As filed with the Securities and Exchange Commission on November 13, 1995
Registration No. 33-55185
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
POST-EFFECTIVE AMENDMENT NO.1
on
FORM S-4
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)
---------------
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Delaware 598 43-1698480
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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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:
Bryan Cave LLP
One Kansas City Place, 35th Floor
1200 Main Street
Kansas City, Missouri 64105
(816) 374-3200
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]
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
---------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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FERRELLGAS PARTNERS, L.P.
CROSS-REFERENCE SHEET
Pursuant to Item 501(B) of Regulation S-K
Form S-4 Item Number and Heading Location in Prospectus
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A. Information about the Transaction
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 Page
Prospectus.....................................
3. Risk Factors Ratio Prospectus Summary; Risk Factors
of Earnings to Fixed Charges and other information
4. Terms of the Transaction....................... *
5. Pro Forma Financial Information................ *
6. Material Contacts with the Company Being *
Acquired.......................................
7. Additional Information Required for Reoffering *
by Persons and Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel.........
9. Disclosure of Commission Position on The Partnership Agreement
Indemnification for Securities Act Liabilities
B. Information About the Registrant
10. Information with Respect to the Registrant..... Outside Front Cover Page; Additional Information;
Prospectus Summary;
Conflicts of Interest and
Fiduciary Responsibility
11. Incorporation of Certain Information by Information Incorporated by Reference
Reference .....................................
C. Information About the Company Being Acquired *
D. Voting and Management Information *
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* Not Applicable
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EXPLANATORY NOTE
Pursuant to its Registration Statement on Form S-1 (Reg No. 33-55185) (the
"Registration Statement"), the Registrant registered the offering by the
Registrant from time to time of up to 2,400,000 Common Units representing
limited partner interests in Ferrellgas Partners, L.P. (the"Partnership") in
connection with its acquisition of other businesses, properties or securities in
business combination transactions. This Post-Effective Amendment is filed for
the purpose of converting the form of the Registration Statement to Form S-4.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities law of any such state.
<PAGE>
- --------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED NOVEMBER 10, 1995
- --------------------------------------------------------------------------------
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
current report on Form 8-K will be filed subsequent to the acquisition
containing financial and other information about the acquisition that would be
material to subsequent acquirers of Common Units offered hereby, including pro
forma information for the Partnership and historical financial information about
the company being acquired. A current report on Form 8-K 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 ,1995.
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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:
o 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.
o 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.
o 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.
o Holders of Common Units have limited voting rights and the General
Partner manages and controls the Partnership.
o 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.
o The issuance of all 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-4 of which this Prospectus is
a part.
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
October 31, 1995 was $21.50 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.
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[MAP]
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AVAILABLE INFORMATION
Ferrellgas Partners, L.P. (the "Partnership") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith files, reports and other
information with the Securities and Exchange Commission (the" Commission").
Reports and other information filed by the Partnership can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Regional
Offices of the Commission in Room 1242, Everett McKinley Dirksen Building, 219
Dearborn Street, Chicago, Illinois, and Room 1028, Jacob K. Javits Federal
Building, 26 Federal Plaza, New York, New York. Copies of such information can
be obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates.
The Partnership's Common Units are listed on the New York Stock
Exchange (the "NYSE"). Reports and other information filed by the Partnership
with the NYSE can be inspected at the offices of the NYSE at 20 Broad Street,
New York, New York 10005.
The Partnership has filed a Registration Statement with the Commission
on Form S-4 (File No. 33-55185) (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Common Units offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. With respect to statements
made in this Prospectus as to the contents of any contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto may be inspected at the public
reference facilities of the Commission listed above.
INFORMATION INCORPORATED BY REFERENCE
The Partnership's Annual Report on Form 10-K for the fiscal year ended July
31, 1995 has been filed by the Partnership with the Commission pursuant to
Section 13(a) of the Exchange Act and is hereby incorporated by reference.
All documents filed by the Partnership with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the termination of the offering of the Common Units offered hereby
shall be deemed to be incorporated by reference and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
This prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available upon request from
Ferrellgas Partners, L.P., One Liberty Plaza, Liberty, Missouri, 64068,
Attention: Investor Relations, telephone (816) 792-0203. In order to ensure
timely delivery of the documents, any request should be made by five days prior
to the date on which the final investment decision must be made.
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TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION ................................................................. 4
INFORMATION INCORPORATED BY REFERENCE ................................................. 4
PROSPECTUS SUMMARY..................................................................... 7
Ferrellgas Partners, L.P. ......................................................... 7
Risk Factors....................................................................... 9
Summary Historical and Pro Forma Consolidated Financial Data....................... 10
The Offering....................................................................... 12
Summary of Tax Considerations...................................................... 17
RISK FACTORS........................................................................... 20
Risks Inherent in the Partnership's Business....................................... 20
Risks Inherent in an Investment in the Partnership................................. 22
Conflicts of Interest and Fiduciary Duties......................................... 25
Tax Considerations................................................................. 28
CASH DISTRIBUTION POLICY............................................................... 29
Quarterly Distributions of Available Cash.......................................... 30
Distributions of Cash from Interim Capital Transactions............................ 33
Distributions of Cash Upon Liquidation............................................. 34
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY..................................... 35
Transactions of the Partnership with Ferrellgas and its Affiliates................. 35
Conflicts of Interest.............................................................. 35
DESCRIPTION OF THE COMMON UNITS........................................................ 39
The Units.......................................................................... 39
Transfer Agent and Registrar....................................................... 39
Transfer of Units.................................................................. 39
THE PARTNERSHIP AGREEMENT.............................................................. 40
Organization and Duration.......................................................... 41
Purpose............................................................................ 41
Capital Contributions.............................................................. 41
Power of Attorney.................................................................. 41
Restrictions on Authority of the General Partner................................... 41
Withdrawal or Removal of the General Partner....................................... 42
Transfer of General Partner Interest............................................... 43
Reimbursement for Services......................................................... 43
Change of Management Provisions.................................................... 43
Status as Limited Partner or Assignee.............................................. 43
Non-citizen Assignees; Redemption.................................................. 44
Issuance of Additional Securities.................................................. 44
Limited Call Right................................................................. 45
Amendment of Partnership Agreement................................................. 45
Meetings; Voting................................................................... 46
Indemnification.................................................................... 47
Limited Liability.................................................................. 47
Books and Reports.................................................................. 48
Right to Inspect Partnership Books and Records..................................... 49
Termination and Dissolution........................................................ 49
Liquidation and Distribution of Proceeds........................................... 49
Registration Rights................................................................ 49
UNITS ELIGIBLE FOR FUTURE SALE......................................................... 50
PLAN OF DISTRIBUTION................................................................... 51
TAX CONSIDERATIONS..................................................................... 51
Legal Opinions and Advice.......................................................... 51
Consequences of Exchanging Assets for Common Units................................. 52
Ownership of Units by S Corporations............................................... 53
Changes In Federal Income Tax Laws................................................. 54
Partnership Status................................................................. 55
Limited Partner Status............................................................. 56
Tax Consequences of Unit Ownership................................................. 57
Allocation of Partnership Income, Gain, Loss and Deduction......................... 58
Tax Treatment of Operations........................................................ 59
Disposition of Common Units........................................................ 62
Uniformity of Units................................................................ 64
Tax-Exempt Organizations and Certain Other Investors............................... 64
Administrative Matters............................................................. 65
Other Tax Considerations........................................................... 68
VALIDITY OF COMMON UNITS............................................................... 69
EXPERTS................................................................................ 69
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and the historical and pro
forma financial statements appearing in the Partnership's Annual Report on From
10-K and should be read only in conjunction with the entire Prospectus and the
Annual Report on Form 10-K. For ease of reference, a glossary of certain terms
used in this Prospectus is included as Appendix A to this Prospectus.
FERRELLGAS PARTNERS, L.P.
Ferrellgas Partners, L.P. (the "Partnership") is engaged in the sale,
distribution, marketing and trading of propane and other natural gas liquids.
The Partnership believes that it is the second largest retail marketer of
propane in the United States, based on gallons sold, serving more than 700,000
residential, industrial/commercial and agricultural customers in 45 states and
the District of Columbia through approximately 467 retail outlets and 246
satellite locations in 38 states (some outlets serve interstate markets). The
Partnership's largest market concentrations are in the Midwest, Great Lakes and
Southeast regions of the United States. Ferrellgas, Inc. ("Ferrellgas"), a
wholly owned subsidiary of Ferrell Companies, Inc. ("Ferrell"), serves as
General Partner of the Partnership.
Retail propane sales volumes were approximately 576 million, 564 million
and 553 million gallons during the Partnership's fiscal year ended July 31,
1995, the pro forma fiscal year of the Partnership and Ferrellgas ended July 31,
1994 and Ferrellgas' fiscal year ended July 31, 1993, respectively. Earnings
before depreciation, amortization, interest and taxes ("EBITDA") for the same
respective periods were $87.9 million, $97.4 million, and $89.4 million. Net
earnings (loss) for the same respective periods were $23.8 million, $39.9
million and $(0.8) million.
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 7% of the retail propane purchased in the United States, as
measured by gallons sold. Since 1986, and as of July 31, 1995, Ferrellgas has
acquired 81 smaller independent propane retailers which Ferrellgas believes were
not individually material, except for the acquisition of Vision Energy
Resources, Inc. For the fiscal years ended July 31, 1995 to 1991, the
Partnership or its Predecessor invested approximately $70.1 million, $3.4
million, $0.9 million, $10.1 million and $25.3 million, respectively, to acquire
operations with annual retail sales of approximately 70.0 million, 2.9 million,
0.7 million, 8.6 million and 18.0 million gallons of propane, respectively.
Partnership Structure and Management
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 Ferrellgas, L.P., a subsidiary of the
Partnership (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 following chart 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.
(CHART)
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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:
o 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.
o 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.
o 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.
o Holders of Common Units have limited voting rights and the General
Partner manages and controls the Partnership.
o 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.
o 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 DATA
The following table presents selected consolidated historical and pro forma
financial data of the Partnership and Predecessor. Such information should be
read in conjunction with the Partnership's audited consolidated financial
statements and notes incorporated by reference herein. See "Additional
Information."
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Ferrellgas, Inc. and Subsidiaries (Predecessor)
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Ferrellgas Partners, L.P. Historical
-----------------------------------------
Historical Pro Forma Historical Eleven
Months
Year Ended Year Ended Inception to Ended Historical Year Ended July 31,
-------------------------------------
July 31,1995 July 31,1994(1)July 31,1994 June 30,1994 1993 1992 1991
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Income Statement Data:
Total revenues $596,436 $526,556 $ 24,566 $501,990 $541,945 $501,129 $543,933
Depreciation and 32,014 28,835 2,383 26,452 30,840 31,196 36,151
amortization
Operating income (loss) 55,927 68,631 (2,391) 71,522 58,553 56,408 63,045
Interest expense 31,993 28,130 2,662 53,693 60,071 61,219 60,507
Earnings (loss) from 23,820 39,909 (5,026) 12,337 109 (1,700) (5) 1,979
continuing operations
Earnings from continuing 0.76 1.29 -
operations per unit (2)
Cash distributions declared 1.65 - -
per unit (3)
Balance Sheet Data
(at end of period):
Working capital $ 28,928 $ 34,948 $ 34,948 $ 91,912 $ 74,408 $ 67,973 $ 53,403
Total assets 578,596 477,193 477,193 592,664 573,376 598,613 580,260
Payable to (receivable - - - (4,050) (916) 2,236 3,763
from)parent and affiliates
Long-term debt 338,188 267,062 267,062 476,441 489,589 501,614 466,585
Stockholder's equity 22,829 11,359 8,808 21,687
Partners' Capital:
Common Unitholders $ 84,489 $ 84,532 $ 84,532
Subordinated Unitholders 91,824 99,483 99,483
General Partner (2) (57,676) (62,622) (62,622)
Supplemental Data:
Earnings (loss) before
depreciation, amortization,
interest and taxes (4) $ 87,941 $ 97,466 $(8) $ 97,974 $ 89,393 $ 87,604 $ 99,196
Fixed Charge Coverage
Ratio (6) 2.85x 3.51x
(1) The pro forma year ended July 31, 1994 includes the eleven months ended
June 30, 1994 and historical financial data of the partnership for the
period from inception (July 5, 1994) to July 31, 1994 (adjusted principally
for the pro forma effect on interest expense resulting from the early
retirement of debt, net of additional borrowings).
(2) Pursuant to the MLP's Agreement of Limited Partnership (the "Partnership
Agreement"), the net loss from continuing operations of $5,026,000 was
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 was reallocated to the limited partners in the taxable
year ending July 31, 1995 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
prepayment premiums, consent fees and the write-off of unamortized discount
and financing costs. In accordance with the Partnership Agreement, this
extraordinary loss was allocated 100% to the General Partner and was not
reallocated to the limited partners in the next taxable year.
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(3) No cash distributions were declared by the Partnership from inception
to July 31, 1994. The $0.65 distribution made at the end of the 1995 first
quarter included $0.50 for the first quarter 1995 and $0.15 for the
inception period.
(4) EBITDA is calculated as operating income (loss) 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 (loss) from
continuing operations or net earnings (loss) .
(5) In August 1991, the Company revised the estimated useful lives of storage
tanks from 20 to 30 years in order to more closely reflect expected useful
lives of the assets. The effect of the change in accounting estimates
resulted in a favorable impact on loss from continuing operations of
approximately $3.7 million for the fiscal year ended July 31, 1992.
(6) 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.
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<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 16,640,810 Common Units
this offering representing a 50.1% limited partner
interest in the Partnership and
16,593,721 Subordinated Units
representing a 49.9% limited partner
interest in the Partnership. (After
giving effect to the general partner
interest, the Common Units represent
a 49.1% partnership interest and the
Subordinated Units represent a 48.9%
partnership interest.)
