Notice of Default."
In the case of any Event of Default pursuant to the provisions of this
Section 6.01 occurring by reason of any willful action (or inaction) taken (or
not taken) by or on behalf of the Issuers with the intention of avoiding payment
of the premium that the Issuers would have had to pay if the Issuers then had
elected to redeem the Notes pursuant to Section 3.07 hereof, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law, anything in this Indenture or in the Notes to the contrary
notwithstanding. If an Event of Default occurs prior to __________, 1998 by
reason of any willful action (or inaction) taken (or not taken) by or on behalf
of the Issuers with the intention of avoiding the prohibition on redemption of
the Notes prior to __________, 1998 pursuant to Section 3.07 hereof, then the
premium payable for purposes of this paragraph for each of the years beginning
on __________ of the years set forth below shall be as set forth in the
following table expressed as a percentage of the amount that would otherwise be
due but for the provisions of this sentence, plus accrued interest, if any, to
the date of payment:
Year Percentage
---- ----------
1994 ____%
1995 ____%
1996 ____%
1997 ____%
Section 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
clauses (h) and (i) of Section 6.01 hereof relating to either Issuer, any
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary) occurs and is continuing, the Trustee by
notice to the Issuers, or the Holders of at least 25% in principal amount of the
then outstanding Notes by written notice to the Issuers and the Trustee may
declare the unpaid principal of and any accrued interest on all the Notes to be
due and payable. Upon such declaration the principal and interest shall be due
and payable immediately (together with the premium referred to in Section 6.01
hereof, if applicable). If an Event of Default specified in clause (h) or (i)
of Section 6.01 hereof relating to either Issuer, any Significant Subsidiary or
any group of Subsidiaries that, taken together, would constitute a Significant
Subsidiary occurs, such an amount shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any Holder. The Holders of a majority in principal amount of the then
outstanding Notes by written notice to the Trustee may rescind an acceleration
and its consequences if the rescission would not conflict with any judgment or
decree and if all existing Events of Default (except nonpayment of principal or
interest that has become due solely because of the acceleration) have been cured
or waived.
Section 6.03. Other Remedies.
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If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal of, premium, if any,
and interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of the
Notes then outstanding by notice to the Trustee may on behalf of the Holders of
all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium, if any, or interest on, the Notes
(including in connection with an offer to purchase) (provided, however, that the
Holders of a majority in aggregate principal amount of the then outstanding
Notes may rescind an acceleration and its consequences, including any related
payment default that resulted from such acceleration). Upon any such waiver,
such Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other Default or impair any right
consequent thereon.
Section 6.05. Control by Majority.
Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture or that the Trustee determines may be
unduly prejudicial to the rights of other Holders of Notes or that may involve
the Trustee in personal liability.
Section 6.06. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture or
the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default or the Trustee receives such notice from either
Issuer;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee against any
loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request; provided,
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however, that such provision does not affect the right of a Holder of a Note
to sue for enforcement of any overdue payment thereon.
A Holder of a Note may not use this Indenture to prejudice the rights of another
Holder of a Note or to obtain a preference or priority over another Holder of a
Note.
Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal of, premium, if any, and
interest on the Note, on or after the respective due dates expressed in the Note
(including in connection with a Purchase Offer), or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a) or (b) hereof occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Issuers for the whole amount of
principal of, premium, if any, and interest remaining unpaid on the Notes and
interest on overdue principal and, to the extent lawful, interest and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Issuers
(or any other obligor upon the Notes, including the Guarantors), its creditors
or its property and shall be entitled and empowered to collect, receive and
distribute any money or other property payable or deliverable on any such claims
and any custodian in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee, and in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07 hereof. To the extent that the
payment of any such compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof out of the estate in any such proceeding shall be denied for
any reason, payment of the same shall be secured by a Lien on, and shall be paid
out of, any and all distributions, dividends, money, securities and other
properties that the Holders may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise. Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder, or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding.
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Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expenses and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium, if any, and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Notes
for principal, premium, if any, and interest, respectively; and
Third: to the Partnership or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in its exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only those
duties that are specifically set forth in this Indenture and no others, and
no implied covenants or obligations shall be read into this Indenture against
the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or
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opinions furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and opinions
to determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received
by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of this
Indenture that in any way relates to the Trustee is subject to paragraphs (a),
(b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree in writing with the Issuers. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by it to
be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require from
either Issuer an Officers' Certificate or an Opinion of Counsel or both. The
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officers' Certificate or Opinion of Counsel. The
Trustee may consult with counsel and the written advice of such counsel or any
Opinion of Counsel shall be full and complete authorization and protection from
liability in respect of any action taken, suffered or omitted by it hereunder in
good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
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(e) Unless otherwise specifically provided in this Indenture, any demand,
request, direction or notice from either Issuer shall be sufficient if signed by
an Officer of the General Partner (in the case of the Partnership) or by an
Officer of Finance Corp. (in the case of Finance Corp.)
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Notes and may otherwise deal with either Issuer, any Guarantor or
any Affiliate of either Issuer or any Guarantor with the same rights it would
have if it were not Trustee. However, in the event that the Trustee acquires
any conflicting interest it must eliminate such conflict within 90 days, apply
to the SEC for permission to continue as trustee or resign. Any Agent may do
the same with like rights and duties. The Trustee is also subject to Sections
7.10 and 7.11 hereof.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation as to
the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Issuers' use of the proceeds from the Notes or any money
paid to the Issuers or upon the Issuers' direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment of principal of, premium, if any, or
interest on any Note, the Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of the Holders of the Notes.
Section 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each _________ beginning with the __________
following the date of this Indenture, and for so long as Notes remain
outstanding, the Trustee shall mail to the Holders of the Notes a brief report
dated as of such reporting date that complies with TIA (S) 313(a) (but if no
event described in TIA (S) 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA (S) 313(b)(2). The Trustee shall also transmit by mail
all reports as required by TIA (S) 313(c).
A copy of each report at the time of its mailing to the Holders of Notes
shall be mailed to the Issuers and filed with the SEC and each stock exchange on
which the Notes are listed in accordance with
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TIA (S) 313(d). The Issuers shall promptly notify the Trustee when the Notes
are listed on any stock exchange.
Section 7.07. Compensation and Indemnity.
The Issuers and the Guarantors, if any, shall pay to the Trustee from time
to time reasonable compensation for its acceptance of this Indenture and its
services hereunder. The Trustee's compensation shall not be limited by any law
on compensation of a trustee of an express trust. The Issuers and the
Guarantors, if any, shall reimburse the Trustee promptly upon request for all
reasonable disbursements, advances and expenses incurred or made by it in
addition to the compensation for its services. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel.
The Issuers and the Guarantors, if any, shall indemnify the Trustee
against any and all losses, liabilities or expenses incurred by it arising out
of or in connection with the acceptance or administration of its duties under
this Indenture, including the costs and expenses of enforcing this Indenture
against the Issuers and the Guarantors (including this Section 7.07), and
defending itself against any claim (whether asserted by either Issuer, any
Guarantor or any Holder or any other person) or liability in connection with the
exercise or performance of any of its powers or duties hereunder, except to the
extent any such loss, liability or expense may be attributable to its negligence
or bad faith. The Trustee shall notify the Issuers promptly of any claim for
which it may seek indemnity. Failure by the Trustee to so notify the Issuers
shall not relieve the Issuers and the Guarantors, if any, of their obligations
hereunder. The Issuers and the Guarantors, if any, shall defend the claim and
the Trustee shall cooperate in the defense. The Trustee may have separate
counsel and the Issuers and the Guarantors, if any, shall pay the reasonable
fees and expenses of such counsel. The Issuers and the Guarantors, if any, need
not pay for any settlement made without their consent, which consent shall not
be unreasonably withheld.
The obligations of the Issuers and the Guarantors, if any, under this
Section 7.07 shall survive the satisfaction and discharge of this Indenture.
To secure the Issuers' and the Guarantors' payment obligations in this
Section, the Trustee shall have a Lien prior to the Notes on all money or
property held or collected by the Trustee, except that held in trust to pay
principal and interest on particular Notes. Such Lien shall survive the
satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to the
extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from the
trust hereby created by so notifying the Issuers. The Holders of Notes of a
majority in principal amount of the then
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outstanding Notes may remove the Trustee by so notifying the Trustee and the
Issuers in writing. The Issuers may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Issuers shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Issuers.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuers, any
Guarantor, or the Holders of Notes of at least 10% in principal amount of the
then outstanding Notes may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Note who has been
a Holder of a Note for at least six months, fails to comply with Section 7.10
hereof, such Holder of a Note may petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Issuers. Thereupon, the resignation or
removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its succession to
Holders of the Notes. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Issuers' and the Guarantors' obligations under Section 7.07
hereof shall continue for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100 million
as set forth in its most recent published annual report of condition.
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This Indenture shall always have a Trustee who satisfies the requirements
of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA (S) 310(b).
Section 7.11. Preferential Collection of Claims Against Issuers.
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Issuers may, at the option of the Board of Directors and the Board of
Directors of Finance Corp. evidenced in each case by a resolution set forth in
an Officers' Certificate, at any time elect to have either Section 8.02 or 8.03
hereof be applied to all outstanding Notes upon compliance with the conditions
set forth below in this Article 8.
Section 8.02. Legal Defeasance and Discharge.
Upon the Issuers' exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, each of the Issuers and each of the Guarantors,
if any, shall, subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, be deemed to have been discharged from its obligations with
respect to all outstanding Notes and Note Guarantees on the date the conditions
set forth below are satisfied (hereinafter, "Legal Defeasance"). For this
purpose, Legal Defeasance means that the Issuers shall be deemed to have paid
and discharged the entire Indebtedness represented by the outstanding Notes,
which shall thereafter be deemed to be "outstanding" only for the purposes of
Section 8.05 hereof and the other Sections of this Indenture referred to in (a)
and (b) below, and to have satisfied all their other obligations under such
Notes and this Indenture (and the Trustee, on demand of and at the expense of
the Issuers, shall execute proper instruments acknowledging the same), except
for the following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of outstanding Notes to receive
solely from the trust fund described in Section 8.04 hereof, and as more fully
set forth in such Section, payments in respect of the principal of, premium, if
any, and interest on such Notes when such payments are due, (b) the Issuers' and
Guarantors' obligations with respect to such Notes under Article 2 and Section
4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and the Issuers' and the Guarantors' obligations in connection
therewith and (d) this Article 8. Subject to compliance with this Article 8,
the Issuers may exercise their option under this Section 8.02 notwithstanding
the prior exercise of its option under Section 8.03 hereof.
Section 8.03. Covenant Defeasance.
Upon the Issuers' exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, each of the Issuers and each of the Guarantors,
if any, shall, subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, be released from its obligations under the covenants
contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16,
4.17, 4.18 and 5.01 hereof with respect to the outstanding Notes and Note
Guarantees on and after the date the conditions set forth below are satisfied
(hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed
not
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"outstanding" for the purposes of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder (it being understood that such Notes shall not be deemed outstanding
for accounting purposes). For this purpose, Covenant Defeasance means that,
with respect to the outstanding Notes, the Issuers may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 6.01 hereof, but, except as specified above, the remainder of this
Indenture, such Notes and the Note Guarantees, if any, shall be unaffected
thereby. In addition, upon the Issuers' exercise under Section 8.01 hereof of
the option applicable to this Section 8.03 hereof, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, Sections 6.01(e) and 6.01(f)
hereof shall not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either Section
8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Issuers shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of making
the following payments, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of such Notes, (i) cash in U.S. Dollars
in an amount, or (ii) non-callable Government Securities which through the
scheduled payment of principal and interest in respect thereof in accordance
with their terms will provide, not later than one day before the due date of
any payment, cash in U.S. Dollars in an amount, or (iii) a combination
thereof, in such amounts, as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and discharge
and which shall be applied by the Trustee (or other qualifying trustee) to
pay and discharge (A) the principal of, premium, if any, and interest on the
outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, of such principal or installment of principal,
premium, if any, or interest and (B) any mandatory sinking fund payments or
analogous payments applicable to the outstanding Notes on the day on which
such payments are due and payable in accordance with the terms of the
Indenture and of such Notes; provided that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such non-
callable Government Securities to said payments with respect to the Notes;
(b) in the case of an election under Section 8.02 hereof, the Issuers
shall have delivered to the Trustee an Opinion of Counsel (which counsel may
be an employee of either Issuer or any Subsidiary of either Issuer)
reasonably acceptable to the Trustee confirming that (i) the Issuers have
received from, or there has been published by, the Internal Revenue Service a
ruling or (ii) since the date of this Indenture, there has been a change in
the applicable federal income tax law, in either case to the effect that, and
based thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;
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(c) in the case of an election under Section 8.03 hereof, the Issuers
shall have delivered to the Trustee an Opinion of Counsel (which counsel may
be an employee of either Issuer or any Subsidiary of either Issuer)
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred;
(d) no Event of Default shall have occurred and be continuing on the
date of such deposit or, insofar as Sections 6.01(h) or 6.01(i) hereof is
concerned, at any time in the period ending on the 91st day after the date of
deposit (or greater period of time in which any such deposit of trust funds
may remain subject to Bankruptcy Law insofar as those apply to the deposit by
the Issuers);
(e) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement
or instrument (other than this Indenture) to which either Issuer or any of
their Subsidiaries is a party or by which either Issuer or any of their
Subsidiaries is bound;
(f) the Issuers shall have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(g) the Issuers shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuers with the
intent of preferring the Holders over any other creditors of the Issuers or
the Guarantors, if any, or with the intent of defeating, hindering, delaying
or defrauding any other creditors of the Issuers or others; and
(h) the Issuers shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with as contemplated hereby.
