<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1996
REGISTRATION NO. 333-06693
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
FERRELLGAS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5984 43-1698480
(STATE OR OTHER (PRIMARY STANDARD 43-1742520
JURISDICTION INDUSTRIAL 43-1698481
OF INCORPORATION OR CLASSIFICATION CODE (I.R.S. EMPLOYER
ORGANIZATION) NUMBER) IDENTIFICATION NO.)
----------------
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
SENIOR VICE PRESIDENT
FERRELLGAS, INC.
ONE LIBERTY PLAZA
LIBERTY, MISSOURI 64068
(816) 792-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
Copies to:
KENDRICK T. WALLACE, ESQ
BRYAN CAVE LLP
1200 MAIN STREET, SUITE 3500
KANSAS CITY, MISSOURI 64105
(816) 374-3200
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of 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 REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
FERRELLGAS, L.P.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 404(A) AND ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER LOCATION IN PROSPECTUS
-------------------- ----------------------
<S> <C> <C>
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus... Outside Front Cover Page; Inside Front
Cover Page
2. Inside Front and Outside
Back Cover Pages of
Prospectus................. Inside Front Cover Page; Outside Back Cover
Page
3. Risk Factors, Ratio of Earn-
ings to Fixed Charges and
Other Information.......... Prospectus Summary; Risk Factors; Selected
Historical Consolidated Financial Data
4. Terms of the Transaction....
Prospectus Summary; The Exchange Offer;
Description of Exchange Notes; Certain
Federal Income Tax Considerations; Plan of
Distribution
5. Pro Forma Financial Informa-
tion....................... Prospectus Summary; The Skelgas and
Superior Acquisitions; Unaudited Pro Forma
Combined Financial Statements
6. Material Contracts with the
Company Being
Acquired................... Not Applicable
7. Additional Information Re-
quired for Reoffering by
Persons and Parties Deemed
to be Underwriters......... Not Applicable
8. Interests of Named Experts
and Counsel................ Not Applicable
9. Disclosure of Commission Po-
sition on Indemnification
for Securities Act
Liabilities................ Not Applicable
10. Information with Respect to
S-3 Registrants............ Not Applicable
11. Incorporation of Certain In-
formation by Reference..... Not Applicable
12. Information with Respect to
S-2 or S-3 Registrants..... Prospectus Summary; The Skelgas and
Superior Acquisitions; Capitalization;
Selected Historical Combined Financial
Data; Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management; Certain
Related Transactions; Description of
Existing Indebtedness; Description of
Exchange Notes; Financial Statements
13. Incorporation of Certain In-
formation by Reference..... Information Incorporated By Reference
14. Information with Respect to
Registrants Other Than S-3
or S-2 Registrants......... Not Applicable
15. Information with Respect to
S-3 Companies.............. Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER LOCATION IN PROSPECTUS
-------------------- ----------------------
<C> <S> <C>
16. Information with Respect to S-2
or S-3 Companies............... Not Applicable
17. Information with Respect to Com-
panies Other Than S-2 or S-3
Companies...................... Not Applicable
18. Information if Proxies, Consents
or Authorizations are to be
Solicited...................... Not Applicable
19. Information if Proxies, Consents
or Authorizations are Not to be
Solicited or in an Exchange
Offer.......................... The Exchange Offer; Management; Principal
Unitholders
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED JULY 30, 1996
[LOGO OF FERRELGAS
OFFER TO EXCHANGE APPEARS HERE]
ALL OUTSTANDING
9 3/8% SERIES A SENIOR SECURED NOTES DUE 2006
FOR
9 3/8% SERIES B SENIOR SECURED NOTES DUE 2006
OF
FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
-----------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M, NEW YORK CITY TIME
ON , 1996 UNLESS EXTENDED
-----------
Ferrellgas Partners, L.P., a Delaware limited partnership (the
"Partnership"), and Ferrellgas Partners Finance Corp., a Delaware corporation
and wholly owned subsidiary of the Partnership ("Finance Corp." and, together
with the Partnership, the "Issuers") hereby offer (the "Exchange Offer"), upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
$1,000 principal amount of their 9 3/8% Series B Senior Secured Notes due 2006
(the "Exchange Notes") for each $1,000 principal amount of their outstanding 9
3/8% Series A Senior Secured Notes due 2006 (the "Private Notes") which have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act"). Private Notes in the aggregate principal amount of
$160,000,000 were issued on April 26, 1996 and are outstanding as of the date
hereof. The form and terms of the Exchange Notes are the same as the form and
terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act, and, therefore, the Exchange Notes will
not bear legends restricting the transfer thereof, (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement (as hereinafter defined), which rights
will terminate upon the consummation of the Exchange Offer, and (iii) if the
Exchange Offer is not completed by January 14, 1997, certain Liquidated Damages
(as hereinafter defined) will be payable in respect of the Private Notes. The
Exchange Notes will evidence the same indebtedness and be secured by the same
collateral as the Private Notes (which they replace) and will be issued under
and entitled to the benefits of, the indenture dated as of April 26, 1996
governing the Private Notes and the Exchange Notes (the "Indenture"). The
Private Notes and the Exchange Notes are sometimes referred to herein
collectively as the "Senior Notes." See "The Exchange Offer" and "Description
of Exchange Notes."
The Exchange Notes will bear interest from and including the date of issuance
at the same rate and on the same terms as the Private Notes. Holders whose
Private Notes are accepted for exchange will receive accrued interest thereon
from the most recent date to which interest has been paid to, but not
including, the date of issuance of the Exchange Notes, such interest to be
payable with the first interest payment on the Exchange Notes. Interest on the
Private Notes accepted for exchange will cease to accrue upon issuance of the
Exchange Notes.
(continued on next page)
-----------
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS WHICH HOLDERS OF
PRIVATE NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
-----------
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 , 1996
<PAGE>
The Exchange Notes will be senior secured joint and several obligations of
the Issuers and will rank senior in right of payment to all future
subordinated Indebtedness (as hereinafter defined) of the Issuers and pari
passu in right of payment with other existing and future obligations of the
Issuers. The Exchange Notes will be effectively subordinated to all existing
Indebtedness and all future senior Indebtedness and, until the Subsidiary
Guarantee Effectiveness Date (as hereinafter defined), other liabilities and
commitments of the Partnership's subsidiaries. As of April 30, 1996, after
giving pro forma effect to the transactions described herein, the total
Indebtedness, liabilities and commitments (including trade payables and other
accrued liabilities) of the Partnership's subsidiaries were approximately
$359.8 million.
The Issuers will accept for exchange any and all Private Notes validly
tendered and not withdrawn prior to 5:00 p.m., New York City time,
on , 1996, unless such date is extended by the Issuers in their sole
discretion (as so extended, such date and time are referred to herein as the
"Expiration Date"). Tenders of Private Notes may be withdrawn at any time prior
to the Expiration Date. Private Notes may be tendered only in integral multiples
of $1,000. The Exchange Offer is subject to certain customary conditions. See
"The Exchange Offer--Conditions."
Except as described herein in the event of a Change of Control (as
hereinafter defined) or an Asset Sale (as hereinafter defined), the Issuers
will not be required to make any mandatory redemption or sinking fund payment
with respect to the Exchange Notes prior to maturity. The Exchange Notes will
be redeemable at the option of the Issuers, in whole or in part, at any time
on or after June 15, 2001 at the redemption prices set forth herein plus
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption. In the event of a Change of Control, holders of the Exchange Notes
will have the right to require the Issuers to purchase their Exchange Notes,
in whole or in part, at a purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase.
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties with respect to similar transactions, the Issuers believe that the
Exchange Notes issued pursuant to the Exchange Offer in exchange for Private
Notes may be offered for resale, resold and otherwise transferred by a holder
thereof without compliance with the registration and prospectus delivery
requirements of the Securities Act; provided that (i) the holder is not an
"affiliate" of the Issuers within the meaning of Rule 405 under the Securities
Act, (ii) the holder is acquiring the Exchange Notes in its ordinary course of
business, and (iii) the holder is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any person to
participate in, the distribution of the Exchange Notes. Holders of Private
Notes wishing to accept the Exchange Offer must represent to the Issuers, as
required by the Registration Rights Agreement, that such conditions have been
met.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with any such
resale. The Issuers have agreed that they will make this Prospectus (as it may
be amended or supplemented) available to any broker-dealer for use in
connection with any such resale for a period of 180 days from the date on
which the Registration Statement of which this Prospectus is a part is
declared effective by the Commission. See "Plan of Distribution." The Issuers
believe that none of the registered holders of the Private Notes is an
"affiliate" (as such term is defined in Rule 405 under the Securities Act) of
the Issuers.
Prior to the Exchange Offer, there has been no public market for the Senior
Notes. The Issuers do not intend to list the Exchange Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active market for the Exchange Notes
will develop. To the extent that a market for the Exchange Notes does develop,
the market value of the Exchange Notes will depend on market conditions (such
as yields on alternative investments), general economic conditions, the
Partnership's financial condition and certain other factors. Such conditions
might cause the Exchange Notes, to the extent that they are traded, to trade
at a significant discount from face value. See "Risk Factors--Lack of Public
Market for the Exchange Notes."
The Issuers will not receive any proceeds from, and have agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection
with the Exchange Offer.
2
<PAGE>
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUERS ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
The Exchange Notes will be available initially only in book-entry form. The
Issuers expect that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one fully registered global note that will be
deposited with, or on behalf of, the Depository Trust Company ("DTC" or the
"Depositary") and registered in its name or in the name of Cede & Co., as its
nominee. Beneficial interests in the global note representing the Exchange
Notes will be shown on, and transfers thereof will be effected only through,
records maintained by the Depositary and its participants. After the initial
issuance of such global note, Exchange Notes in certificated form will be
issued in exchange for the global note only in accordance with the terms and
conditions set forth in the Indenture. See "Description of Exchange Notes--
Book Entry, Delivery and Form."
AVAILABLE INFORMATION
The Issuers have filed with the Commission, under the Securities Act, a
Registration Statement on Form S-4 (together with all amendments thereto, the
"Registration Statement") with respect to the Exchange Offer. This Prospectus
does not contain all information set forth in the Registration Statement and
the exhibits thereto, to which reference is hereby made. Statements made in
this Prospectus as to the contents of any contract, agreement or other
document are not necessarily complete. With respect to each such contract,
agreement or other document titled as an exhibit to the Registration
Statement, reference is hereby made to such 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 and schedules thereto), as well
as the periodic reports and other information filed by the Issuers with the
Commission, may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W. Washington,
D.C. 20549, and at the Commission's Regional Offices at Suite 1300, Seven
World Trade Center, New York, New York 10048 and Northwest Atrium, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60601-2511. Copies of such
material also can be obtained from the Public Reference Section of the
Commission, Washington D.C. 20549 at prescribed rates. The Commission
maintains a web site (http://www.sec.gov.) that contains reports, proxy and
information statements and other information filed electronically by the
Partnership with the Commission through its Electronic Data Gathering,
Analysis and Retrieval (EDGAR) System. In addition, the Partnership's common
units are listed on the New York Stock Exchange (the "NYSE") and material
filed by the Partnership can be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Finance
Corp. will become subject to such requirements as a result of the Exchange
Offer, and in accordance therewith the Partnership and Finance Corp. are (or
will be) required to file periodic reports and other information with the
Commission. In the event the Issuers are not required to be subject to the
reporting requirements of the Exchange Act in the future, the Issuers will be
required under the Indenture to file with the Commission the information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act.
3
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Partnership and the Operating
Partnership with the Commission are incorporated herein by reference:
(i) The Annual Reports on Form 10-K of the Partnership and the Operating
Partnership for the year ended July 31, 1995;
(ii) The Quarterly Reports on Form 10-Q of the Partnership and the
Operating Partnership for the quarters ended October 31, 1995, January 31,
1996 and April 30, 1996;
(iii) The Current Report on Form 8-K/A dated November 10, 1994 (filed
August 16, 1995), of the Partnership and the Operating Partnership,
furnishing the unaudited pro forma consolidated financial statements of
Ferrellgas Partners, L.P. and Vision Energy Resources, Inc.;
(iv) The Current Report on Form 8-K dated March 27, 1996 of the
Partnership and the Operating Partnership, reporting the signing of a
letter of intent to acquire Skelgas;
(v) The Current Report on Form 8-K dated April 6, 1996 of the Partnership
and the Operating Partnership, reporting a private placement of debt
securities to qualified institutional investors under Rule 144A;
(vi) The Current Report on Form 8-K dated May 6, 1996 of the Partnership
and the Operating Partnership, reporting the acquisition by the Operating
Partnership of the propane business of Skelgas Propane, Inc.
(vii) The Current Report on Form 8-K/A dated May 6, 1996 (filed July 12,
1996), of the Partnership and the Operating Partnership, furnishing the
audited financial statements of Skelgas Propane, Inc. and the unaudited pro
forma consolidated financial statements of Ferrellgas Partners, L.P. and
Skelgas Propane, Inc.
All documents filed by the Partnership and the Operating Partnership with
the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act subsequent to the date hereof and prior to the termination of the Exchange
Offer shall be deemed to be incorporated by reference into this Prospectus 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 herein by
reference 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
herein by reference, which 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. Copies of these documents (excluding exhibits
unless such exhibits are specifically incorporated by reference into the
information incorporated herein) will be provided by first class mail without
charge to each person to whom this Prospectus is delivered, upon written or
oral request, to Theresa Schekirke, Ferrellgas, Inc., One Liberty Plaza,
Liberty, Missouri 64068 (telephone number: (816) 792-6263).
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the Financial Statements and Unaudited Pro Forma Combined Financial Statements
and notes thereto, appearing elsewhere in this Prospectus. As used in this
Prospectus, the term "Partnership" refers to Ferrellgas Partners, L.P. and,
where the context requires, its subsidiary partnership and corporations. The
Partnership's fiscal year ends on July 31. References to a particular fiscal
year of the Partnership are to the twelve-month period ended on July 31 of the
year indicated.
THE PARTNERSHIP
The Partnership is engaged in the sale, distribution, marketing and trading
of propane and other natural gas liquids. The Partnership believes it is the
second largest retail marketer of propane in the United States based on gallons
sold, serving more than 800,000 residential, industrial/commercial and
agricultural customers in 45 states and the District of Columbia through
approximately 487 retail outlets and 251 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", "Predecessor" or the "General
Partner"), a wholly owned subsidiary of Ferrell Companies, Inc. ("Ferrell"),
serves as General Partner of the Partnership. The Partnership acquired the
propane business and assets of Ferrellgas in July 1994.
Retail propane sales volumes were approximately 645 million gallons during
the pro forma nine months ended April 30, 1996, and 671 million gallons during
the pro forma twelve months ended July 31, 1995. Net earnings for the same
respective periods were $49.6 million and $21.8 million. See "Unaudited Pro
Forma Combined Financial Statements."
BUSINESS STRATEGY
The Partnership's business strategy is to continue its historical focus on
residential and commercial retail propane operations and to continue to expand
its operations and increase its market share both through the acquisition of
local and regional propane distributors and through internal growth by
increased competitiveness and the opening of new locations. Acquisitions will
be an important element of growth for the Partnership, as the overall demand
for propane is expected to remain relatively constant for the foreseeable
future, with year-to-year industry volumes being affected primarily by weather
patterns. The General Partner believes there are numerous potential acquisition
candidates because the propane industry is highly fragmented, with over 5,000
retailers and with the ten largest retailers comprising 33% of industry sales.
The Partnership's retail operations accounted for approximately 8% of the
retail propane purchased in the United States in 1995, as measured by gallons
sold.
Historically, the Partnership and Ferrellgas have been successful in
acquiring independent propane retailers and integrating them into their
existing operations at what they believe to be attractive returns. Since 1986,
and as of May 1, 1996, the Partnership and Ferrellgas have acquired a total of
95 smaller propane businesses. Except for the acquisition of Vision Energy
Resources, Inc. ("Vision") in November of 1995 and the acquisition of Skelgas
Propane, Inc. (discussed below), none of the acquisitions were individually
material. For the nine months ended April 30, 1996 and the five fiscal years in
the period ended July 31, 1995, the Partnership and the Predecessor invested
approximately $27.7 million, $70.1 million, $3.4 million, $0.9 million, $10.1
million and $25.3 million, respectively, to acquire propane businesses with
annual retail propane sales volumes of approximately 15.1 million, 70.0
million, 2.5 million, 0.7 million, 8.6 million and 18.0 million gallons,
respectively, at the time of acquisition.
The Partnership intends to concentrate its acquisition activities in
geographical areas in close proximity to the Partnership's existing operations
and to acquire propane retailers that can be efficiently combined with such
existing operations to provide an attractive return on investment after taking
into account the efficiencies which
5
<PAGE>
may result from such combination. However, the Partnership will also pursue
acquisitions which broaden its geographic coverage. The Partnership's goal in
any acquisition will be to improve the operations and profitability of these
smaller companies by integrating them into the Partnership's established supply
network. The General Partner regularly evaluates a number of propane
distribution companies which may be candidates for acquisition. The General
Partner believes that there are numerous local retail propane distribution
companies that are possible candidates for acquisition by the Partnership and
that the Partnership's geographic diversity of operations helps to create many
attractive acquisition opportunities. The Partnership intends to fund
acquisitions through internal cash flow, external borrowings or the issuance of
additional common units of the Partnership representing limited partner
interests (the "Common Units"). The Partnership's ability to accomplish these
goals will be subject to the continued availability of acquisition candidates
at prices attractive to the Partnership. There is no assurance the Partnership
will be successful in increasing the level of acquisitions or that any
acquisitions that are made will prove beneficial to the Partnership.
In addition to growth through acquisitions, the General Partner believes that
the Partnership may also achieve growth within its existing propane operations.
Historically, the Partnership and Ferrellgas have experienced modest internal
growth in their customer base. As a result of its experience in responding to
competition and in implementing more efficient operating standards, the General
Partner believes that it has positioned the Partnership to be more successful
in direct competition for customers. The Partnership currently has marketing
programs underway which focus specific resources toward this effort.
SKELGAS ACQUISITION
On April 30, 1996, Ferrellgas acquired (the "Skelgas Acquisition") all of the
outstanding capital stock of Skelgas Propane, Inc. ("Skelgas") from Superior
Propane, Inc., a Canadian corporation ("Seller").
Through its operating subsidiaries, Skelgas sells propane and related
appliances to industrial, commercial, residential and agricultural customers in
11 states located in the north central region of the United States. During the
year ended December 31, 1995, Skelgas sold approximately 96 million gallons of
propane, generating revenues of $75.2 million and a net loss of $(53.9) million
(which includes a $47.6 million writedown of goodwill).
Ferrellgas paid $89.3 million in cash for the stock of Skelgas. In addition,
Ferrellgas will pay $1.2 million for a noncompete agreement with the Seller,
payable in three equal annual installments of $400,000 commencing on the
closing date. The purchase price will be adjusted upward or downward based on a
final determination of working capital balances acquired.
Ferrellgas financed the Skelgas Acquisition with the proceeds of a short term
acquisition loan. As of May 1, 1996, Skelgas and its operating subsidiaries
were merged into Ferrellgas and all of the assets acquired by Ferrellgas in
connection with such mergers (the "Skelgas Assets") were then contributed by
Ferrellgas to the Operating Partnership as a capital contribution. In
connection with this transaction, the Operating Partnership assumed the
obligation to repay the short term acquisition loan and issued a limited
partner interest in the Operating Partnership to Ferrellgas. Following the
contribution of the Skelgas Assets to the Operating Partnership, Ferrellgas
contributed the limited partner interest in the Operating Partnership to the
Partnership in exchange for Common Units of the Partnership with a value of
approximately $925,000, which represents consideration for certain tax
liabilities retained by Ferrellgas. The Operating Partnership utilized the
Credit Facility (as hereinafter defined) (see "Use of Proceeds") to discharge
its assumed obligations under the short term acquisition loan.
SUPERIOR ACQUISITION
On April 19, 1996, Ferrellgas acquired all of the outstanding capital stock
of Superior Propane, Inc., a California corporation ("Superior"), which is not
affiliated with the Seller in the Skelgas Acquisition, from Milton Heath and
Maskey Heath (collectively the "Heaths").
6
<PAGE>
Superior sells propane and related appliances to industrial, commercial and
residential customers in 11 counties in California and one county in Nevada. In
the fiscal year ending July 31, 1995, Superior sold approximately 11.5 million
gallons of propane from its seven locations, generating revenues of $12.7
million.
Ferrellgas paid $18.9 million for the stock of Superior, $15.5 million of
which was paid in cash at closing and $3.4 million of which was paid at closing
in the form of 6% promissory notes having a term of five years. In addition,
Ferrellgas will pay a total of $1.0 million for noncompete agreements with the
Heaths, payable in installments over five years.
The purchase price was based on the assumption that the current assets of
Superior at closing were equal to or greater than the amount of Superior's
total liabilities on the closing date. The purchase price will be adjusted
upward or downward to the extent the current assets of Superior on the closing
date are subsequently determined to be more or less than the total liabilities
of Superior on the closing date.
Immediately following the acquisition, Superior was merged into Ferrellgas
and all of the assets acquired by Ferrellgas in connection with such merger
were transferred to the Operating Partnership in a series of transactions
structured in a manner similar to that involved in transferring the Skelgas
Assets to the Operating Partnership. The Partnership delivered to Ferrellgas
Common Units of the Partnership with a value of approximately $700,000, which
represents consideration for certain tax liabilities retained by Ferrellgas.
GENERAL
Propane, a by-product of natural gas processing and petroleum refining, is a
clean-burning energy source recognized for its transportability and ease of use
relative to alternative forms of stand alone energy sources. In the residential
and commercial markets, propane is primarily used for space heating, water
heating and cooking. In the agricultural market propane is primarily used for
crop drying, space heating, irrigation and weed control. In addition, propane
is used for certain industrial applications, including use as an engine fuel
which is burned in internal combustion engines that power vehicles and
forklifts and as a heating or energy source in manufacturing and drying
processes. Consumption of propane as a heating fuel peaks sharply in winter
months.
The retail propane business of the Partnership consists principally of
transporting propane to its retail distribution outlets and then to tanks
located on its customers' premises by large numbers of small volume deliveries
averaging approximately 200 gallons each. The market areas are generally rural
but also include suburban areas where natural gas service is not available. The
Partnership sells propane primarily to four specific markets: residential,
industrial/commercial, agricultural and other (principally to other propane
retailers and as an engine fuel). During the pro forma nine months ended April
30, 1996, sales to residential customers accounted for 60% of the Partnership's
retail gross profits, sales to industrial/commercial customers accounted for
26% of the Partnership's retail gross profits and sales to other customers
accounted for 14% of the Partnership's retail gross profits. Residential sales
generally have a greater profit margin and a more stable customer base and tend
to be less sensitive to price changes than the other markets served by the
Partnership. No single customer of the Partnership accounts for 10% or more of
the Partnership's consolidated revenues.
Profits in the retail propane industry are primarily based on margins, the
cents-per-gallon difference between the purchase price and the sales price of
propane. The Partnership generally purchases propane in the contract and spot
markets, primarily from natural gas processing plants and major oil companies,
on a short-term basis. Therefore, its supply costs generally fluctuate with
market price fluctuations. Should wholesale propane prices decline in the
future, the General Partner believes the Partnership's margins on its retail
propane distribution business should increase in the short-term because retail
prices tend to change less rapidly than wholesale prices. Should wholesale
propane prices increase, for similar reasons retail margins and profitability
would likely be reduced at least for the short-term until retail prices can be
increased.
7
<PAGE>
Retail propane customers typically lease their stationary storage tanks from
their propane distributors. Approximately 70% of the Partnership's customers
lease their tank from the Partnership. The lease terms and, in most states,
certain fire safety regulations, restrict the refilling of a leased tank solely
to the propane supplier that owns the tank. The cost and inconvenience of
switching tanks minimizes a customer's tendency to switch among suppliers of
propane on the basis of minor variations in price.
The retail market for propane is seasonal because it is used primarily for
heating in residential and commercial buildings. Consequently, sales and
operating profits are concentrated in the second and third fiscal quarters
(November through April). While the propane distribution business is seasonal
in nature and historically sensitive to variations in weather, management
believes that the geographical diversity of the Partnership's areas of
operations helps to minimize the Partnership's exposure to regional weather or
economic patterns. Furthermore, long-term historic weather data from the
National Climatic Data Center indicate that average annual temperatures have
remained relatively constant over the last 30 years, with fluctuations
occurring on a year-to-year basis only.
Propane competes primarily with natural gas, electricity and fuel oil as an
energy source, principally on the basis of price, availability and
profitability. Propane serves as an alternative to natural gas in rural and
suburban areas where natural gas is unavailable or portability of product is
required. Propane is generally more expensive than natural gas on an equivalent
British thermal unit ("BTU") basis in locations served by natural gas, although
propane is often sold in such areas as a standby fuel for use during peak
demand periods and during interruption in natural gas service. Propane is
generally less expensive to use than electricity for space heating, water
heating and cooking 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, lessening competition between such fuels.
