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As filed with the Securities and Exchange Commission on November 14, 1994
Registration No. 33-55185
================================================================================
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 its charter)
DELAWARE 5984 43-1675728
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or organization) Code Number)
_________________
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)
_________________
Copy to:
Smith, Gill, Fisher & Butts, P.C.
One Kansas City Place, 35th Floor
1200 Main Street
Kansas City, Missouri 64105
(816) 474-7400
Attn: Kendrick T. Wallace, Esq.
_________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time 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. [x]
_________________
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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FERRELLGAS PARTNERS, L.P.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
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FORM S-1 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
-------------------------------- ----------------------
<S> <C>
1. Forepart of the
Registration Statement and Outside Front Cover Page
Outside Front Cover Page
of Prospectus..............
2. Inside Front and Outside
Back Cover Page of Inside Front and Outside Back
Prospectus................. Cover Pages
3. Summary Information, Risk
Factors and Ratio of Prospectus Summary; Risk Factors
Earnings to Fixed Charges..
4. Use of Proceeds............ Prospectus Summary; Use of
Proceeds
5. Determination of Offering *
Price......................
6. Dilution................... *
7. Selling Security Holders... *
8. Plan of Distribution....... Outside Front Cover Page; Plan of
Distribution
9. Description of Securities Prospectus Summary; Price Range
to be Registered........... for Common Units; Cash
Distribution Policy; Description
of the Common Units; The
Partnership Agreement; Tax
Considerations
10. Interests of Named Experts *
and Counsel................
11. Information with Respect Outside Front Cover Page;
to the Registrant.......... Prospectus Summary; Recent
Developments; Capitalization;
Price Range of Common Units;
Selected Historical and Pro Forma
Consolidated Financial and
Operating Date; 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>
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*Not Applicable
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 14, 1994
2,400,000 COMMON UNITS
[LOGO] REPRESENTING LIMITED PARTNER INTERESTS
FERRELLGAS PARTNERS, L.P.
_________________
This Prospectus relates to 2,400,000 Common Units representing limited
partner interests in Ferrellgas Partners, L.P., a Delaware limited partnership
(the "Partnership"), which may be issued from time to time by the Partnership in
connection with its acquisition of other businesses, properties or securities in
business combination transactions in accordance with Rule 415(a)(1)(viii) of
Regulation C under the Securities Act of 1933, as amended (the "Securities
Act"). It is expected that the terms of acquisitions involving the issuance by
the Partnership of Common Units covered by this Prospectus will be determined by
direct negotiations with the owners or controlling persons of the businesses,
properties or securities to be acquired. Common Units issued in exchange for
businesses, properties or securities in business combination transactions will
be valued at prices reasonably related to market prices of the Common Units
either at the time the terms of an acquisition are agreed upon or at or about
the time of delivery of such Common Units.
This Prospectus will only be used in connection with the acquisition of
businesses, properties or securities in business combination transactions that
would be exempt from registration but for the issuance of Common Units and the
possibility of integration with other transactions. This Prospectus will be
furnished to security holders of the businesses, properties or securities to be
acquired.
This Prospectus may also be used, with the Partnership's prior consent, by
persons who have received or will receive Common Units in connection with
acquisitions and who wish to offer and sell such Units under circumstances
requiring or making desirable its use. Persons receiving Common Units in
connection with acquisitions will ordinarily be required to agree to hold the
Common Units for a period of two years after the date of such acquisition. See
"Plan of Distribution".
If an acquisition has a material financial effect upon the Partnership, a
post-effective amendment to the Registration Statement on Form S-1 of which this
Prospectus is a part will be filed subsequent to the acquisition containing
financial and other information about the acquisition that would be material to
subsequent acquirors of Common Units offered hereby, including pro forma
information for the Partnership and historical financial information about the
company being acquired. A post-effective amendment will also be filed when an
acquisition does not per se have a material effect upon the Partnership, but if
--- --
aggregated with other acquisitions since the date of the Partnership's most
recent audited financial statements, would have such a material effect.
continued on next page
"SEE RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY EACH PROSPECTIVE INVESTOR.
_________________
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.
_________________
The date of this Prospectus is November 14, 1994.
<PAGE>
Persons receiving 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 have limited voting rights and the
General Partner manages and controls 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.
. The issuance of all 2,400,000 Common Units offered hereby
immediately after the date hereof might dilute the interests of
holders of Common Units in distributions by the Partnership.
If an acquisition of a business, properties or securities in a business
combination transaction is not exempt from registration even if integration is
not taken into account, then the offerees of Common Units in such acquisition
will be furnished with a copy of this Prospectus as amended by a post-effective
amendment to the Registration Statement on Form S-1 of which this Prospectus is
a part containing all of the information required by a Registration Statement on
Form S-4.
The Common Units are traded on the New York Stock Exchange ("NYSE") under
the symbol "FGP." Application will be made to list the Common Units offered
hereby on the NYSE. The last reported sale price of Common Units on the NYSE on
November 10, 1994 was $21.625 per Common Unit.
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.
All expenses of this offering will be paid by the Partnership. No
underwriting discounts or commissions will be paid in connection with the
issuance of Common Units, although finder's fees may be paid with respect to
specific acquisitions. Any person receiving a finder's fee may be deemed to be
an "underwriter" within the meaning of the Securities Act.
2
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[MAP]
3
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY.............................. 6
Ferrellgas Partners, L.P...................... 6
Risk Factors................................. 11
Summary Historical and Pro Forma
Consolidated Financial and Operating
Data....................................... 12
The Offering................................. 13
Summary of Tax Considerations................ 19
RISK FACTORS................................... 22
Risks Inherent in the Partnership's
Business................................... 22
Risks Inherent in an Investment in
the Partnership............................ 24
Conflicts of Interest and Fiduciary Duties... 27
Tax Considerations........................... 30
RECENT DEVELOPMENTS............................ 33
Restructuring Transactions................... 33
Vision Acquisition........................... 33
USE OF PROCEEDS................................ 34
CAPITALIZATION................................. 35
PRICE RANGE OF COMMON UNITS.................... 35
CASH DISTRIBUTION POLICY....................... 36
Quarterly Distributions of Available Cash.... 37
Distributions of Cash Upon Liquidation....... 41
Pro Forma Available Cash..................... 42
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND
OPERATING DATA................................ 44
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................... 45
General...................................... 45
Results of Operations........................ 46
Liquidity and Capital Resources.............. 50
Tax Audit.................................... 53
BUSINESS....................................... 55
General...................................... 55
Retail Operations............................ 55
Industry and Competition..................... 59
Other Operations............................. 60
Employees.................................... 61
Governmental Regulation; Environmental
and Safety Matters......................... 61
Service Marks and Trademarks................. 62
Management Information and
Control Systems............................ 62
Properties................................... 62
Litigation................................... 63
Business of Ferrellgas Finance Corp.......... 63
MANAGEMENT..................................... 64
Partnership Management....................... 64
Directors and Executive Officer
of the General Partner..................... 64
Compensation of the General
Partner.................................... 65
Executive Compensation....................... 65
Unit Option Plan............................. 66
Compensation of Directors.................... 69
Termination of Employment
Arrangement................................ 69
Security Ownership of Certain
Beneficial Owners and Management........... 69
Certain Relationships and
Related Transactions....................... 70
CONFLICTS OF INTEREST AND
FIDUCIARY RESPONSIBILITY...................... 72
Transactions of the Partnership with
Ferrellgas and its Affiliates.............. 72
Conflicts of Interest........................ 72
DESCRIPTION OF THE COMMON UNITS................ 77
The Units.................................... 77
Transfer Agent and Registrar................. 77
Transfer of Units............................ 78
THE PARTNERSHIP AGREEMENT...................... 79
Organization and Duration.................... 79
Purpose...................................... 79
Capital Contributions........................ 79
Power of Attorney............................ 79
Restrictions on Authority of the
General Partner............................ 80
Withdrawal or Removal of the General
Partner.................................... 80
Transfer of General Partner Interest......... 81
Reimbursement for Services................... 81
Change of Management Provisions.............. 82
Status as Limited Partner or Assignee........ 82
Non-citizen Assignees; Redemption............ 82
Issuance of Additional Securities............ 83
Limited Call Right........................... 83
Amendment of Partnership Agreement........... 84
Meetings; Voting............................. 85
Indemnification.............................. 86
Limited Liability............................ 86
</TABLE>
4
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<TABLE>
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Books and Reports............................ 87
Right to Inspect Partnership Books
and Records................................ 88
Termination and Dissolution.................. 88
Liquidation and Distribution of Proceeds..... 88
Registration Rights.......................... 89
UNITS ELIGIBLE FOR FUTURE SALE................. 90
PLAN OF DISTRIBUTION........................... 91
TAX CONSIDERATIONS............................. 92
Legal Opinions and Advice.................... 92
Consequences of Exchanging Assets for
Common Units............................... 92
Ownership of Units by S Corporations......... 94
Changes In Federal Income Tax Laws........... 95
Partnership Status........................... 96
Limited Partner Status....................... 97
Tax Consequences of Unit Ownership........... 97
Allocation of Partnership Income, Gain,
Loss and Deduction......................... 99
Tax Treatment of Operations.................. 100
Disposition of Common Units.................. 103
Uniformity of Units.......................... 105
Tax-Exempt Organizations and Certain
Other Investors............................ 106
Administrative Matters....................... 107
Other Tax Considerations..................... 110
VALIDITY OF COMMON UNITS....................... 110
EXPERTS........................................ 111
ADDITIONAL INFORMATION......................... 111
</TABLE>
5
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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. 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 which recently acquired and now operates the propane business and
assets of Ferrellgas, Inc. ("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
Partnership believes that it is the second largest retail marketer of propane in
the United States, based on gallons sold, serving more than 650,000 residential,
industrial/commercial and agricultural customers in 47 states and the District
of Columbia through approximately 461 retail outlets and 249 satellite locations
in 38 states (some outlets serve an interstate market). The Partnership's
largest market concentrations are in the Midwest, Great Lakes and Southeast
regions of the United States. Ferrellgas has historically operated 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.
Retail propane sales volumes were approximately 564 million, 553 million and
496 million gallons during the combined fiscal year of the Partnership and
Ferrellgas ended July 31, 1994 and Ferrellgas' fiscal years ended July 31, 1993
and 1992, respectively. Ferrellgas' earnings before depreciation, amortization,
interest and taxes ("EBITDA") were $98.0 million, $89.4 million and $87.1
million for the eleven-month period ended June 30, 1994 and the fiscal years
ended July 31, 1993 and 1992, respectively. The Partnership's pro forma EBITDA
was $97.4 million and $88.9 million for the fiscal years ended July 31, 1994 and
1993, respectively. Ferrellgas' net earnings were $11.5 for the eleven-month
period ended June 30, 1994 and its net losses were $0.8 million and $11.7
million for the fiscal years ended July 31, 1993 and 1992, respectively. The
Partnership's pro forma net earnings before extraordinary items were $39.9
million and $28.3 million for the fiscal years ended July 31, 1994 and 1993,
respectively. For a discussion of the seasonality of the Partnership'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 Partnership foresees
only limited growth in total demand for the product. Based on information
available from the Energy Information Administration, the Partnership 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, Ferrellgas has been successful in acquiring independent
propane retailers and integrating them into its operations at what it believes
to be attractive returns. In July 1984, Ferrellgas 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, Ferrellgas 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 July 31, 1994, Ferrellgas has acquired 70 local independent
6
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propane retailers which it believes were not individually material. These
acquisitions significantly expanded and diversified Ferrellgas' geographic
presence.
The Partnership plans to continue to expand its business principally through
acquisitions in areas in close proximity to its 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 is to improve the operations
and profitability of the businesses the Partnership acquires by integrating them
into its established propane supply network. The Partnership also plans to
pursue acquisitions which broaden its geographic coverage. Ferrellgas 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 Partnership 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.
The Partnership is unable to predict the amount or timing of future capital
expenditures for acquisitions. As of July 5, 1994, Ferrellgas, L.P., a
subsidiary of the Partnership (the "Operating Partnership"), entered 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 $70 million is available solely to finance acquisitions and growth
capital expenditures, of which $25 million remains unused. 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 Operating Partnership's debt,
including the Credit Facility, the Partnership is prohibited from making
distributions to its partners and other Restricted Payments (as defined in the
instruments governing such debt) 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 Partnership believes that it
may also achieve growth within its existing propane operations. Historically,
Ferrellgas experienced modest internal growth in its customer base. As a result
of Ferrellgas' experience in responding to competition and in implementing more
efficient operating standards, the Partnership believes that it is positioned to
be more successful in direct competition for customers. The Partnership
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 Partnership 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 pro forma fiscal year ended July
31, 1994, sales to residential customers accounted for 60% of retail gross
profits, sales to industrial/commercial customers accounted for 27% of retail
gross profits, sales to agricultural customers accounted for 6% of retail gross
profits and sales to other customers accounted for 7% of retail gross profits.
Residential sales have a
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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 Partnership.
While the propane distribution business is seasonal in nature and historically
sensitive to variations in weather, management believes that the geographical
diversity of the Partnership's areas of operations helps to minimize the
Partnership'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
Partnership 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 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, Ferrellgas has been able to maintain
margins on an annual basis following changes in the wholesale cost of propane.
Ferrellgas' success in maintaining its margins is evidenced by the fact that
since fiscal 1990 average annual retail gross margins, measured on a cents-per-
gallon basis, have generally varied by a relatively low percentage. The
Partnership 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 Partnership 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 Partnership's customers lease their tank from the Partnership. 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 Partnership is also engaged in the trading of propane and other natural
gas liquids, chemical feedstocks marketing and wholesale propane marketing. In
pro forma fiscal year 1994, annual wholesale and trading sales volume was
approximately 1.7 billion gallons of propane and other natural gas liquids,
approximately 57% of which was propane. Because the Partnership possesses a
large distribution system, underground storage capacity and the ability to buy
large volumes of propane, the General Partner believes that the Partnership is
in a position to achieve
8
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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 serves as the general partner of the Partnership. The management
and employees of Ferrellgas manage and operate the propane business and assets
of the Partnership 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 conducts business, the Partnership's activities are
conducted through the Operating Partnership. The Partnership is the sole limited
partner of the Operating Partnership and the General Partner serves 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 does not receive any management fee in connection with its
management of the Partnership and does not receive any 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. 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.
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(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 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
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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.
RISK FACTORS
Persons receiving 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 have limited voting rights and the General
Partner manages and controls 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.
. The issuance of all 2,400,000 Common Units offered hereby immediately
after the date hereof might dilute the interests of holders of Common
Units in distributions by the Partnership.
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SUMMARY HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents selected historical financial data of Ferrellgas
for each of the years ended July 31, 1990, 1991, 1992 and 1993, and for the
eleven months ended June 30, 1994, and historical financial data of the
Partnership for the period from inception to July 31, 1994, as well as pro forma
(adjusted for the transactions described in NOTE A of the Partnership's notes to
consolidated financial statements) information for the year ended July 31, 1994.
The income statement and balance sheet data for Ferrellgas for the fiscal years
ended July 31, 1990, 1991, 1992 and 1993, and the eleven months ended June 30,
1994, have been derived from the historical consolidated financial statements of
Ferrellgas, certain of which appear elsewhere in this Prospectus. The selected
financial data of the Partnership for the period from inception to July 31, 1994
and the pro forma year ended July 31, 1994, have been derived from the
consolidated financial statements of Ferrellgas Partners, L.P., which appear
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Ferrellgas, Inc. and Subsidiaries (Predecessor) Ferrellgas Partners, L.P.
---------------------------------------------------------------- -----------------------------
Historical Historical Pro Forma
Historical Year Ended July 31, Eleven Months Inception Year
----------------------------------------------- Ended to Ended
1990 1991 1992 1993 June 30, 1994 July 31, 1994 July 31, 1994
-------- -------- -------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues................ $467,641 $543,933 $501,129 $541,945 $ 501,990 $ 24,566 $ 526,556
Depreciation and 33,521 36,151 31,196 30,840 26,452 2,383 28,835
amortization.................
Operating income (loss)....... 54,388 63,045 56,408 58,553 71,522 (2,391) 68,631
Interest expense.............. 55,095 60,507 61,219 60,071 53,693 2,662 28,130
Earnings (loss) from (347) 1,979 (1,700)(1) 109 12,337 (5,026) 39,909
continuing operations........
Earnings from continuing --- $1.29
operations per unit (2)......
Cash distributions --- ---
declared per unit ...........
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital............... $ 50,456 $ 53,403 $ 67,973 $ 74,408 $ 91,912 $ 34,948 $ 34,948
Total assets.................. 554,580 580,260 598,613 573,376 592,664 477,193 477,193
Payable to (receivable 10,743 3,763 2,236 (916) (4,050) 13 13
from) parent and
affiliates...................
Long-term debt................ 465,644 466,585 501,614 489,589 476,441 267,062 267,062
Stockholder's equity.......... 11,463 21,687 8,806 11,359 22,829
PARTNERS' CAPITAL:
Common Unitholders............ $ 84,532 $ 84,532
Subordinated Unitholders...... 99,483 99,483
General Partner (2)........... (62,622) (62,622)
OPERATING DATA:
Retail propane sales 499,042 482,211 495,707 553,413 540,309 23,915 564,224
volumes (in gallons).........
Capital expenditures (3):
Maintenance................. $ 5,428 $ 7,958 $ 10,250 $ 10,527 $ 4,777 $ 911 $ 5,688
Growth...................... 10,447 2,478 3,342 2,851 3,049 983 4,032
Acquisition................. 18,005 25,305 10,112 897 2,551 878 3,429
-------- -------- -------- -------- ------------- ------------- -------------
Total..................... $ 33,880 $ 35,741 $ 23,704 $ 14,275 $ 10,377 $ 2,772 $ 13,149
======== ======== ======== ======== ============= ============= =============
SUPPLEMENTAL DATA:
Earnings before
depreciation,
amortization,
interest and taxes (4)...... $ 87,909 $ 99,196 $ 87,604 $ 89,393 $ 97,974 $ (8) $ 97,466
Fixed Charge Coverage Ratio (5) 3.5x
</TABLE>
- ------------------
(1) In August 1991, Ferrellgas revised the estimated useful lives of storage
tanks from 20 to 30 years in order to more closely reflect 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) Pursuant to the Partnership's Agreement of Limited Partnership (the
"Partnership Agreement"), the net loss from operations is allocated 100% to
the General Partner from inception of the Partnership to the last day of the
taxable year ending July 31, 1994. An amount equal to 99% of this net loss
will be reallocated to the limited partners in the following taxable year
based on their ownership percentage. In addition, the retirement of debt
assumed by the Partnership resulted in an extraordinary loss of
approximately $60,062,000 resulting from debt payment premiums, consent fees
and the write-off of unamortized discount and financing costs. In accordance
with the Partnership Agreement, this extraordinary loss is allocated 100% to
the General Partner and will not be reallocated to the limited partners in
the next taxable year.
(3) 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 customer base and operating capacity; 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.
(4) 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.
(5) Such ratio is calculated for the preceding four-quarter period. Under the
terms of the Indenture (as defined in the glossary), the Operating
Partnership will be prohibited from making any distributions to the
Partnership if the Operating Partnership's Fixed Charge Coverage Ratio (as
defined in the glossary) for the preceding four fiscal quarters does not
exceed 2.25 to 1 after giving effect to such distribution.
12
<PAGE>
THE OFFERING
Securities offered................ 2,400,000 Common Units to be issued in
connection with the acquisition of
businesses, properties or securities in
business combinations.
Units to be outstanding after this 16,638,392 Common Units representing a
offering........................ 49.1% limited partner interest in the
Partnership and 16,593,721 Subordinated
Units representing a 48.9% limited
partner interest in the Partnership.
Distributions of Available Cash... The Partnership will distribute 100% of its
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
reserves. 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
discretion in making cash disbursements
and establishing reserves, thereby
affecting the amount of Available Cash.
See "Cash Distribution Policy." Available
Cash will generally be distributed 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. See "Cash
Distribution Policy-Quarterly
Distributions of Available Cash-Incentive
Distributions-Hypothetical Annualized
Yield."
Distributions to Unitholders...... With respect to each quarter during the
Subordination 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
Distribution on the Common Units for
prior quarters, before any distributions
of Available Cash are made to the
Subordinated Unitholders. For the period
ending October 31, 1994, the Minimum
Quarterly Distribution will be adjusted
to include the period from July 5, 1994
through July 31, 1994. Subordinated Units
will not accrue distribution arrearages.
Upon the expiration of the Subordination
Period, Common Units will no longer
accrue distribution arrearages.
Subordination Period; Conversion of The Subordination Period will extend from
Subordinated Units.............. 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
13
<PAGE>
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 5,531,240
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. 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 convert 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
distributed, 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
Distributions of Available Cash."
Adjustment of Minimum Quarterly The Minimum Quarterly Distribution and the
Distribution and target target distribution levels for the
distribution levels............. incentive distributions are subject to
downward adjustments in the event that
Unitholders receive distributions of Cash
from Interim Capital Transactions, as
defined in the glossary (which generally
include transactions such as borrowings,
refinancings, sales of securities or
sales or other dispositions of assets
constituting a return of capital under
the Partnership Agreement, as
distinguished from cash from Partnership
operations), or in the event legislation
is enacted or existing law is modified or
interpreted in a manner that causes the
Partnership to be treated as an
association taxable as a corporation or
otherwise taxable as an entity for
federal, state or local 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 distributed thereafter.
See "Cash Distribution Policy-Quarterly
Distributions of Available Cash-
Distributions of Cash from Interim
Capital Transactions"
14
<PAGE>
and "-Adjustment of Minimum Quarterly
Distribution and Target Distribution
Levels."
Transfer of Units................. Persons acquiring Common Units in business
combinations pursuant to this offering
will be typically required to agree to
hold such Common Units for a period of
two years after the date of acquisition
unless the General Partner agrees to a
shorter holding period or to waive such
requirement in the future.
Potential for significant The Partnership Agreement authorizes the
additional dilution in the General Partner to cause the Partnership
future.......................... 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
the Unitholders, 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 (which may
include the Common Units issued in
business combinations pursuant to this
offering) 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%
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 (as defined in the
glossary) 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 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
junior to, on a parity with or senior to
the Common Units. See "Risk Factors-Risks
Inherent in an Investment in the
Partnership-The Partnership May Issue
Additional Units, Diluting Existing
Unitholders' Interests."
15
<PAGE>
Limited call right................ If at any time the General Partner and its
affiliates 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 limited partner interests 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 partner
interests of such class within the
previous 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
Agreement-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 certain cases a
greater percentage) of the outstanding
Units (excluding in some cases Units held
by the General Partner and its
affiliates): a sale or exchange of all or
substantially all of the Partnership's
assets, the withdrawal or removal of the
General Partner, the election of a
successor General Partner, a dissolution
and plan of liquidation or reconstitution
of the Partnership, a merger of the
Partnership, issuance of Units in certain
circumstances, approval of certain
actions of the General Partner (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 corporation.
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 Partnership
Agreement-Restrictions on Authority of
the General Partner," "-Amendment of
Partnership Agreement," "-Meetings;
Voting" and "-Termination and
Dissolution."
Inability to remove general Subject to certain conditions, the General
partner without consent of Partner may be removed upon the approval
Ferrell......................... of the holders of at least 66% of the
outstanding 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 56.9%
limited partner interest (52.8% upon
completion of the issuance of Common
Units offered pursuant to this
Prospectus) effectively precludes any
vote to remove
16
<PAGE>
Ferrellgas as general partner without the
consent of Ferrell. See "The Partnership
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 ownership 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
Partnership other than for cause, the
Subordination 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 Subordinated
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. These
provisions 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. The effect
of these provisions may be to diminish
the price at which the Common Units will
trade under certain circumstances. 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 The holders of Common Units do not have
Unitholders..................... preemptive rights to acquire additional
Common Units or other partnership
interests that may be issued by the
Partnership. See "Risk Factors-Risks
Inherent in an Investment in the
Partnership-The Partnership May Issue
Additional Units, Diluting Existing
Unitholders Interests." Ferrellgas and
its affiliates, however, have certain
rights to acquire interests in the
Partnership in order to maintain their
percentage interests in the Partnership.
See "The Partnership Agreement-Issuance
of Additional Securities."
Lack of dissenters' rights........ 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.
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 allocations will be made to
the transferee. Any such transferee who
signs a Transfer Application will be
entitled to cash
17
<PAGE>
distributions and federal income tax
allocations without the necessity of any
consent of the General Partner. 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
Partnership during the Subordination
Period, the outstanding Common Units
generally will be entitled to receive a
distribution out of the net assets of the
Partnership in preference to liquidating
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."
Listing........................... The Common Units are listed on the NYSE.
Application will be made to list the
Common Units offered hereby on the NYSE.
NYSE symbol....................... FGP
18
<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, and deductions. 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. As described in greater detail later
in "Consequences of Exchanging Assets for Common Units," however, a Unitholder
acquiring Units in exchange for a conveyance of assets to the Partnership will
be required to take into account certain special allocations of income and loss
for federal income tax purposes relating to the conveyed assets. 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.
CONSEQUENCES OF EXCHANGING ASSETS FOR COMMON UNITS
In general, no gain or loss will be recognized for federal income tax purposes
by the Partnership or by a person (including any individual, partnership, S
corporation or corporation taxed under Subchapter C of the Code) contributing
property to the Partnership in exchange for Common Units. If the Partnership
assumes liabilities or takes assets subject to liabilities in connection with a
contribution of assets in exchange for Common Units, however, taxable gain may
be recognized by the contributing person in certain circumstances. Any existing
tax gain (generally, the excess of fair market value over tax basis) is
recognized over the period of time during which the Partnership claims
depreciation or amortization deductions with respect to the contributed
property, or when the contributed property is disposed of by the Partnership.
See "Tax Considerations-Consequences of Exchanging Assets for Common Units."
19
<PAGE>
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 has made 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 Unitholder
acquiring Units in exchange for a conveyance of assets to the Partnership will
generally have an initial basis equal to the basis he had in those assets. A
Unitholder's basis is generally increased by his share of Partnership income and
decreased by his share of Partnership losses and distributions. 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. 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.
20
<PAGE>
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. It is arguable that the Partnership will not be
subject to the registration requirement on the basis that it will not constitute
a tax shelter. Nevertheless, the Partnership has registered as a tax shelter
with the IRS, and the IRS has issued the following tax shelter registration
number to the Partnership: 94201000010. 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."
21
<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 as well as the other information set forth in this
Prospectus in evaluating an investment 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 Ferrellgas' operating
areas in fiscal 1992 and 1993 were warmer than historical standards, thus
lowering demand for propane. Average winter temperatures as measured by degree
days across Ferrellgas' operating areas in fiscal 1994 were 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 Partnership 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 Ferrellgas' high retention of retail customers has
been its ability to deliver propane during periods of extreme demand. To help
ensure this capability, the Partnership intends to continue engaging in the
brokerage and trading of propane and other natural gas liquids historically
performed by Ferrellgas. 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 Partnership seeks to minimize its trading risks through the
enforcement of trading policies, which include total inventory limits and loss
limits. Personnel responsible for trading activities have an average of over 10
years of trading experience with Ferrellgas. 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 Ferrellgas 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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THE RETAIL PROPANE BUSINESS EXPERIENCES COMPETITION FROM OTHER ENERGY SOURCES
AND WITHIN THE INDUSTRY
The Partnership competes 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 are 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
Partnership is a defendant in various legal proceedings and litigation arising
in the ordinary course of business. The Partnership maintains 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 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 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
Ferrellgas 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.
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 IS DEPENDENT UPON KEY PERSONNEL OF THE GENERAL PARTNER
The General Partner believes its success has been 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 General
Partner. 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 Partnership and its predecessors for
nearly 30 years and who indirectly owns more than 50% of the Partnership, has
indicated to the Partnership that he intends to continue as chief executive
officer of the General Partner.
RISKS INHERENT IN AN INVESTMENT IN THE PARTNERSHIP
THE OPERATING PARTNERSHIP HAS INCURRED SUBSTANTIAL INDEBTEDNESS; SUCH
INDEBTEDNESS MAY LIMIT THE PARTNERSHIP'S ABILITY TO MAKE DISTRIBUTIONS
The Operating Partnership is liable for approximately $268.9 million in
indebtedness. As a result, the Partnership is highly leveraged and has
indebtedness that is substantial in relation to its 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 contains 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. For
example, the Indenture prohibits the Operating Partnership from making any
distributions to the Partnership 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. The Fixed Charge Coverage Ratio on a
pro forma basis for the four quarter periods ending July 31, 1994 was 3.5 to 1.
The Operating Partnership has $65 million of outstanding indebtedness bearing
interest at floating rates. In addition, pursuant to the Credit Facility, the
Operating Partnership has available an additional $170 million of borrowings,
all of which bears interest at floating rates. As a result, the Operating
Partnership will be subject to increases in interest rates 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 issued by the Operating Partnership contain sinking fund
provisions for only $10 million and the balance of $240 million is 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
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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 General Partner and its predecessors
for nearly 30 years and who indirectly owns more than 50% 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.
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 Partnership. 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
Common Units have only limited voting rights on matters affecting the
Partnership's business. As a result of such limited voting rights, holders of
Common Units do 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. Ferrell owns Units representing more than 50% limited
partner interest in the Partnership. Consequently, Ferrell's percentage
ownership of limited partner interests effectively precludes 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
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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."
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, 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 MANAGES AND OPERATES THE PARTNERSHIP
The General Partner manages and operates the Partnership. Holders of Common
Units 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 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."
THE PARTNERSHIP MAY ISSUE ADDITIONAL UNITS, DILUTING EXISTING UNITHOLDER'S
INTERESTS
During the Subordination Period the Partnership may issue up to 7,000,000
Common Units (excluding Common Units issued upon conversion of Subordinated
Units into Common Units but which may include all or a portion of the 2,400,000
Common Units offered hereby) 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 (which may include all or a
portion of the 2,400,000 Common Units offered hereby). See "The Partnership
Agreement-Issuance of Additional Securities." The effect of any such issuance
(including the issuance of the 2,400,000 Common Units offered hereby) 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 has 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 HAS 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 acquire all, but not less than all, of
the remaining Common Units held by such unaffiliated persons. The
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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.
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
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.
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(ii) The Partnership does not have any employees and relies 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 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, depending on the nature of such conflict, but it does
not intend to do so in most cases. 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."
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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 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
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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 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
30
<PAGE>
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.
CONSEQUENCES OF EXCHANGING ASSETS FOR COMMON UNITS
In general, no gain or loss will be recognized for federal income tax purposes
by the Partnership or by a person (including any individual, partnership, S
corporation or corporation taxed under Subchapter S of the Code) contributing
property to the Partnership in exchange for Common Units. If the Partnership
assumes liabilities in connection with a contribution of assets in exchange for
Common Units, however, taxable gain may be recognized by the contributing person
in certain circumstances.
AMORTIZATION OF CUSTOMER RELATIONSHIPS
In connection with the formation of the Partnership, the General Partner
contributed 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 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
31
<PAGE>
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. 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."
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.
32
<PAGE>
RECENT DEVELOPMENTS
RESTRUCTURING TRANSACTIONS
As of July 5, 1994, Ferrellgas contributed all of its propane business and
assets to the Partnership in exchange for 1,000,000 Common Units, 16,593,721
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 assumed 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 assumed 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 was retired with the net proceeds from the
sale by the Partnership of the Common Units offered by the Partnership in its
initial public offering ($255.0 million) and the net proceeds from the issuance
of approximately $250 million in aggregate principal amount of Senior Notes
which were issued by the Operating Partnership on July 5, 1994 ($244.1 million).
The Partnership incurred an extraordinary loss of approximately $17.6 million
related to the retirement of the Existing Senior Notes, approximately $31.2
million relating to retirement of the Existing Subordinated Debentures and
approximately $11.2 million relating to the write off of unamortized financing
costs, all in accordance with GAAP. The book value of the assets contributed to
the Partnership was approximately $90 million less than the liabilities assumed
by the Operating Partnership. As of July 5, 1994, the Operating Partnership
entered into the $185 million Credit Facility. The Credit Facility permits
borrowings of up to $100 million on a senior unsecured basis to fund working
capital and general partnership requirements (of which $50 million is available
to support letters of credit). In addition, up to $85 million of borrowings is
permitted on a senior unsecured basis, at least $70 million of which is
available solely to finance acquisitions and growth capital expenditures, of
which $25 million remains unused.
Ferrellgas retained and did 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. Ferrellgas loaned $25 million to Ferrell and dividended to Ferrell the
remainder of the cash, receivables and Ferrell Class B Stock, as well as the
1,000,000 Common Units, 1,650,000 Subordinated Units and the Incentive
Distribution Rights received by the Company in exchange for the contribution of
its propane business and assets to the Partnership.
On July 5, 1994, the Operating Partnership borrowed approximately $15 million
under the Credit Facility to enable the Partnership to commence operations with
an initial cash balance of approximately $20 million. For a description of the
Credit Facility, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."
VISION ACQUISITION
On September 30, 1994, Ferrellgas and Bell Atlantic Enterprises International,
Inc. ("Bell") entered into a Stock Purchase Agreement pursuant to which
Ferrellgas agreed to purchase all of the capital stock of Vision Energy
Resources, Inc. ("Vision") from Bell for a cash purchase price of $45 million.
This transaction was consummated on November 1, 1994. The Partnership believes
that Vision is the sixteenth largest retail marketer of propane in the United
States, based on gallons sold, with 46 retail markets, 11 satellite locations
and other facilities located in the states of Florida, Michigan, Minnesota,
North Dakota, South Dakota and Wisconsin. For the twelve months ended July 31,
1994, Vision's retail propane sales volume was approximately 50 million gallons.
In addition, Vision had wholesale propane sales volume of approximately 56
million gallons during such period .
33
<PAGE>
Immediately following the closing of the purchase of Vision, Ferrellgas (i)
caused Vision and each of its subsidiaries to be merged into Ferrellgas (except
for a trucking subsidiary which dividended substantially all of its assets to
Ferrellgas) and (ii) transferred all of the assets of Vision and its
subsidiaries to the Operating Partnership. In exchange, the Operating
Partnership assumed substantially all of the liabilities, whether known or
unknown, associated with Vision and its subsidiaries (excluding income tax
liabilities). In consideration of the retention by Ferrellgas of the Vision
income tax liabilities, the Partnership issued 138,392 Common Units to
Ferrellgas. The liabilities assumed by the Operating Partnership included the
obligations of Ferrellgas under a $45 million loan agreement, pursuant to which
Ferrellgas borrowed funds to pay the purchase price for Vision. The Operating
Partnership repaid this loan immediately after the transfer of assets with funds
borrowed under its Credit Facility. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
The purchase of Vision was structured as a purchase by Ferrellgas rather than
the Partnership because the tax consequences of such structure were more
advantageous to the Partnership than other alternatives.
Certain historical financial statements for Vision, as well as pro forma
financial statements for the Partnership reflecting the acquisition of Vision,
are included elsewhere in this Prospectus.
USE OF PROCEEDS
All of the Common Units offered hereby may be issued from time to time by the
Partnership in connection with the Partnership's acquisition of other
businesses, properties or securities in business combination transactions. See
"Plan of Distribution." The Partnership is from time to time engaged in ongoing
discussions with respect to acquisitions, and expects to continue to pursue such
acquisition opportunities actively. As of the date of this Prospectus, the
Partnership does not have any agreements with respect to any material pending
acquisitions but is involved in ongoing discussions with several companies with
respect to acquisitions that would not be individually material but could be
material if all of such acquisitions were completed and aggregated. The
Partnership is continuing to assess these and other acquisition opportunities.
34
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the consolidated capitalization of the
Partnership at July 31, 1994, (ii) the pro forma adjustments required to reflect
the acquisition of Vision as of July 31, 1994, and (iii) the combined pro forma
capitalization of the Partnership at July 31, 1994 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>
JULY 31, 1994
----------------------------------------------
PARTNERSHIP PRO FORMA PARTNERSHIP
HISTORICAL ADJUSTMENTS(1) PRO FORMA
------------ ---------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt, including current portion of long-term debt.. $ 4,311 $ 489(1) $ 4,800
=========== ============= ===========
Long-term debt:
Fixed rate senior notes, interest at 10%, due in 2001........ 200,000 -- 200,000
Floating rate senior notes, interest at LIBOR rate plus
applicable margin (7.375% at July 31, 1994), due in 2001.... 50,000 -- 50,000
Credit Facility term loan borrowings, interest at
applicable rate (7.375% at July 31, 1994), due 2001......... 15,000 45,000 (2) 60,000
Other long-term debt......................................... 2,062 -- 2,062
----------- ----------- -----------
267,062 45,000 312,062
----------- ----------- -----------
Minority interest............................................ 1,239 73 (4) 1,312
Partners' capital:
Common Unitholders........................................... 84,532 3,100 (3) 91,319
3,687 (4)
Subordinated Unitholder...................................... 99,483 3,468 (4) 102,951
General Partner.............................................. (62,622) 72 (4) (62,550)
----------- ----------- -----------
Total partners' capital..................................... 121,393 10,327 131,720
----------- ----------- -----------
Total capitalization........................................ $389,694 $ 55,400 $ 445,094
=========== =========== ===========
</TABLE>
_________
(1) Represents the assumption of short-term debt by the Partnership in
connection with the acquisition of Vision by Ferrellgas.
(2) Reflects long-term borrowings of $45 million under the Credit Facility in
connection with the acquisition of Vision by Ferrellgas.
(3) Reflects the issuance of 138,392 Common Units at market value to Ferrellgas
in consideration of the retention of the income tax liabilities of Vision.
(4) Reflects Ferrellgas' contribution to the Partnership, representing the
excess of historical cost of the assets over liabilities and/or
consideration from received from the Parntership. The allocation to each
partner is based upon the relative Partnership ownership percentages
following the closing of the Vision acquisition.
PRICE RANGE OF COMMON UNITS
The Common Units began trading on the NYSE on June 28, 1994 under the trading
symbol "FGP." The high and low sales prices of the Common Units since that time
as reported on the NYSE are $22.625 and $20.875, respectively. For a recent sale
price of the Common Units, please see the cover page of this Prospectus. The
Common Units are held by approximately 665 holders of record as of November 10,
1994.
The Partnership has not yet made any cash distributions in respect of its
Common Units but expects to make such cash distributions on a quarterly basis
commencing with the fiscal quarter ending October 31, 1994. See "Cash
Distribution Policy."
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<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.
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
36
<PAGE>
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 July 5, 1994 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 5,531,240 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."
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:
37
<PAGE>
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");
38
<PAGE>
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");
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 pre-tax 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 initial public
offering price of $21.00 per Unit 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 9.524% 98% 0% 2%
First Target Distribution....... $0.55 10.476% 98% 0% 2%
Second Target Distribution...... $0.63 12.000% 85% 13% 2%
Third Target Distribution....... $0.82 15.619% 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."
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<PAGE>
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 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 $21.00 per Unit and if
Cash from Interim Capital Transactions of $10.50 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
40
<PAGE>
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 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;
41
<PAGE>
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;
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
If the transactions consummated as of July 5, 1994 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 fiscal year ended July 31, 1994, adjusted for
changes in working capital and assuming the Credit Facility was in place during
such fiscal year), would have been 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. On a pro forma
basis, Available Cash constituting Cash from Operations for the fiscal year
ended July 31, 1993 (calculated using actual net cash flows for such fiscal
year, adjusted for changes in working capital and assuming the Credit Facility
was in place during such fiscal year) 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.
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
42
<PAGE>
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.
43
<PAGE>
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents selected historical financial data of Ferrellgas
for each of the years ended July 31, 1990, 1991, 1992 and 1993, and for the
eleven months ended June 30, 1994, and historical financial data of the
Partnership for the period from inception to July 31, 1994, as well as pro forma
(adjusted for the transactions described in NOTE A of the Partnership's notes to
consolidated financial statements) information for the year ended July 31, 1994.
The income statement and balance sheet data for Ferrellgas for the fiscal years
ended July 31, 1990, 1991, 1992 and 1993, and the eleven months ended June 30,
1994, have been derived from the historical consolidated financial statements of
Ferrellgas, certain of which appear elsewhere in this Prospectus. The selected
financial data of the Partnership for the period from inception to July 31, 1994
and the pro forma year ended July 31, 1994, have been derived from the
consolidated financial statements of Ferrellgas Partners, L.P., which appear
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Ferrellgas, Inc. and Subsidiaries (Predecessor) Ferrellgas Partners, L.P.
--------------------------------------------------------------- ----------------------------
Historical Historical Pro Forma
Eleven Inception Year
Historical Year Ended July 31, Months to Ended
------------------------------------------------- Ended
1990 1991 1992 1993 June 30, July 31, July 31,
1994 1994 1994
--------- --------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues......................$ 467,641 $ 543,933 $501,129 $541,945 $ 501,990 $ 24,566 $ 526,556
Depreciation and amortization....... 33,521 36,151 31,196 30,840 26,452 2,383 28,835
Operating income (loss)............. 54,388 63,045 56,408 58,553 71,522 (2,391) 68,631
Interest expense.................... 55,095 60,507 61,219 60,071 53,693 2,662 28,130
Earnings (loss) from
continuing operations.............. (347) 1,979 (1,700)(1) 109 12,337 (5,026) 39,909
Earnings from continuing
operations per unit (2)............ --- $ 1.29
Cash distributions
declared per unit ................. --- ---
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital.....................$ 50,456 $ 53,403 $ 67,973 $ 74,408 $ 91,912 $ 34,948 $ 34,948
Total assets........................ 554,580 580,260 598,613 573,376 592,664 477,193 477,193
Payable to (receivable from)
parent and affiliates.............. 10,743 3,763 2,236 (916) (4,050) 13 13
Long-term debt...................... 465,644 466,585 501,614 489,589 476,441 267,062 267,062
Stockholder's equity................ 11,463 21,687 8,806 11,359 22,829
PARTNERS' CAPITAL:
Common Unitholders.................. $ 84,532 $ 84,532
Subordinated Unitholders............ 99,483 99,483
General Partner (2)................. (62,622) (62,622)
OPERATING DATA:
Retail propane sales
volumes (in gallons)............... 499,042 482,211 495,707 553,413 540,309 23,915 564,224
Capital expenditures (3):
Maintenance.......................$ 5,428 $ 7,958 $ 10,250 $ 10,527 $ 4,777 $ 911 $ 5,688
Growth............................ 10,447 2,478 3,342 2,851 3,049 983 4,032
Acquisition....................... 18,005 25,305 10,112 897 2,551 878 3,429
--------- --------- -------- -------- --------- --------- ---------
Total...........................$ 33,880 $ 35,741 $ 23,704 $ 14,275 $ 10,377 $ 2,772 $ 13,149
========= ========= ======== ======== ========= ========= =========
SUPPLEMENTAL DATA:
Earnings before depreciation,
amortization, interest
and taxes (4)..................... $ 87,909 $ 99,196 $ 87,604 $ 89,393 $ 97,974 $ (8) $ 97,466
Fixed Charge Coverage Ratio (5) 3.5x
</TABLE>
- ------------------
(1) In August 1991, Ferrellgas revised the estimated useful lives of storage
tanks from 20 to 30 years in order to more closely reflect 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) Pursuant to the Partnership's Agreement of Limited Partnership (the
"Partnership Agreement"), the net loss from operations is allocated 100% to
the General Partner from inception of the Partnership to the last day of the
taxable year ending July 31, 1994. An amount equal to 99% of this net loss
will be reallocated to the limited partners in the following taxable year
based on their ownership percentage. In addition, the retirement of debt
assumed by the Partnership resulted in an extraordinary loss of
approximately $60,062,000 resulting from debt payment premiums, consent fees
and the write-off of unamortized discount and financing costs. In accordance
with the Partnership Agreement, this extraordinary loss is allocated 100% to
the General Partner and will not be reallocated to the limited partners in
the next taxable year.
(3) 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 customer base and operating
capacity; 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.
(4) 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.
(5) Such ratio is calculated for the preceding four-quarter period. Under the
terms of the Indenture (as defined in the glossary), the Operating
Partnership will be prohibited from making any distributions to the
Partnership if the Operating Partnership's Fixed Charge Coverage Ratio (as
defined in the glossary) for the preceding four fiscal quarters does not
exceed 2.25 to 1 after giving effect to such distribution.
44
<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 Ferrellgas 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 recently acquired and now operates the business and assets of
Ferrellgas. The Partnership is engaged in the sale, distribution, marketing and
trading of propane and other natural gas liquids. The Partnership's revenue is
derived primarily from the retail propane marketing business. The Partnership
believes it is the second largest retail marketer of propane in the United
States, based on gallons sold, serving more than 650,000 residential,
industrial/commercial and agricultural customers in 47 states and the District
of Columbia through approximately 461 retail outlets and 249 satellite
locations. Annual retail propane sales volumes were approximately 564 million,
553 million and 496 million gallons during the fiscal years ended July 31, 1994,
1993 and 1992, respectively.
The retail propane business of the Partnership 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. Based upon Ferrellgas' historical results, the Partnership
believes that its results for its first fiscal quarter (August, September and
October) and fourth fiscal quarter (May, June and July) will be 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 quarterly revenues for Ferrellgas for the period from
August 1, 1992 to April 30, 1994, and the combined historical revenues of
Ferrellgas and the Partnership for the fourth quarter ended July 31, 1994 :
QUARTERLY REVENUES
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
1993 % 1994 %
------------ ------ ----------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Quarter ended:
October 31.............. $ 116,497 21.5 $ 110,214 20.9
January 31.............. 191,499 35.3 193,922 36.8
April 30................ 160,306 29.6 146,341 27.8
July 31................. 73,643 13.6 76,079 14.5
-------- ------ -------- ------
Total.................. $ 541,945 100.0 $ 526,556 100.0
======== ====== ======== ======
</TABLE>
45
<PAGE>
The following table sets forth historical unaudited quarterly operating income
for Ferrellgas for the period from August 1, 1992 to April 30, 1994 and the
combined historical operating loss of Ferrellgas and the Partnership for the
fourth quarter ended July 31, 1994:
QUARTERLY OPERATING INCOME
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR
1993 % 1994 %
------------ ------ ------------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Quarter ended:
October 31.............. $ 3,823 6.5 $ 5,477 7.9
January 31.............. 39,186 66.9 45,960 66.5
April 30................ 21,699 37.1 24,008 34.7
July 31................. (6,155) (10.5) (6,314) (9.1)
------- ----- ------- -----
Total................ $58,553 100.0 $69,131 100.0
======= ===== ======= =====
</TABLE>
The Partnership's pro forma operating loss for the quarter ended July 31, 1994
of its 1994 fiscal year was $6,439,000.