Section 8.05. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including either Issuer acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.
The Issuers and the Guarantors, if any, shall pay and indemnify the
Trustee against any tax, fee or other charge imposed on or assessed against the
cash or non-callable Government Securities deposited pursuant to Section 8.04
hereof or the principal and interest received in respect thereof other than any
such tax, fee or other charge which by law is for the account of the Holders of
the outstanding Notes.
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Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Issuers from time to time upon the request
of the Issuers any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
Section 8.06. Repayment to Issuers.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Issuers, in trust for the payment of the principal of, premium, if any, or
interest, if any, on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest, if any, have become due and payable
shall be paid to the Issuers on its request or (if then held by the Issuers)
shall be discharged from such trust; and the Holder of such Note shall
thereafter, as an unsecured general creditor, look only to the Issuers for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Issuers as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Issuers cause to be published once, in the New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Issuers.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Issuers' and the Guarantors' obligations under this
Indenture, the Notes and the Note Guarantees shall be revived and reinstated as
though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until
such time as the Trustee or Paying Agent is permitted to apply all such money in
accordance with Section 8.02 or 8.03 hereof, as the case may be; provided,
however, that, if the Issuers and the Guarantors make any payment of principal
of, premium, if any, or interest, if any, on any Note following the
reinstatement of its obligations, the Issuers and the Guarantors shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes.
Notwithstanding Section 9.02 of this Indenture, the Issuers, the
Guarantors, if any, and the Trustee may amend or supplement this Indenture or
the Notes without the consent of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
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(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
(c) to provide for the assumption of the Partnership's, Finance
Corp.'s or any Guarantor's obligations to the Holders of the Notes in the
case of a merger or consolidation pursuant to Article 5 or Article 10 hereof,
as the case may be;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes (including providing for Note Guarantees
pursuant to Section 4.13 hereof) or that does not adversely affect the legal
rights hereunder of any Holder of the Note; or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Issuers accompanied by a resolution of the Board
of Directors of each of the General Partner and Finance Corp. authorizing the
execution of any such amended or supplemental Indenture, and upon receipt by the
Trustee of the documents described in Section 7.02 hereof, the Trustee shall
join with the Issuers and the Guarantors in the execution of any amended or
supplemental Indenture authorized or permitted by the terms of this Indenture
and make any further appropriate agreements and stipulations that may be therein
contained, but the Trustee shall not be obligated to enter into such amended or
supplemental Indenture that affects its own rights, duties or immunities under
this Indenture or otherwise.
Section 9.02. With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Issuers, the
Guarantors, if any, and the Trustee may amend or supplement this Indenture or
the Notes with the written consent of the Holders of at least a majority in
principal amount of the Notes then outstanding (including consents obtained in
connection with a tender offer or exchange offer for the Notes), and, subject to
Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other
than a Default or Event of Default in the payment of the principal of, premium,
if any, or interest on the Notes, except a payment default resulting from an
acceleration that has been rescinded) or compliance with any provision of this
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes).
Upon the request of the Issuers accompanied by a resolution of the Board
of Directors of each of the General Partner and Finance Corp. authorizing the
execution of any such amended or supplemental Indenture, and upon the filing
with the Trustee of evidence satisfactory to the Trustee of the consent of the
Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Issuers and
the Guarantors, if any, in the execution of such amended or supplemental
Indenture unless such amended or supplemental Indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes under
this Section 9.02 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Issuers shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement
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or waiver. Any failure of the Issuers to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and
6.07 hereof, the Holders of a majority in aggregate principal amount of the
Notes then outstanding may waive compliance in a particular instance by the
Issuers or any Guarantor with any provision of this Indenture, the Note or the
Note Guarantees. However, without the consent of each Holder affected, an
amendment or waiver may not (with respect to any Notes held by a non-consenting
Holder):
(a) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note
or alter any of the provisions with respect to the redemption of the Notes
(other than provisions of Section 4.10 and Section 4.15 hereof);
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the then outstanding Notes and a waiver of the payment
default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in Section 6.04 or 6.07 hereof or in the
provisions of this Indenture relating to the rights of Holders of Notes to
receive payments of principal of or premium, if any, or interest on the
Notes;
(g) waive a redemption payment with respect to any Note (other than a
payment required by Section 4.10 or Section 4.15 hereof);
(h) make any change to the subordination provisions of Article 10
hereof that adversely affects Holders;
(i) except pursuant to Article 8 and Article 10 hereof, release any
Guarantor from its obligations under its Note Guarantee, or change any Note
Guarantee in any manner that would adversely affect the Holders; or
(j) make any change in this sentence of this Section 9.02.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be set
forth in an amended or supplemental Indenture that complies with the TIA as then
in effect.
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Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent to
it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
Section 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Issuers in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
(accompanied by a notation of the Note Guarantees duly endorsed by the
Guarantors) that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The
Issuers and the Guarantors may not sign an amendment or supplemental Indenture
until the Board of Directors of each of the General Partner and Finance Corp.
approves it. In executing any amended or supplemental indenture, the Trustee
shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully
protected in relying upon, an Officer's Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.
ARTICLE 10
NOTE GUARANTEES
Section 10.01. Note Guarantee.
Each Subsidiary of the Partnership which in accordance with Section 4.13
hereof is required or permitted to guarantee the obligations of the Issuers
under the Notes, upon execution of a counterpart of this Indenture, hereby
jointly and severally unconditionally guarantees to each Holder of a Note
authenticated and delivered by the Trustee irrespective of the validity or
enforceability of this Indenture, the Notes or the obligations of the Issuers
under this Indenture or the Notes, that: (i) the principal of and interest on
the Notes will be paid in full when due, whether at the maturity or interest
payment or mandatory redemption date, by acceleration, call for redemption or
otherwise, and interest on the overdue principal of and interest, if any, on the
Notes and all other obligations of the Issuers to the Holders or the Trustee
under this Indenture or the Notes will be promptly paid in full or performed,
all in accordance with the terms of this Indenture and the Notes; and (ii) in
case of any extension of time of payment or renewal of any Notes or any of such
other obligations, they will be paid in full when due or performed in accordance
with the terms of the extension or renewal, whether at maturity, by acceleration
or
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otherwise. Failing payment when due of any amount so guaranteed for whatever
reason, each Guarantor will be obligated to pay the same whether or not such
failure to pay has become an Event of Default which could cause acceleration
pursuant to Section 6.02 hereof. Each Guarantor agrees that this is a guarantee
of payment not a guarantee of collection.
Each Guarantor hereby agrees that its obligations with regard to this Note
Guarantee shall be joint and several, unconditional, irrespective of the
validity or enforceability of the Notes or the obligations of the Issuers under
this Indenture, the absence of any action to enforce the same, the recovery of
any judgment against either Issuer or any other obligor with respect to this
Indenture, the Notes or the obligations of the Issuers under this Indenture or
the Notes, any action to enforce the same or any other circumstances (other than
complete performance) which might otherwise constitute a legal or equitable
discharge or defense of a Guarantor. Each Guarantor further, to the extent
permitted by law, waives and relinquishes all claims, rights and remedies
accorded by applicable law to guarantors and agrees not to assert or take
advantage of any such claims, rights or remedies, including but not limited to:
(a) any right to require the Trustee, the Holders or the Issuers (each, a
"Benefitted Party") to proceed against the Issuers or any other Person or to
proceed against or exhaust any security held by a Benefitted Party at any time
or to pursue any other remedy in any Benefitted Party's power before proceeding
against such Guarantor; (b) the defense of the statute of limitations in any
action hereunder or in any action for the collection of any Indebtedness or the
performance of any obligation hereby guaranteed; (c) any defense that may arise
by reason of the incapacity, lack of authority, death or disability of any other
Person or the failure of a Benefitted Party to file or enforce a claim against
the estate (in administration, bankruptcy or any other proceeding) of any other
Person; (d) demand, protest and notice of any kind including but not limited to
notice of the existence, creation or incurring of any new or additional
Indebtedness or obligation or of any action or non-action on the part of such
Guarantor, either Issuer, any Benefitted Party, any creditor of such Guarantor,
either Issuer or on the part of any other Person whomsoever in connection with
any Indebtedness or obligations hereby guaranteed; (e) any defense based upon an
election of remedies by a Benefitted Party, including but not limited to an
election to proceed against such Guarantor for reimbursement; (f) any defense
based upon any statute or rule of law which provides that the obligation of a
surety must be neither larger in amount nor in other respects more burdensome
than that of the principal; (g) any defense arising because of a Benefitted
Party's election, in any proceeding instituted under the Federal Bankruptcy
Code, of the application of Section 1111(b)(2) of the Federal Bankruptcy Code;
or (h) any defense based on any borrowing or grant of a security interest under
Section 364 of the Federal Bankruptcy Code. Each Guarantor hereby covenants
that its Note Guarantees will not be discharged except by complete performance
of the obligations contained in its Note Guarantees and this Indenture.
If any Holder or the Trustee is required by any court or otherwise to
return to either the Partnership, Finance Corp. or any Guarantor, or any
Custodian acting in relation to any of the Partnership, Finance Corp. or such
Guarantor, any amount paid by the Partnership, Finance Corp. or such Guarantor
to the Trustee or such Holder, the applicable Note Guarantees, to the extent
theretofore discharged, shall be reinstated in full force and effect. Each
Guarantor agrees that it will not be entitled to any right of subrogation in
relation to the Holders in respect of any obligations guaranteed hereby until
payment in full of all obligations guaranteed hereby.
Each Guarantor further agrees that, as between such Guarantor, on the one
hand, and the Holders and the Trustee, on the other hand, (i) the maturity of
the obligations guaranteed hereby may be accelerated as provided in Section 6.02
hereof for the purposes of this Note Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration as to the Issuers
or any other obligor on the Notes of the obligations guaranteed hereby, and (ii)
in the event of any declaration of
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acceleration of those obligations as provided in Section 6.02 hereof, those
obligations (whether or not due and payable) will forthwith become due and
payable by such Guarantor for the purpose of this Note Guarantee.
Section 10.02. Limitation of Guarantor's Liability.
Each Guarantor and by its acceptance hereof, each beneficiary hereof,
hereby confirm that it is its intention that the Note Guarantees by such
Guarantor not constitute a fraudulent transfer or conveyance for purposes of the
Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar federal or state law to the extent applicable to any
Note Guarantees. To effectuate the foregoing intention, each such person hereby
irrevocably agrees that the obligation of such Guarantor under its Note
Guarantees under this Article 10 shall be limited to the maximum amount as will,
after giving effect to such maximum amount and all other (contingent or
otherwise) liabilities of such Guarantor that are relevant under such laws, and
after giving effect to any collections from, rights to receive contribution from
or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under this Article 10, result in the
obligations of such Guarantor in respect of such maximum amount not constituting
a fraudulent conveyance. Each beneficiary under the Note Guarantees, by
accepting the benefits hereof, confirms its intention that, in the event of a
bankruptcy, reorganization or other similar proceeding of either Issuer or any
Guarantor in which concurrent claims are made upon such Guarantor hereunder, to
the extent such claims will not be fully satisfied, each such claimant with a
valid claim against such Issuer shall be entitled to a ratable share of all
payments by such Guarantor in respect of such concurrent claims.
Section 10.03. Guarantors May Consolidate, etc., on Certain Terms.
No Guarantor shall consolidate with or merge with or into (whether or not
such Guarantor is the surviving Person), another corporation, Person or entity
whether or not it is affiliated with such Guarantor unless (i) subject to the
provisions of the following paragraph and Section 10.4 hereof, the Person formed
by or surviving any such consolidation or merger (if other than such Guarantor)
assumes all the obligations of such Guarantor pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, under its Note
Guarantee, the Notes and this Indenture, (ii) immediately after giving effect to
such transaction, no Default or Event of Default exists, and (iii) such
Guarantor, or any Person formed by or surviving any such consolidation or
merger, (A) shall have Consolidated Net Worth (immediately after giving effect
to such transaction), equal to or greater than the Consolidated Net Worth of
such Guarantor immediately preceding the transaction and (B) will be permitted
by virtue of the Partnership pro forma Fixed Charge Coverage Ratio to incur,
immediately after giving effect to such transaction, at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the Section 4.09 hereof. In case of any such consolidation, merger,
sale or conveyance and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and satisfactory
in form to the Trustee, of the Note Guarantee in this Indenture and the due and
punctual performance and observance of all of the covenants and conditions of
this Indenture to be performed by the Guarantor, such successor corporation
shall succeed to and be substituted for the Guarantor with the same effect as if
it had been named herein as a Guarantor.