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 filed as an exhibit
to the Registration Statement of
which this Prospectus constitutes a
part. 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.
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
Subordinated Units The Subordination Period will extend
from the closing of this
offering until the first day of
any quarter beginning on or after
August 1, 1999 in respect of which
(i) distributions of Available Cash
on the Common Units and the
Subordinated Units equaled or
exceeded the Minimum Quarterly
Distribution for each of the three
consecutive four-quarter periods
immediately preceding such date and
(ii) the Partnership has invested at
least $50 million in
acquisitions and capital additions
or improvements made to increase
the operating capacity of the
Partnership. A total of 5,531,240
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
Distribution and target and the target distribution levels
distribution levels for the 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" 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 agrees
to waive such requirement in the
future.
Potential for significant additional
dilution in the future 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 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 2/3% of the outstanding
Common Units; provided, however,
that the Partnership may also issue
an unlimited number of additional
Common Unit 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 Operation
(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."
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 th 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 Agreemen 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 partner
without consent of Ferrell Subject to certain conditions, the
General Partner may be removed
upon the approval of the holders
of at least 66 2/3% of the
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 indirect ownership of
Units representing an aggregate 57%
limited partner interest (53%
upon completion of the issuance of
Common Units offered pursuant to
this Prospectus) effectively
precludes any vote to remove
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 Ferrellgas,
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 Unitholders The holders of Common Units do not
have 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 Partnershi
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 set forth on the
reverse side of the certificate
evidencing Common Units) before the
transfer of such Common Units wil
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 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
<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 Bryan Cave LLP, 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 Bryan Cave LLP, 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."
<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 1993 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. Bryan Cave LLP has not rendered an opinion on the state and local
tax consequences of an investment in the Partnership.
Ownership of Common Units by Tax-Exempt Organizations and Certain Other
Investors
An investment in Units by tax-exempt organizations (including individual
retirement accounts and other retirement plans), regulated investment companies
and foreign persons raises issues unique to such persons. Virtually all of the
income derived by a Unitholder which is a tax-exempt organization will be
unrelated business taxable income, and thus will be taxable to such Unitholder;
no significant amount of the Partnerships gross income will be qualifying income
for purposes of determining whether a Unitholder will qualify as a regulated
investment company; and a Unitholder who is a nonresident alien, foreign
corporation or other foreign person will be regarded as being engaged in a trade
or business in the United States as a result of ownership of a Unit and thus
will be required to file federal income tax returns and to pay tax on such
Unitholder's share of Partnership taxable income. See "Tax
Considerations--Tax-Exempt Organizations and Certain Other Investors."
Tax Shelter Registration
The Code generally requires that "tax shelters" be registered with the
Secretary of the Treasury. 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."
<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 1995 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.
<PAGE>
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 coverage 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
technological advances in energy efficiency, conservation, energy generation or
other devices might have on the Partnership's operations.
<PAGE>
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
As of July 31, 1995, the Operating Partnership is liable for approximately
$338 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 for
the four quarter periods ending July 31, 1995 was 2.85 to 1.
As of July 31, 1995, the Operating Partnership has $135 million of
outstanding indebtedness bearing interest at floating rates. In addition,
pursuant to the Credit Agreement, the Operating Partnership has available an
additional $25 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. As of July 31, 1995, the Partnership
has interest rate collar agreements covering $50 million of its floating rate
debt in order to limit the effect of interest rate fluctuations.
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 101% of the aggregate principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase. The Credit Agreement also contains a provision requiring the Operating
Partnership to repay all outstanding amounts under the Credit Agreement 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 Agreement, 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 Agreement 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 Agreement 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 indirectly 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 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 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."
<PAGE>
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, issuance of additional Units and
reserves in any quarter will affect whether or the extent to which there is
sufficient Available Cash constituting Cash from Operations to meet the
Minimum Quarterly Distribution on all Units in a given quarter, make
distributions with respect to the Incentive Distribution Rights, or hasten
the expiration of the Subordination Period or the conversion of
Subordinated Units into Common Units. Although the General Partner
generally must act as a fiduciary to the Partnership and the Unitholders,
the Partnership Agreement provides that it will not constitute a breach of
fiduciary duty if Partnership borrowings are effected that have such
results.
(ii) The Partnership 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."
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.
<PAGE>
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 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, Bryan Cave LLP, special counsel
to the General Partner and the Partnership, is of the opinion that, under
current law, the Partnership will be classified as a partnership for federal
income tax purposes. However, no ruling from the IRS as to such status has been
or will be requested, and the opinion of counsel is not binding on the IRS.
Moreover, in order for the Partnership to continue to be classified as a
partnership for federal income tax purposes, at least 90% of the Partnership's
gross income for each taxable year must consist of qualifying income. See "Tax
Considerations--Partnership Status."
If the Partnership were classified as an association taxable as a
corporation for federal income tax purposes, the Partnership would pay tax on
its income at corporate rates, distributions would generally be taxed to the
Unitholders as corporate distributions, and no income, gain, losses, deductions
or credits would flow through to the Unitholders. Because a tax would be imposed
upon the Partnership as an entity, the cash available for distribution to the
Unitholders would be substantially reduced. Treatment of the Partnership as an
association taxable as a corporation or otherwise as a taxable entity would
result in a material reduction in the anticipated cash flow and after-tax return
to the Unitholders. See "Tax Considerations--Partnership Status."
There can be no assurance that the law will not be changed so as to cause
the Partnership to be treated as an association taxable as a corporation for
federal income tax purposes or otherwise to be subject to entity-level taxation.
The Partnership Agreement provides that, if a law is enacted or existing law is
modified or interpreted in a manner that subjects the Partnership to taxation as
a corporation or otherwise subjects the Partnership to entity level taxation for
federal, state or local income tax purposes, certain provisions of the
Partnership Agreement relating to the subordination of distributions on
Subordinated Units and to the Incentive Distribution Rights will be subject to
change, including a decrease in the amount of the Minimum Quarterly Distribution
to reflect the impact of such law on the Partnership. See "Cash Distribution
Policy."
No IRS Ruling with Respect to Tax Consequences
No ruling has been requested from the IRS with respect to classification of
the Partnership as a partnership for federal income tax purposes or any other
matter affecting the Partnership. Accordingly, the IRS may adopt positions that
differ from counsel's conclusions expressed herein. It may be necessary to
resort to administrative or court proceedings in an effort to sustain some or
all of counsel's conclusions, and some or all of such conclusions ultimately may
not be sustained. The costs of any contest with the IRS will be borne directly
or indirectly by some or all of the Unitholders and the General Partner.
<PAGE>
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.
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 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.
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 commenced
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 that is deemed to constitute Cash from Interim Capital Transactions
is distributed in respect of each Common Unit in an aggregate amount per Common
Unit equal to the initial public offering price of the Common Unitsof $21.00 per
Common Unit in the Partnership's inital public offering in July, 1994 (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 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:
first, 98% to the Common Unitholders, pro rata, and 2% to the General
Partner, until there has been distributed in respect of each Common Unit an
amount equal to the Minimum Quarterly Distribution for such quarter;
second, 98% to the Common Unitholders, pro rata, and 2% to the General
Partner, until there has been distributed in respect of each Common Unit an
amount equal to any cumulative Common Unit Arrearages on each Common Unit
with respect to any prior quarter;
third, 98% to the Subordinated Unitholders, pro rata, and 2% to the
General Partner, until there has been distributed in respect of each
Subordinated Unit an amount equal to the Minimum Quarterly Distribution for
such quarter; and
thereafter, in the manner described in "--Incentive Distributions-
-Hypothetical Annualized Yield" below.
The Minimum Quarterly Distribution is subject to adjustment as described
below under "--Distributions of Cash from Interim Capital Transactions" and
"--Adjustment of Minimum Quarterly Distribution and Target Distribution Levels."
The above references to the 2% of Available Cash constituting Cash from
Operations distributed to the General Partner are references to the amount of
the General Partner's percentage interest in distributions from the Partnership
and the Operating Partnership on a combined basis. The General Partner will own
a 1% general partner interest in the Partnership and a 1.0101% general partner
interest in the Operating Partnership. Other references in this Prospectus to
the General Partner's 2% interest or to distributions of 2% of Available Cash
are also references to the amount of the General Partner's combined percentage
interest in the Partnership and the Operating Partnership.
Distributions of Cash from Operations after Subordination Period
Distributions by the Partnership of Available Cash constituting Cash from
Operations with respect to any quarter after the Subordination Period will be
made in the following manner:
first, 98% to all Unitholders, pro rata, and 2% to the General
Partner, until there has been distributed in respect of each Unit an amount
equal to the Minimum Quarterly Distribution for such quarter; and
thereafter, in the manner described in "--Incentive Distributions-
-Hypothetical Annualized Yield" below.
Incentive Distributions--Hypothetical Annualized Yield
For any quarter for which Available Cash is distributed in respect of both
the Common Units and the Subordinated Units in an amount equal to the Minimum
Quarterly Distribution and Available Cash has been distributed on outstanding
Common Units in such amount as may be necessary to eliminate any Common Unit
Arrearages, then any additional Available Cash will be distributed among the
Unitholders, the General Partner and the holders of the Incentive Distribution
Rights in the following manner:
first, 98% to all Unitholders, pro rata, and 2% to the General
Partner, until the Unitholders have received (in addition to any
distributions to Common Unitholders with respect to Common Unit Arrearages)
a total of $0.55 for such quarter in respect of each Unit (the "First
Target Distribution");
second, 85% to all Unitholders, pro rata, 13% to the holders of the
Incentive Distribution Rights, pro rata, and 2% to the General Partner,
until the Unitholders have received (in addition to any distributions to
Common Unitholders with respect to Common Unit Arrearages) a total of $0.63
for such quarter in respect of each Unit (the "Second Target
Distribution");
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 Minimum Quarterly
Distribution and First, Second and Third Target Distribution levels are subject
to certain adjustments as described below under "--Distribution of Cash from
Interim Capital Transactions" and "--Adjustment of Minimum Quarterly
Distribution and Target Distribution Levels."
Distributions of Cash from Interim Capital Transactions
Distributions by the Partnership of Available Cash that constitutes Cash
from Interim Capital Transactions will be made 98% to all Unitholders, pro rata,
and 2% to the General Partner, until the Partnership shall have distributed, in
respect of each Unit, Available Cash constituting Cash from 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, the Minimum Quarterly Distribution and
the First, Second and Third Target Distribution levels each effectively 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 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 filed as an Exhibit to the
Registration Statement of which this Prospectus constitutes a part. Any gain (or
unrealized gain attributable to assets distributed in kind) will be allocated to
the partners as follows:
first, to the General Partner and the holders of Units that have
negative balances in their capital accounts to the extent of and in
proportion to such negative balance;
second, 98% to the holders of Common Units, pro rata, and 2% to the
General Partner, until the capital account for each Common Unit is equal to
the Unrecovered Initial Unit Price in respect of such Common Unit plus any
Common Unit Arrearages in respect of such Common Units;
third, 98% to the holders of Subordinated Units, pro rata, and 2% to
the General Partner, until the capital account for each Subordinated Unit
is equal to the Unrecovered Subordinated Unit Capital (as defined in the
glossary) in respect of a Subordinated Unit;
fourth, 98% to all Unitholders, pro rata, and 2% to the General
Partner, until there has been allocated under this clause fourth an amount
per Unit equal to (a) the excess of the First Target Distribution per Unit
over the Minimum Quarterly Distribution per Unit for each quarter of the
Partnership's existence, less (b) the amount per Unit of any distributions
of Available Cash constituting Cash from Operations in excess of the
Minimum Quarterly Distribution per Unit that was distributed 98% to the
Unitholders, pro rata, and 2% to the General Partner, for any quarter of
the Partnership's existence;
fifth, 85% to all Unitholders, pro rata, 13% to the holders of the
Incentive Distribution Rights, pro rata, and 2% to the General Partner,
until there has been allocated under this clause fifth an amount per Unit
equal to (a) the excess of the Second Target Distribution per Unit over the
First Target Distribution per Unit for each quarter of the Partnership's
existence, less (b) the amount per Unit of any distributions of Available
Cash constituting Cash from Operations in excess of the First Target
Distribution per Unit that was distributed 85% to the Unitholders, pro
rata, 13% to the holders of the Incentive Distribution Rights, pro rata,
and 2% to the General Partner, for any quarter of the Partnership's
existence;
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.
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 own Common Units and Subordinated Units representing
in the aggregate in excess of a 50% limited partner interest in the Partnership
(and will continue to have in excess of 50% 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 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, 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 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 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.
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 set forth on the
reverse side of the certificate evidencing Common Units. 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.
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 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."
THE PARTNERSHIP AGREEMENT
The following paragraphs are a summary of certain provisions of the
Partnership Agreement. The form of Partnership Agreement for the Partnership and
the form of Partnership Agreement for the Operating Partnership (the "Operating
Partnership Agreement") are included as exhibits to the Registration Statement
of which this Prospectus constitutes a part. The Partnership will provide
prospective investors with a copy of the form of such Partnership Agreements
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 are 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
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 the business of the Partnership
and to the appointment of a successor General Partner. See "--Termination and
Dissolution."
The General Partner may not be removed unless such removal is approved by
the vote of the holders of not less than 66 2/3% of the outstanding Units and
the Partnership receives an Opinion of Counsel. Any such removal is also subject
to the approval of a successor general partner by the vote of the holders of not
less than a majority of the outstanding Units.
Removal or withdrawal of the General Partner of the Partnership also
constitutes removal or withdrawal, as the case may be, of the General Partner as
general partner of the Operating Partnership.