The Partnership 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
Partnership is one of the largest independent traders of propane and natural gas
liquids in the United States. In pro forma fiscal year 1994, annual wholesale
and trading sales volume was approximately 1.7 billion gallons of propane and
other natural gas liquids, approximately 57% of which was propane. This volume,
when combined with the Partnership's retail volume, makes the Partnership 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 Partnership's pro forma fiscal year ended July 31,
1994 and Ferrellgas' fiscal years ended July 31, 1993 and 1992, net revenues
from trading activities were $6.8 million, $6.7 million and $4.9 million,
respectively.
RESULTS OF OPERATIONS
Although the Partnership was formed April 19, 1994, the first period of actual
propane operations was the one month ended July 31, 1994. As the propane
business is seasonal in nature, with peak activity in the winter months, July
sales volumes represent less than 5% of the Partnership's pro forma annual
sales, therefore, one month actual propane operation results are not indicative
of results to be expected for a full year.
INCEPTION TO JULY 31, 1994 VERSUS PRO FORMA JULY 31, 1993
Total Revenues. Total revenues decreased 7.4% to $24,566,000 as compared with
$26,535,000 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 38.5% to $4,918,000,
offset by revenues from retail operations increasing 6.0% to $19,648,000.
The decrease in revenues from other operations was primarily due to
fluctuating chemical feedstock market opportunities.
The increase in revenues from retail operations was primarily due to (i) an
increase in sales volume due to increased sales and (ii) to an increase in other
income. The volume of gallons sold, excluding acquisitions, increased revenues
by $361,000. Fiscal year 1994 and 1993 acquisitions increased revenues by
$160,000. Other income increased revenue by $592,000 primarily due to inventory
gas gains recognized from the emptying of an underground storage facility and
storage rental income.
46
<PAGE>
Gross Profit. Gross profit increased 10.9% to $11,355,000 as compared with
$10,235,000 for the prior period, due to an increase in retail operations gross
profit offset by a decrease in other operation's revenue due to normal market
fluctuations. Retail operations results improved due to increased sales volume
as discussed previously, to margin increases as a result of favorable changes in
the competitive pressures of the industry and to normal fluctuations in the
Partnership's product mix and other income as discussed above.
Operating Expenses. Operating expenses increased 21.4% to $10,078,000 as
compared with $8,299,000, for the prior period, primarily due to an increase in
general liability and workers' compensation expense during July 31, 1994, as
compared to July 31, 1993. However, for the pro forma fiscal year ended July 31,
1994, general liability and workers' compensation expense has decreased due to
improved claims administration.
Extraordinary Loss. The retirement of $477,600,000 of indebtedness assumed by
the Partnership resulted in an extraordinary loss of approximately $60,062,000
resulting from debt prepayment premiums, consent fees and the write-off of
unamortized discount and financing costs.
Net Loss. Net loss increased to $65,139,000 as compared with $4,322,000 for
the prior period primarily due to the extraordinary loss described above.
Eleven Months Ended June 30, 1994 versus June 30, 1993 (PREDECESSOR)
Total Revenues. Total revenues decreased 2.6% to $501,990,000 as compared with
$515,410,000 for the prior year period. The overall decrease was attributable to
revenues from other operations decreasing 17.2% to $67,386,000, offset by
revenues from retail operations increasing 0.1% to $434,604,000.
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 in revenues were the result of lower
product costs for chemical feedstocks and wholesale propane marketing resulting
in lower sales prices.
The increase in revenues from retail operations was primarily due to an
increase in sales volume due to cooler temperatures than those which existed in
the prior period offset by a decrease in selling price. The volume of gallons
sold, excluding acquisitions, increased revenues by $6,203,000. Fiscal year 1994
and 1993 acquisitions increased revenues by $1,915,000. Other income increased
revenue $954,000 primarily due to increased storage and equipment rental and
appliance sales. These increases were offset by a $8,473,000 decrease in sales
price due to lower product costs.
Gross Profit. Gross profit increased 5.2% to $245,895,000 as compared with
$233,677,000 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 Ferrellgas' product mix.
Operating Expenses. Operating expenses increased 2.8% to $135,058,000 as
compared with $131,318,000, 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 partially offset by a decrease in general liability and workers
compensation expense due to improved claims administration and decreased sales
and use tax audit assessments.
Depreciation and Amortization. Depreciation expense decreased 6.7% to
$26,452,000 as compared with $28,350,000 for the prior period due primarily to
extending the use of Ferrellgas' vehicles beyond the depreciable life and to the
reduction in the number of Ferrellgas owned vehicles.
47
<PAGE>
Net Interest Expense. Net interest expense decreased 3.8% to $50,094,000 as
compared with $52,080,000 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 deferred financing costs.
Net Earnings. Net earnings increased to $11,470,000 as compared with
$3,374,000 for the prior period primarily due to the increase in retail
operations sales volume and margins offset by increased operating expenses and
the fiscal 1994 extraordinary loss from early extinguishment of debt.
FISCAL YEAR ENDED JULY 31, 1993 VERSUS JULY 31, 1992 (PREDECESSOR)
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 2.6% to $89,979,000.
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.
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.
48
<PAGE>
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 (PREDECESSOR)
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, 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.
LIQUIDITY AND CAPITAL RESOURCES
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. Future capital needs of the Partnership are expected to be
provided by future operations, existing cash balances and the working capital
facility.
On September 30, 1994, Ferrellgas and Bell Atlantic Enterprises
International, Inc. ("Bell") entered into a Stock Purchase Agreement pursuant to
which Ferrellgas agreed to purchase all of the capital stock of Vision Energy
Resources, Inc. ("Vision") from Bell for a cash purchase price of $45 million.
Immediately following the closing of the purchase of Vision, Ferrellgas (i)
caused Vision and each of its subsidiaries to be merged into Ferrellgas (except
for a trucking subsidiary which dividended substantially all of its assets to
Ferrellgas) and (ii) transferred all of the assets of Vision and its
subsidiaries to the Operating Partnership. In exchange, the Operating
Partnership assumed substantially all of the liabilities, whether known or
unknown, associated with Vision and its subsidiaries and their propane business
(excluding income tax liabilities). In consideration of the retention by
Ferrellgas of the Vision income tax liabilities, the Partnership issued 138,392
Common Units to Ferrellgas. The liabilities assumed by the Operating Partnership
included the obligations of Ferrellgas under a $45 million loan agreement,
pursuant to which Ferrellgas borrowed funds to pay the purchase price for
Vision. Immediately following the transfer of assets and related transactions
described above, the Operating Partnership repaid the loan agreement with funds
borrowed under the Credit Facility.
Cash Flows from Operating Activities. Cash used by operating activities
decreased to ($12,066,000) for the one month ended July 31, 1994. This decrease
was attributable to decreases in net earnings, accounts payable, other
liabilities, and an increase in inventory.
Cash Flows From Investing Activities. During the one month ended July 31,
1994, the Partnership made aggregate expenditures, including intangibles and
organization costs, of $2,772,000 for property, plant and equipment. The
Partnership maintains its vehicle and transportation equipment fleet by leasing
light and medium duty trucks and tractors. The General Partner 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 Partnership's principal physical assets, are
generally long.
Cash Flows From Financing Activities. In July 1994, the Operating Partnership
issued $200,000,000 10% Fixed Rate Senior Notes (the "Fixed Notes') due 2001 and
$50,000,000 Floating Rate Senior Notes (the "Floating Notes" and, together with
the Fixed Notes, the "Senior Notes") due 2001. The net proceeds, along with the
$255,006,000 limited partner contribution from the Partnership (described in
NOTE A of the Operating Partnership's notes to consolidated financial
statements), were used to retire $477,600,000 of indebtedness of Ferrellgas
assumed by the Operating Partnership. The
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retirement of the indebtedness assumed by the Operating Partnership resulted in
an extraordinary loss of approximately $60,062,000 resulting from debt
prepayment premiums, consent fees and the write-off of unamortized discount and
financing costs.
The Senior Notes. The following is a summary of the terms of the Senior Notes,
which were issued as of July 5, 1994 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 are unsecured general obligations of
the Operating Partnership and are recourse to the General Partner in its
capacity as the general partner of the Operating Partnership. The $200 million
aggregate principal amount of Fixed Rate Senior Notes bear interest from the
date of issuance at the rate of 10.0% per annum, payable semi-annually in
arrears. The $50 million aggregate principal amount of Floating Rate Senior
Notes bear interest from the date of issuance at the three-month LIBOR rate plus
3 1/8%, adjusted quarterly, payable quarterly in arrears. The Senior Notes
mature on August 1, 2001. The Fixed Rate Senior Notes do not require any
mandatory redemption or sinking fund payment prior to maturity. The Floating
Rate Senior Notes require sinking fund payments of $5.0 million in each of 1999
and 2000, calculated to retire an aggregate of 20% of the Floating Rate Senior
Notes prior to maturity. The Fixed Rate Senior Notes are redeemable at the
option of the Operating Partnership, in whole or in part, at any time on or
after August 1, 1998 at redemption prices specified in the Indenture, plus
accrued and unpaid interest to the date of redemption. The Floating Rate Senior
Notes are redeemable at the option of the Operating Partnership on or after
August 1, 1995, in whole or in part, at a redemption price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest to the redemption
date. 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 contains 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 is 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 is 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 and its subsidiaries shall have in the
aggregate (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 July 1, 1994 (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 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.
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<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 July 31, 1994, the Fixed Charge Coverage Ratio for the preceding four
fiscal quarters was 3.5 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. On July 5, 1994, the Operating Partnership entered into a
$185,000,000 Credit Facility with Bank of America National Trust & Savings
Association ("BofA"), as Agent. The form of the loan agreement which governs the
Credit Facility is filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The Credit Facility permits borrowings of up to
$100,000,000 on a senior unsecured revolving line of credit basis (the "Working
Capital Facility"), to fund working capital and general partnership requirements
(of which up to $50,000,000 is available to support letters of credit). At July
31, 1994, $3,000,000 of borrowings were outstanding under the revolving line of
credit, and letters of credit outstanding, used primarily to secure obligations
under certain insurance and leasing arrangements, totaled $35,701,000. In
addition, the Credit Facility permits borrowings up to $85,000,000 on a senior
unsecured basis (the "Expansion Facility). Under the Expansion Facility
$15,000,000 was borrowed to retire existing indebtedness of the Operating
Partnership, $45,000,000 was borrowed for the purchase of Vision and $25,000,000
remains available to finance acquisitions and for capital additions and
improvements.
At the Operating Partnership's option, borrowings under the Credit Facility
may bear interest at the Base Rate (i.e. the higher of the Federal funds rate
plus 1/2% or BofA's reference rate), or the LIBOR rate, in each case plus an
applicable margin. The Credit Facility is committed for up to a three year
period, at which time the Working Capital Facility will expire. Borrowings under
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.
The loan agreement for the Credit Facility contains 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
52
<PAGE>
facilities and are not expected to affect materially and adversely the conduct
of the Partnership's business as described in this Prospectus.
Effects of Inflation. In the past, Ferrellgas 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 General Partner does not believe
normal inflationary pressures will have a material adverse effect on the
profitability of the Operating Partnership in the future.
Adoption of New Accounting Standards. As described in the notes to the
consolidated financial statements the Partnership has no employees and
is managed and controlled by the General Partner. The Partnership
assumed all liabilities, which included specific liabilities related to the
following employee benefits for the benefit of the employees of the General
Partner.
The General Partner provides post retirement medical benefits to a closed
group of approximately 400 retired employees and their spouses. The plan
requires the General Partner to provide primary medical benefits to the
participants until age 65, at which time the General Partner 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 Post retirement Benefits Other Than Pensions which
requires accrual of post retirement benefits (such as,,health care benefits)
during the years an employee provides services. The General Partner elected to
amortize the post retirement 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 year ended July 31, 1994, of adopting this statement was not
material to the pro forma financial statements of the Operating Partnership or
the historical financial statements of the Company.
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.
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.
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<PAGE>
In connection with the formation of the Partnership, the Company contributed
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."
54
<PAGE>
BUSINESS
GENERAL
The Partnership is engaged in the sale, distribution, marketing and trading of
propane and other natural gas liquids. The discussion that follows focuses on
the Partnership'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 were conveyed to the
Partnership on July 5, 1994. The Partnership believes it is the second largest
retail marketer of propane in the United States (as measured by gallons sold),
serving approximately 650,000 residential, commercial, agricultural and
industrial customers in 47 states and the District of Columbia through
approximately 461 retail outlets with 249 satellite locations in 38 states (some
outlets serve interstate markets). Annual retail propane sales volumes were
approximately 564 million gallons, 553 million and 496 million gallons during
the combined fiscal year of the Partnership and Ferrellgas ended July 31, 1994
and Ferrellgas' fiscal years ended July 31, 1993 and 1992, respectively.
Ferrellgas' EBITDA was $98.0 million, $89.4 million and $87.1 million for the
eleven-month period ended June 30, 1994 and the fiscal years ended July 31, 1993
and 1992, respectively. The Partnership's pro forma EBITDA was $97.4 million and
$88.9 million for the fiscal years ended July 31, 1994 and 1993, respectively.
Ferrellgas' net earnings for the eleven-month period ended June 30, 1994 were
$11.5 million and its net losses for the fiscal years ended July 31, 1993 and
1992 were $0.8 million and $11.7 million, respectively. The Partnership's
pro forma net earnings before extraordinary item were $39.9 million and $28.3
million for the fiscal years ended July 31, 1994 and 1993, respectively. The
retail propane business of the Partnership 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 Partnership also believes it is a leading natural gas liquids
trading company. Annual propane and natural gas liquids trading, chemical
feedstocks and wholesale propane sales volumes were approximately 1.7 billion,
1.2 billion and 1.3 billion gallons during the Partnership's pro forma fiscal
year ended July 31, 1994 and Ferrellgas' fiscal years ended July 31, 1993 and
1992, respectively.
RETAIL OPERATIONS
FORMATION
Ferrell, the parent of Ferrellgas, 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. Ferrellgas' 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, Ferrellgas acquired propane operations with annual retail sales
volumes of approximately 33 million gallons and in December 1986, Ferrellgas
acquired propane operations with annual retail sales volumes of approximately
395 million gallons. These major acquisitions and many other smaller
acquisitions significantly expanded and diversified Ferrellgas' geographic
coverage. In July 1994, the propane business and assets of Ferrellgas were
contributed to the Partnership.
BUSINESS STRATEGY
The Partnership's business strategy is to continue Ferrellgas' 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 33% of the total
retail propane market and much of the industry consisting of over 3,000 local or
regional companies. The Partnership'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 July 31, 1994, Ferrellgas has
acquired 70 local
55
<PAGE>
independent propane retailers which Ferrellgas believes were not individually
material. For the fiscal years ended July 31, 1990 to 1994 Ferrellgas spent
approximately $18.0 million, $25.3 million, $10.1 million, $0.9 million and $3.4
million, respectively, for acquisitions of operations with annual retail sales
of approximately 11.3 million, 18.0 million, 8.6 million, 0.7 million and 2.9
million gallons of propane, respectively. The General Partner believes that
approximately $7.5 million of capital expenditures will be required on an annual
basis to maintain the current business of 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.
The Partnership intends to initially concentrate its acquisition activities in
geographical areas in close proximity to its existing operations to acquire
propane retailers that can be efficiently combined with such operations to
provide an attractive return on its 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. The General Partner 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 Partnership believes that it
can be successful in competing for new customers. Since 1989, Ferrellgas 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 Partnership
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 Partnership
believes that within the retail propane industry approximately 12% of all
residential propane users switch suppliers annually. The Partnership's aim is to
minimize losses of existing customers while attracting as many new customers as
possible. To achieve this objective extensive market research was conducted by
Ferrellgas to determine the critical factors that cause customers to value their
propane supplier. Based upon the results of such surveys, Ferrellgas designed
and implemented a monthly process of assessing customer satisfaction in each of
its local retail markets. The Partnership 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
Partnership 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 Partnership 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 Partnership's customers lease their tanks from the
Partnership, as compared to approximately 60% of all propane customers
nationwide. The Partnership believes there is a significant growth opportunity
in marketing to the 40% of propane users that own their own tank. As a result,
the Partnership has directly sought to identify locations where it can achieve
rapid growth
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<PAGE>
by marketing more effectively to these potential customers. Ferrellgas 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
Partnership 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 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. Ferrellgas 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 Partnership has a network of approximately 461 retail outlets and 249
satellite locations marketing propane under the "Ferrellgas" trade name to
approximately 650,000 customers located in 47 states and the District of
Columbia. The Partnership's largest market concentrations are in the Midwest,
Great Lakes and Southeast regions of the United States. Ferrellgas has operated
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 Partnership utilizes marketing programs targeting both new and existing
customers. The Partnership emphasizes its superior ability to deliver propane to
customers as well as its training and safety programs. During the Partnership's
pro forma fiscal year ended July 31, 1994, sales to residential customers
accounted for 45% of retail propane sales volume, sales to industrial and other
commercial customers accounted for 35% of retail propane sales volume, sales to
agricultural customers accounted for 11% of retail propane sales volume and
sales to other customers accounted for 9% of 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 Partnership. No single customer of the Partnership accounts for 10% or more
of the Partnership'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 Partnership believes that the broad
geographic distribution of the Partnership operations helps to minimize the
Partnership'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 Ferrellgas in the second and
third quarters of fiscal year 1994, Ferrellgas 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
Ferrellgas' 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), which are determined by the
National Weather Service Central Analysis Center, with historical averages
periodically revised for changes in the population weighting as more current
Bureau of Census data becomes available, (ii) degree days as a percentage of the
average normal degree days as of 1994 (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 Ferrellgas, and (iv) a retail gross margin index for Ferrellgas
(demonstrating changes in retail gross margins from a base year of 100.0% in
1990) for the five fiscal years ended July 31, 1990 to 1994. The average degree
days in regions served by Ferrellgas have historically varied on an annual basis
by a greater amount than the average national degree days.
<TABLE>
<CAPTION>
For The Year Ended July 31,
----------------------------------------------
1990 1991 1992 1993 1994
-------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
National Degree Days............................. 4,549 4,211 4,303 4,559 4,619
Degree Days as % of 1994 Normal Degree Days (1).. 97.0% 89.8% 91.8% 99.7% 101.0%
Sales Volumes (in millions of gallons) (2)....... 499 482 496 553 564
Retail gross margin index(3)..................... 100.0% 116.3% 111.5% 102.7% 106.7%
</TABLE>
_____________
(1) 1994 and 1993 national degree days are based on population weighted census
data from 1961 to 1990. The normal average national degree days as of the
fiscal year ended July 31, 1994 were 4,575 on this same population census
basis. 1992, 1991 and 1990 degree days are based on population census data
from 1951 to 1980, and accordingly are based on normal average national
degree days as of the fiscal year ended July 31, 1993 which were 4,689 on
this same population census basis.
(2) From 1990 through 1994, 42 acquisitions were completed at a total cost of
approximately $57.7 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 11.3 million gallons, 18.0 million
gallons, 8.6 million gallons, 0.7 million gallons and 2.9 million gallons
for the fiscal years ended July 31, 1990 through 1994, respectively.
(3) Average retail gross margins, on a cents per gallon basis, are measured as a
percentage of fiscal 1990 retail gross margins. Average retail gross margins
in fiscal 1991 were affected by the Persian Gulf crisis.
58
<PAGE>
SUPPLY AND DISTRIBUTION
The Partnership 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 Partnership's ability to
buy large volumes of propane and (ii) the Partnership's large distribution
system and underground storage capacity, the Partnership 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 Partnership is not dependent upon any single supplier or group
of suppliers, the loss of which would have a material adverse effect on the
Partnership. For the year ended July 31, 1994, no supplier at any single
delivery point provided more than 10% of the Partnership's total domestic
propane supply. A portion of the Partnership'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 Partnership's contracts
specify certain minimum and maximum amounts of propane to be purchased
thereunder. The Partnership may purchase and store inventories of propane in
order to help insure uninterrupted deliverability during periods of extreme
demand. The Partnership 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 Partnership'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 Partnership
and highway transport trucks owned or leased by the Partnership. The Partnership
operates a fleet of 62 transport trucks to transport propane from refineries,
natural gas processing plants or pipeline terminals to the Partnership'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 Partnership's retail distribution outlets to customers by the
Partnership's fleet of 1,056 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 Partnership 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.
59
<PAGE>
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 Partnership
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 Partnership believes that the ten largest multi-state retail
marketers of propane, including the Partnership, account for less than 33% of
the total retail sales of propane in the United States. Based upon information
contained in industry publications, the Partnership also believes no single
marketer has a greater than 10% share of the total market in the United States
and that the Partnership is the second 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 Partnership'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 Partnership 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 Partnership consist of: (1) trading, (2) chemical
feedstocks marketing, and (3) wholesale propane marketing. The Partnership,
through its natural gas liquids trading operations and wholesale marketing, is
one of the largest independent traders of propane and natural gas liquids in the
United States. The Partnership 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 Partnership's traders are engaged in trading propane and other natural gas
liquids for the Partnership's account and for supplying the Partnership's retail
and wholesale propane operations. The Partnership 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 57% of the Partnership's total trading volume,
with the remainder consisting of various other natural gas liquids. The
Partnership attempts to minimize trading risk through the enforcement of its
trading policies, which include total 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 Partnership's pro forma fiscal
60
<PAGE>
year ended July 31, 1994 and Ferrellgas' historical fiscal years ended July 31,
1993 and 1992, net revenues from trading activities were $6.8 million, $6.7
million and $4.9 million, respectively.
CHEMICAL FEEDSTOCKS MARKETING
The Partnership is also involved in the marketing of refinery and
petrochemical feedstocks. Petroleum by-products are purchased from refineries
and sold to petrochemical plants. Revenues of $43.0 million, $54.0 million and
$50.6 million were derived from such activities for the Partnership's pro forma
fiscal year ended July 31, 1994 and Ferrellgas' fiscal years ended July 31, 1993
and 1992, respectively.
WHOLESALE MARKETING
The Partnership engages in the wholesale distribution of propane to other
retail propane distributors. During the fiscal years ended July 31, 1994, 1993
and 1992, the Partnership and Ferrellgas sold 61 million, 73 million and 95
million gallons, respectively, of propane to wholesale customers and had
revenues attributable to such sales of $22.5 million, $29.3 million and $37.7
million, respectively.
EMPLOYEES
At July 31, 1994, the General Partner had 2,313 full-time employees and 778
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 July 31, 1994, the General Partner's full-time employees were
employed in the following areas:
<TABLE>
<CAPTION>
<S> <C>
Retail Market Locations................ 1,959
Transportation and Storage............. 109
Field Services......................... 55
Corporate Offices (Liberty & Houston).. 190
-----
Total............................... 2,313
=====
</TABLE>
Approximately two percent of the General Partner's employees are represented
by nine local labor unions, which are all affiliated with the International
Brotherhood of Teamsters. The General Partner has not experienced any
significant work stoppages or other labor problems.
The Partnership's supply, trading, chemical feedstocks marketing, distribution
scheduling and product accounting functions are operated out of the
Partnership's offices located in Houston, Texas, by a total full time corporate
staff of 59 people.
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 Partnership is not 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 Partnership 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 employees
of the General Partner look for evidence of hazardous substances or the
existence of underground storage tanks.
61
<PAGE>
With respect to the transportation of propane by truck, the Partnership 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 Partnership operates. There are no material environmental claims pending and
the Partnership complies in all material respects with all material governmental
regulations and industry standards applicable to environmental and safety
matters.
SERVICE MARKS AND TRADEMARKS
The Partnership markets retail propane under the "Ferrellgas" tradename and
uses the tradename "Ferrell North America" for its other operations. In
addition, the Partnership has a trademark on the name "Ferrellmeter," its
patented gas leak detection device. Ferrellgas contributed all of its right,
title and interest in such tradenames and trademark in the continental United
States to the Partnership. The General Partner will have an option to purchase
such tradenames and trademark from the Partnership for a nominal value if the
General Partner is removed as general partner of the Partnership other than for
cause. If the General Partner 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 Partnership 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 July 31, 1994, Ferrellgas owned or leased the following transportation
equipment which is 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......... 70 - 70
Bulk delivery trucks....... 437 619 1,056
Pickup and service trucks.. 385 577 962
Railroad tank cars......... - 361 361
</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 Partnership provides to its retail customers
for propane storage. The Partnership 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 506,000 propane tanks are owned by the Partnership, most of
which are located on customer property and leased to those customers. The
Partnership also owns approximately 541,000 portable propane cylinders, most of
which are leased to industrial and commercial customers
62
<PAGE>
for use 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 Partnership for resale.
The Partnership owns underground storage facilities at Hutchinson, Kansas;
Adamana, Arizona; and Moab, Utah. At July 31, 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 Partnership's own
use.
The Partnership owns the land and two buildings (50,245 square feet of office
space) comprising its corporate headquarters in Liberty, Missouri, and 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 Partnership 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 Partnership does not believe that any such burdens will
materially interfere with the continued use of such properties in its business,
taken as a whole. In addition, the Partnership 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 Partnership'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 Partnership
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
Partnership maintains liability insurance policies with insurers in such amounts
and with such coverages and deductibles as management of the Partnership
believes is reasonable and prudent. However, there can be no assurance that such
insurance will be adequate to protect the Partnership 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 Partnership'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 Partnership.
BUSINESS OF FERRELLGAS FINANCE CORP.
Ferrellgas Finance Corp. (the "Finance Corp."), a Delaware corporation, was
formed April 28, 1994, and is a wholly-owned subsidiary of the Operating
Partnership. The Finance Corp. has nominal assets and does not conduct any
operations, but serves as co-obligor for securities issued by the Operating
Partnership. Certain institutional investors that might otherwise be limited in
their ability to invest in securities issued by partnerships by reasons of the
legal investment laws of their states of organization or their charter
documents, may be able to invest in the Operating Partner's securities because
the Finance Corp. is a co-obligor.
63
<PAGE>
MANAGEMENT
PARTNERSHIP MANAGEMENT
The General Partner manages and operates the activities of the Partnership,
and the General Partner anticipates that its activities will be limited to such
management and operation. Unitholders do not directly or indirectly participate
in the management or operation of the Partnership. The General Partner owes 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.
In September 1994, the General Partner appointed 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 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 does not directly employ any of the persons responsible for
managing or operating the Partnership. Such persons manage and operate the
Partnership's business as officers and employees of the General Partner. At July
31, 1994, 2,313 full-time and 778 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 General Partner. 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.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITION
- ---- --- ----- --------
<S> <C> <C> <C>
James E. Ferrell...... 55 1984 President, Chairman of the Board and a Director
Bradley A. Cochennet.. 40 - Executive Vice President and Managing Director, Retail
Danley K. Sheldon..... 36 - Senior Vice President, Chief Financial Officer and Managing Director
Rhonda E. Smiley...... 38 - Vice President, Legal Affairs
Daniel M. Lambert..... 53 1994 Director
A. Andrew Levison..... 38 1994 Director
</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 Executive Vice President and
Managing Director, Retail Division since September 1994, was Chief Operating
Officer from January 1993 to September 1994 and has been a Vice President of the
General Partner since 1985. Mr. Cochennet joined the General Partner in 1980.
64
<PAGE>
Danley K. Sheldon-Mr. Sheldon has been Chief Financial Officer of the General
Partner since January 1994 and has served as Treasurer since 1989. He joined the
General Partner in 1986.
Rhonda E. Smiley-Ms. Smiley joined the General Partner in 1991 as Director of
Legal Affairs and has been a Vice President of the General Partner since April
1994. Prior to joining the General Partner, Ms. Smiley practiced law with Shook,
Hardy & Bacon for ten years, the last five years as a partner.
Daniel M. Lambert-Dr. Lambert was elected a director of Ferrellgas in
September 1994. Dr. Lambert has served as President of Baker University in
Baldwin City, Kansas, since July 1, 1987.
A. Andrew Levison-Mr. Levison was elected a director of Ferrellgas in
September 1994. Mr. Levison has been a Managing Director of Donaldson, Lufkin &
Jenrette Securities Corporation since 1989. Mr. Levison is also a director of
Rickel Home Centers, Inc., a leading full-service home improvement retailer that
operates stores in the Northeastern United States.
COMPENSATION OF THE GENERAL PARTNER
The General Partner receives no management fee or similar compensation in
connection with its management of the Partnership and receives 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 and/or the General Partner owns 1,138,392 Common Units,
16,593,721 Subordinated Units and the Incentive Distribution Rights and is
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 President and to named
executive officers of the General Partner, for the fiscal years ended July 31,
1992, 1993 and 1994.
65
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------- ------------ -----------
OTHER LONG-
ANNUAL RESTRICTED STOCK TERM ALL OTHER
COMPEN- STOCK OPTIONS/ INCENTIVE COMPEN-
SALARY BONUS SATION AWARDS SARS PAYOUTS SATION
NAME AND POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- ----------------- ------- ----------- ----------- ---------- ---------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James E. Ferrell................ 1994 480,000 - - - - - 22,920(1)
President and Chairman 1993 480,000 13,000 - - - 1,502,080(2) 25,489
of the Board 1992 480,000 20,000 - - - - 32,401
Bradley A. Cochennet............ 1994 225,000 50,000 - - 2,678 - 13,249(3)
Executive Vice President 1993 150,000 - - - 2,762 - 9,315
1992 150,000 - - - - - 12,317
Danley K. Sheldon............... 1994 120,185 125,875 - - - - 7,693(3)
Senior Vice President and 1993 115,000 - - - - - 6,893
Chief Financial Officer 1992 103,320 - - - - - 9,626
Rhonda K. Smiley................ 1994 133,070 25,875 - - - - 8,751(3)
Vice President, Legal Affairs 1993 125,375 9,900 - - - - -
1992 63,743 - - - - - -
Brian M. Smith (4).............. 1994 111,575 52,901 - - - - 6,976(3)
Vice President of Marketing 1993 99,354 - - - - - 1,995
and Communications 1992 70,192 - - - - - -
</TABLE>
__________
(1) Includes (i) General Partner contributions of $10,487 to the employee's
401(k) and profit sharing plans and (ii) compensation of $12,433 resulting
from the General Partner's payment of split dollar life insurance premiums.
(2) Early purchase of all of the employee's 64,000 Equity Units under Ferrell's
Long-Term Incentive Plan at a price of $23.47 per Unit.
(3) General Partner contributions to the employee's 401(k) and profit sharing
plans.
(4) Mr. Smith resigned effective July 31, 1994.
UNIT OPTION PLAN
Effective as of August 1 1994, the General Partner adopted the Ferrellgas
Unit Option Plan (the "Unit Option Plan"), which permits the issuance of options
(the "Unit Options") covering up to 750,000 Subordinated Units, subject to
adjustments in certain circumstances. The Unit Option Plan has been designed to
furnish additional incentive compensation to selected employees of the General
Partner and to increase their personal and proprietary interest in the future
performance of the Partnership measured in terms of growth in the market value
of Units. The Unit Option Plan will be administered by the Option Committee of
the Board of Directors of the General Partner (the "Option Committee"). The
Option Committee, at its sole discretion and authority, will determine the
employees who are eligible to participate in the Unit Option Plan and the date
of grant, recipient, number of Units, exercise price, vesting schedule, duration
and other terms and conditions of each option granted under the Unit Option
Plan.
Options granted by the General Partner pursuant to the Unit Option Plan will
relate to Subordinated Units until conversion of Subordinated Units into Common
Units, at which time such options will automatically convert into options on
Common Units. The General Partner has the right to call any Subordinated Units
issued upon exercise of Unit Options at any time prior to conversion of the
Subordinated Units into Common Units. Upon exercise of a Unit Option, the
General Partner will acquire Units from the Partnership at a price equal to the
then market value of such Units, based on then prevailing prices on the NYSE.
The General Partner will be entitled to reimbursement by the Partnership for the
difference between the cost incurred by the General Partner in acquiring such
Units, and the proceeds received by the General Partner from an optionee at the
time of exercise. Thus, the cost of
66
<PAGE>
the Unit Options will be borne by the Partnership. If the Partnership issues new
Units upon exercise of such options, the total number of Units will increase.
As a general rule, no tax is imposed on the optionee upon the grant of a Unit
Option under the Unit Option Plan and neither the Partnership nor the General
Partner will be entitled to a tax deduction by reason of such a grant.
Generally, upon the exercise of a Unit Option, the optionee will be treated as
receiving compensation taxable as ordinary income in the year of exercise in an
amount equal to the excess of the fair market value of the Units on the date of
exercise over the option exercise price. Upon the exercise of a Unit Option by
an optionee who is employed by the General Partner, the General Partner may
claim a deduction for compensation paid at the same time and in the same amount
as compensation income is recognized to the optionee assuming any federal income
tax withholding requirements are satisfied. As the Partnership will reimburse
the General Partner for the difference between the cost incurred by the General
Partner in acquiring Units to satisfy such an exercise and the proceeds received
by the General Partner from the optionee in connection with such exercise, the
General Partner will be treated as receiving income in the amount of such
reimbursement and the Partnership may claim a deduction for such payment. Upon a
subsequent disposition of the Units received upon exercise of a Unit Option, any
appreciation after the date of exercise should qualify as capital gain. If the
Units received upon the exercise of a Unit Option are transferred to the
optionee subject to certain restrictions, then the taxable income realized by
the optionee, unless the optionee elects otherwise, and the corresponding tax
deduction (assuming any federal income tax withholding requirements are
satisfied) should be deferred and should be measured at the fair market value of
the Units at the time the restrictions lapse. The restrictions imposed on
certain individuals by Section 16(b) of the Securities Exchange Act of 1934, as
amended, may constitute such a transfer restriction during the period prescribed
thereby if other Units have been purchase by such an individual within six
months of the exercise of a Unit Option.
The Board of Directors of the General Partner in its discretion may terminate
the Unit Option Plan at any time with respect to any Units for which a grant has
not theretofore been made. The Board of Directors will also have the right to
alter or amend the Unit Option Plan or any part thereof from time to time;
provided, however, that no change in any Unit Option theretofore made may be
made which would impair the rights of the optionee without the consent of such
optionee; and provided further, that without the approval of the Unitholders no
such amendment or alteration will be made that would: (i) increase the total
number of Units available for Unit Options under the Unit Option Plan; (ii)
change the class of individuals eligible to receive Unit Options; (iii) extend
the maximum period during which Unit Options may be granted under the Unit
Option Plan; or (iv) materially increase the benefits accruing to participants
under the Unit Option Plan.
Concurrently with the adoption of the Unit Option Plan, the General Partner
granted Unit Options for a total of 657,000 Subordinated Units at an exercise
price of $16.80 per Subordinated Unit. Such options vest over a period of three
to five years. All of such options expire on the tenth anniversary of the date
of grant. Unit Options were granted to the following executive officers of the
General Partner: Mr. Cochennet, 3,000; Mr. Sheldon, 70,000; and Ms. Smiley,
20,000. A total of 93,000 Unit Options were granted to all executive officers as
a group.
STOCK OPTION TABLES
The Board of Directors of Ferrell adopted the 1992 Key Employee Stock Option
Plan (the "Option Plan") on June 26, 1992. The Option Plan reserves 100,000
shares of Class M Common Stock of Ferrell for the purpose of allowing Ferrell to
offer options on the Class M Common Stock to officers and key employees of
Ferrell and the General Partner. The value of each share of Class M Common Stock
is determined by the Board of Directors of Ferrell and shall not be less than
fair market value of such stock on the date the option is granted. The following
table sets forth the option grants for the fiscal year ended July 31, 1994:
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<TABLE>
<CAPTION>
INDIVIDUAL GRANT POTENTIAL REALIZED
-------------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK APPRECIATIONS
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(2)
OPTIONS TO EMPLOYEES PRICE EXPIRATION -------------------
NAME GRANTED IN FISCAL YEAR ($/SH) DATE 5% 10%
---- --------- ------------------ ---------- --------------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Bradley A. Cochennet.. 2,678 91% $56.01 08/02/03 $94,000 $239,000
Geoffrey H. Ramsden... 261 9% 56.01 (1) (1) (1)
</TABLE>
(1) Mr. Ramsden's options terminated as a result of his resignation in January
1994.
(2) These dollar amounts represent the potential realizable value of each grant
of options assuming that the market price of the Class M Common Stock
appreciates in value from the date of grant at 5% and 10% annual rates and
are not intended to forecast possible future appreciation, if any, of the
price of the Class M Common Stock.
The following table lists information on the named executive officer's
exercised/unexercised options for the fiscal year ended July 31, 1994:
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
NUMBER OF AT FY-END AT FY-END
SHARES ------------- ----------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED ($) UNEXERCISABLE UNEXERCISABLE($)
- ---------------------- ----------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
Bradley A. Cochennet.. - - 5,440/- $435,461/-
</TABLE>
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 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, 1994, a total of 30,000 Equity Units, awarded in previous
years, were outstanding to Bradley A. Cochennet, as named in the Summary
Compensation Table. During fiscal 1993, James
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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 fiscal years
ended July 31, 1994 and 1993, respectively, pursuant to the Plan for the benefit
of the Equity Unit holders. As of July 31, 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 General Partner 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 General Partner does not pay any 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
General Partner, 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 Ferrellgas and as
Director of Ferrell. In connection with such resignation, a severance agreement
was executed by and among Mr. Gfeller, Ferrellgas and Ferrell, whereby Mr.
Gfeller would receive $2.5 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 Ferrellgas and to the termination and
release of his participation in the Ferrell Long-Term Incentive Plan and all
bonus or performance plans maintained by Ferrellgas and Ferrell.
In January, 1994, Geoffrey H. Ramsden resigned as Vice President and Chief
Financial Officer of Ferrellgas. In connection with Mr. Ramsden's resignation,
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 following tables set forth certain information as of November 1, 1994,
regarding the beneficial ownership of (i) the Common and Subordinated Units of
the Partnership and (ii) the Class A and Class M common stock of Ferrell, the
parent company of the General Partner, in each case by certain beneficial owners
of such securities, by all directors of the General Partner and Ferrell, by each
of the executive officers
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<PAGE>
and by all directors and executive officers as a group. The General Partner
knows of no other person beneficially owning more than 5% of the Common Units.
<TABLE>
<CAPTION>
Ferrellgas Partners, L.P.
- -------------------------
UNITS PERCENT
TITLE OF NAME AND ADDRESS BENEFICIALLY OF
CLASS OF BENEFICIAL OWNER OWNED(1) CLASS
- ------------------------ --------------------------------------- ------------- -------
<S> <C> <C> <C>
Common Units............ Ferrell Companies, Inc.(2) 1,000,000 7.0%
Ferrellgas, Inc.(2) 138,392
Bradley Cochennet 500
Rhonda Smiley 500
Daniel M. Lambert 200
A. Andrew Levison 15,000
All Directors and Officers as a Group 16,200
Subordinated Units...... Ferrellgas, Inc.(2) 14,943,721(2) 90.1%
Ferrell Companies, Inc. 1,650,000(2) 9.9%
<CAPTION>
Ferrell Companies, Inc.
- -----------------------
SHARES
TITLE OF BENEFICIALLY PERCENT
CLASS NAME OF BENEFICIAL OWNER OWNED(2) OF CLASS
- ------------------------ ------------------------------------- ------------ --------
<S> <C> <C> <C>
Class A Common Stock.... James E. Ferrell(3) 2,562,680(4) 99.6%
All Directors and Officers as a Group 2,562,680 100%
Class M Common Stock(5). All Directors and Officers as a Group 4,325 28.1%
</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 Ferrellgas, Inc. and Ferrell Companies, Inc. is One Liberty
Plaza, Liberty, Missouri 64068. On August 1, 1994, Ferrellgas declared a
dividend and distributed to Ferrell 1,000,000 Common Units and 1,650,000
Subordinated Units. On November 1, 1994, the Partnership issued 138,392
Common Units to Ferrellgas in exchange for its retention of income tax
liabilities of Vision.
(3) The address for James E. Ferrell and Elizabeth J. Ferrell is c/o Ferrell
Companies, Inc., One Liberty Plaza, Liberty, Missouri 64068.
(4) 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.
(5) The shares of Class M Common Stock are restricted to eligible employees of
Ferrell and Ferrellgas and are non-voting and non-transferable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a discussion of certain relationships and related
transactions among affiliates of the Partnership.
In connection with the formation of the Partnership, substantially all of the
assets and liabilities of Ferrellgas were conveyed at historical cost to the
Operating Partnership, as described in the Ferrellgas Partners, L.P.'s notes to
consolidated financial statements.
On November 1, 1994, the General Partner transferred all of the assets of
Vision to the Operating Partnership in exchange for the assumption by the
Operating Partnership of all of the liabilities related to such assets
(excluding income tax liabilities. See "Recent Events--Vision Acquisition."
The Partnership has no employees and is managed and controlled by Ferrellgas.
Pursuant to the Partnership Agreement, Ferrellgas is entitled to reimbursement
for all direct and indirect expenses incurred or payments it makes on behalf of
the Partnership, and all other necessary or appropriate expenses allocable to
the Partnership or otherwise reasonably incurred by Ferrellgas in connection
with operating the Partnership's business. These costs, which totaled $7,561,000
from inception to July 31,
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<PAGE>
1994, include compensation and benefits paid to officers and employees of
Ferrellgas, and general and administrative costs. In addition, the conveyance of
the net assets of Ferrellgas to the Partnership included the assumption of
specific liabilities related to employee benefit and incentive plans for the
benefit of the officers and employees of Ferrellgas. The conveyance of the net
assets of Ferrellgas to the Partnership and the details of the employee benefit
plans are described in the Ferrellgas Partners, L.P.'s notes to the consolidated
financial statements.
A. Andrew Levison, a director of Ferrell and Ferrellgas, is a Managing
Director of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). DLJ
acted as an underwriter with regard to the public offering of Common Units and
Senior Notes described in NOTE A of Ferrellgas Partners, L.P.'s notes to the
consolidated financial statements and was paid total fees of $5,100,000.
The law firm of Smith, Gill, Fisher & Butts, a Professional Corporation, is
general counsel to the Partnership, Ferrellgas, Ferrell and their respective
subsidiaries and affiliates. David S. Mouber, a director of Ferrell at July 31,
1994, is a member of such law firm. The Partnership, Ferrell and their
respective subsidiaries paid such firm fees of $151,000 from inception to July
31, 1994.
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<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 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 July 5, 1994. 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. Ferrellgas owns a 2% general partner interest in the Partnership, and
Ferrell and/or Ferrellgas owns 1,138,392 Common Units and 16,593,721
Subordinated Units representing in the aggregate an approximate 56.9% limited
partner interest in the Partnership (52.8% upon completion of the issuance of
Common Units pursuant to this Prospectus) 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. 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
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<PAGE>
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 does not have any employees and relies 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 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.
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 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,
73
<PAGE>
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 in the Partnership's initial public offering on July 5,
1994, 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
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 UNITS ARE SUBJECT TO THE GENERAL PARTNER'S 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
Affiliates of the General Partner are not 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 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 is 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
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<PAGE>
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 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
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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 offered hereby will be registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder. The Partnership is subject to the reporting
and certain other requirements of the Exchange Act and is 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 are listed on the NYSE, 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. acts as a registrar and transfer
agent (the "Transfer Agent") for the Common Units and receives 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 Partnership 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 is the sole limited partner of the Operating
Partnership, which owns, manages and operates the Partnership's business. The
General Partner is 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. The General Partner holds an
aggregate 2% interest as general partner, and the Unitholders (including the
General Partner and/or Ferrell as an owner of Common Units, Subordinated Units
and Incentive Distribution Rights) 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 July 5, 1994, 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
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 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
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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, unless within 180 days after such withdrawal a majority
of the Unitholders agree in writing to continue
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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% 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 otherwise reasonably incurred by the General Partner in
connection with the operation of the Partnership's
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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 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
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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 upon conversion
of Subordinated Units but which may include Common Units issued pursuant to this
offering) 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.
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
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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 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
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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 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
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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 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
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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 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
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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.
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
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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
The General Partner and/or Ferrell owns 1,138,392 Common Units and 16,593,721
Subordinated Units, 5,531,240 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 Subordination Period will generally not end earlier than August
1, 1999. See "Cash Distribution Policy - Quarterly Distributions of Available
Cash." 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. The purchasers of
Common Units sold in this offering will typically be required to execute an
agreement, a form of which is included as Annex B, whereby such persons agree to
hold all Units acquired for a period of two years after the date of acquisition.
The agreement may be modified by the General Partner in connection with any
particular business combination. In addition, the agreement provides that the
holding period requirement may be waived by the General Partner.
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 upon conversion of Subordinated Units but which may include Common
Units issued pursuant to this offering) 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% 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.
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Pursuant to the Partnership Agreement, the General Partner and its affiliates
have the right, upon the terms and subject to the conditions therein, to cause
the Partnership to register under the 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 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.
PLAN OF DISTRIBUTION
This Prospectus may be used by the Partnership for the offer and sale of up to
2,400,000 Common Units from time to time in connection with the acquisition of
other businesses, properties or securities in business combination transactions.