Notwithstanding the foregoing, (A) a Guarantor may consolidate with or
merge with or into the Partnership or Finance Corp. (subject to the provisions
of Section 5.01 hereof) and (B) a Guarantor may consolidate with or merge with
or into any other Guarantor.
Section 10.04. Releases Following Sale of Assets.
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<PAGE>
Upon a sale or other disposition of all or substantially all of the assets
of any Guarantor, by way of merger, consolidation or otherwise, or a sale or
other disposition of all of the capital stock of any Guarantor, then such
Guarantor (in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the Capital Interests of such Guarantor)
or the corporation acquiring the property (in the event of a sale or other
disposition of all or substantially all of the assets of such Guarantor) shall
be released and relieved of its obligations under its Note Guarantees; provided
that the Net Proceeds of such sale or other disposition are applied in
accordance with Section 4.10 hereof. The Trustee will deliver to such Guarantor
a signed acknowledgment of such release.
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by TIA (S)318(c), the imposed duties shall control.
Section 11.02. Notices.
Any notice or communication by the Issuers, the Guarantors or the Trustee
to the others is duly given if in writing and delivered in Person or mailed by
first class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Issuers or any Guarantor:
Ferrellgas, L.P.
One Liberty Plaza
Liberty, Missouri 64068
Telecopier No.: ______________
Attention: ____________________
With a copy to:
Smith, Gill, Fisher, & Butts
One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105
Telecopier No.: ______________
Attention: ____________________
If to the Trustee:
Norwest Bank Minnesota,
National Association
_______________________________
_______________________________
Telecopier No.: ______________
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<PAGE>
Attention: ____________________
The Issuers, the Guarantors or the Trustee, by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA (S) 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above within
the time prescribed, it is duly given, whether or not the addressee receives it.
If the either Issuer or any Guarantor mails a notice or communication to
Holders, it shall mail a copy to the Trustee and each Agent at the same time.
Section 11.03. Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA (S) 312(b) with other Holders with
respect to their rights under this Indenture or the Notes. The Issuers, the
Guarantors, if any, the Trustee, the Registrar and anyone else shall have the
protection of TIA (S) 312(c).
Section 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Issuers or the Guarantors, if any,
to the Trustee to take any action under this Indenture, each of the Issuers or
the Guarantors, if any, shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 11.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
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<PAGE>
Section 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA (S)
314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether such covenant or condition has been
satisfied; and
(d) a statement as to whether, in the opinion of such Person, such
condition or covenant has been satisfied.
Section 11.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 11.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No past, present or future director, officer, employee, incorporator or
stockholder of either Issuer or any Guarantor, as such, shall have any liability
for any obligations of the Issuers or any Guarantor under the Notes, the Note
Guarantees, this Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note and the related Note Guarantees waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes.
Section 11.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES.
Section 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan or
debt agreement of the Issuers or their Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
Section 11.10. Successors.
All agreements of the Issuers and the Guarantors, if any, in this
Indenture and the Notes and the Note Guarantees, as the case may be, shall bind
their respective successors. All agreements of the Trustee in this Indenture
shall bind its successors.
52
<PAGE>
Section 11.11. Severability.
In case any provision in this Indenture, in the Notes or in the Note
Guarantees, if any, shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 11.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each signed
copy shall be an original, but all of them together represent the same
agreement.
Section 11.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part of this Indenture and shall in no way
modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
53
<PAGE>
SIGNATURES
Dated as of ______, 1994 FERRELLGAS, L.P.
By: Ferrellgas, Inc.
General Partner
By: ______________________________
Name:
Title:
(SEAL)
Dated as of ______, 1994 FERRELLGAS FINANCE CORP.
By: ______________________________
Name:
Title:
(SEAL)
Dated as of ______, 1994 NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: ______________________________
Name:
Title:
(SEAL)
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<PAGE>
Exhibit A
(Face of Note)
____% Senior Notes due 2001
No. $__________
FERRELLGAS, L.P.
FERRELLGAS FINANCE CORP.
promise to pay to
or registered assigns,
the principal sum of
Dollars on _________ __, 2001.
Interest Payment Dates: ________ __, and ________ __
Record Dates: ________ __, and ________ __
Dated: _______________ __, 1994
FERRELLGAS, L.P.
By: Ferrellgas, Inc.
General Partner
By: ______________________________
Name:
Title:
By: ______________________________
Name:
Title:
FERRELLGAS FINANCE CORP.
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
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<PAGE>
This is one of the Notes
referred to in the
within-mentioned Indenture:
- ---------------------------------
as Trustee
By:__________________________________
A-2
<PAGE>
(Back of Security)
___% SENIOR NOTE
DUE ________, 2001
Capitalized terms used herein have the meanings assigned to them in
the Indenture (as defined below) unless otherwise indicated.
1. Interest. Ferrellgas L.P., a Delaware limited partnership (the
"Partnership") and Ferrellgas Finance Corp., a Delaware corporation ("Finance
Corp." and, together with the Partnership, the "Issuers") promise to pay
interest on the principal amount of this Note at the rate and in the manner
specified below. The Issuers shall pay in cash interest on the principal amount
of this Note at the rate per annum of __%. The Issuers will pay interest semi-
annually in arrears on _______ and _______ of each year, commencing on
__________, 1994, to Holders of record on the immediately preceding _______ and
________, or if any such day is not a Business Day (as defined in the
Indenture), on the next succeeding Business Day (each an "Interest Payment
Date"). Interest will be computed on the basis of a 360-day year consisting of
twelve 30-day months. Interest shall accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of the
original issuance of the Notes. To the extent lawful, the Issuers shall pay
interest on overdue principal at the rate of 1% per annum in excess of the then
applicable interest rate on the Notes; it shall pay interest on overdue
installments of interest (without regard to any applicable grace periods) at the
same rate to the extent lawful.
2. Method of Payment. The Issuers will pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business on the record date next preceding the Interest Payment
Date, even if such Notes are cancelled after such record date and on or before
such Interest Payment Date. The Holder hereof must surrender this Note to a
Paying Agent to collect principal payments. The Issuers will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. The Issuers, however, may pay
principal, premium, if any, and interest by check payable in such money. The
Notes will be payable both as to principal and interest at the office or agency
of the Issuers maintained for such purpose within the City and State of New York
or, at the option of the Issuers, payment of interest may be made by check
mailed to the Holders of Notes at their respective addresses set forth in the
register of Holders. Unless otherwise designated by the Issuers, the Issuers'
office or agency in New York, New York will be the office of the Trustee
maintained for such a purpose.
3. Paying Agent and Registrar. Initially, the Trustee will act as
Paying Agent and Registrar. The Issuers may change any Paying Agent, Registrar
or co-registrar without notice to any Holder. Either Issuer or any Guarantor
may act in any such capacity.
4. Indenture. The Issuers issued the Notes under an Indenture dated
as of _________, 1994 (the "Indenture") between Partnership, Finance Corp. and
the Trustee. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture.
The Notes are subject to all such terms, and Holders of the Notes are referred
to the Indenture and such act for a statement of such terms. The terms of the
Indenture shall govern any inconsistencies between the Indenture and the Notes.
The Notes are unsecured general obligations of the Issuers limited to
$250,000,000 in aggregate principal amount.
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<PAGE>
5. Optional Redemption. The Issuers shall not have the option to
redeem the Notes pursuant to Section 3.07 of the Indenture prior to
____________, 1998. Thereafter, the Issuers shall have the option to redeem the
Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice,
at the redemption prices (expressed as percentages of the principal amount) set
forth below, plus accrued and unpaid interest thereon to the applicable
redemption date, if redeemed during the 12 month period beginning on __________
of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
1998 ....................... ___.__%
1999 ....................... ___.__%
2000 ....................... 100.00%
</TABLE>
6. Mandatory Redemption. Except as described in paragraph 7 below,
the Issuers shall not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
7. Redemption or Repurchase at Option of Holder. (a) If there is a
Change of Control (as defined in the Indenture), the Issuers shall be required
to offer to purchase all Notes at 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase.
Holders of Notes that are subject to an offer to purchase will receive a notice
therefor from the Issuers prior to any related purchase date, and may elect to
have such Notes purchased by completing the form entitled "Option of Holder to
Elect Purchase" appearing below.
(b) When the aggregate amount of Excess Proceeds from Asset Sales (as
defined in the Indenture) exceeds $15 million, the Issuers shall be required to
purchase the maximum principal amount of Notes that may be purchased out of the
Excess Proceeds at 100% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date fixed for the closing of such offer. If the
aggregate principal amount of Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Notes to be redeemed shall be selected pursuant
to the terms of Section 3.02 of the Indenture (with such adjustments as may be
deemed appropriate by the Issuers so that only Notes in denominations of $1,000,
or integral multiples thereof, shall be purchased). To the extent that the
aggregate amount of Notes tendered by Holders thereof is less than the Excess
Proceeds, the Issuers may use such deficiency for general business purposes.
Holders of Notes which are the subject of an offer to purchase will receive a
notice therefor from the Issuers prior to any related purchase date, and may
elect to have such Notes purchased by completing the form entitled "Option of
Holder to Elect Purchase" appearing below.
8. Notice of Redemption. Notice of redemption shall be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder of Notes to be redeemed at its registered address. Notes may be redeemed
in part but only in whole multiples of $1,000, unless all of the Notes held by a
Holder are to be redeemed. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
9. Denominations, Transfer, Exchange. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture.
The Registrar need not exchange or register the transfer of any Note or portion
of a Note selected for redemption. Also, it need
A-4
<PAGE>
not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed, during the period between a record
date and the corresponding Interest Payment Date.
10. Persons Deemed Owners. Prior to due presentment to the Trustee
for registration of the transfer of this Note, the Trustee, any Agent, the
Issuers and the Guarantors may deem and treat the Person in whose name this Note
is registered as its absolute owner for the purpose of receiving payment of
principal of and interest on this Note and for all other purposes whatsoever,
whether or not this Note is overdue, and neither the Trustee, any Agent, the
Issuers nor any Guarantor shall be affected by notice to the contrary. The
registered holder of a Note shall be treated as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions, the
Indenture or the Notes may be amended with the consent of the Holders of at
least a majority in principal amount of the then outstanding Notes (including
consents obtained in connection with a tender offer or exchange offer for
Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of any Holder, the Indenture or the Notes may be amended to
cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes
in addition to or in place of certificated Notes, to provide for assumption of
the Issuers' or any Guarantor's obligations to Holders in the case of a merger
or consolidation or to make any change that would provide any additional rights
or benefits to the Holders or that does not adversely affect the rights of any
Holder under the Indenture or to comply with the requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act. Without the consent of each Holder affected, an amendment
or waiver may not (with respect to any Notes held by a non-consenting Holder of
Notes): (i) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes (other than provisions relating to the covenants
described above under the caption "Redemption or Repurchase at the Option of
Holders"), (iii) reduce the rate of or change the time for payment of interest
on any Note, (iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Notes (except a rescission
of acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration), (v) make any Note payable in money other than that
stated in the Notes, (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of or premium, if any, or interest on the Notes,
(vii) waive a redemption payment with respect to any Note (other than a payment
required by one of the covenants described above under the caption "Redemption
or Repurchase at the Option of Holders"), (viii) except as otherwise permitted
in the Indenture, release any Guarantor from its obligations under its Note
Guarantee or change any Note Guarantee in any manner that would adversely affect
the rights of the Holders of Senior Notes or (ix) make any change in the
foregoing amendment and waiver provisions.