In the event of withdrawal of the General Partner where such withdrawal
violates the Partnership Agreement or removal of the General Partner by the
limited partners under circumstances where cause exists, a successor general
partner will have the option to purchase the general partner interest of the
departing General Partner (the "Departing Partner") in the Partnership and the
Operating Partnership for a cash payment equal to the fair market value of such
interest. Under all other circumstances where the General Partner withdraws or
is removed by the limited partners, the Departing Partner will have the option
to require the successor general partner to purchase such general partner
interest of the Departing Partner for such amount. In each case such fair market
value will be determined by agreement between the Departing Partner and the
successor general partner, or if no agreement is reached, by an independent
investment banking firm or other independent experts selected by the Departing
Partner and the successor general partner (or if no expert can be agreed upon,
by the expert chosen by agreement of the experts selected by each of them). In
addition, the Partnership would also be required to reimburse the Departing
Partner for all amounts due the Departing Partner, including without limitation,
all employee related liabilities, including severance liabilities, incurred in
connection with the termination of the employees employed by the Departing
Partner for the benefit of the Partnership.
If the above-described option is not exercised by either the Departing
Partner or the successor general partner, as applicable, the Departing Partner's
general partner interest in the partnership will be converted into Common Units
equal to the fair market value of such interest as determined by an investment
banking firm or other independent expert selected in the manner described in the
preceding paragraph.
Transfer of General Partner Interest
Except for a transfer by the General Partner of all, but not less than all,
of its general partner interest in the Partnership to an affiliate or in
connection with the merger or consolidation of the General Partner with or into
another entity or the transfer by the General Partner of all or substantially
all of its assets to another person or entity, the General Partner may not
transfer all or any part of its general partner interest in the Partnership to
another person or entity prior to July 31, 2004, without the approval of holders
of at least a majority of the outstanding Units (excluding any Units held by
such General Partner or its affiliates), provided that, in each case such
transferee assumes the rights and duties of the General Partner, agrees to be
bound by the provisions of the Partnership Agreement and furnishes an Opinion of
Counsel and agrees to purchase all (or the appropriate portion thereof, as
applicable) of the General Partner's partnership interest in the Operating
Partnership.
Reimbursement for Services
The Partnership Agreement provides that the General Partner is not entitled
to receive any compensation for its services as general partner of the
Partnership; the General Partner is, however, entitled to be reimbursed on a
monthly basis (or such other basis as the General Partner may reasonably
determine) for all direct and indirect expenses it incurs or payments it makes
on behalf of the Partnership, and all other necessary or appropriate expenses
allocable to the Partnership or otherwise reasonably incurred by the General
Partner in connection with the operation of the Partnership's business. The
Partnership Agreement provides that the General Partner shall determine the fees
and expenses that are allocable to the Partnership in any reasonable manner
determined by the General Partner in its sole discretion.
Change of Management Provisions
The Partnership Agreement contains certain provisions that are intended to
discourage a person or group from attempting to remove Ferrellgas as general
partner of the Partnership or otherwise change management of the Partnership. If
any person or group other than Ferrellgas and its affiliates acquires beneficial
ownership of 20% or more of the Common Units, such person or group loses voting
rights with respect to all of its Common Units. In addition, if Ferrellgas is
removed as General Partner other than for cause, the Subordination Period will
end and any Subordinated Units held by Ferrellgas and any of its affiliates will
immediately convert into Common Units. As a result, Ferrellgas and such
affiliates, as the holders of Common Units issued upon conversion of
Subordinated Units, would participate in any distributions pro rata with the
other holders of Common Units, including distributions in respect of Common Unit
Arrearages.
Status as Limited Partner or Assignee
Except as described below under "--Limited Liability," the Units will be
fully paid, and Unitholders will not be required to make additional
contributions to the Partnership.
Each purchaser of Common Units offered hereby must execute a Transfer
Application (the form of which is set forth on the reverse side of the
certificate evidencing Common Units) 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
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 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 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 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. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to such persons pursuant to the foregoing provisions, the
Partnership has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Limited Liability
Assuming that a limited partner does not participate in the control of the
business of the Partnership within the meaning of the Delaware Act and that he
otherwise acts in conformity with the provisions of the Partnership Agreement,
his liability under the Delaware Act will be limited, subject to certain
possible exceptions, to the amount of capital he is obligated to contribute to
the Partnership in respect of his Units plus his share of any undistributed
profits and assets of the Partnership. However, if it were determined that the
right or exercise of the right by the limited partners as a group to remove or
replace the General Partner, to approve certain amendments to the Partnership
Agreement or to take other action pursuant to the Partnership Agreement
constituted "participation in the control" of the Partnerships business for the
purposes of the Delaware Act, then the limited partners could be held personally
liable for the Partnership's obligations under the laws of the State of Delaware
to the same extent as the General Partner. Under the Delaware Act, a limited
partnership may not make a distribution to a partner to the extent that at the
time of the distribution, after giving effect to the distribution, all
liabilities of the partnership, other than liabilities to partners on account of
their partnership interests and nonrecourse liabilities, exceed the fair value
of the assets of the limited partnership. For the purpose of determining the
fair value of the assets of a limited partnership, the Delaware Act provides
that the fair value of property subject to nonrecourse liability shall be
included in the assets of the limited partnership only to the extent that the
fair value of that property exceeds that nonrecourse liability. The Delaware Act
provides that a limited partner who receives such a distribution and knew at the
time of the distribution that the distribution was in violation of the Delaware
Act shall be liable to the limited partnership for the amount of the
distribution for three years from the date of the distribution. Under the
Delaware Act, an assignee who becomes a substituted limited partner of a limited
partnership is liable for the obligations of his assignor to make contributions
to the partnership, except the assignee is not obligated for liabilities unknown
to him at the time he became a limited partner and which could not be
ascertained from the partnership agreement.
It is contemplated that the Operating Partnership will conduct business in
at least 45 and possibly other states. Maintenance of limited liability may
require compliance with legal requirements in such jurisdictions in which the
Operating Partnership conducts business, including qualifying the Operating
Partnership to do business therein. Limitations on the liability of limited
partners for the obligations of a limited partnership have not been clearly
established in many jurisdictions. If it were determined that the Partnership
was, by virtue of its limited partner interest in the Operating Partnership or
otherwise, conducting business in any state without compliance with the
applicable limited partnership statute, or that the right or exercise of the
right by the limited partners as a group to remove or replace the General
Partner, to approve certain amendments to the Partnership Agreement, or to take
other action pursuant to the Partnership Agreement constituted "participation in
the control" of the Partnership's business for the purposes of the statutes of
any relevant jurisdiction, then the limited partners could be held personally
liable for the Partnership's obligations under the law of such jurisdiction to
the same extent as the General Partner. The Partnership will operate in such
manner as the General Partner deems reasonable and necessary or appropriate to
preserve the limited liability of Unitholders.
Books and Reports
The General Partner is required to keep appropriate books of the business
of the Partnership at the principal offices of the Partnership. The books will
be maintained for both tax and financial reporting purposes on an accrual basis.
The fiscal year of the Partnership is August 1 to July 31.
As soon as practicable, but in no event later than 120 days after the close
of each fiscal year, the General Partner will furnish each record holder of
Units (as of a record date selected by the General Partner) with an annual
report containing audited financial statements of the Partnership for the past
fiscal year, prepared in accordance with generally accepted accounting
principles. As soon as practicable, but in no event later than 90 days after the
close of each quarter (except the fourth quarter), the General Partner will
furnish each record holder of Units (as of a record date selected by the General
Partner) a report containing unaudited financial statements of the Partnership
with respect to such quarter and such other information as may be required by
law.
The General Partner will use all reasonable efforts to furnish each record
holder of a Unit information reasonably required for tax reporting purposes
within 90 days after the close of each calendar year. Such information is
expected to be furnished in summary form so that certain complex calculations
normally required of partners can be avoided. The General Partner's ability to
furnish such summary information to Unitholders will depend on the cooperation
of such Unitholders in supplying certain information to the General Partner.
Every Unitholder (without regard to whether he supplies such information to the
General Partner) will receive information to assist him in determining his
federal and state tax liability and filing his federal and state income tax
returns.
Right to Inspect Partnership Books and Records
The Partnership Agreement provides that a limited partner can for a purpose
reasonably related to such limited partner's interest as a limited partner, upon
reasonable demand and at his own expense, have furnished to him (i) a current
list of the name and last known address of each partner, (ii) a copy of the
Partnerships tax returns, (iii) information as to the amount of cash, and a
description and statement of the agreed value of any other property or services,
contributed or to be contributed by each partner and the date on which each
became a partner, (iv) copies of the Partnership Agreement, the certificate of
limited partnership of the Partnership, amendments thereto and powers of
attorney pursuant to which the same have been executed, (v) information
regarding the status of the Partnership's business and financial condition and
(vi) such other information regarding the affairs of the Partnership as is just
and reasonable. The General Partner may, and intends to, keep confidential from
the limited partners trade secrets or other information the disclosure of which
the General Partner believes in good faith is not in the best interests of the
Partnership or which the Partnership is required by law or by agreements with
third parties to keep confidential.
Termination and Dissolution
The Partnership will continue until July 31, 2084, unless sooner terminated
pursuant to the Partnership Agreement. The Partnership will be dissolved upon
(i) the election of the General Partner to dissolve the Partnership, if approved
by at least a majority of the Units (other than Units owned by the General
Partner and its affiliates) during the Subordination Period, or a majority of
all of the outstanding Units thereafter, (ii) the sale of all or substantially
all of the assets and properties of the Partnership and the Operating
Partnership, (iii) the entry of a decree of judicial dissolution of the
Partnership or (iv) withdrawal or removal of the General Partner or any other
event that results in its ceasing to be the General Partner (other than by
reason of a transfer in accordance with the Partnership Agreement or withdrawal
or removal following approval of a successor), provided that the Partnership
shall not be dissolved upon an event described in clause (iv) if within 90 days
after such event the partners agree in writing to continue the business of the
Partnership and to the appointment, effective as of the date of such event, of a
successor General Partner. Upon a dissolution pursuant to clause (iv), the
holders of at least a majority of the Units may also elect, within certain time
limitations, to reconstitute the Partnership and continue its business on the
same terms and conditions set forth in the Partnership Agreement by forming a
new limited partnership on terms identical to those set forth in the Partnership
Agreement and having as a general partner an entity approved by at least the
holders of a majority of the Units, subject to receipt by the Partnership of an
opinion of counsel that the exercise of such right will not result in the loss
of the limited liability of Unitholders or cause the Partnership or the
reconstituted limited partnership to be treated as an association taxable as a
corporation or otherwise subject to taxation as an entity for federal income tax
purposes.
Liquidation and Distribution of Proceeds
Upon dissolution of the Partnership, unless the Partnership is
reconstituted and continued as a new limited partnership, the person authorized
to wind up the affairs of the Partnership (the "Liquidator") will, acting with
all of the powers of the general partner that such Liquidator deems necessary or
desirable in its good faith judgment in connection therewith, liquidate the
Partnership's assets and apply the proceeds of the liquidation as follows: (i)
first towards the payment of all creditors of the Partnership and the creation
of a reserve for contingent liabilities and (ii) then to all partners in
accordance with the positive balance in their respective capital accounts. Under
certain circumstances and subject to certain limitations, the Liquidator may
defer liquidation or distribution of the Partnership's assets for a reasonable
period of time or distribute assets to partners in kind if it determines that a
sale would be impractical or would cause undue loss to the partners.
Registration Rights
Pursuant to the terms of the Partnership Agreement and subject to certain
limitations described therein, the Partnership has agreed to register for resale
under the Securities Act of 1933 and applicable state securities laws any Units
(or other securities of the Partnership) proposed to be sold by the General
Partner (or its affiliates) if an exemption from such registration requirements
is not otherwise available for such proposed transaction. The Partnership is
obligated to pay all expenses incidental to such registration, excluding
underwriting discounts and commissions.
UNITS ELIGIBLE FOR FUTURE SALE
The General Partner and/or Ferrell own 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 and certain additional Common Units owned by the General
Partner and/or Ferrell 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 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 issued pursuant to 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 2/3% of the outstanding Common Units; provided,
however, that the Partnership may also issue an unlimited number of additional
Common Units or parity securities prior to the end of the Subordination Period
and without the approval of the Unitholders if (a) such issuance occurs in
connection with or (b) such issuance occurs within 270 days of, and the net
proceeds from such issuance are used to repay debt incurred in connection with,
a transaction in which the Partnership acquires (through an asset acquisition,
merger, stock acquisition or other form of investment) control over assets and
properties that would have, if acquired by the Partnership as of the date that
is one year prior to the first day of the quarter in which such transaction is
to be consummated, resulted in an increase in (i) the amount of Acquisition Pro
Forma Available Cash constituting Cash from Operations generated by the
Partnership on a per-Unit basis for all outstanding Units with respect to each
of the four most recently completed quarters over (ii) the actual amount of
Available Cash constituting Cash from Operations generated by the Partnership on
a per-Unit basis for all outstanding Units with respect to each of such four
quarters. After the Subordination Period, the General Partner, without a vote of
the Unitholders, may cause the Partnership to issue additional Common Units or
other equity securities of the Partnership on a parity with or senior to the
Common Units. The Partnership Agreement does not impose any restriction on the
Partnership's ability to issue equity securities ranking junior to the Common
Units at any time. Any issuance of additional Units would result in a
corresponding decrease in the proportionate ownership interest in the
Partnership represented by, and could adversely affect the cash distributions to
and market price of, Common Units then outstanding.
Pursuant to the Partnership Agreement, the General Partner and its
affiliates 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 Units 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. The Common Units offered hereunder
will be listed on the New York Stock Exchange, but will be subject to certain
holding period requirements. See "Units Eligible for Future Sale."
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 Bryan Cave LLP,
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.