The consideration offered by the Partnership in such acquisitions, in addition
to any Common Units offered by this Prospectus, may include assets, debt or
other securities (which may be convertible into Common Units covered by this
Prospectus), or assumption by the Partnership of liabilities of the business
being acquired, or a combination thereof. The terms of acquisitions are
typically determined by negotiations between the Partnership and the owners of
the businesses, properties or securities to be acquired, with the Partnership
taking into account the quality of management, the past and potential earning
power and growth of the businesses, properties or securities to be acquired, and
other relevant factors. Common Units issued to the owners of the businesses,
properties or securities to be acquired are generally valued at a price
reasonably related to the market value of the Common Unites either at the time
the terms of the acquisition are tentatively agreed upon or at or about the time
or times of delivery of the Common Units.
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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, except where specifically addressed, 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 acquisition, 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
acquisition, 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.
CONSEQUENCES OF EXCHANGING ASSETS FOR COMMON UNITS
RECOGNITION OF GAIN OR LOSS
In general, no gain or loss will be recognized for federal income tax purposes
by the Partnership or by a person (including any individual, partnership, S
corporation or corporation taxed under Subchapter C of the Code) contributing
property to the Partnership in exchange for Common Units. If the Partnership
assumes liabilities or takes assets subject to liabilities in connection with a
contribution of assets in exchange for Common Units, however, the application of
either one or both of two federal income tax rules may result in the recognition
of taxable gain by the contributing person.
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The first of these rules is the "disguised sale rule." Under the disguised
sale rule, if the Partnership assumes or takes property subject to a liability
of the contributing person other than a "qualified liability", the Partnership
is treated as transferring taxable consideration to the contributing person to
the extent that the amount of the liability exceeds the contributing person's
share of that liability immediately after the Partnership assumes or takes
subject to the liability. For this purpose, a qualified liability includes: (a)
a liability that was incurred by the partner more than two years prior to the
earlier of the date the partner agrees in writing to transfer the property or
the date the partner transfers the property to the Partnership and that has
encumbered the transferred property throughout that two-year period; (b) a
liability that was not incurred in anticipation of the transfer of the property
to the Partnership, but that was incurred by the partner within the two-year
period prior to the earlier of the date the partner agrees in writing to
transfer the property or the date the partner transfers the property to the
Partnership and that has encumbered the transferred property since it was
incurred; (c) a liability that is allocable under the rules of Treasury
Regulation (S)1.163-8T to capital expenditures with respect to the property; or
(d) a liability that was incurred in the ordinary course of the trade or
business in which property transferred to the Partnership was used or held but
only if all the assets related to that trade or business are transferred other
than assets that are not material to a continuation of the trade or business.
Assuming that any such liabilities are nonrecourse in nature (no partner of the
Partnership has any liability for failure to pay), a contributing persons
"share" of the liabilities will generally equal his Percentage Interest in the
Partnership multiplied by the amount of such liabilities.
If the disguised sale rule applies to a contribution of assets in exchange for
Common Units, the person contributing assets will recognize taxable gain in an
amount equal to the amount of taxable consideration determined as described
above, minus a proportionate share of the tax basis in the contributed assets.
The second rule under which a person contributing assets in exchange for
Common Units could recognize taxable gain is the "distribution in excess of
basis rule". Under this rule, a person contributing assets to the Partnership
will recognize gain if, and to the extent that, the difference between the
amount of such liabilities and the contributing person's share of those
liabilities (determined under the principles of Section 752 of the Code)
immediately following the transfer of assets to the Partnership exceeds the tax
basis of the assets contributed.
Any such gain may be taxed as ordinary income or capital gains. See
"Disposition of Common Units" below.
ALLOCATIONS OF INCOME, DEPRECIATION AND AMORTIZATION
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 in exchange for Common Units ("Contributed Property") (any
excess of the fair market value over the tax basis of Contributed Property is
referred to herein as "built-in gain"; any excess of the tax basis over fair
market value is referred to as "built-in loss"). These allocations are designed
to insure that a person contributing property to the Partnership will recognize
the federal income tax consequences associated with any built-in gain or built-
in loss. In general, a partner contributing assets with a built-in gain will not
recognize taxable gain upon the contribution of those assets in exchange for
Common Units. See - "Recognition of Gain or Loss" above. However, such built-in
gain will be recognized over the period of time during which the Partnership
claims depreciation or amortization deductions with respect to the Contributed
Property, or when the Contributed Property is disposed of by the Partnership.
BASIS OF COMMON UNITS
A person who contributes property to the Partnership in exchange for Common
Units will generally have an initial tax basis for his Common Units equal to the
tax basis of the property contributed to the Partnership in exchange for Common
Units. The tax basis for a Common Unit will be increased by the
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Unitholder's share of Partnership income and his share of increases in
Partnership debt. The basis for a Common Unit will be decreased (but not below
zero) by distributions from the Partnership (including deemed distributions
resulting from the assumption of indebtedness by the Partnership), by the
Unitholder's share of Partnership losses, by his share of decreases in
Partnership debt 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.
OWNERSHIP OF UNITS BY S CORPORATIONS
Section 1362(b) of the Code provides that certain small business corporations
may elect to be treated as an "S corporation". In order to elect S corporation
status, a corporation must not: (a) have more than 35 shareholders (a husband
and wife are treated as one shareholder); (b) have as a shareholder a person
(other than an estate and other than certain trusts) who is not an individual;
(c) have a nonresident alien as a shareholder; and (d) have more than one class
of stock. Further, a corporation cannot elect S corporation if it owns 80% or
more of the stock of another corporation. All of the shareholders of a
corporation must elect for the corporation to be treated as an S corporation.
The election is made by filing Form 2553, which must be filed on or before the
15th day of the third month of a taxable year in order for the election to be
effective for that taxable year. (A corporation that has not elected S
corporation status is referred to as a "C corporation").
In general, an S corporation is not subject to tax on its income. Instead,
each shareholder takes into account his pro rata share of the corporation's
items of income (including tax-exempt income), loss, deduction or credit. The
character of any item included in a shareholder's pro-rata share is determined
as if such item were realized or incurred directly by the shareholder. Thus, an
S corporation that exchanges its assets for Common Units will not generally pay
tax on its distributive share of partnership Income. Instead, such income will
be taxed as if the Common Units were held directly by the shareholders of the S
corporation.
Distributions made by an S corporation are generally nontaxable to the extent
they are made out of the corporation's "accumulated adjustments account", which
represents the undistributed income of the corporation accumulated subsequent to
the effective date of its S election. Distributions in excess of the accumulated
adjustments account are treated as taxable dividends to the extent that the
corporation has "subchapter C earnings and profits", which includes any earnings
and profits accumulated by a corporation prior to the date an S corporation
election is effective, reduced by any distributions that are treated as having
been made out of subchapter C earnings and profits. Distributions in excess of
the accumulated adjustments account and subchapter C earnings and profits are
treated as a return of capital to the extent of a shareholder's basis in his
stock, and are treated as gain from the sale or exchange of property to the
extent in excess of such basis.
A corporation that operates as a C corporation and subsequently makes an
election to be treated as an S corporation may be subject to tax on the excess
of the aggregate fair market value of its assets over the aggregate adjusted tax
basis of its assets as of the first day it is treated as an S corporation (any
such excess is referred to as "net unrealized built-in gain"). This tax is not
immediately imposed at the time of conversion to S corporation status. Instead,
if a C corporation converts to S corporation status, it will be subject to tax
on its net unrealized built-in gain if and to the extent that it has a net
recognized built-in gain at any time during the next ten years. If an S
corporation is subject to tax on built-in gain, the gain is recognized and taxed
to the corporation at the highest corporate tax rate, and is then passed through
(after reduction for corporate taxes paid) and taxed to the shareholder. A
corporation's net recognized built-in gain for any tax year is the lesser of the
net amount of the corporation's recognized built-in gains and recognized built-
in losses for the tax year or what the corporation's taxable income would have
been for the year had it been a C corporation.
Recognized built-in gain is defined as any gain recognized during the
recognition period (the 10 year period beginning with the first day as an S
corporation) on the disposition of any asset except to the extent that the
corporation can establish that the asset was not held by the corporation on its
first day
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as an S corporation or that the gain recognized exceeds the excess of the fair
market value of the asset as of the first day the corporation was an S
corporation over the adjusted basis of the asset on that date. Similarly, the
term recognized built-in loss means any loss recognized during the recognition
period on the disposition of any asset to the extent that the S corporation
establishes that the asset was held at the beginning of its first day as an S
corporation and that the loss does not exceed the excess of the adjusted basis
of the asset as of the corporation's first day as an S corporation over the fair
market value of the asset as of that date.
For example, assume that a corporation elects to be treated as an S
corporation on January 1, 1994, and that it has a net unrealized built-in gain
of $500,000. On January 1, 1994, it has a piece of equipment with a fair market
value of $1 million and a tax basis of $800,000. If the company sold this asset
in 1996 and had a tax gain of $300,000, the recognized built-in gain would be
$200,000. Assuming the company had no other recognized built-in gains or
recognized built-in losses for that tax year and that its taxable income had it
been a C corporation would have been greater than $200,000, a corporate tax
would be assessed on gain of $200,000.
Under the rules relating to taxation of an S corporation's built-in gains, if
an S corporation owns a partnership interest on the first day of its first
taxable year as an S corporation, or transfers property which it held on the
first day of its first taxable year as an S corporation to a partnership during
the recognition period, a disposition of the partnership interest during the
recognition period may result in recognized built-in gain, taxable as described
above. Thus, an S corporation receiving Common Units in exchange for its assets
could be taxable on a sale or other disposition of those Common Units within the
recognition period. In addition, under proposed Treasury regulations, sales or
other dispositions of assets (including inventory), by the Partnership, which
were contributed by an S corporation in exchange for Common Units could result
in the recognition of taxable built-in gain by the S corporation.
A C corporation electing S corporation status will be immediately taxable to
the extent of any "LIFO recapture amount". LIFO recapture amount is defined as
the amount by which inventory of the C corporation maintained on a LIFO basis
has a tax basis which is less than the tax basis the inventory would have had
had the corporation maintained its inventory using the FIFO method.
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.
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.
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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
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
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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.
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.
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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.
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
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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 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, was 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 or any
other person contributing property to the Partnership ("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
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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 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 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. 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 of such assets. The Partnership
assets have an aggregate tax basis equal to the tax basis of the assets in the
hands of the General Partner or other persons contributing property to the
Partnership immediately prior to their contribution to the Partnership, less any
amount of depreciation or amortization allowed or allowable since the time of
such contribution.
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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.)
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
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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 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.
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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 be
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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 instrumentality of either of the foregoing or (iii) a tax-exempt
entity; (c) the amount and description of
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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 it will not constitute a tax shelter. 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 IRS
has issued the following tax shelter registration number to the Partnership
94201000010. 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.
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
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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.
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.
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EXPERTS
The consolidated financial statements of Ferrellgas, Inc. as of June 30, 1994
and July 31, 1993 and for the eleven months ended June 30, 1994 and for
each of the two 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 LLP,
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 consolidated financial statements of Ferrellgas Partners, L.P. as of July
31, 1994, and for the period from inception (April 19, 1994) to July 31, 1994,
included in this Prospectus and the related financial statement schedules
included elsewhere in the Registration Statement have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports appearing herein
and elsewhere in the Registration Statement, and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The consolidated balance sheet of Vision Energy Resources, Inc. and
Subsidiaries, as of December 31, 1993 and the consolidated statements of income,
accumulated deficit and cash flows for the year then ended, included in this
Prospectus have been incorporated herein in reliance on the report, which
includes an explanatory paragraph for Vision's change in method of accounting
for income taxes, of Coopers & Lybrand LLP, independent accountants, given on
the authority of that firm as experts in accounting and auditing.
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.
111
<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-6
"Capital Additions and Improvements"..................................... A-6
"Capital Contribution"................................................... A-6
"Capital Interests"...................................................... 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-8
"Closing Price".......................................................... A-8
"Code"................................................................... A-8
"Combined Interest"...................................................... A-8
"Commission"............................................................. A-8
"Common Unit"............................................................ A-8
"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
</TABLE>
A-(i)
<PAGE>
<TABLE>
<S> <C>
"Event of Withdrawal"................................................... A-9
"Ferrell"............................................................... A-9
"Ferrellgas"............................................................ A-9
"First Liquidation Target Amount"....................................... A-9
"First Target Distribution"............................................. A-9
"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-10
"Issue Price"........................................................... A-10
"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-11
"Net Income"............................................................ A-11
"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-12
"Nonrecourse Liability"................................................. A-12
"Notice of Election to Purchase"........................................ A-12
"Operating Partnership"................................................. A-12
"Operating Partnership Agreement"....................................... A-12
"Opinion of Counsel".................................................... A-12
"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-13
"Per Unit Capital Amount"............................................... A-13
"Percentage Interest"................................................... A-13
"Person"................................................................ A-13
"Purchase Date"......................................................... A-13
</TABLE>
A-(ii)
<PAGE>
<TABLE>
<S> <C>
"Quarter"............................................................... A-13
"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-14
"Residual Loss"......................................................... A-14
"Restricted Activities"................................................. A-14
"Second Liquidation Target Amount"...................................... A-14
"Second Target Distribution"............................................ A-14
"Securities Act"........................................................ A-14
"Special Approval"...................................................... A-14
"Special Limited Partner"............................................... A-14
"Special Limited Partners Book Capital"................................. A-14
"Subordinated Unit"..................................................... A-14
"Subordination Period".................................................. A-14
"Subsidiary"............................................................ A-15
"Substituted Limited Partner"........................................... A-15
"Surviving Business Entity"............................................. A-15
"Termination Capital Transactions"...................................... A-15
"Third Target Distribution"............................................. A-15
"Trading Day"........................................................... A-15
"Transfer".............................................................. A-15
"Transfer Agent"........................................................ A-15
"Transfer Application".................................................. A-15
"Underwriter"........................................................... A-15
"Underwriting Agreement"................................................ A-15
"Unit".................................................................. A-15
"Unpaid MQD"............................................................ A-15
"Unrealized Gain"....................................................... A-16
"Unrealized Loss"....................................................... A-16
"Unrecovered Initial Unit Price"........................................ A-16
"Unrecovered Subordinated Unit Capital"................................. A-16
"Withdrawal Opinion of Counsel"......................................... A-16
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE III--PURPOSE...................................................... A-16
3.1 Purpose and Business.............................................. A-16
3.2 Powers............................................................ A-17
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE IV--CAPITAL CONTRIBUTIONS........................................ A-17
4.1 Initial Contributions; Return of Initial Contributions.......... A-17
4.2 Contributions by the General Partner and the Initial Limited
Partners........................................................ A-17
4.3 Issuances of Additional Units and Other Securites............... A-17
4.4 Limited Preemptive Rights....................................... A-19
4.5 Capital Accounts................................................ A-19
4.6 Interest........................................................ A-22
4.7 No Withdrawal................................................... A-22
4.8 Loans from Partners............................................. A-22
4.9 No Fractional Units............................................. A-22
4.10 Splits and Combinations......................................... A-22
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE V--ALLOCATIONS AND DISTRIBUTIONS.................................. A-23
5.1 Allocations for Capital Account Purposes.......................... A-23
(a)Net Income..................................................... A-23
(b)Net Losses..................................................... A-23
(c)Net Termination Gains and Losses............................... A-23
</TABLE>
A-(iii)
<PAGE>
<TABLE>
<C> <C> <C> <S> <C>
(d) Special Allocations........................................... A-25
(i) Partnership Minimum Gain Chargeback................... A-25
(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain... A-25
(iii) Priority Allocations.................................. A-26
(iv) Qualified Income Offset............................... A-26
(v) Gross Income Allocations.............................. A-26
(vi) Nonrecourse Deductions................................ A-26
(vii) Partner Nonrecourse Deductions........................ A-26
(viii) Nonrecourse Liabilities............................... A-27
(ix) Code Section 754 Adjustments.......................... A-27
(x) Economic Uniformity................................... A-27
(xi) Curative Allocation................................... A-27
(xii) Retirement of Assumed Indebtedness.................... A-28
(xiii) First Year Allocation................................. A-28
5.2 Allocations for Tax Purposes...................................... A-28
5.3 Requirement and Characterization of Distributions................. A-30
5.4 Distributions of Cash from Operations............................. A-30
(a) During Subordination Period................................... A-30
(b) After Subordination Period.................................... A-31
5.5 Distributions of Cash from Interim Capital Transactions........... A-31
5.6 Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels............................................... A-32
5.7 Special Provisions Relating to the Subordinated Units............. A-32
5.8 Special Provisions Relating to the Special Limited Partners....... A-33
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE VI--MANAGEMENT AND OPERATION OF BUSINESS......................... A-33
6.1 Management...................................................... A-33
6.2 Certificate of Limited Partnership.............................. A-35
6.3 Restrictions on General Partner's Authority..................... A-35
6.4 Reimbursement of the General Partner............................ A-36
6.5 Outside Activities.............................................. A-36
6.6 Loans to and from the General Partner; Contracts with
Affiliates...................................................... A-37
6.7 Indemnification................................................. A-39
6.8 Liability of Indemnitees........................................ A-40
6.9 Resolution of Conflicts of Interest............................. A-40
6.10 Other Matters Concerning the General Partner.................... A-42
6.11 Title to Partnership Assets..................................... A-42
6.12 Purchase or Sale of Units....................................... A-42
6.13 Registration Rights of Ferrellgas and its Affiliates............ A-43
6.14 Reliance by Third Parties....................................... A-44
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE VII--RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS................... A-45
7.1 Limitation of Liability.......................................... A-45
7.2 Management of Business........................................... A-45
7.3 Outside Activities............................................... A-45
7.4 Return of Capital................................................ A-45
7.5 Rights of Limited Partners Relating to the Partnership........... A-45
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE VIII--BOOKS, RECORDS, ACCOUNTING AND REPORTS...................... A-46
8.1 Records and Accounting........................................... A-46
8.2 Fiscal Year...................................................... A-46
8.3 Reports.......................................................... A-46
</TABLE>
A-(iv)
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE IX--TAX MATTERS................................................... A-47
9.1 Preparation of Tax Returns....................................... A-47
9.2 Tax Elections.................................................... A-47
9.3 Tax Controversies................................................ A-47
9.4 Organizational Expenses.......................................... A-47
9.5 Withholding...................................................... A-47
9.6 Entity-Level Taxation............................................ A-47
9.7 Entity-Level Arrearage Collections............................... A-48
9.8 Opinions of Counsel.............................................. A-48
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE X--CERTIFICATES................................................... A-48
10.1 Certificates..................................................... A-48
10.2 Registration, Registration of Transfer and Exchange.............. A-49
10.3 Mutilated, Destroyed, Lost or Stolen Certificates................ A-49
10.4 Record Holder.................................................... A-50
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE XI--TRANSFER OF INTERESTS......................................... A-50
11.1 Transfer......................................................... A-50
11.2 Transfer of a General Partner's Partnership Interest............. A-50
11.3 Transfer of Units................................................ A-51
11.4 Restrictions on Transfers........................................ A-51
11.5 Citizenship Certificates; Non-citizen Assignees.................. A-51
11.6 Redemption of Interests.......................................... A-52
11.7 Transfer of IDRs................................................. A-53
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE XII--ADMISSION OF PARTNERS........................................ A-53
12.1 Admission of Initial Limited Partners............................ A-53
12.2 Admission of Substituted Limited Partners........................ A-53
12.3 Admission of Successor General Partner........................... A-54
12.4 Admission of Additional Limited Partners......................... A-54
12.5 Amendment of Agreement and Certificate of Limited Partnership.... A-54
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE XIII--WITHDRAWAL OR REMOVAL OF PARTNERS........................... A-54
13.1 Withdrawal of the General Partner................................ A-54
13.2 Removal of the General Partner................................... A-56
13.3 Interest of Departing Partner and Successor General Partner...... A-56
13.4 Withdrawal of Limited Partners................................... A-57
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE XIV--DISSOLUTION AND LIQUIDATION................................. A-57
14.1 Dissolution..................................................... A-57
14.2 Continuation of the Business of the Partnership after
Dissolution..................................................... A-58
14.3 Liquidation..................................................... A-58
14.4 Distributions in Kind........................................... A-59
14.5 Cancellation of Certificate of Limited Partnership.............. A-60
14.6 Reasonable Time for Winding Up.................................. A-60
14.7 Return of Capital............................................... A-60
14.8 Capital Account Restoration..................................... A-60
14.9 Waiver of Partition............................................. A-60
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE XV--AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE..... A-60
15.1 Amendment to be Adopted Solely by General Partner................ A-60
15.2 Amendment Procedures............................................. A-61
</TABLE>
A-(v)
<PAGE>
<TABLE>
<C> <S> <C>
15.3 Amendment Requirements.......................................... A-62
15.4 Meetings........................................................ A-62
15.5 Notice of a Meeting............................................. A-63
15.6 Record Date..................................................... A-63
15.7 Adjournment..................................................... A-63
15.8 Waiver of Notice; Approval of Meeting; Approval of Minutes...... A-63
15.9 Quorum.......................................................... A-63
15.10 Conduct of Meeting.............................................. A-64
15.11 Action Without a Meeting........................................ A-64
15.12 Voting and Other Rights......................................... A-64
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE XVI--MERGER....................................................... A-65
16.1 Authority....................................................... A-65
16.2 Procedure for Merger or Consolidation........................... A-65
16.3 Approval by Limited Partners of Merger or Consolidation......... A-66
16.4 Certificate of Merger........................................... A-66
16.5 Effect of Merger................................................ A-66
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE XVII--RIGHT TO ACQUIRE UNITS...................................... A-67
17.1 Right to Acquire Units.......................................... A-67
</TABLE>
<TABLE>
<C> <S> <C>
ARTICLE XVIII--GENERAL PROVISIONS......................................... A-68
18.1 Addresses and Notices........................................... A-68
18.2 References...................................................... A-68
18.3 Pronouns and Plurals............................................ A-69
18.4 Further Action.................................................. A-69
18.5 Binding Effect.................................................. A-69
18.6 Integration..................................................... A-69
18.7 Creditors....................................................... A-69
18.8 Waiver.......................................................... A-69
18.9 Counterparts.................................................... A-69
18.10 Applicable Law.................................................. A-69
18.11 Invalidity of Provisions........................................ A-69
</TABLE>
<TABLE>
<S> <C>
Exhibit A--Form of Certificate Evidencing Common Unit...................... A-71
</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 July 5, 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
(ii) any reduction with respect to such Quarter in a cash reserve
previously established pursuant to clause (b)(ii) below (either by
reversal or utilization) 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, contributions, if any,
to the Operating Partnership and cash distributions to Partners (but
only to the extent that such cash distributions to Partners exceed
Available Cash for the immediately preceding Quarter); and
(ii) any cash reserves established with respect to such Quarter,
and any increase with respect to such Quarter in a cash reserve
previously established pursuant to this clause (b)(ii) from the
level of such reserve at the end of the prior Quarter, 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;
provided, however, that for purposes of determining Available Cash for the
Quarter ending October 31, 1994, such Quarter shall be deemed to commence
on the Closing Date. 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.
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"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 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.
"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' 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
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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,
(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 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 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).
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"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.
"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
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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.
"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
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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, less any sales commission or underwriting discount charged to
the Partnership.
"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.
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"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.
"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
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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.
"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).
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"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.
"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.
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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 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.
"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.
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"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 (considering all of the Capital Interests of the partnership as
a single class) 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 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.
"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 June 27,
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).
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"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 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.
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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
16,593,721 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.
(c) To the extent that the Underwriters' Overallotment Option is exercised,
each Underwriter exercising such option 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 to be purchased by such Underwriter
pursuant to the Overallotment Option at the "Second Time of Delivery" as such
term is used in the Underwriting Agreement. In exchange for such Capital
Contribution, 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.
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,
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"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 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
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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.
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)
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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 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.
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(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 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
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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.
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(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 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");
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(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 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
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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.
(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.
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(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) 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.
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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)(xi)(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)(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
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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 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 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 4.3(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 5,531,240 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 or any Subsidiary of the
Partnership.
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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 a general partner of the Partnership, the
Operating Partnership and any other partnership of which the Partnership or
the Operating Partnership is, directly or indirectly, a partner and to
undertake activities that are ancillary or
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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 partnership of which the Partnership or the Operating
Partnership is, directly or indirectly, a 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 or any Subsidiary of the
Partnership.
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. If, prior to the effective
date of the General Partner's withdrawal, a successor is selected by the
Limited Partners as provided herein, the Partnership, as the limited partner
of the Operating Partnership, shall cause such Person to 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, the Partnership, as
the limited partner of the Operating Partnership, shall cause such Person to
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
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agreement within 30 days after the effective date of such Departing Partner's
departure, by an 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 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 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-72
<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.
---------------------------------------------------------------
A-73
<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) 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) grants 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 Name and Address of Assignee
identifying
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).
A-74
<PAGE>
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
________________________________________________.
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.
A-75
<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 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
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
C-1
<PAGE>
(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: 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."
CREDIT FACILITY: The credit facility entered into by the Operating
Partnership and Bank of America National Trust and Savings Association, as
Agent, which permits 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 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 "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.
C-2
<PAGE>
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 have been issued
(the form of which has been filed as an exhibit to the registration statement
of which this Prospectus is a part).
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: Collectively, the $200 million in aggregate principal amount
of 10.0% Fixed Rate Senior Notes due in 2001 and $50 million in aggregate
principal amount of Floating Rate Senior Notes due in 2001 issued
pursuant to the Indenture. The Senior Notes are unsecured general joint
and several obligations of the Operating Partnership and are recourse to
the General Partner in its capacity as general partner of the Operating
Partnership.
SUBORDINATED UNITS: The subordinated limited partner interests issued
to Ferrellgas in connection with the transfer of its assets to the
Partnership.
C-3
<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.
C-4
<PAGE>
FERRELLGAS PARTNERS, L.P.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Ferrellgas Partners, L.P. Pro Forma Consolidated Financial Statements:
Pro Forma Consolidated Balance Sheet-July 31, 1994............................................... F-2
Pro Forma Consolidated Statement of Earnings-Year Ended July 31, 1994............................ F-3
Notes to Pro Forma Consolidated Financial Statements............................................. F-4
Ferrellgas Partners, L.P. and Subsidiary Historical Financial Statements:
Independent Auditors' Report..................................................................... F-6
Consolidated Balance Sheet-July 31, 1994......................................................... F-7
Consolidated Statement of Operations-Inception to July 31, 1994 and Pro Forma July 31, 1993
(Unaudited)..................................................................................... F-8
Consolidated Statement of Partners' Capital-Inception to July 31, 1994........................... F-9
Consolidated Statement of Cash Flows-Inception to July 31, 1994.................................. F-10
Notes to Consolidated Financial Statements....................................................... F-11
Ferrellgas, Inc. and Subsidiaries (Predecessor) Historical Financial Statements:
Independent Auditors' Report..................................................................... F-23
Consolidated Balance Sheet-June 30, 1994 and July 31, 1993....................................... F-24
Consolidated Statement of Operations-Eleven Months Ended June 30, 1994 and Years Ended
July 31, 1993 and 1992......................................................................... F-25
Consolidated Statement of Stockholder's Equity-Eleven Months Ended June 30, 1994 and Years
Ended July 31, 1993 and 1992................................................................... F-26
Consolidated Statement of Cash Flows-Eleven Months Ended June 30, 1994 and Years Ended
July 31, 1993 and 1992......................................................................... F-27
Notes to Consolidated Financial Statements....................................................... F-28
Vision Energy Resources, Inc. Historical Financial Statements:
Report of Independent Accountants................................................................ F-41
Consolidated Balance Sheet-December 31, 1993..................................................... F-42
Consolidated Statements of Operations and Accumulated Deficit-Year Ended December 31, 1993....... F-43
Consolidated Statements of Cash Flows-Year Ended December 31, 1993............................... F-44
Notes to Consolidated Financial Statements....................................................... F-45
Consolidated Balance Sheet-July 31, 1994 (Unaudited)............................................. F-51
Consolidated Statements of Operations and Accumulated Deficit-Seven Months
Ended July 31, 1994 (Unaudited)................................................................. F-52
Consolidated Statement of Cash Flows-Seven Months Ended July 31, 1994 (Unaudited)................ F-53
</TABLE>
F-1
<PAGE>
FERRELLGAS PARTNERS, L.P.
PRO FORMA BALANCE SHEET
AS OF JULY 31, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION> Purchase Price Other
Partnership Allocation Pro Forma Partnership
Historical Vision Adjustments Adjustments Pro Forma
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $14,535 $ 28 $ $ -- $14,563
Accounts and notes receivable 50,780 5,294 -- 56,074
Inventories 43,562 6,535 -- 50,097
Prepaid/refundable income taxes -- 1,449 (1,449)(B) -- --
Prepaid expenses and other current assets 2,042 462 -- 2,504
-------- -------- ------- -------- -------
Total Current Assets 110,919 13,768 (1,449) -- 123,238
Property, plant and equipment 294,765 26,553 21,310 (A) 342,628
Intangible assets 63,291 21,723 (14,533)(A),(C) -- 70,481
Other Assets 8,218 906 (906)(B) -- 8,218
-------- -------- ------- -------- --------
Total Assets $477,193 $62,950 $ 4,422 $ -- $544,565
======== ======== ======= ======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable $46,368 9,405 $ 2,000 (D) -- $57,773
Other current liabilities 26,590 78 -- -- 26,668
Short-term borrowing 3,000 489 -- 3,489
Due to general partner/affiliate 13 4,259 (4,259)(B) -- 13
-------- -------- ------- -------- -------
Total Current Liabilities 75,971 14,231 (2,259) -- 87,943
Long-term debt 267,062 -- -- 45,000 (F) 312,062
Other liabilities 11,528 2,950 (2,950)(B) -- 11,528
Deferred taxes -- -- 10,400 (E) (10,400)(E) --
Minority interest 1,239 -- -- 73 (G) 1,312
Stockholder's Equity/Partners' Capital:
Common stock -- 67,092 -- (67,092)(H) --
Accumulated deficit -- (21,323) 6,777 (A) 22,092 (H) --
4,854 (B)
(2,000)(D)
(10,400)(E)
Common unitholders 84,532 -- -- 3,687 (G) 91,319
-- -- 3,100 (I)
Subordinated unitholder 99,483 -- -- 3,468 (G) 102,951
General partner (62,622) -- -- 72 (G) (62,550)
-------- -------- ------- -------- --------
Total Stockholder's Equity/Partners' Capital 121,393 45,769 (769) (34,673) 131,720
-------- -------- ------- -------- --------
Total Liabilities and Stockholder's
Equity/Partners' Capital $477,193 $62,950 $ 4,422 $ -- $544,565
======== ======== ======= ======== ========
</TABLE>
F-2
<PAGE>
FERRELLGAS PARTNERS, L.P.
PRO FORMA STATEMENT OF EARNINGS
(in thousands, except unit amounts)
(unaudited)
<TABLE>
<CAPTION>
Pro Forma Year Ended July 31, 1994
----------------------------------------------------------
Pro Forma Partnership
Partnership Vision Adjustments Pro Forma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Gas liquids and related product sales $499,696 $57,337 - $557,033
Other 26,860 10,899 - 37,759
-------- --------- -------- ----------
Total revenues 526,556 68,236 - 594,792
Costs and Expenses:
Cost of product sold 269,306 41,540 - 310,846
Operating 145,136 17,148 (2,026)(J) 160,258
Depreciation and amortization 28,835 7,052 (3,441)(K) 32,446
General and administrative 10,358 5,683 (3,502)(L) 12,539
Vehicle Leases 4,290 - - 4,290
-------- --------- -------- ----------
Total costs and expenses 457,925 71,423 (8,969) 520,379
-------- --------- -------- ----------
Operating Income (loss) 68,631 (3,187) 8,969 74,413
Loss on disposal of assets (1,312) 108 - (1,204)
Interest income 1,123 129 - 1,252
Interest expense (28,130) (200) (1,954)(M) (30,284)
Minority interest-continuing operations (403) - (39) (442)
---------- --------- -------- ----------
Earnings from continuing operations
before extraordinary item 39,909 (3,150) 6,976 43,735
========== ========= ======== ==========
General partner's interest in earnings
from continuing operations 399 437
---------- ----------
Limited partners' interest in earnings
from continuing operations $ 39,510 $ 43,298
========== ==========
Earnings from continuing operations per
limited partner unit $1.29 $1.40
========== ==========
Weighted average number of limited
partner units outstanding 30,694,721 30,832,113
========== ==========
</TABLE>
F-3
<PAGE>
FERRELLGAS PARTNERS, L.P.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
July 31, 1994
(Unaudited)
On September 30, 1994, Ferrellgas, Inc. ("the General Partner or Ferrellgas" and
Bell Atlantic Enterprises International, Inc. ("Bell") entered into a Stock
Purchase Agreement (the "Agreement") pursuant to which Ferrellgas agreed to
purchase all of the capital stock of Vision Energy Resources, Inc. ("Vision")
from Bell for a cash purchase price of $45,000,000. This transaction was
consummated on November 1, 1994.
Immediately following the closing of the purchase of Vision, Ferrellgas (i)
caused Vision and each of its subsidiaries to be merged into Ferrellgas (except
for a trucking subsidiary which dividended substantially all of its assets to
Ferrellgas) and (ii) transferred all of the assets of Vision and its
subsidiaries at historical cost to Ferrellgas, LP (the "Operating Partnership").
In exchange, the Operating Partnership assumed substantially all of the
liabilities, whether known or unknown, associated with Vision and its
subsidiaries (excluding income tax liabilities). The liabilities assumed by the
Operating Partnership included the obligations of Ferrellgas under a $45,000,000
loan agreement with Bank of America National Trust & Savings Association (BofA),
pursuant to which Ferrellgas borrowed funds to pay the purchase price for
Vision. The Operating Partnership repaid the loan immediately after the transfer
of assets with funds borrowed under its Credit Facility. In consideration of the
retention by Ferrellgas of the Vision income tax liabilities, Ferrellgas
Partners, L.P. (the "Partnership") issued 138,392 Common Units to Ferrellgas.
The purchase of Vision was structured as a purchase by Ferrellgas rather than
the Partnership as the tax consequences of such a structure were more
advantageous to the Partnership than other alternatives.
The total purchase price recorded by the Partnership is approximately
$57,400,000 and is derived from the following (i) cash purchase price of
$45,000,000, in an agreed upon level (ii) deferred tax liability of
approximately $10,400,000 which is retained by the General Partner, and (iii)
additional transaction costs estimated to be approximately $2,000,000.
The pro forma consolidated balance sheet is based on the historical financial
position of the Partnership and Vision as of July 31, 1994 contained elsewhere
in this Prospectus. The pro forma consolidated statement of earnings for the
fiscal year ended July 31, 1994 is derived from the historical statement of
operations of the General Partner for the eleven months ended June 30, 1994 (the
Predecessor) and the statement of operations of the Partnership for the one
month ended July 31, 1994, contained elsewhere in this Prospectus, and the
statement of operations of Vision for the twelve months ended July 31, 1994.
The following pro forma adjustments have been prepared as if the transactions
effected for the acquisition of Vision had taken place on July 31, 1994, in the
case of the pro forma consolidated balance sheet, or as of August 1, 1993, in
the case of the pro forma consolidated statement of earnings for the fiscal year
ended July 31, 1994. The adjustments are based upon currently available
information and certain estimates and assumptions, and therefore the actual
adjustments will 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 allocation of the total purchase price from the
acquisition of Vision. In addition, pursuant to the Agreement, Bell has
guaranteed that Vision shall have a minimum level of working capital within a
range of $2,250,000 to $3,150,000 at the closing date. According, the purchase
price is reconciled as follows (in thousands):
<TABLE>
<S> <C>
Allocation of purchase price:
Working capital:
Cash $ 28
Accounts and notes receivable 5,294
Inventories 6,535
Prepaid expenses 462
Accounts payable (9,405)
Other current liabilities (78)
Short-term borrowings (489)
--------
$ 2,347
Pro forma working capital settlement from Bell --
--------
Total working capital guaranteed
by Bell $ 2,347
--------
Property, plant and equipment 47,863
Intangible assets 7,190
--------
Total purchase price to the Partnership $ 57,400
========
</TABLE>
F-4
<PAGE>
(B) Reflects the elimination of certain assets and liabilities which were
not conveyed or assumed by the Partnership.
(C) Reflects the elimination of Vision intangible assets of $21,723,000
consisting of goodwill and other assets (consisting primarily of non-compete
covenants and organization costs), offset by the allocation of purchase price of
$7,190,000 to intangible assets, as described in Note (A).
(D) Reflects the accrual of additional transaction costs, included in the
purchase price allocation, as described in Note (A).
(E) Reflects the deferred taxes associated with the purchase price of
the assets acquired over their respective income tax basis, which will not be
assumed by the Partnership. Such liability is retained by the General Partner.
(F) Reflects the assumption of long-term borrowings of $45,000,000 under
the Credit Facility in connection with the acquisition of Vision by the General
Partner.
(G) Reflects the General Partner's contribution of $7,300,000 to the
Partnership, representing the excess of historical cost of the assets over the
liabilities conveyed and/or consideration received from the Partnership. The
allocation to each partner is based on the relative partnership ownership
percentages following the closing of the Vision acquisition as follows: (1)
1.01% minority interest to Ferrellgas, Inc. for its general partner interest in
Ferrellgas, L.P., the Operating Partnership; (2) 0.99% general partner interest
to Ferrellgas, Inc. as general partner of the Partnership (3) 45.26% limited
partner interest in the Partnership to Common Unitholders; and (4) 52.74%
limited partner interest in the Partnership to the Subordinated Unitholder.
(H) Reflects the elimination of the capital stock and accumulated deficit
of Vision following the acquisition by the General Partner.
(I) Reflects the issuance of 138,392 Common Units at market value to the
General Partner in connection with the conveyance of the assets and liabilities
(except income tax liabilities) of Vision to the Partnership. The additional
Common Units represent the net present value of the future tax liabilities to be
paid by the General Partner.
(J) Reflects operating expense savings of approximately $2,414,000 from the
reduction of Vision staff and the consolidation of certain Vision retail
marketing locations with existing Partnership retail marketing sites, offset by
an increase in Partnership retail overhead expenses of $388,000.
(K) Reflects a decrease in depreciation and amortization as a result of
establishing new useful lives of the property, plant and equipment acquired from
Vision, reduction in the amortization of intangible assets (as described in Note
(C), offset by the increase in depreciation from the increase in the cost of the
property, plant and equipment to the Partnership.
(L) Reflects the general and administrative savings of approximately
$3,748,000 from the reduction of staff and closure of the Vision headquarters
and elimination of corporate overhead allocation from Bell offset by an increase
in Partnership administrative overhead expenses of $246,000.
(M) Reflects the increase in interest expense of approximately $2,109,000
related to the additional indebtedness of $45,000,000 under the Credit Facility
at an effective interest rate of approximately 4.89%, offset by the elimination
of interest expense from Bell credit line borrowings of approximately $155,000.
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Ferrellgas Partners, L.P.
Liberty, Missouri
We have audited the accompanying consolidated balance
sheet of Ferrellgas Partners, L.P. and subsidiary as of July
31, 1994, and the related consolidated statements of
operations, partners' capital and cash flows for the period
from inception (April 19, 1994) to July 31, 1994. These
financial statements are the responsibility of the
Partnership's management. Our responsibility is to express
an opinion on these financial statements 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 consolidated financial statements
present fairly, in all material respects, the financial
position of Ferrellgas, L.P. and subsidiary as of July 31,
1994, and the results of their operations and their cash
flows for the period from inception (April 19, 1994) to July
31, 1994, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 16, 1994 (October 14, 1994 as to Note O.)
F-6
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
<TABLE>
<CAPTION>
July 31,
1994
---------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $14,535
Accounts and notes receivable (net of
allowance for doubtful accounts of $798) 50,780
Inventories 43,562
Prepaid expenses and other current assets 2,042
---------
Total Current Assets 110,919
Property, plant and equipment, net 294,765
Intangible assets, net 63,291
Other Assets, net 8,218
---------
Total Assets $477,193
=========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable $46,368
Other current liabilities 26,590
Short-term borrowing 3,000
Payable to general partner 13
---------
Total Current Liabilities 75,971
Long-term debt 267,062
Other liabilities 11,528
Minority interest 1,239
Partners' Capital
Common unitholders (units issued - 14,100,000) 84,532
Subordinated unitholder (units issued - 16,593,721) 99,483
General partner (62,622)
---------
Total Partners' Capital 121,393
---------
Total Liabilities and Partners' Capital $477,193
=========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F-7
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except unit data)
<TABLE>
<CAPTION>
Inception to July 31,
--------------------------
Pro Forma
1994 1993
(unaudited)
----------- ------------
<S> <C> <C>
Revenues:
Gas liquids and related product sales $22,411 $24,696
Other 2,155 1,839
--------- ----------
Total revenues 24,566 26,535
Costs and expenses:
Cost of product sold 13,211 16,300
Operating 10,078 8,299
Depreciation and amortization 2,383 2,490
General and administrative 935 1,053
Vehicle leases 350 375
--------- ----------
Total costs and expenses 26,957 28,517
--------- ----------
Operating loss (2,391) (1,982)
Loss on disposal of assets (97) (16)
Interest income 73 50
Interest expense (2,662) (2,374)
Minority interest 51 44
--------- ----------
Loss before extraordinary loss (5,026) (4,278)
Extraordinary loss on early
extinguishment of debt 60,062 -
Minority interest in extraordinary loss (607) -
--------- ----------
Net loss (64,481) (4,278)
General partner's interest in net loss (64,481) (4,278)
--------- ----------
Limited partners' interest in net loss $ - $ -
========= ==========
Net loss per unit:
Loss before extraordinary loss $ - $ -
Extraordinary loss - -
--------- ----------
Net loss per unit $ - $ -
========= ==========
Number of units used in computation 30,693,721 30,693,721
=========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F-8
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
(in thousands, except unit data)
<TABLE>
<CAPTION>
Number of units Total
------------------------ General partners'
Common Subordinated Common Subordinated partner capital
---------- ---------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance April 19, 1994 - - $ - $ - $ - $ -
Contributions 14,100,000 16,593,721 84,532 99,483 1,859 185,874
Net loss - - - - (64,481) (64,481)
---------- ---------- ------- ------- --------- ---------
Balance July 31, 1994 14,100,000 16,593,721 $84,532 $99,483 ($62,622) $121,393
========== ========== ======= ======= ========= =========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F-9
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Inception
to
July 31,
1994
---------
<S> <C>
Cash Flows From Operating Activities:
Net loss ($64,481)
Reconciliation of net loss to net
cash from operating activities:
Extraordinary loss(net of minority interest) 59,455
Depreciation and amortization 2,383
Other 22
Decrease (increase) in assets:
Accounts and notes receivable 196
Inventories (5,631)
Prepaid expenses and other current assets 618
Decrease in liabilities:
Accounts payable (2,809)
Other current liabilities (1,733)
Other liabilities (35)
---------
Net cash used by operating activities (12,015)
---------
Cash Flows From Investing Activities:
Capital expenditures (2,768)
Proceeds from asset sales 35
Net additions to other assets (4)
---------
Net cash used by investing activities (2,737)
---------
Cash Flows From Financing Activities:
Additions to long-term debt 265,000
Net issuance of common units 255,006
Cash transfer from predecessor company 39,791
Additions to short-term borrowing 3,000
Reductions to long-term debt (477,903)
Additional payments to retire debt (48,364)
Additions to financing costs (6,575)
Minority activity (544)
Net payment to general partner (124)
---------
Net cash provided by financing activities 29,287
---------
Increase in Cash and Cash Equivalents 14,535
Cash and cash equivalents - Beginning of period -
---------
Cash and Cash Equivalents - End of Period $14,535
=========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F-10
<PAGE>
FERRELLGAS PARTNERS, L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION TO JULY 31, 1994
A. Partnership Organization and Formation:
Ferrellgas Partners, L.P. was formed April 19, 1994, and is a
publicly traded limited partnership, owning a 99% limited
partner interest in Ferrellgas, L.P. (the "Operating
Partnership"), both Delaware limited partnerships, and
collectively known as the Partnership. Ferrellgas Partners,
L.P., was formed to acquire and hold a limited partner
interest in the Operating Partnership. The Operating
Partnership was formed to acquire, own and operate the propane
business and assets of Ferrellgas Inc. (the "Company" or
"General Partner'"). The Company has retained a 1% general
partner interest in Ferrellgas Partners, L.P. and also holds a
1% general partner interest in the Operating Partnership,
representing a 2% general partner interest in the Partnership
on a combined basis. As General Partner of the Partnership,
the Company performs all management functions required for the
Partnership.
On July 5, 1994, the Partnership completed an initial public
offering of 13,100,000 Common Units representing limited
partner interests (the "Common Units") at $21 per Common Unit.
The 13,100,000 Common Units represent a 41.8% limited partner
interest in the Partnership. Concurrent with the closing of the
offering, the Company contributed all of its propane business
and assets to the Partnership (excluding approximately
$39,000,000 in cash, payables to or receivables from parent and
affiliates and an investment in the Class B Stock of Parent) in
exchange for 1,000,000 Common Units, 16,593,721 Subordinated
Units and Incentive Distribution Rights, representing a 56.2%
limited partner interest in the Partnership, in addition to the
2% general partner interest in the Partnership. In connection
with the contribution of the propane business and assets by
the Company, the Operating Partnership assumed all of the
liabilities, whether known or unknown, associated with such
assets (other than income tax liabilities). The book value of
the assets being contributed to the Partnership was
approximately $67,000,000 less than the liabilities assumed by
the Operating Partnership, as described in Note B.
Concurrent with this offering, the Operating Partnership
completed the issuance of 10% Fixed Rate Senior Notes due 2001
in the aggregate principal amount of $200,000,000 and Floating
Rate Senior Notes due 2001 in the aggregate principal amount
of $50,000,000 (collectively, the "Senior Notes"). As
described in Note G, the net proceeds from the sale of the
Common Units and from the issuance of the Senior Notes were
used to retire approximately $477,600,000 in indebtedness
assumed by the Operating Partnership.