12. Defaults and Remedies. Events of Default include: default for
30 days in the payment when due of interest on the Notes; default in payment
when due of principal of or premium, if any, on the Notes at maturity, upon
redemption or otherwise; failure by the Partnership to comply with Sections
4.07, 4.09, 4.10 or 5.01 of the Indenture; failure by the Partnership or the
Guarantors for 60 days after notice from the Trustee or the Holder of at least
25% in principal amount of the Notes then outstanding to comply with any of its
other agreements in the Indenture or the Notes; default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Partnership or
any of its Subsidiaries (or the payment of which is guaranteed by the
Partnership or any of its Subsidiaries) whether such Indebtedness or Guarantee
now exists, or is created after the date of the Indenture, which default (a) is
caused by a
A-5
<PAGE>
failure to pay principal of or premium, if any, or interest on such Indebtedness
prior to the expiration of the grace period provided in such Indebtedness (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $10 million or more, excluding any acceleration of
maturity of the Indebtedness represented by the General Partner's Existing
Floating Rate Notes and Existing Fixed Rate Notes to the extent that such
Indebtedness shall be redeemed on or prior to the 40th day after the date of
this Indenture; failure by the Partnership or any of its Subsidiaries to pay
final judgments aggregating in excess of $10 million, which judgments are not
paid, discharged or stayed for a period of 60 days; except as permitted by the
Indenture, any Note Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall
deny or disaffirm its obligations under its Note Guarantees; and certain events
of bankruptcy or insolvency with respect to the Partnership or any of its
Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable immediately; except that in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency, relating to the Partnership, any Significant Subsidiary or any group
of Subsidiaries that, taken together, would constitute a Significant Subsidiary,
all outstanding Notes will become due and payable without further action or
notice. Holders of the Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest. The
Holders of a majority in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee, may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of principal of, premium, if any, and interest on the Notes. The
Issuers are required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and the Issuers are required upon becoming aware
of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
13. Trustee Dealings with Issuers. The Trustee under the Indenture,
in its individual or any other capacity, may make loans to, accept deposits
from, and perform services for the Issuers, any Guarantor or their respective
Affiliates, and may otherwise deal with the Issuers, any Guarantor or their
respective Affiliates, as if it were not Trustee; however, if the Trustee
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue as Trustee or resign.
14. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator or stockholder, as such, of either Issuer or any
Guarantor, as such, shall have any liability for any obligations of the Issuers
or any Guarantor under the Notes, the Note Guarantees or the Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. Each Holder by accepting a Note and the related Note Guarantees, if
any, waives and releases all such liability. The waiver and release are part of
the consideration for the issuance of the Notes.
15. Authentication. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
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<PAGE>
16. Abbreviations. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused
CUSIP numbers to be printed on the Notes and has directed the Trustee to use
CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption and reliance may be placed
only on the other identification numbers placed thereon.
18. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL
GOVERN AND BE USED TO CONSTRUE THE INDENTURE, THE NOTES AND THE NOTE GUARANTEES,
IF ANY.
The Issuers will furnish to any Holder upon written request and
without charge a copy of the Indenture. Request may be made to:
Ferrellgas, L.P.
One Liberty Plaza
Liberty, Missouri 64068
Telecopier No.: ___________
Attention: _________________
A-7
<PAGE>
Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Issuers. The agent may substitute
another to act for him.
- --------------------------------------------------------------------------------
Date: ______________________________
Your Signature: _______________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee.
A-8
<PAGE>
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Issuers pursuant
to Section 4.10 or 4.15 of the Indenture, check the box below:
[_] Section 4.10 [_] Section 4.15
If you want to elect to have only part of the Note purchased by the
Issuers pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased: $___________
Date: ____________________ Your Signature: _______________________________
(Sign exactly as your name appears on the Note)
Tax Identification No.:________________________
Signature Guarantee.
A-9
<PAGE>
EXHIBIT B
Form of Supplemental Indenture to Be Delivered by Future Guarantors
Supplemental Indenture (this "Supplemental Indenture"), dated as of
________________, between __________________ (the "Guarantor"), a subsidiary of
Ferrellgas, L.P., (or its successor), a Delaware limited partnership (the
"Partnership"), and Norwest Bank Minnesota, National Association, a national
banking association, as trustee under the indenture referred to below (the
"Trustee").
W I T N E S S E T H
WHEREAS, the Partnership and Ferrellgas Finance Corp., a Delaware
corporation ("Finance Corp." and, together with the Partnership, the "Issuers")
have heretofore executed and delivered to the Trustee an indenture (the
"Indenture"), dated as of _______ __, 1994, providing for the issuance of an
aggregate principal amount of $250,000,000 of ______% Senior Notes due 2001 (the
"Notes");
WHEREAS, Section 4.13 of the Indenture provides that under certain
circumstances the Partnership may cause the Guarantor to execute and deliver to
the Trustee a supplemental indenture pursuant to which the Guarantor shall
unconditionally guarantee all of the Issuers' obligations under the Notes
pursuant to a Note Guarantee on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guarantor and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition shall
have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guarantor hereby agrees that its obligations
to the Holder and the Trustee pursuant to this Note Guarantee shall be as
expressly set forth in Article 10 of the Indenture and in such other provisions
of the Indenture as are applicable to Guarantors, and reference is made to the
Indenture for the precise terms of this Supplemental Indenture. The terms of
Article 10 of the Indenture and such other provisions of the Indenture as are
applicable to Guarantors are incorporated herein by reference.
3. Execution and Delivery of Note Guarantees.
(a) To evidence its Note Guarantee set forth in this Supplemental
Indenture, the Guarantor hereby agrees that a notation of such Note Guarantee
substantially in the form of Exhibit C to the Indenture shall be endorsed by
an Officer of such Guarantor on each Note authenticated and delivered by the
Trustee after the date hereof.
(b) Notwithstanding the foregoing, the Guarantor hereby agrees that its
Note Guarantee set forth herein shall remain in full force and effect
notwithstanding any failure to endorse on each Note a notation of such Note
Guarantee.
B-1
<PAGE>
(c) If an Officer whose signature is on this Supplemental Indenture or on
the Note Guarantee no longer holds that office at the time the Trustee
authenticates the Note on which a Note Guarantee is endorsed, the Note
Guarantee shall be valid nevertheless.
(d) The delivery of any Note by the Trustee, after the authentication
thereof under the Indenture, shall constitute due delivery of the Note
Guarantee set forth in this Supplemental Indenture on behalf of the
Guarantor.
6. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator, stockholder of the Guarantor, as such, shall
have any liability for any obligations of the Issuers or any Guarantor under the
Notes, any Note Guarantees, the Indenture or this Supplemental Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of the Notes by accepting a Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Notes.
7. New York Law to Govern. The internal law of the State of New York shall
govern and be used to construe this Supplemental Indenture and the Note
Guarantee.
8. Counterparts The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
9. Effect of Headings. The Section headings herein are for convenience only
and shall not affect the construction hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: ____________, ____ [Guarantor]
By: ___________________________
Name:
Title:
Dated: ____________, ____ _________________________________,
as Trustee
By: ___________________________
Name:
Title:
B-2
<PAGE>
EXHIBIT C
FORM OF NOTATION ON SENIOR SUBORDINATED NOTE
RELATING TO NOTE GUARANTEE
Each Guarantor set forth below and each Subsidiary of the Partnership
which in accordance with Section 4.13 of the Indenture is required to guarantee
the obligations of the Issuers under the Notes upon execution of a counterpart
of the Indenture, has jointly and severally unconditionally guaranteed (i) the
due and punctual payment of the principal of and interest on the Notes, whether
at the maturity or interest payment or mandatory redemption date, by
acceleration, call for redemption or otherwise, and of interest on the overdue
principal of and interest, if any, on the Notes and all other obligations of the
Issuers to the Holders or the Trustee under the Indenture or the Notes and (ii)
in case of any extension of time of payment or renewal of any Notes or any of
such other obligations, that the same will be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
maturity, by acceleration or otherwise.
The obligations of each Guarantor to the Holder and to the Trustee
pursuant to this Note Guarantee and the Indenture are as expressly set forth in
Article 10 of the Indenture and in such other provisions of the Indenture as are
applicable to Guarantors, and reference is hereby made to such Indenture for the
precise terms of this Note Guarantee. The terms of Article 10 of the Indenture
and such other provisions of the Indenture as are applicable to Guarantors are
incorporated herein by reference.
This is a continuing guarantee and shall remain in full force and effect
and shall be binding upon each Guarantor and its successors and assigns until
full and final payment of all of the Issuers' obligations under the Notes and
the Indenture and shall inure to the benefit of the successors and assigns of
the Trustee and the Holders and, in the event of any transfer or assignment of
rights by any Holder or the Trustee, the rights and privileges herein conferred
upon that party shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and conditions hereof. This is a
guarantee of payment and not a guarantee of collection.
This Note Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Note upon which this Note Guarantee is
noted shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
By:__________________________________________
Name:
Title:
C-1
<PAGE>
EXHIBIT 10.7
CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT
-------------------------------------------------
This Contribution, Conveyance and Assumption Agreement, dated as of
____________, 1994, is entered into by and among FERRELLGAS PARTNERS, L.P., a
Delaware limited partnership (the "Master Partnership"), FERRELLGAS, L.P., a
Delaware limited partnership (the "Operating Partnership"), and FERRELLGAS,
INC., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Company and the Master Partnership have heretofore formed
the Operating Partnership pursuant to the Delaware Revised Uniform Limited
Partnership Act (the "Delaware Act") for the purpose of acquiring, owning and
operating the retail propane business and assets of the Company (the
"Business"); and
WHEREAS, the Company contributed $10.10 to the capital of the
Operating Partnership and received a 1.0101% general partner interest therein;
and the Master Partnership contributed $989.90 to the capital of the Operating
Partnership and received a 98.9899% limited partner interest therein; and
WHEREAS, the Company, as the general partner, and Danley K. Sheldon
("Sheldon"), as the organizational limited partner, have formed the Master
Partnership pursuant to the Delaware Act for the purpose of serving as the sole
limited partner of the Operating Partnership; and
WHEREAS, the Company contributed $10.00 to the capital of the Master
Partnership and received a 1% general partner interest therein; and Sheldon
contributed $990.00 to the capital of the Master Partnership and received a 99%
limited partner interest therein; and
WHEREAS, as of the date hereof, the Company and the Master Partnership
have entered into that certain Agreement of Limited Partnership of the Operating
Partnership (the "Operating Partnership Agreement"); and
WHEREAS, as of the date hereof, Sheldon, as the organizational limited
partner, and the Company, as the general partner and as attorney-in-fact for all
limited partners, have entered into that certain Agreement of Limited
Partnership of the Master Partnership (the "Master Partnership Agreement"); and
WHEREAS, pursuant to the Operating Partnership Agreement, the Company
has agreed to contribute to the Operating Partnership,
<PAGE>
as a capital contribution thereto, substantially all of its assets related to
the System in exchange for (a) the continuation of its 1.0101% general partner
interest in the Operating Partnership, (b) a limited partner interest in the
Operating Partnership which shall be contributed by the Company to the Master
Partnership pursuant to this Agreement and which, together with the limited
partner interest previously held by the Master Partnership will represent a
98.9899% limited partner interest in the Operating Partnership, (c) the
assumption of certain liabilities by the Operating Partnership, including,
without limitation, the Operating Partnership's assumption of the payment
obligations of certain indebtedness of the Company, and (d) other good and
valuable consideration; and
WHEREAS, pursuant to the Master Partnership Agreement, the Company has
agreed to contribute to the Master Partnership, as a capital contribution
thereto, all of its limited partner interest in the Operating Partnership in
exchange for (a) its continued 1% general partner interest in the Master
Partnership, (b) 1,000,000 Common Units, (c) 16,118,559 Subordinated Units, (d)
certain Incentive Distribution Rights, and (e) other good and valuable
consideration; and
WHEREAS, in connection with the above described contributions the
Company has agreed to indemnify the Master Partnership and the Operating
Partnership from and against certain liabilities and the Master Partnership and
the Operating Partnership have agreed to indemnify the Company from and against
certain liabilities;
NOW, THEREFORE, in consideration of their mutual undertakings and
agreements hereunder, the Master Partnership, the Operating Partnership and the
Company undertake and agree as follows:
ARTICLE I
Definitions
-----------
The following capitalized terms shall have the meanings given below.
"Agreement" means this Contribution, Conveyance and Assumption
---------
Agreement.
"Assets" means all of the assets owned, leased or held by the Company,
------
as of the Effective Time, of every kind, character and description, whether
tangible or intangible, whether real, personal or mixed, whether accrued or
contingent, and wherever located, including, without limitation, all of the
assets necessary to
<PAGE>
operate the Business as presently being operated by the Company and all right,
title and interest of the Company in and to the following assets:
(a) propane inventory;
(b) inventories and supplies of any kind;
(c) storage tanks and containers, propane cylinders, office
furniture, furnishings, computers and equipment of any kind;
(d) all real property wherever located;
(e) all rights in real property or personal property arising under
leases, easements or other contracts or arrangements;
(f) all motor vehicles, trailers, tanks, railcars, distribution
centers and related equipment, whether owned or leased;
(g) every contract, agreement, arrangement, grant, gift, trust or
other arrangement or understanding of any kind;
(h) any and all rights, claims and causes of action that the Company
may have under insurance policies or otherwise against any person
or property, whether known or unknown, accrued or contingent, and
whether or not reflected on the books and records of the Company
as of the Effective Time, insofar as any of the same relate to
the operation of the Assets or the business conducted with the
Assets prior to the Effective Time and such rights, claims or
causes of action representing reimbursement or recovery of
amounts actually paid by the Master Partnership or the Operating
Partnership after the Effective Time;
(i) every right to sell or distribute any product or service;
(j) all trade names, trade marks, service marks, logos, marks and
symbols of any kind, together with all goodwill associated
therewith, except as specifically provided for in Article IX of
this Agreement and subject to the right of the Company to
repurchase same as provided in Article IX of this Agreement;
<PAGE>
(k) all know-how, every trade secret, every customer list and all
other confidential information of every kind;
(l) every customer relationship, employee relationship, supplier
relationship and other relationship of any kind;
(m) every business conducted prior to the Effective Time by the
Company, including, without limitation, Stratton Insurance
Company;
(n) every other proprietary right of any kind; and
(o) all governmental licenses, permits and authorizations of every
kind;
excluding, however, any of such assets that constitute Excluded Assets.