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, when the Contributed Property is disposed of by the
Partnership, when the partner disposes of his Units in a taxable transaction, or
when the partner's Units are liquidated by the Partnership (or upon the later
disposition of any non-cash proceeds received from such liquidation).
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 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 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, 1995, and that it has a net unrealized built-in gain
of $500,000. On January 1, 1995, 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
the corporation maintained its inventory using the FIFO method.
Changes in Federal Income Tax Rates
The Omnibus Budget Reconciliation Act of 1993 (the "1993 Budget Act") was
enacted on August 10, 1993. 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. However, proposed legislation, if enacted, would
reduce the maximum tax rate on net capital gains. See "--Changes In Federal
Income Tax Laws" below.
Changes in Federal Income Tax Laws
Proposed legislation introduced in the Congress as part of the Revenue
Reconciliation Act of 1995 (the "1995 House Act") and adopted by the Ways and
Means Committee on September 19, 1995, would alter the tax reporting, audit,
notice, assessment and deficiency collection systems applicable to large
partnerships (generally defined as partnerships with more than 250 partners or
an electing partnership with more than 100 partners) and would make certain
additional changes to the tax calculations of certain items of income, gain,
loss, deduction and credit by large partnerships, such as the Partnership, It
would also permit S corporations to have up to 75 shareholders, liberalize
instances where a trust will be a permitted S corporations shareholder, and
allow S corporations to own 80% or more of the stock of a C corporation or 100%
of a "qualified S corporation affiliate.
The Senate Finance Committee also introduced proposed tax legislation as
part of the Balanced Budget Reconciliation Act of 1995 (the "1995 Senate Act")
on October 19, 1995. This Act includes provisions which would provide a 50%
deduction for an individual's net capital gains, resulting in a maximum capital
gains rate of 19.8%. One-half of this deduction would be preference item for
alternative minimum tax purposes. Capital gains tax relief would be extended to
corporations by limiting their maximum tax rate on net capital gains to 28%
As of the date of this Prospectus, it is not possible to predict whether
any of the changes set forth in the 1995 House Act, the 1995 Senate Act or any
other changes in federal income tax laws that would impact the Partnership and
the Unitholders will ultimately be enacted, or if enacted, what form they will
take, what the effective dates will be, and what, if any, transition rules will
be provided.
Partnership Status
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner is required to take into account his allocable
share of items of income, gain, loss, deduction and credit of the Partnership in
computing his federal income tax liability, regardless of whether cash
distributions are made. Distributions by a partnership to a partner are
generally not taxable unless the amount of any cash distributed is in excess of
the partners adjusted basis in his partnership interest.
No tax ruling has been sought from the IRS as to the status of the
Partnership as a partnership for federal income tax purposes. Instead the
Partnership has relied on the opinion of Counsel that, based upon the Code, the
regulations thereunder, published revenue rulings and court decisions, the
Partnership will be classified as a partnership for federal income tax purposes.
In rendering its opinion, Counsel has relied on certain factual
representations made by the General Partner, including:
(a) With respect to the Partnership and the Operating Partnership, the
General Partner, at all times while acting as general partner of the
relevant partnership, will have a net worth, computed on a fair market
value basis, excluding its interests in the Partnership and the Operating
Partnership and any notes or receivables due from such partnerships, equal
to $25 million;
(b) The Partnership will be operated in accordance with (i) all
applicable partnership statutes, (ii) the Partnership Agreement and (iii)
this Prospectus;
(c) The Operating Partnership will be operated in accordance with (i)
all applicable partnership statutes, (ii) the limited partnership agreement
for the Operating Partnership and (iii) the description thereof in this
Prospectus;
(d) The General Partner will at all times act independently of the
limited partners; and
(e) For each taxable year, less than 10% of the gross income of the
Partnership will be derived from sources other than (i) the exploration,
development, production, processing, refining, transportation or marketing
of any mineral or natural resource, including oil, gas or products thereof
or (ii) other items of "qualifying income" within the meaning of Section
7704(d) of the Code.
Counsel's opinion as to the partnership classification of the Partnership
in the event of a change in the general partner is based upon the assumption
that the new general partner will satisfy the foregoing representations.
Section 7704 of the Code provides that publicly-traded partnerships will,
as a general rule, be taxed as corporations. However, an exception (the
"Qualifying Income Exception") exists with respect to publicly-traded
partnerships of which 90% or more of the gross income for every taxable year
consists of "qualifying income." "Qualifying income" includes income and gains
derived from the transportation and marketing of crude oil, natural gas, and
products thereof. Counsel is of the opinion that qualifying income also includes
the wholesale and retail marketing of propane. The General Partner has
represented that in excess of 90% of the Partnership's gross income will be
derived from these sources. Thus, based upon that representation at least 90% of
the Partnership's gross income will constitute "qualifying income." The General
Partner estimates that less than 7% of the Partnership's gross income will not
constitute qualifying income.
If the Partnership fails to meet the Qualifying Income Exception (other
than a failure determined by the IRS to be inadvertent which is cured within a
reasonable time after discovery), the Partnership will be treated as if it had
transferred all of its assets (subject to liabilities) to a newly formed
corporation (on the first day of the year in which it fails to meet the
Qualifying Income Exception) in return for stock in such corporation, and then
distributed such stock to the partners in liquidation of their interests in the
Partnership. This contribution and liquidation should be tax-free to Unitholders
and the Partnership, so long as the Partnership, at such time, does not have
liabilities in excess of the basis of its assets. Thereafter, the Partnership
would be treated as a corporation for federal income tax purposes.
If the Partnership were treated as an association or otherwise taxable as a
corporation in any taxable year, as a result of a failure to meet the Qualifying
Income Exception or otherwise, its items of income, gain, loss, deduction and
credit would be reflected only on its tax return rather than being passed
through to the Unitholders, and its net income would be taxed at the Partnership
level at corporate rates. In addition, any distribution made to a Unitholder
would be treated as either taxable dividend income (to the extent of the
Partnerships current or accumulated earnings and profits), in the absence of
earnings and profits as a nontaxable return of capital (to the extent of the
Unitholders basis in his Common Units) or taxable capital gain (after the
Unitholders basis in the Common Units is reduced to zero). Accordingly,
treatment of either the Partnership or the Operating Partnership as an
association taxable as a corporation would result in a material reduction in a
Unitholder's cash flow and after-tax return.
The discussion below is based on the assumption that the Partnership will
be classified as a partnership for federal income tax purposes.
Limited Partner Status
Unitholders who have become limited partners will be treated as partners of
the Partnership for federal income tax purposes. Moreover, the IRS has ruled
that assignees of partnership interests who have not been admitted to a
partnership as partners, but who have the capacity to exercise substantial
dominion and control over the assigned partnership interests, will be treated as
partners for federal income tax purposes. On the basis of this ruling, except as
otherwise described herein, Counsel is of the opinion that (a) assignees who
have executed and delivered Transfer Applications, and are awaiting admission as
limited partners and (b) Unitholders whose Common Units are held in street name
or by another nominee and who have the right to direct the nominee in the
exercise of all substantive rights attendant to the ownership of their Common
Units will be treated as partners of the Partnership for federal income tax
purposes. As this ruling does not extend, on its facts, to assignees of Common
Units who are entitled to execute and deliver Transfer Applications and thereby
become entitled to direct the exercise of attendant rights, but who fail to
execute and deliver Transfer Applications, Counsel's opinion does not extend to
these persons. Income, gain, deductions, losses or credits would not appear to
be reportable by such a Unitholder, and any cash distributions received by such
a Unitholder would therefore be fully taxable as ordinary income. These holders
should consult their own tax advisors with respect to their status as partners
in the Partnership for federal income tax purposes. A purchaser or other
transferee of Common Units who does not execute and deliver a Transfer
Application may not receive certain federal income tax information or reports
furnished to record holders of Common Units unless the Common Units are held in
a nominee or street name account and the nominee or broker has executed and
delivered a Transfer Application with respect to such Common Units.
A beneficial owner of Common Units whose Common Units have been transferred
to a short seller to complete a short sale would appear to lose his status as a
partner with respect to such Common Units for federal income tax purposes. See
"--Tax Treatment of Operations--Treatment of Short Sales" below.
Tax Consequences of Unit Ownership
Flow-Through of Taxable Income
No federal income tax will be paid by the Partnership. Instead, each
Unitholder will be required to report on his income tax return his allocable
share of the income, gains, losses and deductions of the Partnership without
regard to whether corresponding cash distributions are received by such
Unitholder. Consequently, a Unitholder may be allocated income from the
Partnership although he has not received a cash distribution in respect of such
income.
Treatment of Partnership Distributions
Distributions by the Partnership to a Unitholder generally will not be
taxable to the Unitholder for federal income tax purposes to the extent of his
basis in his Common Units immediately before the distribution. Cash
distributions in excess of a Unitholder's basis generally will be considered to
be gain from the sale or exchange of the Common Units, taxable in accordance
with the rules described under "Disposition of Common Units" below. Any
reduction in a Unitholder's share of the Partnership's liabilities for which no
partner, including the General Partner, bears the economic risk of loss
("nonrecourse liabilities") will be treated as a distribution of cash to such
Unitholder.
Limitations on Deductibility of Partnership Losses
To the extent losses are incurred by the Partnership, a Unitholder's share
of deductions for the losses will be limited to the tax basis of the
Unitholder's Units or, in the case of an individual Unitholder or a corporate
Unitholder if more than 50% in the value of its stock is owned directly or
indirectly by five or fewer individuals or certain tax-exempt organizations, to
the amount which the Unitholder is considered to be "at risk" with respect to
the Partnership's activities, if that is less than the Unitholder's basis. A
Unitholder must recapture losses deducted in previous years to the extent that
Partnership distributions cause the Unitholder's at risk amount to be less than
zero at the end of any taxable year. Losses disallowed to a Unitholder or
recaptured as a result of these limitations will carry forward and will be
allowable to the extent that the Unitholder's basis or at risk amount (whichever
is the limiting factor) is increased.
In general, a Unitholder will be at risk to the extent of the purchase
price of his Units. A Unitholder's at risk amount will increase or decrease as
the basis of the Unitholder's Units increases or decreases.
The passive loss limitations generally provide that individuals, estates,
trusts and certain closely held corporations and personal service corporations
can only deduct losses from passive activities (generally, activities in which
the taxpayer does not materially participate) that are not in excess of the
taxpayer's income from such passive activities or investments. The passive loss
limitations are to be applied separately with respect to each publicly-traded
partnership. Consequently, the losses generated by the Partnership, if any, will
only be available to offset future income generated by the Partnership and will
not be available to offset income from other passive activities or investments
(including other publicly-traded partnerships) or salary or active business
income. Passive losses which are not deductible because they exceed the
Unitholder's income generated by the Partnership may be deducted in full when
the Unitholder disposes of his entire investment in the Partnership in a fully
taxable transaction to an unrelated party. The passive activity loss rules are
applied after other applicable limitations on deductions such as the at risk
rules and the basis limitation.
A Unitholder's share of net income from the Partnership may be offset by
any suspended passive losses from the Partnership, but it may not be offset by
any other current or carryover losses from other passive activities, including
those attributable to other publicly-traded partnerships. The IRS has announced
that Treasury Regulations will be issued which characterize net passive income
from a publicly-traded partnership as investment income for purposes of the
limitations on the deductibility of investment interest.
Limitations on Interest Deductions
The deductibility of a non-corporate taxpayer's "investment interest
expense" is generally limited to the amount of such taxpayer's "net investment
income." As noted, a Unitholder's net passive income from the Partnership will
be treated as investment income for this purpose. In addition, the Unitholder's
share of the Partnership's portfolio income will be treated as investment
income. Investment interest expense includes (i) interest on indebtedness
properly allocable to property held for investment, (ii) a partnership's
interest expense attributed to portfolio income and (iii) the portion of
interest expense 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.
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 under Section 704(b) of the Code provide that Contributed
Property increases a partner's capital account by its fair market value as of
the date of contribution (the "book value" of Contributed Property). Where this
book value differs from Contributed Property's tax basis (the "Book-Tax
Disparity), this difference is subject to allocation under Section 704(c) of the
Code, which acts to eliminate such Disparity over time.
Due to the "Book-Tax Disparity", Partnership calculations of depreciation,
depletion, amortization, and gain or loss for Contributed Property will differ
for book and tax purposes. In these cases, a partner's capital account will only
be adjusted by book allocations. Since a Partner's capital account is not
adjusted for tax allocations relating to Contributed Property, such tax
allocations will generally not have substantial economic effect or be respected
for federal tax purposes.
Section 704(c) of the Code prescribes an alternative treatment, which
requires that tax items attributable to Contributed Property are to be allocated
among partners for tax purposes in a manner which takes into account the
Book-Tax Disparity.
Treasury Regulations, which control sharing of tax items among partners for
Contributed Property received by a partnership prior to December 21, 1993,
account for the Book-Tax Disparity through special allocations among the
partners of depreciation, depletion or amortization deductions, and gain or loss
on the sale of Contributed Property (as calculated for tax purposes) which over
time eliminated this Disparity. Under these Regulations, however, partners
cannot allocated more depreciation, depletion or amortization deductions or gain
or loss on the sale of Contributed Property than the total amount of any such
item recognized by that partnership in a particular taxable period for tax
purposes (the "ceiling limitation").
To the extent the ceiling limitation has applied, the Partnership Agreement
requires that certain items of income and deduction be allocated for tax (but
not book) purposes in a way designed to effectively "cure" this problem and
eliminate the distortion of the ceiling limitation. Counsel believes the
curative allocations provided in the Partnership Agreement are reasonable and
will be respected for federal income tax purposes.