The Partnership is also engaged in the trading of propane and other natural
gas liquids, chemical feedstocks marketing and wholesale propane marketing. In
the pro forma nine months ended April 30, 1996 and the pro forma twelve months
ended July 31, 1995, the Partnership's annual wholesale and trading sales
volume was approximately 1.4 billion gallons and 1.6 billion gallons,
respectively, of propane and other natural gas liquids, of which 46% and 60%,
respectively, were propane. Because the Partnership possesses a large
distribution system, underground storage capacity and the ability to buy large
volumes of propane, the General Partner believes that the Partnership is in a
position to achieve product cost savings and avoid shortages during periods of
tight supply to an extent not generally available to other retail propane
distributors.
PARTNERSHIP STRUCTURE AND MANAGEMENT
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.
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 limited 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.
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
8
<PAGE>
(as hereinafter defined) 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. The limited partners have
no ability to control the expenses allocated by the General Partner to the
Partnership.
FERRELLGAS PARTNERS FINANCE CORP.
Ferrellgas Partners Finance Corp., a Delaware corporation, is acting as co-
obligor for the Senior Notes. Finance Corp. is a wholly-owned subsidiary of the
Partnership which has nominal assets and does not conduct any operations.
Certain institutional investors that might otherwise be limited in their
ability to invest in securities issued by partnerships by reason of the legal
investment laws of their states of organization or their charter documents, may
be able to invest in the Senior Notes because Finance Corp. is a co-obligor.
The principal executive offices of the Partnership, the Operating Partnership
and Finance Corp. are located at One Liberty Plaza, Liberty, Missouri 64068,
and their telephone number is (816) 792-1600.
9
<PAGE>
The following chart depicts the organization and ownership of the Partnership
and the Operating Partnership and their respective indebtedness. The
percentages reflected in the following chart represent the approximate
ownership interest (including the Common Units issued in connection with the
Skelgas Acquisition) 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.
[INSERT CHART]
10
<PAGE>
THE EXCHANGE OFFER
On April 26, 1996, the Issuers issued $160,000,000 principal amount of
Private Notes pursuant to exemptions from, or in transactions not subject to,
the registration requirements of the Securities Act and applicable state
securities laws (the "Offering"). The Exchange Offer applies to all outstanding
Private Notes. The Exchange Notes will be entitled to the benefits of the same
Indenture under which the Private Notes were issued. See "Description of the
Exchange Notes."
The Exchange Offer...... The Issuers are hereby offering to exchange $1,000
principal amount of Exchange Notes for each $1,000
principal amount of Private Notes that are properly
tendered and accepted. The Issuers will issue
Exchange Notes on or promptly after the Expiration
Date. As of the date hereof, there is $160,000,000
aggregate principal amount of Private Notes
outstanding. See "The Exchange Offer."
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties with respect to similar transactions,
the Issuers believe that the Exchange Notes issued
pursuant to the Exchange Offer in exchange for
Private Notes may be offered for resale, resold and
otherwise transferred by a holder thereof without
compliance with the registration and prospectus
delivery requirements of the Securities Act; provided
that (i) the holder is not an "affiliate" of the
Issuers within the meaning of Rule 405 under the
Securities Act, (ii) the holder is acquiring the
Exchange Notes in its ordinary course of business,
and (iii) the holder is not engaged in, and does not
intend to engage in, and has no arrangement or
understanding with any person to participate in, the
distribution of the Exchange Notes. Holders of
Private Notes wishing to accept the Exchange Offer
must represent to the Issuers that such conditions
have been met. Any holder who tenders in the Exchange
Offer for the purpose of participating in a
distribution of the Exchange Notes cannot rely on
such interpretation by the staff of the Commission
and must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any secondary resale transactions.
Each broker-dealer that receives Exchange Notes for
its own account in exchange for Private Notes, where
such Private Notes were acquired by such broker-
dealer as a result of market-making activities or
other trading activities, must acknowledge that it
will deliver a prospectus in connection with any
resale of such Exchange Notes. See "The Exchange
Offer--Resale of the Exchange Notes."
Registration Rights
Agreement............... The Private Notes were sold by the Issuers on April
26, 1996 to Donaldson, Lufkin & Jenrette Securities
Corporation and Goldman, Sachs & Co. (collectively,
the "Initial Purchasers") in a private placement
pursuant to a Purchase Agreement, dated April 23,
1996, by and among the Issuers, the Operating
Partnership, Ferrellgas and the Initial Purchasers
(the "Purchase Agreement"). In connection therewith,
the Issuers, the Operating Partnership and the
Initial Purchasers entered into a Registration Rights
Agreement (the "Registration Rights Agreement") which
grants the holders of the Private Notes certain
exchange and registration rights. The Exchange Offer
is intended to satisfy such rights, which will
terminate upon the consummation of the Exchange
Offer. The
11
<PAGE>
holders of the Exchange Notes will not be entitled to
any exchange or registration rights with respect to
the Exchange Notes. See "The Exchange Offer--
Termination of Certain Rights."
Expiration Date......... The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1996, unless the Exchange Offer
is extended by the Issuers in their sole discretion,
in which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange Offer
is extended. See "The Exchange Offer--Expiration
Date; Extensions; Amendments."
Conditions to the
Exchange Offer......... The Exchange Offer is subject to certain customary
conditions, certain of which may be waived by the
Issuers. The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of Private
Notes being tendered for exchange. See "The Exchange
Offer-- Conditions."
Procedures for
Tendering Private
Notes.................. Each holder of Private Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and
therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the
Private Notes and any other required documentation,
to American Bank National Association, as exchange
agent (the "Exchange Agent"), at the address set
forth herein. Tendered Private Notes must be received
by the Exchange Agent by 5:00 p.m., New York City
time, on the Expiration Date. By executing the Letter
of Transmittal, the holder will represent to and
agree with the Issuers that, among other things, (i)
the holder is acquiring the Exchange Notes in its
ordinary course of business, (ii) such holder is not
engaged in, and does not intend to engage in, and has
no arrangement or understanding with any person to
participate in, a distribution of the Exchange Notes
to be issued in the Exchange Offer, (iii) that if
such holder is a broker-dealer registered under the
Exchange Act or is participating in the Exchange
Offer for the purposes of distributing the Exchange
Notes, such holder will comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such
person and cannot rely on the position of the staff
of the Commission set forth in no-action letters (see
"The Exchange Offer--Resale of Exchange Notes"), (iv)
such holder understands that a secondary resale
transaction described in clause (iii) above and any
resales of Exchange Notes obtained by such holder in
exchange for Private Notes acquired by such holder
directly from the Issuers should be covered by an
effective registration statement containing the
selling security holder information required by Item
507 or Item 508, as applicable, of Regulation S-K of
the Commission and (v) such holder is not an
"affiliate," as defined in Rule 405 under the
Securities Act, of the Issuers. If the holder is a
broker-dealer that will receive Exchange Notes for
its own account in exchange for Private Notes that
were acquired as a result of market-making activities
or other trading activities, such holder will be
required to acknowledge in the Letter of Transmittal
that such holder will deliver a
12
<PAGE>
prospectus in connection with any resale of such
Exchange Notes; however, by so acknowledging and by
delivering a prospectus, such holder will not be
deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. See "The Exchange
Offer--Procedures for Tendering."
Shelf Registration
Statement............... Pursuant to the Registration Rights Agreement, the
Issuers are required to file a registration statement
for an offering to be made on a continuous basis
pursuant to Rule 415 under the Securities Act in
respect of the Private Notes of any holder that is
not eligible to participate in the Exchange Offer or
does not receive freely tradeable Exchange Notes in
the Exchange Offer and requests to have its Private
Notes registered under the Securities Act. See "The
Exchange Offer--Procedures for Tendering."
Special Procedures for
Beneficial Owners...... Any beneficial owner whose Private Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender such Private Notes in the
Exchange Offer should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering
such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private
Notes in such owner's name or obtain a properly
completed bond power from the registered holder. The
transfer of registered ownership may take
considerable time and may not be able to be completed
prior to the Expiration Date. See "The Exchange
Offer-- Procedures for Tendering."
Guaranteed
Delivery Procedures..... Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any other
documentation required by the Letter of Transmittal
to the Exchange Agent prior to the Expiration Date
may tender their Private Notes according to the
guaranteed delivery procedures set forth under "The
Exchange Offer-- Guaranteed Delivery Procedures."
Acceptance of the
Private Notes and
Delivery of the
Exchange Notes......... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Issuers will
accept for exchange any and all Private Notes that
are properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration
Date. The Exchange Notes issued pursuant to the
Exchange Offer will be delivered on the earliest
practicable date following the Expiration Date. See
"The Exchange Offer--Terms of the Exchange Offer."
Withdrawal Rights....... Tenders of Private Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer--Withdrawal
of Tenders."
13
<PAGE>
Certain Federal Income
Tax Considerations..... The exchange pursuant to the Exchange Offer should
not be a taxable event for federal income tax
purposes. See "Certain Federal Income Tax
Considerations."
Exchange Agent.......... American Bank National Association is serving as the
Exchange Agent in connection with the Exchange Offer.
Consequences of Failure
to Exchange............ The liquidity of the market for a holder's Private
Notes could be adversely affected upon completion of
the Exchange Offer if such holder does not
participate in the Exchange Offer. See "The Exchange
Offer--Consequences of Failure to Exchange."
14
<PAGE>
THE EXCHANGE NOTES
The Exchange Offer applies to $160,000,000 aggregate principal amount of the
Private Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement, which rights will terminate upon
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness and be secured by the same collateral as the Private Notes (which
they replace) and will be issued under, and be entitled to the benefits of, the
Indenture. For further information and for definitions of certain capitalized
terms used below, see "Description of Exchange Notes."
Securities.............. Offered $160 million aggregate principal amount of
9-3/8% Series B Senior Secured Notes due 2006 (the
"Exchange Notes").
Maturity Date........... June 15, 2006.
Interest Payment Dates.. The Exchange Notes will bear interest from the date
of issuance at the rate of 9-3/8% per annum, payable
semi-annually in arrears on June 15 and December 15
of each year commencing on December 15, 1996.
Security................ The Exchange Notes will be secured by a first
priority security interest in all of the Capital
Interests of the Operating Partnership held by the
Partnership. Additional Indebtedness other than
Subordinated Indebtedness incurred by the Partnership
in the future in accordance with the provisions of
the Indenture may also be secured by such Capital
Interests of the Operating Partnership. See
"Description of Exchange Notes--Security."
Subsidiary Guarantee.... On and after the Subsidiary Guarantee Effectiveness
Date, the Issuers' obligations under the Exchange
Notes and the Indenture will be guaranteed by the
Operating Partnership on a senior subordinated basis.
The Subsidiary Guarantee Effectiveness Date means the
first date upon which the Operating Partnership is
permitted pursuant to the Fixed Charge Coverage Ratio
tests contained in the Operating Partnership
Indenture (as hereinafter defined) and the Credit
Facility (as hereinafter defined) and permitted
pursuant to the terms of any other Senior Operating
Partnership Indebtedness (as hereinafter defined) to
guarantee, on a senior subordinated basis, the
Issuers' total payment obligations under all of the
then-outstanding Exchange Notes. There can be no
assurance as to whether or when the Subsidiary
Guarantee Effectiveness Date will occur. See
"Description of Exchange Notes--Subsidiary
Guarantee."
Optional Redemption..... The Exchange Notes will be redeemable at the option
of the Issuers, in whole or in part, at any time on
or after June 15, 2001, at the redemption prices set
forth herein plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption
date.
Mandatory Redemption.... Except as set forth below under "Change of Control"
and "Asset Sales," the Issuers are not required to
make any mandatory redemption or sinking fund payment
with respect to the Exchange Notes.
15
<PAGE>
Ranking................. The Exchange Notes will be senior secured joint and
several obligations of the Issuers and will rank
senior in right of payment to all future subordinated
Indebtedness of the Issuers and pari passu in right
of payment with other existing and future obligations
of the Issuers. The Exchange Notes will be
effectively subordinated to all existing Indebtedness
and all future senior Indebtedness and, until the
Subsidiary Guarantee Effectiveness Date, other
liabilities and commitments of the Issuers'
Subsidiaries (as hereinafter defined). As of April
30, 1996, the total Indebtedness, liabilities and
commitments (including trade payables and other
accrued liabilities) of the Partnership's
Subsidiaries were approximately $359.8 million.
Change of Control....... Upon a Change of Control, each Holder of Exchange
Notes will have the right to require the Issuers to
repurchase all or any part of such Holder's Exchange
Notes at a purchase price equal to 101% of the
aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, to
the date of purchase. There can be no assurance that
the Issuers will have adequate funds available to
repurchase the Exchange Notes.
Asset Sales............. If the aggregate amount of Excess Proceeds (as
hereinafter defined) received by the Partnership or
any of its Subsidiaries from Asset Sales exceeds $15
million, the Issuers shall make an offer to all
Holders of Exchange Notes to purchase the Exchange
Notes with such Excess Proceeds at a purchase price
equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages,
if any, thereon to the date of purchase.
Certain Covenants....... The Indenture contains covenants restricting or
limiting the liability of the Partnership and its
Subsidiaries to, among other things, (i) pay
distributions or make other restricted payments, (ii)
incur additional indebtedness and issue preferred
stock, (iii) enter into sale and leaseback
transactions, (iv) create liens, (v) incur dividend
and other payment restrictions affecting
Subsidiaries, (vi) enter into mergers, consolidations
or sales of all or substantially all assets, (vii)
enter into transactions with affiliates or (viii)
engage in other lines of business.
Events of Default....... The following will constitute Events of Default under
the Indenture (as hereinafter defined): the failure
after 30 days to pay interest on the Exchange Notes,
the failure to pay when due principal on the Exchange
Notes, the failure after applicable grace periods to
comply with any other covenants in the Indenture, a
payment default or acceleration of all amounts owing
under any other indebtedness of the Partnership or
any of its Subsidiaries (if the principal amount of
such indebtedness, together with the principal amount
of all other indebtedness so defaulted or
accelerated, aggregates $10 million or more), the
failure by the Partnership or any of its Subsidiaries
to pay final judgments aggregating in excess of $10
million, the invalidation of the Subsidiary Guarantee
(as hereinafter defined), certain events of
bankruptcy with regard to the Partnership or its
Subsidiaries, the breach of any material
representation or warranty set
16
<PAGE>
forth in the Pledge Agreement (as hereinafter
defined), or default in the performance of any
covenant set forth in the Pledge Agreement after
applicable grace periods.
Use of Proceeds......... There will be no cash proceeds to the Issuers from
the exchange pursuant to the Exchange Offer. The net
proceeds to the Partnership from the sale of the
Private Notes were approximately $155.4 million,
after deducting the discounts and commissions and
expenses of the Offering. The net proceeds of the
sale of the Private Notes were contributed by the
Partnership to the Operating Partnership and used to
retire indebtedness under the Operating Partnership's
Credit Facility. See "Use of Proceeds."
RISK FACTORS
Prospective investors in the Exchange Notes should consider carefully the
information set forth in "Risk Factors" and elsewhere in this Prospectus in
evaluating an investment in the Exchange Notes.
17
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER UNIT DATA AND RATIOS)
The following table presents summary unaudited pro forma combined financial
information derived from the Unaudited Pro Forma Combined Financial Statements
included elsewhere in this Prospectus. The summary unaudited pro forma combined
financial information gives effect to the Skelgas Acquisition and the Offering
(collectively, the "Transactions") as if they had occurred as of August 1,
1994, for purposes of the pro forma combined income statement data and other
financial data. The summary pro forma combined financial information gives
effect to the Skelgas Acquisition as if it had occurred as of April 30, 1996
for purposes of the pro forma combined balance sheet data.
The Unaudited Pro Forma Combined Financial Statements do not purport to
present the actual financial position or results of operations of the
Partnership had the transactions and events assumed therein in fact occurred on
the dates specified, nor are they necessarily indicative of the results of
operations that may be achieved in the future. The Pro Forma Combined data as
of April 30, 1996 for the nine months ended April 30, 1996 and the twelve
months ended July 31, 1995 reflect certain adjustments discussed in "Unaudited
Pro Forma Combined Financial Statements". The Unaudited Pro Forma Combined
Financial Statements are based on certain assumptions and adjustments described
in the notes thereto and should be read in conjunction therewith and with "The
Skelgas and Superior Acquisitions," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical Consolidated
Financial Statements of the Partnership (and Predecessor) and the historical
Consolidated Financial Statements of Skelgas and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMBINED COMBINED
NINE MONTHS TWELVE MONTHS
ENDED APRIL 30, ENDED JULY
1996(1) 31, 1995(2)
<S> <C> <C>
INCOME STATEMENT DATA:
Total revenues................................ $630,124 $668,549
Depreciation and amortization................. 31,123 38,182
Operating income ............................. 84,596 64,449
Interest expense.............................. 34,508 42,534
Net earnings ................................. 49,566 21,821
Net earnings per limited partner unit......... $ 1.58 $ 0.70
OTHER DATA:
Retail propane sales volume (in gallons)...... 644,673 670,820
Capital expenditures(3)....................... $ 40,935 $ 93,327
EBITDA(4)..................................... 115,719 102,631
Ratio of earnings to fixed charges(5)......... 2.4x 1.5x
Ratio of EBITDA to interest expense(4)........ 3.4x 2.4x
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
APRIL 30, 1996(6)
<S> <C>
BALANCE SHEET DATA:
Working capital....................................... $ 52,857
Total assets.......................................... 657,454
Long-term debt........................................ 433,107
Partners' Capital..................................... 129,198
</TABLE>
See Footnotes which follow Summary Historical Financial Data
18
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIOS)
The summary historical financial data presented in the table below have been
derived from the Partnership's Consolidated Financial Statements and the
related notes thereto included elsewhere in this Prospectus and should be read
in conjunction therewith. The Partnership's historical financial data for the
nine months ended April 30, 1996 and 1995 are unaudited but, in the opinion of
management, include all material adjustments (consisting only of normal
recurring entries) necessary for a fair presentation of such data in all
material respects. The Income Statement Data and Other Data for the nine months
ended April 30, 1996 and 1995 are not necessarily indicative of the results
that may be expected for a complete fiscal year. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
FERRELLGAS PARTNERS, L.P.
<TABLE>
<CAPTION>
PREDECESSOR(7)
-----------------
PRO FORMA ONE ELEVEN
NINE MONTHS ENDED YEAR YEAR MONTH MONTHS YEAR
------------------- ENDED ENDED ENDED ENDED ENDED
APRIL 30, APRIL 30, JULY 31, JULY 31, JULY 31, JUNE 30, JULY 31,
1996 1995 1995 1994(7) 1994 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues........ $553,712 $506,087 $596,436 $526,556 $24,566 $501,990 $541,945
Depreciation and
amortization......... 25,839 23,855 32,014 28,835 2,383 26,452 30,840
Operating income
(loss)............... 79,510 65,245 55,927 68,631 (2,391) 71,522 58,553
Interest expense...... 26,755 23,536 31,993 28,130 2,662 53,693 60,071
Income (loss) from
continuing
operations........... 52,185 41,800 23,820 39,909 (5,026) 12,337 109
OTHER DATA:
Retail propane sales
volume (in gallons).. 557,897 493,584 575,935 564,224 23,915 540,309 553,413
Capital
expenditures(3)...... $ 38,078 $ 75,394 $ 89,791 $ 13,149 $ 2,772 $ 10,377 $ 14,275
EBITDA(4)............. 105,349 89,100 87,941 97,466 (8) 97,974 89,393
Ratio of earnings to
fixed charges(5)..... 2.8x 2.6x 1.7x 2.3x -- 1.2x 1.0x
Ratio of EBITDA to
interest expense(4).. 3.9x 3.8x 2.8x 3.5x -- 1.8x 1.5x
</TABLE>
FOOTNOTES TO SUMMARY PRO FORMA FINANCIAL DATA AND SUMMARY HISTORICAL FINANCIAL
DATA
(1) The pro forma financial data for the nine months ended April 30, 1996 were
derived by combining the Partnership's financial data for the nine months
ended April 30, 1996 and Skelgas' financial data for the nine months ended
April 30, 1996. The pro forma combined income statement data does not
include the effects of the acquisition of Superior Propane, Inc. which was
consummated on April 19, 1996 because the acquisition was not material. See
"The Skelgas and Superior Acquisitions."
(2) The pro forma financial data for the twelve months ended July 31, 1995 were
derived by combining the Partnership's financial data for the twelve months
ended July 31, 1995 and Skelgas' financial data for the twelve months ended
July 31, 1995. Skelgas' financial data was derived from its consolidated
financial statements for the years ending December 31, 1995 and 1994. The
pro forma combined income statement data does not include the effects of
the acquisition of Superior Propane, Inc. which was consummated on April
19, 1996, because the acquisition was not material. See "The Skelgas and
Superior Acquisitions."
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(3) The Partnership's capital expenditures fall generally into three
categories: (i) maintenance capital expenditures, which include expenditures
for repair and replacement of property, plant and equipment; (ii) growth
capital expenditures, which include expenditures for purchases of new
propane tanks and other equipment to facilitate expansion of the
Partnership's customer base and operating capacity; and (iii) acquisition
capital expenditures, which include expenditures related to the acquisition
of retail propane operations. Acquisition capital expenditures represent the
cost of acquisitions less working capital acquired. Acquisition capital
expenditures exclude amounts paid for the Skelgas Acquisition.
(4) EBITDA is calculated as operating income (loss) plus depreciation and
amortization. EBITDA is not intended to represent cash flow and does not
represent a measure of cash available for distribution. EBITDA is a non-
GAAP measure, but provides additional information for evaluating the
Partnership's ability to service its debt. EBITDA is not intended as an
alternative to earnings (loss) from continuing operations or net earnings
(loss).
(5) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings (loss) from continuing operations before
income taxes, plus fixed charges. Fixed charges consist of interest expense
on all indebtedness (including amortization of deferred debt issuance
costs) and the portion of operating lease rental expense that is
representative of the interest factor. For the one month ended July 31,
1994, earnings were inadequate to cover fixed charges by $5.0 million.
Earnings from continuing operations for the periods presented were reduced
by certain non-cash expenses, consisting principally of depreciation and
amortization. Such non-cash charges totaled $25.8 million and $23.9 million
for the nine months ended April 30, 1996 and 1995, respectively, $32.0
million for the year ended July 31, 1995, $28.8 million for the pro forma
year ended July 31, 1994, $2.4 million for the one month ended July 31,
1994, $26.5 million for the eleven months ended June 30, 1994, and $33.0
million for the year ended July 31, 1993.
(6) The pro forma financial data as of April 30, 1996 were derived by combining
the Partnership's financial data as of April 30, 1996 and Skelgas'
financial data as of April 30, 1996.
(7) The pro forma year ended July 31, 1994 includes the eleven months ended
June 30, 1994 for the Partnership's predecessor, Ferrellgas, Inc. and its
subsidiaries (the "Predecessor"), and the 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).
See Selected Historical Consolidated Financial Data.
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RISK FACTORS
In evaluating an investment in the Senior Notes, prospective investors
should carefully consider the following factors in addition to the other
information presented in the Offering Memorandum.
DISTRIBUTIONS BY THE OPERATING PARTNERSHIP TO THE PARTNERSHIP MAY BE
RESTRICTED
The ability of the Partnership to service its debt obligations will be
entirely dependent upon the receipt of distributions from the Operating
Partnership. Distributions by the Operating Partnership are subject to an
indenture (the "Operating Partnership Indenture") governing the Operating
Partnership's Notes (the "Operating Partnership Notes"), as well as the Credit
Facility. The Credit Facility and the Operating Partnership Indenture each
contains, among other restrictions, a covenant limiting restricted payments
which provides that no quarterly distributions may be made unless, among other
things, no default or event of default exists or would result therefrom, the
Operating Partnership's pro forma fixed charge coverage ratio for the
preceding four fiscal quarters is at least 2.25 to 1.0 and certain minimum
targets for capital expenditures and expenditures for permitted acquisitions
have been met. The fixed charge coverage ratio is defined as the ratio of
earnings from continuing operations before income taxes, plus interest expense
(including amortization of original issue discount) and depreciation and
amortization (excluding amortization of prepaid cash expenses) to fixed
charges. As of April 30, 1996, the Operating Partnership's fixed charge
coverage ratio as calculated according to the Credit Facility and the
Operating Partnership's Indenture was 2.94 to 1.0. See "Description of
Existing Indebtedness."