"Assumed Liabilities" means all of the Company's liabilities arising
-------------------
from or relating to the Assets or the business conducted with the Assets, as of
the Effective Time, of every kind, character and description, whether known or
unknown, accrued or contingent, and whether or not reflected on the books and
records of the Company as of the Effective Time, including, without limitation,
the obligations, liabilities and outstanding indebtedness of the Company
described on Schedule 3 hereto; excluding, however, any of such liabilities that
----------
constitute Excluded Liabilities.
"Business" has the meaning assigned to such term in the Recitals to
--------
this Agreement.
"Company" has the meaning assigned to such term in the opening
-------
paragraph of this Agreement.
"Conveyance, Assignment and Bill of Sale" means that certain
---------------------------------------
Conveyance, Assignment and Bill of Sale, dated __________, 1994, in recordable
form from the Company to the Operating Partnership, the form of which is
attached hereto as Exhibit A.
---------
"Credit Facility" means the Credit Agreement dated as of
---------------
_______________, 1994 by and among the Company, the Operating Partnership,
Stratton Insurance Company and Bank of America National Trust and Savings
Association, as agent, and the financial institutions listed therein, providing
for an aggregate amount of borrowings up to $185,000,000.00.
<PAGE>
"Delaware Act" has the meaning assigned to such term in the Recitals
------------
to this Agreement.
"Effective Time" means 9:00 a.m. Eastern Standard Time on ___________,
--------------
1994.
"Excluded Assets" means those assets of the Company described on
---------------
Schedule 1 hereto.
- ----------
"Excluded Liabilities" means all of the liabilities described on
--------------------
Schedule 2 hereto.
- ----------
"Existing Fixed Rate Notes" means the $177,600,000 of 12% series B and
-------------------------
series D fixed rate senior notes due in August, 1996.
"Existing Floating Rate Notes" means the $50,000,000 of series A and
----------------------------
series C floating rate senior notes due in August, 1996.
"Existing Indebtedness" means and includes all of the indebtedness
---------------------
currently outstanding evidenced by the following: (a) the Existing Fixed Rate
Notes, (b) the Existing Floating Rate Notes, and (c) the Existing Subordinated
Debentures.
"Existing Subordinated Debentures" means the $246,400,000 of 11-5/8%
--------------------------------
senior subordinated debentures due in December, 2003.
"FCI" means Ferrell Companies, Inc., a Kansas corporation and the
---
owner all of the outstanding capital stock of the Company.
"FFC" means Ferrellgas Finance Corp., a Delaware corporation, a wholly
---
owned subsidiary of the Operating Partnership.
"Incentive Distribution Right" has the meaning assigned to the term
----------------------------
"IDR" in the Master Partnership Agreement.
"Laws" means any and all laws, statutes, ordinances, rules or
----
regulations promulgated by a governmental authority, orders of a governmental
authority, judicial decisions, decisions of arbitrators or determinations of any
governmental authority or court.
"Limited Partner Interest" has the meaning assigned to such term in
------------------------
Section 2.2.
"Master Partnership" has the meaning assigned to such term in the
------------------
opening paragraph of this Agreement.
"Master Partnership Agreement" has the meaning assigned
----------------------------
<PAGE>
to such term in the Recitals to this Agreement.
"Operating Partnership" has the meaning assigned to such term in the
---------------------
opening paragraph of this Agreement.
"Operating Partnership Agreement" has the meaning assigned to such
-------------------------------
term in the Recitals to this Agreement.
"Operating Partnership Debt Offering" means the $250,000,000 in debt
-----------------------------------
to be evidenced by notes to be issued by the Operating Partnership and FFC and
due in 2001.
"Restriction" has the meaning assigned to such term in Section 10.2.
-----------
"Restriction-Asset" has the meaning assigned to such term in Section
-----------------
10.2.
"Underwriting Agreement" means the Underwriting Agreement dated as of
----------------------
____________________, by and among the Partnership, the Company, and Goldman
Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation, A.G. Edwards &
Sons, Inc., PaineWebber Incorporated and Smith Barney Shearson, Inc., as
representatives of the several underwriters named in Schedule I thereto,
----------
relating to the public offering of up to 15,065,000 Common Units representing
limited partner interests in the Master Partnership.
ARTICLE II
Contribution to the Operating Partnership
-----------------------------------------
2.1 Contribution. The Company hereby grants, contributes, bargains,
------------
sells, conveys, assigns, transfers, sets over and delivers to the Operating
Partnership, its successors and assigns, for its and their own use forever, all
right, title and interest of the Company in and to the Assets in exchange for
(a) the consideration stated in Section 2.2, (b) the assumption of certain
liabilities by the Operating Partnership as provided in Article IV, and (c)
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and the Operating Partnership hereby accepts the Assets as
a contribution to the capital of the Operating Partnership.
TO HAVE AND TO HOLD the Assets unto the Operating Partnership, its
successors and assigns, together with all and singular the rights and
appurtenances thereto in any way belonging, subject, however, to the terms and
conditions stated in this Agreement, forever.
<PAGE>
2.2 Consideration for Contribution. In consideration for the
------------------------------
contribution of the Assets to the Operating Partnership, the Operating
Partnership hereby (a) continues the Company's 1.0101% general partner interest
in the Operating Partnership, and (b) issues, grants, contributes, bargains,
sells, conveys, transfers, sets over and delivers to the Company a limited
partner interest in the Operating Partnership (the "Limited Partner Interest")
which shall be contributed, transferred, conveyed, assigned and delivered by the
Company to the Master Partnership as provided in Section 3.1 of this Agreement,
and which, together with the limited partnership interest previously held by the
Master Partnership will represent a 98.9899% limited partner interest in the
Operating Partnership.
2.3 Forms of Conveyance. To further evidence this conveyance with
-------------------
respect to the real property included in the Assets, the Company has executed
and delivered to the Operating Partnership the Conveyance, Assignment and Bill
of Sale substantially in the form attached hereto as Exhibit A.
---------
ARTICLE III
Contribution to the Master Partnership
--------------------------------------
3.1 Contribution. The Company hereby grants, contributes,
------------
bargains, sells, conveys, assigns, transfers, sets over and delivers to the
Master Partnership, its successors and assigns, for its and their own use
forever, all right, title and interest of the Company in and to the Limited
Partner Interest in exchange for (a) the consideration stated in Section 3.2,
and (b) other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, and the Master Partnership hereby accepts the
Limited Partner Interest, as a contribution to the capital of the Master
Partnership.
TO HAVE AND TO HOLD the Limited Partner Interest unto the Master
Partnership, its successors and assigns, together with all and singular the
rights and appurtenances thereto in any way belonging, subject, however, to the
terms and conditions stated in this Agreement, forever.
3.2 Consideration for Contribution. In consideration for the
------------------------------
contribution of the Limited Partner Interest to the Master Partnership, the
Partnership hereby (a) continues the Company's 1% general partner interest in
the Master Partnership, and (b) issues, grants, contributes, bargains, sells,
conveys, assigns, transfers, sets over and delivers to the Company (i) 1,000,000
Common Units, (ii) 16,118,559 Subordinated Units, and (iii) the Incentive
Distribution Rights which, after giving effect to (1) the withdrawal of the
organizational limited partner of the
<PAGE>
Master Partnership as provided in the Master Partnership Agreement, and (2) the
sale of 13,100,000 Common Units pursuant to the Underwriting Agreement (or
15,065,000 Common Units if the overallotment option provided for in the
Underwriting Agreement is exercised in full), will represent an approximate
____% limited partner interest in the Master Partnership (or an approximate
____% limited partner interest in the Master Partnership if the overallotment
option provided for in the Underwriting Agreement is exercised in full).
ARTICLE IV
Assumption of Certain Liabilities
by the Operating Partnership
----------------------------
In connection with the contribution and transfer of the Assets to the
Operating Partnership, the Operating Partnership hereby assumes and agrees to
duly and timely pay, perform and discharge the Assumed Liabilities, including
the Existing Indebtedness and the indebtedness due under the Credit Facility, to
the full extent that the Company has been heretofore or would have been in the
future, were it not for the execution and delivery of this Agreement, obligated
to pay, perform and discharge the Assumed Liabilities; provided, however, that
said assumption and agreement to duly and timely pay, perform and discharge the
Assumed Obligations shall not increase the obligation of the Operating
Partnership with respect to the Assumed Liabilities beyond that of the Company,
waive any valid defense that was available to the Company with respect to the
Assumed Liabilities or enlarge any rights or remedies of any third party under
any of the Assumed Liabilities.
ARTICLE V
Indemnification
---------------
5.1 Indemnification With Respect to Excluded Liabilities. The
----------------------------------------------------
Company shall indemnify, defend and hold harmless the Operating Partnership, the
Master Partnership and their respective successors and assigns from and against
any and all claims, demands, costs, liabilities and expenses (including court
costs and reasonable attorneys' fees) of every kind, character and description,
whether known or unknown, accrued or contingent, and whether or not reflected on
the books and records of the Company as of the Effective Time, arising from or
relating to the Excluded Liabilities.
5.2 Indemnification With Respect to Operations Prior to the Effective
-----------------------------------------------------------------
Time. The Operating Partnership shall indemnify,
- ----
<PAGE>
defend and hold harmless the Company, the Master Partnership and their
respective successors and assigns from and against any and all claims, demands,
costs (including, without limitation, costs of environmental investigation and
remediation and penalties and other assessments), liabilities (including,
without limitation, liabilities arising by way of active or passive negligence)
and expenses (including court costs and reasonable attorneys' fees) of every
kind, character and description, whether known or unknown, accrued or
contingent, and whether or not reflected on the books and records of the Company
as of the Effective Time, arising from or relating to the operation of the
Assets or the business conducted with the Assets prior to the Effective Time,
including all tax liabilities including franchise taxes associated with the
Assets or the business other than any such claims, demands, costs, liabilities
and expenses arising from or relating to (a) federal and state income tax
liabilities incurred by the Company prior to the Effective Time; and (b) the
Excluded Liabilities, provided, however, that notwithstanding the foregoing, the
Operating Partnership shall not be required to indemnify, defend and hold
harmless the Company and its successors and assigns to the extent that any of
the foregoing claims, demands, costs, liabilities and expenses are recovered
through insurance proceeds paid to the owner of the Business.
5.3 Indemnification With Respect to Assumed Liabilities. Except as
---------------------------------------------------
set forth in Section 5.2, the Operating Partnership shall indemnify, defend and
hold harmless the Company, its successors and assigns from and against any and
all claims, demands, costs, liabilities (including, without limitation,
liabilities arising by way of active or passive negligence) and expenses
(including court costs and reasonable attorneys' fees) of every kind, character
and description, whether known or unknown, accrued or contingent, and whether or
not reflected on the books and records of the Company as of the Effective Time,
arising from or relating to the Assumed Liabilities.
5.4 Indemnification With Respect to Existing Indebtedness and Credit
----------------------------------------------------------------
Facility. The Operating Partnership shall indemnify, defend and hold harmless
- --------
the Company, its successors and assigns from and against any and all claims,
demands, costs, liabilities (including, without limitation, liabilities arising
by way of active or passive negligence) and expenses (including court costs and
reasonable attorneys' fees) of every kind, character and description, whether
known or unknown, accrued or contingent, and whether or not reflected on the
books and records of the Company as of the Effective Time, arising from or
relating to the liabilities and outstanding indebtedness of the Company under
the Existing Indebtedness and the Credit Facility.
<PAGE>
ARTICLE VI
Title Matters
-------------
6.1 Encumbrances. The contribution of the Assets made under Section
------------
2.1 is made expressly subject to all recorded and unrecorded liens,
encumbrances, agreements, defects, restrictions, adverse claims and all laws,
rules, regulations, ordinances, judgments and orders of governmental authorities
or tribunals having or asserting jurisdiction over the Assets or the business
and operations conducted thereon or therewith, in each case to the extent the
same are valid, enforceable and affect the Assets, including, without
limitation, all matters that a current survey or visual inspection of the Assets
would reflect, and to the Assumed Liabilities.
6.2 Disclaimer of Warranties; Subrogation; Waiver of Bulk Sales
-----------------------------------------------------------
Laws.