B. Summary of Significant Accounting Policies:
(1) Principles of consolidation:
The accompanying consolidated financial statements present
the consolidated financial position, results of operations
and cash flows of the Partnership. The Company's 1% General
Partner interest in Ferrellgas, L.P. is accounted for as a
minority interest. All material intercompany profits,
transactions and balances have been eliminated.
F-11
<PAGE>
The propane industry is seasonal in nature with peak
activity during the winter months. Therefore, the results
of operations of the Partnership from the inception to July
31, 1994, are not indicative of the results to be expected
for a full fiscal year. See Note N for the unaudited pro
forma statement of operations for the fiscal years ended
July 31, 1994 and 1993.
(2) Inventories:
Inventories are stated at the lower of cost or market using
average cost and actual cost methods.
The Partnership 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
Partnership to market risk, the contracts are accounted for
on a mark-to-market basis.
(3) Property, plant and equipment and other non-current
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.
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
General Partner evaluates the intangible assets for
impairment by calculating the anticipated cash flow
attributable to such acquisitions over their 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 $68,489,000 as of July 31, 1994.
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 $1,860,000
as of July 31, 1994.
(4) Income taxes:
The Partnership is a limited partnership. As a result, the
Partnership's income or loss for Federal income tax purposes
is included in the tax returns of the individual partners.
Accordingly, no recognition has been given to income taxes
in the accompanying financial statements of the Partnership.
Net income for financial statement purposes may differ
significantly from taxable income reportable to unitholders
as a result of differences between the tax basis and
financial reporting basis of assets and liabilities and the
taxable income allocation requirements under the Partnership
agreement.
F-12
<PAGE>
(5) Consolidated statement of cash flows:
In connection with the formation of the Partnership, certain
non-cash investing and financing activities occurred.
Effective July 5, 1994, substantially all of the propane
assets and liabilities of the Company were conveyed at
historical cost to the Operating Partnership and the
Operating Partnership began operating activities. Net
liabilities assumed by the Operating Partnership are as
follows:
<TABLE>
<CAPTION>
July 5, 1994
-------------
(in thousands)
<S> <C>
Cash $39,791
Accounts receivable 50,747
Inventories 37,931
Prepaid expenses and other current assets 2,660
Property, plant and equipment, net 293,729
Intangible assets, net 64,050
Other assets 9,327
---------
Total Assets Conveyed 498,235
---------
Accounts Payable 49,177
Other current liabilities 30,296
Long-term debt, net 476,441
Other non-current liabilities 9,557
---------
Total Liabilities Assumed 565,471
---------
Net liabilities assumed by the Operating Partnership ($67,236)
=========
</TABLE>
For purposes of the consolidated statement of cash flows,
the Partnership considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Interest paid totaled $6,093,000 from inception to July 31,
1994.
(6) Net Income per Unit
Net income per unit is computed by dividing net income,
after deducting the General Partner's 1% interest, by the
weighted average number of outstanding Common Units and
Subordinated Units (a total of 30,693,721 as of July 31,
1994). As described in Note G and H, the net loss before
extraordinary loss of approximately $5,026,000, and the
extraordinary loss from early extinguishment of debt of
approximately $60,062,000 is allocated 100% to the
General Partner. Accordingly, there is no net income per
unit calculation attributable to the limited partners from
inception to July 31, 1994.
C. Quarterly Distributions of Available Cash:
The Partnership will make quarterly cash distributions of all
of its "Available Cash", generally defined as consolidated
cash receipts less consolidated cash disbursements and net
changes in reserves established by the General Partner for
future requirements. These reserves are retained to provide
for the proper conduct of the Partnership business, or to
provide funds for distributions with respect to any one or
more of the next four fiscal quarters.
F-13
<PAGE>
Distributions by the Partnership in an amount equal to 100% of
its Available Cash will generally be made 98% to the Common
and Subordinated Unitholders (the "Unitholders") and 2% to the
General Partner, subject to the payment of incentive
distributions to the holders of Incentive Distribution Rights
to the extent that certain target levels of cash distributions
are achieved. To the extent there is sufficient Available
Cash, the holders of Common Units have the right to receive
the "Minimum Quarterly Distribution" ( $0.50 per Unit) , plus
any "arrearages", prior to any distribution of Available Cash
to the holders of Subordinated Units. Common Units will not
accrue arrearages for any quarter after the "Subordination
Period" (as defined below) and Subordinated Units will not
accrue any arrearages with respect to distributions for any
quarter.
In general, the Subordination Period will continue indefinitely
until the first day of any quarter beginning on or after
August 1, 1999, in which (i) distributions of Available Cash
equal or exceed the Minimum Quarterly Distribution on the
Common Units and the Subordinated Units 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
to increase the operating capacity of the Partnership. Prior
to the end of the Subordination Period but not prior to August
1, 1997, 5,531,240 Subordinated Units held by the Company will
convert into Common Units if (i) distributions of Available
Cash on the Common Units and Subordinated Units equaled or
exceeded the Minimum Quarterly Distribution for each of the
two consecutive four-quarter period preceding August 1, 1997,
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 expiration of the Subordination
Period, all remaining Subordinated Units will convert to
Common Units.
The Partnership will make distributions of all of its 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. The first distribution for the
period from July 5, 1994 through October 31, 1994 will be made
on or before December 15, 1994.
D. Inventories:
<TABLE>
<CAPTION>
July 31, 1994
-------------
(in thousands)
<S> <C>
Liquified propane gas and related products $38,890
Appliances, parts and supplies 4,672
-------
$43,562
=======
</TABLE>
In addition to inventories on hand, the Partnership 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-14
<PAGE>
E. Property, Plant and Equipment:
<TABLE>
<CAPTION>
July 31, 1994
-------------
(in thousands)
<S> <C>
Land and improvements $18,589
Buildings and improvements 23,005
Vehicles 37,283
Furniture and fixtures 17,776
Bulk equipment and market facilities 33,091
Tanks and customer equipment 317,631
Other 5,097
--------
452,472
Less accumulated depreciation and amortization 157,707
--------
$294,765
========
</TABLE>
F. Other Current Liabilities:
<TABLE>
<CAPTION>
July 31, 1994
-------------
(in thousands)
<S> <C>
Current portion of long-term debt $1,311
Accrued insurance 6,624
Accrued interest 2,161
Accrued Payroll 9,394
Other 7,100
-------
$26,590
=======
</TABLE>
G. Long-Term Debt:
<TABLE>
<CAPTION>
July 31, 1994
-------------
(in thousands)
<S> <C>
Fixed rate senior Notes, interest at 10%, due August 1,
2001 $200,000
Floating rate senior notes, interest at LIBOR rate plus
applicable margin (7.875% at July 31, 1994), due August 1,
2001 50,000
Credit Facility term loan borrowings, interest at applicable
rate (7.375% at July 31, 1994), due 2001 15,000
Notes payable, including approximately $2,056,000
secured by property and equipment, interest rates ranging
from noninterest-bearing to 12%, due on various dates
through 2001 3,373
--------
268,373
Less current portion 1,311
--------
$267,062
========
</TABLE>
F-15
<PAGE>
Concurrent with the closing of the sale of the Common Units
described in Note A, the Operating Partnership issued
$250,000,000 aggregate principal amount of Senior Notes due
2001. The net proceeds, along with the net proceeds of the
offering of Common Units, were used to retire $477,600,000 of
indebtedness of the Company assumed by the Operating
Partnership. The retirement of the indebtedness assumed by
the Operating Partnership resulted in an extraordinary loss of
approximately $60,062,000 resulting from debt prepayment
premiums, consent fees and the write-off of unamortized
discount and financing costs. As described in Note H, the
extraordinary loss is allocated 100% to the General Partner in
accordance with the partner capital allocation provisions of
the partnership agreement.
The $200,000,000 Fixed Rate Senior Notes are not redeemable
prior to August 1, 1998. Thereafter, the Partnership has the
option to redeem the notes, in whole or part, at a premium.
The $50,000,000 aggregate principal amount of Floating Rate
Senior Notes (the "Floating Notes") are redeemable at the
option of the Partnership on or after August 1, 1995, in whole
or part, at a redemption price equal to 100% of the principal
amount, plus accrued and unpaid interest at the redemption
date. The Floating Notes have mandatory sinking fund payments
of $5,000,000 on August 1, 1999 and 2000, to retire an
aggregate 20% of the Floating Notes prior to maturity.
On July 5, 1994 , the Operating Partnership entered into a
$185,000,000 Credit Facility with Bank of America National
Trust & Savings Association ("BofA"), as Agent. The Credit
Facility permits borrowings of up to $100,000,000 on a senior
unsecured revolving line of credit basis ( the "Working
Capital Facility"), to fund working capital and general
partnership requirements (of which up to $50,000,000 is
available to support letters of credit). At July 31, 1994,
$3,000,000 of borrowings were outstanding under the revolving
line of credit, and letters of credit outstanding, used
primarily to secure obligations under certain insurance and
leasing arrangements, totaled $35,701,000. In addition, the
Credit Facility permits borrowings up to $85,000,000 on a
senior unsecured basis (the "Expansion Facility"). Under the
Expansion Facility, $15,000,000 was borrowed to retire
existing indebtedness of the Operating Partnership, and
$70,000,000 is available to finance acquisitions and for
capital additions and improvements.
At the Operating Partnership's option, borrowings under the
Credit Facility may bear interest at the Base Rate (i.e. the
higher of the Federal funds rate plus 1/2% or BofA's
reference rate), or the LIBOR rate, in each case plus an
applicable margin. The Credit Facility is committed for up to
a three year period, at which time the Working Capital
Facility will expire. Borrowings under 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.
The Senior Notes and Credit Facility contain various
restrictive covenants applicable to the Operating Partnership
and its subsidiaries, the most restrictive relating to
additional indebtedness, sale and disposition of assets, and
transactions with affiliates. In addition, the Operating
Partnership is prohibited from making cash distributions of the
Minimum Quarterly Distribution if a default or event of default
exists or would exist upon making such distribution, or if the
Operating Partnership fails to meet certain coverage and
capital expenditure tests. With respect to the capital
expenditure tests, the Operating Partnership shall have in the
aggregate made "Capital Investments" (as defined in the Senior
Note Indenture) of $15,000,000 by July 31, 1995, $30,000,000 by
July 31, 1996, $45,000,000 by July 31, 1997, $70,000,000 by
July 31, 1998, $95,000,000 by July 31, 1999, and $120,000,000
by the end of fiscal year 2000. The Partnership is in
compliance with all requirements, tests, limitations and
covenants related to the Senior Notes and Credit Facility.
F-16
<PAGE>
Annual principal payments on long-term debt for each of the
next five fiscal years are $1,250,000 in 1995, $716,000 in
1996, $1,510,000 in 1997, $5,127,000 in 1998 and $5,082,000 in
1999.
H. Partner's Capital
Partner's capital consists of 14,100,000 Common Units
representing an effective 45% limited partner interest in the
Partnership, of which 1,000,000 Common Units, representing an
effective 3.2% interest in the Partnership, are owned by
Ferrellgas, Inc.; 16,593,721 Subordinated Units representing
an effective 53% limited partner interest in the Partnership
are also owned by Ferrellgas, Inc.; and a 2% General Partner
interest.
The Agreement of Limited Partnership of Ferrellgas Partners,
L.P. (the "Partnership Agreement") contains specific
provisions for the allocation of net income and loss to each
of the partners for purposes of maintaining the partner
capital accounts. In addition, the Partnership Agreement
contains special provisions for the allocation of the
extraordinary loss from the retirement of indebtedness, and
the net loss from operations of the Partnership from the
closing date on July 5, 1994, to July 31, 1994. In accordance
with these special provisions of the Partnership Agreement, the
extraordinary loss of $60,062,000 is allocated 100% to the
General Partner and will not be reallocated to the limited
partners in the next taxable year. The net loss from
operations of approximately $5,026,000 is allocated 100% to
the General Partner from inception of the Partnership to the
last day of the taxable year ending July 31, 1994. An amount
equal to 99% of this net loss will be reallocated to the
limited partners in the following taxable year based on their
ownership percentages.
During the Subordination Period, the Partnership may issue up
to 7,000,000 Common Units (excluding Common Units issued in
connection with 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
Unit holder vote. The Partnership may also issue additional
Common Units during the Subordination Period in connection
with acquisitions if certain cash flow criteria are met.
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
without the approval of any Unitholders.
I. Transactions with Related Parties:
The Partnership has no employees and is managed and controlled
by the General Partner. Pursuant to the Partnership Agreement,
the General Partner is entitled to reimbursement for all
direct and indirect expenses incurred or payments it makes on
behalf of the Partnership, and 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. These costs, which
totaled $7,561,000 from inception to July 31, 1994, include
compensation and benefits paid to officers and employees of
the General Partner, and general and administrative costs. In
addition, the conveyance of the net assets of the Company to
the Partnership described in Note A included the assumption of
specific liabilities related to employee benefit and incentive
plans for the benefit of the officers and employees of the
General Partner. The details of these employee benefit plans
are described in Notes K and L.
F-17
<PAGE>
A. Andrew Levison, a director of the Ferrell Companies, Inc.
("Ferrell"), is a Managing Director of Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ"). DLJ acted as an
underwriter with regard to the public offering of Common Units
and Senior Notes described in Note A, and was paid fees of
$5,100,000.
The law firm of Smith, Gill, Fisher & Butts, a Professional
Corporation, is general counsel to the Partnership, General
Partner, Ferrell and their respective subsidiaries and
affiliates. David S. Mouber, a director of Ferrell at July
31, 1994, is a member of such law firm. The Partnership,
Ferrell and their respective subsidiaries paid such firm fees
of $151,000 from inception to July 31, 1994.
J. Contingencies and Commitments:
The Partnership 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 Partnership'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 Partnership.
In connection with the formation of the Partnership, the
General Partner contributed certain assets including customer
relationships and customer tanks. The Internal Revenue
Service ("IRS") has examined the General Partner's
consolidated income tax returns for the years ended July 31,
1987 and 1986, and has proposed certain adjustments which
relate to these contributed assets. If the IRS were
successful, the amount of amortization and depreciation
available to the General Partner could be adversely affected.
At this time, it is not possible to determine the ultimate
resolution of this matter and the impact, if any, to the
consolidated financial statements of the Partnership.
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 totaled $725,000 for the one month
ended July 31, 1994. Future minimum lease commitments for
such leases are $7,569,000 in 1995, $5,286,000 in 1996,
$3,438,000 in 1997, $1,537,000 in 1998 and $409,000 in 1999.
K. Employee Benefits:
As described in Note A and I, the Partnership has no employees
and is managed and controlled by the General Partner. The
Partnership assumed all liabilities, which included specific
liabilities related to the following employee benefit and
incentive plans for the benefit of the officers and employees
of the General Partner.
The General Partner 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.
There were no contributions under the profit sharing provision
or 401(k) provision of the plan from inception to July 31,
1994.
F-18
<PAGE>
The General Partner 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 General
Partner'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.
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>
From
Inception to
July 31, 1994
-------------
(in thousands)
<S> <C>
Service Cost $ 21
Interest on Obligations 31
Actual Return on Plan Assets 89
Amortization and Deferral of:
Prior Service Cost (3)
Gain (15)
Deferred Asset (Gain)/Loss (115)
------
Actuarially Computed Pension Expense $8
======
</TABLE>
Actuarial present value of benefit obligations is summarized as follows:
<TABLE>
<CAPTION>
July 31, 1994
-------------
(in thousands)
<S> <C>
Vested Benefit Obligation $2,474
======
Accumulated Benefit Obligation $2,977
======
Projected Benefit Obligation $4,798
Less: Plan Assets at Fair Value 2,853
------
Benefit Obligation in Excess of
Plan Assets 1,945
Unrecognized Prior Service Cost 298
Unrecognized Gain 1,828
------
Accrued Benefit Obligation $4,071
======
</TABLE>
The actuarial computations assumed a discount rate, annual
salary increase and expected long-term rate of return on plan
assets of 8%, 5% and 9.5%, respectively, from inception to
July 31, 1994.
In fiscal 1987, 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 of Ferrell
as of July 31, 1996, over a minimum value established at Plan
inception. Earned awards are 100% vested by the participants
. Compensation expense charges (credits) representing
increases (decreases) in the estimated value of the vested
Equity Units are recorded by the Partnership. No compensation
expense was charged from inception to July 31, 1994.
F-19
<PAGE>
L. Employee Benefits Other Than Pensions:
The General Partner provides postretirement medical benefits to
a closed group of approximately 400 retired employees and
their spouses. The plan requires the General Partner to
provide primary medical benefits to the participants until age
65, at which time the General Partner pays a fixed amount of
$55 per month per participant for medical benefits. The
General Partner 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). As described in Note A and I,
the Partnership assumed all liabilities associated with this
benefit obligation.
The actuarial liabilities for these postretirement benefits,
none of which have been funded, are as follows at July 31,
1994:
Accumulated Postretirement Benefit Obligation-Retirees $2,270,000
Fair Value of Assets 0
----------
Unfunded Status $2,270,000
==========
Net periodic postretirement benefit cost from inception to July 31,
1994, included the following components:
Interest Cost on Obligation $16,183
Amortization of Transition Obligation 19,036
-------
Net Periodic Postretirement Benefit Cost $35,219
=======
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 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 General Partner does not
believe that adoption of the statement will have a material
impact on results of operations or financial condition of the
Partnership.
M. Disclosures About Off Balance Sheet Risk and Fair Value of
Financial Instruments:
Statement of Financial Accounting Standards No. 107-Disclosures
about Fair Value of Financial Instruments, requires disclosures
regarding the fair value of financial instruments which can be
reasonably determined. 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 approximates fair value because of the short
maturity of those instruments.
F-20
<PAGE>
Short-Term Borrowings. The carrying value of short-term
borrowings approximates fair value as of July 31, 1994.
Long-Term Debt. The estimated fair value of the Partnership's
long-term debt was $269,547,000 as of July 31, 1994. The fair
value is estimated based on quoted market prices discounted
cash flows.
Options and Forward Contracts. The Partnership 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 counterparties
and to a lesser extent on national mercantile exchanges. Open
contract positions are summarized as follows:
As of July 31, 1994
(In thousands except price per gallon data)
<TABLE>
<CAPTION>
As of July 31, 1994
(In thousands, except price per gallon data)
Market
Volume in Price Maturity Contract Value of Unrealized
Gallons (per gallon) Dates Amounts Contracts Gain/(Loss)
------- ---------- ----------------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Exchange Traded Option
Contracts to Buy 8,358 $0.30-0.31 Nov 1994-Jan 1995 $2,522 $2,603 $81
Exchange Traded Option
Contracts to (Sell) (6,174) $0.29-0.55 Sep-Oct 1994 (1,935) (2,000) (65)
Forward Contracts to Buy 78,636 $0.19-0.38 Aug-Dec 1994 21,897 22,359 462
Forward Contracts to (Sell) (30,562) $0.30-0.39 Aug 1994-Jan 1995 (9,801) (9,892) (91)
------- -------- -------- ---------
Total 50,258 $12,683 $13,070 $387
======= ======== ======== =========
</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
Partnership 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.
N. Pro Forma Consolidated Statements of Earnings (Unaudited):
The accompanying pro forma consolidated statement of earnings
for the fiscal year ended July 31, 1994, was derived from the
historical statement of operations of the Company for the
eleven months ended June 30, 1994, and the statement of
operations of the Partnership from inception to July 31, 1994.
The pro forma statement of earnings for the fiscal year ended
July 31, 1993, was derived from the historical statement of
earnings of the Company. The pro forma consolidated
statements of earnings of the Partnership should be read in
conjunction with the consolidated financial statements of the
Partnership and the Company and the notes thereto. The
objective of this data is to show the effects on the
historical financial information as if the transactions
described in Note A had occurred on August 1 of each year
presented. The accompanying pro forma consolidated statements
of earnings are for comparative purposes and are not
indicative of the results of future operations of the
Partnership:
F-21
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Year Ended July 31,
1994 1993
-------- ---------
(in thousands)
<S> <C> <C>
Revenues:
Gas liquids and related sales $499,696 $516,891
Other 26,860 25,054
-------- --------
Total revenues 526,556 541,945
======== ========
Costs and expenses:
Cost of product sold 269,306 298,033
Operating 145,136 139,617
Depreciation and amortization 28,835 30,840
General and administrative 10,358 10,579
Vehicle leases 4,290 4,823
-------- --------
Total costs and expenses 457,925 483,892
-------- --------
Operating income: 68,631 58,053
Loss on disposal of assets (1,312) (1,153)
Interest income 1,123 898
Interest expense (28,130) (29,220)
Minority interest (403) (286)
-------- --------
Earnings before extraordinary item $39,909 $28,292
======== ========
Earnings before extraordinary item per unit $1.29 $0.91
======== ========
</TABLE>
O. Subsequent Event:
On August 22, 1994, the Partnership filed with the Securities
and Exchange Commission a shelf registration statement on Form
S-1 to register 2,400,000 Common Units representing limited
partner interests in the Partnership. The Common Units may be
issued from time to time by the Partnership in connection with
the Partnership's acquisition of other businesses, properties
or securities in business combination transactions.
On September 30, 1994, the General Partner entered into a
definitive Purchase Agreement with Vision Energy Resources,
Inc. ("Vision") for the purchase of the propane business owned
and operated by Vision for a cash purchase price of $45
million. The closing of the transaction is subject to
customary conditions, including the expiration of the
applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act. Following the closing of the
transaction, the General Partner intends to transfer the
assets of Vision to Ferrellgas, L.P.
On October 14, 1994, the General Partner adopted the Ferrellgas,
Inc. Unit Option Plan (the "Unit Option Plan"), which authorizes
the issuance of options (the "Unit Options") covering up to
750,000 Subordinated Units to certain officers and employees
of the General Partner, of which 657,000 options have been
granted. The Unit Options granted have an exercise price of
$16.80 per Subordinated Unit, will vest over a three to five
year period (depending on the employee) and will expire on the
tenth anniversary of the date of the grant. Upon conversion of
100% of the Subordinated Units held by the General Partner and
its affiliates, the Unit Options granted will convert to Common
Unit Options.
F-22
<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 June 30,
1994 and July 31, 1993, and the related consolidated
statements of operations, stockholder's equity and cash
flows for the eleven months ended June 30, 1994, and for
each of the two 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 June 30,
1994 and July 31, 1993, and the results of their operations
and their cash flows for the eleven months ended June 30,
1994, and for each of the two years in the period ended July
31, 1993, in conformity with generally accepted accounting
principles.
As discussed in Note I 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 LLP
Kansas City, Missouri
September 16, 1994 (October 14. 1994, as to Note N)
F-23
<PAGE>
FERRELLGAS,INC.
(a wholly owned subsidiary of Ferrell Companies, Inc.)
AND SUBSIDIARIES (PREDECESSOR)
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, July 31,
1994 1993
--------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $54,367 $32,706
Short-term investments 24,508 25,040
Accounts and notes receivable including related
party (1994 - $671; 1993 - $500), net of allowance
for doubtful accounts (1994 - $906; 1993 - $607) 51,868 52,190
Inventories 37,931 23,652
Prepaid expenses and other current assets 2,661 1,898
Receivable from parent and affiliate 50 916
--------- --------
Total Current Assets 171,385 136,402
Property, plant and equipment, net 293,729 303,816
Intangible assets, net 64,051 72,537
Investment in Class B redeemable common stock of parent 36,031 36,031
Other Assets, net, including notes receivable from
related parties (1994 - $14,105; 1993 - $10,909) 23,468 21,833
Note receivable from parent 4,000 -
Deferred income taxes - 2,757
--------- ---------
Total Assets $592,664 $573,376
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $49,177 $32,946
Other current liabilities 30,296 29,048
--------- ---------
Total Current Liabilities 79,473 61,994
Long-term debt 476,441 489,589
Other liabilities 9,542 10,434
Deferred income taxes 4,379 -
Stockholder's Equity:
Common stock, one dollar par value;
10,000 shares authorized; 990 shares issued 1 1
Additional paid-in capital 32,863 32,863
Accumulated deficit (10,035) (21,505)
--------- ---------
Total Stockholder's Equity 22,829 11,359
--------- ---------
Total Liabilities and Stockholder's Equity $592,664 $573,376
========= =========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F-24
<PAGE>
FERRELLGAS,INC.
(a wholly owned subsidiary of Ferrell Companies, Inc.)
AND SUBSIDIARIES (PREDECESSOR)
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Eleven
months
ended Year ended July 31,
June 30, --------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Gas liquids and related product sales $477,285 $516,891 $480,088
Other 24,705 25,054 21,041
--------- --------- ---------
Total revenues 501,990 541,945 501,129
Costs and expenses:
Cost of product sold 256,095 298,033 267,279
Operating 135,058 139,617 134,165
Depreciation and amortization 26,452 30,840 31,196
General and administrative 8,923 10,079 7,561
Vehicle leases 3,940 4,823 4,520
--------- --------- ---------
Total costs and expenses 430,468 483,392 444,721
--------- --------- ---------
Operating income 71,522 58,553 56,408
Loss on disposal of assets (1,215) (1,153) (1,959)
Interest income, including related parties
(1994 - $1,018; 1993 - $725; 1992 - $890) 3,599 3,266 4,401
Interest expense, including parent and affiliate
(1993 - $153; 1992 - $180) (53,693) (60,071) (61,219)
--------- --------- ---------
Earnings (loss) before income taxes
and extraordinary loss 20,213 595 (2,369)
Income tax expense (benefit) 7,876 486 (669)
--------- --------- ---------
Earnings (loss) before extraordinary loss 12,337 109 (1,700)
Extraordinary loss on early extinguishment
of debt, net of income taxes
(1994 - $531; 1993 - $543; 1992 - $6,116) 867 886 9,979
--------- --------- ---------
Net earnings (loss) $11,470 ($777) ($11,679)
========= ========= =========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F-25
<PAGE>
FERRELLGAS,INC.
(a wholly owned subsidiary of Ferrell Companies, Inc.)
AND SUBSIDIARIES (PREDECESSOR)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands)
<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, 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 - - - 11,470 11,470
--------- ------ ------- --------- -------
Balance June 30, 1994 990 $1 $32,863 ($10,035) $22,829
========= ====== ======= ========= =======
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F-26
<PAGE>
FERRELLGAS,INC.
(a wholly owned subsidiary of Ferrell Companies, Inc.)
AND SUBSIDIARIES (PREDECESSOR)
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Eleven
months
ended Year ended July 31,
June 30, -------------------
1994 1993 1992
-------- -------- ---------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings (loss) $11,470 ($777) ($11,679)
Reconciliation of net earnings (loss) to
net cash from operating activities:
Extraordinary loss 867 886 9,979
Depreciation and amortization 26,452 30,840 31,196
Other 5,130 5,236 7,007
Decrease (increase) in assets:
Accounts and notes receivable (816) (252) (1,475)
Inventories (14,279) 10,229 (12,447)
Prepaid expenses and other current assets (763) 977 (801)
Increase (decrease) in liabilities:
Accounts payable 16,231 (11,918) 3,742
Other current liabilities 2,236 1,729 (1,912)
Other liabilities (1,072) 131 325
Deferred income taxes 7,667 (120) (970)
-------- -------- ---------
Net cash provided by operating activities 53,123 36,961 22,965
-------- -------- ---------
Cash Flows From Investing Activities:
Net short-term investment activity 532 (1,875) (23,165)
Capital expenditures (10,277) (14,188) (20,392)
Proceeds from asset sales 777 1,983 3,040
Net additions to intangibles (62) (82) (3,175)
Net additions to other assets (1,221) 1 (520)
-------- -------- ---------
Net cash used by investing activities (10,251) (14,161) (44,212)
-------- -------- ---------
Cash Flows From Financing Activities:
Additions to long-term debt - 81 246,804
Reductions to long-term debt (13,640) (12,796) (212,637)
Additional payments to retire debt (1,190) (1,195) (11,983)
Additions to financing costs (51) (627) (4,918)
Reacquisition of Class B redeemable common stock - (3,218) (9,092)
Net advances to related party (3,196) (59) (3,832)
Net advances to parent and affiliates (3,134) (239) (2,907)
-------- -------- ---------
Net cash provided (used) by financing activities (21,211) (18,053) 1,435
-------- -------- ---------
Increase (decrease) in Cash and Cash Equivalents 21,661 4,747 (19,812)
Cash and cash equivalents - Beginning of year 32,706 27,959 47,771
-------- -------- ---------
Cash and Cash Equivalents - End of Period $54,367 $32,706 $27,959
======== ======== ========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F-27
<PAGE>
FERRELLGAS, INC.
(a wholly owned subsidiary of
Ferrell Companies, Inc.)
AND SUBSIDIARIES (PREDECESSOR)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE ELEVEN MONTHS ENDED JUNE 30, 1994
AND FOR THE YEARS ENDED JULY 31, 1993 AND 1992
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").
On July 5, 1994, Ferrellgas Partners, L.P. completed an initial
public offering of 13,100,000 Common Units representing
limited partner interests (the "Common Units") at $21 per
Common Unit. The 13,100,000 Common Units represent a 41.8%
limited partner interest in the Partnership. Ferrellgas
Partners, L.P. was formed April 19, 1994, owning a 99% limited
partner interest in Ferrellgas, L.P. (the "Operating
Partnership"), both Delaware limited partnerships, and
collectively known as the Partnership. Ferrellgas Partners,
L.P. was formed to acquire and hold a limited partner interest
in the Operating Partnership. The Operating Partnership was
formed to own and operate the propane business and
substantially all of the assets of the Company.
Concurrent with the closing of the initial public offering, the
Company contributed all of its propane business and assets to
the Partnership (excluding approximately $39,000,000 in cash,
payables to or receivables from parent and affiliates and an
investment in the Class B Stock of Parent) in exchange for
1,000,000 Common Units, 16,593,721 Subordinated Units and
Incentive Distribution Rights, representing a 56.2% limited
partner interest in the Partnership 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 the propane business and assets by the
Company, the Operating Partnership assumed all of the
liabilities, whether known or unknown, associated with such
assets (other than income tax liabilities).
Concurrent with this offering, the Operating Partnership
completed the issuance of 10% Fixed Rate Senior Notes due 2001
in the aggregate principal amount of $200,000,000 and Floating
Rate Senior Notes due 2001 in the aggregate principal amount
of $50,000,000 (collectively, the "Senior Notes"). The net
proceeds from the sale of the Common Units and from the
issuance of the Senior Notes were used to retire approximately
$477,600,000 in indebtedness assumed by the Operating
Partnership.
B. 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 propane industry is seasonal in nature with peak
activity during the winter months. Therefore, the results
of operations for the eleven months ended June 30, 1994, are
not indicative of the results to be expected for a full
fiscal year.
F-28
<PAGE>
(2) Reclassifications:
Certain reclassifications have been made to the 1993 and
1992 consolidated statement of cash flows in order to
conform with the 1994 presentation.
(3) Short-term investments:
Short-term investments consist of U.S. Treasury Bills and
U.S. government obligations with remaining maturities as of
June 30, 1994, ranging from approximately two to eight
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 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 non-current
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 such
acquisitions over their 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 $67,730,000 as of June 30, 1994,
and $59,181,000 as of July 31, 1993.
F-29
<PAGE>
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 $9,845,000
as of June 30, 1994, and $7,592,000 as of July 31, 1993.
(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 H, using the asset/liability method. 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.
(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 $55,681,000 for the eleven months
ended June 30, 1994, and $57,563,000 and $59,054,000 for the
two fiscal years ended July 31, 1993 and 1992, respectively.
In 1993, the Company received capital contributions, as
described in Note L, 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 G, the
Company recorded non-cash extraordinary losses from the
write-off of financing costs, net of income tax benefits, of
$129,000, $145,000 and $2,550,000, respectively.
C. Inventories:
<TABLE>
<CAPTION>
June 30, July 31,
1994 1993
------- -------
(in thousands)
<S> <C> <C>
Liquified propane gas and related products $33,339 $19,378
Appliances, parts and supplies 4,592 4,274
------- -------
$37,931 $23,652
======= =======
</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-30
<PAGE>
D. Property, Plant and Equipment:
<TABLE>
<CAPTION>
June 30, July 31,
1994 1993
-------- --------
(in thousands)
<S> <C> <C>
Land and improvements $18,584 $18,459
Buildings and improvements 22,958 23,001
Vehicles 37,305 37,564
Furniture and fixtures 17,599 16,402
Bulk equipment and market facilities 33,197 33,612
Tanks and customer equipment 317,321 314,127
Other 3,063 1,456
-------- --------
450,027 444,621
Less accumulated depreciation and amortization 156,298 140,805
-------- --------
$293,729 $303,816
======== ========
</TABLE>
E. 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. As described in Note N, the Class B
redeemable common stock was dividended to Ferrell in July
1994. Such transaction was contingent upon the successful
completion of the public offerings described in Note A and
would not otherwise have been consummated.
F. Other Current Liabilities:
<TABLE>
<CAPTION>
June 30, July 31,
1994 1993
------- -------
(in thousands)
<S> <C> <C>
Current portion of long-term debt $1,279 $1,766
Accrued insurance 8,964 8,846
Accrued interest 5,609 10,374
Accrued Payroll 9,072 3,273
Other 5,372 4,789
------- -------
$30,296 $29,048
======= =======
</TABLE>
F-31
<PAGE>
G. Long-Term Debt:
<TABLE>
<CAPTION>
June 30, July 31,
1994 1993
-------- --------
(in thousands)
<S> <C> <C>
Fixed rate senior Notes, interest at 12%, due in August
1996 $177,600 $189,500
Floating rate senior notes, interest at applicable LIBOR
rate plus 2.25% (6.5% at June 30, 1994), due in August 1996 50,000 50,000
Senior subordinated debentures, interest at 11 5/8%,
$250,000,000 face amount, due in December 2003 246,461 246,293
Notes payable, including approximately $2,292,000 and
$2,975,000 secured by property and equipment, interest
rates ranging from noninterest-bearing to 12%, due on
various dates through 2001 3,659 5,562
-------- -------
477,720 491,355
Less current portion 1,279 1,766
-------- --------
$476,441 $489,589
======== ========
</TABLE>
For the eleven months ended June 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 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 were used to reacquire 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 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 June 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 $33,423,000. Such letters of credit reduce the
amount otherwise available for borrowings under the facility.
F-32
<PAGE>
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 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 $1,279,000 in 1995, $988,000 in
1996, $227,869,000 in 1997, $126,000 in 1998 and $82,000 in
1999.
H. Income Taxes:
Income tax expense (benefit) consists of (in thousands):
<TABLE>
<CAPTION>
Eleven Months Fiscal Years Ended
Ended July 31,
June 30, -------------------
1994 1993 1992
-------------- ------ ---------
<S> <C> <C> <C>
Current $209 $606 $301
Deferred 7,136 (663) (7,086)
-------------- ------ ---------
$7,345 ($57) ($6,785)
============== ====== =========
Allocated to:
Operating activities $7,876 $486 ($669)
Extraordinary loss (531) (543) (6,116)
-------------- ------ ---------
$7,345 ($57) ($6,785)
============== ====== =========
</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>
Eleven Months Fiscal Years Ended
Ended July 31,
June 30, -------------------
1994 1993 1992
------------- ------- --------
<S> <C> <C> <C>
Depreciation expense $104 $1,568 $7,010
Net operating loss 9,258 (1,975) (9,055)
Net cash, accrual and other differences (2,696) (752) (5,427)
Amortization 470 496 386
------------- ------- --------
$7,136 ($663) ($7,086)
============= ======= ========
</TABLE>
For Federal income tax purposes, the Company has net operating
loss carryforwards of approximately $201,000,000 at June 30,
1994 available to offset future taxable income. These net
operating loss carryforwards expire at various dates through
2009.
F-33
<PAGE>
A reconciliation between the effective tax rate and the
statutory Federal rate follows (amounts in thousands):
<TABLE>
<CAPTION>
Eleven Months Fiscal Years Ended July 31,
Ended ------------------------------------
June 30, 1994 1993 1992
---------------- ---------------- -----------------
Amount % Amount % Amount %
------ ------ ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Income tax expense (benefit)
at statutory rate $6,585 35.0 ($284) (34.0) ($6,278) (34.0)
Statutory surtax (188) (1.0) - - - -
State income taxes, net of
Federal benefit 827 4.4 182 21.8 (518) (2.7)
Nondeductible meal and
entertainment expense 54 0.3 36 4.3 42 0.2
Other 67 0.3 9 1.1 (31) (0.2)
------ ------ ------ ------ -------- ------
$7,345 39.0 ($57) (34.0) ($6,785) (34.0)
====== ====== ====== ====== ======== ======
</TABLE>
The significant components of the net deferred tax asset
(liability) included in the Consolidated Balance Sheet are as
follows (in thousands):
<TABLE>
<CAPTION>
June 30, July 31,
1994 1993
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Difference between book and tax basis of
property and intangible assets ($99,333) ($86,533)
Other 0 (3,267)
--------- ---------
Total deferred tax liabilities (99,333) (89,800)
Deferred tax assets:
Operating loss carryforwards 78,189 85,790
Reserves not currently deductable 14,963 6,767
Other 1,802 0
--------- ---------
Total deferred tax assets 94,954 92,557
--------- ---------
Net deferred tax asset (liability) ($4,379) $2,757
========= =========
</TABLE>
F-34
<PAGE>
I. 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 $61,000,000 of deductions taken or to be taken for
depreciation of customer tanks 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 $90,000,000 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 totaled $9,556,000 for the eleven
months ended June 30, 1994, and $10,903,000 and $10,317,000
for the two fiscal years ended July 31, 1993 and 1992. Future
minimum lease commitments for such leases are $7,716,000 in
1995, $5,400,000 in 1996, $3,529,000 in 1997, $1,642,000 in
1998 and $457,000 in 1999.
J. 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 for the eleven months ended June 30,
1994, and were $1,000,000 and $2,711,000 for the two fiscal
years ended July 31, 1993 and 1992, respectively. Company
matching contributions to the plan under the 401(k) provision
of the plan were $1,445,000 for the eleven months ended June
30, 1994, and were $1,541,000 and $1,420,000 for the two
fiscal years ended July 31, 1993 and 1992, 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.
The following table sets forth the plan's projected funded
status for the respective periods based on the most recent
actuarial valuations:
F-35
<PAGE>
Actuarially computed pension expense includes the following
components (in thousands):
<TABLE>
<CAPTION>
Eleven Months Fiscal Years Ended
Ended July 31,
June 30, -------------------
1994 1993 1992
-------------- ------ ---------
<S> <C> <C> <C>
Service Cost $225 $285 $218
Interest on Obligations 338 378 407
Actual Return on Plan Assets 286 (448) (320)
Amortization and Deferral of:
Prior Service Cost (28) (31) 1
Gain (170) (98) (98)
Deferred Asset (Gain)/Loss (578) 157 108
Actuarially Computed Pension -------------- ------ ---------
Pension Expense $73 $243 $316
============== ====== =========
</TABLE>
Actuarial present value of benefit obligations is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
June 30, July 31,
1994 1993
------ ------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested Benefit Obligation $2,474 $2,215
====== ======
Accumulated Benefit Obligation $2,978 $2,747
====== ======
Projected Benefit Obligation $4,798 $4,917
Less: Plan Assets at Fair Value 2,853 3,605
------ ------
Benefit Obligation in Excess of
Plan Assets 1,945 1,312
Unrecognized Prior Service Cost 298 329
Unrecognized Gain 1,828 2,573
------ ------
Accrued Benefit Obligation $4,071 $4,214
====== ======
</TABLE>
The actuarial computations assumed a discount rate, annual
salary increase and expected long-term rate of return on plan
assets of 8%, 5% and 9.5%, respectively, for the eleven months
ended June 30, 1994, and for fiscal year 1993 and 1992.
In fiscal 1987, 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. 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 recorded by the Company. Compensation expense charged
(credited) to income was $720,000 for the eleven months ended
June 30, 1994, and was $80,000 and $(1,934,000), respectively,
for the two fiscal years ended July 31, 1993 and 1992.
F-36
<PAGE>
K. 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 average 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 eleven months ended June 30, 1994, of adopting
this statement was not material to the financial statements of
the Company.
The Company had expenses of $560,000 and $471,000 for the years
ended July 31, 1993 and 1992, 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 June 30,
1994:
Accumulated Postretirement Benefit Obligation-Retirees $2,270,000
Fair Value of Assets 0
----------
Unfunded Status $2,270,000
==========
Net periodic postretirement benefit cost for the eleven months
ended June 30, 1994, included the following components:
Interest Cost on Obligation $178,014
Amortization of Transition Obligation 209,391
--------
Net Periodic Postretirement Benefit Cost $387,405
========
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 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.
F-37
<PAGE>
L. Transactions with Related Parties:
All notes receivable from related parties bear interest at the
prime rate plus 1.375% (8.125% at June 30, 1994) except for
one note totaling $9,843,000 which bears interest at the prime
rate (7.25% at June 30, 1994).
In 1993, the Company received capital contributions from its
Parent consisting 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 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 and $692,000 in fiscal years
1993 and 1992, 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 $1,243,000 for the eleven
months ended June 30, 1994, and paid fees of $1,381,000 and
$2,189,000 during the two fiscal years ended July 31, 1993 and
1992, respectively.
M. 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.
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 $524,723,000 and $539,651,000 as of June 30,
1994 and July 31, 1994, respectively. The fair value is
estimated based on quoted market prices and discounted cash
flows.
F-38
<PAGE>
Option and Forward Contracts. 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 counterparties
and to a lesser extent on national mercantile exchanges. Open
contract positions are summarized as follows:
<TABLE>
<CAPTION>
As of June 30, 1994
(In thousands except price per gallon data)
Market
Volume in Price Maturity Contract Value of Unrealized
Gallons (per gallon) Dates Amounts Contracts Gain/(Loss)
------- ---------- ----------------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Exchange Traded Option
Contracts to Buy 8,820 $0.30 Aug 1994-Jan 1995 $2,662 $2,679 $17
Exchange Traded Option
Contracts to (Sell) (4,200) $0.29 Sep-94 (1,229) (1,230) (1)
Forward Contracts to Buy 62,661 $0.18-0.38 July-Dec 1994 16,450 16,466 16
Forward Contracts to (Sell) (9,513) $0.29-0.37 Aug 1994-Jan 1995 (3,023) (2,959) 64
------- -------- -------- ---------
Total 57,768 $14,860 $14,956 $96
======= ======== ======== =========
</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
$10,394,000 and sell ($11,347,000) of various liquified
petroleum products expressed in dollars based on contract
prices. At July 31, 1992, similar contracts to buy were
$7,582,000 and to sell ($4,986,000). Net unrealized
gains/(losses) on those open position were $281,000 and $0,
respectively, at July 31, 1993 and 1992.
N. Subsequent Event
On July 26, 1994, the Company loaned Ferrell $25,000,000, on an
unsecured basis. This note bears interest at the prime rate
(7.25% at July 26, 1994), and is due on demand.
On July 27, 1994, the Company declared and paid a cash dividend
to Ferrell of approximately $12,919,000. In addition, the
Company declared a dividend and distributed certain assets to
Ferrell, consisting of the following: (i) $36,031,000
investment in Class B redeemable common stock of Ferrell, (ii)
note receivable from James E. Ferrell of $9,843,000, including
accrued interest through July 26, 1994, (iii) $1,331,000
accounts receivable from James E. Ferrell, (iv) notes
receivable from real estate affiliates of approximately
$4,792,000, including accrued interest through July 26, 1994,
(v) note receivable from Ferrell of approximately $4,054,000,
including accrued interest through July 26, 1994, (vi) other
assets of approximately $63,000 and (vii) the Incentive
Distribution Rights received by the Company in connection with
the initial public offering of the Partnership described in
Note A.
F-39
<PAGE>
On August 1, 1994, the Company declared a dividend and
distributed to Ferrell 1,000,000 Common Units, 1,650,000
Subordinated Units received by the Company in connection with
the initial public offering of the Partnership described in
Note A. The dividend of the Common Units and Subordinated
Units represents an approximate 8% limited partner interest in
the Partnership.
On September 30, 1994, the General Partner entered into a
definitive Purchase Agreement with Vision Energy Resources,
Inc. ("Vision") for the purchase of the propane business owned
and operated by Vision for a cash purchase price of $45
million. The closing of the transaction is subject to
customary conditions, including the expiration of the
applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act. Following the closing of the
transaction, the General Partner intends to transfer the
assets of Vision to Ferrellgas, L.P.
On October 14, 1994, the General Partner adopted the Ferrellgas,
Inc. Unit Option Plan (the "Unit Option Plan"), which authorizes
the issuance of options (the "Unit Options") covering up to
750,000 Subordinated Units to certain officers and employees
of the General Partner, of which 657,000 options have been
granted. The Unit Options granted have an exercise price of
$16.80 per Subordinated Unit, will vest over a three to five
year period (depending on the employee) and will expire on the
tenth anniversary of the date of the grant. Upon conversion of
100% of the Subordinated Units held by the General Partner and
its affiliates, the Unit Options granted will convert to Common
Unit Options.