PARTNERSHIP IS REQUIRED TO DISTRIBUTE AVAILABLE CASH, LIMITING CASH RESERVES
AVAILABLE TO SERVICE THE SENIOR NOTES
Assuming that the restrictions under the Operating Partnership Indenture and
the Credit Facility are met, the Partnership, pursuant to its governing
partnership agreement, is required to distribute, on a quarterly basis, 100%
of its Available Cash to its partners. "Available Cash" is generally all of
the cash receipts of the Partnership, adjusted for cash disbursements (which
will include semi-annual interest payments on the Senior Notes) and net
changes in reserves. The timing and amount of distributions by the Partnership
could significantly reduce the cash available to the Partnership to meet its
future business needs and to pay future principal, premium (if any) and
interest, including Liquidated Damages, if any, on the Senior Notes. The
General Partner will determine the amount and timing of such distributions and
has broad discretion to establish and make additions to reserves of the
Partnership for any proper purpose, including but not limited to reserves for
the purpose of (i) complying with the terms of any agreement or obligation of
the Partnership (including the establishment of reserves to fund the payment
of interest and principal in the future), (ii) providing for level
distributions of cash notwithstanding the seasonality of the Partnership's
business, and (iii) providing for future capital expenditures and other
payments deemed by the General Partner to be necessary or advisable.
HOLDING COMPANY STRUCTURE AND ABILITY TO REPAY THE SENIOR NOTES; EFFECTIVE
SUBORDINATION TO INDEBTEDNESS AND LIABILITIES OF OPERATING PARTNERSHIP AND
SUBSIDIARIES
The Partnership is a holding company for its subsidiaries, including the
Operating Partnership, and has no material operations and only limited assets.
Accordingly, the Partnership is dependent upon the distribution of the
earnings of the Operating Partnership and its subsidiaries, to service its
debt obligations. In addition, the Senior Notes are effectively subordinated
to claims of creditors (other than the Partnership) of the Partnership's
subsidiaries and the Operating Partnership and its subsidiaries. Claims of
creditors (other than the Partnership) of such subsidiaries, including trade
creditors, secured creditors, taxing authorities and creditors holding
guarantees, will generally have priority as to assets of such subsidiaries
over the claims and equity interests of the Partnership and, thereby
indirectly, the holders of indebtedness of the Partnership, including the
Senior Notes. See "Description of the Senior Notes--General." From and after
the Subsidiary Guarantee Effectiveness Date, claims of holders of the Senior
Notes under the Subsidiary Guarantee will generally rank on an equal basis in
right of payment with claims of trade creditors and other unsecured creditors
of such subsidiaries. However, there can be no assurance as to whether or when
the Subsidiary Guarantee Effectiveness Date will occur. See "Description of
Senior Notes--Subsidiary Guarantee."
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The Partnership must rely on distributions and other payments from the
Operating Partnership to generate the funds necessary to meet its obligations,
including the payment of principal and interest, including Liquidated Damages,
if any, on the Senior Notes. The ability of the Operating Partnership to make
such payments may be restricted by, among other things, the Credit Facility,
the Operating Partnership Indenture, applicable state partnership laws and
other laws and regulations. If the Partnership is unable to obtain the funds
necessary to pay the principal amount at maturity of the Senior Notes, to
redeem the Senior Notes or to repurchase the Senior Notes upon the occurrence
of a Change of Control, the Partnership may be required to adopt one or more
alternatives, such as a refinancing of the Senior Notes.
LEVERAGE
The Partnership is significantly leveraged and has indebtedness that is
substantial in relation to its equity. As of April 30, 1996, after giving pro
forma effect to the Offering and the Skelgas Acquisition, the Partnership
would have had an aggregate of $433.1 million of long-term indebtedness
(excluding current maturities) and $129.2 million in equity, resulting in a
long-term debt to equity ratio of 3.4 to 1.0. See "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Partnership's leverage could have important consequences to investors in
the Senior Notes. The Partnership's ability to make scheduled payments, to
refinance its obligations with respect to its indebtedness or its ability to
obtain additional financing in the future will depend on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control.
The Partnership believes that it will have sufficient cash flow from
operations and available borrowings under the Credit Facility to service its
indebtedness, although the principal amount of the Senior Notes will likely
need to be refinanced at maturity in whole or in part. However, a significant
downturn in the propane industry or other development adversely affecting the
Partnership's cash flow could materially impair the Partnership's ability to
service its indebtedness. If the Partnership's cash flow and capital resources
are insufficient to fund its debt service obligations, the Partnership may be
forced to refinance all or a portion of its debt or sell assets. There can be
no assurance that the Partnership would be able to refinance its existing
indebtedness or sell assets on terms that are commercially reasonable.
At April 30, 1996, on a consolidated pro forma basis, the Partnership would
have had outstanding approximately $65.0 million of Indebtedness bearing
interest at floating rates. In addition, pursuant to the Credit Facility, the
Partnership would have had available an additional $163.4 million of
borrowings, all of which would have borne interest at floating rates.
Accordingly, following the Offering, the Partnership is affected by increases
in interest rates which, if material, could adversely impact the Partnership's
ability to make payments in respect of the Senior Notes. The Operating
Partnership has entered into a series of three-year interest rate collar
agreements with major banks effectively fixing the LIBOR component of $125.0
million notional principal amount of floating rate debt between 4.86% and
6.5%. These agreements expire from June 1998 through December 1998.
LIMITATIONS IMPOSED BY CERTAIN INDEBTEDNESS
The Operating Partnership Indenture and the Credit Facility contain a number
of restrictive covenants which, among other things, restrict the ability of
the Operating Partnership to incur other indebtedness, make certain restricted
payments, enter into sale and leaseback transactions, incur liens and engage
in transactions with affiliates. A failure by the Operating Partnership to
comply with the restrictions contained in the Operating Partnership Indenture,
the Credit Facility or other agreements relating to the Operating
Partnership's indebtedness could result in a default thereunder, which in turn
could cause such indebtedness (and, by reason of cross-default provisions,
other indebtedness) to become immediately due and payable. There can be no
assurance that the Operating Partnership will be able to comply with such
restrictions, or that such restrictions will not adversely affect the
Operating Partnership's and, thereby, the Partnership's ability to conduct its
operations or
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finance its capital needs or impair the Operating Partnership's and, thereby,
the Partnership's ability to pursue attractive business and investment
opportunities, if such opportunities arise. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Senior Notes."
FRAUDULENT CONVEYANCE CONSIDERATIONS
The incurrence by the Issuers of indebtedness such as the Senior Notes for
the purposes described herein may be subject to review under relevant federal
and state fraudulent conveyance laws if a bankruptcy case or a lawsuit
(including in circumstances where bankruptcy is not involved) is commenced by
or on behalf of unpaid creditors of the Issuers. Under these laws, if a court
were to find that, at the time the Senior Notes were issued, (a) the Issuers
either incurred indebtedness represented by the Senior Notes with the intent
of hindering, delaying or defrauding creditors or received less than
reasonably equivalent value or fair consideration for incurring such
indebtedness and (b) the Issuers (i) were insolvent or were rendered insolvent
by reason of such transaction, (ii) were engaged in a business or transaction
for which the assets remaining with them constituted unreasonably small
capital or (iii) intended to incur, or believed that they would incur, debts
beyond their ability to pay such debts as they matured, such court may
subordinate the Senior Notes to presently existing and future indebtedness of
the Issuers, void the issuance of the Senior Notes and direct the repayment of
any amounts paid thereunder to the Issuers or to a fund for the benefit of the
Issuers' creditors or take other action detrimental to the holders of the
Senior Notes. In such an event, the Partnership might not have sufficient
funds to satisfy its obligations to the holders of the Senior Notes because
substantially all of the Partnership's assets are held by, and substantially
all of the Partnership's revenues are derived from, the operations of the
Operating Partnership, and the Senior Notes are effectively subordinated to
all secured and unsecured Indebtedness of the Operating Partnership.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the relevant jurisdiction. Generally, however, an entity would
be considered insolvent for purposes of the foregoing if the sum of its debts,
including contingent liabilities, were greater than the fair saleable value of
all of its assets at a fair valuation, or if the present fair saleable value
of its assets were less than the amount that would be required to pay its
probable liability on its existing debts, including contingent liabilities, as
they become absolute and matured.
The Issuers believe they will receive equivalent value at the time the
indebtedness represented by the Senior Notes is incurred. In addition, the
Issuers do not believe that they, as a result of the issuance of the Senior
Notes, (i) will be insolvent or rendered insolvent under the foregoing
standards, (ii) will be engaged in a business or transaction for which their
remaining assets constitute unreasonably small capital or (iii) intend to
incur or believe that they will incur, debts beyond their ability to pay such
debts as they mature. These beliefs are based on the Partnership's operating
history and net worth and management's analysis of internal cash flow
projections and estimated values of assets and liabilities of the Partnership
at the time of this Offering. There can be no assurance, however, that a court
passing on these issues would make the same determination.
FRAUDULENT CONVEYANCE CONSIDERATIONS--SUBSIDIARY GUARANTEE
After the Subsidiary Guarantee Effectiveness Date, the Operating Partnership
will guarantee, on a senior subordinated basis, the due and punctual payment
of principal of, premium, if any, and interest, including Liquidated Damages,
if any, on the Senior Notes and the performance of the other obligations of
the Issuers under the Senior Notes and the Indenture. The Subsidiary Guarantee
is a general unsecured obligation of the Operating Partnership and is
subordinated in right of payment to all Senior Operating Partnership
Indebtedness (as hereinafter defined), including the Operating Partnership
Senior Notes and indebtedness under the Credit Facility. The Subsidiary
Guarantee Effectiveness Date means the first date upon which the Operating
Partnership is permitted pursuant to the Fixed Charge Coverage Ratio tests
contained in the Operating Partnership Indenture (as hereinafter defined) and
the Credit Facility (as hereinafter defined) and permitted pursuant to the
terms of any other Senior Operating Partnership Indebtedness to guarantee, on
a senior subordinated basis, the Issuers'
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total payment obligations under all of the then-outstanding Senior Notes.
However, there can be no assurance as to whether or when the Subsidiary
Guarantee Effectiveness Date will occur. See "Description of Senior Notes--
Subsidiary Guarantee."
It is possible that creditors of the Operating Partnership may challenge the
Subsidiary Guarantee as a fraudulent conveyance under relevant federal and
state statutes, and, under certain circumstances (including a finding that the
Operating Partnership was insolvent at the time its Subsidiary Guarantee was
issued), a court could hold that the obligations of the Operating Partnership
under the Subsidiary Guarantee may be voided or are subordinate to other
obligations of the Operating Partnership. In addition, it is possible that the
amount for which the Operating Partnership is liable under the Subsidiary
Guarantee may be limited. The measure of insolvency for purposes of the
foregoing may vary depending upon the law of the jurisdiction that is being
applied. Generally, however, a company would be considered insolvent if the
sum of its debts is greater than all of its property at a fair valuation or if
the present fair saleable value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and mature. The Indenture will provide that the obligations of
the Operating Partnership under the Subsidiary Guarantee will be limited to
amounts which will not result in the Subsidiary Guarantee being a fraudulent
conveyance under applicable law. See "Description of Senior Notes--Subsidiary
Guarantee."
LACK OF PUBLIC MARKET FOR THE SENIOR NOTES
There is no existing trading market for the Exchange Notes, which are new
securities, and there can be no assurance regarding the future development of
a market for the Exchange Notes, or the ability of holders of the Exchange
Notes to sell their Exchange Notes or the price at which such holders may be
able to sell their Exchange Notes. If such a market were to develop, the
Exchange Notes could trade at prices that may be higher or lower than the
initial offering price of the Private Notes depending on many factors,
including prevailing interest rates, the Partnership's operating results and
the market for similar securities. The Initial Purchasers have advised the
Issuers that they currently intend to make a market in the Private Notes and
the Exchange Notes. The Initial Purchasers are not obligated to do so,
however, and any market-making with respect to the Private Notes or Exchange
Notes may be discontinued at any time without notice. Therefore, there can be
no assurance as to the liquidity of any trading market for the Private Notes
and the Exchange Notes or that an active public market for the Private Notes
or Exchange Notes will develop. The Private Notes are eligible for trading in
the Private Offerings, Resales and Trading through Automatic Linkages (PORTAL)
Market. The Issuers do not intend to apply for listing or quotation of the
Private Notes or the Exchange Notes on any securities exchange or stock
market.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the Senior Notes
will not be subject to similar disruptions. Any such disruptions may have an
adverse effect on holders of the Senior Notes.
WEATHER CONDITIONS AFFECT THE DEMAND FOR PROPANE
National weather conditions have a substantial impact on the demand for
propane and, therefore, the results of operations of the Partnership. In
particular, the demand for propane by residential customers is affected by
weather, with peak sales typically occurring during the winter months. Average
winter temperatures as measured by degree days across the Partnership's and
its predecessor's operating areas in fiscal 1991, 1992 and 1995 were warmer
than historical standards, thus lowering demand for propane. Average winter
temperatures as measured by degree days across the Partnership's operating
areas in fiscal 1993, 1994 and 1996 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."
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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). The
Partnership expects the overall demand for propane to remain relatively
constant over the next 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 its ability to acquire other
retail distributions, on the success of opening new district locations and on
the success of its marketing efforts to acquire new customers.
The Partnership competes with other distributors of propane, including
several major companies and several thousand small independent operators.
Generally, competition in the past few years has intensified, partly as a
result of warmer-than-normal weather and general economic conditions. The
Partnership's ability to compete effectively depends on the reliability of its
service, its responsiveness to customers and its ability to maintain
competitive retail prices.
THE PARTNERSHIP WILL BE SUBJECT TO PRICING AND INVENTORY RISK
The retail propane business is a "margin-based" business in which gross
profits are dependent upon the excess of the sales price over the propane
supply costs. Propane is a commodity, and, as such, its unit price is subject
to volatile changes in response to changes in supply or other market
conditions. The Partnership will have no control over these market conditions.
Consequently, the unit price of propane purchased by the Partnership, as well
as other marketers can change rapidly over a short period. In general, product
supply contracts permit suppliers to charge posted prices at the time of
delivery or the current prices established at major storage points such as
Mont Belvieu, Texas or Conway, Kansas. As rapid increases in the wholesale
cost of propane cannot be immediately passed on to retail customers, such
increases reduce margins on retail sales. In recent years, due to warmer-than-
normal weather and other factors, there have been occasions when the
Partnership was unable to fully pass on price increases to its customers, and
there may be future periods when the Partnership will be unable to fully pass
on such price increases. Consequently, the Partnership's profitability will be
sensitive to changes in wholesale propane prices. The Partnership may from
time to time engage in transactions to hedge product costs in an attempt to
reduce cost volatility, although to date such activities have not been
significant. See "--The Retail Propane Industry is a Mature One."
An important element of the Partnership's high retention of retail customers
has been its ability to deliver propane during periods of extreme demand. To
help insure this capability, the Partnership intends to continue engaging in
the brokerage and trading of propane and other natural gas liquids. If the
Partnership sustains material losses from its trading activities, payments in
respect of the Senior Notes and the other indebtedness of the Partnership
could be jeopardized. The Partnership has sought to minimize its trading risks
through the enforcement of trading policies, which include total inventory
limits and loss limits. The Partnership intends to continue these policies.
Personnel responsible for trading activities have an average of over 10 years
of trading experience with the General Partner. See "Business--Other
Operations." In addition, depending on inventory and price outlooks, the
Partnership may purchase and store propane or other natural gas liquids. This
activity may subject the Partnership to losses if the prices of propane or
such other natural gas liquids decline prior to their sale by the Partnership.
The Partnership may be unable to pass rapid increases in the wholesale cost of
propane on to its retail customers, reducing margins on retail sales. In the
long term, however, margins generally have not been materially impacted by
rapid increases in the wholesale cost of propane, as the Partnership 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.
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
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in these 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 electricity on an equivalent BTU basis. Although propane is
similar to fuel oil in application, market demand and price, propane and fuel
oil have generally developed their own distinct geographic markets. In
addition, given the cost of conversion from fuel oil to propane, potential
customers of propane generally will only switch from fuel oil if there is a
significant price advantage with propane.
Long-standing customer relationships are also typical to the retail propane
industry. Retail propane customers generally lease their storage tanks from
their suppliers. The lease terms and, in most states, certain fire safety
regulations, restrict the refilling of a leased tank solely to the propane
supplier that owns the tank. The cost and inconvenience of switching tanks
minimizes a customer's tendency to switch among suppliers of propane on the
basis of minor variations in price. As a result, the Partnership may
experience difficulty in acquiring new retail customers in areas where there
are existing relationships between potential customers and other propane
distributors.
PARTNERSHIP OPERATIONS ARE SUBJECT TO OPERATING RISKS
The Partnership's operations will be subject to all operating hazards and
risks normally incidental to handling, storing, transporting and otherwise
providing for use by consumers of combustible liquids such as propane. As a
result, the Partnership is a defendant in various legal proceedings and
litigation arising in the ordinary course of business. The Partnership
maintains insurance policies with insurers in such amounts and with such
coverages and deductibles as the General Partner believes are reasonable and
prudent. However, there can be no assurance that such insurance will be
adequate to protect the Partnership from all material expenses related to
potential future claims for personal injury 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 General Partner will neither
guarantee nor indemnify the Partnership against any claims, whether known or
unknown, or contingent liabilities. The occurrence of an event not fully
covered by insurance, or the occurrence of a large number of claims that are
self-insured, may have a material adverse effect on the results of operations
or financial position of the Partnership.
THE PARTNERSHIP MAY NOT BE SUCCESSFUL IN MAKING ACQUISITIONS
The Partnership has historically expanded its business through acquisitions.
The Partnership intends to consider and evaluate opportunities for growth
through acquisitions in its industry. There can be no assurance that the
Partnership will find attractive acquisition candidates in the future, or that
the Partnership will be able to acquire such candidates on economically
acceptable terms.
THE GENERAL PARTNER MANAGES AND OPERATES THE PARTNERSHIP
The General Partner manages and operates the Partnership. The control
exercised by the General Partner, which is a wholly owned subsidiary of
Ferrell, may make it more difficult for others to gain control or influence
the activities of the Partnership.
THE GENERAL PARTNER AND ITS AFFILIATES MAY HAVE CONFLICTS WITH THE PARTNERSHIP
Conflicts of interest could arise between the Partnership, on the one hand,
and the General Partner and its affiliates, on the other hand. The directors
and officers of the General Partner have fiduciary duties to manage the
General Partner in a manner beneficial to the shareholders of the General
Partner. At the same time, the General Partner has fiduciary duties to manage
the Partnership in a manner beneficial to the Partnership. The
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duties of the General Partner to the Partnership therefore may conflict with
the duties of its directors and officers to its shareholders. Such conflicts
of interest might arise in the following situations, among others: (i) the
Partnership will rely solely on employees of the General Partner and its
affiliates, (ii) the Partnership will reimburse the General Partner and its
affiliates for costs incurred in the Partnership's operations, (iii) the
General Partner intends to limit, whenever possible, its liability under
contractual arrangements of the Partnership, (iv) the contractual arrangements
between the Partnership, on the one hand, and the General Partner and its
affiliates, on the other hand, may not be the result of arms-length
negotiations (although the Indenture requires that transactions between the
Partnership and its affiliates must be fair and reasonable to the Partnership
and on terms at least as favorable to the Partnership as those which could
have been obtained on an arm's-length basis), and (v) the Partnership
Agreement (as hereinafter defined) does not restrict the General Partner and
its affiliates from engaging in activities that may be in competition with the
Partnership, except that the General Partner and its affiliates may not engage
in the retail sale of propane to end users in the continental Unites States.
The Audit Committee (as hereinafter defined) of the Partnership will be able,
at the General Partner's discretion or as required by the terms of the Senior
Notes, to review matters involving potential conflicts of interest. See
"Management--Partnership Management."
ENERGY EFFICIENCY AND TECHNOLOGY TRENDS MAY AFFECT DEMAND FOR PROPANE
Retail customers primarily use propane as a heating fuel. The national trend
toward increased conservation and technological advances, including
installation of improved insulation and the development of more efficient
furnaces and other heating devices, has slowed the growth of demand for
propane by retail gas customers. The General Partner is not able to predict
the effect that future conservation measures or technological advances in
heating, conservation or other devices might have on the Partnership's
operations.
FAILURE TO EXCHANGE PRIVATE NOTES
Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documentation. Therefore, holders of Private Notes desiring to tender such
Private Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. Neither the Exchange Agent nor the Issuers are under
any duty to give notification of defects or irregularities with respect to
tenders of Private Notes for exchange. Private Notes that are not tendered or
are tendered but not accepted by the Issuers for exchange will, following
consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof under the Securities Act. In addition, any
holder of Private Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives Exchange Notes for its own account in exchange for Private
Notes, where such Private Notes were acquired by such broker-dealer as a
result of market-making activities or any other trading activities, must
acknowledge in the Letter of Transmittal that accompanies this Prospectus that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. To the extent that Private Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Private Notes could be adversely affected due to the limited amount, or
"float," of the Private Notes that are expected to remain outstanding
following the Exchange Offer. Generally, a lower "float" of a security could
result in less demand to purchase such security and could, therefore, result
in lower prices for such security. For the same reason, to the extent that a
large amount of Private Notes are not tendered or are tendered and not
accepted in the Exchange Offer, the trading market for the Exchange Notes
could be adversely affected. See "Plan of Distribution" and "The Exchange
Offer."
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Private Notes were sold by the Issuers on April 26, 1996 (the "Closing
Date") to the Initial Purchasers pursuant to the Purchase Agreement. The
Initial Purchasers subsequently resold the Private Notes to (i) "qualified
institutional buyers" ("QIBs"), as defined in Rule 144A under the Securities
Act ("Rule 144A"), in reliance on Rule 144A and (ii) a limited number of
institutional "accredited investors" ("Accredited Institutions"), as defined
in Rule 501(a)(1),(2), (3) or (7) under the Securities Act. As a condition to
the sale of the Private Notes pursuant to the Purchase Agreement, the Issuers,
the Operating Partnership and the Initial Purchasers entered into the
Registration Rights Agreement pursuant to which the Issuers and the Operating
Partnership agreed that, unless the Exchange Offer is not permitted by
applicable law or Commission policy, they would (i) file with the Commission a
Registration Statement under the Securities Act with respect to the Exchange
Notes within 60 days after the Closing Date, (ii) use their best efforts to
cause such Registration Statement to become effective under the Securities Act
on or prior to November 30, 1996 and (iii) use their best efforts to
consummate the Exchange Offer within 30 business days after such Registration
Statement is declared effective. A copy of the Registration Rights Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The Registration Statement is intended to satisfy
certain obligations of the Issuers and the Operating Partnership under the
Registration Rights Agreement and the Purchase Agreement. The term "holder"
with respect to the Exchange Offer means any person in whose name the Private
Notes are registered on the books of the Issuers or any other person who has
obtained a properly completed bond power from the registered holder.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Issuers believe that a holder who exchanges Private Notes for
Exchange Notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement with any
person to participate, in a distribution of the Exchange Notes, will be
allowed to resell Exchange Notes to the public without further registration
under the Securities Act and without delivering to the purchasers of the
Exchange Notes a prospectus that satisfies the requirements of Section 10 of
the Securities Act. However, if any holder acquires Exchange Notes in the
Exchange Offer for the purpose of distributing or participating in the
distribution of the Exchange Notes or is a broker-dealer, such holder cannot
rely on the position of the staff of the Commission enumerated in certain no-
action letters issued to third parties and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction, unless an exemption from registration is otherwise
available. Each broker-dealer that receives Exchange Notes for its own account
in exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of market-making or other
trading activities. Pursuant to the Registration Rights Agreement, the Issuers
have agreed to make this Prospectus, as it may be amended or supplemented from
time to time, available to broker-dealers for use in connection with any
resale for a period of 180 days from the date on which the Registration
Statement of which this Prospectus is a part is declared effective by the
Commission. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept for exchange any and
all Private Notes validly tendered and not withdrawn prior to
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5:00 p.m., New York City time, on the Expiration Date. The Issuers will issue
$1,000 principal amount of Exchange Notes in exchange for each $1,000
principal amount of outstanding Private Notes surrendered pursuant to the
Exchange Offer. Private Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will
not be entitled to any of the rights of holders of Private Notes under the
Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness and be secured by the same collateral as the Private Notes (which
they replace) and will be issued under, and be entitled to the benefits of,
the Indenture, which also authorized the issuance of the Private Notes, such
that both series of Senior Notes will be treated as a single class of debt
securities under the Indenture.
As of the date of this Prospectus, $160,000,000 in aggregate principal
amount of the Private Notes are outstanding and registered in the name of Cede
& Co., as nominee for DTC. Only a registered holder of the Private Notes (or
such holder's legal representative or attorney-in-fact) as reflected on the
records of the Trustee under the Indenture may participate in the Exchange
Offer. There will be no fixed record date for determining registered holders
of the Private Notes entitled to participate in the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters' rights
under the Indenture in connection with the Exchange Offer. The Company intends
to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations of the Commission thereunder.