However, due to the ceiling rule, even curative allocations will not always
eliminate the Book-Tax Disparity. In such instances, this Disparity will
ultimately be corrected, albeit deferred, until (1) upon a partner's disposition
of his interest in the partnership in a taxable transaction; (b) upon the
partnership's liquidation of the partner's interest, but only if cash is
distributed; or (3) upon the later disposition of property received by a partner
in liquidation of his partnership interest.
Pursuant to final Treasury Regulations promulgated under Section 704(c) in
1993 and 1994, a partnership must eliminate the Book-Tax Disparity through any
of three non-exclusive methods which allocates tax items relating to the
built-in gain or loss attributable to Contributed Property among its partners.
These methods are (1) the traditional method; (2) the traditional method, with
curative allocations; and (3) the remedial allocation method. Other allocation
methods meeting the requirements of Section 704(c) may be reasonable in
appropriate circumstances. However, under an anti-abuse rule set out in these
Regulations, an allocation of tax items will not be respected if they are made
with a view to shifting the tax consequences of built-in gain or loss in a
manner that substantially reduces the present value of the partners' aggregate
tax liability. The Partnership will apply these Regulations as appropriate and
use the second method prescribed under these Regulations (the traditional
method, with curative allocations) in a manner similar to how the Partnership
has been used it in the past; however, inasmuch as these Regulations are complex
and of recent issuance, the Partnership may take positions different from those
set forth therein, or with respect to matters not fully dealt with therein, and
such positions may be challenged by the IRS.
In any other case, a Unitholder's distributive share of an item will be
determined on the basis of his Units in the Partnership, which will be
determined by taking into account all the facts and circumstances, including the
Unitholder's relative contributions to the Partnership, the interests of the
Unitholders in economic profits and losses, the interests of the Unitholders in
cash flow and other nonliquidating distributions, and rights of the Unitholders
to distributions of capital upon the Partnership's liquidation.
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 General
Partner's or Unitholder'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.
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.
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. This
election does not apply to a Partner who acquires Common Units as a result of a
contribution of assets to the Partnership in exchange for such Units.
The Section 754 election generally permits 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 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.
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. Proposed
legislation, if enacted, would add the "regular" income tax deduction for net
capital gains as a tax preference. See "Changes in Federal Income Tax Laws"
above.
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. 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.
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.
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.
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 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.
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 39.6%) 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.
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.
These partnership audit procedures may be modified by proposed legislation,
if enacted. Under the simplification provisions of the 1995 House Bill, a
partner of a large partnership, such as the Partnership, would not be permitted
to report any partnership items inconsistently with the partnership return, even
if the partner notifies the IRS of the inconsistency. The IRS would be allowed
to treat a partnership item that was reported inconsistently by a partner as a
mathematical or clerical error and immediately assess any additional tax against
that partner.
Under the audit provisions of the 1995 House Bill, the unified audit
procedure of current law would be retained. However, for large partnerships,
such as the Partnership, partners other than the Tax Matters Partner would have
no right individually to participate in settlement conferences or to request a
refund. Nor would the IRS be required to give notice to individual partners of
the commencement of an administrative proceeding or a final adjustment involving
the Partnership. Moreover, only the partnership, and not its partners
individually, could petition a court for a readjustment of partnership items.
Under the reporting provisions of the 1995 House 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) tax-exempt interest; (5) a net alternative minimum tax
adjustment separately computed for passive loss limitation activities and other
activities; (6) general credits; (7) low-income housing credit; (8)
rehabilitation credit; (9) credit for producing fuel from an nonconventional
source; (10) creditable foreign taxes and foreign source items; and (11) any
other items to the extent that the Treasury Secretary determines that separate
treatment is appropriate.
The 1995 House 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 partnership item adjustments to partnership
items in the year in which such adjustments are made (rather than, as under
current law, in the prior year for which the adjustment is made).
Under current law, adjustments relating to partnership items relating to a
previous taxable year are taken into account by those persons who were partners
in the previous taxable year. Under the 1995 House Bill, these items would be
taken into account by those persons who are partners in the year in which the
adjustments are made. Alternatively, a partnership could elect to or, in some
circumstances, could be required to, directly pay the tax resulting from any
such adjustments, and would be required to pa;y for any interest and penalties
that result from a partnership item adjustment. 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 1995 House 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 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 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 1993 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
Bryan Cave LLP, Kansas City, Missouri.
EXPERTS
The consolidated financial statements and schedules of Ferrellgas Partners,
L.P. (formerly Ferrellgas, Inc.), as of July 31, 1995 and 1994 (Successor), and
for the year ended July 31, 1995, and for the one month ended July 31, 1994
(Successor), and for the eleven months ended June 30, 1994 and for the year
ended July 31, 1993 (Predecessor), incorporated in this Prospectus by reference
from the Partnership's Annual Report on Form 10-K, have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
<PAGE>
A-1
APPENDIX A
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. The
full definition of Available Cash is set forth in the Partnership Agreement, a
form of which has been filed as an exhibit to the registration statement of
which this Prospectus is a part. 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 has been filed as an exhibit to the registration statement of which
this Prospectus is a part..
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 commenced operations, plus an initial balance of $25
million, plus all cash receipts of the Partnership's operations (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 has been filed as an exhibit to the registration
statement of which this Prospectus is a part.
Common Unit Arrearages: With respect to any Common Units for any quarter
within the Subordination Period, the amount by which the Minimum Quarterly
Distribution in such quarter exceeds the amount of Available Cash constituting
Cash from Operations actually distributed on such Common Unit for such quarter.
Common Unit Arrearages are calculated on a cumulative basis for all quarters
during the Subordination Period. Common Units will not accrue arrearages for any
quarter after the Subordination Period. Common Unit Arrearages do not accrue
interest.
Common Units: The Common Units of the Master Limited Partnership
representing limited partner interests. 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 Agreement: The credit agreement 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 $190
million on a senior unsecured revolving line of credit basis and up to $15
million on a senior unsecured term loan facility.
Current Market Price: The 20-day average of the closing prices of the
applicable security on the NYSE ending three days prior to the date on which
such notice is first mailed.
EBITDA: Earnings before interest, income taxes and depreciation and
amortization, calculated as operating income plus depreciation and amortization
excluding interest.
Ferrell: Ferrell Companies, Inc., a Kansas corporation.
Ferrellgas: Ferrellgas, Inc., a Delaware corporation and a wholly owned
subsidiary of Ferrell. Also referred to in this Prospectus as the "Company" and
the "General Partner."
Fixed Charge Coverage Ratio: Earnings from continuing operations before
income taxes, plus interest expense (including amortization of original issue
discount) plus depreciation and amortization (excluding amortization of prepaid
cash expenses) as a ratio of fixed charges (consisting of interest expense,
including amortization of original issue discount and letter of credit
commissions and fees), after giving effect to certain acquisition pro forma
adjustments.
FGP: The trading symbol for the Common Units on the NYSE.
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 were issued
(the form of which has been filed as an exhibit to the registration statement of
which this Prospectus is a part).
Initial Unit Price: An amount per Unit equal to the initial public offering
price of the Common Units.
Interim Capital Transactions: (a) borrowings, refinancings and refundings
of indebtedness and sales of debt securities (other than for working capital
purposes and other than for items purchased on open account in the ordinary
course of business) by the Partnership, (b) sales of equity interests 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 2001issued pursuant to the
Indenture. The Senior Notes areunsecured general joint and several obligations
of the Operating Partnership and will be recourse to the General Partner in its
capacity as general partner of the Operating Partnership.
Subordinated Units: The subordinated limited partner interests to be issued
to Ferrellgas in connection with the transfer of its assets to the Partnership.
Subordination Period: The Subordination Period will extend 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 set forth on the reverse side of this certificate evidencing Common Units..
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.
<PAGE>
II-8
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. 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 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 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 such a persto be an authorized representative and (3) inure
to the benefit of the heirs, executors and administrators of on.
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."
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 the Partnership, directors and
officers of the General Partner 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.
<PAGE>
<TABLE>
<CAPTION>
Item 21. Exhibits and Financial Statement Schedules.
INDEX TO EXHIBITS
The exhibits listed on the accompanying Exhibit Index are filed as part
of this report. Exhibits required by Item 601 of Regulation S-K which are not
listed are not applicable.
Exhibit
Number Description
<S> <C> <C>
(1) 2.1 Stock Purchase Agreement dated September 30, 1994, between Ferrellgas, Inc. and Bell
Atlantic Enterprises International, Inc.
(1) 3.1 Agreement of Limited Partnership of Ferrellgas Partners, L.P.
(2) 3.2 Agreement of Limited Partnership of Ferrellgas, L.P. dated as of July 5, 1994.
5.1 Opinion of Bryan Cave LLP as to the legality of the securities being registered.
8.1 Opinion of Bryan Cave LLP relating to tax matters.
(2) 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.
(2) 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.
(6) 10.3 First Amendment to Credit Agreement dated July 21, 1995 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.
(4) 10.4 Agreement dated as of April 1, 1994, between BP Exploration & Oil, Inc. and
Ferrellgas, L.P. dba Ferrell North America
(3) # 10.5 Ferrell Long-Term Incentive Plan, dated June 23, 1987, between Ferrell and the
participants in the Plan.
(3) # 10.6 Ferrell 1992 Key Employee Stock Option Plan.
(6) # 10.7 Ferrell Companies, Inc. Supplemental Savings Plan.
(1) 10.8 Ferrellgas, Inc. Unit Option Plan.
(1) 10.9 Contribution, Conveyance and Assumption Agreement dated as of November 1, 1994 among
the Partnership, the Operating Partnership and Ferrellgas, Inc.
(5) 10.10 First Amendment to Contribution, Conveyance and Assumption Agreement between
Ferrellgas, the Partnership and the Operating Partnership.
(6) 10.11 Second Amendment to Contribution, Conveyance and Assumption Agreement between
Ferrellgas, the Partnership and the Operating Partnership.
10.12 Second Amendment to Credit Agreement dated October 20,
1995 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.
(3) 21.1 List of subsidiaries.
(6) 23.1 Consent of Deloitte & Touche LLP.
(6) 23.2 Consent of Bryan Cave LLP (included in Exhibit 5.1).
(6) 23.3 Consent of Bryan Cave LLP (included in Exhibit 8.1).
(1) 24.1 Power of Attorney of A. Andrew Levison
(1) 24.2 Power of Attorney of Daniel M. Lambert
(6) 27.1 Financial Data Schedules - Filed only with the EDGAR version.
(1) Previously filed
(2) Incorporated by reference to the same numbered Exhibit to the
Registrant's Current Report on Form 8-K filed August 15, 1994.
(3) Incorporated by reference to the same numbered Exhibit to Registrant's Registration Statement on
Form S-1 (Registration No. 33-53383).
(4) Incorporated by reference to the same numbered Exhibit to
Registrant's Annual Report on Form 10-K filed on October 20,
1994.
(5) Incorporated by reference to Exhibit 10.8 to Registrant's Annual Report on Form 10-K filed on
October 20, 1994.
(6) Incorporated by reference to the same numbered Exhibit to
Registrant's Annual Report on Form 10-K filed on October 17,
1995.
# Management contracts or compensatory plans.
</TABLE>
<PAGE>
Item 22. 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 asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(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. Nothwithstanding the foreoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forthin the
"Calculation of Registration Fee" table in the effective 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, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement 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.
(6) 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.
(7) That every prospectus (i) that is filed pursuant to paragraph (6)
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.
(8) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(9) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Liberty,
State of Missouri, on the 10th day of November, 1995.
Ferrellgas Partners, L.P.
By: Ferrellgas, Inc. (General Partner)
By:
James E. Ferrell, President and
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature
Title Date
- -------------------------------- --------------------------------------- -----------------------
<S> <C> <C>
Director, President and November 10, 1995
- ------------------------------- Chairman of the Board
James E. Ferrell (Principal Executive Officer)
Senior Vice President and Chief November 10, 1995
- ------------------------------- Financial Officer (Principal
Danley K. Sheldon Financial and Accounting Officer)
* Director November 10, 1995
- -------------------------------
Daniel M. Lambert
* Director November 10, 1995
- -------------------------------
Andrew Levison
By:
- -------------------------------
Danley K. Sheldon
Attorney-in-Fact
<PAGE>
</TABLE>
Exhibit 5.1
Bryan Cave LLP
November 13, 1995
Board of Directors
Ferrellgas, Inc.
One Liberty Plaza
Liberty, Missouri 64068
Gentlemen:
We have acted as special counsel to Ferrellgas Partners, L.P., a Delaware
limited partnership (the "Partnership"), and Ferrellgas, Inc. a Delaware
corporation and the general partner of the Partnership, in connection with the
registration under the Securities Act of 1933, as amended (the "Act"), of the
offering and sale of up to an aggregate of 2,400,000 common units representing
limited partner interests in the Partnership (the "Common Units").
As the basis for the opinion hereinafter expressed, we have examined such
statutes, regulations, corporate records and documents, certificates of
corporate and public officials, and other instruments as we have deemed
necessary or advisable for the purposes of this opinion. In such examination we
have assumed the authenticity of all documents submitted to us as originals and
the conformity with the original documents of all documents submitted to us as
copies.
Based on the foregoing and on such legal considerations as we deem
relevant, we are of the opinion that:
1. The Partnership has been duly formed and is an existing limited
partnership under the Delaware Revised Uniform Limited Partnership Act.
2. Upon the issuance by the Partnership of the 2,400,000 Common Units
as described in Post-Effective Amendment No. 1 on Form S-4 to the
Registration Statement on Form S-1 of the Partnership filed with the
Securities and Exchange Commission on or about November 13, 1995 (the
"Registration Statement"), and the payment and receipt of consideration
therefor and the issuance and delivery of a Transfer Application (as
defined in the Registration Statement) as described in the Registration
Statement, such Common Units will be duly authorized, validly issued, fully
paid and nonassessable, except as such nonassessability may be affected by
the matters described in the prospectus included in the Registration
Statement (the "Prospectus") under the caption "The Partnership Agreement -
Limited Liability."