F-40
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Board of
Directors of Vision Energy Resources, Inc.:
We have audited the accompanying consolidated balance sheet of Vision Energy
Resources, Inc. and Subsidiaries (the "Company"), as of December 31, 1993, and
the related consolidated statement of operations and accumulated deficit and the
consolidated statement of cash flows for the year then ended. These financial
statements are the responsibility of the management of the Company. Our
responsibility is to express an opinion on these financial statements 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the
Company as of December 31, 1993, and the consolidated results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
As discussed in Note 5 to the financial statements, the Company changed its
method of accounting for income taxes in 1993.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 31, 1994
F-41
<PAGE>
VISION ENERGY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Accounts receivable, net of allowance
for doubtful accounts of $300,000 $ 7,853,000
Inventories 7,255,000
Current deferred income taxes 654,000
Prepaid expenses and other current
assets 440,000
-------------
Total current assets 16,202,000
Property, plant and equipment, net of
accumulated depreciation 29,099,000
Goodwill 22,062,000
Other assets 1,397,000
-------------
Total assets $ 68,760,000
=============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Cash overdraft $ 577,000
Accounts payable and accrued expenses 6,661,000
Accrued payroll and related expenses 849,000
Deferred revenue 2,517,000
Income taxes currently payable 913,000
Due to affiliate 4,711,000
Note payable 400,000
-------------
Total current liabilities 16,628,000
Deferred income taxes 1,041,000
Other liabilities 3,740,000
-------------
Total Liabilities 21,409,000
Commitments and contingent liabilities
Shareholder's equity:
Common Stock, $1 par value; 1,000 shares
authorized, 100 shares issued and
outstanding and additional paid-in capital 67,092,000
Accumulated deficit (19,741,000)
------------
Total shareholder's equity 47,351,000
-------------
Total liabilities and shareholder's equity $ 68,760,000
=============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-42
<PAGE>
VISION ENERGY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1993
Product sales revenues $ 71,762,000
Cost and expenses:
Cost of product 46,766,000
Operating expenses 16,402,000
General and administrative expenses 5,829,000
Depreciation and amortization 7,239,000
Provision for environmental remediation 2,950,000
------------
79,186,000
------------
Operating loss (7,424,000)
------------
Other income (expense):
Interest and other income, net 637,000
Interest expense (199,000)
------------
Loss from operations
before income taxes (6,986,000)
Income tax benefit 2,256,000
------------
Net loss (4,730,000)
Accumulated deficit, beginning of year (15,011,000)
------------
Accumulated deficit, end of year $(19,741,000)
============
The accompanying notes are an integral part
of these consolidated financial statements.
F-43
<PAGE>
VISION ENERGY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss $(4,730,000)
Non-cash items included in loss from operations:
Depreciation and amortization 7,239,000
Change in deferred taxes (2,130,000)
Provision for environmental clean-up 2,950,000
Provision for doubtful accounts 263,000
Gain on sale of fixed assets (137,000)
Provision for inventory obsolescence 150,000
Changes in assets and liabilities:
Increase in accounts receivable (557,000)
Increase in inventories (2,580,000)
Decrease in prepaid expenses and other
current assets 9,000
Increase in accounts payable and accrued
expenses 4,882,000
Decrease in accrued payroll and related
expenses (115,000)
Increase in deferred revenue 437,000
Increase in income taxes currently payable 812,000
-----------
10,822,000
-----------
Net cash provided by operating
activities 6,493,000
-----------
Cash flows from investing activities:
Proceeds from disposal of property, plant
and equipment 678,000
Payments for capital expenditures (2,757,000)
-----------
Net cash used by investing activities (2,079,000)
-----------
Cash flows from financing activities:
Repayment of borrowing from affiliate (2,651,000)
Cash overdraft (1,727,000)
Other (36,000)
-----------
Net cash used by financing activities (4,414,000)
-----------
Net decrease in cash and cash equivalents _
Cash and cash equivalents at beginning of year _
-----------
Cash and cash equivalents at end of year _
===========
Supplement disclosure of cash flow information:
Cash paid (received) during the year for
interest and income taxes:
Interest $ 17,000
Income taxes (452,000)
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION:
The consolidated financial statements include the accounts of Vision Energy
Resources, Inc. and its wholly owned subsidiaries (the "Company"). The
Company, an indirectly wholly owned subsidiary of Bell Atlantic Corporation
(Bell Atlantic), maintains its accounts in accordance with generally
accepted accounting principles. All significant intercompany balances and
transactions have been eliminated.
INVENTORY:
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. The provision for
depreciation is based principally on the straight-line method by using the
following estimated remaining service lives: buildings and improvements, 20
to 40 years; petroleum gas equipment, 9 years; office equipment and
furniture, 5 to 13 years; and transportation equipment, 4 to 6 years. Gain
or loss on sale of property, plant and equipment is reflected currently in
operating results.
GOODWILL:
Goodwill, which includes the excess of the purchase price over the value of
identifiable net assets of acquired companies at the date of their
acquisition, is being amortized on a straight-line basis over a forty-year
period. Goodwill amortization for the year ended December 31, 1993 was
$630,000.
OTHER ASSETS:
Other assets consist primarily of covenants not to compete and deferred
organizational expenses, which are being amortized over 60 months.
Amortization of other assets for the year ended December 31, 1993 was
$863,000.
DEFERRED REVENUE:
The Company enters into arrangements to provide customers with specified
quantities of product at specified prices. Cash received in advance of
product delivery is recorded as deferred revenue and sales revenues are
recorded as product is delivered.
Continued
F-45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
INCOME TAXES:
The Company is included in Bell Atlantic's consolidated federal income tax
return. The Company is allocated income tax assets, liabilities, expense,
benefits and credits resulting from the effects of its transactions in the
consolidated federal income tax provision determined in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for
Income Taxes" (Statement No. 109). As a result of this allocation method,
the Company recognizes benefits currently for net operating losses (NOLs)
and NOL carryforwards that would not have been recognizable on a separate
tax return basis. The federal portion of income taxes currently payable is
due to Bell Atlantic.
2. INVENTORIES:
<TABLE>
<S> <C>
Inventories consist of:
Liquified petroleum gas $5,732,000
Merchandise and appliances 930,000
Bulk fuels and oil 353,000
Other 240,000
----------
$7,255,000
==========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<S> <C>
Property, plant and equipment consist of:
Land and buildings $ 6,866,000
Liquified petroleum gas equipment 37,834,000
Furniture and fixtures 1,434,000
Transportation equipment 6,409,000
------------
52,543,000
Less, Accumulated depreciation (23,444,000)
------------
$ 29,099,000
============
</TABLE>
Depreciation expense for the year ended December 31, 1993 was $5,746,000.
Continued
F-46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
4. LEASES AND RENTALS:
At December 31, 1993, the Company was committed under operating leases for
the rental of office space, operating equipment and operating sites. Rental
expense for operating leases amounted to $534,000 in 1993.
The following is a schedule of future minimum rental payments under
operating leases as of December 31, 1993:
<TABLE>
<S> <C>
1994 $307,000
1995 94,000
1996 11,000
1997 8,000
1998 6,000
--------
$426,000
========
</TABLE>
5. INCOME TAXES:
During 1993, the Company adopted Statement No. 109 retroactively to January
1, 1992. Financial statements for periods commencing on or after that date
have been restated. Statement No. 109 requires the determination of deferred
taxes using the liability method. Under the liability method, deferred taxes
are provided on book and tax basis differences and deferred tax balances
are adjusted to reflect enacted changes in income tax rates. Prior to 1992,
the Company accounted for income taxes based on the provisions of Accounting
Principles Board Opinion No. 11.
The Omnibus Budget Reconciliation Act of 1993, which was enacted in August
1993, increased the federal corporate income tax rate from 34% to 35%,
effective January 1, 1993. In the third quarter of 1993, the Company
recorded a charge to the tax provision of $45,000 for the effect of the 1%
rate increase on the deferred tax balances as of January 1, 1993.
The components of income tax expense (benefit) at December 31, 1993, are as
follows:
<TABLE>
<S> <C>
Current:
Federal $ (156,000)
State 30,000
-----------
(126,000)
Deferred:
Federal (1,956,000)
State (174,000)
-----------
(2,130,000)
-----------
Total $(2,256,000)
===========
</TABLE>
Continued
F-47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
5. INCOME TAXES, continued:
The provision for income taxes varies from the amount computed by applying
the statutory federal income tax rate to income before provision for income
taxes. The difference is attributable to the following factors:
<TABLE>
<S> <C>
Statutory federal income tax rate (35.0)%
State income taxes, net of federal
income tax effect (1.3)
Goodwill amortization 3.1
Effect of Omnibus Reconciliation
Act of 1993 0.6
Other 0.3
-----
Effective income tax rate (32.3)%
=====
</TABLE>
At December 31, 1993, the significant components of deferred tax assets and
liabilities were as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Environmental reserves and other
estimated liabilities $1,576,000
Net operating loss carryforwards 4,658,000
Other 253,000
----------
6,487,000
Valuation allowance (460,000)
----------
Net deferred tax assets 6,027,000
----------
Deferred tax liabilities:
Depreciation and amortization 5,941,000
Other 473,000
----------
Gross deferred tax liabilities 6,414,000
----------
Net deferred tax liabilities $ 387,000
==========
</TABLE>
At December 31, 1993, net operating loss carryforwards for federal income
tax purposes (federal NOLs) were approximately $11,434,000. The federal
NOLs arose prior to the merger of the Company's parent, Metro Mobile CTS
Inc. (MMCTS) with Bell Atlantic and expire from 2001 to 2006.
Continued
F-48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-----------------
5. INCOME TAXES, continued:
Federal tax law restricts the future utilization of the federal NOLs,
permitting them to offset only the future taxable income earned by the MMCTS
subconsolidated group. Future utilization of the federal NOLs could also be
restricted by virtue of the "change in ownership" rules contained in Section
382 of the Internal Revenue Code of 1986.
Based on projections of future taxable income of MMCTS and the Company's
existing deferred tax liabilities, the Company expects to realize the future
tax benefit of all federal NOL carryforwards.
Also, at December 31, 1992, net operating loss carryovers for state income
tax purposes (state NOLs) were approximately $8,938,000. The state NOLs
expire from 1996 to 2003. Utilization of the state NOLs are subject to
restrictions similar to the restrictions on the federal NOLs described above,
applied in each state jurisdiction. The valuation allowances relate to the
state NOLs.
6. EMPLOYEE BENEFIT PLANS:
The Company participates in a Bell Atlantic Saving Plan which allows
employees to invest up to 16% of their salary through a payroll deduction.
The Company will contribute 50% of the employee's contribution, up to 6% of
their salary. In 1993, the Company contributed $114,000 to the Plan.
7. TRANSACTION WITH AFFILIATES:
The Company has entered into a short-term borrowing arrangement with an
affiliate which bears interest at a rate which approximates the affiliate's
average daily cost of funds (3.51% at December 31, 1993). The Company
recognized interest expense of $157,000 in 1993.
During 1993, the Company paid $1,000,000 in fees to Bell Atlantic in return
for various administrative, legal, cash management, tax and financial
planning services.
Continued
F-49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
---------------
8. COMMITMENTS:
At December 31, 1993, the Company was committed to sell 5,337,000 gallons of
propane for $3,488,000 under fixed price sales agreements and owned
sufficient inventory to fulfill these sales commitments.
9. CONTINGENT LIABILITIES:
One of the Company's subsidiaries holds title to land that had been occupied
by a coal gasification plant. In 1992, the EPA performed a site inspection
and shallow soil and groundwater testing.
In 1984, the Florida Department of Environmental Protection asked the
Company to submit a preliminary contamination assessment plan and to perform
a contamination assessment to confirm the EPA findings. Based on information
developed to date in connection with this assessment, the Company provided a
reserve in 1993 of $2,800,000 for the estimated remediation costs of this
site.
On October 28, 1994, the Company transferred ownership of this property to
Bell Atlantic Ventures XXV, Inc. which is an indirect subsidiary of Bell
Atlantic.
10. SUBSEQUENT EVENTS (UNAUDITED):
Effective November 1, 1994, the Company expects to be sold by Bell Atlantic,
to Ferrellgas, Inc. for approximately $45 million.
F-50
<PAGE>
VISION ENERGY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JULY 31, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY
ASSETS 1994
--------------------- ------
<S> <C>
Current assets:
Cash and cash equivalents $ 28
Accounts and notes receivable 5,294
Inventories 6,535
Prepaid or refundable income taxes 1,449
Prepaid expenses and other current assets 462
------
Total Current Assets 13,768
------
Property, plant and equipment, net of accumulated
depreciation $26,553
Intangible assets 21,723
Other assets 906
-------
Total assets $62,950
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------------------------
Current Liabilities:
Accounts payable and accrued expenses $ 9,405
Interest payable 78
Due to affiliate 4,259
Note payable 489
-------
Total current liabilities 14,231
-------
Other liabilities 2,950
Shareholder's equity:
Common stock, $1 par value; 1,000 shares authorized
100 shares issued and outstanding and additional
paid in capital 67,092
Accumulated Deficit (21,323)
-------
Total shareholder's equity 45,769
-------
Total liabilities & stockholders' equity $62,950
=======
</TABLE>
F-51
<PAGE>
VISION ENERGY RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE SEVEN MONTHS ENDED JULY 31, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
Revenues:
Gas liquids and related product sales $ 30,167
Other 6,109
--------
Total revenues 36,276
Costs and expenses:
Cost of product sold 20,674
Operating 10,528
Depreciation and amortization 4,037
General and administrative 2,828
Governance fee 467
--------
Total costs and expenses 38,534
--------
Operating loss (2,258)
Interest income 182
Interest expense (100)
--------
Loss before income taxes (2,176)
Income tax expense (benefit) (594)
--------
Net loss (1,582)
Accumulated deficit--Beg of year (19,741)
--------
Accumulated deficit--End of year $(21,323)
========
</TABLE>
F-52
<PAGE>
VISION ENERGY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SEVEN MONTHS ENDED JULY 31, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net Loss ($1,582)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,038
Provision for doubtful accounts 165
Gain on sale of fixed assets (104)
Change in assets & liabilities:
Decrease in accounts receivable 2,394
Decrease in inventory 719
Increase in prepaid expenses & other current assets (22)
Decrease in accounts payable & accrued liabilities (1,027)
Decrease in income taxes payable -- current (1,723)
Decrease in deferred taxes (1,059)
Increase in interest payable 23
-----------
3,404
-----------
Net cash provided by operating activities $ 1,822
-----------
Cash flows from investing activities:
Proceeds from disposal of property, plant and equipment 368
Capital expenditures (943)
Other 18
-----------
Net cash (used) in investing activities (557)
===========
Cash flows from financing activities:
Repayment of borrowing from affiliate (452)
Repayment of long term debt (208)
Cash overdraft (577)
-----------
Net cash used by financing activities (1,237)
===========
Net increase in cash and cash equivalents 28
Cash and cash equivalents at beginning of period --
-----------
Cash and cash equivalents at end of period $ 28
===========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest and income taxes:
Interest $ 77
Income taxes 2,188
</TABLE>
F-53
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses to be paid by the Partnership in
connection with the offering described in this Registration Statement. With the
exception of the Securities and Exchange Commission registration fee, the
amounts set forth below are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.. $17,483
The New York Stock Exchange, Inc. listing fee........ 7,500
Printing and engraving expenses...................... 5,100
Legal fees and expenses.............................. 30,000
Accounting fees and expenses......................... 25,000
Blue Sky fees and expenses........................... 5,000
Transfer agent and registrar fees.................... 1,000
Miscellaneous........................................ 2,000
-------
Total........................................ $93,083
=======
</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 bylaws of Ferrellgas, Inc. 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.
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
II-1
<PAGE>
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 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
II-2
<PAGE>
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 the Articles of Incorporation of Ferrell Companies, Inc.
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 the bylaws of Ferrell Companies, Inc. 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 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
II-3
<PAGE>
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 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
II-4
<PAGE>
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.
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.
On July 5, 1994, the Partnership issued 1,000,000 Common Units and 16,593,721
Subordinated Units to Ferrellgas as consideration for the contribution of all of
its propane business and assets to the Operating Partnership.
On November 1, 1994, the Partnership issued 138,392 Common Units to Ferrellgas
in exchange for its retention of the income tax liabilities of Vision Energy
Resources, Inc., the assets of which were transferred to the Operating
Partnership.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
2.1 - Stock Purchase Agreement dated September 30, 1994 between
Ferrellgas, Inc. and Bell Atlantic Enterprises
International, Inc.
3.1 - Agreement of Limited Partnership of Ferrellgas
Partners, L.P. (included as Appendix A to the Prospectus)
*3.2 - Agreement of Limited Partnership of Ferrellgas, L.P. dated
as of July 5, 1994
II-5
<PAGE>
**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 - Credit Agreement dated as of July 5, 1994 among
Ferrellgas, L.P., Stratton Insurance Company, Inc.,
Ferrellgas, Inc., Bank of America National Trust and
Savings Association, as agent, and the other financial
institutions party thereto
*10.2 - Indenture dated as of July 5, 1994 among Ferrellgas,
L.P., Ferrellgas Finance Corp. and Norwest Bank
Minnesota, National Association, as trustee, relating to
$200,000,000 10% Series A Fixed Rate Senior Notes due
2001 and $50,000,000 Series B Floating Rate Senior Notes
due 2001
***10.4 - Agreement dated as of April 1, 1994 between BP
Exploration & Oil, Inc. and Ferrellgas, L.P.
****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 - Ferrellgas, Inc. Unit Option Plan
10.9 - Contribution, Conveyance and Assumption Agreement dated
as of November 1, 1994 among the Partnership, the
Operating Partnership and Ferrellgas
****21.1 - List of subsidiaries
23.1 - Consent of Deloitte & Touche LLP
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)
23.4 - Consent of Coopers & Lybrand L.L.P.
24.1 - Power of Attorney of A. Andrew Levison
24.2 - Power of Attorney of Daniel M. Lambert
______________________
* Incorporated by reference to the same numbered Exhibit to the
Registrant's Current Report on Form 8-K filed August 15, 1994
** Previously Filed
*** Incorporated by reference to the same numbered Exhibit to Registrant's
Annual Report on Form 10-K filed October 20, 1994 (Registration
No. I-11331)
**** Incorporated by reference to the same numbered Exhibit to Registrant's
Registration Statement on Form S-1 (Registration No. 33-53383)
II-6
<PAGE>
(b) Financial Statement Schedules
Index of Financial Statement
<TABLE>
<S> <C>
Schedules........................................................ S-1
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY
----------------------------------------
Independent Auditors' Report on Schedules........................ S-2
Schedule III - Parent Company Only Balance Sheet as of July 31,
1994, and Statement of Operations and Partners Capital and
Statement of Cash............................................... S-3
Schedule V - Property and Equipment from inception to July 31,
1994............................................................ S-6
Schedule VI - Accumulated Depreciation and Amortization from
inception to July 31, 1994...................................... S-7
Schedule VIII - Valuation and Qualifying Accounts from
inception to July 31, 1994...................................... S-8
Schedule IX - Short-term Borrowings from inception to July 31,
1994............................................................ S-9
Schedule X - Supplementary Income Statement Information.......... S-10
FERRELLGAS, INC. (PREDECESSOR)
------------------------------
Independent Auditors' Report on Schedules........................ S-11
Schedule I - Marketable Securities - Other Security Investments.. S-12
Schedule II - Amounts Receivable from Related Parties for the
eleven months ended June 30, 1994 and for each of the two years
in the period ended July 31, 1993............................... S-13
Schedule V - Property and Equipment for the eleven months ended
June 30, 1994 and for each of the two years in the period ended
July 31, 1993 .................................................. S-14
Schedule VI - Accumulated Depreciation and Amortization for the
eleven months ended June 30, 1994 and for each of the two years
in the period ended July 31, 1993............................... S-15
Schedule VIII - Valuation and Qualifying Accounts for the eleven
months ended June 30, 1994 and for each of the two years in the
period ended July 31, 1993..................................... S-16
Schedule IX - Short-term Borrowings for the eleven months ended
June 30, 1994 and for each of the two years in the period ended
July 31, 1993................................................... S-17
Schedule X - Supplementary Income Statement Information.......... S-18
</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 as follows:
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act") may be permitted to directors,
officers and 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 person of the Registrant in the successful defense of any action,
suit or proceeding) is
II-7
<PAGE>
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 Securities Act and will be governed by
the final adjudication of such issue.
(2) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1993:
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
(3) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment 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.
II-8
<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 14TH DAY OF
NOVEMBER, 1994.
FERRELLGAS PARTNERS, L.P.
By: FERRELLGAS, INC., AS GENERAL PARTNER
By: /s/ James E. Ferrell
--------------------
James E. Ferrell, President and
Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED, THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
- --------- ----- ----
Director, President and
/s/ James E. Ferrell Chairman of the Board November 14, 1994
- ------------------------------- (Principal Executive
James E. Ferrell Officer)
/s/ Danley K. Sheldon Senior Vice President November 14, 1994
- ------------------------------- and Chief Financial
Danley K. Sheldon Officer (Principal
Financial and
Accounting Officer)
/s/ Daniel M. Lambert Director November 14, 1994
- -------------------------------
Daniel M. Lambert
/s/ Andrew Levison Director November 14, 1994
- -------------------------------
A. Andrew Levison
II-9
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
Ferrellgas Partners, L.P. and Subsidiary
- ----------------------------------------
Independent Auditors' Report on Schedules
Schedule III Parent Company Only Balance Sheet
as of July 31, 1994, and Statement of
Operations and Statement of Cash Flows
from inception to July 31, 1994
Schedule V Property and Equipment from inception
to July 31, 1994
Schedule VI Accumulated Depreciation and Amortization
from inception to July 31, 1994
Schedule VIII Valuation and Qualifying Accounts from
inception to July 31, 1994
Schedule IX Short-term Borrowings from inception to
July 31, 1994
Schedule X Supplementary Income Statement Information
Ferrellgas, Inc. (Predecessor)
- ------------------------------
Independent Auditors' Report on Schedules
Schedule I Marketable Securities - Other Security Investments
Schedule II Amounts Receivable from Related Parties
for the eleven months ended June 30, 1994
and for each of the two years in the period
ended July 31, 1993
Schedule V Property and Equipment for the
eleven months ended June 30, 1994
and for each of the two years in the period
ended July 31, 1993
Schedule VI Accumulated Depreciation and Amortization
for the eleven months ended June 30, 1994
and for each of the two years in the period
ended July 31, 1993
Schedule VIII Valuation and Qualifying Accounts for the
eleven months ended June 30, 1994
and for each of the two years in the period
ended July 31, 1993
Schedule IX Short-term Borrowings for the eleven
months ended June 30, 1994 and for each of
the two years in the period ended July 31, 1993
Schedule X Supplementary Income Statement Information
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Ferrellgas Partners, L.P.
Liberty, Missouri
We have audited the consolidated financial statements of
Ferrellgas Partners, L.P. and subsidiary as of July 31,
1994, and for the period from inception (April 19, 1994) to
July 31, 1994, and have issued our report thereon dated
September 16, 1994 (October 14, 1994, as to Note O). Our
audit also included the financial statement schedules listed
at Item 16(b). These financial statement schedules are the
responsibility of the Partnership's management. Our
responsibility is to express an opinion based on our audit.
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 LLP
Kansas City, Missouri
September 16, 1994 (October 14, 1994, as to Note O)
S-2
<PAGE>
FERRELLGAS PARTNERS, L.P. Schedule III
PARENT ONLY
BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
July 31,
1994
---------
<S> <C>
ASSETS
Investment in Ferellgas, L.P. $121,393
---------
Total Assets $121,393
=========
PARTNERS' CAPITAL
Partners' Capital
Common unitholders $84,532
Subordinated unitholder 99,483
General partner (62,622)
---------
Total Partners' Capital $121,393
=========
</TABLE>
S-3
<PAGE>
FERRELLGAS PARTNERS, L.P. Schedule III
PARENT ONLY
STATEMENT OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Inception to
July 31, 1994
-------------
<S> <C>
Equity in loss of Ferrellgas, L.P. ($64,481)
---------
Net loss ($64,481)
=========
</TABLE>
S-4
<PAGE>
FERRELLGAS PARTNERS, L.P. Schedule III
PARENT ONLY
STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Inception to
July 31, 1994
-------------
<S> <C>
Cash Flows From Operating Activities:
Net loss ($64,481)
Reconciliation of net loss to
net cash from operating activities:
Equity in loss of Ferrellgas, L.P. 64,481
---------
Net cash from operating activities -
---------
Cash Flows From Investing Activities:
Investment in Ferrellgas, L.P. (255,006)
---------
Net cash from investing activities (255,006)
---------
Cash Flows From Financing Activities:
Net issuance of common units 255,006
---------
Net cash from financing activities 255,006
---------
Increase in Cash and Cash Equivalents -
Cash and cash equivalents - Beginning of period -
---------
Cash and Cash Equivalents - End of Period $ -
=========
<FN>
Supplemental disclosure of non-cash financing activity:
- -------------------------------------------------------
Effective July 5, 1994 substantially all of the propane assets and liabilities of Ferrellgas, Inc. were
conveyed at historical cost to Ferrellgas, L.P. in return for 1,000,000 Common Units, 16,593,721 Subordinated
Units and the Incentive Distribution Rights of Ferrellgas Partners, L.P., as well as a 2% general partner
interest in Ferrellgas Partners, L.P. and Ferrellgas, L.P., on a combined basis. Net liabilities assumed by
Ferrellgas, L.P. are as follows:
</FN>
</TABLE>
<TABLE>
<CAPTION>
July 5, 1994
------------
<S> <C>
Cash $39,791
Accounts receivable 50,747
Inventories 37,931
Prepaid expenses and other current assets 2,660
Property, plant and equipment, net 293,729
Intangible assets, net 64,050
Other assets 9,327
---------
Total assets conveyed 498,235
---------
Accouts payable 49,177
Other current liabilities 30,296
Long-term debt, net 476,441
Other non-current liabilities 9,557
---------
Total liabilities assumed 565,471
---------
Net liabilities assumed by Ferrellgas, L.P. ($67,236)
=========
</TABLE>
S-5
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY Schedule V
PROPERTY PLANT AND EQUIPMENT
(in thousands)
<TABLE>
<CAPTION>
Period Ended
July 31, 1994
----------
<S> <C>
Land and improvements $18,589
Buildings and improvements 23,005
Vehicles 37,283
Furniture and fixtures 17,776
Bulk equipment and market facilities 33,091
Tanks and customer equipment 317,631
Other 5,097
----------
$452,472
==========
Additions, at cost $2,750
==========
Retirements ($305)
==========
<FN>
Note 1: On July 5, 1994, substantially all of the propane assets and
liabilities of Ferrellgas, Inc. were conveyed at historical
cost to Ferrellgas, L.P. . Total property, plant and
equipment transferred to Ferrellgas, L.P. was $450,027.
Note 2: 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.
</FN>
</TABLE>
S-6
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY Schedule VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY PLANT AND EQUIPMENT
(in thousands)
<TABLE>
<CAPTION>
Additions
Charged to
Beginning Costs and End of
of Period Expenses Retirements Period
-------- ------- ----- --------
<S> <C> <C> <C> <C>
Inception to July 31, 1994
Land and improvements $1,775 $22 $ - $1,797
Buildings and improvements 7,381 90 - 7,471
Vehicles 25,818 253 140 25,931
Furniture and fixtures 12,732 205 - 12,937
Bulk equipment and market facilities 12,124 92 1 12,215
Tanks and customer equipment 96,468 940 52 97,356
-------- ------- ----- --------
$156,298 $1,602 $193 $157,707
======== ======= ===== ========
<FN>
On July 5, 1994, substantially all of the propane assets and
liabilities of Ferrellgas, Inc. were conveyed at historical
cost to Ferrellgas, L.P. . Total accumulated depreciation
and amortization of property, plant and equipment
transferred to Ferrellgas, L.P. was $156,298.
</FN>
</TABLE>
S-7
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY Schedule VIII
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Deductions Balance
beginning cost/ (amounts at end
Description of period expenses charged-off) of period
- ---------------------------- --------- ------ -------- ---------
<S> <C> <C> <C> <C>
Inception to July 31, 1994
- ----------------------------
Allowance for
uncollectible receivables $906 $119 $227 $798
======= ==== ====== =======
Accumulated amortization of
intangible assets $67,730 $759 $ - $68,489
======= ==== ====== =======
Accumulated amortization of
other assets $9,845 $23 $8,008 $1,860
======= ==== ====== =======
<FN>
On July 5, 1994, substantially all of the propane assets and
liabilities of Ferrellgas, Inc. were conveyed at historical
cost to Ferrellgas, L.P. . Total allowance for
uncollectable receivables, accumulated amortization of
intangible assets and accumulated amortization of other
assets transferred to Ferrellgas, L.P. was $906, $67,730 and
$9,845, respectively.
</FN>
</TABLE>
S-8
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY Schedule IX
SHORT-TERM BORROWINGS
(in thousands)
<TABLE>
<CAPTION>
Weighted
Maximum average
Weighted amount Average interest
Balance average outstanding outstanding rate
at end interest during during during
Category of period rate the period the period the period*
- ------------------------------ --------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
July 5, 1994 to July 31, 1994
- ------------------------------
Working capital loan $3,000 7.375% $3,000 $1,000 7.375%
====== ====== ====== ====== ======
</TABLE>
S-9
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY Schedule X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands)
<TABLE>
<CAPTION>
Charged to
costs and expenses
from inception to
July 31, 1994
-----------
<S> <C>
1. Maintenance and repairs $791
======
2. Depreciation $1,602
Amortization of intangibles 759
Amortization of other assets 23
------
$2,384
======
</TABLE>
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-10
<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 June 30, 1994 and
July 31, 1993, and for the eleven months ended June 30, 1994
and for each of the two years in the period ended July 31,
1993, and have issued our report thereon dated September 16,
1994 (October 14, 1994, as to Note N). Our audits also
included the financial statement schedules listed at Item
16(b)2. 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 LLP
Kansas City, Missouri
September 16, 1994 (October 14, 1994, as to Note N)
S-11
<PAGE>
FERRELLGAS, INC. AND SUBSIDIARIES Schedule I
MARKETABLE SECURITIES - OTHER INVESTMENTS
(in thousands)
<TABLE>
<CAPTION>
Balance
Issuance/ Shares/ Market Sheet
Issuer Par Value Cost Value Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance at June 30, 1994
- --------------------------------------
United States Treasury Bills
----------------------------
United States Government $15,000 $14,471 $14,633 $14,471 (1)
United States Treasury Notes
----------------------------
United States Government $5,000 $5,042 $5,071 $5,042 (1)
United States Government Obligations
------------------------------------
Federal Home Loan Bank $5,000 $4,995 $4,848 $4,995 (1)
Class B Redeemable Comon Stock
------------------------------
Ferrell Companies, Inc. 643 (4) $36,031 $36,031 (2) $36,031 (3)
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 Comon 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 Comon Stock
------------------------------
Ferrell Companies, Inc. 576 $32,813 $32,813 (2) $32,813 (3)
<FN>
(1) Short-term investments on Consolidated Balance Sheet.
(2) Class B redeemable common stock is not publicly traded. Therefore, for this
schedule market value is considered to be the same as historical cost.
(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.
</FN>
</TABLE>
S-12
<PAGE>
FERRELLGAS, INC. AND SUBSIDIARIES Schedule II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND EMPLOYEES
(in thousands)
<TABLE>
<CAPTION>
Balance at end
Balance at of period
beginning Amounts ---------------------
Name of Debtor of period Additions Collected Current Not Current
- --------------------------------- --------- --------- --------- ------- -----------
<S> <C> <C> <C> <C> <C>
Eleven months ended June 30, 1994
- ---------------------------------
One Liberty Plaza, Inc. (1) $3,000 $ - $ - $ - $3,000
====== ====== ====== ====== ======
Ferrell Development, Inc. (1) $1,500 $ - $ - $ - $1,500
====== ====== ====== ====== ======
Ferrell Properties, Inc. (1) $262 $ - $ - $ - $262
====== ====== ====== ====== ======
James E. Ferrell (2) $6,647 $4,268 $1,072 $500 $9,343
====== ====== ====== ====== ======
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
====== ====== ====== ====== ======
<FN>
(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.
</FN>
</TABLE>
S-13
<PAGE>
FERRELLGAS, INC. AND SUBSIDIARIES Schedule V
PROPERTY PLANT AND EQUIPMENT
(in thousands)
<TABLE>
<CAPTION>
Eleven months
ended Year ended Year ended
June 30, 1994 July 31, 1993 July 31, 1992
------------- ------------- -------------
<S> <C> <C> <C>
Land and improvements $18,584 $18,459 $17,150
Buildings and improvements 22,958 23,001 20,339
Vehicles 37,306 37,564 39,205
Furniture and fixtures 17,599 16,402 14,194
Bulk equipment and market facilities 33,196 33,612 32,051
Tanks and customer equipment 317,321 314,127 313,634
Other 3,063 1,456 99
------------- ------------- -------------
$450,027 $444,621 $436,672
============= ============= =============
Additions, at cost $9,843 $14,187 $20,392
============= ============= =============
Retirements $4,437 $6,238 $10,560
============= ============= =============
<FN>
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 period.
</FN>
</TABLE>
S-14
<PAGE>
FERRELLGAS, INC. AND SUBSIDIARIES Schedule VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY PLANT AND EQUIPMENT
(in thousands)
<TABLE>
<CAPTION>
Additions
Charged to
Beginning Costs and End of
of Period Expenses Retirements Period
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Eleven months ended June 30, 1994
- ------------------------------------
Land and improvements $1,551 $242 $18 $1,775
Buildings and improvements 6,703 973 295 7,381
Vehicles 24,010 2,874 1,066 25,818
Furniture and fixtures 10,503 2,328 99 12,732
Bulk equipment and market facilities 10,806 1,354 36 12,124
Tanks and customer equipment 87,232 9,888 652 96,468
--------- --------- ----------- ---------
$140,805 $17,659 $2,166 $156,298
========= ========= =========== =========
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 facilities 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 facilities 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
========= ========= =========== =========
</TABLE>
S-15
<PAGE>
FERRELLGAS, INC. AND SUBSIDIARIES Schedule VIII
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Deductions Balance
beginning cost/ (amounts at end
Description of period expenses charged-off) of period
- --------------------------------- -------- -------- ------- --------
<S> <C> <C> <C> <C>
Eleven months ended June 30, 1994
- ---------------------------------
Allowance for
uncollectible receivables $607 $1,569 $1,270 $906
======== ======== ======= ========
Accumulated amortization of
intangible assets $59,181 $8,549 $ - $67,730
======== ======== ======= ========
Accumulated amortization of
other assets $7,592 $2,626 $373 $9,845
======== ======== ======= ========
Year ended July 31, 1993
- ---------------------------------
Allowance for
uncollectible receivables $837 $1,343 $1,573 $607
======== ======== ======= ========
Accumulated amortization of
intangible 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 receivables $1,005 $2,071 $2,239 $837
======== ======== ======= ========
Accumulated amortization of
intangible assets $38,901 $10,306 $19 $49,188
======== ======== ======= ========
Accumulated amortization of
other assets $6,895 $2,654 $4,263 $5,286
======== ======== ======= ========
</TABLE>
S-16
<PAGE>
FERRELLGAS, INC. AND SUBSIDIARIES Schedule IX
SHORT-TERM BORROWINGS
(in thousands)
<TABLE>
<CAPTION>
Weighted
Maximum average
Weighted Amount Average interest
Balance average outstanding outstanding rate
at end interest during during during
Category of year rate the year the year the year*
- --------------------------------- ------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Eleven months ended June 30, 1994
- ---------------------------------
(There were no short-term borrowings during the eleven months ended June 30,
1994.)
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%
======= ======== ======== ======== =========
<FN>
* Based upon the actual rate in effect and the average daily outstanding balance.
</FN>
</TABLE>
S-17
<PAGE>
FERRELLGAS, INC. AND SUBSIDIARIES Schedule X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands)
<TABLE>
<CAPTION>
Charged to costs and expenses
--------------------------------------------
Eleven
months ended Year ended Year ended
June 30, 1994 July 31, 1993 July 31, 1992
------------- ------------- -------------
<S> <C> <C> <C>
1. Maintenance and repairs $8,544 $10,110 $9,855
============= ============= =============
2. Depreciation $17,659 $20,472 $20,486
Amortization of intangibles 8,549 9,993 10,306
Amortization of other assets 2,626 2,538 2,654
------------- ------------- -------------
$28,834 $33,003 $33,446
============= ============= =============
<FN>
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.
</FN>
</TABLE>
S-18
<PAGE>
GRAPHICS APPENDIX LIST
PAGE WHERE
GRAPHIC DESCRIPTION OF GRAPHIC OR CROSS-REFERENCE
- ------------- ----------------------------------------
PAGE 3 A map depicting the locations of assets and operations of
Ferrellgas Partners, L.P. (the "Partnership") in the United
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 10 A chart depicting the organization and ownership of the
Partnership and Ferrellgas, L.P. (the "Operating
Partnership"). The ownership interests as depicted are as
follow: (1) Ferrell Companies, Inc. ("Ferrell") owns
1,000,000 Common Units, 1,650,000 Subordinated Units and
Incentive Distribution Rights representing a 7.9% limited
partner interest in the Partnership; (2) Ferrellgas, Inc.
("Ferrellgas"), a wholly owned subsidiary of Ferrell,
owns a 1% general partner interest in the Partnership and
138,392 Common Units and 14,943,721 Subordinated Units
representing a 44.9% limited partner interest in the
Partnership; (3) Ferrellgas owns a 1.0101% general partner
interest in the Operating Partnership; (4) the Partnership
owns a 98.9899% limited partner interest in the Operating
Partnership; and (5) the public unitholders own 15,500,000
Common Units representing a 46.2% limited partner interest in
the Partnership.
<PAGE>
STOCK PURCHASE AGREEMENT
between
BELL ATLANTIC ENTERPRISES INTERNATIONAL, INC., as Seller,
and
FERRELLGAS, INC., as Buyer
Dated as of September 30, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1 CERTAIN DEFINITIONS.......................... 1
ARTICLE 2 PURCHASE OF THE SHARES; PURCHASE PRICE; AND
CLOSING...................................... 3
2.1 Purchase of the Shares....................... 3
2.2 Purchase Price 4
2.3 Closing...................................... 4
2.4 Purchase Price Adjustment.................... 4
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF VER AND
SELLER....................................... 6
3.1 Capacity of Seller........................... 6
3.2 Validity and Execution of Agreement.......... 6
3.3 Governmental Consents........................ 6
3.4 Capacity of VER and the Subsidiaries......... 6
3.5 Capitalization of VER; Title to the Shares... 7
3.6 Capitalization of the Subsidiaries........... 7
3.7 Other Subsidiaries........................... 7
3.8 No Conflict.................................. 8
3.9 Financial Statements......................... 8
3.10 Absence of Undisclosed Liabilities........... 8
3.11 Absence of Certain Changes................... 9
3.12 Real Estate.................................. 9
3.13 Inventory.................................... 9
3.14 Registrations................................ 9
3.15 Accounts Receivable.......................... 10
3.16 Litigation................................... 10
3.17 Material Contracts........................... 10
3.18 ERISA and Related Employee Benefit Matters... 11
3.19 Broker's or Finder's Fees.................... 14
3.20 Insurance.................................... 14
3.21 Physical Plant; Liens........................ 14
3.22 Tax Matters.................................. 14
3.23 Compliance with Law.......................... 17
3.24 Intellectual Property........................ 18
3.25 Products Liability........................... 18
3.26 Environmental................................ 18
3.27 Capital Expenditures......................... 19
3.28 Dealings with Affiliates..................... 19
3.29 Bank Accounts................................ 20
</TABLE>
i
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<TABLE>
<C> <S> <C>
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER...... 20
4.1 Capacity of Buyer............................ 20
4.2 Validity and Execution of Agreement.......... 20
4.3 No Conflict.................................. 20
4.4 Broker's or Finder's Fees.................... 21
4.5 Purchase for Investment...................... 21
4.6 Litigation................................... 21
4.7 Financing.................................... 21
4.8 Solvency of VER.............................. 21
ARTICLE 5 ACTIONS BEFORE THE CLOSING DATE.............. 22
5.1 HSR Act Compliance........................... 22
5.2 Conduct of Business.......................... 22
5.3 Access to VER and the Subsidiaries........... 24
5.4 No Public Announcement....................... 24
5.5 Consents..................................... 24
5.6 No Shopping.................................. 24
5.7 Duty to Advise Seller........................ 25
5.8 Tank Verification............................ 25
5.9 Fulfillment of Conditions.................... 25
ARTICLE 6 ACTIONS AFTER THE CLOSING DATE............... 25
6.1 Further Assurances........................... 25
6.2 Access to Books and Records; Record Retention 25
6.3 No Securities Law Violation.................. 26
6.4 Liabilities and Other Obligations............ 26
6.5 Tank Verification............................ 26
6.6 Employee Benefit Matters..................... 27
6.7 Insurance.................................... 27
ARTICLE 7 CONDITIONS TO OBLIGATION TO CLOSE............ 27
7.1 Obligations of Buyer and Seller.............. 27
7.2 Obligations of Buyer......................... 27
7.3 Obligations of Seller........................ 29
ARTICLE 8 TERMINATION AND REMEDIES..................... 30
8.1 Termination.................................. 30
8.2 Remedies..................................... 30
ARTICLE 9 GENERAL SURVIVAL AND INDEMNIFICATION......... 31
9.1 Survival of Representations.................. 31
9.2 Indemnification by Seller.................... 32
9.3 Indemnification by Buyer..................... 32
9.4 Recoveries................................... 33
9.5 Claims....................................... 33
9.6 Limitations on Indemnification............... 35
9.7 Indemnification as Exclusive Remedy.......... 35
</TABLE>
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<TABLE>
<C> <S> <C>
ARTICLE 10 TAX MATTERS................................. 36
10.1 Consolidated Returns........................ 36
10.2 Liability for Taxes......................... 36
10.3 Indemnification for Taxes................... 37
10.4 Tax Returns................................. 38
10.5 Tax Allocation Arrangements................. 39
10.6 Tax Proceedings............................. 39
10.7 Cooperation and Exchange of Information..... 40
10.8 Survival.................................... 41
10.9 Conflict.................................... 41
10.10 Treatment of Indemnity Payments............. 41
ARTICLE 11 GENERAL PROVISIONS.......................... 41
11.1 Expenses.................................... 41
11.2 Execution in Counterparts; Binding Effect... 41
11.3 Disclaimer.................................. 41
11.4 Confidentiality............................. 42
11.5 Covenant Not To Compete..................... 42
11.6 Governing Law............................... 43
11.7 Consent to Jurisdiction..................... 43
11.8 Notices..................................... 44
11.9 Titles and Headings......................... 45
11.10 Successors and Assigns; Beneficiaries....... 45
11.11 Entire Agreement............................ 46
11.12 Waivers and Amendments...................... 46
11.13 Severability................................ 46
11.14 Counterparts................................ 47
</TABLE>
iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made and entered into as of this
30th day of September, 1994, by and between BELL ATLANTIC ENTERPRISES
INTERNATIONAL, INC., a Delaware corporation ("Seller"), and FERRELLGAS, INC., a
Delaware corporation ("Buyer").
BACKGROUND
Seller owns all of the issued and outstanding capital stock ("Shares")
of Vision Energy Resources, Inc., a Delaware corporation ("VER"). VER is a
holding company whose principal assets consist of shares of capital stock of the
Direct Subsidiaries (hereinafter defined). VER was previously a wholly-owned
subsidiary of Metro Mobile CTS, Inc. and became a wholly-owned subsidiary of
Seller immediately after Metro Mobile CTS, Inc. was merged with Bell Atlantic
Investments, Inc., a Delaware corporation and the direct parent of Seller, on
April 30, 1992. Seller now desires to sell the Shares and Buyer desires to
purchase the Shares on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual terms,
conditions and other agreements set forth herein, intending to be legally bound,
the parties hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below.
(a) "Affiliate" shall mean "affiliate" as such term is defined in and
within the meaning of Rule 405 of the Securities Act of 1933, as amended.
(b) "Agreement" shall mean collectively this "Stock Purchase
Agreement", the Disclosure Schedule, and the confidentiality agreement referred
to in Section 11.4 hereof.
(c) "Bank" shall mean Bank of America National Trust and Savings
Association.
(d) "Business Day" shall mean any day other than a day on which banks
are authorized or required to be closed by law in Philadelphia, Pennsylvania.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(f) "Direct Subsidiary(ies)" shall mean Power Fuels, Inc., a North
Dakota corporation, Vision Energy Minnesota,
<PAGE>
Inc., a Minnesota corporation, Vision Energy North Dakota, Inc., a North Dakota
corporation, Vision Energy Wisconsin, Inc., an Iowa corporation, and Werner's
Inc., a Minnesota corporation, in the plural and any of them in the singular.
(g) "Disclosure Schedule" shall mean the letter of even date herewith
from Seller to Buyer containing various disclosures with respect to VER and the
Subsidiaries, and certain exceptions to the representations and warranties of
Seller set forth in this Agreement.
(h) "GAAP" shall mean generally accepted accounting principles in
effect in the United States as of the date of, or for the period covered by,
each consolidated financial statement of VER and the Subsidiaries to which this
Agreement refers, and the requirement that such principles be applied on a
"consistent basis" means that accounting principles observed in the current
period are comparable in all material respects to those applied in the preceding
periods, except as change is permitted or required under or pursuant to such
accounting principles.
(i) "Governmental Authority" shall mean any local, state, federal or
foreign governmental or regulatory authority, body or agency or the staff
thereof.
(j) "HSR Act" shall mean the Hart-Scott-Rodino Anti-Trust Improvements
Act of 1976, as amended, and the rules and regulations promulgated thereunder
from time to time.
(k) "Indirect Subsidiary(ies)" shall mean Vision Energy of Florida,
Inc., a Florida corporation, and Southern Gas Company, a Florida corporation, in
the plural and either of them in the singular.
(l) "Knowledge of Seller" and "best of Seller's knowledge" and "to the
best knowledge of Seller", or words to that effect, shall mean the knowledge,
after due inquiry, of any of the following officers and employees of Seller and
its Affiliates: James H. Brenneman and Dermott O. Murphy; "knowledge of VER"
and "best of VER's knowledge" and "to the best of VER's knowledge", or words to
that effect, shall mean the knowledge, after due inquiry, of any of the officers
of VER and the Subsidiaries with substantial operational or compliance
responsibilities.