The Issuers shall be deemed to have accepted validly tendered Private Notes
when, as and if the Issuers have given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Issuers.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Issuers will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1996, unless the Issuers, in their sole discretion, extend the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Issuers will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered holders an announcement thereof and (iii) issue a press release or
other public announcement which shall include disclosure of the approximate
number of Private Notes deposited to date, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
The Issuers reserve the right, in their sole discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer, by giving oral or written notice of such
delay, extension or termination to the Exchange Agent. The Issuers also
reserve the right to amend the terms of the Exchange Offer in any manner. Any
such delay in acceptance, extension, termination or amendment will be followed
as promptly as practicable by oral or written notice thereof to the registered
holders. If the Exchange Offer is amended in a manner determined by the
Issuers to constitute a material change, the Issuers will promptly disclose
such amendment by
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means of a prospectus supplement that will be distributed to the registered
holders, and the Issuers will extend the Exchange Offer for a period of five
to ten business days, depending upon the significance of the amendment and the
manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such five to ten business day period.
Without limiting the manner in which the Issuers may choose to make a public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Issuers shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 9 3/8% per annum.
Interest on the Exchange Notes will be payable semi-annually in arrears on
each June 15 and December 15, commencing December 15, 1996. Holders of
Exchange Notes will receive interest on December 15, 1996 from the date of
initial issuance of the Exchange Notes, plus an amount equal to the accrued
interest on the Private Notes from the date of initial delivery to the date of
exchange thereof for Exchange Notes. Holders of Private Notes that are
accepted for exchange will be deemed to have waived the right to receive any
interest accrued on the Private Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile
thereof, have the signatures thereon guaranteed if required by the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile to the Exchange Agent at the address set forth below under "--
Exchange Agent" for receipt prior to 5:00 p.m., New York City time, on the
Expiration Date. In addition, either (i) certificates for such Private Notes
must be received by the Exchange Agent along with the Letter of Transmittal,
(ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Private Notes, if such procedure is available, into the
Exchange Agent's account at the Depositary pursuant to the procedure for book-
entry transfer described below, must be received by the Exchange Agent prior
to the Expiration Date or (iii) the holder must comply with the guaranteed
delivery procedures described below. See "--Guaranteed Delivery Procedures."
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Issuers in accordance
with the terms and subject to the conditions set forth herein and in the
Letter of Transmittal.
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD
BE SENT TO THE ISSUERS. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner whose Private Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering
such owner's Private Notes, either make appropriate arrangements to register
ownership of the Private Notes in such owner's name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
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Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes
tendered pursuant thereto are tendered (i) by a registered holder who has not
completed the box titled "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be made by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act which is a member of one of the recognized signature guarantee programs
identified in the Letter of Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Private Notes listed therein, such Private Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Private
Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Issuers, evidence satisfactory to the Issuers of their authority to so act
must be submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be
determined by the Issuers in their sole discretion, which determination will
be final and binding. The Issuers reserve the absolute right to reject any and
all Private Notes not properly tendered or any Private Notes the Issuers'
acceptance of which would, in the opinion of counsel for the Issuers, be
unlawful. The Issuers also reserve the right to waive any defects,
irregularities or conditions of tender as to particular Private Notes. The
Issuers' interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Private Notes must be cured within such time as the
Issuers shall determine. Although the Issuers intend to notify holders of
defects or irregularities with respect to tenders of Private Notes, neither
the Issuers, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Private Notes will not be
deemed to have been made until such defects or irregularities have been cured
or waived. Any Private Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering
holders, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
While the Issuers have no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Private Notes that are not tendered pursuant to the
Exchange Offer, the Issuers reserve the right in their sole discretion to
purchase or make offers for any Private Notes that remain outstanding
subsequent to the Expiration Date or, as set forth below under "--Conditions,"
to terminate the Exchange Offer and, to the extent permitted by applicable
law, purchase Private Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
By tendering, each holder of Private Notes will represent to the Issuers
that, among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of business of such holder, (ii) such holder has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iii) such holder acknowledges and agrees
that any person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purposes of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
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transaction of the Exchange Notes acquired by such person and cannot rely on
the position of the staff of the Commission set forth in certain no-action
letters, (iv) such holder understands that a secondary resale transaction
described in clause (iii) above and any resales of Exchange Notes obtained by
such holder in exchange for Private Notes acquired by such holder directly
from the Issuers should be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
Item 508, as applicable, of Regulation S-K of the Commission and (v) such
holder is not an "affiliate," as defined in Rule 405 under the Securities Act,
of the Issuers. If the holder is a broker-dealer that will receive Exchange
Notes for such holder's own account in exchange for Private Notes that were
acquired as a result of market-making activities or other trading activities,
such holder will be required to acknowledge in the Letter of Transmittal that
such holder will deliver a prospectus in connection with any resale of such
Exchange Notes; however, by so acknowledging and by delivering a prospectus,
such holder will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
In all cases, issuance of Exchange Notes for Private Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of Private Notes or a timely Book-Entry
Confirmation of such Private Notes into the Exchange Agent's account at the
Depositary, a properly completed and duly executed Letter of Transmittal and
all other required documents.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Private Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Private Notes tendered by book-entry transfer into the Exchange
Agent's account at the Depositary pursuant to the book-entry transfer
procedures described below, such Private Notes will be credited to an account
maintained with the Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make book-
entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in
accordance with the Depositary's procedures for transfer. However, although
delivery of Private Notes may be effected through book-entry transfer at the
Depositary, the Letter of Transmittal or facsimile thereof, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth
below under "--Exchange Agent" on or prior to the Expiration Date or pursuant
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of Private Notes desires to tender such Private Notes
and the Private Notes are not immediately available, or time will not permit
such holder's Private Notes or other required documents to reach the Exchange
Agent before the Expiration Date, or the procedure for book-entry transfer
cannot be completed on a timely basis, a tender may be effected if:
(a) The tender is made through an Eligible Institution;
(b) Prior to 5:00 p.m., New York City time, on the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Notice of Guaranteed Delivery substantially in the form
provided by the Issuers (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Private Notes, the
certificate number(s) of such Private Notes and the principal amount of
Private Notes tendered, stating that the tender is being made thereby and
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guaranteeing that, within five New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or a facsimile thereof),
together with the certificate(s) representing the Private Notes in proper
form for transfer or a Book-Entry Confirmation, as the case may be, and any
other documents required by the Letter of Transmittal, will be deposited by
the Eligible Institution with the Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile thereof),
as well as the certificate(s) representing all tendered Private Notes in
proper form for transfer and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Private Notes to be withdrawn (the
"Depositor"), (ii) identify the Private Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Private Notes or,
in the case of Private Notes transferred by book-entry transfer, the name and
number of the account at the Depository to be credited), (iii) be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal by which such Private Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee register the transfer of such Private Notes into the name of
the person withdrawing the transfer, and (iv) specify the name in which any
such Private Notes are to be registered, if different from the name of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Issuers in their
sole discretion, whose determination shall be final and binding on all
parties. Any Private Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer and no Exchange Notes will
be issued with respect thereto unless the Private Notes so withdrawn are
validly retendered. Properly withdrawn Private Notes may be retendered by
following one of the procedures described above under "The Exchange Offer--
Procedures for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, and subject to their
obligations pursuant to the Registration Rights Agreement, the Issuers shall
not be required to accept for exchange, or to issue Exchange Notes in exchange
for, any Private Notes, and may terminate the Exchange Offer as provided
herein before the acceptance of such Private Notes, if the Exchange Offer
violates applicable law, rules or regulations or an applicable interpretation
of the staff of the Commission.
If the Issuers determine in their sole discretion that any of these
conditions are not satisfied, the Issuers may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders
to withdraw such Private Notes (see "Withdrawal of Tenders") or (iii) waive
such unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Private Notes that have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Issuers will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Private Notes, and the Issuers
will extend the Exchange Offer for a period of five to ten business
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days, depending upon the significance of the waiver and the manner of
disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
The Exchange Offer is not conditioned on any minimum principal amount of
Private Notes being tendered for exchange.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the
Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to the Issuer's continuing obligations (i) to indemnify such
holders (including any broker-dealers) and certain parties related to such
holders against certain liabilities (including liabilities under the
Securities Act), (ii) to provide, upon the request of any holder of a
transfer-restricted Private Note, the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Private Notes
pursuant to Rule 144A, (iii) to use its best efforts to keep the Registration
Statement effective to the extent necessary to ensure that it is available for
resales of transfer-restricted Private Notes by broker-dealers for a period of
up to 180 days from the Expiration Date and (iv) to provide copies of the
latest version of the Prospectus to broker-dealers upon their request for a
period of up to 180 days after the Expiration Date.
LIQUIDATED DAMAGES
In the event of a Registration Default (as defined in the Registration
Rights Agreement), the Issuers are required to pay Liquidated Damages (as
defined in the Registration Rights Agreement) to each holder of Transfer
Restricted Securities (as defined below), during the first 90-day period
immediately following the occurrence of such Registration Default in an amount
equal to 0.50% per annum per $1,000 principal amount of Private Notes
constituting Transfer Restricted Securities held by such holder. Such
Liquidated Damages will increase by an additional 0.50% per annum at the
beginning of each subsequent 90-day period during which the Registration
Default continues. Transfer Restricted Securities shall mean each Private Note
until (i) the date on which such Private Note has been exchanged for an
Exchange Note in the Exchange Offer, (ii) the date on which such Private Note
has been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement (as defined in the
Registration Rights Agreement) or (iii) the date on which such Private Note is
distributed to the public pursuant to Rule 144(k) under the Securities Act.
The amount of the Liquidated Damages will increase by an additional 0.50% per
annum per $1,000 principal amount of Private Notes constituting Transfer
Restricted Securities for each subsequent 90-day period until all Registration
Defaults have been cured, up to maximum Liquidated Damages of 1.0% per annum
per $1,000 principal amount of Private Notes constituting Transfer Restricted
Securities. Following the cure of all Registration Defaults, the payment of
Liquidated Damages will cease. The filing and effectiveness of the
Registration Statement of which this Prospectus is a part and the consummation
of the Exchange Offer will eliminate all rights of the holders of Private
Notes eligible to participate in the Exchange Offer to receive damages that
would have been payable if such actions had not occurred.
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EXCHANGE AGENT
American Bank National Association has been appointed as Exchange Agent of
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
By Registered or Certified Mail, By Overnight Delivery,
or By Hand Delivery:
American Bank National Association
101 East 5th Street, 9th Floor
St. Paul, Minnesota 55101
Attn: Corporate Trust Department
By Facsimile: Confirm by Telephone:
612-229-6415 612-229-6415
The Exchange Agent also acts as trustee under the Indenture.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Issuers and their affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Issuers, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers and are estimated in the aggregate to be approximately
$100,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
The Issuers will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax
is imposed for any reason other than the exchange of the Private Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their
own decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain "restricted securities" (within the meaning of
the Securities Act). Accordingly, such Private Notes may be resold only (i) to
a person whom the seller reasonably believes is a QIB in a transaction meeting
the requirements of Rule 144A, (ii) in a transaction meeting the requirements
of Rule 144 under the Securities Act, (iii) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act, (iv) in accordance with another exemption from the
registration requirements of the Securities
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Act (and based upon an opinion of counsel if the Issuers so request), (v) to
the Issuers or (vi) pursuant to an effective registration statement and, in
each case, in accordance with any applicable securities laws of any state of
the United States or any other applicable jurisdiction.
ACCOUNTING TREATMENT
The Issuers will not recognize any gain or loss for accounting purposes as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
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USE OF PROCEEDS
The Exchange offer is intended to satisfy certain obligations of the Issuers
and the Operating Partnership under the Registration Rights Agreement. The
Issuers will not receive any cash proceeds from the issuance of the Exchange
Notes offered hereby. In consideration for issuing the Exchange Notes
contemplated by this Prospectus, the Issuers will receive in exchange Private
Notes in like principal amount, the terms of which are substantially identical
to the terms of the Exchange Notes. The Private Notes surrendered in exchange
for Exchange Notes will be returned and cancelled and cannot be reissued.
Accordingly, the issuance of the Exchange Notes will not result in any
increase or decrease in the indebtedness of either of the Issuers.
The net proceeds from the sale of the Private Notes were approximately
$155.4 million (after deducting discounts and commissions to the Initial
Purchasers and estimated offering expenses). The net proceeds were contributed
to the Operating Partnership and used to retire indebtedness under the
Operating Partnership's Credit Facility. For a description of the Credit
Facility, see "Description of Existing Indebtedness--Credit Facility."
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Partnership at April 30, 1996 and the pro forma capitalization of the
Partnership at such date after giving effect to the completion of the Skelgas
Acquisition. The table should be read in conjunction with the historical and
pro forma consolidated financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
APRIL 30, 1996
-------------------
PRO
HISTORICAL FORMA
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current portion of long-term
debt(1).................................................. $ 1,386 $ 1,786
======== ========
Long-term debt:
9 3/8% Senior Secured Notes due 2006.................... $160,000 $160,000
10% Fixed Rate Senior Notes of Operating Partnership,
due 2001............................................... 200,000 200,000
Floating Rate Senior Notes of Operating Partnership,
interest at
Applicable LIBOR Rate plus 3.125%, due 2001............ 50,000 50,000
Credit Facility of Operating Partnership:
Revolving credit loans due 1997....................... -- --
Term loans due 1997................................... 15,000 15,000
Noncompete agreements................................... 5,271 6,071
Other notes payable..................................... 2,036 2,036
-------- --------
Total long-term debt................................ 432,307 433,107
Partners' capital:
Limited partners........................................ 185,853 186,778
General partner......................................... (57,580) (57,580)
-------- --------
Total partners' capital............................. 128,273 129,198
-------- --------
Total capitalization................................ $560,580 $562,305
======== ========
</TABLE>
- --------
(1) Short-term debt on an historical basis as of April 30, 1996 includes
$1,386,000 of current maturities of long-term debt which is included in
other current liabilities in the Partnership's Consolidated Balance Sheet
as of April 30, 1996. Short-term debt on a pro forma basis as of April 30,
1996 includes the pro forma effects of $400,000 representing the current
portion of the amounts to be paid pursuant to the noncompete agreement
with the Seller.
37
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following sets forth the Partnership's Unaudited Pro Forma Combined
Statement of Earnings and Other Data by giving effect to the issuance of the
$160,000,000 of 9-3/8% Senior Secured Notes due 2006 (the "Senior Notes") and
the Skelgas Propane, Inc. Acquisition (the "Skelgas Acquisition" or "Skelgas")
transactions described in Note 1 of the Notes to the Unaudited Pro Forma
Combined Financial Statements as if such transactions had been consummated at
August 1, 1994. Additionally, the Partnership's Unaudited Pro Forma Combined
Balance Sheet gives effect to the Skelgas Acquisition described in Note 1 of
the Notes to the Unaudited Pro Forma Combined Financial Statements as if such
transaction had been consummated on April 30, 1996. The Unaudited Pro Forma
Combined Financial Statements of the Partnership do not purport to present the
financial position or results of operations of the Partnership had the
transactions assumed herein occurred on the dates indicated, nor are they
necessarily indicative of the results of operations which may be expected to
occur in the future.
The Partnership's operating data for the twelve-month period ended July 31,
1995, was derived from the Partnership's Statement of Earnings for the twelve
months ended July 31, 1995. The Partnership's operating data for the nine-
month period ended April 30, 1996 was derived from the Partnership's unaudited
Statement of Earnings for the nine months ended April 30, 1996. Skelgas'
operating data for the twelve-month period ended July 31, 1995 was derived
from Skelgas' unaudited Statements of Income (Loss) for the twelve months
ended July 31, 1995. Skelgas' operating data for the nine-month period ended
April 30, 1996 was derived from Skelgas' unaudited Statement of Income (Loss)
for the nine months ended April 30, 1996.
The propane industry is seasonal in nature because propane is used primarily
for heating in residential and commercial buildings. Therefore, the Pro Forma
Combined Statement of Earnings and Other Data for the nine months ended April
30, 1996 are not necessarily indicative of the results to be expected for a
full year.
The Skelgas Acquisition has been accounted for as a purchase whereby the
basis for accounting for Skelgas' assets and liabilities has been based upon
their estimated fair market values. Pro forma adjustments, including the
preliminary purchase price allocation and estimated cost savings resulting
from the Skelgas Acquisition as described in Notes 1, 3 and 9 of the Notes to
the Unaudited Pro Forma Combined Financial Statements, represent the
Partnership's preliminary determination of these adjustments and are based
upon preliminary information, assumptions and operating decisions which the
Partnership considers reasonable under the circumstances. Final amounts may
differ from those set forth herein.
The Operating Partnership is a potential guarantor of Senior Notes that were
issued by the Partnership, its Parent, in a Private Placement under Regulation
144A on April 26, 1996. Such potential guarantee will only become effective if
and when the Operating Partnership meets certain financial requirements in the
future. There can be no assurance that these financial requirements will be
met and the guarantee will become effective.
The proceeds of the Senior Notes were contributed by the Partnership to the
Operating Partnership as a capital contribution. Pro Forma Combined Financial
Statements of the Operating Partnership are not presented herein as the
Operating Partnership is consolidated with and included in the Unaudited Pro
Forma Combined Financial Statements of the Partnership which are herein
presented. In addition, the only substantial difference between such Pro Forma
Combined Financial Statements would be interest expense on the Senior Notes.
38
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS AND OTHER DATA
NINE MONTHS ENDED APRIL 30, 1996
(IN THOUSANDS, EXCEPT PER UNIT DATA AND RATIOS)
<TABLE>
<CAPTION>
PRO
FERRELLGAS SKELGAS PRO FORMA FORMA
PARTNERS, L.P. PROPANE, INC. ADJUSTMENTS COMBINED
-------------- ------------- ----------- --------
<S> <C> <C> <C> <C>
REVENUES:
Gas liquids and related
product sales......... $522,446 $ 79,595 $(3,810)(2) $598,231
Other.................. 31,266 -- 627 (2) 31,893
-------- -------- ------- --------
TOTAL REVENUES....... 553,712 79,595 (3,183) 630,124
COST OF PRODUCT SOLD
(EXCLUSIVE OF
DEPRECIATION, SHOWN
SEPARATELY BELOW)....... 300,844 46,457 (3,183)(2) 344,118
-------- -------- ------- --------
GROSS PROFIT............. 252,868 33,138 -- 286,006
Operating expense........ 134,363 26,011 (4,088)(3) 156,286
Depreciation and
amortization expense.... 25,839 54,338 (49,054)(4) 31,123
General and
administrative expense.. 9,535 2,626 (1,781)(3) 10,380
Vehicle leases expense... 3,621 -- -- 3,621
-------- -------- ------- --------
OPERATING INCOME (LOSS).. 79,510 (49,837) 54,923 84,596
Interest expense......... (26,775) (57) (7,676)(5) (34,508)
Interest income.......... 1,068 -- -- 1,068
Loss on disposal of
assets.................. (1,084) -- -- (1,084)
-------- -------- ------- --------
EARNINGS (LOSS) BEFORE
INCOME TAXES AND
MINORITY INTEREST....... 52,719 (49,894) 47,247 50,072
Income taxes............. -- 381 (381)(6) --
Minority interest........ 534 -- (28) 506
-------- -------- ------- --------
NET EARNINGS (LOSS)...... 52,185 $(50,275) 47,656 49,566
========
General partner's
interest in net
earnings................ 522 (26) 496
-------- ------- --------
Limited partners'
interest in net
earnings................ $ 51,663 $(2,593) $ 49,070
======== ======= ========
NET EARNINGS PER LIMITED
PARTNER UNIT............ $ 1.66 $ (0.08) $ 1.58
======== ======= ========
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING.... 31,103 41 31,144
======== ======= ========
OTHER DATA:
Retail propane sales
volume (in gallons)... 557,897 86,776 -- 644,673
Capital expenditures... $ 38,078 $ 2,857 $ -- $ 40,935
EBITDA(7).............. 105,349 4,501 5,869 115,719
Ratio of earnings to
fixed charges(8)...... 2.8x -- -- 2.4x
Ratio of EBITDA to
interest expense(7)... 3.9x -- -- 3.4x
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
39
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS AND OTHER DATA
TWELVE MONTHS ENDED JULY 31, 1995
(IN THOUSANDS, EXCEPT PER UNIT DATA AND RATIOS)
<TABLE>
<CAPTION>
PRO
FERRELLGAS SKELGAS PRO FORMA FORMA
PARTNERS, L.P. PROPANE, INC. ADJUSTMENTS COMBINED
-------------- ------------- ----------- --------
<S> <C> <C> <C> <C>
REVENUES:
Gas liquids and related
product sales......... $565,607 $74,844 $(4,433)(2) $636,018
Other.................. 30,829 -- 1,702 (2) 32,531
-------- ------- ------- --------
TOTAL REVENUES....... 596,436 74,844 (2,731) 668,549
COST OF PRODUCT SOLD
(EXCLUSIVE OF
DEPRECIATION, SHOWN
SEPARATELY BELOW)....... 339,641 38,983 (2,731)(2) 375,893
-------- ------- ------- --------
GROSS PROFIT............. 256,795 35,861 -- 292,656
Operating expense........ 153,226 24,943 (5,450)(9) 172,719
Depreciation and
amortization expense.... 32,014 9,576 (3,408)(10) 38,182
General and
administrative expense.. 11,357 4,053 (2,375)(9) 13,035
Vehicle leases expense... 4,271 -- -- 4,271
-------- ------- ------- --------
OPERATING INCOME (LOSS).. 55,927 (2,711) 11,233 64,449
Interest expense......... (31,993) (261) (10,280)(11) (42,534)
Interest income.......... 1,268 -- -- 1,268
Loss on disposal of
assets.................. (1,139) -- -- (1,139)
-------- ------- ------- --------
EARNINGS (LOSS) BEFORE
INCOME TAXES AND
MINORITY INTEREST....... 24,063 (2,972) 953 22,044
Income taxes............. -- 64 (64)(6) --
Minority interest........ 243 -- (20) 223
-------- ------- ------- --------
NET EARNINGS (LOSS)...... 23,820 $(3,036) 1,037 21,821
======== ======= ======= ========
General partner's
interest in net
earnings................ 238 (20) 218
-------- ------- --------
Limited partners'
interest in net
earnings................ $ 23,582 $(1,979) $ 21,603
======== ======= ========
NET EARNINGS PER LIMITED
PARTNER UNIT............ $ 0.76 $ (0.06) $ 0.70
======== ======= ========
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING.... 30,908 41 30,949
======== ======= ========
OTHER DATA:
Retail propane sales
volume (in gallons)... 575,935 94,885 -- 670,820
Capital expenditures... $ 89,791 $ 3,536 $ -- $ 93,327
EBITDA(7).............. 87,941 6,865 7,825 102,631
Ratio of earnings to
fixed charges(12)..... 1.7x -- -- 1.5x
Ratio of EBITDA to
interest expense(7)... 2.8x -- -- 2.4x
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
40
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
APRIL 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
FERRELLGAS SKELGAS PRO FORMA FORMA
ASSETS PARTNERS, L.P. PROPANE, INC. ADJUSTMENTS COMBINED
------ -------------- ------------- ----------- --------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents........... $ 87,809 $ 9,335 $ (89,250)(1) $ 7,894
Accounts and notes
receivable............ 80,639 7,494 -- 88,133
Inventories............ 24,316 4,648 -- 28,964
Prepaid expenses and
other current assets.. 5,619 2,206 -- 7,825
-------- -------- --------- --------
TOTAL CURRENT ASSETS. 198,383 23,683 (89,250) 132,816
Property, plant and
equipment, net.......... 342,593 49,645 10,655 (13) 402,893
Intangible assets, net... 98,697 9,201 1,160 (14) 109,058
Other assets, net........ 11,455 1,232 -- 12,687
-------- -------- --------- --------
TOTAL ASSETS......... $651,128 $ 83,761 $ (77,435) $657,454
======== ======== ========= ========
<CAPTION>
LIABILITIES AND PARTNERS'
CAPITAL
- -------------------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable....... $ 44,912 $ 1,330 $ -- $ 46,242
Other current
liabilities........... 30,446 4,871 (1,600)(15) 33,717
-------- -------- --------- --------
TOTAL CURRENT
LIABILITIES......... 75,358 6,201 (1,600) 79,959
Long-term debt........... 432,307 9 791 (16) 433,107
Other liabilities........ 12,288 -- -- 12,288
Contingencies and
commitments
Minority interest........ 2,902 -- -- 2,902
STOCKHOLDER'S EQUITY:
Capital Stock.......... -- 155,000 (155,000)(17) --
Accumulated Deficit.... -- (77,449) 77,449 (17) --
-------- -------- --------- --------
TOTAL STOCKHOLDER'S
EQUITY.............. -- 77,551 (77,551) --
-------- -------- --------- --------
PARTNERS' CAPITAL:
Common units........... 91,073 -- 925 (1) 91,998
Subordinated units..... 94,780 -- -- 94,780
General partner........ (57,580) -- -- (57,580)
-------- -------- --------- --------
TOTAL PARTNERS'
CAPITAL............. 128,273 -- 925 129,198
-------- -------- --------- --------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL... $651,128 $ 83,761 $ (77,435) $657,454
======== ======== ========= ========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
41
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. Presentation:
The Partnership's Unaudited Pro Forma Combined Financial Statements assume:
(1) transactions a. and b. occurred at August 1, 1994 for purposes of the
Unaudited Pro Forma Combined Statements of Earnings and Other Data and (2)
transaction a. occurred on April 30, 1996 for purposes of the Unaudited Pro
Forma Combined Balance Sheet:
a. The Skelgas Acquisition--On April 30, 1996, Ferrellgas, Inc.