- ----
(a) THE COMPANY IS CONVEYING THE ASSETS "AS IS" WITHOUT
REPRESENTATION OR WARRANTY, WHETHER EXPRESS, IMPLIED OR STATUTORY (ALL OF WHICH
THE COMPANY HEREBY DISCLAIMS), AS TO (i) TITLE, (ii) FITNESS FOR ANY PARTICULAR
PURPOSE OR MERCHANTABILITY OR DESIGN OR QUALITY, OR (iii) ANY OTHER MATTER
WHATSOEVER. THE PROVISIONS OF THIS SECTION 6.2 HAVE BEEN NEGOTIATED BY THE
OPERATING PARTNERSHIP AND THE COMPANY AFTER DUE CONSIDERATION AND ARE INTENDED
TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY REPRESENTATIONS OR WARRANTIES OF
THE COMPANY, WHETHER EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT TO THE ASSETS
THAT MAY ARISE PURSUANT TO ANY LAW NOW OR HEREAFTER IN EFFECT, OR OTHERWISE,
EXCEPT AS EXPRESSLY SET FORTH HEREIN.
(b) The contribution of the Assets made under Section 2.1 is made
with full rights of substitution and subrogation of the Operating Partnership,
and all persons claiming by, through and under the Operating Partnership, to the
extent assignable, in and to all covenants and warranties by the predecessors-
in-title of the Company, and with full subrogation of all rights accruing under
applicable statutes of limitation and all rights of action of warranty against
all former owners of the Assets.
(c) The Company and the Operating Partnership agree that the
disclaimers contained in this Section 6.2 are "conspicuous" disclaimers. Any
covenants implied by statute or law by the use of the words "grant," "convey,"
"bargain," "sell," "assign," "transfer," "deliver," or "set over" or any of them
or any other words used in this Agreement are hereby expressly disclaimed,
waived and negated.
(d) Each of the parties hereto hereby waives compliance with any
applicable bulk sales law or any similar law in any
<PAGE>
applicable jurisdiction in respect of the transactions contemplated by this
Agreement.
ARTICLE VII
Further Assurances
------------------
7.1 Company Assurances. From time to time after the date hereof,
------------------
and without any further consideration, the Company shall execute, acknowledge
and deliver all such additional deeds, assignments, conveyances, instruments,
notices, releases, acquittances and other documents, and will do all such other
acts and things, all in accordance with applicable law, as may be necessary or
appropriate (i) more fully to assure the Operating Partnership, its successors
and assigns, all of the properties, rights, titles, interests, estates,
remedies, powers and privileges by this Agreement granted to the Operating
Partnership or intended so to be, (ii) to more fully and effectively vest in the
Master Partnership, its successors and assigns, beneficial and record title to
the Limited Partner Interest hereby contributed and assigned to the Master
Partnership or intended so to be and to put the Master Partnership in actual
possession and control of the Limited Partner Interest and (iii) to more fully
and effectively carry out the purposes and intent of this Agreement.
7.2 Operating Partnership and Master Partnership Assurances. From
-------------------------------------------------------
time to time after the date hereof, and without any further consideration, the
Operating Partnership and the Master Partnership shall execute, acknowledge and
deliver all such additional instruments, notices and other documents, and will
do all such other acts and things, all in accordance with applicable law, as may
be necessary or appropriate to more fully and effectively carry out the purposes
and intent of this Agreement.
ARTICLE VIII
Power of Attorney
-----------------
The Company hereby constitutes and appoints the Operating Partnership,
its successors and assigns, the true and lawful attorney-in-fact of the Company
with full power of substitution for it and in its name, place and stead or
otherwise on behalf of the Company, its successors and assigns, and for the
benefit of the Operating Partnership, its successors and assigns, to demand and
receive from time to time the Assets and to execute in the name of the Company
and its successors and assigns instruments of conveyance, instruments of further
assurance and to give receipts and releases in respect of the same, and from
time to time to institute and prosecute in the name of the Operating Partnership
or
<PAGE>
the Company for the benefit of the Operating Partnership, as may be appropriate,
any and all proceedings at law, in equity or otherwise which the Operating
Partnership, its successors and assigns may deem proper in order to collect,
assert or enforce any claims, rights or titles of any kind in and to the Assets,
and to defend and compromise any and all actions, suits or proceedings in
respect of any of the Assets and to do any and all such acts and things in
furtherance of this Agreement as the Operating Partnership, its successors or
assigns shall deem advisable. The Company hereby declares that the appointment
hereby made and the powers hereby granted are coupled with an interest and are
and shall be irrevocable and perpetual and shall not be terminated by any act of
the Company or its successors or assigns or by operation of law.
ARTICLE IX
Trademarks and Tradenames
-------------------------
The Company markets the Business under the tradename "Ferrellgas" and
uses the tradename "Ferrell North America" for its other operations. The Company
has a trademark on the name "Ferrellmeter", its patented gas leak detection
device. The Company hereby contributes all of its right, title and interest in
these tradenames and trademarks in the continental United States to the
Operating Partnership subject to the following express conditions:
(a) In the event that the Company is removed as general partner of
the Operating Partnership "for cause," the Company may repurchase the tradenames
and trademarks for their fair market value; and
(b) In the event that the Company ceases to be general partner of
the Operating Partnership for any reason other than by removal for cause, the
Company may repurchase the tradenames and trademarks contributed to the
Operating Limited Partnership for the nominal consideration of one dollar
($1.00).
ARTICLE X
Miscellaneous
-------------
10.1 Order of Completion of Transactions; Effective Time. (a) The
---------------------------------------------------
transactions provided for in Articles II and III of this Agreement shall be
completed on the date of this Agreement in the following order:
<PAGE>
first: the transactions provided for in Article II shall be completed;
------
and
second: following the completion of the transactions as provided in first
------ -----
above and the incurrence by the Operating Partnership of
$___________ in aggregate principal amount of borrowings under
the Operating Partnership Debt Offering and Credit Facility, the
transactions provided for in Article III shall be completed.
(a) The contribution of the Assets to the Operating Partnership shall
be effective for all purposes as of the Effective Time.
10.2 Consents; Restriction on Assignment. If there are prohibitions
-----------------------------------
against or conditions to the conveyance of one or more portions of the Assets
without the prior written consent of third parties, including, without
limitation, governmental agencies (other than consents of a ministerial nature
which are normally granted in the ordinary course of business), which if not
satisfied would result in a breach of such prohibitions or conditions or would
give an outside party the right to terminate the Operating Partnership's rights
with respect to such portion of the Assets (herein called a Restriction), then
any provision contained in this Agreement to the contrary notwithstanding, the
transfer of title to or interest in each such portion of the Assets (herein
called the "Restriction-Asset") pursuant to this Agreement shall not become
effective unless and until such Restriction is satisfied, waived or no longer
applies. When and if such a Restriction is so satisfied, waived or no longer
applies, to the extent permitted by applicable law and any applicable
contractual provisions, the assignment of the Restriction-Asset subject thereto
shall become effective automatically as of the Effective Time, without further
action on the part of the Operating Partnership or the Company. The Company and
the Operating Partnership agree to use their best efforts to obtain satisfaction
of any Restriction on a timely basis. The description of any portion of the
Assets as a "Restriction-Asset" shall not be construed as an admission that any
Restriction exists with respect to the transfer of such portion of the Assets.
In the event that any Restriction-Asset exists, the Company agrees to hold such
Restriction-Asset in trust for the exclusive benefit of the Operating
Partnership and to otherwise use its best efforts to provide the Operating
Partnership with the benefits thereof, and the Company will enter into other
agreements, or take such other action as it deems necessary, in order to help
ensure that the Operating Partnership has the assets and concomitant rights
necessary to enable it to operate the Assets contributed to the Operating
Partnership in all material respects as described in the Prospectus contained in
and made a part of the Registration Statement on Form S-1 (Registration No. 33-
53383)
<PAGE>
filed by the Master Partnership with the United States Securities and Exchange
Commission.
10.3 Costs. The Operating Partnership shall pay all sales, use and
-----
similar taxes arising out of the contributions, conveyances and deliveries to be
made hereunder and shall pay all documentary, filing, recording, transfer, deed,
and conveyance taxes and fees required in connection therewith. In addition,
the Operating Partnership shall be responsible for all costs, liabilities and
expenses (including court costs and attorneys' fees) incurred in connection with
the satisfaction or waiver of any Restriction pursuant to Section 10.2.
10.4 Headings; References; Interpretation. All Article and Section
------------------------------------
headings in this Agreement are for convenience only and shall not be deemed to
control or affect the meaning or construction of any of the provisions hereof.
The words "hereof", "herein" and "hereunder" and words of similar import, when
used in this Agreement, shall refer to this Agreement as a whole, including,
without limitation, all Schedules and Exhibits attached hereto, and not to any
particular provision of this Agreement. All references herein to Articles,
Sections, Schedules and Exhibits shall, unless the context requires a different
construction, be deemed to be references to the Articles and Sections of this
Agreement and the Schedules and Exhibits attached hereto, and all such Schedules
and Exhibits attached hereto are hereby incorporated herein and made a part
hereof for all purposes. All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, shall include all other
genders, and the singular shall include the plural and vice versa. The use
herein of the word "including" following any general statement, term or matter
shall not be construed to limit such statement, term or matter to the specific
items or matters set forth immediately following such word or to similar items
or matters, whether or not nonlimiting language (such as "without limitation",
"but not limited to", or words of similar import) is used with reference
thereto, but rather shall be deemed to refer to all other items or matters that
could reasonably fall within the broadest possible scope of such general
statement, term or matter.
10.5 Successors and Assigns. The Agreement shall be binding upon and
----------------------
inure to the benefit of the parties signatory hereto and their respective
successors and assigns.
10.6 No Third Party Rights. The provisions of this Agreement are
---------------------
intended to bind the parties signatory hereto as to each other and are not
intended to and do not create rights in any other person or confer upon any
other person any benefits, rights or remedies and no person is or is intended to
be a third party beneficiary of any of the provisions of this Agreement.
<PAGE>
10.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which together shall constitute one agreement binding on
the parties hereto.
10.8 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Missouri applicable to
contracts made and to be performed wholly within such state without giving
effect to conflict of law principles thereof, except to the extent that it is
mandatory that the law of some other jurisdiction, wherein the Assets are
located, shall apply.
10.9 Severability. If any of the provisions of this Agreement are
------------
held by any court of competent jurisdiction to contravene, or to be invalid
under, the laws of any political body having jurisdiction over the subject
matter hereof, such contravention or invalidity shall not invalidate the entire
Agreement. Instead, this Agreement shall be construed as if it did not contain
the particular provision or provisions held to be invalid, and an equitable
adjustment shall be made and necessary provision added so as to give effect to
the intention of the parties as expressed in this Agreement at the time of
execution of this Agreement.
10.10 Deed; Bill of Sale; Assignment. To the extent required by
------------------------------
applicable law, this Agreement shall also constitute a "deed," "bill of sale" or
"assignment" of the Assets.
10.11 Amendment or Modification. This Agreement may be amended or
-------------------------
modified from time to time only by the written agreement of all the parties
hereto. Each such instrument shall be reduced to writing and shall be
designated on its face "Amendment" to this Agreement.
10.12 Integration. This Agreement supersedes all previous
-----------
understandings or agreements between the parties, whether oral or written, with
respect to its subject matter. This document is an integrated agreement which
contains the entire understanding of the parties. No understanding,
representation, promise or agreement, whether oral or written, is intended to be
or shall be included in or form part of this Agreement unless it is contained in
a written amendment hereto executed by the parties hereto after the date of this
Agreement.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first above written.
FERRELLGAS, INC.
By:________________________________
Name: ____________________
Title: ____________________
ATTEST: By:________________________________
Name: ____________________
Title: ____________________
FERRELLGAS, L.P.
By: Ferrellgas, Inc., its general partner
By:________________________________
Name: ____________________
Title: ____________________
ATTEST: By:_________________________________
Name: _____________________
Title: _____________________
FERRELLGAS PARTNERS, L.P.
By: Ferrellgas, Inc., its general partner
By:_________________________________
Name: _____________________
Title: _____________________
ATTEST: By:_________________________________
Name: _____________________
Title: _____________________
<PAGE>
Schedule 1
----------
EXCLUDED ASSETS
[TO BE SUPPLIED]
<PAGE>
Schedule 2
----------
EXCLUDED LIABILITIES
[TO BE SUPPLIED]
Income Tax Liabilities
<PAGE>
Schedule 3
----------
LIABILITIES AND OUTSTANDING INDEBTEDNESS
1. All liabilities of the Company from or relating to the Assets or
the business conducted with the Assets to the extent that such liabilities would
be reflected as a liability on a balance sheet of the Company as at the time
immediately prior to the Effective Time prepared in accordance with generally
accepted accounting principles consistently applied; excluding, however, any of
such liabilities that constitute Excluded Liabilities and but including the
following liabilities and outstanding indebtedness of the Company:
[INSERT INFORMATION ON THE EXISTING
INDEBTEDNESS DUE AND THE CREDIT FACILITY]
<PAGE>
EXHIBIT A
---------
STATE OF MISSOURI
COUNTY OF JACKSON
CONVEYANCE, ASSIGNMENT AND BILL OF SALE
---------------------------------------
KNOW ALL MEN BY THESE PRESENTS:
This Conveyance, Assignment and Bill of Sale (this "Conveyance") is
from Ferrellgas, Inc., a Delaware corporation, with its general office and
mailing address at One Liberty Plaza, Liberty, Missouri 64068 (herein called
"Grantor"), and in favor of Ferrellgas, L.P., a Delaware limited partnership,
with its general office and mailing address at One Liberty Plaza, Liberty,
Missouri 64068 (herein called "Grantee").