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Validity of
Common Units" in the Prospectus. In giving the foregoing consent, we do not
thereby admit that we are not in the category of persons whose consent is
required under Section 7 of the Act or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
Bryan Cave LLP
<PAGE>
Exhibit 8.1
Bryan Cave LLP
November 13, 1995
Ferrellgas Partners, L.P.
One Liberty Plaza
Liberty, Missouri 64068
Tax Opinion
Gentlemen:
We have acted as special counsel to Ferrellgas Partners, L.P. (the
"Partnership") in connection with the offering of up to 2,400,000 common units
representing limited partner interests ("Common Units") in the Partnership
pursuant to Post-Effective Amendment No. 1 on Form S-4 to the Registration
Statement on Form S-1 of the Partnership relating to the Common Units (the
"Registration Statement") filed with the Securities and Exchange Commission on
or about November 13, 1995 (File No. 33-55185).
All statements of legal conclusions contained in the discussion under the
caption "Tax Considerations" in the prospectus included in the Registration
Statement, unless otherwise noted reflect our opinion with respect to the
matters set forth therein.
In addition, based on the foregoing, we are of the opinion that the federal
income tax discussion in the prospectus included in the Registration Statement
with respect to those matters as to which no legal conclusions are provided is
an accurate discussion of such federal income tax matters (except for the
representations and statements of fact of the Partnership and its general
partner, included in such discussion, as to which we express no opinion).
We hereby consent to the references to our firm and this opinion contained
in the prospectus included in the Registration Statement.
Very truly yours,
Bryan Cave LLP
<PAGE>
Exhibit 10.12
SECOND AMENDMENT
TO CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment"),
dated as of October 20, 1995, is entered into by and among FERRELLGAS, L.P., a
Delaware limited partnership (the "Borrower"), STRATTON INSURANCE COMPANY, Inc.,
a Vermont corporation and Wholly-Owned Subsidiary of the Borrower ("Stratton"),
FERRELLGAS, INC., a Delaware corporation and sole general partner of the
Borrower (the "General Partner"), each of the lenders that is a signatory to
this Amendment (collectively, the "Banks"; and each, a "Bank"), BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION ("BofA"), as agent for the Banks (in such
capacity, the "Agent") and THE FIRST NATIONAL BANK OF BOSTON and NATIONSBANK OF
TEXAS, N.A. as co-agents (the "Co-Agents"), and amends that certain Credit
Agreement dated as of July 5, 1994 between the Borrower, Stratton, the General
Partner, the several financial institutions from time to time parties to the
Credit Agreement (as defined below), the Agent and the Co-Agents (as
supplemented by the Consent and Agreement dated as of October 28, 1994 and the
First Amendment to Credit Agreement dated as of July 21, 1995, each entered into
by and among the parties hereto, the "Existing Credit Agreement", and as amended
hereby, the "Credit Agreement"). Capitalized terms used and not otherwise
defined in this Amendment shall have the same meanings in this Amendment as set
forth in the Existing Credit Agreement, and the rules of interpretation set
forth in Section 1.02 of the Existing Credit Agreement shall be applicable to
this Amendment.
RECITALS
A. The Borrower has requested that the Banks (i) permit
Swingline Loans to be made from availability under the aggregate Facility C
Commitment, (ii) amend the Leverage Ratio covenant, and (iii) make certain other
amendments to the Existing Credit Agreement.
B. The Banks are willing to agree to the foregoing all on the terms and
subject to the conditions set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements set forth below and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties agree and amend the Existing Credit Agreement as follows:
SECTION 1. Amendments. On the terms of this Amendment and subject to the
satisfaction of the conditions precedent set forth below in Section 2, the
Existing Credit Agreement shall be amended as follows:
(a) The definition of "Compliance Certificate" in Section 1.01 of the
Existing Credit Agreement is amended by substituting the number "75" for the
number "30" in that definition.
(b) The definition of "Fixed Charge Coverage Ratio" in Section 1.01 of the
Existing Credit Agreement is amended by deleting the first parenthetical in that
definition and substituting in lieu thereof "(other than revolving credit
borrowings including, with respect to the Borrower, Facility A Revolving Loans,
Swingline Loans, Facility B Revolving Loans and Facility C Revolving Loans)".
(c) Subsection 2.01(a)(i) of the Existing Credit Agreement is amended by
adding the parenthetical "(to the extent such Swingline Loans were made from
availability under the aggregate Facility A Commitment)" after the words
"Swingline Loans" in each place such words appear in that subsection.
(d) Subsection 2.01(a)(ii) of the Existing Credit Agreement is amended to
read in its entirety as follows:
"(ii) Within the limits of each Bank's Facility A Commitment and on the
other terms and subject to the other conditions hereof, the Borrower may borrow
under this subsection 2.01(a), prepay under Section 2.06 and reborrow under this
subsection 2.01(a); provided, that the Borrower shall cause the aggregate
outstanding principal amount of Facility A Revolving Loans and Swingline Loans
(to the extent such Swingline Loans were made from availability under the
aggregate Facility A Commitment) not to exceed $25,000,000 for at least one
period of 75 consecutive days during each fiscal year of Borrower, commencing
with its fiscal year beginning August 1, 1995."
(e) Subsection 2.01(c)(i) of the Existing Credit Agreement is amended to
read in its entirety as follows:
"(i) Each Bank severally agrees, on the terms and subject to the
conditions set forth herein, to make loans to the Borrower (each such loan,
a "Facility C Revolving Loan") from time to time on any Business Day during the
period from the Amendment Effective Date to the Facility C Revolving Termination
Date, in an aggregate principal amount not to exceed at any time outstanding
such Bank's Facility C Commitment as in effect from time to time; provided,
however, that, after giving effect to any Borrowing of Facility C Revolving
Loans, the sum of the Effective Amount of all outstanding Facility C Revolving
Loans plus the Effective Amount of all Swingline Loans (to the extent such
Swingline Loans were made from availability under the aggregate Facility C
Commitment) shall not at any time exceed the combined Facility C Commitments,
and the Effective Amount of the Facility C Revolving Loans plus such Bank's Pro
Rata Share of the Effective Amount of all Swingline Loans (to the extent such
Swingline Loans were made from availability under the aggregate Facility C
Commitment) shall not at any time exceed such Bank's Facility C Commitment."
(f) Subsection 2.01(c)(ii) of the Existing Credit Agreement is amended to
read in its entirety as follows:
"(ii) Within the limits of each Bank's Facility C Commitment and on the
other terms and subject to the other conditions hereof, the Borrower may borrow
under this subsection 2.01(c), prepay under Section 2.06 and reborrow under this
subsection 2.01(c); provided, that concurrently with the requirement contained
in the proviso in subsection 2.01(a)(ii) above, the Borrower shall cause the
aggregate outstanding principal amount of Facility C Revolving Loans and
Swingline Loans (to the extent such Swingline Loans were made from availability
under the aggregate Facility C Commitment) not to exceed zero Dollars for at
least one period of 75 consecutive days during each fiscal year of Borrower,
commencing with its fiscal year beginning August 1, 1995."
(g) Subsection 2.05(a) of the Existing Credit Agreement is amended by
adding the parenthetical "(to the extent such Swingline Loans were made from
availability under the aggregate Facility A Commitment)" after the words
"Swingline Loans" in that subsection.
(h) Subsection 2.05(c) of the Existing Credit Agreement is amended to read
in its entirety as follows:
"(c) The Borrower may, not later than 11:00 a.m. San
Francisco time at least three Business Days prior to its effective date
by notice to the Agent, terminate or permanently reduce the Facility C
Commitments by an aggregate minimum amount of $5,000,000 or any
multiple of $5,000,000 in excess thereof; unless, after giving effect
thereto and to any prepayments of Loans made on the effective date
thereof, the Effective Amount of all Facility C Revolving Loans plus
the Effective Amount of all Swingline Loans (to the extent such
Swingline Loans were made from availability under the aggregate
Facility C Commitment) would exceed the amount of the combined Facility
C Commitments then in effect."
(i) Subsection 2.07(a) of the Existing Credit Agreement is amended by
adding the parenthetical "(to the extent such Swingline Loans were made from
availability under the aggregate Facility A Commitment)" after the words
"Swingline Loans" in each place such words appear in that subsection.
(j) Subsections 2.07(c), (d), (e) and (f) of the Existing Credit Agreement
are relettered as subsections 2.07(d), (e), (f) and (g), respectively, and the
following new subsection 2.07(c) is added to read in its entirety as follows:
"(c) Subject to Section 4.04, if on any date on or
prior to the Facility C Revolving Termination Date the Effective Amount
of all Swingline Loans (to the extent such Swingline Loans were made
from availability under the aggregate Facility C Commitment) and
Facility C Revolving Loans then outstanding exceeds the combined
Facility C Commitments, the Borrower shall immediately, and without
notice or demand, prepay the outstanding principal amount of the
Swingline Loans (to the extent such Swingline Loans were made from
availability under the aggregate Facility C Commitment) and Facility C
Revolving Loans by an aggregate amount equal to the applicable excess."
(k) Subsection 2.08(a) of the Existing Credit Agreement is amended by
adding the parenthetical "(to the extent such Swingline Loans were made from
availability under the aggregate Facility A Commitment)" after the words
"Swingline Loans" in that subsection.
(l) Subsection 2.08(d) of the Existing Credit Agreement is amended to read
in its entirety as follows:
"(d) Facility C Revolving Loans. The Borrower shall
repay to the Banks in full on the Facility C Revolving Termination Date
the aggregate principal amount of Facility C Revolving Loans and
Swingline Loans (to the extent such Swingline Loans were made from
availability under the aggregate Facility C Commitment) outstanding on
such date together with all accrued and unpaid interest thereon."
(m) Section 2.15 of the Existing Credit Agreement is amended to read in its
entirety as follows:
"2.15 Discretionary Swingline Loans.
(a) From time to time, subject to the conditions set
forth below, at the request of the Borrower, made through the Agent as
set forth below, BofA in its sole and absolute discretion may make
short-term loans to the Borrower not to exceed in the aggregate at any
one time outstanding the principal sum of $10,000,000, to be used by
the Borrower for general working capital needs of the Borrower (each, a
"Swingline Loan"). The availability of Swingline Loans is conditioned
on the satisfaction of each of the following conditions: (i) it shall
be in the sole and absolute discretion of BofA, on each occasion that a
Swingline Loan is requested, whether to make such Swingline Loan; (ii)
each Swingline Loan shall bear interest from the time made until the
time repaid, or until the time, if any, that such Swingline Loan is
converted into a Base Rate Loan as provided below, at the rate(s) from
time to time applicable to Base Rate Loans hereunder; (iii) at the time
of making of any Swingline Loan, the aggregate Effective Amount of all
Swingline Loans, together with the aggregate Effective Amount of all
Facility A Revolving Loans, the Effective Amount of all L/C Obligations
and the Effective Amount of all Facility C Revolving Loans, without
duplication, shall not exceed the sum of (A) the aggregate Facility A
Commitment, and (B) the aggregate Facility C Commitment; provided that,
in each instance, Swingline Loans shall be made first from
availability, if any, under the aggregate Facility A Commitment, and
second, from availability, if any, under the aggregate Facility C
Commitment; (iv) each Swingline Loan, when made, all interest accrued
thereon, and all reimbursable costs and expenses incurred or payable in
connection therewith, shall constitute an Obligation of Borrower
hereunder; and (v) each request for a Swingline Loan from BofA pursuant
to this Section 2.15 shall be made by the Borrower to the Agent, shall
be funded by BofA through the Agent, and shall be repaid by the
Borrower through the Agent (in order that the Agent may keep an
accurate record of the outstanding balance at any time of Swingline
Loans so as to monitor compliance with the terms and provisions
hereof), and each such request shall be in writing unless the Agent in
its sole discretion accepts an oral or telephonic request. Each
Swingline Loan shall be made upon the Borrower's irrevocable written
notice delivered to the Agent substantially in the form of a Notice of
Borrowing (which notice must be received by the Agent prior to 1:00
p.m. (San Francisco time) on the requested date of such Swingline Loan,
specifying:
(i) the amount of the Swingline Loan, which shall be in a minimum
amount of $250,000 or any multiple of $100,000 in excess thereof; and
(ii) the requested date of such Swingline Loan, which shall be a
Business Day;
(b) If any Swingline Loan made pursuant to this
Section 2.15, and in compliance with the conditions set forth in the
immediately preceding paragraph of this Section 2.15, is not repaid by
the Borrower on or before the seventh calendar day following the day
that it was funded by BofA, BofA shall have the right in BofA's sole
and absolute discretion, by giving notice to the Borrower and the
Banks, to cause such Swingline Loan automatically upon the giving of
such notice to be converted into a Facility A Revolving Loan (or, to
the extent that such Swingline Loan was made from availability under
the aggregate Facility C Commitment, a Facility C Revolving Loan)
which, in each case, is a Base Rate Loan, and upon receipt of such
notice each Bank shall fund to the Agent, for the account of BofA, such
Bank's ratable share of such Facility A Revolving Loan or Facility C
Revolving Loan, as applicable, based on such Bank's Pro Rata Share;
provided, that if any Insolvency Proceeding has been commenced with
respect to the Borrower on or prior to the date on which such Swingline
Loan is due, and in lieu of funding its Pro Rata Share of a Facility A
Revolving Loan or Facility C Revolving Loan, as applicable, each Bank
shall be deemed to, and hereby irrevocably and unconditionally agrees
to, purchase from BofA a participation in such Swingline Loan equal to
the product of such Bank's Pro Rata Share times the amount of such
Swingline Loan.