("Ferrellgas") as the general partner of the Partnership purchased all
of the outstanding capital stock of Skelgas for a cash purchase price of
$89.3 million and a $1.2 million noncompete agreement payable in three
equal annual installments commencing on the closing date. The purchase
price will be adjusted upward or downward based on a final determination
of working capital balances acquired.
Ferrellgas financed the Skelgas Acquisition with the proceeds of a
short-term acquisition loan. As of May 1, 1996 Skelgas and its operating
subsidiaries were merged into Ferrellgas and all of the Skelgas Assets
were contributed by Ferrellgas to the Operating Partnership as a capital
contribution. In connection with these transactions, the Operating
Partnership assumed the obligation to repay the short-term acquisition
loan and issued a limited partner interest in the Operating Partnership
to Ferrellgas. Following the contribution of the Skelgas Assets to the
Partnership, Ferrellgas contributed the limited partner interest in the
Operating Partnership to the Partnership in exchange for Common Units of
the Partnership with a value of approximately $925,000, which represents
consideration for certain tax liabilities retained by Ferrellgas. The
Operating Partnership utilized an existing credit facility with a bank
syndicate (the "Credit Facility") to discharge its assumed obligations
under the short-term acquisition loan.
The preliminary purchase price allocation is as follows (In thousands):
<TABLE>
<S> <C>
Pro forma purchase price--
Cash.......................................................... $89,250
Noncompete agreement--$400 paid at closing; $800 over two
years........................................................ 1,200
Common units issued for income tax liabilities incurred by
Ferrellgas................................................... 925
Transaction costs............................................. 2,000
Receivable from Seller due to working capital adjustment...... (4,000)
-------
Total pro forma purchase price.............................. $89,375
=======
Allocation of purchase price--
Working capital............................................... $17,482
Property, plant and equipment................................. 60,300
Goodwill...................................................... 2,273
Noncompete agreement with Seller.............................. 1,200
Existing noncompete agreement of Skelgas...................... 6,888
Other assets ................................................. 1,232
-------
Total pro forma allocation of purchase price................ $89,375
=======
</TABLE>
The foregoing preliminary purchase price allocation is based on
available information and certain assumptions the Partnership considers
reasonable. The final purchase price allocation will be based upon a
final determination of the fair market value of the net assets acquired
at the date of the Skelgas Acquisition as determined by valuations and
other studies which are not yet complete. The final purchase price
allocation may differ from the preliminary allocation.
42
<PAGE>
b. The issuance of the $160,000,000 of 9 3/8% Senior Secured notes due 2006.
The Partnership's unaudited Pro Forma Combined Financial Statements of
Earnings and Other Data assume that issuance of the Senior Notes
occurred on August 1, 1994. No pro forma adjustments related to the
Senior Notes were required in the pro forma balance sheet as of April
30, 1996, because the issuance of the Senior Notes and the subsequent
repayment of $70.7 million of existing indebtedness occurred prior to
April 30, 1996.
2. The pro forma adjustments to reclassify Skelgas' revenue and cost of
product sold presentation to conform with the Partnership's presentation.
3. The pro forma adjustments to operating expense and general and
administrative expense for the nine months ended April 30, 1996:
Because the Skelgas Acquisition has recently been consummated, the
Partnership has begun, but not completed, its strategic and operating plans
for the integration of Skelgas' operations into those of the Partnership.
Based on preliminary information, assumptions and operating decisions, the
Partnership estimates that it can eliminate duplicative costs through the
combination of the two entities as described below. However, the actual
cost savings may differ from the preliminary estimates.
The pro forma adjustments to reflect estimated cost savings resulting from
the Skelgas Acquisition assumes the following preliminary estimates of
expected cost savings (In thousands):
<TABLE>
<CAPTION>
GENERAL AND
OPERATING ADMINISTRATIVE
EXPENSE EXPENSE
--------- --------------
<S> <C> <C>
Consolidation of field service functions........... $1,632 $ --
Elimination of duplicative field service management
costs............................................. 2,456 --
Elimination of corporate general and administrative
costs............................................. -- 1,781
------ ------
Pro forma adjustments............................ $4,088 $1,781
====== ======
</TABLE>
In addition to the cost savings initiatives and estimated cost savings
described above, the Partnership estimates that it can eliminate additional
annual duplicative costs through the combination of the two entities.
However, such amounts cannot be quantified at this time and have not been
reflected in the pro forma adjustments.
4. The pro forma adjustment to depreciation and amortization expense for the
nine months ended April 30, 1996 (In thousands):
<TABLE>
<S> <C>
Elimination of historical depreciation and amortization expense
of Skelgas...................................................... $(53,681)
Additional depreciation and amortization expense reflecting the
preliminary
allocation of purchase price:
Record depreciation of amount allocated to buildings and
equipment..................................................... 3,106
Record amortization of amount allocated to goodwill ........... 114
Record amortization of amount allocated to noncompete agreement
with
Seller........................................................ 300
Record amortization of amount allocated to existing noncompete
agreement of Skelgas.......................................... 1,107
--------
Pro forma adjustment......................................... $(49,054)
========
</TABLE>
This historical depreciation and amortization expense of Skelgas includes a
nonrecurring writedown of goodwill in the amount of $47.6 million.
43
<PAGE>
5. The pro forma adjustment to interest expense for the nine months ended
April 30, 1996 (In thousands):
<TABLE>
<S> <C>
Elimination of interest related to repayment of a portion of the
Operating
Partnership's Credit Facility.................................... $ 3,921
Additional interest expense related to--
Issuance of Senior Notes at a 9.375% interest rate.............. (11,250)
Amortization of deferred issuance costs related to the Senior
Notes.......................................................... (347)
--------
Pro forma adjustment.......................................... $ (7,676)
========
</TABLE>
The elimination of interest expense related to the Operating Partnership's
Credit Facility was determined based on (i) repayment of $70.7 million of
existing indebtedness from proceeds of the Offering and (ii) an average
interest rate of 7.395%.
6. The pro forma adjustment to the provision for income taxes recognizes that
the Partnership is not subject to income tax.
7. EBITDA is calculated as operating income (loss) plus depreciation and
amortization. EBITDA is not intended to represent cash flow and does not
represent a measure of cash available for distribution. EBITDA is a non-
GAAP measure, but provides additional information for evaluating the
Partnership's ability to service its debt. In addition, EBITDA is not
intended as an alternative to earnings (loss) from continuing operations or
net earnings (loss).
8. For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings (loss) from continuing operations before
income taxes, plus fixed charges. Fixed charges consist of interest expense
on all indebtedness (including amortization of deferred debt issuance cost)
and the portion of operating lease rental expense that is representative of
the interest factors. Earnings from continuing operations for the period
presented were reduced by certain noncash expenses, consisting principally
of depreciation and amortization. Such non-cash charges total $29.8 million
for the pro forma combined nine months ended April 30, 1996.
9. The pro forma adjustments to operating expense and general administrative
expense for the twelve months ended July 31, 1995:
Because the Skelgas Acquisition has recently been consummated, the
Partnership has begun, but not completed, its strategic and operating plans
for the integration of Skelgas' operations into those of the Partnership.
Based on preliminary information, assumptions and operating decisions, the
Partnership estimates that it can eliminate duplicative costs through the
combination of the two entities as described below. However, the actual
cost savings may differ from the preliminary estimates.
The pro forma adjustments to reflect estimated cost savings resulting from
the Skelgas Acquisition assumes the following preliminary estimates of
expected cost savings (In thousands):
<TABLE>
<CAPTION>
GENERAL AND
OPERATING ADMINISTRATIVE
EXPENSES EXPENSES
--------- --------------
<S> <C> <C>
Consolidation of field service functions........... $2,175 $ --
Elimination of duplicative field service management
costs............................................. 3,275 --
Elimination of corporate general and administrative
costs............................................. -- 2,375
------ ------
Pro forma adjustment........................... $5,450 $2,375
====== ======
</TABLE>
In addition to the cost savings initiatives and estimated cost savings
described above, the Partnership estimates the it can eliminate additional
annual duplicative costs through the combination of the two entities.
However, such amounts cannot be quantified at this time and have not been
reflected in the pro forma adjustment.
44
<PAGE>
10. The pro forma adjustment to depreciation and amortization expense for the
twelve months ended July 31, 1995 (In thousands):
<TABLE>
<S> <C>
Elimination of historical depreciation and amortization expense of
Skelgas........................................................... $(9,576)
Additional depreciation and amortization expense reflecting the
preliminary allocation of purchase price:
Record depreciation of amount allocated to buildings and
equipment...................................................... 4,140
Record amortization of amount allocated to goodwill ............ 152
Record amortization of amount allocated to noncompete agreement
with Seller.................................................... 400
Record amortization of amount allocated to existing noncompete
agreement of Skelgas........................................... 1,476
-------
Pro forma adjustment............................................. $(3,408)
=======
</TABLE>
11. The pro forma adjustment to interest expense for the twelve months ended
July 31, 1995 (In thousands):
<TABLE>
<S> <C>
Elimination of interest related to repayment of a portion of the
Operating Partnership's Credit Facility......................... $ 5,182
Additional interest expense related to --
Issuance of Senior Notes at a 9.375% interest rate............. (15,000)
Amortization of deferred issuance costs related to the Senior
Notes......................................................... (462)
--------
Pro forma adjustment......................................... $(10,280)
========
</TABLE>
The elimination of interest expense related to the Operating Partnership's
Credit Facility was determined based on (i) repayment of $70.7 million of
existing indebtedness from proceeds of the Offering and (ii) an average
interest rate of 7.33%.
12. For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings (loss) from continuing operations before
income taxes, plus fixed charges. Fixed charges consist of interest
expense on all indebtedness (including amortization of deferred debt
issuance cost) and the portion of operating lease rental expense that is
representative of the interest factor. Earnings from continuing operations
for the period presented were reduced by certain noncash expenses,
consisting principally of depreciation and amortization. Such non-cash
charges totaled $37.3 million for the pro forma combined twelve months
ended July 31, 1995.
13. The pro forma adjustment to property, plant and equipment (In thousands):
<TABLE>
<S> <C>
Elimination of historical property, plant and equipment of
Skelgas.......................................................... $(49,645)
Record allocation of purchase price to property, plant and
equipment........................................................ 60,300
--------
Pro forma adjustment............................................ $ 10,655
========
</TABLE>
14. The pro forma adjustment to intangible assets (In thousands):
<TABLE>
<S> <C>
Record goodwill associated with purchase of Skelgas................. $2,273
Record allocation of purchase price to noncompete agreement with
Seller............................................................. 1,200
Eliminate historical goodwill of Skelgas............................ (2,313)
------
Pro forma adjustment.............................................. $1,160
======
</TABLE>
45
<PAGE>
15. The pro forma adjustments to other current liabilities (In thousands):
<TABLE>
<S> <C>
Record accrued liabilities for transaction costs of Skelgas
Acquisition....................................................... $ 2,000
Record working capital adjustments pursuant to the Skelgas
Acquisition Agreement............................................. (4,000)
Record current portion of the amounts to be paid pursuant to the
noncompete agreement with Seller.................................. 400
-------
Pro forma adjustments............................................ $(1,600)
=======
</TABLE>
16. The pro forma adjustment to long-term debt (In thousands):
<TABLE>
<S> <C>
Record long-term amounts to be paid pursuant to the noncompete
agreement with Seller............................................... $800
Eliminate existing long-term debt of Skelgas......................... (9)
----
Pro forma adjustment............................................... $791
====
</TABLE>
17. The pro forma adjustment to eliminate historical stockholder's equity of
Skelgas.
46
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical data were derived from, and should be read
in conjunction with, the historical consolidated financial statements of the
Partnership (and its Predecessor, Ferrellgas, Inc. and Subsidiaries, prior to
July 1, 1994). The historical consolidated financial statements of the
Predecessor as of and for each of the years ended July 31, 1991, 1992, 1993
and the eleven months ended June 30, 1994 have been audited. The historical
consolidated financial statements of the Partnership as of and for the
inception to July 31, 1994 and the year ended July 31, 1995 have been audited.
The historical financial statements of the Partnership as of and for each of
the nine-month periods ended April 30, 1995 and 1996 are unaudited. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FERRELLGAS, INC. AND SUBSIDIARIES
FERRELLGAS PARTNERS, L.P. (PREDECESSOR)
-------------------------------- --------------------------------------------
HISTORICAL HISTORICAL
HISTORICAL PRO FORMA INCEPTION ELEVEN HISTORICAL YEAR ENDED JULY
YEAR ENDED YEAR ENDED TO MONTHS ENDED 31,
JULY 31, JULY 31, JULY 31, JUNE 30, -------------------------------
1995 1994(1) 1994 1994 1993 1992 1991
(IN THOUSANDS, EXCEPT PER UNIT DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues......... $596,436 $526,556 $ 24,566 $501,990 $541,945 $501,129 $543,933
Depreciation and
amortization expense.. 32,014 28,835 2,383 26,452 30,840 31,196 36,151
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
continuing operations. 23,820 39,909 (5,026) 12,337 109 (1,700)(7) 1,979
Earnings from
continuing operations
per unit(2)........... 0.76 1.29 --
Cash distributions
declared per unit(3).. 1.65 -- --
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
from) parent and
affiliates............ -- -- -- (4,050) (916) 2,236 3,763
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(2):
Common Units.......... $ 84,489 $ 84,532 $ 84,532
Subordinated Units.... 91,824 99,483 99,483
General Partner....... (57,676) (62,622) (62,622)
OPERATING DATA:
Retail propane sales
volume (in gallons)... 575,935 564,224 23,915 540,309 553,413 495,707 486,463
Capital
expenditures(4):
Maintenance........... $ 8,625 $ 5,688 $ 911 $ 4,777 $ 10,527 $ 10,250 $ 7,958
Growth................ 11,097 4,032 983 3,049 2,851 3,342 2,478
Acquisition........... 70,069 3,429 878 2,551 897 10,112 25,305
-------- -------- -------- -------- -------- -------- --------
Total................. $ 89,791 $ 13,149 $ 2,772 $ 10,377 $ 14,275 $ 23,704 $ 35,741
======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
EBITDA(5).............. $ 87,941 $ 97,466 $ (8) $ 97,974 $ 89,393 $ 87,604 $ 99,196
Ratio of earnings to
fixed charges(6)...... 1.7x 2.3x -- 1.2x 1.0x -- 1.1x
Ratio of EBITDA to
interest expense(5)... 2.8x 3.5x -- 1.8x 1.5x 1.5x 1.6x
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
FERRELLGAS
PARTNERS, L.P. FERRELLGAS, L.P.
-------------------- --------------------
NINE NINE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1996 1995 1996 1995
(IN THOUSANDS, EXCEPT PER UNIT DATA AND
RATIOS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues........................ $553,712 $506,087 $553,712 $506,087
Depreciation and amortization expense. 25,839 23,855 25,839 23,855
Operating income ..................... 79,510 65,245 79,511 65,246
Interest expense...................... 26,775 23,536 26,608 23,536
Earnings from continuing operations... 52,185 41,800 52,887 42,228
Earnings from continuing operations
per unit............................. 1.66 1.34
Cash distributions declared per unit
(3).................................. 1.50 1.15
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital....................... 123,025 45,496 123,193 45,497
Total assets.......................... 651,128 548,991 647,129 548,991
Long-term debt........................ 432,307 320,162 272,307 320,162
Partners' Capital(2):
Common Units......................... 91,073 94,812
Subordinated Units................... 94,780 103,723
Limited Partner...................... 284,442 141,085
General Partner...................... (57,580) (57,451) 2,902 1,441
OPERATING DATA:
Retail propane sales volume (in
gallons)............................. 557,897 493,584 557,897 493,584
Capital expenditures(4)............... 38,078 75,394 38,078 75,394
SUPPLEMENTAL DATA:
EBITDA(5)............................. 105,349 89,100 105,350 89,101
Ratio of earnings to fixed charges(6). 2.8x 2.6x 2.8x 2.6x
Ratio of EBITDA to interest
expense(5)........................... 3.9x 3.8x 3.9x 3.8x
</TABLE>
- --------
(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 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.
(3) No cash distributions were declared by the Partnership from inception to
July 31, 1994. The $1.65 distribution declared in the year ending July 31,
1995 includes $1.50 in respect of fiscal 1995 and $0.15 for the inception
period, but excludes $0.50 declared subsequent to July 31, 1995 in respect
of fiscal 1995.
(4) The Partnership's capital expenditures fall generally into three
categories: (i) maintenance capital expenditures, which include
expenditures for repair and replacement of property, plant and equipment;
(ii) growth capital expenditures, which include expenditures for purchases
of new propane tanks and other equipment to facilitate expansion of the
Partnership's customer base and operating capacity; and (iii) acquisition
capital expenditures, which include expenditures related to the
acquisition of retail propane operations. Acquisition capital expenditures
represent the total purchase price of acquisitions less working capital
acquired.
48
<PAGE>
(5) EBITDA is calculated as operating income plus depreciation and
amortization. EBITDA is not intended to represent cash flow and does not
represent the measure of cash available for distribution. EBITDA is a non-
GAAP measure, but provides additional information for evaluating the
Partnership's ability to service its debt. EBITDA is not intended as an
alternative to earnings from continuing operations or net earnings.
(6) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings from continuing operations before income
taxes, plus fixed charges. Fixed charges consist of interest expense on
all indebtedness (including amortization of deferred debt issuance cost)
and the portion of operating lease rental expense that is representative
of the interest factor. For the one month ended July 31, 1994 and the
fiscal year ended July 31, 1992, earnings were inadequate to cover fixed
charges by $5.0 million and $2.4 million, respectively. Earnings from
continuing operations for the periods presented were reduced by certain
noncash expenses, consisting principally of depreciation and amortization.
Such non-cash charges totaled $25.8 million and $23.9 million for the nine
months ended April 30, 1996 and 1995, respectively, $32.0 million for the
year ended July 31, 1995, $28.8 million for the pro forma year ended July
31, 1994, $2.4 million for the one month ended July 31, 1994, $26.5
million for the eleven months ended June 30, 1994, and $33.0 million,
$33.5 million and $38.5 million for the years ended July 31, 1993, 1992
and 1991, respectively.
(7) In August 1991, the Predecessor 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.
49
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion provides an assessment of the consolidated results
of operations and liquidity and capital resources of the Partnership and
should be read in conjunction with "Selected Historical Consolidated Financial
Data" and with the Consolidated Financial Statements of the Partnership and
the related notes thereto included elsewhere in this Prospectus.
GENERAL
The Partnership is engaged in the sale, distribution, marketing and trading
of propane and other natural gas liquids. The Partnership's revenue is derived
primarily from the retail propane marketing business. The General Partner
believes the Partnership is the second largest retail marketer of propane in
the United States based on gallons sold, serving more than 800,000
residential, industrial/commercial and agricultural customers in 45 states and
the District of Columbia through approximately 487 retail outlets and 251
satellite locations. Annual retail propane sales volumes were approximately
645 million and 671 million gallons, respectively, for the pro forma nine
months ended April 30, 1996 and the pro forma twelve months ended July 31,
1995.
The retail propane business of the Partnership consists principally of
transporting propane purchased in the contract and spot markets, primarily
from major oil companies, to its retail distribution outlets and then to tanks
located on the customers' premises, as well as to portable propane cylinders.
In the residential and commercial markets, propane is primarily used for space
heating, water heating and cooking. In the agricultural market, propane is
primarily used for crop drying, space heating, irrigation and weed control. In
addition, propane is used for certain industrial applications, including use
as an engine fuel which is burned in internal combustion engines that power
vehicles and forklifts and as a heating or energy source in manufacturing and
drying processes.
The Partnership is also engaged in the trading of propane and other natural
gas liquids, chemical feedstocks marketing and wholesale propane marketing.
Through its natural gas liquids trading operations and wholesale marketing,
the Partnership is one of the largest independent traders of propane and
natural gas liquids in the United States. In the pro forma nine months ended
April 30, 1996 and the pro forma twelve months ended July 31, 1995, the
wholesale and trading sales volume was approximately 1.4 billion and 1.6
billion gallons, respectively, of propane and other natural gas liquids, of
which 46% and 60%, respectively, was propane. For the pro forma nine months
ended April 30, 1996 and the pro forma twelve months ended July 31, 1995, the
net revenues from trading activities were $5.1 million and $5.8 million,
respectively.
RECENTLY COMPLETED ACQUISITIONS
On April 30, 1996, Ferrellgas acquired all of the outstanding capital stock
of Skelgas from the Seller. Ferrellgas paid $89.3 million in cash for the
stock of Skelgas. In addition, Ferrellgas will pay $1.2 million for a
noncompete agreement with the Seller, payable in three equal annual
installments of $400,000 commencing on the closing date. During the year ended
December 31, 1995, Skelgas had revenues of $75.2 million and sold
approximately 96 million gallons of propane.
On April 19, 1996, Ferrellgas acquired all of the outstanding capital stock
of Superior from the Heaths. During the year ended July 31, 1995, Superior had
revenues of $12.7 million and sold approximately 11.5 million gallons of
propane. Ferrellgas paid $18.9 million for the stock of Superior, $15.5
million of which was paid in cash at closing and $3.4 million of which was
paid at closing in the form of 6% promissory notes having a term of five
years. In addition, Ferrellgas will pay a total of $1.0 million for noncompete
agreements with the Heaths, payable in installments over five years.
The Partnership expects these acquisitions to expand its presence in both
new and existing residential and commercial/retail propane markets thus
following the Partnership's long held strategy of focusing on residential and
commercial retail propane operations.
50
<PAGE>
RESULTS OF OPERATIONS
The propane industry is seasonal in nature with peak activity during the
winter months. Due to the seasonality of the business, results of operations
for the nine months ended April 30, 1996 and 1995, are not necessarily
indicative of the results to be expected for a full year. Other factors
affecting the results of operations include competitive conditions, demand for
product, variations in weather and fluctuations in propane prices. See "--
Selected Quarterly Financial Data of the Partnership."
NINE MONTHS ENDED APRIL 30, 1996 VERSUS NINE MONTHS ENDED APRIL 30, 1995
Total Revenues. Total revenues increased 9.4% to $553,712,000 as compared to
$506,087,000 for the prior period. The increase is primarily attributable to
the impact of colder weather on retail volumes and increased sales price per
gallon in the second and third quarters and acquisitions of propane
businesses, partially offset by declines in revenues in other operations (net
trading operations, wholesale marketing and chemical feedstocks marketing)
which decreased 22.9% to $84,433,000, and the impact of warmer weather in the
first quarter. To date, fiscal 1996 winter temperatures, as reported by the
American Gas Association, are 14.3% colder than the same period last year and
3.0% colder than normal. The decrease in revenues from other operations is
primarily due to a decrease in chemical feedstocks marketing revenues due to a
decrease in sales volume and selling price. Both volume and margins decreased
as a result of decreased availability of product from refineries and decreased
demand from petrochemical companies.
Gross Profit. Gross profit increased 14.4% to $252,868,000 as compared to
$221,028,000 for the prior period. The increase is primarily attributable to a
$24,673,000 increase from retail sales gross profit. Retail operations results
increased primarily due to an increase in gallons sold to 557,897,000 gallons
as compared to 493,584,000 for the prior period and improved sales mix,
partially offset by a slight decrease in retail margins. The increase in
gallons is primarily attributable to favorable weather and acquisition related
growth. Increased sales to the residential customer base improved the sales
mix, while greater price competition by independent operators and some major
marketers slightly reduced the overall gross margin per gallon. Other
operations increased gross profit due to the impact of the colder weather.
Operating Expenses. Operating expenses increased 11.7% to $134,363,000 as
compared to $120,335,000 for the prior period. The increase is primarily
attributable to acquisitions of propane businesses as well as increases in
payroll and delivery costs associated with higher retail and wholesale
volumes.
Depreciation and Amortization. Depreciation and amortization expense
increased 8.3% to $25,839,000 as compared to $23,855,000 for the prior period
due primarily to acquisitions of propane businesses.
Interest Expense. Interest expense increased 13.8% to $26,775,000 as
compared to $23,536,000 in the prior period. This increase is primarily the
result of the increase in the net borrowings from the Operating Partnership's
revolving credit loans, partially offset by decreasing interest rates. The
Partnership expects interest expense to increase due to the effect of the
issuance of the Senior Notes in April 1996.