(m) "Laws" shall mean all foreign, federal, state and local laws,
statutes, rules, regulations, codes, ordinances, plans, orders, judicial
decrees, writs, injunctions, notices, decisions or demand letters issued,
entered or promulgated pursuant to any foreign, federal, state or local law.
(n) "Lien(s)" shall mean any lien, pledge, mortgage, security
interest, lease, charge, option, right of first
2
<PAGE>
refusal, easement, servitude, transfer restriction under any shareholder or
similar agreement, or any encumbrance.
(o) "Material Adverse Effect" means any change or effect that is or is
reasonably likely to be materially adverse to the business, operations,
properties (including intangible properties), financial condition or business
prospects of VER and the Subsidiaries, taken as a whole, or of any thereof as
may be specifically provided in this Agreement. Seller may, however, at its
option, include in the Disclosure Schedule or elsewhere items which would not
have a Material Adverse Effect within the meaning of this subsection 1.1(o) in
order to avoid any misunderstanding, and such inclusion shall not be deemed to
be an acknowledgment by Seller that such items would have a Material Adverse
Effect, or to define further the meaning of such term for purposes of this
Agreement.
(p) "Net Working Capital" shall have the meaning set forth in Annex
1.1(p) hereto.
(q) "Subsidiary(ies)" shall mean the Direct Subsidiaries and the
Indirect Subsidiaries in the plural and any one of them in the singular.
(r) "Tax" or "Taxes" shall mean all net income, capital gains, gross
income, gross receipts, sales, use, transfer, ad valorem, franchise, profits,
license, capital, withholding, payroll, employment, excise, goods and services,
severance, stamp, occupation, premium, property, windfall profits, customs,
duties or other taxes, fees or assessments, or other governmental charges of any
kind whatsoever, together with any interest, fines and any penalties, additions
to tax or additional amounts incurred or accrued under applicable Law or
assessed, charged or imposed by any Governmental Authority, provided that any
interest, penalties, additions to tax or additional amounts that relate to Taxes
for any taxable period (including any portion of any taxable period ending on or
before the Closing Date) shall be deemed to be Taxes for such period, regardless
of when such items are incurred, accrued, assessed or imposed.
(s) "Treasury Regulation" shall mean a regulation issued by the
Treasury Department pursuant to the Code and in effect or proposed as of
December 31, 1993, and any successor thereto.
ARTICLE 2
PURCHASE OF THE SHARES; PURCHASE PRICE; AND CLOSING
2.1 Purchase of the Shares. On the terms and subject to the
conditions set forth in this Agreement, at the Closing (hereinafter defined)
Seller agrees to sell, transfer, assign,
3
<PAGE>
convey and deliver to Buyer, and Buyer agrees to purchase, acquire and accept
from Seller, all of the Shares.
2.2 Purchase Price. The consideration for the Shares shall be
$45.0 million, subject to adjustment after Closing pursuant to Sections 2.4 and
6.5 hereof ("Purchase Price"). Buyer will pay the amount of $45.0 million to
Seller at the Closing by bank wire transfer in immediately available funds to
one or more accounts, all as designated in writing by Seller to Buyer not less
than three (3) Business Days before the Closing Date (hereinafter defined).
2.3 Closing. The consummation of the purchase and sale of the
Shares ("Closing") shall be held at 10:00 a.m. (local time) on the later to
occur of November 1, 1994 (subject to the satisfaction of the conditions set
forth in Article 7) or the fifth Business Day after all conditions to the
respective obligations of the parties set forth in Article 7 hereof (other than
those that are intended to be satisfied only at the Closing) have been
satisfied, at the offices of Seller, 1717 Arch Street, Philadelphia,
Pennsylvania, or at such other time, date and place as shall be mutually agreed
upon by the parties (such date and time being referred to herein as the "Closing
Date"). Each party hereto agrees to use its best efforts promptly to satisfy
the conditions to Closing to be satisfied by it in order to expedite the
Closing.
2.4 Purchase Price Adjustment.
(a) As soon as practicable after the Closing, but in no event later
than sixty (60) days after the Closing, Buyer shall cause to be prepared and
delivered to Seller an unaudited consolidated balance sheet of VER and the
Subsidiaries as of the Closing Date, without giving effect to the consummation
of the transactions contemplated hereby (other than satisfaction of the
indebtedness of VER and the Subsidiaries to Bell Atlantic Financial Services,
Inc.) and any financing of such transactions arranged by Buyer ("Closing Date
Balance Sheet"). The Closing Date Balance Sheet shall be prepared in accordance
with GAAP, consistent with the application thereof in the preparation of the
Balance Sheets (as defined in Section 3.9 hereof).
(b) Subject to the remainder of this subsection (b), within forty (40)
Business Days after delivery to Seller of the Closing Date Balance Sheet,
whichever of the following is applicable shall occur: (i) if Net Working Capital
as shown by the Closing Date Balance Sheet exceeds the Target Amount
(hereinafter defined), Buyer shall pay to Seller in immediately available funds
a sum equal to the amount, if any, by which Net Working Capital as shown by the
Closing Date Balance Sheet exceeds the sum of the Target Amount and the Margin
Amount (hereinafter defined), with interest thereon as hereinafter described, or
(ii) if the Target Amount exceeds Net Working Capital as shown by the Closing
Date Balance Sheet, Seller shall pay to Buyer in immediately available
4
<PAGE>
funds a sum equal to the amount, if any, by which Net Working Capital as shown
by the Closing Date Balance Sheet is less than the difference between the Target
Amount and the Margin Amount, with interest thereon as hereinafter described.
In either case, the amount due shall include interest on such excess or
deficiency for the period from the Closing Date to the date of payment
calculated at the rate per annum, compounded semiannually, equal to the rate of
interest announced by Bank as its prime rate or base rate in effect on the
Closing Date. If Seller in good faith disagrees with any amounts reflected in
the Closing Date Balance Sheet, then Seller shall deliver notice of such
disagreement ("Notice of Disagreement") to Buyer within thirty (30) Business
Days after delivery of the Closing Date Balance Sheet to Seller, which Notice of
Disagreement shall set forth in reasonable detail the basis for Buyer's
disagreement and Seller's calculation of Net Working Capital. If Seller has not
delivered to Buyer a Notice of Disagreement by the day specified in the next
preceding sentence, then the Closing Date Balance Sheet shall be final and
binding upon Seller and Buyer as of the next following day. Upon delivery of a
Notice of Disagreement, payment of any amount payable by Seller or Buyer
pursuant to the first sentence of this subsection (b) shall be delayed, with
interest accruing thereon as stated above, until all disagreements between
Seller and Buyer relating to the Closing Date Balance Sheet have been resolved
as provided in this subsection (b), and upon such resolution such payment shall
be made by Seller or Buyer, as the case may be, within five (5) Business Days
thereafter. If Seller delivers a Notice of Disagreement to Buyer, Seller and
Buyer shall attempt to resolve all disagreements between them relating to the
Closing Date Balance Sheet, but if they are not able to do so within thirty (30)
Business Days after the date of delivery of the Notice of Disagreement, then
within five (5) Business Days thereafter Seller and Buyer shall select a
nationally recognized accounting firm with no material relationship with Buyer,
Seller or any of their Affiliates ("Accounting Referee") and mutually acceptable
to Buyer and Seller to determine, as between either Buyer's calculation or
Seller's calculation of Net Working Capital, which is more nearly correct and to
establish such calculation as the calculation for purposes of the Purchase Price
adjustment herein. The Accounting Referee must choose either Seller's
calculation or Buyer's calculation of Net Working Capital. Within sixty (60)
days after Buyer and Seller select the Accounting Referee, the Accounting
Referee shall deliver its written determination to Buyer and Seller, which
determination, absent bad faith or manifest fraud, shall be final, binding and
conclusive upon Seller and Buyer. The scope of the Accounting Referee's
engagement shall not require an audit of the Closing Date Balance Sheet and
shall be limited to resolution of those items of disagreement that are set forth
in the Notice of Disagreement and that Seller and Buyer have not previously
resolved, but only as they affect the calculation of Net Working Capital. The
fees, costs and expenses of the Accounting Referee, if any, will be shared
equally by Seller and Buyer.
5
<PAGE>
(c) As used in this Section 2.4, the following terms shall
have the meanings set forth below.
(i) "Target Amount" shall mean an amount equal to
$4,528,000.
(ii) "Margin Amount" shall mean $450,000.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF VER AND SELLER
Seller represents and warrants to Buyer, effective as of the date
hereof, as follows:
3.1 Capacity of Seller. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to enter into this Agreement
and perform its obligations hereunder. The execution, delivery and performance
by Seller of this Agreement is within its corporate power and has been duly
authorized by all necessary corporate action on the part of Seller.
3.2 Validity and Execution of Agreement. This Agreement has
been duly executed and delivered by Seller and, assuming due authorization,
execution and delivery by Buyer, constitutes the valid and binding obligation of
Seller enforceable against it in accordance with its terms, subject to the
qualification that enforcement of the rights and remedies created hereby is
subject to (i) bankruptcy, insolvency, reorganization, moratorium and other laws
of general application affecting the rights and remedies of creditors and (ii)
general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
3.3 Governmental Consents. Except (i) for applicable
requirements of the HSR Act, (ii) any consent, action or filing required solely
because of Buyer's participation in the transactions contemplated hereby and
(iii) as otherwise disclosed in Section 3.3 of the Disclosure Schedule, the
execution, delivery and performance of this Agreement by Seller does not require
any consent from, action by or in respect of, or filing with, any court,
arbitrator or Governmental Authority, except for such filings as are ordinarily
made and such consents as are ordinarily obtained following the Closing Date in
the usual course of business.
3.4 Capacity of VER and the Subsidiaries. VER is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. Each of VER and the Subsidiaries has all requisite corporate
power to own its
6
<PAGE>
properties and carry on its business as now being conducted and is duly
qualified to do business in each jurisdiction in which the nature of its
business or properties makes such qualification necessary. The jurisdictions
where each of VER and the Subsidiaries is so qualified are set forth in Section
3.4 of the Disclosure Schedule. Complete and correct copies of the Certificates
of Incorporation and By-Laws, each as amended to the date hereof, for each of
VER and the Subsidiaries have been made available to Buyer.
3.5 Capitalization of VER; Title to the Shares. The authorized
capital stock of VER consists of 1,000 shares of common stock, $1.00 par value
per share, of which 100 shares, constituting the Shares, are issued and
outstanding. The Shares have been validly issued, are fully paid and
nonassessable, and have not been issued in violation of any preemptive rights of
stockholders. The Shares are owned on the date of this Agreement beneficially
and of record by Seller and will be owned beneficially and of record on the
Closing Date by Seller, free and clear of any Liens. No options, warrants or
other rights to acquire, sell or issue shares of capital stock of VER, whether
upon conversion of other securities or otherwise, are outstanding. The transfer
and delivery of the Shares by Seller to Buyer as contemplated by this Agreement
will transfer good and marketable title to the Shares to Buyer, free and clear
of all Liens, except for any Liens created or permitted to exist by or on behalf
of Buyer.
3.6 Capitalization of the Subsidiaries. The authorized capital
stock of the Subsidiaries is as set forth in Section 3.6 of the Disclosure
Schedule. All of the issued and outstanding shares of capital stock of each of
the Subsidiaries have been validly issued, are fully paid and non-assessable,
and have not been issued in violation of any preemptive rights of stockholders.
The issued and outstanding shares of capital stock of each of the Direct
Subsidiaries are owned on the date of this Agreement beneficially and of record
by VER and will be owned on the Closing Date beneficially and of record by VER
free and clear of any Liens. All of the issued and outstanding capital stock of
the Indirect Subsidiaries are owned beneficially and of record on the date of
this Agreement as described in Section 3.6 of the Disclosure Schedule and will
be so owned on the Closing Date free and clear of any Liens. No options,
warrants or other rights to acquire, sell or issue shares of capital stock of
any of the Subsidiaries, whether upon conversion of other securities or
otherwise, are outstanding.
3.7 Other Subsidiaries. Except for VER's ownership of the
capital stock of the Direct Subsidiaries and certain Direct Subsidiaries'
ownership of capital stock of the Indirect Subsidiaries, neither VER nor any
Subsidiary, either directly or indirectly, owns an equity interest in any other
corporation, partnership or other entity. Except for the Subsidiaries, VER has
7
<PAGE>
no Affiliate whose liabilities or obligations will be assumed by Buyer.
3.8 No Conflict. Except as set forth in Section 3.8 of the
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the performance by Seller of the transactions contemplated herein will (i)
violate or conflict with any of the provisions of the certificates of
Incorporation or By-Laws of Seller, VER or the Subsidiaries; (ii) violate or
constitute a default, or require notice and/or consent, under any mortgage,
indenture, deed of trust, lease, contract, agreement, license or other
instrument required to be set forth in Sections 3.12 or 3.17 of the Disclosure
Schedule, or any order, judgment or ruling of any court, arbitrator or
Governmental Authority to which Seller, VER or any Subsidiary is a party or by
which any of their property is bound; (iii) result in the creation of any Lien
upon the Shares or any of the assets of VER or any Subsidiary; or (iv) assuming
compliance with the laws and requirements described in Section 3.3 hereof and
Section 3.3 of the Disclosure Schedule, violate any provision of any Laws
applicable to VER or any Subsidiary. This Section 3.8 relates only to the sale
of the Shares by Seller to Buyer and does not relate to any merger,
consolidation or other transaction with respect to VER or any of the
Subsidiaries which Buyer might contemplate, or which might otherwise occur after
completion of the Closing.
3.9 Financial Statements. Complete copies of (i) the unaudited
consolidated balance sheets of VER and the Subsidiaries as of June 30, 1994, and
December 31, 1993 ("Balance Sheets"), and (ii) the unaudited consolidated
statements of income of VER and the Subsidiaries for the six (6) months ended
June 30, 1994, and the year ended December 31, 1993 ("Income Statements") have
been made available to Buyer by Seller. Except as disclosed in the Balance
Sheets, the Income Statements, Section 3.9 of the Disclosure Schedule or this
Section 3.9, (i) the Balance Sheets and the Income Statements have been prepared
by Seller in accordance with GAAP except for the requirements thereof for
footnote disclosure as of their respective dates, (ii) the Balance Sheets fairly
present, in all material respects, the consolidated financial position of VER
and the Subsidiaries in accordance with GAAP except for the requirements thereof
for footnote disclosure, and (iii) the Income Statements fairly present, in all
material respects, the consolidated results of operations of VER and the
Subsidiaries in accordance with GAAP except for the requirements thereof for
footnote disclosure for the respective periods presented in the Income
Statements (except that the Income Statement for the six-month period ended June
30, 1994, is subject to normal recurring audit adjustments, which would not in
the aggregate be material).
3.10 Absence of Undisclosed Liabilities. Except as (i) reflected
elsewhere in this Agreement, (ii) shown in Section 3.10 of the Disclosure
Schedule or (iii) reflected in the Balance Sheets, neither VER nor any of the
Subsidiaries has any material
8
<PAGE>
liabilities or obligations of any nature, whether absolute, accrued, contingent
or otherwise, of a type and nature that would be required to be reported,
reflected or reserved for in a consolidated balance sheet of VER and the
Subsidiaries prepared in accordance with GAAP.
3.11 Absence of Certain Changes. Except as set forth in Section
3.11 of the Disclosure Schedule, since June 30, 1994, there has not been (a) any
material adverse change in the business, prospects, financial condition,
earnings or operations of business of VER and the Subsidiaries taken as a whole;
(b) any damage, destruction or loss (other than ordinary wear and loss), whether
covered by insurance or not, material to the properties of VER and the
Subsidiaries taken as a whole; (c) any declaration, setting aside or payment of
any dividend whether in cash, stock or property with respect to VER's capital
stock, or any redemption or other acquisition of such stock by VER; (d) except
as consistent with past practice, any increase in the compensation payable or to
become payable by VER or any of the Subsidiaries to its employees or any
adoption or amendment of or increase in any bonus, insurance, pension or other
employee benefit plan, payment or arrangement made to, for or with any such
employees; (e) any entry by VER or any of the Subsidiaries into any material
commitment or transaction, including, without limitation, any borrowing or
capital expenditure other than in accordance with the Schedule of Capital
Expenditures in Section 3.27 of the Disclosure Schedule; (f) any change by VER
in accounting methods, practices or principles; (g) any material termination or
waiver of any rights of value to the business of VER or any Subsidiary; (h) any
other material transaction or event other than in the ordinary course of
business of VER or any Subsidiary; or (i) any agreement or understanding made or
entered into to do any of the foregoing.
3.12 Real Estate. Section 3.12 of the Disclosure Schedule sets
forth a description of all real property owned or leased by VER and the
Subsidiaries. All such owned properties are free and clear of all Liens except
for (i) those Liens set forth in Section 3.12 of the Disclosure Schedule; (ii)
those Liens which do not, in the aggregate, materially impair the use of any
parcel; (iii) Liens for Taxes not yet delinquent; and (iv) Liens of carriers,
warehousemen, mechanics, materialmen and repairmen incurred in the ordinary
course of business for sums not yet delinquent.
3.13 Inventory. On the Closing Date the inventory of the
Subsidiaries (absent conditions beyond their control) shall be at a level
necessary to conduct their businesses in the ordinary course.
3.14 Registrations. To the best of Seller's and VER's knowledge,
except as set forth in Section 3.14 of the Disclosure Schedule, VER and the
Subsidiaries have all registrations, licenses, permits and other authorizations
issued by or required
9
<PAGE>
from any governmental authority or regulatory agency (state, local, federal or
foreign) and necessary for their businesses as presently conducted
("Registrations"), except where the failure to have any such Registration would
not have a Material Adverse Effect. Set forth in Section 3.14 of the Disclosure
Schedule is a list which contains, to the best of Seller's and VER's knowledge,
all material Registrations owned by or licensed to any of the Subsidiaries.
Except as set forth in Section 3.14 of the Disclosure Schedule and except as may
have resulted from, or as may be attributable to, installation of, or failure to
maintain, propane tanks by current agents of VER and the Subsidiaries under the
Agent Wholesale Contracts (defined in Section 3.17 hereof) listed in Section
3.17 of the Disclosure Schedule and by persons who previously acted as agents
for VER, the Subsidiaries and their predecessors (including transferors of
assets or businesses to VER and the Subsidiaries), and by Laverne and/or Bonnie
Reible (as (an) employee(s) of VER) to the best of Seller's and VER's knowledge,
the Subsidiaries are in substantial compliance with all, and are not in material
violation of any, and have not received any written notice of material violation
of any Registration, which non-compliance or violation has not been corrected
and would result in a Material Adverse Effect.
3.15 Accounts Receivable. Except as set forth in Section 3.15 of
the Disclosure Schedule, (i) the accounts receivable to be reflected on the
Balance Sheet as of June 30, 1994 have arisen in the ordinary course of business
for goods sold and delivered or services performed, and (ii) the reserves for
items doubtful of collection as reflected on the Balance Sheet as of June 30,
1994, are adequate based on historical experience. There are no terms or
conditions in any applicable sales contract granting or permitting payment to be
made in excess of 60 days except as set forth in Section 3.15 of the Disclosure
Schedule and except the VIP and any other level payment plans.
3.16 Litigation. Except as set forth in Section 3.16 of the
Disclosure Schedule, there is no suit, action, investigation or proceeding
pending or, to the best knowledge of VER and Seller, threatened against VER or
any Subsidiaries nor is there any judgment, decree, injunction, rule or order of
any court, Governmental Authority or arbitrator outstanding against VER or any
Subsidiary. There is no lawsuit or legal, administrative or regulatory
proceeding or investigation pending or, to the best of VER's and Seller's
knowledge, threatened against Seller, VER or any of the Subsidiaries which
challenges the legality of this Agreement or the transactions contemplated
hereby.
3.17 Material Contracts. Except for (a) Employee Benefit Plans
(as defined in Section 3.18 hereof) as set forth in Section 3.18 of the
Disclosure Schedule, (b) leases and agreements for real property as set forth
in Section 3.12 of the Disclosure Schedule, (c) agreements among VER and the
Subsidiaries, and (d) contracts and leases with customers substantially in the
form of
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any of the contracts and leases attached to the Disclosure Statement as Exhibit
A and other customer contracts and leases with customers that do not impose
obligations on any of the Subsidiaries materially greater than those set forth
in such forms, Section 3.17 of the Disclosure Schedule sets forth without
duplication, all of the following material written contracts to which VER or any
Subsidiary is a party or which affect the assets of VER or any Subsidiary: (i)
contracts for the purchase or sale of propane requiring aggregate payments in
any one year to or by VER or any Subsidiary in excess of $25,000 (unless such
contract may be canceled by VER or any Subsidiary upon not more than thirty (30)
days' notice or the price thereunder is not fixed) and other contracts requiring
aggregate payments in any one year to or by VER or any Subsidiary in excess of
$100,000 (unless such contract may be canceled by VER or any Subsidiary upon not
more than thirty (30) days' notice); (ii) contracts and other agreements with
any labor union or association representing any employee; (iii) joint venture
and partnership agreements; (iv) contracts or other agreements under which
either VER or any Subsidiary agrees to indemnify any person for, or to share,
any material Tax liability of any person; (v) contracts and other agreements
containing covenants of either VER or any Subsidiary not to compete in any line
of business or with any person in any geographical area; (vi) contracts and
other agreements relating to the borrowing of money, (vii) guarantees of
obligations of the Subsidiaries made by VER, and (viii) contracts relating to
the sale of propane through independent agents ("Agent Wholesale Contracts").
Except as set forth in Section 3.17 of the Disclosure Schedule, neither VER nor
any Subsidiary is in default in any material respect of any of their obligations
under any contract listed therein.
3.18 ERISA and Related Employee Benefit Matters.
(a) Welfare Benefit Plans. Section 3.18(a) of the Disclosure Schedule
lists each "employee welfare benefit plan" (within the meaning of Section 3(1)
of the Employee Retirement Income Security Act of 1974 ("ERISA")) maintained by
VER or to which VER contributes or is required to contribute, including any
multiemployer plan ("Welfare Benefit Plan") and sets forth as of the most recent
valuation date the amount of any payment made and to be made, stated separately,
by VER with respect to any Welfare Benefit Plan for the plan year during which
the Closing is to occur. Any liability for amounts due or accrued with respect
to any Welfare Benefit Plan are disclosed in accordance with Section 3.10 of
this Agreement. VER does not maintain or participate in any Welfare Benefit
Plan to which Section 505 of the Code applies. Without limiting the foregoing,
Exhibit 3.18(a) discloses any obligations of VER or any Subsidiary to provide
retiree health benefits to current or former employees of VER or any Subsidiary.
(b) Pension Benefit Plans. Section 3.18(b) of the Disclosure Schedule
lists each "employee pension benefit plan" (within the meaning of Section 3(2)
of ERISA) maintained by VER or
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to which VER contributes or is required to contribute, including any
multiemployer plan ("Pension Benefit Plan"). All costs of the Pension Benefit
Plans have been provided for on the basis of consistent methods and, if
applicable, in accordance with sound actuarial assumptions and practices that
are acceptable under ERISA. VER does not maintain or contribute to (nor is it
required to contribute to) any Pension Benefit Plan that is subject to Title I,
Part 3 of ERISA (concerning "funding") and there are no unsatisfied obligations
with respect to any such Pension Benefit Plans. With respect to each Pension
Benefit Plan that is not subject to Title I, Part 3 of ERISA, Section 3.18(b) of
the Disclosure Schedule sets forth as of the valuation date (i) the amount of
any liability of VER for any contributions due with respect to such Pension
Benefit Plan and (ii) the amount of any contribution paid and to be paid, stated
separately, by VER with respect to such Pension Benefit Plan for the plan year
during which the Closing is to occur.
(c) Compliance with Applicable Law. All of the Pension Benefit Plans,
Welfare Benefit Plans, any related trust agreements, annuity contracts, and
other funding instruments, comply with the provisions of ERISA and the Code and
all other statutes, orders, governmental rules and regulations applicable to
such Welfare benefit Plans and Pension Benefit Plans. VER has performed all of
its obligations currently required to have been performed under all Welfare
Benefit Plans and Pension Benefit Plans. There are no actions, suits or claims
(other than routine claims for benefits) pending or threatened against or with
respect to any Welfare Benefit Plans, Pension Benefit Plans or the assets of
such plans, and, to the best knowledge of Seller and VER, no facts exist that
could give rise to any actions, suits or claims (other than routine claims for
benefits) against such plans or the assets of such plans. Each Pension Benefit
Plan is qualified in form and operation under Section 401(a) of the Code, the
Internal Revenue Service has issued a favorable determination letter with
respect to each Pension Benefit Plan, and, to the best knowledge of Seller and
VER, no event has occurred that will give rise to a disqualification of any
Pension Benefit Plan under Code section 401(a). To the best knowledge of Seller
and VER, no event has occurred that will or could subject any Welfare Benefit
Plan or Pension Benefit Plan to tax under Section 511 of the Code.
(d) Administration of Plans. Each Welfare Benefit Plan and each
Pension Benefit Plan has been administered to date in compliance with the
requirements of ERISA and the Code. No plan fiduciary of any Welfare Benefit
Plan or Pension Benefit Plan has engaged in (i) any transaction in violation of
Section 406(a) or (b) of ERISA, or (ii) any "prohibited transaction" (within the
meaning of Section 4975(c)(1) of the Code) for which no exemption exists under
Section 408 of ERISA or Section 4975(d) of the Code.
(e) Title IV Plans. With respect to each Pension Benefit Plan which
is subject to the provisions of Title IV of
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ERISA in which VER (for purposes of this subsection VER shall include each trade
or business, whether or not incorporated, which is a member of a group of which
VER is a member and which is under common control within the meaning of Section
414 of the Code and the regulations thereunder) participates or has
participated, (i) VER has not withdrawn from any such Pension Benefit Plan that
is a multiemployer plan, and the liability to which VER would become subject
under ERISA if VER were to withdraw completely from all multiemployer plans in
which it currently participates is not in excess of $100,000 as of the most
recent valuation date applicable thereto, (ii) VER has not filed a notice of
intent to terminate any such Pension Benefit Plan or adopted any amendment to
treat such Pension Benefit Plan as terminated, (iii) the Pension Benefit
Guaranty Corporation has not instituted proceedings to terminate any such
Pension Benefit Plan, (iv) no other event or condition has occurred that
constitutes grounds under Section 4042 of ERISA for the termination of, or the
appointment of a Trustee to administer, any such Pension Benefit Plan, (v) all
required premium payments to the Pension Benefit Guaranty Corporation have been
paid when due, and (vi) no "reportable event" (as described in Section 4043 of
ERISA and the regulations thereunder) has occurred with respect to said Pension
Benefit Plan.
(f) Other Employee Benefit Plans and Agreements. Section 3.18(f) of
the Disclosure Schedule lists each profit sharing, deferred compensation, bonus,
stock option, stock purchase, pension, retainer, consulting, retirement, welfare
or other incentive plan or agreement, fringe benefit program or employment
agreement not terminable on 30 days or less written notice, and any other
employee benefit plan, agreement, arrangement, or commitment not listed in
Sections 3.18(a)-(e) of the Disclosure Schedule that is maintained by VER to
which VER contributes or is required to contribute.
(g) Copies of Plans. Copies of each Welfare Benefit Plan; each
Pension Benefit Plan, related trust agreements, annuity contracts and other
funding instruments; each plan, agreement, arrangement, and commitment referred
to in subsection (f) of this Section; favorable determination letters; annual
reports (Form 5500 series) required to be filed with any governmental agency for
each Welfare Benefit Plan and each Pension Benefit Plan for the most recent
three plan years, including, without limitation, all schedules thereto and all
financial statements with attached opinions of independent accountants; current
summary plan descriptions for all Welfare Benefit Plans and Pension Benefit
Plans; and actuarial reports as of the last valuation date for each Pension
Benefit Plan that is subject to Title IV of ERISA have been provided or will be
provided to Buyer within ten (10) days after this Agreement is executed.
(h) Continuation Coverage Requirements for Health Plans. All group
health plans of VER (including any plans of affiliates of VER that must be taken
into account under Section
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4980B of the Code) have been operated in compliance with the group health plan
continuation coverage requirements of Section 4980B of the Code and Title I,
Part 6 of ERISA.
3.19 Broker's or Finder's Fees. Neither VER nor Seller has
authorized any person to act as a broker, a finder or in any similar capacity in
connection with the transactions contemplated by this Agreement, other than
Colmen Capital Advisors, Inc., whose fees and expenses with respect to such
transactions shall be the sole responsibility of Seller.
3.20 Insurance. Section 3.20 of the Disclosure Schedule sets
forth information relating to insurance of VER and the Subsidiaries maintained
in the regular course of their businesses, which constitutes a true and correct
list of their currently maintained insurance policies, including a description
of the type of coverage, name of insurer, term of policy, limits of liability,
deductibles, and annual premiums for the current year. All such policies are in
full force and effect and are sufficient for compliance with workers
compensation Laws.
3.21 Physical Plant; Liens. Except as set forth in Section 3.21
of the Disclosure Schedule and except for propane tanks maintained and to be
maintained by agents of VER and the Subsidiaries pursuant to the Agent Wholesale
Contracts listed in Section 3.17 of the Disclosure Schedule, and by Laverne
and/or Bonnie Reible (as (an) employee(s) of VER), the plant, machinery,
equipment, furniture, leasehold improvements, fixtures, vehicles, structures,
and any related capitalized items that are owned by VER or any Subsidiary and in
each case material to the business of the Subsidiaries, are in good operating
condition and repair, subject to normal wear and tear, and are adequate and
sufficient for the operation of the businesses of the Subsidiaries as currently
conducted, and are owned by VER and the Subsidiaries free and clear of all Liens
except for (i) those Liens set forth in Section 3.12 of the Disclosure Schedule;
(ii) Liens for Taxes not yet delinquent; (iii) Liens of landlords, carriers,
warehousemen, mechanics, materialmen and repairmen incurred in the ordinary
course of business for sums not yet delinquent; or (iv) Liens of a character
that do not materially impair the assets or properties of the Subsidiaries or
interfere in any material fashion with the use thereof as they are used in the
businesses of the Subsidiaries.
3.22 Tax Matters. For the purposes of this Section 3.22 and
Article 10 hereof, VER shall be deemed to include any predecessor of VER or any
person or entity from which VER incurs a liability for Taxes as a result of any
transferee liability. Except as stated in Section 3.22 of the Disclosure
Schedule:
(a) Each of VER and the Subsidiaries has duly and timely filed (and
prior to the Closing Date will duly and timely file) true, correct and complete
Tax returns, reports or estimates, all prepared in accordance with applicable
Laws, for all years and
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periods (and portions thereof) and for all jurisdictions (whether federal,
state, local or foreign) in which any such returns, reports or estimates were
due, either separately or as a member of an affiliated group (as defined in
Section 1504 of the Code) or any other combined, consolidated, affiliated or
unitary tax group of which VER or any of the Subsidiaries is or has been a
member (an "Affiliated Group"). All Taxes shown as due and payable on such
returns, reports and estimates have been paid, and there is no current liability
for any Taxes due and payable in connection with any such returns. All Taxes
not yet due and payable have been fully accrued on the books of VER and the
Subsidiaries and adequate reserves have been established therefor; the charges,
accruals and reserves for Taxes provided for on the financial statements
delivered or to be delivered pursuant to Sections 3.9, 5.8 and 7.2(i) are
adequate; and there are no unpaid assessments for additional Taxes for any
period nor is there any basis therefor. Complete and accurate copies of all
federal, state and foreign Tax returns filed by or with respect to VER and the
Subsidiaries for the past five (5) years and for all periods for which the
applicable statute of limitations is still open have been made available to
Buyer and will be made available to Buyer within ten (10) days of the later of
(i) the date when this Agreement is executed or (ii) the date the return is
filed.
(b) None of VER or the Subsidiaries is a party to any joint venture,
partnership, tax partnership or other arrangement that could be treated as a
partnership for federal income tax purposes.
(c) Each of VER and the Subsidiaries has (i) withheld all required
amounts from its employees, agents, contractors and nonresidents and remitted
such amounts to the proper agencies; (ii) paid all employer contributions and
premiums and (iii) filed all federal, state, local and foreign returns and
reports with respect to employee incomes tax withholding, and social security
and unemployment taxes and premiums, all in compliance with the withholding tax
provisions of the Code, as in effect for the applicable year or any prior
provision thereof and other applicable Laws.
(d) The federal income tax returns of VER and the Subsidiaries have
been examined by the Internal Revenue Service (the "IRS"), or have been closed
by the applicable statute of limitations, for the periods indicated on Section
3.22 of the Disclosure Schedule. No deficiencies or reassessments for any Taxes
have been proposed, asserted or assessed against or with respect to VER or any
of the Subsidiaries by any federal, state, local or foreign taxing authority.
Section 3.22 of the Disclosure Schedule describes the status of any federal,
state, local or foreign tax audits or other administrative proceedings,
discussions or court proceedings that are presently pending with regard to any
Taxes or Tax returns of VER or any of the Subsidiaries (including a description
of all issues raised by the taxing authorities in
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connection with any such audits or proceedings), and no additional issues are
being asserted against or with respect to VER or any of the Subsidiaries in
connection with any existing audits or proceedings.
(e) No agreements or other documents have been executed or filed by or
with respect to VER or any of the Subsidiaries extending the period for
assessment, reassessment or collection of any Taxes, and no powers of attorney
granted by or with respect to VER or any of the Subsidiaries regarding any Taxes
is currently in force.
(f) No closing or other agreements have been entered into by or with
respect to VER or any of the Subsidiaries with any taxing authority which
affects any taxable year of VER or any of the Subsidiaries ending after the
Closing Date. Neither VER nor any of the Subsidiaries is a party to any tax
sharing agreement or similar arrangement for the sharing of tax liabilities or
benefits.
(g) Neither VER nor any of the Subsidiaries has agreed to or is
required to make any adjustment by reason of a change in accounting methods that
affects any taxable year ending after the Closing Date. The IRS has not
proposed any such adjustment or change in accounting methods with respect to VER
or any of the Subsidiaries that affects any taxable year ending after the
Closing Date. No application has been filed by, or is pending with respect to,
VER or any of the Subsidiaries with any taxing authority requesting permission
for any changes in accounting methods that relate to the business or operations
of VER or any of the Subsidiaries and that affects any taxable year ending after
the Closing Date.
(h) No election has been made to have the provisions of Section 341(f)
of the Code apply to VER or any of the Subsidiaries.
(i) There is no contract, agreement, plan or arrangement covering any
employee or former employee of VER or any of the Subsidiaries that, individually
or collectively, could give rise (or in the past has given rise) to the payment
by VER or any Subsidiaries of any amount that is not or would not be deductible
by reason of Code Section 280G.
(j) No asset of VER or any of the Subsidiaries is tax exempt use
property under Section 168(h) of the Code. No portion of the cost of any asset
of VER or any of the Subsidiaries has been financed directly or indirectly from
the proceeds of any tax exempt state or local governmental obligation described
in Section 103(a) of the Code.
(k) None of the assets of VER or any of the Subsidiaries is property
that VER or any of the Subsidiaries is
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required to treat as being owned by any other person pursuant to the safe harbor
lease provisions of former Code Section 168(f)(8). None of the assets of VER or
any of the Subsidiaries is subject to a lease described in Section 7701(h) of
the Code or under any predecessor provision.
(l) None of VER or any of the Subsidiaries currently has or has
previously had a permanent establishment in any foreign country or engages or
has previously engaged in a trade or business in any foreign country. None of
VER, Seller or any of the Subsidiaries is a foreign person within the meaning of
Code Section 1445.
(m) There are no elections in effect made by or with respect to VER or
any of the Subsidiaries pursuant to Section 338 or Section 336(e) of the Code or
the regulations thereunder.
(n) Each of VER and the Subsidiaries has maintained such records in
respect of each transaction, event and item (including as required to support
otherwise allowable deductions and losses) as are required under applicable Law.
(o) Section 3.22 of the Disclosure Schedule sets forth the following:
(i) the basis of VER and the Subsidiaries in their assets, (ii) the basis of VER
in the stock of each of the Subsidiaries (or the amount of any excess loss
account as defined in Treasury Regulation (S)1.1502-19), (iii) the amount of any
net operating loss carryovers and net capital loss carryovers ("Loss
Carryovers") allocable to VER or any of the Subsidiaries, (iv) the amount of any
unused investment or other credits, unused foreign taxes or excess charitable
contributions allocable to VER or any of the Subsidiaries, and (v) the amount of
any deferred gain or loss allocable to VER or any of the Subsidiaries arising
out of any deferred intercompany transaction as defined in Treasury Regulation
(S)1.1502-13.
(p) For purposes of Buyer's right to indemnification pursuant to
Article 10, the representations and warranties in this Section 3.22 shall be
deemed to have been made with no exception for items disclosed on Section 3.22
of the Disclosure Schedule or otherwise.
3.23 Compliance with Law.
(a) To the best knowledge of Seller and VER, Section 3.23 of the
Disclosure Schedule contains a list of all reports of inspections by
representatives of any Governmental Authority of the business and properties of
VER and the Subsidiaries from December 31, 1991, through the date hereof under
OSHA and under all other applicable health and safety Laws and adequate reserves
have been made to deal with all matters described in such reports.
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3.24 Intellectual Property. Each of VER and the Subsidiaries has
good and marketable title to the trademarks, trade names and service marks set
forth in Section 3.24 of the Disclosure Schedule (the "Intellectual Property
Rights"), which are the only such rights used in or necessary for the operation
of its business as currently conducted. All of the Intellectual Property Rights
are free and clear of all Liens and royalty obligations.
3.25 Products Liability. Except as set forth in Section 3.25 of
the Disclosure Schedule, there exist no claims pending or, to the best knowledge
of VER and Seller, threatened against VER or any Subsidiaries for injury to
person or property of its employees or any third parties suffered as a result of
the sale of any product or performance of any service by VER or any
Subsidiaries, including, but not limited to, claims arising out of the nature of
its products or services.
3.26 Environmental.
(a) For purposes of this Section:
(1) "Hazardous Materials" means any hazardous, infectious or toxic
substance, chemical, pollutant, contaminant, emission or waste which is
regulated by any local, state, federal or foreign authority. Hazardous
Materials include, without limitation, anything which is: (i) defined as a
"pollutant" pursuant to 33 U.S.C. (S) 1362(6); (ii) defined as a "hazardous
waste" pursuant to 42 U.S.C. (S) 6921; (iii) defined as a "regulated substance"
pursuant to 42 U.S.C. (S) 6991; (iv) defined as a "hazardous substance" pursuant
to 42 U.S.C. (S) 9601(14); (v) defined as a "pollutant or contaminant" pursuant
to 42 U.S.C. (S) 9601(33); (vi) petroleum; (vii) asbestos; and (viii)
polychlorinated biphenyl.
(2) "Environmental Laws and Regulations" means all limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any Laws relating to pollution or the
environment including, without limitation, (i) the Federal Clean Air Act, 42
U.S.C. (S)(S) 7401 et seq.; (ii) the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S)(S) 9601 et seq.; (iii) the
Federal Emergency Planning and Community Right-to-Know Act, 42 U.S.C. (S)(S)
1101 et seq.; (iv) the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C. (S)(S) 136 et seq.; (v) the Federal Water Pollution Control Act, 33
U.S.C. (S)(S) 1251 et seq.; (vi) the Solid Waste Disposal Act, 42 U.S.C. (S)(S)
6901 et seq.; (vii) the Toxic Substances Control Act, 15 U.S.C. (S)(S) 2601 et
seq.; (viii) Laws relating in whole or part to emissions, discharges, releases,
or threatened releases of any Hazardous Material; and (ix) Laws relating in
whole or part to the manufacture, processing, distribution, use, coverage,
disposal, transportation, storage or handling of any Hazardous Material.
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(b) From and after April 30, 1992 through the Closing Date, the
operations and activities of VER and the Subsidiaries have complied and will
comply, and prior to April 30, 1992, to the best knowledge of Seller and VER,
have complied, in all respects, with all Environmental Laws and Regulations.
(c) Except as set forth on Schedule 3.26 of the Disclosure Schedule,
there is no civil, criminal, administrative or other action, suit, demand,
claim, hearing, notice of violation, proceeding, investigation, notice or demand
pending, received, or, to the best knowledge of the VER and the Subsidiaries,
threatened against VER or any Subsidiaries pursuant to any Environmental Laws
and Regulations.
(d) Except as set forth on Schedule 3.26 of the Disclosure Schedule,
neither VER or any of the Subsidiaries has received any notice or indication
from any governmental agency or private or public entity advising it that it is
or may be responsible for any investigation or response costs with respect to a
release, threatened release or cleanup of any Hazardous Materials.
(e) Except as set forth in Section 3.26 of the Disclosure Schedule and
except for tanks used exclusively for the storage of propane, no underground
tanks, piping or subsurface structures of any type exist or have existed on any
real property owned, operated, leased or utilized by VER or any Subsidiary at
any time after April 30, 1992, or, to the knowledge of Seller and VER, any real
property owned, operated, leased or utilized by VER or any Subsidiary at any
time on or prior to April 30, 1992.
(f) Section 3.26 of the Disclosure Schedule contains a list of all
environmental investigations, assessments, audits, studies, tests and related
materials in possession of VER or any Subsidiaries, or known to VER or any
Subsidiaries to exist, which relate to the current or prior operations of VER or
any Subsidiaries or any real property now or previously owned, operated, leased
or utilized by VER or any Subsidiaries.
3.27 Capital Expenditures. Each of VER and the Subsidiaries has
outstanding commitments for capital expenditures as set forth in Section 3.27 of
the Disclosure Schedule which includes a schedule of substantially all monies
disbursed on account of capital expenditures made by VER and the Subsidiaries
between June 30, 1994 and September 7, 1994.
3.28 Dealings with Affiliates. Section 3.28 of the Disclosure
Schedule sets forth a complete list (including the parties) and copies (or a
detailed summary in the case of an oral agreement) of all oral or written
contracts, arrangements or other agreements to which VER and/or any Subsidiary
on one hand is, will be or has been a party at any time from December 31, 1993,
to the Closing Date, and to which Seller and any Affiliate of Seller (other than
VER or any Subsidiary) was or is also a party.
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3.29 Bank Accounts. Section 3.29 of the Disclosure Schedule is a
list of all bank accounts, lock boxes, post office boxes and safe deposit boxes
maintained in the name of or controlled by VER or any Subsidiary and the names
of the persons having access thereto.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller effective as of the date
hereof, as follows:
4.1 Capacity of Buyer. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the state of Delaware
and has all requisite corporate power and authority to enter into this Agreement
and to perform its obligations hereunder. Complete and correct copies of
Certificate of Incorporation and By-Laws, each as amended to the date of
delivery, of Buyer have been delivered to Seller.
4.2 Validity and Execution of Agreement. The execution and
delivery of this Agreement by Buyer and the performance of the transactions
herein contemplated have been duly and validly authorized by all necessary
corporate action on the part of Buyer. The board of directors of Buyer has duly
approved this Agreement and no further corporate action is required for this
Agreement to be enforceable against Buyer or to provide for the funding of its
obligations hereunder. This Agreement has been duly executed and delivered by
Buyer and, assuming due authorization, execution and delivery by Seller,
constitutes the valid and binding obligation of Buyer, enforceable against Buyer
in accordance with its terms, subject to the qualification that enforcement of
the rights and remedies created hereby is subject to (i) bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors, and (ii) general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law).
4.3 No Conflict. Neither the execution and delivery of this
Agreement nor the performance of the transactions contemplated herein by Buyer
will (i) violate or conflict with any of the provisions of the Certificate of
Incorporation or By-Laws of Buyer; (ii) violate or constitute a default, or
require notice and/or consent, under any material mortgage, indenture, deed of
trust, lease, contract, agreement, license or other instrument, or any order,
judgment or ruling of any Governmental Authority, to which Buyer is a party or
by which any of its property is bound; (iii) assuming satisfaction of the
requirements set forth in clause (iv) below, violate any provision of law
applicable to Buyer; and (iv) except for requirements, if any, arising out of
any required pre-merger notification and related filings pursuant to the HSR
Act, require any consent, approval, filing or notice under any
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provision of law, statute, rule or regulation, applicable to Buyer, except, with
respect to clauses (ii), (iii) and (iv) hereof, for violations, defaults or
breaches which in the aggregate are not material to Buyer and would not
materially impair its ability to perform any of its obligations hereunder.
4.4 Broker's or Finder's Fees. Any fees or expenses incurred by
Buyer or any of its affiliates payable with respect to any person for acting as
broker, finder or in any other similar capacity in connection with the
transactions contemplated by this Agreement shall be the sole responsibility of
Buyer.
4.5 Purchase for Investment. Buyer acknowledges that the Shares
have not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or under any state or foreign securities laws. Buyer is not
an underwriter, as such term is defined under the Securities Act, and Buyer is
purchasing the Shares solely for investment with no present intention to
distribute any of the Shares to any person.
4.6 Litigation. There is no lawsuit or legal, administrative or
regulatory proceeding or investigation pending or, to the best knowledge of
Buyer, threatened against Buyer which challenges the legality of this Agreement
or the transactions contemplated hereby or which would materially impair its
ability to perform its obligations hereunder.
4.7 Financing. Buyer understands that its obligations under
this Agreement are not in any way contingent upon its obtaining financing for
its obligations hereunder. Buyer has sufficient capital resources presently
available to it, and usable for the transactions contemplated hereby, in order
to consummate such transactions in a timely fashion, and Buyer will have such
resources available at Closing.