PART I
GRANTING AND HABENDUM CLAUSES
I.1 Granting and Habendum Clauses. For good and valuable
-----------------------------
consideration, the receipt and sufficiency of which Grantor hereby acknowledges,
Grantor hereby grants, conveys, bargains, sells, assigns, transfers, delivers,
and sets over unto Grantee, its successors and assigns, all right, title,
interest and estate of Grantor in and to the following described property, to
wit:
(a) Fee Lands. The fee owned tracts or parcels of land, if any,
---------
described in Exhibit A hereto, together with all tanks, containers,
---------
buildings, structures, improvements, equipment, appurtenances and fixtures
of every kind or nature located on said tracts or parcels of land
(collectively, the "Fee Lands" and singularly, the "Fee Land");
(b) Easements. All easements, rights-of-way, servitudes, leases,
---------
surface rights, interests in land, permits, licenses and grants, and all
amendments to each thereof, including, without limitation, those described
in Exhibit B hereto, together with all prescriptive rights and all
---------
franchises, privileges, permits, grants, leases and consents in favor of
Grantor, or Grantor's predecessors-in-title, in, on, over, under or
adjacent to lands, roads, highways, railroads, rivers, canals, ditches,
drains, bridges, state and national parks, forests, reservations and
wilderness areas, public grounds or structures, or elsewhere, and all
rights incident thereto, rights under condemnation judgments, judgments on
declaration of taking, and permits and grants for the installation,
maintenance, repair, removal and operation of above and below ground tanks,
storage containers and
<PAGE>
pipelines (as hereinafter defined) (collectively, the "Easements" and
singularly, the "Easement");
(c) Storage Facilities. The presently existing tanks, containers and
------------------
storage facilities (i) owned by Grantor, and located in, on, over, under or
adjacent to the property described in (a) and (b) above or (ii) used by
Grantor in the operation of its propane business, together with all
buildings, structures, improvements, equipment, and appurtenances of every
kind or nature that are a part of, affixed to or used in connection
therewith (collectively, together with additions or replacements, the
"Storage Facilities" and singularly, a "Storage Facility"); and
(d) Other Interests. With respect to the Fee Lands, the Easements
---------------
and the Storage Facilities all and singular the tenements, hereditaments
and appurtenances belonging or in any wise appertaining thereto, or any
part thereof, including, without limitation, all reversionary interests,
reversions and remainders thereof, and all the right, title, interest,
estate and claim whatsoever, at law as well as in equity, of Grantor in and
to the above-described property.
(The property described in Section 1.1 shall be referred to herein as
the "Subject Property").
TO HAVE AND TO HOLD the Subject Property, subject to the terms,
conditions and reservations hereof, unto Grantee, its successors and assigns,
forever.
PART II
PERMITTED ENCUMBRANCES; OTHER TERMS AND CONDITIONS
II.1 Permitted Encumbrances.
----------------------
This Conveyance is made and accepted expressly subject to (i) the
terms and conditions set forth in the conveyances, assignments, bills of sale
and other instruments described in Exhibit A and Exhibit B and to all recorded
--------- ---------
and unrecorded liens, encumbrances, agreements, defects, restrictions, adverse
claims and all laws, rules, regulations, ordinances, judgments and orders of
governmental authorities or tribunals having or asserting jurisdiction over the
Subject Property or the business and operations conducted thereon, in each case
to the extent the same are valid, enforceable and affect the Subject Property;
(ii) all matters that a current survey or visual inspection would reflect; and
(iii) the Contribution Agreement (defined in Section 2.2) (collectively, the
"Permitted Encumbrances").
<PAGE>
II.2 Contribution Agreement.
----------------------
This Conveyance is expressly made subject to the terms and conditions
of that certain Contribution, Conveyance and Assumption Agreement dated
______________, 1994, between Grantor, Grantee and Ferrellgas Partners, L.P., a
Delaware limited partnership.
II.3 Disclaimer of Warranties; Subrogation.
-------------------------------------
(a) GRANTOR IS CONVEYING THE SUBJECT PROPERTY "AS IS" WITHOUT
REPRESENTATION OR WARRANTY, WHETHER EXPRESS, IMPLIED OR STATUTORY (ALL OF
WHICH GRANTOR HEREBY DISCLAIMS), AS TO (i) TITLE, (ii) FITNESS FOR ANY
PARTICULAR PURPOSE OR MERCHANTABILITY OR DESIGN OR QUALITY, OR (iii) ANY
OTHER MATTER WHATSOEVER. THE PROVISIONS OF THIS SECTION HAVE BEEN
NEGOTIATED BY GRANTEE AND GRANTOR AFTER DUE CONSIDERATION AND ARE INTENDED
TO BE A COMPLETE EXCLUSION AND NEGATION OF ANY REPRESENTATIONS OR
WARRANTIES OF GRANTOR, WHETHER EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT
TO THE SUBJECT PROPERTY THAT MAY ARISE PURSUANT TO ANY LAW NOW OR HEREAFTER
IN EFFECT, OR OTHERWISE, EXCEPT AS EXPRESSLY SET FORTH HEREIN.
(b) This Conveyance is made with full rights of substitution and
subrogation of Grantee and all persons claiming by, through, and under
Grantee, to the extent assignable, in and to all covenants and warranties
by the predecessors-in-title of Grantor, and with full subrogation of all
rights accruing under applicable statutes of limitation and all rights of
action of warranty against all former owners of the Subject Property.
(c) Grantee agrees that the disclaimers contained in this section are
"conspicuous" disclaimers. Any covenants implied by statute or law by the
use of the words "grant", "convey", "bargain", "sell", "assign",
"transfer", "deliver" or "set over" or any of them or any other words used
in this Conveyance are hereby expressly disclaimed, waived and negated.
PART III
MISCELLANEOUS
III.1 Further Assurances.
------------------
Grantor agrees to take all such further actions and to execute,
acknowledge and deliver all such further documents as are necessary or
appropriate in carrying out the purposes of this Conveyance. Grantor agrees to
execute, acknowledge and deliver to
<PAGE>
Grantee all such other additional instruments, notices, and to do all such other
and further acts, and things as may be to more fully and effectively grant,
convey, bargain, sell, assign, transfer and deliver and set over to Grantee the
Subject Property.
III.2 Consents; Restriction on Assignment.
-----------------------------------
If there are prohibitions against or conditions to the Conveyance of
one or more portions of the Subject Property without the prior written consent
of third parties, including, without limitation, governmental agencies (other
than consents of ministerial nature which are normally granted in the ordinary
course of business), which if not satisfied would result in a breach of such
prohibitions or conditions or would give an outside party the right to terminate
Grantee's rights with respect to such portion of the Subject Property (herein
called a "Restriction"), then any provision contained in this Conveyance to the
contrary notwithstanding, the transfer of title to or interest in such portion
of the Subject Property (herein called the "Restriction-Subject Property")
pursuant to this Conveyance shall not become effective unless and until such
Restriction is satisfied, waived or no longer applies. When and if such a
Restriction is so satisfied, waived or no longer applies, to the extent
permitted by applicable law and any applicable contractual provisions, the
assignment of the Restriction-Subject Property subject thereto shall become
effective automatically as of the date hereof, without further action on the
part of Grantee or Grantor. Grantor and Grantee agree to use their best efforts
to obtain satisfaction of any Restriction. The description of any portion of
the Subject Property as "Restriction-Subject Property" shall not be construed as
an admission that any Restrictions exist with respect to the transfer of such
portion of the Subject Property. In the event any Restriction-Subject Property
exists, Grantor agrees to hold such Restriction-Subject Property in trust for
the exclusive benefit of Grantee and to otherwise use its best efforts to
provide Grantee with the benefits thereof.
III.3 Successors and Assigns; No Third Party Beneficiary.
--------------------------------------------------
This Conveyance shall be binding upon and inure to the benefit of
Grantor and Grantee and their respective successors and assigns, but shall not
inure to the benefit of or be enforceable by any other party.
III.4 Governing Law.
-------------
This Conveyance and the legal relations between the parties shall be
governed by, and construed in accordance with, the laws of the State of
Missouri, excluding any conflict of law rule which would refer any issue to the
laws of another jurisdiction, except when it is mandatory that the law of the
jurisdiction
<PAGE>
wherein the Subject Property is located shall apply.
III.5 The Exhibits.
------------
Reference is made to Exhibit A and Exhibit B, which are attached
--------- ---------
hereto and made a part hereof for all purposes. Reference in Exhibits to an
instrument on file in the public records is made for all purposes, but shall not
imply that such instrument is valid, binding or enforceable or affects any
Subject Property nor creates any right, title, interest or claim in favor of any
party other than Grantor and Grantee, respectively.
III.6 Headings.
--------
Headings are included in this Conveyance for convenience and shall not
define, limit, extend or describe the scope or intent of any provision.
III.7 Counterparts.
------------
This Conveyance may be executed in multiple counterparts all of which
taken together shall constitute a single agreement with the same force and
effect as if all parties had signed the same copy of this conveyance.
<PAGE>
WITNESS THE EXECUTION HEREOF on the _____ day of ______________, 1994.
GRANTEE: GRANTOR:
FERRELLGAS, L.P., a Delaware FERRELLGAS, INC., a Delaware
limited partnership corporation
By: ________________________ By: ________________________
Name: ______________________ Name: ______________________
Title: _____________________ Title: _____________________
Attachments: Exhibit A: Fee Lands
Exhibit B: Easements
This instrument was prepared by:
Smith, Gill, Fisher & Butts
Attn: Michael J. Van Dyke
1200 Main Street, Suite 3500
Kansas City, Missouri 64105
Recording Requested by and
When Recorded Return To:
Smith, Gill, Fisher & Butts
Attn: Michael J. Van Dyke
1200 Main Street, Suite 3500
Kansas City, Missouri 64105
Mail Tax Statements to:
-------------------------
-------------------------
-------------------------
<PAGE>
STATE OF MISSOURI
COUNTY OF JACKSON
Before me, a Notary Public in and for said County and State,
personally appeared ______________, the _________
_____________________________________________ of Ferrellgas, Inc., a Delaware
corporation, who acknowledged the execution of the foregoing instrument for and
on behalf of said corporation and who, having been duly sworn, stated that the
representations contained therein are true.
WITNESS my hand and Notarial Seal this ______ day of ______________,
1994.
______________________________
Notary Public Residing in
___________ County, __________
______________________________
(printed signature)
My Commission Expires:
- ------------------------
STATE OF MISSOURI
COUNTY OF JACKSON
Before me, a Notary Public in and for said County and State,
personally appeared __________________, the __________________________________
of Ferrellgas, Inc., a Delaware corporation, as general partner of Ferrellgas,
L.P., a Delaware limited partnership, who acknowledged the execution of the
foregoing instrument for and on behalf of said corporation, as general partner,
and who, having been duly sworn, stated that the representations contained
therein are true.
WITNESS my hand and Notarial Seal this _____ day of ________, 1994.
------------------------------
Notary Public Residing in
___________ County, __________
------------------------------
(printed signature)
My Commission Expires:
- -----------------------
<PAGE>
EXHIBIT A TO CONVEYANCE, ASSIGNMENT AND BILL OF SALE
FROM FERRELLGAS, INC. TO FERRELLGAS, L.P.
STATE OF MISSOURI
COUNTY OF JACKSON
[FEE LANDS]
<PAGE>
EXHIBIT B TO CONVEYANCE, ASSIGNMENT AND BILL OF SALE
FROM FERRELLGAS, INC. TO FERRELLGAS, L.P.
STATE OF MISSOURI
COUNTY OF JACKSON
[EASEMENTS]
<PAGE>
EXHIBIT 10.8
FIRST SUPPLEMENTAL INDENTURE
This FIRST SUPPLEMENTAL INDENTURE, dated as of the 2nd day of June, 1994 by
and between FERRELLGAS, INC., a Delaware corporation (the "Company"), and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association, as
Trustee (the "Trustee") under an Indenture dated as of December 1, 1991,
pursuant to which the Company issued its 11 5/8% Senior Subordinated Debentures
due December 15, 2003 (the "Indenture"). All capitalized terms used herein and
not otherwise defined shall have the respective meanings provided such terms in
the Indenture.