FISCAL YEAR ENDED JULY 31, 1995 VERSUS PRO FORMA YEAR ENDED JULY 31, 1994
The pro forma year ended July 31, 1994 equals the sum of the Predecessor's
eleven months ended June 30, 1994 and the Partnership's one month ended July
31, 1994, adjusted for the effects of the transactions consummated in
connection with the formation of the Partnership (principally related to the
reduction in interest expense resulting from early retirement of debt, net of
additional borrowings).
Total Revenues. Total revenues increased 13.3% to $596,436,000 as compared
to $526,556,000 for the prior year. The increase is attributable to
acquisitions of propane businesses during November 1994 and to revenues from
other operations (net trading operations, wholesale propane marketing and
chemical feedstocks marketing) increasing 82.4% to $131,948,000. The increase
in revenues from other operations is primarily due to an
51
<PAGE>
unusually strong demand for chemical feedstocks driving increased prices and
volumes. These increases were offset by a decrease in revenues from existing
retail operations due to warmer temperatures as compared to normal and to the
prior period that affected the majority of the Operating Partnership's areas
of operation. Unrealized gains and losses on options, forwards, and futures
contracts were not significant in fiscal 1995 and 1994. Fiscal 1995 winter
temperatures, as reported by the American Gas Association, were 10.3% warmer
than normal and 12.4% warmer than the prior year. The average degree days in
regions served by the Partnership have historically varied on an annual basis
by a greater amount than the average national degree days.
Gross Profit. Total retail gallons sold increased 2.1% to 576 million as
compared to 564 million for the prior year. This increase is due to sales
contributed by acquisitions, partially offset by warmer temperatures. Despite
the increase in sales volume, gross profit was essentially flat at
$256,795,000 as compared with $257,250,000 for the prior year due primarily to
the weather impact on higher margin residential sales. Other operations is
comprised of low margin sales, therefore, the increase in revenues did not
impact gross profit significantly.
Operating Expenses. Operating expenses increased 5.6% to $153,225,000 as
compared to $145,136,000 for the prior year. The increase is primarily
attributable to acquisitions of propane businesses offset by a reduction in
expenses of the base business (primarily personnel and vehicle expenses) as
compared to the prior year.
Depreciation and Amortization. Depreciation and amortization expense
increased 11.0% to $32,014,000 as compared to $28,835,000 for the prior year
due primarily to acquisitions of propane businesses.
Net Earnings. Net earnings decreased to $24,064,000 as compared to
$40,312,000 for the prior year. This decrease is due to acquisition-driven
increases in expenses, including interest expense, combined with the warm
weather impact on gross profit.
INCEPTION TO JULY 31, 1994 VERSUS PRO FORMA JULY 1993
<TABLE>
<CAPTION>
INCEPTION
TO
JULY 31, PRO FORMA
1994 JULY 1993
----------- -----------
<S> <C> <C>
Revenues.......................................... $24,566,000 $26,535,000
Gross profit...................................... 11,355,000 10,235,000
Operating expense................................. 10,078,000 8,299,000
Extraordinary loss................................ 60,062,000 --
Net loss.......................................... 65,139,000 4,322,000
</TABLE>
Total Revenues. Total revenues decreased 7.4% to $24,566,000 as compared
with $26,535,000 for the prior period. The overall decrease was attributable
to revenues from other operations (net trading operations, wholesale propane
marketing and chemical feedstocks marketing) decreasing 38.5% to $4,918,000,
offset by revenues from retail operations increasing 6.0% to $19,648,000.
The decrease in revenues from other operations was primarily due to
fluctuating chemical feedstock market opportunities.
The increase in revenues from retail operations was primarily due to (i) an
increase in sales volume and (ii) an increase in other income. The volume of
gallons sold, excluding acquisitions, increased revenues by $361,000. Fiscal
year 1994 and 1993 acquisitions increased revenues by $160,000. Other income
increased revenue by $592,000 primarily due to inventory gas gains recognized
from the emptying of an underground storage facility and storage rental
income.
Gross Profit. Gross profit increased 10.9% to $11,355,000 as compared with
$10,235,000 for the prior period, due to an increase in retail operations
gross profit offset by a decrease in other operations' revenue due to normal
market fluctuations. Retail operations results improved due to increased sales
volume as discussed previously, margin increases as a result of favorable
changes in the competitive pressures of the industry and normal fluctuations
in the Operating Partnership's product mix and other income as discussed
above.
52
<PAGE>
Operating Expenses. Operating expenses increased 21.4% to $10,078,000 as
compared with $8,299,000, for the prior period, primarily due to an increase
in general liability and workers' compensation expense during July 31, 1994,
as compared to July 31, 1993. However, for the pro forma fiscal year ended
July 31, 1994, general liability and workers' compensation expense decreased
due to improved claims administration.
Extraordinary loss. The retirement of $477,600,000 of indebtedness assumed
by the Operating Partnership resulted in an extraordinary loss of
approximately $60,062,000 resulting from debt repayment premiums, consent fees
and the write-off of unamortized discount and financing costs.
Net Loss. Net loss increased to $65,139,000 as compared to $4,322,000 for
the prior period, primarily due to the extraordinary loss described above.
ELEVEN MONTHS ENDED JUNE 30, 1994 VERSUS ELEVEN MONTHS ENDED JUNE 30, 1993
(PREDECESSOR)
<TABLE>
<CAPTION>
ELEVEN ELEVEN
MONTHS MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1994 1993
------------ ------------
<S> <C> <C>
Revenues....................................... $501,990,000 $515,410,000
Gross profit................................... 245,895,000 233,677,000
Operating expense.............................. 135,058,000 131,318,000
Depreciation and amortization.................. 26,452,000 28,350,000
Net interest expense........................... 50,094,000 52,080,000
Net earnings................................... 11,470,000 3,374,000
</TABLE>
Total Revenues. Total revenues decreased 2.6% to $501,990,000 as compared
with $515,410,000 for the prior period. The overall decrease was attributable
to revenues from other operations decreasing 17.2% to $67,386,000, offset by
revenues from retail operations increasing 0.1% to $434,604,000.
The decrease in revenues from other operations was primarily due to higher
sales of chemical feedstocks in the prior period resulting from sales of
chemical feedstocks that were designated for storage but were sold due to
storage limitations. Additional decreases in revenues were the result of lower
product costs for chemical feedstocks and wholesale propane marketing
resulting in lower sales prices.
The increase in revenues from retail operations was primarily due to an
increase in sales volume due to cooler temperatures than those which existed
in the prior period offset by a decrease in selling price. The volume of
gallons sold, excluding acquisitions, increased revenues by $6,203,000. Fiscal
year 1994 and 1993 acquisitions increased revenues by $1,915,000. Other income
increased revenue $954,000 primarily due to increased storage and equipment
rental and appliance sales. These increases were offset by a $8,473,000
decrease in sales price due to lower product costs.
Gross Profit. Gross profit increased 5.2% to $245,895,000 as compared with
$233,677,000 for the prior period, primarily due to an increase in retail
operations gross profit. Retail operations results improved due to increased
sales volume as discussed previously and to margin increases as a result of
favorable changes in the competitive pressures of the industry and to normal
fluctuations in the Predecessor's product mix.
Operating Expenses. Operating expenses increased 2.8% to $135,058,000 as
compared with $131,318,000 for the prior period, primarily due to (i) an
increase in incentive compensation expense, and (ii) an increase in overtime,
variable labor and vehicle expenses due to increased sales volume. These
increases were partially offset by a decrease in general liability and
workers' compensation expense due to improved claims administration and
decreased sales and use tax audit assessments.
Depreciation and Amortization. Depreciation expense decreased 6.7% to
$26,452,000 as compared with $28,350,000 for the prior period due primarily to
extending the use of the Predecessor's vehicles beyond the depreciable life
and to the reduction in the number of Predecessor owned vehicles.
53
<PAGE>
Net Interest Expense. Net interest expense decreased 3.8% to $50,094,000 as
compared with $52,080,000 for the prior period due to the reacquisition of
$11,900,000 and $10,500,000 of senior notes in the third quarter of fiscal
1994 and in the fourth quarter of fiscal 1993, respectively, offset by
increased non-cash amortization of deferred financing costs.
Net Earnings. Net earnings increased to $11,470,000 as compared with
$3,374,000 for the prior period primarily due to the increase in retail
operations sales volume and margins offset by increased operating expenses and
the fiscal 1994 extraordinary loss from early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
The ability of the Partnership to satisfy its obligations is dependent upon
future performance, which will be subject to prevailing economic, financial,
business and weather conditions and other factors, many of which are beyond
its control. For the fiscal year ending July 31, 1996, the General Partner
believes that the Operating Partnership will generate sufficient cash flow
from operating activities to meet its obligations, and enable it to distribute
to the Partnership sufficient cash to permit the Partnership to meet its
obligations with respect to the Senior Notes and to distribute the Minimum
Quarterly Distribution (as hereinafter defined) of $0.50 per Unit on all
Common Units and Subordinated Units. Future maintenance and working capital
needs of the Operating Partnership are expected to be provided by cash
generated from future operations, existing cash balances and the working
capital borrowing facility. In order to fund expansive capital projects and
future acquisitions, the Operating Partnership may borrow on existing bank
lines or the Partnership may issue additional Common Units. Toward this
purpose, the Partnership maintains a shelf registration statement filed with
the Commission registering 2,400,000 Common Units representing limited partner
interests in the Partnership. The Common Units may be issued from time to time
by the Partnership in connection with acquisitions of other businesses,
properties or securities in business combination transactions.
The following table summarizes the cash distributions to unitholders since
the inception of the Partnership.
<TABLE>
<CAPTION>
CASH
QUARTER DECLARATION RECORD PAID DISTRIBUTION
ENDING DATE DATE DATE PER UNIT
------- ----------- -------- -------- ------------
<S> <C> <C> <C> <C>
10/31/94 11/18/94 11/30/94 12/14/94 $0.65(a)
01/31/95 02/17/95 02/28/95 03/14/95 0.50
04/30/95 05/19/95 05/31/95 06/12/95 0.50
07/31/95 08/16/95 08/31/95 09/13/95 0.50
10/31/95 11/17/95 11/30/95 12/14/95 0.50
01/31/96 02/20/96 02/29/96 03/14/96 0.50
04/30/96 05/20/96 05/31/96 06/14/96 0.50
</TABLE>
- --------
(a) This initial cash distribution covered the period from July 5, 1994, when
the Partnership began operations, to October 31, 1994, the end of the
first full fiscal quarter. Accordingly, the distribution was prorated.
Cash Flows From Operating Activities. Cash provided by operating activities
was $66,013,000 for the nine months ended April 30, 1996. This slight increase
of $567,000 as compared to the nine months ended April 30, 1995 is primarily
due to the increased net income offset by the increase in accounts receivable.
Accounts receivable increased due to colder weather impact of increased
deliveries of product in the third quarter of 1996 as compared to the same
period last year.
Cash provided by operating activities was $66,030,000 for the year ended
July 31, 1995, compared to $41,766,000 in the prior year. This increase is due
to the year to year reduction in debt which resulted in the $41,856,000
decrease in interest payments offset by lower earnings before interest, taxes,
depreciation and amortization. The decrease in interest payments resulted from
debt retirements made subsequent to the formation of the Partnership.
54
<PAGE>
Cash Flows From Investing Activities. During the nine months ended April 30,
1996, the Operating Partnership made total acquisition capital expenditures of
$29,322,000 (including working capital acquired of $1,015,000). This amount
was financed by $3,342,000 cash, $20,956,000 debt incurred, $3,900,000
issuance of Common Units, and $1,124,000 other costs and consideration. The
Partnership continues seeking to expand its operations through strategic
acquisitions of smaller retain propane operations located throughout the
United States. These acquisitions will be funded through internal cash flow,
external borrowings or the issuance of additional Partnership interests. See
"Subsequent Event" below for discussion of a significant acquisition
consummated in May, 1996.
During the nine months ended April 30, 1996, the Partnership made aggregate
growth and maintenance capital expenditures of $10,391,000 consisting
primarily of the following: 1) additions to Partnership-owned customers tanks
and cylinders, 2) vehicle lease buyouts, 3) relocating and upgrading district
plant facilities, and 4) development and upgrading computer equipment and
software. Capital requirements for repair and maintenance of property, plant
and equipment are relatively low since technological change is limited and the
useful lives of propane tanks and cylinders, the Operating Partnership's
principal physical assets, are generally long. The Operating Partnership
maintains its vehicle and transportation equipment fleet primarily by leasing
light- and medium-duty trucks and trailers. The General Partner believes
vehicle leasing is a cost effective method for meeting the Partnership's
transportation equipment needs. The Partnership does not have any material
commitments of funds for capital expenditures other than to support the
current level of operations.
On November 1, 1994, the General Partner completed the acquisition of Vision
for a cash purchase price of $45 million. Following the closing of the
acquisition, the General Partner contributed the net assets (excluding income
tax liabilities) of Vision to the Operating Partnership, in exchange for the
assumption of a $45 million loan obligation and issuance of $3,100,000 in
Common Units for the value of the income tax liabilities retained by the
General Partner. Including the Vision acquisition, the Partnership made total
acquisition capital expenditures of $73,351,000 (including working capital
acquired of $3,282,000) during the fiscal year ended July 31, 1995. This
amount was funded by $45,000,000 debt assumed, $19,677,000 cash payments,
$6,600,000 Common Units issued, and $2,074,000 in other costs and
consideration.
During the year ended July 31, 1995, the Partnership made growth and
maintenance capital expenditures of $19,722,000 consisting primarily of the
following: (1) additions to Partnership-owned customer tanks and cylinders,
(2) relocating and upgrading district plant facilities, and (3) development
and upgrading computer equipment and software. Capital requirements for repair
and maintenance of property, plant and equipment are relatively low since
technological change is limited and the useful lives of propane tanks and
cylinders, the Partnership's principal physical assets, are generally long.
The Partnership maintains its vehicle and transportation equipment fleet by
initially leasing light and medium duty trucks and tractors. The General
Partner believes vehicle leasing is a cost effective method for meeting the
Partnership's transportation equipment needs. The Partnership continues
seeking to expand its operations through strategic acquisitions of smaller
retail propane operations located throughout the United States. These
acquisitions will be funded through internal cash flow, external borrowings or
the issuance of additional Partnership interests. The Partnership does not
have any material commitments of funds for capital expenditures other than to
support the current level of operations.
Cash Flows From Financing Activities. On April 26, 1996, the Partnership
issued $160,000,000 of 9-3/8% Senior Secured Notes due 2006. These notes will
be redeemable at the option of the Partnership, in whole or in part, at any
time on or after June 21, 2001. Interest is payable semi-annually in arrears
on June 15 and December 15 of each commencing on December 15, 1996. A portion
of the net proceeds was used to retire outstanding indebtedness of $88,800,000
under the Operating Partnership's credit facility. The remaining was held in
cash equivalents to be used for future acquisitions. See "Subsequent Event"
below for discussion of a significant acquisition consummated in May 1996.
On November 14, 1994, the Partnership filed Amendment No. 1 to Form S-1
Registration Statement with the Commission to register 2,400,000 Common Units
representing limited partner interests in the Partnership. The registration
statement was declared effective November 15, 1994. The Common Units may be
issued from
55
<PAGE>
time to time by the Partnership in exchange for other businesses, properties
or securities in business combination transactions. During the year ended July
31, 1995, the Partnership issued 298,942 Common Units in connection with the
acquisition of propane businesses.
On July 21, 1995, the Operating Partnership entered into an amendment to its
$185,000,000 Credit Facility with Bank of America National Trust & Savings
Association ("BofA"), as Agent, which increased the maximum borrowing amount
to $205,000,000, effective August 1, 1995. The amended Credit Facility permits
borrowings of up to $95,000,000 on a senior unsecured revolving line of credit
basis (the "Working Capital Facility"), to fund working capital and general
Partnership requirements (of which up to $50,000,000 is available to support
letters of credit). At July 31, 1995, $20,000,000 of borrowings were
outstanding under the Working Capital Facility, and letters of credit
outstanding, used primarily to secure obligations under certain insurance
arrangements, totaled $24,471,000. In addition, the amended Credit Facility
permits borrowings under an Expansion Facility of up to $110,000,000 on a
senior unsecured basis, of which $85,000,000 was borrowed and outstanding at
July 31, 1995, and, at July 31, 1995, $25,000,000 was available to finance
acquisitions and for capital additions and improvements.
During the year ended July 31, 1995, the Operating Partnership borrowed
$102,000,000 under its Credit Facility. These borrowings, along with cash
provided by operations, were used to fund acquisitions of propane businesses
and purchases of property, plant and equipment, and to fund working capital
needs.
Effects of Inflation. In the past the Partnership has generally been able to
adjust its sales price of product in response to market demand, cost of
product, competitive factors and other industry trends. Consequently, changing
prices as a result of inflationary pressures has not had a material adverse
effect on profitability although revenues may be affected. Inflation has not
materially impacted the results of operations and management does not believe
normal inflationary pressures will have a material adverse effect on the
profitability of the Partnership in the future.
Subsequent Events. On April 30, 1996, Ferrellgas purchased all of the stock
of Skelgas for a cash purchase price of $89,650,000 (including working capital
and the first installment on a noncompete agreement of $400,000). As of May 1,
1996 Ferrellgas (i) caused Skelgas and each of its subsidiaries to be merged
into Ferrellgas and (ii) transferred all of the assets of Skelgas and its
subsidiaries to the Operating Partnership. In exchange, the Operating
Partnership assumed substantially all of the liabilities, whether known or
unknown, associated with Skelgas and its subsidiaries and their propane
business (excluding income tax liabilities). In consideration of the retention
by Ferrellgas of certain income tax liabilities, the Partnership issued 41,203
Common Units to Ferrellgas. The liabilities assumed by the Operating
Partnership included the obligations of Ferrellgas under the BofA Acquisition
Loan. Immediately following the transfer of assets and related transactions
described above, the Operating Partnership repaid the BofA Acquisition Loan
with cash and borrowings under the Operating Partnership's existing
acquisition bank credit line.
On July 31, 1996, the Operating Partnership expects to enter into an
amendment to its $205,000,000 Credit Facility with BofA, which will increase
the maximum borrowing amount to $255,000,000. The amended Credit Facility will
permit borrowings of up to $20,000,000 on a senior unsecured revolving line of
credit basis (the "Working Capital Facility") to fund working capital and
borrowings of up to $185,000,000 on a senior unsecured revolving line of
credit basis (the "Revolving Credit Facility") for general Partnership
requirements (of which up to $50,000,000 will be available to support letters
of credit). In addition, the amended Credit Facility will provide for a senior
unsecured term loan in the amount of $50,000,000 with the proceeds to be used
to redeem the Operating Partnership's Floating Rate Notes in the aggregate
principal amount of $50,000,000. The Operating Partnership expects to borrow
the full amount of the term loan and redeem its Floating Rate Notes on July
31, 1996.
ADOPTION OF NEW ACCOUNTING STANDARDS
On July 31, 1995, the Partnership adopted the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of," which requires impairment losses to be recorded on long-
lived assets used in operations when indicators of impairment are present, and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Adoption of SFAS No. 121 had no impact on
the Partnership's financial statements.
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<PAGE>
Effective August 1, 1996, SFAS No. 123, "Accounting for Stock-Based
Compensation," will require increased disclosure of compensation expense
arising from stock compensation plans (including the Partnership's unit option
plan). The Statement encourages rather than requires entities to adopt a new
method that accounts for stock compensation awards based on their estimated
fair value at the date they are granted. Entities will be permitted, however,
to continue accounting under APB Opinion No. 25 which requires compensation
cost to be recognized based on the excess, if any, between the quoted market
price of the units at the date of grant and the amount an employee must pay to
acquire the units. The Partnership will continue to apply APB Opinion No. 25
in its consolidated financial statements and will disclose pro forma net
income and earnings per unit in a footnote to its consolidated financial
statements, determined as if the new method were applied.
SELECTED QUARTERLY FINANCIAL DATA OF THE PARTNERSHIP
(In thousands)
Due to the seasonality of the retail propane business, first and fourth
quarter revenues, gross profit and net earnings are consistently less than the
comparable second and third quarter results. The following presents Ferrellgas
Partners, L.P. selected quarterly financial data for the nine months ended
April 30, 1996 and the two years ended July 31, 1995 respectively.
NINE MONTHS ENDED APRIL 30, 1996
<TABLE>
<CAPTION>
FIRST SECOND THIRD
QUARTER QUARTER QUARTER
-------- -------- --------
<S> <C> <C> <C>
Revenues.............................. $124,588 $238,381 $190,743
Gross profit.......................... 55,479 111,909 85,480
Net earnings (loss)................... (7,303) 41,476 18,012
Net earnings (loss) per limited
partner unit......................... (0.23) 1.32 0.57
FISCAL YEAR ENDED JULY 31, 1995
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues.............................. $119,413 $218,661 $168,013 $90,349
Gross profit.......................... 52,002 95,772 73,254 35,767
Net earnings (loss)................... (666) 30,527 11,939 (17,980)
Net earnings (loss) per limited
partner unit......................... (0.02) 0.98 0.38 (0.58)
FISCAL YEAR ENDED JULY 31, 1994
<CAPTION>
PREDECESSOR
---------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER(1)
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues.............................. $110,214 $193,922 $146,341 $76,079
Gross profit.......................... 49,699 98,458 72,994 36,099
Earnings (loss) before extraordinary
loss................................. (5,537) 19,580 6,313 (13,045)
Earning (loss) before extraordinary
loss per limited partner unit(2)..... N/A N/A N/A N/A
Net earnings (loss)................... (5,537) 19,580 5,446 (72,500)(3)
</TABLE>
- --------
(1) The fourth quarter includes the sum of the historical data for Ferrellgas,
Inc. and its Subsidiaries (Predecessor) for the period from May 1, 1994
through June 30, 1994 and the historical data for Ferrellgas Partners,
L.P. from Inception to July 31, 1994.
(2) Earnings (loss) per limited partner unit is not relevant for the fiscal
year ended July 31, 1994 because the Partnership was not formed until
July, 1995.
(3) Reflects a $59,455 extraordinary loss on early retirement of debt.
57
<PAGE>
BUSINESS
GENERAL
The Partnership is engaged in the sale, distribution, marketing and trading
of propane and other natural gas liquids. The discussion that follows focuses
on the Partnership's retail operations and its other operations, which consist
primarily of propane and natural gas liquids trading operations, chemical
feedstocks marketing and wholesale propane marketing.
The Partnership believes it is the second largest retail marketer of propane
in the United States based on gallons sold, serving more than 800,000
residential, industrial/commercial and agricultural customers in 45 states and
the District of Columbia through approximately 487 retail outlets with 251
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, a wholly owned
subsidiary of Ferrell, serves as General Partner of the Partnership. The
Partnership acquired the propane business and assets of Ferrellgas in July
1994.
Retail propane sales volumes were approximately 645 million and 671 million
gallons, respectively, during the pro forma nine months ended April 30, 1996
and the pro forma twelve months ended July 31, 1995, respectively. Earnings
from continuing operations for the same respective periods were $49.6 million
and $21.8 million. See "Unaudited Pro Forma Combined Financial Statements."
The Partnership also believes it is a leading natural gas liquids trading
company. Annual propane and natural gas liquids trading, chemical feedstocks
and wholesale propane sales volumes were approximately 1.4 billion and 1.6
billion gallons during the pro forma nine months ended April 30, 1996 and the
pro forma twelve months ended July 31, 1995, respectively.
RETAIL OPERATIONS
Formation
Ferrell, the parent of Ferrellgas, was founded in 1939 as a single retail
propane outlet in Atchison, Kansas and was incorporated in 1954. In 1984, a
subsidiary was formed under the name Ferrellgas, Inc. to operate the retail
propane business previously conducted by Ferrell. Ferrell is primarily owned
by James E. Ferrell and his family. Ferrellgas' initial growth was largely the
result of small acquisitions in the rural areas of eastern Kansas, northern
and central Missouri, Iowa, western Illinois, southern Minnesota, South Dakota
and Texas. In July 1984, Ferrellgas acquired propane operations with annual
retail sales volumes of approximately 33 million gallons and in December 1986,
Ferrellgas acquired propane operations with annual retail sales volumes of
approximately 395 million gallons. These major acquisitions and many other
smaller acquisitions have significantly expanded and diversified Ferrellgas'
geographic coverage. In July 1994, the propane business and assets of
Ferrellgas were contributed to the Partnership.