4.8 Solvency of VER. After giving effect to the consummation of
the transactions contemplated hereby and any financing of this transaction
arranged by Buyer, VER and the Subsidiaries will be Solvent (hereinafter
defined). For purposes of this Section 4.8 and for purposes of the condition
precedent set forth in Section 7.3(c) hereof, the term "Solvent" means for VER
and the Subsidiaries (on a consolidated basis) that (i) the fair value (on a
going concern basis) of their assets exceeds the total amount of their
liabilities, including contingent liabilities, (ii) the present fair salable
value of their assets is not less than the amount that will be required to pay
the probable liability on their debts as they become absolute and matured, (iii)
they are able to realize on their assets and pay their debts and other
liabilities, contingent obligations and other commitments as they mature in the
normal course of business, (iv) Buyer does not intend for them to, and does not
believe that they will, incur debts or liabilities beyond their ability to pay
as such debts and liabilities mature, and (v) they are not engaged in a
businesses or
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transactions for which their property would constitute unreasonably small
capital after giving due consideration to the prevailing practice in the
industries in which they are engaged. For purposes of the preceding sentence,
in computing the amount of contingent liabilities at any time, such liabilities
shall be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability. Seller understands that,
in making this representation and warranty, Buyer has relied and will rely upon
Seller's representations and warranties in Article 3 hereof (including the
Disclosure Schedule and the certificate(s) delivered by Seller pursuant to
Section 7.1 hereof insofar as the Disclosure Schedule and such certificate
relate to such representations and warranties) or elsewhere in this Agreement,
and the information reflected in the June 30, 1994 Balance Sheet.
ARTICLE 5
ACTIONS BEFORE THE CLOSING DATE
Buyer and Seller covenant and agree to take the following actions
between the date hereof and the Closing Date:
5.1 HSR Act Compliance. Seller and Buyer shall each file or
cause to be filed with the Federal Trade Commission and the United States
Department of Justice within five (5) Business Days of the date of this
Agreement, the notifications, if any, required to be filed by its respective
"ultimate parents" under the HSR Act with respect to the transactions
contemplated herein. Each of the parties will use its best efforts to, or to
cause its Affiliates to, make such filings promptly, to respond to any requests
for additional information made by either of such agencies, to cause the waiting
periods under the HSR Act to terminate or expire at the earliest possible date,
and to resist vigorously any assertion that the transactions contemplated hereby
constitute a violation of the antitrust laws, all to the end of expediting
consummation of the transactions contemplated hereby; provided, however, that if
Seller or Buyer or the respective "ultimate parent" of either of them shall
determine in good faith that continuing such resistance is contrary to its best
interests, Seller or Buyer and may, by written notice to the other party,
terminate this Agreement with the effect set forth in Section 8.2(c) hereof.
5.2 Conduct of Business. Except as otherwise contemplated by
this Agreement, pending the Closing, Seller shall cause VER and the Subsidiaries
to operate and carry on its businesses in all material respects only in the
ordinary course consistent with past practices and, without limiting the
generality of the foregoing, pending the Closing:
(a) Preservation of Business. Seller shall cause VER and the
Subsidiaries to use its best efforts to preserve the properties, assets and
goodwill of its businesses.
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(b) Prohibited Changes. Except for, or in connection with, the
settlement of any claim, lawsuit or administrative or regulatory proceeding
pending or hereafter brought against VER or any Subsidiary for an amount no
greater than $100,000, and except as otherwise contemplated by this Agreement,
Seller shall prevent VER and each of the Subsidiaries from taking any of the
following actions without the prior written approval of Buyer, which approval
shall not be unreasonably withheld (except with respect to actions referred to
in clauses (iv), (v), (vi) and (xi) below for which approval may be withheld for
any reason or for no reason):
(i) Sell, consume or otherwise dispose of any assets material to any
such company, except in the ordinary course of business consistent with past
practice; or
(ii) Enter into any contract or commitment of any kind material to any
such company, except in the ordinary course of business; or
(iii) Mortgage, pledge or subject to Liens any assets material to any
such company, except Liens permitted by Sections 3.12 and 3.21 hereof; or
(iv) Amend the Certificate of Incorporation or By-Laws of any such
company; or
(v) Issue any capital stock of VER or the Subsidiaries or make any
change in the issued and outstanding capital stock of such companies; issue any
warrant, option or other right to purchase shares of the capital stock of any
such company or any security convertible into the capital stock of any such
company; or redeem, purchase or otherwise acquire any shares of the capital
stock of any such company; or
(vi) Declare any dividend on, or make any distribution with respect
to, the capital stock of VER; or
(vii) Assume, incur or guarantee any obligation or liability for
borrowed money, other than in the ordinary course of business consistent with
past practice; or
(viii) Cancel any debts owed to any such company, except for
compromises of trade debt in the ordinary course of business consistent with
past practice; or
(ix) Make any changes in its accounting methods, principles or
practices; or
(x) Make any increase, except as consistent with past practice, in the
wages, salaries, compensation, pension or other benefits payable to any
executive officer of any such company; or
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(xi) Merge into or consolidate with any other corporation or person,
or change the character of its business; or
(xii) Make any capital expenditures, or commitments with respect
thereto, except as set forth in Section 3.27 of the Disclosure Schedule, nor
prepay any debt or obligation in excess of $100,000 (except for satisfaction of
the indebtedness of VER and the Subsidiaries to Bell Atlantic Financial
Services, Inc. and for prepaying trade accounts payable in the normal course of
business to take advantage of cash discounts).
5.3 Access to VER and the Subsidiaries. Seller shall afford,
and cause VER and the Subsidiaries to afford, to Buyer and its representatives
reasonable access during normal business hours to the officers, directors,
agents, offices, properties and financial and other records of VER and the
Subsidiaries and furnish to Buyer and its representatives such additional data
and information as it may from time to time reasonably request concerning VER
and the Subsidiaries.
5.4 No Public Announcement. Neither Buyer and its Affiliates
nor Seller and its Affiliates shall make any public announcement or disclosure
concerning the transactions contemplated by this Agreement without the prior
written approval of the other party or parties, except as required by law or as
permitted by the next succeeding sentences. If any party or any of its parent
companies determines upon advice of counsel that a public announcement or
disclosure is required by applicable securities laws or regulations or stock
exchange regulations, such party may make the announcement or disclosure
provided it first consults with the other party or parties hereto so that the
parties may coordinate concurrent public announcements and/or other disclosures.
In addition, the parties shall jointly prepare press releases disclosing the
sale of VER to Buyer, for release immediately upon executing this Agreement and
immediately after the Closing.
5.5 Consents. Promptly after the execution of this Agreement,
Buyer and Seller agree to cooperate for the purpose of obtaining prior to
Closing the governmental and other third party consents listed in Annex 5.5
hereto.
5.6 No Shopping. Seller and each of its agents and
representatives shall not directly or indirectly solicit, initiate or encourage
the initiation of inquiries or proposals from, provide confidential information
to or participate in any discussions or negotiations with, any corporation,
partnership, or other person, entity or group (other than Buyer and its
officers, employees, representatives, advisors and agents) concerning any direct
or indirect acquisition of the Shares or all or any material portion of the
assets of VER and any of the Subsidiaries. Seller will immediately advise Buyer
of, and communicate to Buyer the terms of, any such inquiry or proposal received
by Seller.
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5.7 Duty to Advise Seller. In the event that prior to Closing
Buyer becomes aware of any fact, circumstance or condition which shows that any
representation and warranty of Seller contained in Article 3 hereof was not true
and correct in any material respect as of the date of execution of this
Agreement or is not true in any material respect at any time thereafter, Buyer
shall advise Seller of such fact, circumstance or condition prior to Closing.
5.8 Tank Verification. Buyer, working with Seller and employees
of VER and the Subsidiaries, shall, as and to the extent practicable and
commercially reasonably, commence and proceed with the tank verification process
described in Section 6.5 hereof and Annex 6.5 hereto between the date hereof and
the Closing.
5.9 Fulfillment of Conditions. Each party hereto will make all
commercially reasonable steps necessary or desirable, and proceed diligently and
in good faith, to satisfy each condition to the obligations of other party's
hereto contained in this Agreement and will not take or fail to take any action
that could reasonably be expected to result in the nonfulfillment of any such
condition.
ARTICLE 6
ACTIONS AFTER THE CLOSING DATE
In addition to its obligations elsewhere provided in this Agreement,
Buyer and Seller covenant and agree to take the following actions after the
Closing Date:
6.1 Further Assurances. Buyer and Seller shall each cooperate
with the other parties hereto, and execute and deliver, or cause to be executed
and delivered, all such other instruments, including instruments of conveyance,
assignment and transfer, and take all such other actions as such party may
reasonably be requested to take by any other party hereto from time to time,
consistent with the terms of this Agreement in order to effectuate the
provisions and purposes of this Agreement.
6.2 Access to Books and Records; Record Retention.
(a) From and after the Closing Date, Buyer shall cause VER and the
Subsidiaries to make its books and records containing information with respect
to periods prior to the Closing Date available for inspection by representatives
of Seller at any time during regular business hours and to permit Seller to make
such copies thereof, at the expense of Seller, as such representatives may
reasonably request.
(b) For so long as may be required by law or governmental regulation
but in any event not less than (i) ten (10) years for environmental matters,
(ii) the period provided in Section 10.5 hereof for Tax matters, and (iii) three
(3) years for
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other matters, Buyer shall cause VER and the Subsidiaries not to destroy or give
up possession of any original or final copy of any of the books and records
(including computerized records) relating to such matters prior to the Closing
Date, without first offering Seller the opportunity, at Seller's expense, to
obtain such original or final copy or a copy thereof.
(c) Buyer shall use its best efforts to afford Seller and its
representatives access to the employees of VER and the Subsidiaries who were
employees of VER and the Subsidiaries at the Closing Date as Seller shall
reasonably request for its proper corporate purposes, including, without
limitation, the defense of legal proceedings. Such access may include
interviews or attendance at depositions or legal proceedings. All out-of-pocket
expenses (excluding wages and salaries) reasonably incurred by Buyer, VER or the
Subsidiaries in connection with attendance at depositions or legal proceedings
shall be paid or promptly reimbursed by Seller. Seller shall use its best
efforts to avoid unreasonable interruption of the business of Buyer in the
exercise of its rights hereunder.
6.3 No Securities Law Violation. Buyer shall not take any
action subsequent to the Closing with respect to the Shares or the stock of any
of the Subsidiaries which will result in, or create, violations of the
securities laws of the United States of America or any state or political
subdivision thereof.
6.4 Liabilities and Other Obligations. Seller agrees all
liabilities and obligations set forth in Annex 6.4, shall be Seller's sole
obligation and responsibility and that Buyer is not assuming any such liability
or obligation and Buyer shall have no responsibility therefor.
6.5 Tank Verification. Annex 6.5 sets forth the criteria and
procedures by which the propane tanks owned by VER and the Subsidiaries on the
Closing Date will be verified by Buyer and its agents before and after the
Closing Date. All such propane tanks shall be verified by December 31, 1995,
provided that any tank that has not by December 31, 1995, been actually verified
as either meeting or not meeting the criteria set forth on Annex 6.5 shall be
deemed to have been verified as meeting such criteria. As soon as practicable
after completing the verification procedures, Buyer shall deliver to Seller a
written statement that shows in detail the tanks that could not be verified,
including the size and location of each such tank. Seller shall have the right
to audit and take other reasonable steps to verify Buyer's determination.
Seller agrees to pay to Buyer an amount equal to (a) the aggregate value
(determined on the basis of the costs per tank set forth in Annex 6.5 hereto) of
all tanks that cannot be verified less (b) $1,237,595.50. The aggregate amount
paid by Seller to Buyer under this Section 6.5 shall constitute a reduction of
the Purchase Price.
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6.6 Employee Benefit Matters. Effective as of the Closing Date,
Buyer shall adopt a separation pay plan reasonably acceptable to Seller covering
persons who are employees of VER and the Subsidiaries as of the Closing Date and
thereafter maintain such plan in effect for one (1) year. Buyer agrees, to the
fullest extent permitted by applicable law, that (a) all employees of VER and
the Subsidiaries shall be entitled to participate in the employee benefit plans,
including group health, life and disability plans, presently maintained by Buyer
(true and correct copies of which have been furnished by Buyer to Seller) for at
least one (1) year following the Closing Date, (b) Buyer will not amend such
employee benefit plans or permit any such plan to be amended in any way
materially detrimental to the employees of VER and the Subsidiaries during the
one-year period following the Closing Date, except for general and uniform
changes applying to all employees covered by such plans, (c) all service of an
employee with VER or any Subsidiary (or any predecessor of either VER or any
Subsidiary) shall be recognized by Buyer for all employee benefit purposes, and
(d) all deductibles, waiting periods, limitations with respect to pre-existing
conditions and all other conditions applicable to employees of VER and the
Subsidiaries under the employee benefit plans of Buyer shall be waived. Nothing
herein shall obligate Buyer to employ any current Employees of VER or any
Subsidiary after the Closing.
6.7 Insurance. On and after the Closing Date, Buyer will insure
the business and properties of VER and the Subsidiaries in such forms and
amounts that Buyer deems adequate in its reasonable judgment and against such
risks for which insurance is required by law or, in Buyer's reasonable judgment,
by sound business practice.
ARTICLE 7
CONDITIONS TO OBLIGATION TO CLOSE
7.1 Obligations of Buyer and Seller. The obligations of Buyer
and Seller to consummate the transactions contemplated by this Agreement shall
be subject to the expiration or termination of the waiting periods (including
any extensions thereof) under the HSR Act, and to the condition that neither
Buyer nor Seller shall be subject to any injunction or temporary restraining
order against consummation of the transactions contemplated hereby. Buyer and
Seller agree to provide at Closing such good standing certificates, certified
copies of certificates of incorporation, bylaws and corporate resolutions,
incumbency certificates, resignations of members of the board of directors (but
not officers) of VER and the Subsidiaries, and such other certificates or
documents reasonably requested by another party hereto and customary for
transactions of the size and nature contemplated hereby.
7.2 Obligations of Buyer. Except as otherwise provided in this
Section 7.2, the obligation of Buyer to consummate the
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transactions contemplated hereby shall be subject to the satisfaction of the
following conditions at or prior to Closing:
(a) Warranties and Performance of Seller. The representations and
warranties made by Seller herein shall be true and correct on the date of this
Agreement and on the Closing Date with the same effect as though made on such
date and Seller shall have performed and complied with all agreements, covenants
and conditions required by this Agreement to be performed and complied with by
them prior to the Closing Date, except in each case where any such inaccuracy or
failure would not have a Material Adverse Effect.
(b) Certain Stock Certificates. Seller shall have tendered to Buyer
one or more certificates evidencing all the Shares duly endorsed or accompanied
by duly executed stock powers (in blank) and with any required transfer stamps
affixed.
(c) Certain Indebtedness. VER shall have caused all indebtedness of
VER and the Subsidiaries to Bell Atlantic Financial Services, Inc. to be
satisfied in full and delivered to Buyer evidence of satisfaction of such
obligations.
(d) Consents and Approvals. All consents from and filings with
Governmental Authorities and other third parties listed on Annex 5.5 hereto
shall have been obtained and delivered to Buyer.
(e) No Adverse Change. There shall have been no adverse change since
June 30, 1994, in the business, prospects, financial condition, earnings or
operations of VER's or any Subsidiary's business the result of which would be a
Material Adverse Effect.
(f) No Proceeding or Litigation. No action, suit or proceedings
before any court, arbitrator or Governmental Authority shall have been commenced
or threatened, and no investigation by any Governmental Authority shall have
been commenced or threatened against any of the VER, Seller or Buyer or any of
its respective principals, officers or directors seeking to restrain, prevent or
change the transactions contemplated hereby or questioning the validity or
legality of any of such transactions or seeking damages in connection with any
of such transactions.
(g) Financial Condition at Closing. Except (i) for liabilities set
forth in the Balance Sheet dated June 30, 1994, (ii) accounts payable incurred
and liabilities accrued in the ordinary course of business of VER and the
Subsidiaries consistent with past practices, and (iii) as otherwise disclosed in
Section 3.10 of the Disclosure Schedule, VER and the Subsidiaries shall not owe
any debt at the Closing Date. The term "debt" means notes payable and the
short-term and long-term portions of any and all debt or obligations, including
capitalized lease obligations.
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(i) Audited Balance Sheet. Seller shall have delivered to Buyer the
audited consolidated balance sheet and related statement of income as of
December 31, 1993 and for the year then ended prepared by Coopers & Lybrand.
Such Audited Balance Sheet shall not be materially different from the December
31, 1993 Balance Sheet. Seller shall have delivered to Buyer the unaudited
consolidated balance sheet and related statement of income as of September 30,
1994 and for the nine months then ended.
7.3 Obligations of Seller. The obligation of Seller to
consummate the transactions contemplated by this Agreement shall be subject to
the satisfaction of the following conditions at or prior to Closing:
(a) Buyer's Warranties and Performance. The representations and
warranties made by Buyer herein shall be true and correct in all material
respects on the date of this Agreement and on the Closing Date with the same
effect as though made on such date; Buyer shall have performed and complied in
all material respects with all agreements, covenants and conditions required by
this Agreement to be performed and complied with by it prior to the Closing
Date.
(b) Delivery of Funds. Buyer shall have tendered the Purchase Price
to Seller in the manner provided in Section 2.2 hereof.
(c) Solvency Certificate. Simultaneously with the Closing, Buyer
shall have caused to be prepared and delivered to Seller a certificate, duly
executed by an appropriate officer of Buyer and in form and substance reasonably
satisfactory to Seller, to the effect that based upon the September 30, 1994
Balance Sheet and Seller's representations and warranties in Article 3 hereof,
and after giving effect to the transactions contemplated by this Agreement and
the financing arranged by Buyer, VER and the Subsidiaries (on a consolidated
basis) are Solvent.
(d) Directors Releases. VER and the Subsidiaries shall have delivered
to Seller releases in favor of the former directors of each such corporation in
form and content reasonably satisfactory to Seller.
(e) No Proceeding or Litigation. No action, suit or proceedings
before any court, arbitrator or Governmental Authority shall have been
commenced, or threatened, and no investigation by any Governmental Authority
shall have been commenced, or threatened, against VER, Seller or any Subsidiary
or any of its respective principals, officer or directors, seeking to restrain,
prevent or change the transactions contemplated hereby or questioning the
validity or legality of any of such transactions or seeking damages in
connection with any of such transactions.
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ARTICLE 8
TERMINATION AND REMEDIES
8.1 Termination. Anything in this Agreement to the contrary
notwithstanding:
(a) Default. In the event that either Buyer, Seller or VER shall fail
to file under the HSR Act as provided in Section 5.1 hereof, or in the event
Buyer shall fail to consummate Closing except as permitted under Sections 7.1
and 7.2 hereof, or in the event that Seller shall fail to consummate Closing
except as permitted under Sections 7.1 and 7.3 hereof, then the non-defaulting
party, after affording the defaulting party a five-day period after notice in
which to cure such breach or default, shall have the right, in addition to the
other rights specified in Section 8.2 below, to terminate this Agreement by
written notice given to the other parties hereto.
(b) Upset Date. If the Closing shall not have occurred on or before
11:59 p.m., Philadelphia time, on December 31, 1994, then, unless otherwise
agreed to in writing by the parties hereto, this Agreement shall terminate at
11:59 p.m., Philadelphia time, on December 31, 1994.
(c) Legal Restraint. Buyer or Seller may, by written notice to the
other party, terminate this Agreement (i) in the circumstances set forth in
Section 5.1 hereof, or (ii) if, on the date set forth in Section 8.1(b) hereof,
there is in effect a preliminary or permanent injunction enjoining the sale,
transfer or delivery of the Shares.
8.2 Remedies.
(a) Specific Performance. Subject to Section 8.2(d) hereof, if Buyer
or Seller desires to proceed with the Closing despite any failure or refusal of
the other party of the type described in Section 8.1(a) hereof, the party who
desires to proceed shall have the right to pursue the remedy of specific
performance.
(b) Damages. Subject to compliance with the terms of Section 8.2(d)
hereof, if the failure or refusal of Buyer or Seller to consummate the Closing
constitutes a breach of this Agreement, either party shall have the right to sue
for damages theretofore suffered and sustained.
(c) Effect of Termination. Except as set forth in Section 8.2(b)
above, upon any proper termination of this Agreement by either Buyer or Seller
or pursuant to Section 8.1(b) hereof, thereafter no party hereto will have any
rights, duties, liabilities or obligations of any kind or nature whatsoever
against any other party hereto based upon either this Agreement or the
transactions contemplated hereby, except in each case the
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obligations of each party for its own expenses incurred in connection with the
transactions contemplated by this Agreement as provided in Section 11.1, the
obligations of each party with respect to confidentiality set forth in Section
11.4 hereof, the obligations under Section 11.7 in the event of a dispute as to
the propriety of such termination, the governing law under Section 11.6 and the
notice provision under Section 11.8.
(d) Cure Period. If either Buyer or Seller seeks any form of relief
referred to in Sections 8.2(a) or 8.2(b) hereof, such party shall, as a
condition to the right to seek such relief, afford the defaulting party hereto a
five-day period to effect reasonable cure of such breach or default. This
subsection (d) shall not be construed to require a second notice and cure period
in addition to the period provided in Section 8.1(a) hereof.
ARTICLE 9
GENERAL SURVIVAL AND INDEMNIFICATION
9.1 Survival of Representations.
(a) Except (i) as otherwise provided in Article 10 hereof with respect
to Tax matters; and (ii) for all representations and warranties made pursuant to
Sections 3.1, 3.2, 3.5, 3.6, 3.7 (which shall never expire), the representations
and warranties made by Seller in Article 3 hereof (including the Disclosure
Schedule and the certificate delivered in accordance with Section 7.1 hereof,
insofar as the Disclosure Schedule and such certificate relate to such
representations and warranties) or elsewhere in this Agreement shall survive
until the second anniversary of the Closing (for purposes of this Article 9,
"Cut-Off Date"). Notwithstanding any provision of this Agreement to the
contrary (other than the provisions of Section 9.1(a)(ii) above and Article 10
hereof), no claim for incorrect representation or breach of warranty under this
Agreement and no claim for indemnification under Section 9.2(iii) may be
brought, and no arbitration or litigation with respect thereto commenced, with
respect to any representation or warranty, or the portions of the Disclosure
Schedule and any certificate relating to such representation or warranty or with
respect to any failure or deficiency described in Section 9.2(iii), and Seller
shall have no obligation with respect thereto, unless written notice thereof
specifying with particularity the incorrect representation or breach of warranty
claimed shall have been delivered to Seller before the Cut-off Date. Nothing in
the foregoing sentence shall prevent or limit any claims or actions commenced
after the Cut-off Date for matters for which notice was delivered prior to the
Cut-off Date.
(b) Except (i) as otherwise provided in Article 10 hereof with respect
to Tax matters; and (ii) for all representations and warranties made pursuant to
Sections 4.1, 4.2, 4.5 (which shall never expire), the representations and
warranties made by
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Buyer in Article 4 hereof (including the certificates delivered in accordance
with Section 7.1 hereof insofar as such certificates relate to such
representations and warranties) shall survive until the Cut-Off Date.
Notwithstanding any provision of this Agreement to the contrary (other than the
provisions of Section 9.1(b)(ii) above and Article 10 hereof), no claim for
incorrect representation or breach of warranty under this Agreement may be
brought, and no arbitration or litigation with respect thereto commenced, with
respect to any representation or warranty and any certificate relating to such
representation or warranty, and Buyer shall have no obligation with respect
thereto, unless written notice thereof specifying with particularity the
incorrect representation or breach of warranty claimed shall have been delivered
to Buyer before the Cut-Off Date. Nothing in the foregoing sentence shall
prevent or limit any claims or actions commenced after the Cut-off Date for
matters for which notice was delivered prior to the Cut-off Date.
9.2 Indemnification by Seller. Except as otherwise limited by
this Article 9 and except with respect to Tax matters governed by Article 10
hereof, from and after the Closing Date, Seller shall assume the defense of, and
indemnify and hold Buyer, Buyer's affiliates and its directors, officers and
employees (collectively, the "Buyer Group") harmless from, any and all losses,
damages, costs and expenses (including, without limitation, court costs and
reasonable outside attorneys and accountants fees) (hereinafter individually a
"Loss" and collectively, "Losses") suffered or incurred by any member of the
Buyer Group that arise out of or result from (i) any breach of any
representation or warranty by VER or Seller contained in this Agreement, or the
portions of the Disclosure Schedule and any certificate relating to such
representation and warranty; (ii) a breach of any other covenant or agreement by
Seller contained in this Agreement; or (iii) prior to the Closing Date: (A) the
failure of VER or the Subsidiaries to have and be in compliance with any
Registration, (B) the failure by VER or the Subsidiaries to comply with any Laws
relating to the business of VER or the Subsidiaries; or (C) the failure of any
propane tank or installation to be in safe working order and in compliance with
applicable Laws and industry standards, provided that no indemnification shall
be available with respect to any such failure that is continued as a course of
business by Buyer after the Closing Date, and provided further, however, such
obligation to indemnify and hold harmless shall not apply unless Buyer shall
have given timely written notice to Seller of such failure in accordance with
Sections 9.1 and 9.5 hereof.
9.3 Indemnification by Buyer.
(a) Except as otherwise limited by this Article 9 and except with
respect to Tax matters governed by Article 10, Buyer shall assume the defense
of, and indemnify and hold Seller, Seller's affiliates and its directors,
officers and employees (for purposes of this Article 9, collectively, the
"Seller Group")
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harmless from, any and all Losses suffered or incurred by any member of the
Seller Group after the Closing Date that relate to, or arise out of or in
connection with (i) the operation of the assets or businesses of, conduct of
employees of (including former employees), or ownership of, VER or the
Subsidiaries; (ii) the breach of any representation or warranty made by Buyer
contained in Article 4 hereof; provided, however, such obligation to indemnify
and hold harmless shall not apply unless Seller shall have given timely written
notice to Buyer of such breach of representation or warranty in accordance with
Sections 9.1 and 9.5 hereof; and (iii) the breach of any other covenant or
agreement by Buyer contained in this Agreement.
(b) The Seller Group's rights to indemnification pursuant to this
Section 9.3 shall be governed by the provisions of Sections 9.4, 9.5 and 9.7 as
if they had been restated in this Section 9.3 with references to "Buyer Group"
changed to "Seller Group" and references to "Seller" changed to "Buyer."
9.4 Recoveries. The amount of any payment with respect to a
Loss for which any member of the Buyer Group shall be entitled to
indemnification under this Article 9 shall be limited as follows: (i) the extent
to which the aggregate sum of any payments constituting the Loss which are not
required to be made to a third party for more than twelve (12) months following
the date upon which the amount and Seller's responsibility therefor is
determined, shall be discounted to its present value, with such present value
being computed as of the date of such determination by using a discount rate,
compounded annually, equal to the rate of interest then announced by Bank as its
prime or base rate; provided, however, that the indemnified member of the Buyer
Group may elect instead to have such payments constituting the Loss paid by
Seller as they become due; (ii) there shall be netted from such payment the
amount of any insurance proceeds or other cash receipts paid to the Buyer Group
as an offset against such Loss (and no right of subrogation shall accrue
hereunder to any insurer); and (iii) there shall be netted from such payment the
amount paid to the Buyer Group pursuant to any indemnification from any
unrelated party with respect to such Loss.
9.5 Claims.
(a) Buyer shall promptly give Seller written notice of any matter
which any member of the Buyer Group has determined has given or could give rise
to a right of indemnification under this Article 9 stating the amount of the
Loss, if known, and the method of computation thereof, all with reasonable
particularity and containing a reference to the provisions of this Agreement in
respect of which such right of indemnification is claimed. The obligations and
liabilities of Seller under this Article 9 with respect to Losses arising from
claims of any third party (including, without limitation, claims by any
Governmental Authority) that are subject to the indemnification provided for in
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this Article 9 ("Third Party Claims") shall be governed by and be contingent
upon the additional terms and conditions set forth in subsection (b) below.
(b) If any member of the Buyer Group shall receive notice of any Third
Party Claim, Buyer shall give Seller prompt written notice thereof and shall
permit Seller, at its option, to participate in the defense of such Third Party
Claim by counsel of Seller's own choosing and at Seller's own expense. If
Seller acknowledges in writing its obligation to indemnify the member of the
Buyer Group under this Article 9 against any Loss that may result from such
Third Party Claim (subject to the limitations set forth in Section 9.6 hereof,
if applicable), then Seller shall be entitled, at its option, to assume and
control the defense of such Third Party Claim at its expense and through counsel
of its choice, if it gives prompt written notice of its intention to do so to
Buyer. However, if the member of the Buyer Group elects not to defend against
such Third Party Claim, then Buyer shall promptly so notify Seller and Seller
shall thereupon again be entitled, at its option, to assume and control the
defense of such Third Party Claim at its expense and through counsel of its
choice; provided, however, that in such circumstances Seller shall not be
required to acknowledge its obligation to indemnify the member of the Buyer
Group in respect of such Third Party Claim. If Seller exercises its right to
undertake the defense against any such Third Party Claim as provided above,
Buyer shall cooperate with Seller and cause the other members of the Buyer Group
to cooperate with Seller in such defense and make available to Seller, at
Seller's expense, all pertinent records, materials and information in its
possession or under its control relating thereto as is reasonably requested by
Seller. Similarly, if Buyer is conducting the defense against any such Third
Party Claim, Seller shall cooperate with Buyer and cause the other members of
the Seller Group to cooperate in such defense and make available to Buyer, at
Buyer's expense, all such records, materials and information in its possession
or under its control relating thereto as is reasonably requested by Buyer.
Seller may not settle any Third Party Claim without the written consent of
Buyer, which consent shall not be unreasonably withheld.
(c) Seller shall be subrogated to any and all defenses, claims or set
offs which any member of the Buyer Group asserted or could have asserted against
the third party making a Third Party Claim. Buyer shall execute and deliver and
cause the other members of the Buyer Group to execute and deliver to Seller such
documents as may be necessary to establish by way of subrogation the ability and
right of Seller to assert such defenses, claims or setoffs against any third
party making a Third Party Claim.
(d) In addition to any other remedy, Buyer shall be entitled, but
shall not be obligated, to offset all such claims for Losses against any
obligation of Buyer to Seller now or hereafter existing.
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9.6 Limitations on Indemnification. Notwithstanding anything to the
contrary contained in this Agreement, the obligations of Seller to provide
indemnification under this Agreement shall be subject to the following
limitations (in addition to the limitations set forth in Article 10 hereof):
(a) Seller shall have no liability, nor be subject to any claim under
this Agreement, with respect to any inaccuracy in, or incompleteness of, or any
breach of any representation, warranty, covenant or agreement contained in this
Agreement or any failure or deficiency of the type described in Section 9.2(iii)
unless and until the amount of Losses suffered or sustained by the Buyer Group
exceeds $2,000,000 ("Basket Amount") in the aggregate. Seller shall have no
liability, nor be subject to any claim under this Agreement, with respect to any
inaccuracy in or incompleteness of, or any breach of any representation,
warranty, covenant or agreement contained in this Agreement or any failure or
deficiency of the type described in Section 9.2(iii) unless and until the amount
of Losses suffered or sustained by the Buyer Group resulting from such
inaccuracy, incompleteness, breach or failure exceeds $10,000 ("Per Claim
Threshold"). Subject to the Per Claim Threshold, the Buyer Group shall be
entitled to receive indemnity payments (subject, however, to the other
provisions of this Article 9 or Article 10 hereof, as applicable) in the
aggregate amount of all Losses including the Basket Amount. The Per Claim
Threshold and the Basket Amount shall not apply to Seller's obligations pursuant
to Sections 6.4 and 6.5.
(b) In no event shall Seller's direct out-of-pocket expenses and costs
paid in respect of the Losses and amounts paid pursuant to Article 10 exceed
$25,000,000 (the "Indemnification Cap").
(c) If Seller is required to indemnify any member of the Buyer Group
pursuant to this Article 9 or Article 10 hereof, Seller shall be responsible to
indemnify such member only to the extent of actual costs or expenses incurred on
a dollar-for-dollar basis. IN NO EVENT SHALL SELLER BE LIABLE FOR INCIDENTAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES, nor shall there be double counting of any
item of Loss, expense, cost or offset.
9.7 Indemnification as Exclusive Remedy. Except where
indemnification is expressly provided elsewhere in this Agreement, the
indemnification provided in this Article 9 shall, to the extent permitted by
law, be the sole and exclusive post-Closing remedy available, under contract,
tort or any other legal theory, to Buyer for any breach of any representation or
warranty by or on behalf of Seller contained in this Agreement.
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ARTICLE 10
TAX MATTERS
10.1 Consolidated Returns. Seller covenants that for federal income
Tax purposes, VER and the Subsidiaries have been treated and will be treated as
members of the affiliated group (as defined in Section 1504 of the Code) of
corporations of which Bell Atlantic Corporation is the common parent (the "Bell
Atlantic Group") for all periods beginning on April 30, 1992, and ending on or
before the Closing Date ("Consolidated Return Periods"). The Bell Atlantic
Group has included and will include the income of VER and the Subsidiaries
(including any deferred income triggered into income by Treasury Regulation (S)
1.1502-13 and Treasury Regulation (S) 1.1502-14 and any excess loss accounts
taken into income under Treasury Regulation (S) 1.1502-19) on the Bell Atlantic
Group consolidated federal income Tax returns for all Consolidated Return
Periods and has paid or will pay any federal income Taxes attributable to such
income.
10.2 Liability for Taxes.
(a) Seller shall be liable for (1) any Taxes imposed on or incurred
by VER or any of the Subsidiaries for any taxable period (the "Pre-Closing
Period") ending on or before the Closing Date, excluding (i) any Taxes of VER or
any of the Subsidiaries to the extent such Taxes have been appropriately
accrued, reflected or adequately reserved for (other than amounts for deferred
taxes) as a current liability on the Closing Date Balance Sheet, (ii) any Taxes
attributable to events occurring or income recognized after the Closing Date and
(iii) any Taxes caused by, or arising from, an actual or deemed election under
Section 338 of the Code (including, without limitation, an actual or deemed
election under Section 338(h)(10) of the Code) with respect to the purchase of
the Shares, (2) any federal income Taxes imposed on VER or any of the
Subsidiaries pursuant to Treasury Regulation (S) 1.1502-6 (or any similar
provision of state, local or foreign law) with respect to the taxable income of
any member of the Bell Atlantic Group (other than VER or the Subsidiaries) or
any other person for any taxable period, as transferee or successor, by contract
or otherwise, and (3) any capital gains, income, gross receipts, excise,
transfer or similar Tax liabilities arising from the sale of the Shares. The
liability for foreign, state or local income Taxes imposed on or incurred by VER
or the Subsidiaries for any taxable period which begins on or before the Closing
Date and ends after the Closing Date shall be allocated between Seller and Buyer
in the same manner as taxable income is reported for that taxable period for
federal income tax purposes. In the case of ad valorem, franchise (other than
such taxes that are a substitute for income taxes) and similar taxes that are
imposed for a taxable period beginning before and ending after the Closing Date,
the portion attributable to the Pre-Closing Period shall be determined by
prorating such Taxes for the taxable period on a daily basis.
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(b) Buyer shall be liable for (1) any Taxes imposed on or incurred by
any member of the Bell Atlantic Group caused by, or arising from, an actual or
deemed election under Section 338 of the Code (including, without limitation, an
actual or deemed election under Section 338(h)(10) of the Code) with respect to
the purchase of the Shares, (2) any Taxes imposed on or incurred by VER or the
Subsidiaries for any taxable period (the "Post-Closing Period") beginning after
the Closing Date, and (3) any foreign, state or local Taxes imposed on or
incurred by VER or the Subsidiaries which are not the liability of Seller
pursuant to Section 10.2(a).
(c) Each party shall be entitled to any refunds (whether by payment,
credit, offset or otherwise) in respect to any Taxes for which such party is
liable under this Article 10; provided, however, that any refund (or comparable
benefit resulting from a reduction of Tax liability) arising out of the
carryback of a loss or credit incurred by VER or the Subsidiaries in a Post-
Closing Period which is carried back to a Pre-Closing Period shall be the
property of Buyer. Each party hereto and its affiliates shall cooperate with
the other party and its affiliates in order to permit the party entitled to the
refund to take all necessary steps to claim any such refund. Any such refund
received after the Closing by either party or its affiliates to which the other
party is entitled shall be paid to such other party within thirty days after its
receipt.
(d) Seller and Buyer agree that, for purposes of all required returns
or reports with respect to Taxes, the amount of the unused minimum tax credit,
if any, under Section 53 of the Code attributable to VER and the Subsidiaries
that may be carried forward to taxable periods ending after the Closing Date
shall, unless otherwise required by law or regulations, be determined in
accordance with the principles of Treasury Regulation (S) 1.1502-79, by
comparing the separate unused minimum tax credit carryforward of VER and the
Subsidiaries with the sum of the separate unused minimum tax credit
carryforwards of all members of the Bell Atlantic Group that have unused minimum
tax credits.
(e) The Bell Atlantic Group will not elect to retain any net operating
loss carryovers or capital loss carryovers of VER or any of the Subsidiaries
under Proposed Treasury Regulation (S) 1.1502-20(g) or any similar provision of
Law.
10.3 Indemnification for Taxes.
(a) Seller hereby indemnifies Buyer against and agrees to pay all
Taxes imposed and all costs and expenses, including, without limitation,
litigation costs and attorneys' and accountants' fees and expenses incurred (all
herein referred to as "Tax Losses") as a result of:
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(1) Any liability for or any claim, notice of deficiency or assessment
by any Government Authority for any Taxes imposed on Buyer and its affiliates,
including VER and the Subsidiaries, that are the responsibility of Seller
pursuant to Section 10.2(a); and
(2) Any misrepresentation or breach of any warranty or obligation of
Seller set forth in Section 3.22 or this Article 10; provided, however, that
Seller's indemnity obligation for any misrepresentation or breach of any
warranty regarding the amount of any Loss Carryovers of VER or any of the
Subsidiaries shall be reduced to the extent of any tax benefits realized by
Buyer and its affiliates, including VER and the Subsidiaries, as a result of any
corresponding increase in the basis of the assets of VER and the Subsidiaries
attributable to any reduction in the amount of such Loss Carryovers.
(b) Buyer hereby indemnifies Seller against all Tax Losses resulting
from:
(1) Any liability for or any claim, notice of deficiency or assessment
by any Government Authority for any Taxes imposed on Seller and its affiliates
that are the responsibility of Buyer under Section 10.2(b); and
(2) Any breach of any obligation of Buyer set forth in this Article
10.
(c) Except as otherwise provided in this Article 10, any amount to
which a party is entitled under this Article 10 shall be promptly paid to such
party by the party obligated to make such payment following written notice to
the party so obligated that the Taxes to which such amount relates have been
paid or incurred and that provides details supporting the calculation of such
amount; provided, however, that no payment of any such amount is required to be
made by Seller during any period when Seller is exercising its contest rights
under Section 10.6.
(d) Seller's liability for indemnification pursuant to Section
10.3(a)(2) shall be subject to the Per Claim Threshold requirements of Section
9.6(a) and shall be included in and subject to the Indemnification Cap
requirements of Section 9.6(b).
10.4 Tax Returns.
(a) Buyer shall prepare, or cause VER and the Subsidiaries to prepare,
and submit to Seller all returns or reports of VER and the Subsidiaries (and any
partnerships in which VER or any of the Subsidiaries owns an interest and has
responsibility for preparing and filing returns or reports) for Taxes for any
Pre-Closing Period and for which the due date (with regard to waivers or
extensions) of any such return or report is subsequent to the Closing Date. Any
such return or report shall be
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prepared on a basis consistent with returns and reports prepared with respect to
VER and the Subsidiaries for prior taxable periods unless otherwise required by
applicable law or regulations and shall be submitted to Seller not later than
(i) in the case of any federal or state income tax return, ninety days after the
Closing Date and (ii) in the case of any other return or report, thirty days
before the due date (with regard to waivers or extensions) of such return or
report. Seller is responsible for filing or causing to be filed with the
appropriate Governmental Authorities any such returns or reports and for
preparing and filing with the appropriate Governmental Authorities any other
returns or reports of VER or any of the Subsidiaries (including returns or
reports for any partnership referred to above) for Taxes for Pre-Closing
Periods. Buyer and its affiliates, including VER and the Subsidiaries, shall
cooperate with Seller and its affiliates and shall make available all necessary
records and timely take all action necessary to allow Seller and its affiliates
to file, or prepare and file, as the case may be, the returns and reports
described in this paragraph (including, without limitation, providing or causing
to be provided to Seller or its affiliates any powers of attorney that Seller
shall request for the purpose of filing any such return or reports).
(b) Buyer and its affiliates, including VER and the Subsidiaries, are
responsible for preparing and filing with the appropriate Governmental
Authorities all returns or reports that relate to the Taxes of VER or any of the
Subsidiaries other than those described in paragraph (a) of this Section 10.4.
10.5 Tax Allocation Arrangements. Effective as of the Closing, all
liabilities and obligations between VER and the Subsidiaries on the one hand and
Seller and its affiliates on the other hand under any tax allocation agreement
or arrangement in effect prior to the Closing shall be extinguished in full, and
any liabilities or rights existing under any such agreement or arrangement shall
cease to exist and shall no longer be enforceable. Seller and its affiliates
shall execute any documents necessary to effectuate the provisions of this
Section 10.5.
10.6 Tax Proceedings. In the event Buyer or any of its affiliates,
including VER and the Subsidiaries, receives any written communication regarding
any pending or threatened examination, claim, adjustment or other proceeding
with respect to the liability of VER or any of the Subsidiaries for any Taxes
which Seller is or may be liable under this Article 10, Buyer shall within ten
days notify Seller in writing thereof; provided, however, that the failure to
provide such notice shall not release Seller from of its obligations under this
Article 10 except to the extent Seller or its affiliates are materially
prejudiced by such failure. As to any such Taxes for which Seller is or may be
liable under this Article 10, Seller shall at its expense control, or settle the
contest of, such examination, claim, adjustment or other proceeding, unless it
notifies Buyer in writing within ten days
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after receipt of the notice described in the immediately preceding sentence that
it desires not to do so. Buyer and its affiliates, including VER and the
Subsidiaries, shall cooperate fully with Seller in handling any such tax audit,
administrative tax proceeding, or tax litigation. Buyer will provide, or cause
to be provided to Seller or its designee, necessary authorizations, including
powers of attorney, to control any proceedings which Seller is entitled to
control pursuant to this Section 10.6. In addition, regardless of which party
is responsible for the payment of the Tax, no tax audit, administrative tax
proceeding, or tax litigation which may affect a tax return of Seller or its
affiliates for any Pre-Closing Period shall be finally concluded by Buyer or its
affiliates, including VER and the Subsidiaries, without the prior consent of
Seller, which consent shall not be unreasonably withheld. Further, regardless
of which party is responsible for the payment of the Tax, no tax audit,
administrative tax proceeding, or tax litigation which may effect a tax return
of Buyer and its affiliates, including VER and the Subsidiaries, for any period
ending after the Closing Date shall be finally concluded by Seller or its
affiliates without the prior consent of Buyer, which consent shall not be
unreasonably withheld.
10.7 Cooperation and Exchange of Information. The parties will
provide each other with such cooperation and information as they may reasonably
request of each other in preparing or filing any return, amended return or claim
for refund, in determining a liability or a right to refund or in conducting any
audit or other proceeding in respect of Taxes imposed on the parties or its
respective affiliates. Buyer and its affiliates will preserve and retain all
returns, schedules, work papers and other documents relating to any such
returns, claims, audits or other proceedings until the expiration of the
statutory period of limitations (with regard to waivers and extensions) of the
taxable periods to which such documents relate and until the final determination
of any payments which may be required with respect to such periods under this
Agreement and shall make such documents available to representatives of Seller
and its affiliates upon reasonable notice and at reasonable times, it being
understood that such representatives shall be entitled to make copies of any
such books and records as they shall deem necessary. Buyer further agrees to
permit representatives of Seller and its affiliates to meet with employees of
Buyer and its affiliates, including VER and the Subsidiaries, on a mutually
convenient basis in order to enable such representatives to obtain additional
information and explanations of any documents provided pursuant to this Section
10.7. Buyer shall make available, or cause VER or the Subsidiaries to make
available, to the representatives of Seller and its affiliates sufficient work
space and facilities (to the extent available) to perform the activities
described in the two preceding sentences. Any information obtained pursuant to
this Section 10.7 shall be kept confidential, except as may be otherwise
necessary in connection with the filing of returns or claims for refund or in
conducting any audit or other proceeding. Each of the parties
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shall provide the cooperation and information required by this Section 10.7 at
its own expense.
10.8 Survival. Notwithstanding anything to the contrary in this
Agreement, the parties' representations, warranties, covenants, agreements,
rights and obligations with respect to any matter covered by Section 3.22 or
this Article 10 shall survive the Closing and shall not terminate until one day
after the expiration of the statutes of limitations (including all waivers or
extensions) applicable to any liability which could arise as a result of or with
respect to such matter.
10.9 Conflict. In the event of a conflict between the provisions of
this Article 10 and any other provisions of this Agreement, the provisions of
this Article 10 shall control.
10.10 Treatment of Indemnity Payments. Solely for all Tax
purposes, any payments to or from Seller from or to Buyer pursuant to this
Article 10 shall be treated by Buyer and Seller as purchase price adjustments.
ARTICLE 11
GENERAL PROVISIONS
11.1 Expenses. Except as provided in Section 8.2(b) hereof, all fees,
commissions and other expenses incurred by Buyer, Seller or VER in connection
with the negotiation of this Agreement and in preparing to consummate the
transactions contemplated hereby, including the fees and expenses of its
respective counsel and other advisors, shall be borne by the party incurring
such fee, commission or expense. Buyer agrees that the fees and expenses of
Coopers & Lybrand in connection with the preparation of the Audited Balance
Sheet shall be paid by VER.
11.2 Execution in Counterparts; Binding Effect. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original
copy and all of which together shall be considered one and the same agreement,
and shall become a binding agreement when one or more counterparts have been
signed by each party and delivered to the other parties.