(c) Each Bank's obligation in accordance with this
Agreement to make Facility A Revolving Loans or Facility C Revolving
Loans, as applicable, upon the failure of a Swingline Loan to be repaid
in full when due, or to purchase participations in such Swingline
Loans, shall, in each case, be absolute and unconditional and without
recourse to BofA and shall not be affected by any circumstance,
including (i) any set-off, counterclaim, recoupment, defense or other
right which such Bank may have against BofA, the Borrower or any other
Person for any reason whatsoever; (ii) the occurrence or continuance of
a Default, an Event of Default or a Material Adverse Effect; or (iii)
any other circumstance, happening or event whatsoever, whether or not
similar to any of the foregoing."
(n) Subsection 3.01(a) of the Existing Credit Agreement is amended by
adding the parenthetical "(to the extent such Swingline Loans were made
from availability under the aggregate Facility A Commitment)" after the
words "Swingline Loans" in that subsection.
(o) Subsection 7.12(a) of the Existing Credit Agreement is amended to
read in its entirety as follows:
"(a) Leverage Ratio. The Borrower shall maintain as
of the last day of each fiscal quarter a Leverage Ratio for the fiscal
period consisting of such fiscal quarter and the three immediately
preceding fiscal quarters, equal to or less than 4.00 to 1.00;
provided, that for the fiscal period consisting of Borrower's fiscal
quarter ending October 31, 1995 and the three immediately preceding
fiscal quarters, Borrower shall maintain a Leverage Ratio equal to or
less than 4.50 to 1.00.; provided further, that to the extent the
Borrower borrows Loans to make Restricted Payments within 45 days after
the end of any fiscal quarter, the aggregate amount of Loans so
borrowed shall be added to the amount of Funded Debt outstanding at the
end of such quarter for purposes of determining the Leverage Ratio at
the end of such quarter."
(p) Exhibit C to the Existing Credit Agreement is amended to read in
its entirety as set forth on Exhibit A hereto.
SECTION 2. Conditions to Effectiveness. The amendments set
forth in Section 1 of this Amendment shall become effective on October 20, 1995
only upon the satisfaction of all of the following conditions precedent on or
prior to such date (such date being referred to as the "Amendment Effective
Date"):
(a) On or before the Amendment Effective Date, each of the Borrower,
Stratton and the General Partner shall deliver to the Agent, on behalf of
the Banks, the following described documents (each of which shall be
reasonably satisfactory in form and substance to the Agent and its
counsel):
(i) This Amendment duly executed by each party thereto;
(ii) Copies of partnership authorizations for the Borrower and
resolutions of the board of directors of the General Partner and Stratton
authorizing the transactions contemplated by this Amendment, certified as
of the Amendment Effective Date by the Secretary or an Assistant Secretary
of the General Partner and Stratton;
(iii) A certificate of the Secretary or Assistant Secretary of the
General Partner certifying the names and true signatures of the officers of
the General Partner authorized to execute, deliver and perform, as
applicable, on behalf of the Borrower and the General Partner, this
Amendment and the Note;
(iv) A certificate of the Secretary or Assistant Secretary of Stratton
certifying the names and true signatures of the officers of Stratton
authorized to execute, deliver and perform, as applicable, on behalf of
Stratton, this Amendment;
(v) A certificate of the Secretary or Assistant Secretary of the
General Partner certifying that the articles or certificate of
incorporation and the bylaws of the General Partner and the Certificate of
Limited Partnership and the Limited Partnership Agreement of the Borrower,
in each case as in effect on the Amendment Effective Date, have not been
amended, modified or changed in any respect since July 21, 1995;
(vi) A certificate of the Secretary or Assistant Secretary of Stratton
certifying that the articles or certificate of incorporation and the bylaws
of Stratton, in each case as in effect on the Amendment Effective Date,
have not been amended, modified or changed in any respect since July 21,
1995;
(vii) opinion of Bryan Cave, counsel to the Borrower, the General
Partner and Stratton, or of such other counsel as are acceptable to the
Agent and the Banks, addressed to the Agent and the Banks, substantially in
the form of Exhibit B;
(viii) a favorable opinion of Orrick, Herrington & Sutcliffe, special
counsel to the Agent; and
(ix) Such other documents, instruments, approvals or opinions as the
Agent, any Bank or special counsel to the Agent may reasonably request.
(b) On or before the Amendment Effective Date, all corporate and other
proceedings taken or to be taken in connection with the transactions
contemplated by this Amendment and all documents incidental to such
transactions, shall be reasonably satisfactory in form and substance to the
Agent and its counsel, and the Agent and such counsel shall have received
all such counterpart originals or certified copies of such documents,
opinions, certificates and evidence as they may reasonably request.
(c) All governmental actions or filings necessary for the execution,
delivery and performance of this Amendment shall have been made, taken or
obtained, and no order, statutory rule, regulation, executive order,
decree, judgment or injunction shall have been enacted, entered, issued,
promulgated or enforced by any court or other governmental entity which
prohibits or restricts the transactions contemplated by this Amendment, nor
shall any action have been commenced or threatened seeking any injunction
or any restraining or other order to prohibit, restrain, invalidate or set
aside the transactions contemplated by this Amendment.
(d) The representations and warranties set forth in this Amendment
shall be true and correct as of the Amendment Effective Date.
SECTION 3. Representations and Warranties . In order to induce
the Banks to enter into this Amendment and to give the consent and to amend the
Existing Credit Agreement in the manner provided in this Amendment, each of the
Borrower, Stratton and the General Partner represents and warrants to each Bank
as of the Amendment Effective Date as follows:
(a) Corporate or Partnership Existence and Power. The General Partner,
Stratton, the MLP, the Borrower and each of its Subsidiaries:
(i) is a corporation or partnership duly organized, validly existing
and in good standing under the laws of the jurisdiction of its formation;
(ii) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets and carry on its
business and to execute, deliver, and perform its obligations under this
Amendment and to carry out the transactions contemplated by, and perform
its obligations under the Credit Agreement;
(iii) is duly qualified as a foreign corporation or partnership and is
licensed and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification or license or where the failure so to qualify
would not have a Material Adverse Effect; and
(iv) is in compliance with all material Requirements of Law.
(b) Corporate or Partnership Authorization; No Contravention. The
execution, delivery and performance by the Borrower, the General Partner
and Stratton of this Amendment and the performance of the Credit Agreement
by each of them have been duly authorized by all necessary partnership
action on behalf of the Borrower and all necessary corporate action on
behalf of the General Partner and any Subsidiary, and do not and will not:
(i) contravene the terms of any of the General Partner's, the MLP's,
the Borrower's or any Subsidiary's Organization Documents;
(ii) conflict with or result in any breach or contravention of, or the
creation of any Lien under, any document evidencing any Contractual
Obligation to which the General Partner, the MLP, the Borrower or any
Subsidiary is a party or any order, injunction, writ or decree of any
Governmental Authority to which such Person or its property is subject
where such conflict, breach, contravention or Lien could reasonably be
expected to have a Material Adverse Effect; or
(iii) violate any material Requirement of Law.
(c) Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with (i) the
execution, delivery or performance by, or enforcement against, the General
Partner, the Borrower or any Subsidiary of this Amendment, or (ii) the
continued operation of Borrower's business as contemplated to be conducted
after the date hereof by the Loan Documents, except in each case such
approvals, consents, exemptions, authorizations or other actions, notices
or filings (A) as have been obtained, (B) as may be required under state
securities or Blue Sky laws, (C) as are of a routine or administrative
nature and are either (x) not customarily obtained or made prior to the
consummation of transactions such as the transactions described in clauses
(i) or (ii) or (y) expected in the judgment of the Borrower to be obtained
in the ordinary course of business subsequent to the consummation of the
transactions described in clauses (i) or (ii), or (D) that, if not
obtained, could reasonably be expected to have a Material Adverse Effect.
(d) Binding Effect. The Credit Agreement and each of the other Loan
Documents constitute the legal, valid and binding obligations of each of
the Borrower, Stratton and the General Partner, as applicable, enforceable
against such Person in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability.
(e) Litigation. There are no actions, suits, proceedings, claims or
disputes pending, or to the best knowledge of the Borrower, threatened or
contemplated, at law, in equity, in arbitration or before any Governmental
Authority, against the General Partner, the MLP, the Borrower or any of its
Subsidiaries or any of their respective properties which:
(i) purport to affect or pertain to this Amendment or the Credit
Agreement or any of the transactions contemplated hereby or thereby; or
(ii) if determined adversely to the Borrower or its Subsidiaries,
would reasonably be expected to have a Material Adverse Effect. No
injunction, writ, temporary restraining order or any order of any nature
has been issued by any court or other Governmental Authority purporting to
enjoin or restrain the execution, delivery or performance of this Amendment
or the Credit Agreement, or directing that the transactions provided for
herein or therein not be consummated as herein or therein provided.
(f) No Default. No Default or Event of Default exists or would result
from the incurring, continuing or converting of any Obligations by the
Borrower. As of the Amendment Effective Date, neither the Borrower nor any
Affiliate of the Borrower is in default under or with respect to any
Contractual Obligation in any respect which, individually or together with
all such defaults, could reasonably be expected to have a Material Adverse
Effect, or that would, if such default had occurred after the Amendment
Effective Date, create an Event of Default under subsection 9.01(e) of the
Credit Agreement other than a default under Section 4.09 of the Indenture
relating to the Existing Senior Notes.
(g) Representations and Warranties in the Credit Agreement. Each of
the Borrower, Stratton and the General Partner confirms that as of the
Amendment Effective Date the representations and warranties contained in
Article VI of the Credit Agreement are (before and after giving effect to
this Amendment) true and correct in all material respects (except to the
extent any such representation and warranty is expressly stated to have
been made as of a specific date, in which case it shall be true and correct
as of such specific date).
SECTION 4. Miscellaneous.
(a) Reference to and Effect on the Existing Credit Agreement and the
Other Loan Documents.
(i) Except as specifically amended by this Amendment, and the
documents executed and delivered in connection therewith, the Existing
Credit Agreement and the other Loan Documents, including but not limited
to, the Guaranty of Finance Corp., shall remain in full force and effect
and are hereby ratified and confirmed.
(ii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of the
Banks under, the Existing Credit Agreement or any of the other Loan
Documents.
(iii) Upon the conditions precedent set forth herein being satisfied,
this Amendment shall be construed as one with the Existing Credit
Agreement, and the Existing Credit Agreement shall, where the context
requires, be read and construed throughout so as to incorporate this
Amendment.
(b) Fees and Expenses. Each of the Borrower, Stratton and the General
Partner acknowledges that all costs, fees and expenses incurred in
connection with this Amendment will be paid in accordance with Section
11.04 of the Existing Credit Agreement.
(e) Headings. Section and subsection headings in this Amendment are
included for convenience of reference only and shall not constitute a part
of this Amendment for any other purpose or be given any substantive effect.
(f) Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(g) Governing Law. This Amendment shall be governed by and construed
according to the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
FERRELLGAS, L.P.
By: Ferrellgas, Inc.,
General Partner
By: _
Name: Danley K. Sheldon
Title: Senior Vice President and
Chief Financial Officer/Treasurer
FERRELLGAS, INC.
By: _
Name: Danley K. Sheldon
Title: Senior Vice President and
Chief Financial Officer/Treasurer
STRATTON INSURANCE COMPANY, INC.
By: _
Name: Danley K. Sheldon
Title: Senior Vice President and
Chief Financial Officer/Treasurer
Address for Notices for each
of the Borrower, the General
Partner and Stratton:
One Liberty Plaza
Liberty, Missouri 64068
Attention: Danley K. Sheldon
Telephone: (816) 792-6828
Facsimile: (816) 792-6979
[signatures continued]
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: _
Name: Leandro Balidoy
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as a Bank
By: _
Name: Vanessa Sheh Meyer
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON,
as a Bank
By: _
Name:
Title:
NATIONSBANK, N.A.,
as a Bank
By: _
Name:
Title:
THE BANK OF NOVA SCOTIA,
as a Bank
By: _
Name:
Title:
WELLS FARGO BANK, N.A.,
as a Bank
By: _
Name:
Title:
[signatures continued]
<PAGE>
CAISSE NATIONALE DE CREDIT AGRICOLE,
as a Bank
By: _
Name:
Title:
BANQUE PARIBAS,
as a Bank
By: _
Name:
Title:
By: _
Name:
Title:
The undersigned hereby acknowledges and agrees to the
foregoing Amendment and confirms that its Continuing Guaranty dated July 5, 1994
shall remain in full force and effect notwithstanding the execution of such
Amendment and consummation of the transactions described or otherwise
contemplated therein.
FERRELLGAS FINANCE CORP.,
as Guarantor
By: _
Name:
Title:
Date:
<PAGE>
EXHIBIT A TO AMENDMENT
<PAGE>
EXHIBIT C
(Revised as of October 20, 1995)
COMPLIANCE CERTIFICATE
This compliance certificate is provided pursuant to Section
7.02(b) of the Credit Agreement dated as of July 5, 1994 (as the same may be
amended from time to time, the "Credit Agreement"), by and among Ferrellgas,
L.P., a Delaware limited partnership ("Borrower"), Stratton Insurance Company,
Inc., a Vermont corporation and a wholly-owned subsidiary of Borrower,
Ferrellgas, Inc., a Delaware corporation and the sole general partner of
Borrower, Bank of America National Trust and Savings Association, as agent (in
such capacity, "Agent"), and the financial institutions ("Banks") from time to
time party to the Credit Agreement. Unless otherwise defined herein, capitalized
terms used herein are used with the defined meanings given in the Credit
Agreement.