Business Strategy
The Partnership's business strategy is to continue its historical focus on
residential and commercial retail propane operations and to expand its
operations and increase its market share both through the acquisition of local
and regional propane distributors and through internal growth by increased
competitiveness and the opening of new locations. Acquisitions will be an
important element of growth for the Partnership, as the overall demand for
propane is expected to remain relatively constant for the foreseeable future,
with year-to-year industry volumes being affected primarily by weather
patterns. The General Partner believes there are numerous potential
acquisition candidates because the propane industry is highly fragmented, with
over 5,000 retailers and with the ten largest retailers comprising 33% of
industry sales. The Partnership's retail operations accounted for
approximately 8% of the retail propane purchased in the United States in 1995,
as measured by gallons sold.
58
<PAGE>
Historically, the Partnership and the Predecessor have been successful in
acquiring independent propane retailers and integrating them into their
existing operations at what they believe to be attractive returns. Since 1986,
and as of May 1, 1996, the Partnership and the Predecessor have acquired a
total of 95 smaller propane businesses. Except for the acquisition of Vision
in November of 1995 and the acquisition of Skelgas, none of the acquisitions
was individually material. For the nine months ended April 30, 1996 and the
five fiscal years in the period ended July 31, 1995, the Partnership or the
Predecessor have invested approximately $27.7 million, $70.1 million, $3.4
million, $0.9 million, $10.1 million and $25.3 million respectively, to
acquire propane businesses with annual retail propane sales volumes of
approximately 15.1 million, 70.0 million, 2.5 million, 0.7 million, 8.6
million and 18.0 million gallons, respectively, at the time of acquisition.
The Partnership intends to concentrate its acquisition activities in
geographical areas in close proximity to the Partnership's existing operations
and to acquire propane retailers that can be efficiently combined with such
existing operations to provide an attractive return on investment after taking
into account the efficiencies which may result from such combination. However,
the Partnership will also pursue acquisitions which broaden its geographic
coverage. The Partnership's goal in any acquisition will be to improve the
operations and profitability of these smaller companies by integrating them
into the Partnership's established supply network. The General Partner
regularly evaluates a number of propane distribution companies which may be
candidates for acquisition. The General Partner believes that there are
numerous local retail propane distribution companies that are possible
candidates for acquisition by the Partnership and that the Partnership's
geographic diversity of operations helps to create many attractive acquisition
opportunities. The Partnership intends to fund acquisitions through internal
cash flow, external borrowings or the issuance of additional Common Units. The
Partnership's ability to accomplish these goals will be subject to the
continued availability of acquisition candidates at prices attractive to the
Partnership. There is no assurance the Partnership will be successful in
increasing the level of acquisitions or that any acquisitions that are made
will prove beneficial to the Partnership. See "The Skelgas and Superior
Acquisitions."
In addition to growth through acquisitions, the General Partner believes
that the Partnership may also achieve growth within its existing propane
operations. Historically, the Partnership and Ferrellgas have experienced
modest internal growth in their customer base. As a result of its experience
in responding to competition and in implementing more efficient operating
standards, the General Partner believes that it has positioned the Partnership
to be more successful in direct competition for customers. The Partnership
currently has marketing programs underway which focus specific resources
toward this effort.
Marketing
Natural gas liquids are derived from petroleum products and sold in
compressed or liquefied form. Propane, the predominant type of natural gas
liquid, is typically extracted from natural gas or separated during crude oil
refining. Although propane is gaseous at normal pressures, it is compressed
into liquid form at relatively low pressures for storage and transportation.
Propane, a by-product of natural gas processing and petroleum refining, is a
clean-burning energy source, recognized for its transportability and ease of
use relative to alternative forms of stand alone energy sources. In the
residential and commercial markets, propane is primarily used for space
heating, water heating and cooking. In the agricultural market propane is
primarily used for crop drying, space heating, irrigation and weed control. In
addition, propane is used for certain industrial applications, including use
as an engine fuel which is burned in internal combustion engines that power
vehicles and forklifts and as a heating or energy source in manufacturing and
dry processes. Consumption of propane as a heating fuel peaks in winter
months.
The retail propane business of the Partnership consists principally of
transporting propane to its retail distribution outlets and then to tanks
located on its customers' premises by large numbers of small volume deliveries
averaging approximately 200 gallons each. The market areas are generally rural
but also include suburban areas where natural gas service is not available.
The Partnership utilizes marketing programs targeting both new and existing
customers emphasizing its superior ability to deliver propane to customers as
well as its
59
<PAGE>
training and safety programs. The Partnership sells propane primarily to four
specific markets: residential, industrial/commercial, agricultural and other
(principally to other propane retailers and as engine fuel). During the pro
forma nine months ended April 30, 1996, sales to residential customers
accounted for 60% of the Partnership's retail gross profits, sales to
industrial/commercial customers accounted for 26% of the Partnership's retail
gross profits and sales to agricultural and other customers accounted for 14%
of the Partnership's retail gross profits. Residential sales generally have a
greater profit margin, and a more stable customer base and tend to be less
sensitive to price changes than the other markets served by the Partnership.
No single customer of the Partnership accounts for 10% or more of the
Partnership's consolidated revenues.
Profits in the retail propane business are primarily based on margins, the
cents-per-gallon difference between the purchase price and the sales price of
propane. The Partnership generally purchases propane in the contract and spot
markets, primarily from natural gas processing plants and major oil companies
on a short-term basis. Therefore, its supply costs generally fluctuate with
market price fluctuations. Should wholesale propane prices decline in the
future, the General Partner believes the Partnership's margins on its retail
propane distribution business should increase in the short-term because retail
prices tend to change less rapidly than wholesale prices. Should the wholesale
cost of propane increase, for similar reasons retail margins and profitability
would likely be reduced at least for the short-term until retail prices can be
increased.
Retail propane customers typically lease their stationary storage tanks from
their propane distributors. Approximately 70% of the Partnership's customers
lease their tank from the Partnership. The lease terms and, in most states,
certain fire safety regulations, restrict the refilling of a leased tank
solely to the propane supplier that owns the tank. The cost and inconvenience
of switching tanks minimizes a customer's tendency to switch among suppliers
of propane on the basis of minor variations in price.
The retail market for propane is seasonal because it is used primarily for
heating in residential and commercial buildings. Consequently, sales and
operating profits are concentrated in the second and third fiscal quarters
(November through April). While the propane distribution business is seasonal
in nature and historically sensitive to variations in weather, management
believes that the geographical diversity of the Partnership's areas of
operations helps to minimize the Partnership's exposure to regional weather or
economic patterns. Furthermore, long-term, historic weather data from the
National Climatic Data Center indicate that the average annual temperatures
have remained relatively constant over the last 30 years with fluctuations
occurring on a year-to-year basis only. During times of colder-than-normal
winter weather, the Partnership has been able to take advantage of its large,
efficient distribution network to help avoid supply disruptions such as those
experienced by some of its competitors, thereby broadening its long-term
customer base.
The following chart illustrates the impact of annual variations in weather
on the Partnership's sales volumes. Set forth are (i) the population weighted
average national degree days (a measure of the relative warmth of a particular
year in which a larger number indicates a colder year) which are developed by
the National Weather Service Climate Prediction Center, (ii) degree days as a
percentage of average normal degree days (100.0% represents a normal year with
larger percentages representing colder-than-normal years and smaller
percentages representing warmer-than-normal years), and (iii) the annual
retail propane sales volumes of the Partnership for the five fiscal years
ended July 31, 1995. The average degree days in regions served by the
Partnership have historically varied on an annual basis by a greater amount
than the average national degree days and there can be no assurance that
average temperatures in future years will be close to the historical average.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JANUARY 31, FOR THE YEAR ENDED JULY 31,
------------ ---------------------------------
1996 1995 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
National Degree Days(1)....... 2,739 2,366 4,242 4,650 4,688 4,346 4,129
Degree Days as % of Normal
Degree Days(1)............... 102.8% 88.8% 92.7% 101.6% 102.4% 92.7% 88.1%
Sales Volumes (in millions of
gallons)(2)................... 374 331 576 564 553 496 486
</TABLE>
60
<PAGE>
- --------
(1) National degrees days and normal degree days are based on population
weighted census data and are restated and revised by the National Weather
Service at certain times based on a variety of factors.
(2) From Fiscal 1991 through Fiscal 1995, 40 acquisitions were completed at a
total cost of approximately $109.8 million. The aggregate annual sales
volumes attributable to these acquisitions as of the date of each
acquisition were 70.0 million, 2.5 million, 0.7 million, 8.6 million and
18.0 million gallons for the five fiscal years ended July 31, 1995 back to
July 31, 1991, respectively.
Supply and Distribution
The Partnership purchases propane primarily from major domestic oil
companies. Supplies of propane from these sources have traditionally been
readily available, although no assurance can be given that supplies of propane
will be readily available in the future. As a result of (i) the Partnership's
ability to buy large volumes of propane and (ii) the Partnership's large
distribution system and underground storage capacity, the General Partner
believes that the Partnership is in a position to achieve product cost savings
and avoid shortages during periods of tight supply to an extent not generally
available to other retail propane distributors. The Partnership is not
dependent upon any single supplier or group of suppliers, the loss of which
would have a material adverse effect on the Partnership. For the year ended
July 31, 1995, no supplier at any single delivery point provided more than 10%
of the Partnership's total domestic propane supply. A portion of the
Partnership's propane inventory is purchased under supply contracts which
typically have a one year term and a fluctuating price relating to spot market
prices. Certain of the Partnership's contracts specify certain minimum and
maximum amounts of propane to be purchased thereunder. The Partnership may
purchase and store inventories of propane in order to help insure
uninterrupted deliverability during periods of extreme demand. The Partnership
owns three underground storage facilities with an aggregate capacity of
approximately 184 million gallons. Currently, approximately 104 million
gallons of this capacity is leased to third parties. The remaining space is
available for the Partnership's use.
Propane is generally transported from natural gas processing plants and
refineries, pipeline terminals and storage facilities to retail distribution
outlets and wholesale customers by railroad tank cars leased by the
Partnership and highway transport trucks owned or leased by the Partnership.
The Partnership operates a fleet of transport trucks to transport propane from
refineries, natural gas processing plants or pipeline terminals to its retail
distribution outlets. Common carrier transport trucks may be used during the
peak delivery season in the winter months or to provide service in areas where
economic considerations favor common carrier use. Propane is then transported
from the Partnership's retail distribution outlets to customers by its fleet
of 1,462 bulk delivery trucks, which are fitted generally with 2,000 to 3,000
gallon propane tanks. Propane storage tanks located on the customers' premises
are then filled from the delivery truck. Propane is also delivered to
customers in portable cylinders.
INDUSTRY AND COMPETITION
Industry
Based upon information contained in the most recently available Energy
Information Administration's Annual Energy Review magazine, propane accounts
for approximately 3-4% of household energy consumption in the United States,
an average level which has remained relatively constant for the past 18 years.
Propane competes primarily with natural gas, electricity and fuel oil as an
energy source principally on the basis of price, availability and portability.
Propane serves as an alternative to natural gas in rural and suburban areas
where natural gas is unavailable or portability of product is required.
Propane is generally more expensive than natural gas on an equivalent BTU
basis in locations served by natural gas, although propane is often sold in
such areas as a standby fuel for use during peak demands and during
interruption in natural gas service. The expansion of natural gas into
traditional propane markets has historically been inhibited by the capital
costs required to expand distribution and pipeline systems. Although the
extension of natural gas pipelines tends to displace propane distribution in
the neighborhoods affected, the Partnership believes that new opportunities
for propane sales arise as more geographically remote neighborhoods are
developed. Propane is generally less expensive to use than
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<PAGE>
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, lessening
competition between such fuels. Because residential furnaces and appliances
that burn propane will not operate on fuel oil, a conversion from one fuel to
the other requires the installation of new equipment. The Partnership's
residential retail propane customers, therefore, will have an incentive to
switch to fuel oil only if fuel oil becomes significantly less expensive than
propane. Likewise, the Partnership may be unable to expand its customer base
in areas where fuel oil is widely used, particularly the Northeast, unless
propane becomes significantly less expensive than fuel oil. Alternatively,
many industrial customers who use propane as a heating fuel have the capacity
to switch to other fuels, such as fuel oil, on the basis of availability or
minor variations in price. Propane generally is becoming increasingly favored
over fuel oil and other alternative sources of fuel as an environmentally
preferred energy source.
Competition
In addition to competing with marketers of other fuels, the Partnership
competes with other companies engaged in the retail propane distribution
business. Competition within the propane distribution industry stems from two
types of participants: the larger multi-state marketers, and the smaller,
local independent marketers. Based upon information contained in the National
Propane Gas Association's LP-Gas Market Facts and the June 1995 issue of LP
Gas magazine, the Partnership believes that the ten largest multi-state retail
marketers of propane, including the Partnership, account for 33% of the total
retail sales of propane in the United States. Based upon information contained
in industry publications, the Partnership also believes no single marketer has
a greater than 10% share of the total market in the United States and that the
Partnership is the second largest retail marketer of propane in the United
States, with a market share of approximately 8% as measured by volume of
national retail propane sales.
Most of the Partnership's retail distribution outlets compete with three or
more marketers or distributors. The principal factors influencing competition
among propane marketers are price and service. The Partnership competes with
other retail marketers primarily on the basis of reliability of service and
responsiveness to customer needs, safety and price. Each retail distribution
outlet operates in its own competitive environment because retail marketers
locate in close proximity to customers to lower the cost of providing service.
The typical retail distribution outlet has an effective marketing radius of
approximately 25 miles.
OTHER OPERATIONS
The Partnership is also engaged in (1) the trading of propane and other
natural gas liquids, (2) chemical feedstocks marketing and (3) wholesale
propane marketing. The Partnership, through its natural gas liquids trading
operations and wholesale marketing, has become one of the largest independent
traders of propane and natural gas liquids in the United States. The
Partnership owns no properties that are material to these operations. These
operations may utilize available space in the Partnership's underground
storage facilities in the furtherance of these businesses. In the pro forma
nine months ended April 30, 1996 and the pro forma twelve months ended July
31, 1995, the Partnership's annual wholesale and trading sales volume was
approximately 1.4 billion and 1.6 billion gallons of propane and other natural
gas liquids, respectively, of which 46% and 60%, respectively, was propane.
Because the Partnership possesses a large distribution system, underground
storage capacity and the ability to buy large volumes of propane, the General
Partner believes that the Partnership is in a position to achieve product cost
savings and avoid shortages during periods of tight supply to an extent not
generally available to other retail propane distributors.
Trading
The Partnership's traders are engaged in trading propane and other natural
gas liquids for the Partnership's account and for supplying the Partnership's
retail and wholesale propane operations. The Partnership primarily trades
products purchased from its over 150 suppliers, however, it also conducts
transactions on the New York
62
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Mercantile Exchange. Trading activity is conducted primarily to generate a
profit independent of the retail and wholesale operations, but is also
conducted to insure the availability of propane during periods of short
supply. Propane represents between 45% and 60% of the Partnership's total
trading volume, with the remainder consisting principally of various other
natural gas liquids. The Partnership attempts to minimize trading risk through
the enforcement of its trading policies, which include total inventory limits
and loss limits, and attempts to minimize credit risk through credit checks
and application of its credit policies. However, there can be no assurance
that historical experience or the existence of such policies will prevent
trading losses in the future. For the pro forma nine months ended April 30,
1996 and the pro forma twelve months ended July 31, 1995, net revenues of $5.1
million and $5.8 million, respectively, were derived from trading activities.
Chemical Feedstocks Marketing
The Partnership is also involved in the marketing of refinery and
petrochemical feedstocks. Petroleum by-products are purchased from refineries
and sold to petrochemical plants. The Partnership leases 322 railroad tank
cars to facilitate product delivery. Revenues of $32.8 million and $91.9
million were derived from such activities for the pro forma nine months ended
April 30, 1996 and the pro forma twelve months ended July 31, 1995.
Wholesale Marketing
The Partnership engages in the wholesale distribution of propane to other
retail propane distributors. During the pro forma nine months ended April 30,
1996 and the pro forma twelve months ended July 31, 1995, the Partnership sold
73 million and 96 million gallons, respectively, of propane to wholesale
customers and had revenues attributable to such sales of $37.3 million and
$33.5 million, respectively.
EMPLOYEES
The Partnership has no employees and is managed by the General Partner
pursuant to the Partnership Agreement. At April 30, 1996 (and after giving
effect to the Skelgas Acquisition), the General Partner had 3,391 full-time
employees and 1,040 temporary and part-time employees. The number of temporary
and part-time employees is generally higher by approximately 350-500 people
during the winter heating season. The General Partner's full-time employees
were employed in the following areas:
<TABLE>
<S> <C>
Retail Locations.................................................... 2,893
Transportation and Storage.......................................... 170
Corporate Offices (Liberty, MO & Houston, TX)....................... 328
-----
Total............................................................... 3,391
=====
</TABLE>
Approximately 1 percent of the General Partner's employees are represented
by 8 local labor unions, which are all affiliated with the International
Brotherhood of Teamsters. The General Partner has not experienced any
significant work stoppages or other labor problems.
The supply, trading, chemical feedstocks marketing, distribution scheduling
and product accounting functions are operated primarily out of the offices
located in Houston, by a total full-time corporate staff of 74 people.
GOVERNMENTAL REGULATION; ENVIRONMENTAL AND SAFETY MATTERS
From August 1971 until January 1981, the United States Department of Energy
regulated the price and allocation of propane. The Partnership is no longer
subject to any similar regulation.
Propane is not a hazardous substance within the meaning of federal and state
environmental laws. In connection with all acquisitions of retail propane
businesses that involve the purchase of real estate, the
63
<PAGE>
Partnership conducts a due diligence investigation to attempt to determine
whether any substance other than propane has been sold from or stored on any
such real estate prior to its purchase. Such due diligence includes
questioning the sellers, obtaining representations and warranties concerning
the sellers' compliance with environmental laws and visual inspections of the
properties, whereby employees of the General Partner look for evidence of
hazardous substances or the coexistence of underground storage tanks.
With respect to the transportation of propane by truck, the Partnership is
subject to regulations promulgated under the Federal Motor Carrier Safety Act.
These regulations cover the transportation of hazardous materials and are
administered by the United States Department of Transportation. National Fire
Protection Association Pamphlet No. 58, which establishes a set of rules and
procedures governing the safe handling of propane, or comparable regulations,
have been adopted as the industry standard in a majority of the states in
which the Partnership operates. There are no material environmental claims
pending and the Partnership complies in all material respects with all
material governmental regulations and industry standards applicable to
environmental and safety matters.
SERVICE MARKS AND TRADEMARKS
The Partnership markets retail propane under the "Ferrellgas" tradename and
uses the tradename "Ferrell North America" for its other operations. In
addition, the Partnership has a trademark on the name "FerrellMeter," its
patented gas leak detection device. Ferrellgas contributed all of its rights,
title and interest in such tradenames and trademark in the continental United
States to the Partnership. The General Partner will have an option to purchase
such tradenames and trademark from the Partnership for a nominal value if the
General Partner is removed as general partner of the Partnership other than
for cause. If the General Partner ceases to serve as the general partner of
the Partnership for any other reason, it will have the option to purchase such
tradenames and trademark from the Partnership for fair market value.
BUSINESS OF FERRELLGAS FINANCE CORP. AND FERRELLGAS PARTNERS FINANCE CORP.
Ferrellgas Finance Corp., a Delaware corporation (the "OLP Finance Corp."),
was formed on April 28, 1994 and is a wholly owned subsidiary of the Operating
Partnership. Finance Corp., a Delaware corporation (together with the OLP
Finance Corp., the "Finance Corps."), was formed on March 28, 1996, and is a
wholly owned subsidiary of the Partnership. The Finance Corps. have nominal
assets and do not conduct any operations, but serve as co-obligors for
securities issued by the Operating Partnership and the Partnership. Certain
institutional investors that might otherwise be limited in their ability to
invest in securities issued by partnerships by reasons of the legal investment
laws of their states of organization or their charter documents, may be able
to invest in the Operating Partnership's or Partnership's securities because
the Finance Corps. are co-obligors. Accordingly, a discussion of the results
of operations, liquidity and capital resources of the Finance Corps. is not
presented.
PROPERTIES
The Partnership owned or leased the following transportation equipment which
was utilized primarily in retail operations, except for railroad tank cars,
which are used primarily by chemical feedstocks operations.
<TABLE>
<CAPTION>
OWNED LEASED TOTAL
----- ------ -----
<S> <C> <C> <C>
Truck tractors......................................... 88 42 130
Transport trailers..................................... 117 10 127
Bulk delivery trucks................................... 981 481 1,462
Pickup and service trucks.............................. 1,066 375 1,441
Railroad tank cars..................................... -- 322 322
</TABLE>
64
<PAGE>
The highway transport trailers have an average capacity of approximately
9,000 gallons. The bulk delivery trucks are generally fitted with 2,000 to
3,000 gallon propane tanks. Each railroad tank car has a capacity of
approximately 30,000 gallons.
A typical retail distribution outlet is located on one to three acres of
land and includes a small office, a workshop, bulk storage capacity of 18,000
gallons to 60,000 gallons and a small inventory of stationary customer storage
tanks and portable propane cylinders that the Partnership provides to its
retail customers for propane storage. The Partnership owns the land and
buildings of about 50% of its retail outlets and leases the remaining
facilities on terms customary in the industry and in the applicable local
markets.
Approximately 670,000 propane tanks are owned by the Partnership, most of
which are located on customer property and leased to those customers. The
Partnership also owns approximately 650,000 portable propane cylinders, most
of which are leased to industrial and commercial customers, for use in
manufacturing and processing needs, including forklift operations, and to
residential customers for home heating and cooking, and to local dealers who
purchase propane from the Partnership for resale.
The Partnership owns underground storage facilities at Hutchinson, Kansas;
Adamana, Arizona; and Moab, Utah. At April 30, 1996, the capacity of these
facilities approximated 92 million gallons, 88 million gallons and 21 million
gallons, respectively (an aggregate of approximately 201 million gallons). At
April 30, 1996, approximately 104 million gallons of this capacity were leased
to third parties. The remaining space is available for the Partnership's use.
The Partnership owns the land and two buildings (50,245 square feet of
office space) comprising its corporate headquarters in Liberty, Missouri, and
leases the 18,124 square feet of office space in Houston, Texas, where its
trading, chemical feedstocks marketing and wholesale marketing operations are
primarily located.
The Partnership believes that it has satisfactory title to or valid rights
to use all of its material properties and, although some of such properties
are subject to liabilities and leases and, in certain cases, liens for taxes
not yet currently due and payable and immaterial encumbrances, easements and
restrictions, the Partnership does not believe that any such burdens will
materially interfere with the continued use of such properties by the
Partnership in its business, taken as a whole. In addition, the Partnership
believes that it has, or is in the process of obtaining, all required material
approvals, authorizations, orders, licenses, permits, franchises and consents
of, and has obtained or made all required material registrations,
qualifications and filings with, the various state and local governmental and
regulatory authorities which relate to ownership of the Partnership's
properties or the operation of its business.
LITIGATION
Propane is a flammable, combustible gas. Serious personal injury and
property damage can occur in connection with its transportation, storage or
use. The Partnership, in the ordinary course of business, is threatened with
or is named as a defendant in various lawsuits which, among other items, seek
actual and punitive damages for products liability, personal injury and
property damage. The Partnership maintains liability insurance policies with
insurers in such amounts and with such coverages and deductibles as the
General Partner believes is reasonable and prudent. However, there can be no
assurance that such insurance will be adequate to protect the Partnership from
material expenses related to such personal injury or property damage or that
such levels of insurance will continue to be available in the future at
economical prices. It is not possible to determine the ultimate disposition of
these matters discussed above; however, management is of the opinion that
there are no known claims or known contingent claims that are likely to have a
material adverse effect on the results of operations or financial condition of
the Partnership.
65
<PAGE>
THE SKELGAS AND SUPERIOR ACQUISITIONS
SKELGAS
On April 30, 1996 Ferrellgas acquired all of the outstanding capital stock
of Skelgas from the Seller.
Through its operating subsidiaries, Skelgas sells propane and related
appliances to industrial, commercial, residential and agricultural customers
in 11 states located in the north central region of the United States. During
the year ended December 31, 1995, Skelgas sold approximately 96 million
gallons of propane, generating revenues of $75.2 million and a net loss of
$(53.9) million (which includes a $47.6 million writedown of goodwill).
Ferrellgas paid $89.3 million in cash for the stock of Skelgas. In addition,
Ferrellgas will pay $1.2 million for a noncompete agreement with the Seller,
payable in three equal annual installments of $400,000 commencing on the
closing date.
Ferrellgas financed the Skelgas Acquisition with the proceeds of a short
term acquisition loan. As of May 1, 1996, Skelgas and its operating
subsidiaries were merged into Ferrellgas and the Skelgas Assets were then
contributed by Ferrellgas to the Operating Partnership as a capital
contribution. In connection with this transaction, the Operating Partnership
assumed the obligation to repay the short term acquisition loan and issued a
limited partner interest in the Operating Partnership to Ferrellgas. Following
the contribution of the Skelgas Assets to the Operating Partnership,
Ferrellgas contributed the limited partner interest in the Operating
Partnership to the Partnership in exchange for Common Units of the Partnership
with a value of approximately $925,000, which represents consideration for
certain tax liabilities retained by Ferrellgas. The Operating Partnership
utilized the Credit Facility (see "Use of Proceeds") to discharge its assumed
obligations under the short term acquisition loan.