11.3 Disclaimer. In connection with Buyer's investigation of VER and
the Subsidiaries, Buyer has received from Seller and its representatives,
including, without limitation, Colmen Capital Advisors, Inc., the Confidential
Information Memorandum (the "Memorandum") and (ii) certain projections,
forecasts and business plan information. Neither Seller nor VER and the
Subsidiaries, nor its representatives, including without limitation, Colmen
Capital Advisors, Inc., makes any express or implied representation or warranty
as to the accuracy or completeness of the information contained in the
Memorandum, or such projections, forecasts or plans. Buyer acknowledges that
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there are uncertainties inherent in attempting to make such projections,
forecasts and plans, that they are familiar with such uncertainties, that Buyer
is taking full responsibility for making its own evaluation of the adequacy and
accuracy of all such information so furnished to it, and that Buyer shall not
have any claim against Seller with respect thereto. Each of Seller, VER and the
Subsidiaries expressly disclaims any and all liability which may be based upon
such information, errors therein or omissions therefrom. BUYER IS ENTITLED TO
RELY SOLELY ON THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT,
AND EXCEPT AS EXPRESSLY SET FORTH THEREIN, SELLER MAKES NO EXPRESS OR IMPLIED
WARRANTIES OF ANY NATURE, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE DISCLAIMED, AND NONE SHALL BE
IMPLIED.
11.4 Confidentiality. All information given by any party hereto to
any other party shall be considered confidential and shall be used only for the
purposes intended. Buyer has previously delivered to Seller a confidentiality
agreement dated as of June 10, 1994, the provisions of which are incorporated
herein by reference and shall continue to apply for the benefit of Seller, VER
and the Subsidiaries as if entirely set forth herein unless and until the
Closing occurs. The provisions of this Section 11.4 and of the confidentiality
agreement referenced in the preceding sentence shall remain in force and effect
notwithstanding any termination of this Agreement under Article 8 hereof.
11.5 Covenant Not To Compete.
(a) Seller acknowledges that an important part of the consideration
which Buyer will receive in connection with the transactions contemplated hereby
is the goodwill of VER and the Subsidiaries and the confidential information
thereof. In order that Buyer may enjoy the benefits of such goodwill and such
confidential information, subject to subsection (b) of this Section 11.5, Seller
agrees that, for a period of five (5) from the Closing Date in the geographical
markets in which the businesses of VER and the Subsidiaries are currently
conducted, neither Seller nor any affiliate of Seller will, directly or
indirectly, alone or in association with any other person, firm, corporation or
other business organization, engage in the Vision Business (hereinafter
defined).
(b) Notwithstanding subsection (a) of this Section 11.5, (i) Seller
and its Affiliates may own up to 5% of a class of equity securities of a
publicly held company engaged in the Vision Business as an investment and (ii)
Seller and its Affiliates may acquire an interest in the securities or assets of
an entity engaged in the Vision Business, and such business may thereafter
continue to operate, if such acquisition is part of a larger acquisition and
either the assets engaged in the Vision Business constitute no more that 15% of
the total assets acquired (by means of stock or asset acquisition) or the
revenues from such Vision
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Business, for the last fiscal year preceding the acquisition, constitute no more
than 15% of the total revenues from all assets and/or entities acquired.
(c) The "Vision Business" shall mean any of (i) the business of
marketing and selling propane on a retail (residential and/or commercial) or
wholesale basis, (ii) the business of hauling petroleum products and by-products
by truck, or (iii) the sale of appliances and equipment fueled by propane in
connection with (i).
(d) As a separate and independent covenant, Seller agrees that, for a
period of three (3) years from the Closing Date, neither it nor any of its
Affiliates will in any way, directly or indirectly, for the purpose of engaging
in the Vision Business, call upon, solicit, advise or otherwise do, or attempt
to do, business with any customer of VER or any Subsidiary as of the Closing
Date to take away or interfere or attempt to interfere with any custom, trade,
business or patronage of VER or any Subsidiary relating to the Vision Business
(except that any business or entity of the type described in (b)(ii) above may
continue to compete with VER and the Subsidiaries in the ordinary course), or
interfere with or attempt to interfere with any officers, employees,
representatives or agents of VER or any Subsidiary, or induce or attempt to
induce any of them to leave the employ of VER or any subsidiary.
(e) The period of time during which Seller and its Affiliates are
prohibited from engaging in certain activities pursuant to the terms of this
Section 11.5 shall be extended by the length of time, if any, during which
Seller or any of its Affiliates is in breach of the terms of this Section 11.5.
(f) Seller acknowledges that the failure of Seller or any of its
Affiliates to comply with the provisions of this Section 11.5 will result in
irreparable and continuing damage to Buyer for which there will be no adequate
remedy at law and that, in the event of a failure of Seller or any of its
Affiliates so to comply, Buyer and its successors and permitted assigns shall be
entitled to injunctive relief and to such other and further relief as may be
proper and necessary to ensure compliance with the provisions of this Section
11.5.
(g) The parties agree that $100,000 of the Purchase Price is allocable
to the provisions contained in this Section 11.5.
11.6 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware, without
giving effect to the choice-of-law provisions thereof.
11.7 Consent to Jurisdiction. Each of the parties to this Agreement,
acting for itself and for its successors and
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permitted assigns, without regard to domicile, citizenship or residence, hereby
(i) agrees that any suit, action or other legal proceeding arising out of or
relating to this Agreement may be brought in the Court of Common Pleas for the
County of Philadelphia, Commonwealth of Pennsylvania, the Circuit Court for the
County of Clay, State of Missouri, or any court of competent jurisdiction in the
State of Delaware or in the United States District Court for the Eastern
District of the Commonwealth of Pennsylvania, the Western District of the State
of Missouri, or the State of Delaware, (ii) consents to the jurisdiction of each
such court in any such suit, action or proceeding, (iii) waives any objection
that it may have to the laying of venue of any such suit, action or proceeding
in any of such courts and any claim that any such suit, action or proceeding has
been brought in an inconvenient forum, and (iv) agrees that a final judgment in
any such suit, action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other matter provided by
law.
11.8 Notices. Service of process, and any other notices or other
communications required or permitted under this Agreement shall be given in
writing and delivered personally, sent by confirmed facsimile transmission,
mailed first class or sent by overnight courier guaranteeing next-day delivery,
addressed as follows:
(i) If to Buyer:
FERRELLGAS, INC.
One Liberty Plaza
Liberty, MO 64068
Fax: 816-792-7985
Attention: President
(ii) with a copy to:
Smith, Gill, Fisher & Butts, P.C.
1200 Main Street, Suite 3500
Kansas City, Missouri 64105
Fax: 816-391-7600
Attention: Kendrick T. Wallace, Esq.
If to Seller:
Bell Atlantic Enterprises
International, Inc.
1717 Arch Street
29th Floor East
Philadelphia, PA 19103
Fax: 215-557-7214
Attention: Chairman and CEO
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with a copy to:
Bell Atlantic Corporation
1717 Arch Street
32nd Floor
Philadelphia, PA 19103
Fax: 215-963-9195
Attention: Thomas R. McKeough
Assistant General Counsel
Notices or communications required or permitted under this Agreement shall be
deemed to have been received by the addressee (i) on the date given, if
delivered personally or sent by confirmed facsimile transmission, (ii) five days
after the date of deposit, if mailed by first class mail and (iii) one day after
delivery to a courier, if sent by overnight courier guaranteeing next-day
delivery. Either party may change the person, address or facsimile transmission
number for service of process upon it or delivery of notices or other
communications to it under this Agreement by delivering notice of such change to
the other party in accordance with this Section 11.8.
11.9 Titles and Headings. Titles and headings to Articles and
Sections herein, and the Table of Contents to this Agreement, are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
11.10 Successors and Assigns; Beneficiaries.
(a) This Agreement shall inure to the benefit of, and be binding upon,
the parties hereto and its respective successors and permitted assigns;
provided, however, that no party shall assign any rights or delegate any of the
obligations created under this Agreement without prior written consent of the
other party. Nothing in this Agreement shall confer upon any person or entity
not a party to this Agreement, or the legal representatives of such person or
entity, any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement. The representations, warranties, covenants and
agreements of Seller contained in this Agreement are for the sole benefit of
Buyer and are not intended to benefit, and may not be relied upon or enforced
by, any other person.
(b) Notwithstanding anything in Section 11.10(a) to the contrary, (i)
Seller acknowledges and agrees that Buyer may transfer or assign its rights and
obligations hereunder to an entity owned or controlled by Buyer including,
without limitation, Ferrellgas, L.P., a Delaware limited partnership for which
Buyer is the general partner ("OLP"); provided that nothing herein shall relieve
Buyer of its obligations hereunder; (ii) Seller consents to said transfer or
assignment to OLP (the "OLP Transfer") and agrees that all representations,
warranties, covenants and conditions of
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Seller contained herein will be for the benefit of, and may be relied upon and
enforced by, OLP after the OLP Transfer, provided that OLP shall, in connection
with the OLP Transfer, become jointly and severally liable to the Seller for the
performance of the covenants and agreements of Buyer hereunder to be performed
from and after the OLP Transfer.
11.11 Entire Agreement. This Agreement represents the entire agreement
and understanding of the parties with reference to the transactions set forth
herein, and no representations or warranties have been made in connection with
this Agreement or the transactions contemplated hereby other than those
expressly set forth herein or in the Disclosure Schedule, certificates and other
documents delivered in accordance herewith. This Agreement supersedes all prior
negotiations, discussions, correspondence, communications, understandings and
agreements (other than the confidentiality agreement referred to in Section 11.4
hereof) between the parties relating to the subject matter of this Agreement and
all prior drafts of this Agreement, all of which are merged into this Agreement.
No prior drafts of this Agreement and no words or phrases from any such prior
drafts shall be admissible into evidence in any proceeding involving this
Agreement.
11.12 Waivers and Amendments. Each of Seller and Buyer may, but shall
not be obligated to, by written notice to the others (a) extend the time for the
performance of any of the obligations or other actions of the other; (b) waive
any inaccuracies in the representations or warranties of the other contained in
this Agreement; (c) waive compliance with any of the covenants of the other
created under this Agreement; or (e) waive fulfillment of any of the conditions
to its own obligations under this Agreement. The waiver by any party hereto of
a breach of any provision of this Agreement shall not operate or be construed as
a waiver of any subsequent breach, whether or not similar. This Agreement may
be amended, modified or supplemented only by a written instrument executed by
Seller and Buyer.
11.13 Severability. This Agreement shall be deemed severable, and the
invalidity or unenforceability of any term or provision hereof shall not affect
the validity or enforceability of this Agreement or of any other term or
provision hereof.
[The remainder of this page left blank intentionally.]
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11.14 Counterparts. This Agreement may be executed in counterparts,
all of which together shall constitute an agreement binding upon all of the
parties hereto, notwithstanding that all such parties are not signatures to the
same counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement, all as
of the day and year first above written.
SELLER:
BELL ATLANTIC ENTERPRISES
INTERNATIONAL, INC.
/s/James H. Brenneman
By: ________________________________
Name: James H. Brenneman
Title: Vice-President--Operations
and Planning
BUYER:
FERRELLGAS, INC.
/s/ James M. Hake
By: ________________________________
Name: James M. Hake
Title: Vice-President, Acquisitions
47
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Annex 1.1(p)
NET WORKING CAPITAL
As used in the Agreement, the term "Net Working Capital" shall mean
(A) the aggregate amount of all current assets of VER and the Subsidiaries, less
(B) the aggregate amount of all current liabilities of VER and the Subsidiaries,
as determined in accordance with GAAP on a basis consistent with the preparation
of the Balance Sheets (as defined in Section 3.9 of the Agreement), subject to
the following adjustments:
(a) The reserve for bad debts shall not be reduced below $400,000;
(b) Non-fixed-cost inventory shall be reflected at the lower of cost
or market;
(c) Retiree benefits shall be accrued in accordance with FASB 106;
(d) Adequate reserves for litigation and environmental matters shall
be accrued.
(e) A reserve of $300,000 shall be accrued for post-closing separation
payments.
(f) A reserve for 50% of the fees to be paid to the external auditor
to prepare the Audited Balance Sheet shall be accrued.
(g) To the extent Seller is assuming liabilities for which reserves
exist on VER's or any Subsidiaries' books, such reserves shall be reversed.
(h) Changes in the accruals for state and federal income tax
liabilities (benefits) occurring after June 30, 1994 will be excluded from
the computation of Net Working Capital.
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Annex 5.5
SCHEDULE OF GOVERNMENTAL AND THIRD PARTY CONSENTS
1. Seller will use its best efforts to secure the consent of the
lessors at Sarasota #270 and Tampa #81 to the assignment of the leases to
Ferrellgas, L.P. Failure to secure such consent will not constitute a breach of
Section 5.5. See Disclosure Schedule, Section 3.12, Annex II, p. 5.
2. Seller will secure the consent of the City of Jacksonville Beach,
Florida, to the sale of the stock of VER if such consent is required pursuant to
Ordinance No. 7459. If such consent is required, Seller will use its best
efforts to secure consent to the transfer of such franchise to Ferrellgas, L.P.
Failure to secure such second consent will not constitute a breach of Section
5.5. See Disclosure Schedule, Section 3.14, Item 8(b).
3. All agreements listed on Section 3.28 of the Disclosure Schedule
will be terminated on the Closing Date.
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<PAGE>
Annex 6.4
SCHEDULE OF RETAINED OBLIGATIONS AND LIABILITIES
Each of the following obligations and liabilities shall be
retained by Seller:
Tropicana litigation
Clean up costs and other expenses arising from environmental
contamination at the following sites: (1) Green Bay, Wisconsin, (2)
Bradenton, Florida, and (3) Andover, Minnesota.
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VISION TANK COUNT
June 1994
<TABLE>
<CAPTION>
TANK SIZE NUMBER OF TANKS COST PER TANK
- --------- --------------- -------------
<S> <C> <C>
-250 10,068 $ 50
250 5,264 $ 380
251-320 1,698 $ 420
321-500 17,614 $ 720
501-1000 6,307 $1,350
1001-5K 87 $1,500
5001-10K 104 $2,000
</TABLE>
A tank not located on the premises of VER or any Subsidiary will be
deemed to be verified when (1) the delivery person responsible for the delivery
of propane to the address at which the tank is shown to be located on the
records of VER or the Subsidiaries confirms such tank's existence at such
location and (2) VER or the Subsidiary has in its possession a tank lease signed
by the owner of the property on which the tank is located (or such other
evidence of the ownership of the tank by VER or the Subsidiary, acknowledged by
the property owner, as may be reasonably satisfactory to Buyer). Buyer will make
reasonable attempts to obtain tank leases or customer acknowledgments that are
missing prior to seeking reimbursement from Seller. Buyer will inventory all
tanks located on the premises of VER or any Subsidiary.
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EXHIBIT 10.8
FERRELLGAS UNIT OPTION PLAN
SECTION 1. PURPOSE
The purposes of this Ferrellgas Unit Option Plan (the "Plan") are to encourage
selected Employees of Ferrellgas, Inc. (the "Company") to develop a proprietary
interest in the growth and performance of Ferrellgas Partners, L.P. (the
"Partnership"), to generate an increased incentive to contribute to the
Partnership's future success and prosperity, thus enhancing the value of the
Partnership for the benefit of its unitholders, and to enhance the ability of
the Company to attract and retain key individuals who are essential to the
progress, growth and profitability of the Partnership, by giving such Employees
the opportunity to acquire Subordinated Units.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Option Committee of the Board of Directors
of the Company ("the Board") as designated by the Board to administer the Plan
and composed of not less than two directors of the Board, each of whom is a
"disinterested person" within the meaning of Rule 16b-3. A majority of the
Committee shall constitute a quorum, and the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by all members of the Committee, shall be deemed the acts of the Committee.
Subject to the terms of the Plan and applicable law, the Committee shall have
the sole power, authority and discretion to: (i) designate the Employees who are
to be Participants; (ii) determine the number of Options to be granted to an
Employee; (iii) determine the terms and conditions of any Option; (iv)
interpret, construe and administer the Plan and any instrument or agreement
relating to an Option granted under the Plan; (v) establish, amend, suspend, or
waive such rules and regulations and appoint such agents as it shall deem
appropriate for the proper administration of the Plan; (vi) make a determination
as to the right of any Person to receive payment of (or with respect to) an
Option; and (vii) make any other determinations and take any other actions that
the Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions with respect to the Plan or
any Option granted thereunder shall be within the sole discretion of the
Committee, may be made at any time, and shall be final, conclusive, and binding
upon all Persons.
<PAGE>
SECTION 3. UNITS AVAILABLE FOR OPTIONS
3.1 CALCULATION OF NUMBER OF SUBORDINATED UNITS AVAILABLE. The number of
Subordinated Units available for granting Options under the Plan shall be
750,000 Subordinated Units, subject to adjustment as provided in Section 3.3.
Further, if any Option granted under the Plan is forfeited, canceled,
surrendered, or otherwise terminates or expires without the delivery of
Subordinated Units or other consideration, then the Subordinated Units subject
to such Option shall again be available for granting Options under the Plan.
3.2 SOURCES OF UNITS DELIVERABLE UNDER OPTIONS. Units delivered by the
Company on exercise of an Option may consist, in whole or in part, of Units
acquired in the open market or from any Person, including the Partnership. With
respect to Units to be acquired from the Partnership for delivery following an
Option exercise, the Company shall pay to the Partnership in cash the Fair
Market Value for each Unit requested to be issued (as of the date of issuance of
such Unit) and the Partnership agrees, upon receipt of such cash, to issue the
Units to the Company for such purpose. With respect to each Unit issued upon
exercise of an Option, the Company shall be entitled to reimbursement by the
Partnership for the excess, if any, of (i) the Fair Market Value of each such
Unit (as of the date of issuance of such Unit) over (ii) the exercise price of
the Option relating to such Unit.
3.3 ADJUSTMENTS. In the event that (i) any change is made to the Units
issuable under the Plan or (ii) the Partnership makes any distribution of cash,
Common Units, Subordinated Units or other property to unitholders which results
from the sale or disposition of a major asset or separate operating division of
the Partnership or any other extraordinary event and, in the judgment of the
Committee, such change or distribution would significantly dilute the rights of
Participants hereunder, then the Committee may make appropriate adjustments in
the maximum number of Units issuable under the Plan to reflect the effect of
such change or distribution upon the Partnership's capital structure, and may
make appropriate adjustments to the number of Units subject to, and/or the
exercise price of, each outstanding Option. The adjustments determined by the
Committee shall be final, binding and conclusive.
3.4. UNITS. As used in this Plan, the term Units shall mean Subordinated
Units. Notwithstanding the foregoing however, (a) in the event that one third
of the Subordinated Units owned by the Company and/or its Affiliates are
converted to Common Units on or after August 1, 1997, pursuant to the
Partnership Agreement, then one third of the Subordinated Units issuable under
the Plan, including Units subject to Options then outstanding, shall be
automatically converted to Common Units; and (b) in the event that all of the
Subordinated Units owned by the Company and/or its Affiliates are converted into
Common Units on or after August 1,
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<PAGE>
1999, pursuant to the Partnership Agreement, (i) all references in the Plan to
Subordinated Units or Units shall be automatically changed to Common Units (ii)
all Options then outstanding shall be automatically converted into Options with
respect to Common Units and (iii) all Subordinated Units issued upon the
exercise of Options shall be automatically converted to Common Units.
SECTION 4. ELIGIBILITY
Any Employee who is not a member of the Committee shall be eligible to be a
Participant. Grants may be made to the same Employee on more than one occasion.
SECTION 5. OPTIONS
5.1 OPTION TERMS. The Committee is hereby authorized to grant Options to
Employees with the following terms and conditions and with such additional terms
and conditions, which are not inconsistent with the provisions of the Plan, as
the Committee shall determine:
(i) EXERCISE PRICE. The per Unit exercise price of an Option shall be
determined by the Committee at the date of grant.
(ii) TIME AND METHOD OF VESTING OR EXERCISE, The Committee shall
determine the time or times at which an Option may become vested in whole
or in part, may be exercised in whole or in part, and the method by which
payment of the exercise price with respect thereto may be made; provided,
however, no Option shall be exercisable within six months of its date of
grant. Subject to any limitations in the Option Agreement, a Participant
may purchase Units subject to the vested and exercisable portion of an
Option in whole at any time, or in part from time to time, by delivering to
the Chief Financial Officer of the Company written notice specifying the
number of Units with respect to which the Option is being exercised,
together with payment in full of the purchase price of such Units plus any
applicable federal, state or local taxes for which the Company has a
withholding obligation in connection with such purchase. Such payment
shall be payable in full in cash or by check acceptable to the Company.
(iii) TERM OF OPTIONS. The term of each Option shall be for such period
as may be determined by the Committee; provided, however, that in no event
shall the term of any Option exceed a period of 10 years from the date of
its grant.
(iv) TERMINATION OF EMPLOYMENT. Options, to the extent vested as of the
date the Participant ceases to be an Employee, will remain the property of
the Participant until such Options are exercised pursuant to the Plan or
expire by their terms. Options, to the extent not vested as of the date
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<PAGE>
the Participant ceases to be an Employee, shall be automatically canceled
unexercised on such date.
(v) LIMITS ON TRANSFER OF OPTIONS. No Option or rights thereunder shall
be assignable, alienable, saleable or transferable by a Participant
otherwise than by will or by the laws of descent and distribution. Each
Option shall be exercisable during that Participant's lifetime only by the
Participant or, if permissible under applicable law, by the Participant's
guardian or legal representative. No Option or any rights thereunder may
be pledged, alienated, attached or otherwise encumbered, and any purported
pledge, alienation, attachment or encumbrance thereof shall be void and
unenforceable against the Company.
(vi) LIMITS ON TRANSFERS OF SUBORDINATED UNITS. Prior to the conversion
of Subordinated Units into Common Units, no Subordinated Units acquired
upon the exercise of an Option, or any rights thereunder, shall be
assignable, alienable, saleable or transferable by a Participant otherwise
than by will or by the laws of descent and distribution. Further, no
Subordinated Unit, or any rights thereunder, may be pledged, alienated,
attached or otherwise encumbered, and any purported pledge, alienation,
attachment or encumbrance thereof shall be void and unenforceable against
the Partnership and each certificate evidencing such Unit shall contain a
legend reflecting such restrictions.
(vii) UNIT CERTIFICATES. Upon exercise of an Option, delivery of a
certificate for fully paid and nonassessable Units shall be made to the
Person exercising the Option either at such time during ordinary business
hours after 15 days but not more than 30 days from the date of receipt of
the notice by the Company as shall be designed in such notice, or at such
time, place and manner as may be agreed upon by the Company and the Person
exercising the Option.
(viii) OPTION AGREEMENT. Each Option shall be evidenced by an Option
Agreement, which shall have such terms and provisions, not inconsistent
with the Plan, that the Committee determines.
5.2 OPTION CANCELLATION RIGHTS. Notwithstanding anything in the Plan to the
contrary, the Committee shall have the discretion to cancel all or part of any
outstanding Options at any time or times. Upon any such cancellation the
Company shall pay to the Participant with respect to each Unit that is subject
to the canceled (or canceled portion of the) Option an amount in cash equal to
the excess, if any, of (i) the Fair Market Value of a Unit (at the effective
date of such cancellation) over (ii) the exercise price per Unit of such
canceled Option.
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<PAGE>
5.3 CALL OPTION. Notwithstanding anything in this Plan or any Option
Agreement to the contrary, with respect to Subordinated Units that have been
issued pursuant to the exercise of an Option, at any time or times prior to the
conversion of the Subordinated Units into Common Units, the Company may purchase
all or part of such Units by paying the holder of such Units an amount (in cash)
equal to the Fair Market Value of the Subordinated Units at such time.
SECTION 6. AMENDMENT AND TERMINATION
The Board of Directors in its discretion may terminate the Plan at any time with
respect to any Units for which a grant has not theretofore been made. The Board
of Directors shall also have the right to alter or amend the Plan or any part
thereof from time to time; provided, however, that no change in any Option
theretofore made may be made which would impair the rights of the Participant
without the consent of such Participant; and provided further, that
notwithstanding any other provision of the Plan or any Option Agreement, without
such approval, if any, as may be required pursuant to Rule 16b-3, no such
amendment or alteration shall be made that would:
(i) increase the total number of Units available for Options under the
Plan, except as provided in Section 3 hereof,
(ii) change the class of Employees eligible to receive Options;
(iii) extend the maximum period during which Options may be granted under
the Plan; or
(iv) materially increase the benefits accruing to Participants under the
Plan.
SECTION 7. VESTING UPON THE OCCURRENCE OF CERTAIN EVENTS
If, prior to the date upon which all Subordinated Units have been converted to
Common Units pursuant to the Partnership Agreement, a plan of complete
dissolution of the Partnership is adopted or the unitholders approve an
agreement for the sale or disposition by the Partnership (in one transaction or
a series of transactions) of all or substantially all the Partnership's assets
then upon such adoption or approval all or a portion (as determined by the
Committee and set forth in the related Option Agreement) of a Participant's
Options outstanding as of the date of such adoption or approval (the "Converted
Options") shall be converted into options to purchase Common Units (the
"Conversion Options") with the same terms and conditions as the converted
Options, except that such Conversion Options shall be immediately and fully
vested and exercisable and may be exercised within one year from the date of
such adoption or approval, but not thereafter; provided, however,
5
<PAGE>
that if, on any date during such year the Participant desires to exercise
Conversion Options, such Participant cannot exercise such Conversion Options and
sell all of the Common Units issuable upon such exercise without being subject
to liability under Section 16(b) of the 1934 Act, then the Company shall pay to
such Participant with respect to each Common Unit which would have been issuable
upon the Participant's exercise of the Conversion Options an amount in cash
equal to the excess, if any, of (i) the Fair Market Value of a Common Unit (as
of the date of such exercise) or (ii) the exercise price per Common Unit of such
Conversion Option. The remaining unvested and/or unexercisable Options shall be
immediately cancelled unexercised and without the payment of any consideration.
SECTION 8. GENERAL PROVISIONS
8.1 NO RIGHTS TO OPTIONS. No Person shall have any claim to be granted any
Option under the Plan, and there is no obligation for uniformity of treatment of
Persons under the Plan. The terms and conditions of Options need not be the
same with respect to each Participant.
8.2 WITHHOLDING. The Company shall (i) withhold from any transfer made with
respect to any Option cancellation or exercise under the Plan the amount (in
cash or Units) of withholding taxes due in respect thereof, and (ii) take such
other action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes.
8.3 CORRECTION OF DEFECTS, OMISSIONS AND INCONSISTENCIES. The Committee may
correct any defect, supply any omission, or reconcile any inconsistency in the
Plan or any Option in the manner and to the extent it shall deem desirable in
the establishment or administration of the Plan.
8.4 NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in the Plan
shall prevent the Partnership or the Company from adopting or continuing in
effect other or additional compensation arrangements and such arrangements may
be either generally applicable or applicable only in specific cases.
8.5 NO RIGHT TO EMPLOYMENT. The grant of an Option shall not be construed as
giving a Participant the right to be retained in the employ of the Company.
Further, the Company may at any time dismiss a Participant from employment, free
from any liability or any claim under the Plan unless otherwise expressly
provided in the Plan or in any Option Agreement.
8.6 GOVERNING LAW. The validity, construction and effect of the Plan and any
rules and regulations relating to the Plan shall be determined in accordance
with applicable Federal law, and to the
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<PAGE>
extent not preempted thereby, with the laws of the State of Missouri.
8.7 SEVERABILITY. If any provision of the Plan or any Option is or becomes or
is deemed to be invalid, illegal or unenforceable in any jurisdiction, or as to
any person or Option, or would disqualify the Plan or any Option under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws. If it cannot be so construed or deemed
amended without, in the determination of the Committee, materially altering the
intent of the Plan or the Option, such provision shall be stricken as to such
jurisdiction, Person or Option and the remainder of the Plan and any such Option
shall remain in full force and effect.
8.8 NO TRUST OR FUND CREATED. Neither the Plan nor any Option shall create or
be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company, the Partnership or any Affiliate and a
Participant or any other Person. To the extent that any Person acquires a right
to receive payments from the Company, the Partnership or any Affiliate pursuant
to an Option, such right shall be no greater than the right of any unsecured
general creditor of the Company, the Partnership or any Affiliate.
8.9 NO FRACTIONAL UNITS. No fractional Units shall be issued or delivered
pursuant to the Plan or any Option, and the Committee shall determine whether
cash, other securities, or other property shall be paid or transferred in lieu
of any fractional Units, or whether such fractional Units or any rights thereto
shall be canceled, terminated or otherwise eliminated.
8.10 HEADINGS. Headings are given to the Sections and subsections of the Plan
solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
8.11 NO LIMITATION. The existence of the Plan and the grants of Options made
hereunder shall not affect in any way the right or power of the Board of
Directors of the Company or the general partner or unitholders of the
Partnership to make or authorize any adjustment, recapitalization,
reorganization or other change in the capital structure or business of the
Partnership or any Affiliate, any merger or consolidation of the Partnership or
any Affiliate, any issue of debt or equity securities ahead of or affecting
Units or the rights thereof or pertaining thereto, the dissolution or
liquidation of the Partnership or any Affiliate or any sale or transfer of all
or any part of Partnership or any Affiliate's assets or business, or any other
corporate act or proceeding.
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<PAGE>
8.12 SECURITIES LAWS. The Subordinated Units subject to Options under the Plan
are unlisted, unregistered securities to be issued by the Partnership.
Accordingly, each Option granted under the Plan shall be subject to the
requirement that if at any time the Board of Directors shall determine, in its
discretion, that the listing, registration or qualification of the Units subject
to such grant upon any securities exchange or under any state or federal law, or
that the consent or approval of any government regulatory body, is necessary or
desirable as a condition of, or in connection with, such grant or the issue or
purchase of Units thereunder, such grant shall be subject to the condition that
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Board of
Directors.
8.13 RULE 16b-3. It is intended that the Plan and any Option granted to a
Person subject to Section 16 of the Securities Exchange Act of 1934, as amended,
meet all of the requirements of Rule 16b-3. If any provision of the Plan or any
such Option would disqualify the Plan or such Option under, or would otherwise
not comply with, Rule 16b-3, such provision or Option shall be construed or
deemed amended to conform to Rule 16b-3.
8.14 INVESTMENT REPRESENTATION. Unless the Units subject to Options granted
under the Plan have been registered under the Securities Act of 1933, as amended
(the "1933 Act"), (and, in the case of any Participant who may be deemed an
affiliate (for securities law purposes) of the Company or Partnership, such
Units have been registered under the 1933 Act for resale by such Participant),
or the Partnership has determined that an exemption from registration is
available, the Partnership may require prior to and as a condition of the
issuance of any Units that the person exercising an Option hereunder furnish the
Partnership with a written representation in a form prescribed by the Committee
to the effect that such person is acquiring said Units solely with a view to
investment for his or her own account and not with a view to the resale or
distribution of all or any part thereof, and that such person will not dispose
of any of such Units otherwise than in accordance with the provisions of Rule
144 under the 1933 Act unless and until either the Units are registered under
the 1933 Act or the Company is satisfied that an exemption from such
registration is available.
8.15 COMPLIANCE WITH SECURITIES LAWS. Anything contained herein to the
contrary notwithstanding, the Partnership shall not be obligated to sell or
issue any Units to the Company under the Plan unless and until the Partnership
is satisfied that such sale or issuance complies with (i) all applicable
requirements of the exchange on which the Units are traded (or the governing
body of the principal market in which such Units are traded, if such Units are
not then listed on an exchange), (ii) all applicable provisions of the 1933 Act,
and (iii) all other laws or regulations by which
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<PAGE>
the Partnership is bound or to which the Partnership is subject. The Company
acknowledges that, as the general partner of the Partnership, it is an affiliate
of the Partnership under securities laws and it shall comply with such laws and
obligations of the Partnership relating thereto as if they were directly
applicable to the Company.
SECTION 9. EFFECTIVE DATE OF THE PLAN
The Plan shall be effective as of August 1, 1994.
SECTION 10. TERM OF THE PLAN
No Option shall be granted after the termination of the Plan. However, unless
otherwise expressly provided in the Plan or in an applicable Option Agreement,
any Option theretofore granted may extend beyond such date, and any authority of
the Committee to amend, alter, suspend, discontinue or terminate any such
Option, or to waive any conditions or rights under any such Option, and the
authority of the Board of Directors to cancel the Option pursuant to Section
5.2, shall extend beyond such date.
SECTION 11. DEFINITIONS
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) the Partnership, (ii) the Company, and (iii) any
entity in which the Partnership or the Company owns, directly or
indirectly, more than 50% of the beneficial interests.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
(c) "Common Units" shall mean the limited partnership interests in the
Partnership represented by Common Units as set forth in the Partnership
Agreement and described in the Registration Statement.
(d) "Employee" shall mean any employee of the Company or any Affiliate.
(e) "Fair Market Value" shall mean, at any specified time, with respect to a
Subordinated Unit, an amount equal to (i) 80% of the value of a Common Unit
at such time (determined on the basis of the average closing price of a
Common Unit on the New York Stock Exchange for the 20 trading days
immediately preceding such determination); or (2) if the Committee, in its
discretion, has the value of a Subordinated Unit determined by an
independent appraisal, the value as determined by such appraisal, if lower
than the above formula value in (i).
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<PAGE>
However, upon the conversion of the Subordinated Units into Common Units,
Fair Market Value shall mean the value of a Common Unit, as determined by
the Committee.
(f) "1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
(g) "Option" shall mean a right granted under the Plan to purchase Units under
the Plan.
(h) "Participant" shall mean an Employee granted an Option under the Plan.
(i) "Partnership Agreement" shall mean the Agreement of Limited Partnership of
Ferrellgas Partners, L.P., dated as of July 5, 1994, as amended from time
to time.
(j) "Person" shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization or government or
political subdivision thereof.
(k) "Registration Statement" shall mean the Registration Statement on Form S-1
of Ferrellgas Partners, L.P., Commission File No. 33-53383.
(l) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the 1934 Act.
(m) "Subordinated Units" shall mean the limited partnership interests in the
Partnership represented by Subordinated Units as set forth in the
Partnership Agreement and described in the Registration Statement for the
securities of the Partnership.
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EXHIBIT 10.9
CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT
-------------------------------------------------
THIS CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT, dated as of
November 1, 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 for the purpose of acquiring, owning and operating the retail
propane business and assets of the Company; and
WHEREAS, the Company has a 1.0101% general partner interest in the
Operating Partnership and the Master Partnership has a 98.9899% limited partner
interest in the Operating Partnership; and
WHEREAS, the Company has a 1% general partner interest in the Master
Partnership;
WHEREAS, the Company and Bell Atlantic Enterprises International,
Inc., a Delaware corporation ("Bell Atlantic"), entered into a Stock Purchase
Agreement dated as of September 30, 1994 (the "Purchase Agreement"), pursuant to
which the Company has purchased or will purchase from Bell Atlantic all of the
issued and outstanding shares of capital stock of Vision Energy Resources, Inc.,
a Delaware corporation ("Vision"); and
WHEREAS, the Company will cause each of the Vision Entities (as
defined below) to merge with and into the Company (the "Mergers") immediately
upon consummation of the transactions contemplated by the Purchase Agreement;
and
WHEREAS, Power Fuels, Inc. ("PF"), a subsidiary of Vision, will
dividend (the "Dividend") all of its assets to the Company, except PF's rights
under such permits, licenses, certificates and authority issued to PF by the
Interstate Commerce Commission (the "ICC Permits") which ICC Permits shall be
transferred to the Company upon receipt of approval of such transfer from the
Interstate Commerce Commission; and
WHEREAS, the Company desires to contribute to the Operating
Partnership, as a capital contribution thereto, all of the assets of the Vision
Entities to be acquired in connection with the Mergers and all of the assets of
PF to be acquired in connection with the Dividend, in exchange for (a) the
continuation
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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 as more fully set forth below, 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, the Company desires 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) 138,392 Common Units and (c) other good
and valuable consideration; and
WHEREAS, in connection with the above described transactions the
Operating Partnership has 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 1
Definitions
-----------
The following capitalized terms shall have the meanings given below.
"Acquisition" means consummation of the transactions contemplated by
the terms of the Purchase Agreement.
"Agreement" means this Contribution, Conveyance and Assumption
Agreement.
"Assets" means (i) all rights of the Company under the Purchase
Agreement including the Company's rights to indemnification from Bell Atlantic
under the Purchase Agreement and (ii) all of the assets owned, leased or held by
the Company which are acquired by the Company from the Vision Entities in
connection with the Mergers and all of the assets of PF to be acquired in
connection with the Dividend, including all assets 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 (except the ICC Permits) necessary to operate the
Business (as
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defined below) 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, the Vision Entities immediately prior to
the Mergers or PF immediately prior to the Dividend, insofar as any of the same
relate to the operation of the Assets or the Business;
(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;
(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 other proprietary right of any kind;
(n) all governmental licenses, permits and authorizations of every
kind (except the ICC Permits); and
(o) all bank accounts, cash, cash equivalents and other liquid
assets.
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"Assumed Liabilities" means all of the Company's liabilities arising
description, whether known or unknown, accrued or contingent, and whether or not
reflected on the books and records of the Company, the Vision Entities
immediately prior to the Mergers or PF immediately prior to the Dividend, except
the Excluded Liabilities (as defined below).
"Business" means the retail propane business of the Vision Entities
and PF as the same was operated immediately prior to the Acquisition.
"Common Units" means units representing a fractional part of all of
the limited partners' and their assignees' partnership interests in the Master
Partnership.
"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 from the Company to the Operating
Partnership, dated the date of this Agreement, the form of which is attached
hereto as Exhibit A.
"Credit Facility" means the Loan Agreement dated as of October 28,
1994 by and between the Company and Bank of America National Trust and Savings
Association providing for aggregate borrowings by the Company of $45,000,000.00.
"Credit Facility Indebtedness" means all obligations and liabilities
of the Company, of whatever kind or nature, under the Credit Facility.
"Dividend" has the meaning assigned to such term in the Recitals to
this Agreement.
"Effective Time" shall mean such time as the last of the Mergers shall
be consummated.
"Excluded Liabilities" means all of the income tax liabilities of the
Company.
"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.
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"Master Partnership" has the meaning assigned to such term in the
opening paragraph of this Agreement.
"Mergers" has the meaning assigned 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.
"PF" has the meaning assigned to such term in the Recitals to this
Agreement.
"Purchase Agreement" has the meaning assigned to such term in the
Recitals to this Agreement.
"Purchase Agreement Obligations" means all of the obligations and
liabilities of the Company to Bell Atlantic under the Purchase Agreement.
"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.
"Vision" has the meaning assigned to such term in the Recitals to this
Agreement.
"Vision Entities" means, collectively, Vision and each of its direct
and indirect subsidiaries other than PF.
ARTICLE 2
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 4 and (c) other
good and valuable consideration, the sufficiency of which is 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,
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subject, however, to the terms and conditions stated in this Agreement, forever.
2.2 Consideration for Contribution. In consideration of 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 Form of Conveyance. To further evidence this conveyance with
respect to the real property included in the Assets, the Company will execute
and deliver to the Operating Partnership the Conveyance, Assignment and Bill of
Sale, substantially in the form attached hereto as Exhibit A.
ARTICLE 3
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 sufficiency of which is 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
Master 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 138,392 Common Units in the Master Partnership.
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ARTICLE 4
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 and discharge the Assumed Liabilities, the Credit Facility
Indebtedness and the Purchase Agreement Obligations, 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 and discharge the
Assumed Liabilities, the Credit Facility Indebtedness and the Purchase Agreement
Obligations; provided, however, that said assumption and agreement to duly and
timely pay and discharge the Assumed Liabilities, the Credit Facility
Indebtedness and the Purchase Agreement Obligations shall not increase the
obligation of the Operating Partnership with respect to the Assumed Liabilities,
the Credit Facility Indebtedness or the Purchase Agreement Obligations beyond
that of the Company, waive any valid defense that was available to the Company
with respect to the Assumed Liabilities, the Credit Facility or the Purchase
Agreement or enlarge any rights or remedies of any third party, if any, under
any of the Assumed Liabilities, the Credit Facility or the Purchase Agreement.
ARTICLE 5
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, arising from or relating to the Excluded
Liabilities.
5.2 Indemnification With Respect to Operation of the Business. The
Operating Partnership shall indemnify, 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,
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accrued or contingent, and whether or not reflected on the books and records of
the Company, the Vision Entities immediately prior to the Mergers or PF
immediately prior to the Dividend, arising from or relating to the operation of
the Assets or the Business, excluding any claims, demands, costs, liabilities
and expenses arising from or relating to 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 Company.
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, the Vision Entities
immediately prior to the Mergers or PF immediately prior to the Dividend,
arising from or relating to the Assumed Liabilities.
5.4 Indemnification With Respect to the Credit Facility Indebtedness
and the Purchase Agreement Obligations. 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, arising from
or relating to (i) the Credit Facility Indebtedness and (ii) the Purchase
Agreement Obligations.
ARTICLE 6
Title Matters
-------------
6.1 Encumbrances. The contribution of the Assets made under Section
2.1 is made expressly subject to the Assumed Liabilities, the terms of the
Credit Facility and the Purchase Agreement and 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
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<PAGE>
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.
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 applicable jurisdiction in
respect of the transactions contemplated by this Agreement.
ARTICLE 7
Further Assurances
------------------
7.1 Company Assurances. From time to time after the Effective Time,
and without any further consideration, the Company shall execute, acknowledge
and deliver all such additional deeds,
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assignments, conveyances, instruments, notices, releases, acquittances and other
documents, and will do all such other acts and things, including any required
conveyance of certificated titles or other official registration documentation,
all in accordance with applicable law, as may be necessary or appropriate (i) to
more fully assign to 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 Assurance With Respect to ICC Permits. Immediately following
execution of this Agreement, and without further consideration, the Company
shall cause PF to execute a Small Carrier Transfer Application to transfer all
of the ICC Permits from PF to the Operating Partnership.
7.3 Operating Partnership and Master Partnership Assurances. From
time to time after the Effective Time, 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 8
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 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
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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 9
Effective Time
--------------
Notwithstanding anything contained in this Agreement to the contrary,
none of the provisions of Articles 2, 3, 4 or 5 of this Agreement shall be
operative or have any effect until the Effective Time, at which time all the
provisions of Articles 2, 3, 4 and 5 of this Agreement shall be effective and
operative as of the Effective Time, without further action by any party hereto.
ARTICLE 10
Miscellaneous
-------------
10.1 Order of Completion of Transactions. The transactions provided
for in Articles 2 and 3 of this Agreement shall be completed immediately
following the Effective Time in the following order: first, the transactions
provided for in Article 2 shall be completed; and second, following the
completion of the transactions as provided in Article 2, the transactions
provided for in Article 3 shall be completed.
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
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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 date of this Agreement, 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 all of the Assets and concomitant
rights necessary to operate the Business.
10.3 Costs. The Operating Partnership shall pay all expenses, fees
and costs,including but not limited to, 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 reasonable attorneys' fees) incurred in
connection with the implementation of any conveyance or delivery pursuant to
Sections 7.1, 7.2 or 7.3 or 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
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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.
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 a jurisdiction wherein an Asset is 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.
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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.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first above written.
FERRELLGAS PARTNERS, L.P. FERRELLGAS, INC.
By: FERRELLGAS, INC., as
general partner
(Signature of James M. Hake
appears here)
By:____________________________
(Signature of James M. Hake James M. Hake
appears here) Vice President, Acquisitions
By:____________________________
James M. Hake
Vice President, Acquisitions
FERRELLGAS, L.P.
By: FERRELLGAS, INC., as
general partner
(Signature of James M. Hake
appears here)
By:____________________________
James M. Hake
Vice President, Acquisitions
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
33-55185 of 2,400,000 Common Units related to limited partner interests in
Ferrellgas Partners, L.P., of our report dated September 16, 1994 (October 14,
1994 as to Note N), 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 September 16, 1994 (October 14,
1994 as to Note N) 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. 33-55185 of 2,400,000 Common Units related to limited
partner interests in Ferrellgas Partners, L.P., of our report dated September
16, 1994 (October 14, 1994 as to Note O) on Ferrellgas Partners, L.P., appearing
in the Prospectus, which is part of this Registration Statement and of our
report dated September 16, 1994 (October 14, 1994 as to Note O) relating to the
financial statement schedules appearing elsewhere in this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
November 11, 1994
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Ferrellgas Partners, L.P. on Form S-1 (File No. 33-55185) of our report, which
includes an explanatory paragraph for the Company's change in method of
accounting for income taxes, dated October 31, 1994, on our audit of the
financial statements of Vision Energy Resources, Inc. We also consent to the
reference to our firm under the caption "Experts".
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 11, 1994
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
The undersigned appoints James E. Ferrell, Danley K. Sheldon and
Kendrick T. Wallace, and each of them, any of whom may act without the joinder
of the other, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities to sign any and all amendments (including post-
effective amendments) to the Registration Statement on Form S-1 (Reg. No. 33-
55185) of Ferrellgas Partners, L.P. and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Date: November 14, 1994
[signature of A. Andrew Levison
appears here]
___________________________________
A. Andrew Levison
Director of Ferrellgas, Inc.
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
The undersigned appoints James E. Ferrell, Danley K. Sheldon and
Kendrick T. Wallace, and each of them, any of whom may act without the joinder
of the other, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities to sign any and all amendments (including post-
effective amendments) to the Registration Statement on Form S-1 (Reg. No. 33-
55185) of Ferrellgas Partners, L.P. and to file the same, with all exhibits
thereto and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or their substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
Date: November 14, 1994
[signature of Daniel M. Lambert
appears here]
___________________________________
Daniel M. Lambert
Director of Ferrellgas, Inc.