I, _____________________________, the ____________________ of
Ferrellgas, Inc., a Delaware corporation and the sole general partner of
Borrower, do hereby certify that I am familiar with the Credit Agreement and
with the assets, business, financial condition and operations of Borrower and
its Subsidiaries and that during the fiscal quarter ending
______________________, 19__:
Borrower has performed all of its obligations under and is in
compliance with all covenants and agreements contained in the Credit Agreement
and under (i) any instrument or agreement required thereunder, (ii) any other
instrument or agreement to which Borrower is a party or under which Borrower is
obligated, and (iii) any judgment, decree or order of any court or governmental
authority binding on Borrower. Without limiting the generality of the foregoing:
1. As required by Section 7.12 of the Credit Agreement:
(i) Borrower has maintained a Leverage Ratio for the
applicable fiscal period of not greater than 4.0:1 (or, with respect to
Borrower's fiscal period ending October 31, 1995, a Leverage Ration of
not greater than 4.5:1). The current Leverage Ratio is: ____________.
Funded Debt
($---------)
---------------------- = Leverage Ratio
Consolidated Cash Flow
($---------)
Attached as Exhibit A is a calculation of
Consolidated Cash Flow, including such calculation on a pro
forma basis for any Acquisitions consummated during the fiscal
period.
(ii) Borrower has a minimum Partners' Equity of not less than
$50,000,0000. The current Partners' Equity is $________________.
2. As required by Section 7.13 of the Credit Agreement,
Borrower and its Affiliates are in compliance, and have at all times during the
relevant fiscal period been in compliance, with Borrower's trading position
policy and supply inventory position policy guidelines as in effect on the
Closing Date[, provided that the stop loss limit in the trading position policy
has been increased from __________ at the beginning of the three quarters
preceding the fiscal quarter that is the subject of this certificate (the
"Initial Date") to __________ at the end of the fiscal quarter that is the
subject of this certificate (the "Final Date"), an aggregate increase of ____%]
[the stop loss limit in the supply inventory position has increased from
__________ on the Initial Date to __________ on the Final Date, an aggregate
increase of ____%] [the volume limit for [describe product] in the trading
position policy has been increased from __________ on the Initial Date to
__________ on the Final Date, an aggregate increase of ____%] [the volume limit
for [describe product] in the supply inventory position policy has been
increased from __________ on the Initial Date to __________ on the Final Date,
an aggregate increase of ____%].
3. As required by Section 7.16, Borrower hereby notifies Agent
that [no judgments, orders, decrees or arbitration awards have been entered
against Borrower or any Subsidiary involving in the aggregate a liability (to
the extent not covered by independent third-party insurance as to which the
insurer does not dispute coverage other than through a standard reservation of
rights letter) as to any single or related series of transactions, incidents or
conditions, of more than $10,000,000] [the following judgments, orders, decrees
and/or arbitration awards have been entered against Borrower or its
Subsidiaries: __________________________. The foregoing involve an aggregate
liability (to the extent not covered by independent third-party insurance as to
which the insurer does not dispute coverage other than through a standard
reservation of rights letter) of $______________________. Borrower has reserved
for such amount in excess of $10,000,000, on a quarterly basis, with each
quarterly reserve being at least equal to one-twelfth of such amount in excess
of $10,000,000. The amount of each quarterly reserve is $____________________].
4. As required by Section 8.12 of the Credit Agreement, during
the applicable fiscal period, Borrower and its Subsidiaries made [no Restricted
Payments] [Restricted Payments in an amount equal to $___________________ and,
at the time of and after giving effect to such Restricted Payments, each of the
following statements was true:
(a) no Default or Event of Default had occurred or was
continuing at the time of such Restricted Payment or occurred as a
consequence thereof and each of the representations and warranties of
the Borrower set forth in the Credit Agreement was true on and as of
the date of such Restricted Payment both before and after giving effect
thereto; and
(b) the Fixed Charge Coverage Ratio of the Borrower for the
Borrower's most recently ended four full fiscal quarters for which
internal financial statements were available immediately preceding the
date on which such Restricted Payment was made, calculated on a pro
forma basis as if such Restricted Payment had been made at the
beginning of such four-quarter period, was ____________, which ratio is
greater than 2.25 to 1.
Consolidated Cash Flow
($---------)
---------------------- = Fixed Charge Coverage Ratio
Fixed Charges
($---------)
and
(c) (i) the amount of such Restricted Payment, if made other
than in cash, was determined by the Board of Directors and evidenced by
a resolution in an officer's certificate signed by a Responsible
Officer and delivered to the Agent, and (ii) except as otherwise
provided in the Credit Agreement, such Restricted Payment, together
with the aggregate of all other Restricted Payments made by the
Borrower and its Subsidiaries in the fiscal quarter during which such
Restricted Payment was made, did not exceed the amount of Available
Cash of the Borrower for the immediately preceding fiscal quarter (or,
with respect to the first fiscal quarter during which Restricted
Payments are made, the amount of Available Cash of the Borrower for the
period commencing on the date of the Credit Agreement and ending on the
last day of the immediately preceding fiscal quarter).
Attached as Exhibit B is a calculation of Fixed Charges,
including such calculation on a pro forma basis for any Acquisitions
consummated during the fiscal period.
5. As required by subsection 2.01(a)(ii) of the Credit
Agreement, the aggregate outstanding principal amount of Facility A Revolving
Loans and Swingline Loans (to the extent such Swingline Loans were made from
availability under the aggregate Facility A Commitment) did not exceed
$25,000,000 for the consecutive seventy five (75) day period from ____________
to _______________.
6. As required by subsection 2.01(c)(ii) of the Credit
Agreement, the aggregate outstanding principal amount of Facility C Revolving
Loans and Swingline Loans (to the extent such Swingline Loans were made from
availability under the aggregate Facility C Commitment) did not exceed zero
Dollars for the same consecutive seventy five (75) day period specified in
paragraph 5 above.
IN WITNESS WHEREOF, this Certificate has been executed on
behalf of Borrower as of the ____ day of ________________, 19__.
FERRELLGAS, L.P., a Delaware limited partnership
By: FERRELLGAS, INC., General Partner
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT B TO AMENDMENT
<PAGE>
FORM OF OPINION OF BRYAN CAVE
____________, 1995
To: The Financial Institutions (the "Banks") parties to the Amendment
referred to below (the "Amendment"), and
Bank of America National Trust and Savings Association, as Agent (in
such capacity, the "Agent")
Ladies and Gentlemen:
This opinion is being delivered in connection with the
transactions contemplated by the Second Amendment to Credit Agreement dated as
of October 20, 1995 (the "Amendment") among Ferrellgas, L.P., a Delaware limited
partnership ("Borrower"), Stratton Insurance Company, Inc., a Vermont
corporation and a Wholly-Owned Subsidiary of the Borrower ("Stratton"),
Ferrellgas, Inc., a Delaware corporation and the sole general partner of
Borrower ("General Partner"), the several financial institutions parties to the
Amendment (collectively, the "Banks"), and Bank of America National Trust and
Savings Association, as agent for the Banks (in such capacity, the "Agent"),
which Amendment amends the Credit Agreement dated as of July 5, 1994 among
Borrower, Stratton, the General Partner, the Banks and the Agent (as amended,
the "Credit Agreement", and as amended by the Amendment, the "Amended Credit
Agreement").
References to Schedules, Sections and subsections are to such
parts of the Amended Credit Agreement unless otherwise noted. Capitalized terms
used herein shall have the meanings given them in the Amended Credit Agreement
unless specifically defined herein.
We have acted as counsel to the Borrower, Stratton and the
General Partner in connection with the execution and delivery by each of them of
the Amendment. We generally represent the Borrower, although the Borrower has
in-house general counsel and has retained other counsel in connection with
specific matters including products liability litigation, ERISA and trademarks.
In our capacity as such counsel, we have been furnished with
and have examined originals or copies, certified or otherwise identified to our
satisfaction as being true copies, of such records, agreements, instruments, and
documents as, in our judgment, are necessary or relevant as the basis for the
opinions expressed below.
We have obtained and relied upon, without independent
investigation as to matters of fact, such certificates and assurances from
public officials, officers of Borrower, Stratton and the General Partner and
such other documents, corporate records and instruments as we have deemed
necessary or appropriate to enable us to render the opinions expressed below. In
additions, we have investigated such questions of law for the purpose of
rendering this opinion as we have deemed necessary.
Based upon the foregoing and subject to the assumptions,
exceptions, qualifications and limitations set forth below, we are of the
opinion that:
1. The execution and delivery of the Amendment and performance
of the Amended Credit Agreement by the Borrower, the General Partner and
Stratton do not and will not:
(a) contravene the terms of any of the General Partner's,
the Borrower's or any Subsidiary's Organization Documents;
(b) conflict with or result in any breach or contravention of,
or the creation of any Lien under, any document evidencing any Contractual
Obligation of which we are aware to which the General Partner, the Borrower or
any Subsidiary is a party or, to our knowledge, any order, injunction, writ or
decree of any Governmental Authority to which such Person or its property is
subject where such conflict, breach, contravention or Lien could reasonably
be expected to have a Material Adverse Effect; or
(c) violate any material Requirement of Law.
2. Each of the Amendment and the Amended Credit Agreement
constitutes the legal, valid and binding obligations of the General Partner,
Stratton, the Borrower or any Subsidiary party thereto enforceable against such
Person in accordance with their respective terms.
The opinions expressed herein are limited by, subject to and
based on the following assumptions, exceptions, qualifications and limitations:
(a) We have assumed (i) the due execution and delivery,
pursuant to due authorization and with all required capacity, of the Amendment
by all parties thereto (other than the Borrower, the General Partner and
Stratton), (ii) the genuineness of all signatures (other than those of the
Borrower, the General Partner and Stratton), and (iii) the authenticity of all
items submitted to us as originals, the conformity with authentic originals of
all items submitted to us as copies and the authenticity of the originals of
such copies.
(b) Our opinion concerning enforceability is subject to (i)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
similar laws affecting creditors' rights and remedies generally, (ii) general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity); and (iii) the qualification that the remedy of
specific performance may not be available.
(c) Except as set forth below, our opinion herein reflects
only the application of the applicable Missouri, New York, the General
Corporation Law of the State of Delaware and federal law. In rendering our
opinion, except as set forth below, we have not considered, and hereby disclaim
any opinion as to, the application or impact of any other laws, cases,
decisions, rules or regulations of any other jurisdiction, court or
administrative agency.
(d) The opinions stated herein are as of the date hereof, and
we assume no obligation to update or supplement this opinion to reflect any
facts or circumstances which may hereafter come to our attention or any changes
in laws which may hereafter occur.
(e) This opinion is limited to the matters stated herein and
no opinion is implied or may be inferred beyond the matters expressly stated.
(f) As to matters of fact, we have relied upon various
certificates of officers of the General Partner, the Borrower and Stratton and
upon information furnished to us orally in discussions with officers and
responsible employees of the General Partner, the Borrower and Stratton and upon
information obtained from public officials. Whenever our opinion herein with
respect to the existence or absence of facts is qualified by the phrase "to our
knowledge," "of which we have knowledge," "no facts have come to our attention
that lead us to believe," or similar qualifying language, it is intended to
indicate that during the course of our representation of the General Partner,
the Borrower and Stratton no information has come to our attention that would
give us actual knowledge of the existence of such facts. We have made no other
independent investigation as to the accuracy or completeness of any
representation, warranty, data or other information, written or oral, made or
furnished in or in connection with any document examined by us, and no inference
to the contrary as to our knowledge of the existence of such facts should be
drawn from the fact of our representation of the General Partner, the Borrower
and Stratton as described herein or from the fact that a member of our firm is a
member of the board of directors of Ferrell Companies, Inc., a Kansas
corporation and the sole shareholder of the General Partner, and has previously
served as the Chief Financial Officer of the General Partner.
(g) We point out that the enforceability of indemnification
provisions contained in the Amended Credit Agreement may be limited by
principles of public policy.
(h) We express no opinion as to the validity or enforceability
of any clause contained in the Amended Credit Agreement (i) purporting or
attempting to limit, restrict or waive the right to a trial by jury; or (ii)
purporting or attempting to waive the defenses of forum non conveniens or
improper venue, to the extent such waiver may be determined to be void or
unenforceable as contrary to public policy.
(i) We express no opinion as to the validity or enforceability
of any of the provisions of the Amended Credit Agreement relating to or dealing
with the relationship, rights and obligations among the Agent and the Banks.
The opinions expressed herein are solely for the benefit of
the Banks and the Agent in connection with the above transactions and may not be
relied upon or used in any manner or for any purposes by any other person, other
than counsel to the Banks and the Agent, or as required by law to comply with
the requirements of bank examiners acting under applicable law and regulations
from time to time.
Very truly yours,
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective
Amendment No. 1 to Registration Statement No. 33-55185 of Ferrellgas Partners,
L.P. on Form S-4 of our reports dated September 12, 1995, appearing in the
Annual Report on Form 10-K of Ferrellgas Partners, L.P. for the year ended July
31, 1995.
We also consent to the incorporation by reference in this Post-Effective
Amendment No. 1 to Registration Statement No 33-55185 of Ferrellgas Partners,
L.P. on Form S-4 of our reports on Ferrellgas, L.P. dated September 12, 1995,
appearing in the Annual Report on Form 10-K of Ferrellgas Partners, L.P. for the
year ended July 31, 1995.
We also consent to the incorporation by reference in this Post-Effective
Amendment No. 1 to Registration Statement No. 33-55185 of Ferrellgas Partners,
L.P. on Form S-4 of our reports on Ferrellgas Finance Corp. dated September 12,
1995, appearing in the Annual Report on Form 10-K of Ferrellgas Partners, L.P.
for the year ended July 31, 1995.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
Deloitte & Touche LLP
Kansas City, Missouri
November 10, 1995
<PAGE>