WHEREAS, the Company desires to amend the Indenture as set forth below; and
WHEREAS, pursuant to Section 9.02 of the Indenture, the Company and the
Trustee may amend the Indenture with the written consent of the Holders of a
majority in principal amount of the then outstanding Securities; and
WHEREAS, pursuant to a solicitation of consent by the Company, the
requisite consent of the Holders of outstanding Securities has been received;
and
WHEREAS, all other conditions precedent to the execution of this First
Supplemental Indenture have been complied with;
NOW, THEREFORE, each party, for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Securities, agrees as follows:
Section 1. Definitions. The following definitions are hereby added to
Section 1.01 of the Indenture:
"Acceptance Date" means the date on which the Company shall have
accepted for purchase and payment the Securities validly tendered pursuant
to the Tender Offer and shall have so advised the Trustee in writing upon
which the Trustee may conclusively rely.
"Tender Offer" means the offer and solicitation made by the Company to
the Holders of the Securities pursuant to the Offer to Purchase and Consent
Solicitation, dated May 4, 1994, as amended and supplemented.
<PAGE>
Section 2. Amendment of Indenture.
(a) The following sections of the Indenture -- Section 4.04 (Compliance
Certificate), Section 4.05 (Taxes), Section 4.06 (Stay, Extension and Usury
Laws), Section 4.07 (Limitation on Restricted Payments), Section 4.08
(Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries),
Section 4.09 (Limitation on Additional Debt), Section 4.11 (Limitation on
Transactions with Affiliates), Section 4.12 (Limitation on Liens), Section
4.13 (Corporate Existence), Section 4.14 (Liquidation) and Section 4.15 (No
Senior Subordinated Debt) -- are hereby amended by adding a new first
paragraph below the heading of each such Section as follows:
"This Section shall read in its entirety as set forth below until
the Acceptance Date at which time this Section and any and all references
hereto in this Indenture shall, without any further action by any person, be
eliminated in their entirety."
(b) Clause (a) of Section 4.10 of the Indenture is hereby amended by adding
a new first paragraph after the paragraph designation "(a)" but before the
current language of such Section 4.10(a) as follows:
"This Section 4.10(a) shall read in its entirety as set forth below
until the Acceptance Date at which time this Section 4.10(a) shall, without
any further action by any person, read in its entirety as set forth in
brackets at the end of this Section 4.10(a)."
and by adding the following paragraph to the end of such Section 4.10(a):
["The Company will not, and will not permit any of its subsidiaries
(other than Unrestricted Subsidiaries) to, (i) sell, lease, convey or
otherwise dispose of any assets (including by way of a sale-and-leaseback)
other than in the ordinary course of business (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of the Company shall be governed by the provisions of Section 5.01
hereof), in one or a series of related transactions involving assets or
securities having a fair market value in excess of $50 million in the
aggregate, (an "Asset Sale"), unless the Company shall comply with this
Section 4.10."]
2
<PAGE>
(c) Clause (f) of Section 4.10 of the Indenture is hereby amended by adding
after the paragraph designation "(f)" but before the current language of such
Section 4.10(f) as follows:
"This Section 4.10(f) shall read in its entirety as set forth below
until the Acceptance Date at which time this Section 4.10(f) and any and all
references hereto in this Indenture shall, without any further action by any
person, be eliminated in their entirety."
(d) The definitions of "Change in Control" and "Related Parties" in Section
4.16 of the Indenture are hereby amended by adding immediately before the
current definition of "Change in Control" as follows:
"The definitions of 'Change in Control' and 'Related Parties' in this
Section 4.16 shall read in their entirety as set forth below until the
Acceptance Date at which time this such definitions shall, without any
further action by any person, read in their entirety as set forth in
brackets at the end of this Section 4.16."
and by adding the following paragraph to the end of such Section 4.16:
["'Change in Control' means any transaction the result of which is that
James E. Ferrell and the Related Parties (as defined below) beneficially
own, in the aggregate, directly or indirectly, less than 51% of the total
voting power entitled to vote for the election of directors of the Company
(other than on account of a consolidation or merger or a sale of all or
substantially all of the assets of the Company that complies with Section
5.01 hereof)."]
["'Related Parties' means any lineal descendant of James E. Ferrell,
any trust for his benefit or for the benefit of his spouse or any such
lineal descendant or any corporation or partnership in which James E.
Ferrell and/or any of the foregoing Persons is the beneficial owner,
directly or indirectly, of 51% or more of the voting equity interests."]
(e) Section 5.01 of the Indenture is hereby amended by adding a new first
paragraph below the heading to such Section 5.01 as follows:
3
<PAGE>
"This Section 5.01 shall read in its entirety as set forth below until
the Acceptance Date at which time this Section 5.01 shall, without any
further action by any person, read in its entirety as set forth in brackets
at the end of this Section 5.01 and the current clauses (iii) and (iv) of
such Section 5.01 shall be deleted in their entirety."
and by adding the following paragraph to the end of such Section 5.01:
["Section 5.01. When the Company May Merge,etc.
["The Company will not consolidate or merge with or into (whether or
not the Company is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, another
corporation, person or entity unless:
["(i) with respect to transactions entered into after the consummation
of the Transaction, as that term is defined in the Tender Offer, either the
Company is the surviving person or the entity or the person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation, partnership, limited
partnership or other entity organized or existing under the laws of the
United States, any state thereof or the District of Columbia; and
["(ii) either (a) the person formed by or surviving any such
consolidation or merger (if other than the Company) or the person to which
such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made assumes all of the Obligations of the Company pursuant
to a supplemental indenture in a form reasonably satisfactory to the
Trustee, under the Securities and this Indenture; or (b) the Company shall
make an offer to redeem the Securities pursuant to Section 3.09."]
(f) Section 5.02 of the Indenture is hereby amended by adding a new first
paragraph below the heading to such Section 5.02 as follows:
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"This Section 5.02 shall read in its entirety as set forth below until
the Acceptance Date at which time this Section 5.02 shall, without any
further action by any person, read in its entirety as set forth in brackets
at the end of this Section 5.02."
and by adding the following paragraph to the end of such Section 5.02:
["Section 5.02. Successor Entity Substituted.
["Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company,
in accordance with Section 5.01, the successor entity formed by such
consolidation or into or with which the Company is merged or to which such
sale, lease, conveyance or other disposition is made shall, in the event
such successor elects to comply with Section 5.01(ii)(a), succeed to, and be
substituted for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor person has
been named as the Company herein; and, upon such compliance, the Company
shall be released or discharged from the obligation to pay the principal of
or interest on the securities."]
(g) Clauses (5) and (6) of Section 6.01 of the Indenture are hereby amended
by adding a new first paragraph after the paragraph designations "(5)" and
"(6)," respectively, but before the current language of such Clauses as follows:
"This Clause shall read in its entirety as set forth below until the
Acceptance Date at which time this Clause and any and all references hereto
in this Indenture shall, without any further action by any person, be
eliminated in their entirety."
(h) Clause (3) of Section 6.01 of the Indenture is hereby amended by adding
a new first paragraph after the designation "(3)" but before the current
language of such Clause (3) as follows:
"This Clause (3) of Section 6.01 shall read in its entirety as set
forth below until the Acceptance Date at which time this Clause (3) of
Section 6.01 shall, without any further action by any person, read in its
entirety as set forth in
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brackets at the end of this Clause (3) of Section 6.01."
and by adding the following paragraph to the end of such Clause (3) to Section
6.01:
["(3) the Company fails to observe or perform any covenant, condition
or agreement on the part of the Company to be observed or performed pursuant
to Sections 4.10, 4.16 and 5.01 hereof;"]
Section 3. Amendment of Exhibit A.
(a) Exhibit A of the Indenture is hereby amended by adding a new paragraph
below the reference to such Exhibit A as follows:
"Ferrellgas, Inc. and the Trustee have entered into a First
Supplemental Indenture dated as of June 2, 1994 which (i) eliminated certain
of the definitions contained therein; (ii) eliminated or modified certain
restrictive and other covenants contained therein; and (iii) eliminated or
modified certain Events of Default contained therein. Reference is hereby
made to such First Supplemental Indenture, copies of which are on file with
the Trustee.
(b) The first sentence of Paragraph 13 on the reverse side of Exhibit A of
the Indenture is hereby amended by adding a new first sentence after the
paragraph designation "13" as follows:
"This Paragraph 13 shall read in its entirety as set forth below until
the Acceptance Date at which time the first sentence of this Paragraph 13
shall, without any further action by any person, read in its entirety as set
forth in brackets at the end of this Paragraph 13 and the balance of this
Paragraph 13 shall read as it currently does."
and by adding the following paragraph to the end of such Paragraph 13:
["Events of Default include: default in payment of interest on the
Securities for 30 days; default in payment of principal on the Securities;
failure by the Company to comply with certain agreements in the Indenture or
the Securities; failure by the Company for 30 days after notice to it to
comply with certain of its other agreements
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in the Indenture or the Securities; and certain events of bankruptcy or
insolvency."]
Section 4. Ratification of Indenture.
As amended by this First Supplemental Indenture, the Indenture is in all
respects ratified and confirmed and shall be read, taken and construed as one
and the same instrument.
Section 5. The Trustee.
The Trustee shall not be responsible in any manner whatsoever for the
correctness of the recitals of fact herein, all of which are made by the
Company, and the Trustee shall not be responsible or accountable in any manner
whatsoever for or with respect to the validity or sufficiency of this First
Supplemental Indenture.
Section 6. Effective Date.
This First Supplemental Indenture shall become effective and binding upon
the date and time hereof.
Section 7. Governing Law.
This First Supplemental Indenture shall be governed by and construed in
accordance with the laws of State of New York.
Section 8. Counterparts.
This First Supplemental Indenture may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original, but all of which shall
together constitute but one and the same instrument.
Section 9. No Default.
The Company represents and warrants that, as of the date hereof, no Default
or Event of Default exists or, as a result of the execution and delivery of the
First Supplemental Indenture, will exist.
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Section 10. Notation on Securities. (a) Securities authenticated and delivered
after the effectiveness of this First Supplemental Indenture shall be imprinted
by the Trustee with substantially the following notation pursuant to Section
9.05 of the Indenture:
"This Company and the Trustee have entered into a First Supplemental
Indenture dated as of June 2, 1994 which (i) eliminated certain of the
definitions contained therein; (ii) eliminated or modified certain
restrictive and other covenants contained therein; and (iii) eliminated or
modified certain Events of Default contained therein. Reference is hereby
made to such First Supplemental Indenture, copies of which are on file with
the Trustee.
(b) Upon effectiveness of this First Supplemental Indenture, the Company
shall notify each remaining Holder of such effectiveness and of the amended form
of Security and if the Company so determines, new Securities shall be prepared
and executed by the Company, at its expense, so modified as to conform, in the
opinion of the Trustee and the Company, to this First Supplemental Indenture,
authenticated by the Trustee and delivered in exchange for the Securities then
outstanding. The Trustee shall give notice to each Holder of the time, place and
manner in which any such exchange shall be made.
Section 11. Miscellaneous.
(a) All of the covenants, stipulations, promises and agreements in this
First Supplemental Indenture by or on behalf of the Company shall bind its
successors and assigns, whether so expressed or not.
(b) If and to the extent that any provision of this First Supplemental
Indenture limits, qualifies or conflicts with another provision which is
required to be included herein or in the Indenture by the Trust Indenture Act,
such required provision shall be deemed to be included herein and shall control.
(c) In case any provision of this First Supplemental Indenture or the
Securities shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions hereof or of the Securities shall
not in any way be affected or impaired thereby.
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IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed and delivered as of the date first written above.
FERRELLGAS, INC.
By: /S/ Danley K. Sheldon
Name: Danley K. Sheldon
Title: Vice President & Chief
Financial Officer
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: /S/ Raymond S. Haverstock
Name: Raymond S. Haverstock
Title: Assistant Vice President
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EXHIBIT 23.1
INDEPENDENT ACCOUNTANTS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
33-53383 of 13,100,000 Common Units related to limited partner interests in
Ferrellgas Partners, L.P., of our report dated June 3, 1994, on Ferrellgas
Inc. (which expressed an unqualified opinion and included an explanatory
paragraph concerning an uncertainty involving an income tax matter), appearing
in the Prospectus, which is part of this Registration Statement, and of our
report dated June 3, 1994 relating to the financial statement schedules
appearing elsewhere in this Registration Statement.
We also consent to the use in this Amendment No. 1 to Registration Statement
No. 33-53383 of 13,100,000 Common Units related to limited partner interests
in Ferrellgas Partners, L.P., of our report dated April 27, 1994 on Ferrellgas
Partners, L.P., appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the use in this Amendment No. 1 to Registration Statement
No. 33-53383 of 13,100,000 Common Units related to limited partner interests
in Ferrellgas Partners, L.P., of our report dated June 3, 1994 accompanying
the pro forma financial information of Ferrellgas Partners, L.P., appearing in
the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Historical and Pro Forma Consolidated Financial and Operating Data" and
"Experts" in such Prospectus.
DELOITTE & TOUCHE
Kansas City, Missouri
June 6, 1994