SUPERIOR
On April 19, 1996, Ferrellgas acquired all of the outstanding capital stock
of Superior, which is not affiliated with the Seller in the Skelgas
Acquisition, from the Heaths.
Superior sells propane and related appliances to industrial, commercial and
residential customers in 11 counties in California and one county in Nevada.
In the fiscal year ending July 31, 1995, Superior sold approximately 11.5
million gallons of propane from its seven locations, generating revenues of
$12.7 million.
Ferrellgas paid $18.9 million for the stock of Superior, $15.5 million of
which was paid in cash at closing and $3.4 million of which was paid at
closing in the form of 6% promissory notes having a term of five years. In
addition, Ferrellgas will pay a total of $1.0 million for noncompete
agreements with the Heaths, payable in installments over five years.
The purchase price was based on the assumption that the current assets of
Superior at closing were equal to or greater than the amount of Superior's
total liabilities on the closing date. The purchase price will be adjusted
upward or downward to the extent the current assets of Superior on the closing
date are subsequently determined to be more or less than the total liabilities
of Superior on the closing date.
Immediately following the acquisition, Superior was merged into Ferrellgas
and all of the assets acquired by Ferrellgas in connection with such merger
were transferred to the Operating Partnership in a series of transactions
structured in a manner similar to that involved in transferring the Skelgas
Assets to the Operating Partnership. The Partnership delivered to Ferrellgas
Common Units of the Partnership with a value of approximately $700,000, which
represents consideration for certain tax liabilities retained by Ferrellgas.
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<PAGE>
MANAGEMENT
PARTNERSHIP MANAGEMENT
The General Partner manages and operates the activities of the Partnership.
The General Partner anticipates that its activities will be limited to such
management and operation. Unitholders do not directly or indirectly
participate in the management or operation of the Partnership. The General
Partner owes a fiduciary duty to the Unitholders.
In September 1994, the General Partner appointed two persons who are neither
officers nor employees of the General Partner or any affiliate of the General
Partner to serve on a committee of the Partnership (the "Audit Committee")
with the authority to review, at the request of the General Partner, specific
matters as to which the General Partner believes there may be a conflict of
interest in order to determine if the resolution of such conflict proposed by
the General Partner is fair and reasonable to the Partnership. The Audit
Committee only reviews matters relating to conflicts of interest at the
request of the General Partner, and the General Partner has sole discretion to
determine which matters, if any, to submit to the Audit Committee. Any matters
approved by the Audit Committee will be conclusively deemed to be fair and
reasonable to the Partnership, approved by all partners of the Partnership and
not a breach by the General Partner of any duties it may owe the Partnership
or the Unitholders.
The Partnership does not directly employ any of the persons responsible for
managing or operating the Partnership. At April 30, 1996 (and after giving
effect to the Skelgas Acquisition), 3,391 full-time and 1,040 temporary and
part-time individuals were employed by the General Partner.
DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER
The following table sets forth certain information with respect to the
directors and executive officers of the General Partner. The persons named
below are elected to their respective office or offices annually. The
executive officers are not subject to employment agreements.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITION
---- --- -------- --------
<C> <C> <S> <C>
James E. Ferrell............ 56 1984 President, Chairman of the Board, Chief Executive
Officer and a Director of the General Partner
Danley K. Sheldon........... 37 Senior Vice President, Chief Financial Officer,
Treasurer and Managing Director
Shahid J. A. Malik.......... 36 Senior Vice President, Chief Operating Officer,
Ferrell North America and Managing Director
James M. Hake............... 35 Vice President, Acquisitions
Daniel M. Lambert........... 55 1994 Director of the General Partner
A. Andrew Levison........... 39 1994 Director of the General Partner
</TABLE>
James E. Ferrell--Mr. Ferrell has been with Ferrellgas or its predecessors
and its affiliates in various executive capacities since 1965.
Danley K. Sheldon--Mr. Sheldon has been Chief Financial Officer of
Ferrellgas since January 1994 and has served as Treasurer since 1989. He
joined Ferrellgas in 1986.
Shahid J. A. Malik--Mr. Malik has been Chief Operating Officer of Ferrell
North America ("FNA") since August, 1994. He joined Ferrellgas in February,
1994 as Vice President of Business Development. Prior to joining Ferrellgas,
Mr. Malik was Commercial Manager at British Petroleum from 1990 to 1994,
responsible for oil supply, trading and operations of British Petroleum's
business for most of North America.
67
<PAGE>
James M. Hake--Mr. Hake has been Vice President, Acquisitions of Ferrellgas
since October, 1994. He joined Ferrellgas in 1986.
Daniel M. Lambert--Dr. Lambert was elected a director of Ferrellgas in
September 1994. Dr. Lambert has been President of Baker University in Baldwin
City, Kansas, since July 1, 1987.
A. Andrew Levison--Mr. Levison was elected a director of Ferrellgas in
September 1994. Mr. Levison has been a Managing Director of Donaldson, Lufkin
& Jenrette Securities Corporation since 1989. Mr. Levison is also a director
of Rickel Home Centers, Inc., a leading full service home improvement retailer
that operates stores in the Northeastern United States, and Flagstar
Companies, Inc.
COMPENSATION OF THE GENERAL PARTNER
The General Partner receives no management fee or similar compensation in
connection with its management of the Partnership and receives no remuneration
other than:
(i) distributions in respect of its 2% general partner interest, on a
combined basis, in the Partnership and the Operating Partnership; and
(ii) reimbursement for all direct and indirect costs and expenses
incurred on behalf of the Partnership, all selling, general and
administrative expenses incurred by the General Partner for or on behalf of
the Partnership and all other expenses necessary or appropriate to the
conduct of the business of, and allocable to, the Partnership. The selling,
general and administrative expenses reimbursed include specific employee
benefit and incentive plans for the benefit of the executive officers and
employees of the General Partner.
For information regarding executive compensation and affiliate transactions,
see "Item 11. Executive Compensation" and "Item 13. Certain Relationships and
Related Transactions" of the Partnerships' Annual Report on Form 10-K for the
fiscal year ended July 31, 1995, which information is incorporated by
reference in this Prospectus.
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<PAGE>
PRINCIPAL UNITHOLDERS
The following table sets forth certain information as of April 30, 1996,
regarding the beneficial ownership of the Common Units and subordinated
limited partner interests issued by the Partnership to Ferrellgas in
connection with the transfer of its assets to the Partnership (the
"Subordinated Units") by certain beneficial owners, all directors of the
General Partner, each of the named executive officers of the General Partner
and all directors and executive officers as a group. The General Partner knows
of no other person beneficially owning more than 5% of the Common Units.
<TABLE>
<CAPTION>
UNITS PERCENT
NAME AND ADDRESS BENEFICIALLY OF
TITLE OF CLASS OF BENEFICIAL OWNER OWNED(1) CLASS
-------------- ------------------- ------------ -------
<C> <S> <C> <C>
Common Units................ James E. Ferrell 1,214,162(2) 8.3
Goldman, Sachs & Co. 1,072,520(3) 7.3
The Goldman Sachs Group,
L.P. 1,072,520(3) 7.3
Danley K. Sheldon 1,000 *
Shahid J. A. Malik 1,200 *
James M. Hake 400 *
A. Andrew Levison 15,000 *
Daniel M. Lambert 200 *
All Directors and
Officers as a Group 1,231,962 8.4
Subordinated Units.......... James E. Ferrell 16,593,721(2) 100
</TABLE>
- --------
*Less than 1%
(1) Beneficial ownership for the purposes of the foregoing table is determined
in accordance with Rule 13d-3 under the Exchange Act which provides that a
person is the beneficial owner of a security if he has or shares the power
to vote or direct the voting thereof (Voting Power) or to dispose or
direct the disposition thereof (Investment Power) or has the right to
acquire either of those powers within sixty (60) days.
(2) Includes (i) 1,210,162 Common Units and 16,593,721 Subordinated Units held
by Ferrellgas, a wholly owned subsidiary of Ferrell Companies, Inc. and
(ii) 4,000 Common Units held by the Sarah A. Ferrell Trust of which
Elizabeth J. Ferrell, Mr. Ferrell's wife, is a trustee. Mr. Ferrell is the
sole director of Ferrell Companies, Inc. His address is c/o Ferrellgas,
Inc., P.O. Box 4644, Houston, Texas, 77210.
(3) The address for both Goldman Sachs Group, L.P. and Goldman, Sachs & Co. is
85 Broad Street, New York, New York, 10004.
Goldman, Sachs & Co., a broker/dealer, and its parent Goldman Sachs Group,
LP. are deemed to have shared voting power and shared dispositive power
over 1,072,520 Common Units owned by their customers.
69
<PAGE>
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued pursuant to the Indenture (the
"Indenture") among the Issuers, the Operating Partnership, as guarantor, and
American Bank National Association, as trustee (the "Trustee") pursuant to
which the Private Notes were issued. For purposes of the following summary,
the Private Notes and the Exchange Notes are sometimes referred to
collectively as the "Senior Notes." The Exchange Notes will be secured
pursuant to a Pledge and Security Agreement (the "Pledge Agreement") between
the Partnership, the General Partner and the Trustee, as Collateral Agent (the
"Collateral Agent"). The terms of the Senior Notes include those stated in the
Indenture and the Pledge Agreement and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The Senior Notes are subject to all such terms, and Holders of Senior
Notes are referred to the Indenture, the Pledge Agreement and the Trust
Indenture Act for a statement thereof. The following summary of certain
provisions of the Senior Notes, the Indenture, the Registration Rights
Agreement and the Pledge Agreement does not purport to be complete and is
qualified in its entirety by reference to the Senior Notes, the Indenture, the
Registration Rights Agreement and the Pledge Agreement, including the
definitions therein of certain terms used below. Copies of the Indenture,
Registration Rights Agreement and Pledge Agreement have been filed as exhibits
to the Registration Statement of which this Prospectus is a part and are
available from the Partnership upon request as set forth under "Available
Information." The definitions of certain terms used in the following summary
are set forth below under "--Certain Definitions."
The Senior Notes are senior secured joint and several obligations of the
Issuers and rank senior in right of payment to all future subordinated
Indebtedness of the Issuers and rank pari passu in right of payment with other
existing and future obligations of the Issuers. However, the operations of the
Issuers are conducted through their Subsidiaries and, therefore, the Issuers
are dependent upon the cash flow of their Subsidiaries to meet their
obligations, including their obligations under the Senior Notes. Consequently,
the Senior Notes are effectively subordinated to all existing Indebtedness and
all future senior Indebtedness and, until the Subsidiary Guarantee
Effectiveness Date, other liabilities and commitments (including trade
payables and other accrued liabilities) of the Issuers' Subsidiaries. Any
right of the Issuers to receive assets of any of their Subsidiaries upon the
latter's liquidation or reorganization (and the consequent right of the
Holders of the Senior Notes to participate in those assets) is effectively
subordinated to the claims of that Subsidiary's creditors, except to the
extent that the Issuers are themselves recognized as a creditor of such
Subsidiary, in which case the claims of the Issuers would still be subordinate
to any security in the assets of such Subsidiary and any Indebtedness of such
Subsidiary senior to that held by the Issuers. See "Risk Factors--Holding
Company Structure and Ability to Repay the Senior Notes; Effective
Subordination to Indebtedness and Liabilities of Operating Partnership and
Subsidiaries."
On and after the Subsidiary Guarantee Effectiveness Date, the Issuers'
Obligations under the Senior Notes and the Indenture will be guaranteed by the
Operating Partnership on a senior subordinated basis. See "--Subsidiary
Guarantee."
The Senior Notes are secured by a first priority pledge of all of the
Capital Interests of the Operating Partnership held by the Partnership. The
Operating Partnership and the Finance Corps. are not permitted to be
designated as Non-Recourse Subsidiaries. See "--Security" and "--Certain
Covenants--Limitations on Subsidiary Structure."
The Senior Notes are recourse to the property and assets of the General
Partner in its capacity as general partner of the Partnership.
Finance Corp. was formed in connection with this Offering and has no
material operations and only nominal assets.
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<PAGE>
SECURITY
The Partnership, the General Partner and the Collateral Agent have entered
into the Pledge Agreement providing for the pledge by the Partnership to the
Collateral Agent, for the benefit of Holders of the Senior Notes, of all of
the Operating Partnership's Capital Interests held by the Partnership which
are outstanding on the date of the Indenture, and all Capital Interests of the
Operating Partnership thereafter issued, and all proceeds thereof (the
"Collateral"). Such pledge secures the payment and performance when due of all
of the Obligations of the Issuers under the Indenture and the Senior Notes as
provided in the Pledge Agreement. Additional Indebtedness (other than
Subordinated Indebtedness) incurred by the Partnership in the future in
accordance with the provisions of the Indenture may also be equally and
ratably secured by such Capital Interests of the Operating Partnership. See
"--Certain Covenants--Liens."
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture and the Pledge
Agreement, the Partnership will be entitled to receive all cash dividends,
distributions, interest and other payments made upon or with respect to the
Collateral and to exercise any voting and other consensual rights pertaining
to the Collateral. Upon the occurrence and during the continuance of an Event
of Default: (a) all rights of the Partnership to exercise such voting or other
consensual rights will cease, and all such rights will become vested in the
Collateral Agent, which, to the extent permitted by law, will have the sole
right to exercise such voting and other consensual rights; (b) all rights of
the Partnership to receive all cash dividends, distributions, interest and
other payments made upon or with respect to the Collateral will cease and such
cash dividends, distributions, interest and other payments will be required to
be paid to the Collateral Agent; provided, however, that the Partnership will
be entitled to receive such cash, dividends, distributions, interest and other
payments from the Operating Partnership that are sufficient to permit the
Partnership to satisfy its ordinary course operating expenses whether or not
an Event of Default shall have occurred; and (c) the Collateral Agent may sell
the Collateral or any part thereof in accordance with the terms of the Pledge
Agreement. All funds distributed under the Pledge Agreement and received by
the Trustee for the benefit of the Holders of the Senior Notes will be
distributed by the Trustee in accordance with the provisions of the Indenture.
Under the terms of the Pledge Agreement, upon an Event of Default, the
Collateral Agent will determine the circumstances and manner in which the
Collateral will be disposed of, including, but not limited to the
determination of whether to release all or any portion of the Collateral from
the Liens created by the Pledge Agreement and whether to foreclose on the
Collateral following an Event of Default. Upon the full and final payment and
performance of all Obligations of the Issuers under the Indenture and the
Senior Notes, the Pledge Agreement will terminate and the Collateral will be
released.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes are limited in aggregate principal amount to $160 million
and mature on June 15, 2006. Interest on the Senior Notes accrues at the rate
of 9-3/8% per annum and is payable semi-annually in arrears on June 15 and
December 15 of each year, commencing on December 15, 1996, to Holders of
record on the immediately preceding June 1 and December 1. Interest on the
Senior Notes is computed on the basis of a 360-day year comprised of twelve
30-day months. Interest on the Senior Notes accrues from the most recent date
to which interest has been paid or, if no interest has been paid, from the
date of original issuance. Holders whose Private Notes are accepted for
exchange will receive accrued interest thereon to, but not including, the date
of Issuance of the Exchange Notes, but such interest to be payable with the
first interest payment on the Exchange Notes, but will not receive any payment
in respect of interest on the Private Notes accrued after issuance of the
Exchange Notes.
The Senior Notes are payable as to principal, premium, if any, interest and
Liquidated Damages, if any, at the office or agency of the Issuers maintained
for such purpose within the City and State of New York or, at the option of
the Issuers, such payment may be made by check mailed to the Holders of the
Senior Notes at their respective addresses set forth in the register of
Holders of Senior Notes; provided, however, that all payments
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<PAGE>
with respect to the Global Note and definitive Senior Notes the Holders of
which have given wire transfer instructions to the Issuers at least 10
Business Days prior to the applicable payment date will be required to be made
by wire transfer of immediately available funds to the accounts specified by
the Holders thereof. Until otherwise designated by the Issuers, the Issuers'
office or agency in New York will be the office of the Trustee maintained for
such purpose. The Senior Notes will be issued in registered form, without
coupons, and in minimum denominations of $1,000 and integral multiples
thereof.
SETTLEMENT AND PAYMENT
Payments by the Issuers in respect of the Senior Notes (including principal,
premium, if any, interest and Liquidated Damages, if any) will be made in
immediately available funds as provided above. The Senior Notes are expected
to be eligible to trade in the PORTAL Market and to trade in the Depositary's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in the Senior Notes will, therefore, be required by the Depositary to
be settled in immediately available funds. No assurance can be given as to the
effect, if any, of such settlement arrangements on trading activity in the
Senior Notes.
OPTIONAL REDEMPTION
The Senior Notes are not redeemable at the Issuers' option prior to June 15,
2001. Thereafter, the Senior Notes will be subject to redemption at the option
of the Issuers, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the applicable redemption date, if redeemed during
the 12-month period beginning on June 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2001.......................... 104.6875%
2002.......................... 103.1250%
2003.......................... 101.5625%
2004 and thereafter........... 100.0000%
</TABLE>
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Issuers are not required to make mandatory redemption or sinking fund payments
with respect to the Senior Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Senior Notes will
have the right to require the Issuers to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Senior Notes pursuant
to the offer described below (the "Change of Control Offer") at an offer price
in cash equal to 101% of the aggregate principal amount thereof plus accrued
and unpaid interest and Liquidated Damages, if any, to the date of purchase
(the "Change of Control Payment"). Within 10 days following any Change of
Control, the Issuers will mail a notice to each Holder stating: (1) that the
Change of Control Offer is being made pursuant to the covenant entitled
"Change of Control" and that all Senior Notes tendered will be accepted for
payment; (2) the purchase price and the purchase date, which is a date no
earlier than 30 days nor later than 60 days from the date that the Issuers
mail notice of the Change of Control to the Holders (the "Change of Control
Payment Date"); (3) that any Senior Note not tendered will continue to accrue
interest; (4) that, unless the Issuers default in the payment of the Change of
Control Payment, all Senior Notes accepted for payment pursuant to the Change
of Control Offer will cease to accrue interest after the Change of Control
Payment Date; (5) that Holders electing to have any Senior Notes purchased
pursuant to a Change of Control Offer will be required to surrender the Senior
Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Senior Notes
72
<PAGE>
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Change of
Control Payment Date; (6) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business on
the second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of
the Holder, the principal amount of Senior Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have such Senior
Notes purchased; (7) that Holders whose Senior Notes are being purchased only
in part will be issued new Senior Notes equal in principal amount to the
unpurchased portion of the Senior Notes surrendered, which unpurchased portion
must be equal to $1,000 in principal amount or an integral multiple thereof;
and (8) the circumstances and relevant facts regarding such Change of Control.
The Issuers will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations to the extent such laws and
regulations are applicable in connection with the repurchase of the Senior
Notes in connection with a Change of Control.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (1) accept for payment Senior Notes or portions thereof tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent
therefor an amount equal to the Change of Control Payment in respect of all
Senior Notes or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Senior Notes so accepted together with an
officers' certificate stating the aggregate amount of the Senior Notes or
portions thereof tendered to the Issuers. The Paying Agent will promptly mail
to each Holder of Senior Notes so accepted the Change of Control Payment for
such Senior Notes, and the Trustee will promptly authenticate and mail to each
Holder a new Senior Note equal in principal amount to any unpurchased portion
of the Senior Notes surrendered, if any; provided that each such new Senior
Note will be in a principal amount of $1,000 or an integral multiple thereof.
The Issuers will publicly announce the results of the Change of Control Offer
on or as soon as practicable after the Change of Control Payment Date.
"Change of Control" means (i) the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Partnership or
the Operating Partnership to any Person or group (as such term is used in
Section 13(d)(3) of the Exchange Act) other than James E. Ferrell, the Related
Parties and any Person of which James E. Ferrell and the Related Parties
beneficially own in the aggregate 51% or more of the voting Capital Interests
(or if such Person is a partnership, 51% or more of the general partner
interests), (ii) the liquidation or dissolution of the Partnership, the
Operating Partnership or the General Partner, (iii) the occurrence of any
transaction, the result of which is that James E. Ferrell and the Related
Parties beneficially own in the aggregate, directly or indirectly, less than
51% of the total voting power entitled to vote for the election of directors
of the General Partner, (iv) the occurrence of any transaction, the result of
which is that the General Partner is no longer the sole general partner of the
Partnership or the Operating Partnership and (v) the first day on which the
Partnership fails to own 100% of the issued and outstanding Equity Interests
of Finance Corp.
"Related Party" means (i) the spouse or any lineal descendant of James E.
Ferrell, (ii) any trust for his benefit or for the benefit of his spouse or
any such lineal descendants or (iii) any corporation, partnership or other
entity in which James E. Ferrell and/or such other Persons referred to in the
foregoing clauses (i) and (ii) are the direct record and beneficial owners of
all of the voting and nonvoting Equity Interests.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the Senior Notes to
require that the Issuers repurchase or redeem the Senior Notes in the event of
a takeover, recapitalization or similar restructuring.
With respect to the sale of assets referred to in the definition of "Change
of Control" above, the phrase "all or substantially all" as used in the
Indenture varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under New York law (which
governs the Indenture) and is subject to judicial interpretation. Accordingly,
in certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the assets of a person and therefore it may be unclear
whether a Change of Control has occurred and whether the Senior Notes are
subject to a Change of Control Offer.
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The agreement governing the Credit Facility and the Operating Partnership
Indenture requires the Operating Partnership to repay all amounts owing
thereunder following certain events constituting a change of control
thereunder (which are substantially similar to the events constituting a
Change of Control under the Indenture). Consequently, the Partnership's
ability to pay cash to the Holders of Senior Notes upon a repurchase will be
limited by the then existing financial resources of the Partnership and the
Operating Partnership and the ability of the Partnership to receive funds from
the Operating Partnership.
ASSET SALES
The Indenture provides that the Partnership will not, and will not permit
any of its Subsidiaries to, (i) sell, lease, convey or otherwise dispose of
any assets (including by way of a sale-and-leaseback) other than sales of
inventory in the ordinary course of business consistent with past practice
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Partnership shall be governed by the
provisions of the Indenture described above under the caption "Change of
Control" and/or the provisions described below under the caption "Merger,
Consolidation or Sale of Assets" and not by the provisions of this paragraph)
or (ii) issue or sell Equity Interests of any of its Subsidiaries, in the case
of either clause (i) or (ii) above, whether in a single transaction or a
series of related transactions, (a) that have a fair market value in excess of
$5 million, or (b) for net proceeds in excess of $5 million (each of the
foregoing, an "Asset Sale"), unless (x) the Partnership (or the Subsidiary, as
the case may be) receives consideration at the time of such Asset Sale at
least equal to the fair market value of the assets sold or otherwise disposed
of and (y) at least 80% of the consideration therefor received by the
Partnership or such Subsidiary is in the form of cash; provided, however, that
the amount of (A) any liabilities (as shown on the Partnership's or such
Subsidiary's most recent balance sheet or in the notes thereto) of the
Partnership or any Subsidiary (other than liabilities that are by their terms
subordinated in right of payment to the Senior Notes) that are assumed by the
transferee of any such assets and (B) any notes or other obligations received
by the Partnership or any such Subsidiary from such transferee that are
immediately converted by the Partnership or such Subsidiary into cash (to the
extent of the cash received), shall be deemed to be cash for purposes of this
provision; and provided, further, that the 80% limitation referred to in this
clause (y) shall not apply to any Asset Sale in which the cash portion of the
consideration received therefrom, determined in accordance with the foregoing
proviso, is equal to or greater than what the after-tax proceeds would have
been had such Asset Sale complied with the aforementioned 80% limitation.
Notwithstanding the foregoing, Asset Sales shall not be deemed to include (1)
any transfer of assets by the Partnership or any of its Subsidiaries to a
Wholly Owned Subsidiary of the Partnership that is a Guarantor, (2) any
transfer of assets by the Partnership or any of its Subsidiaries to any Person
in exchange for other assets used in a line of business permitted under the
"Line of Business" covenant and having a fair market value not less than that
of the assets so transferred, (3) any transfer of assets pursuant to a
Permitted Investment and (4) any transfer of assets to a Non-Recourse
Subsidiary by the Partnership or any of its Subsidiaries, which assets were
acquired in a Flow-Through Acquisition; provided that no Default or Event of
Default has occurred and is continuing or would occur as a result of such
transfer.
Within 270 days after any Asset Sale, the Partnership may apply the Net
Proceeds from such Asset Sale to (a) permanently reduce Indebtedness
outstanding under the Credit Facility (with a permanent reduction of
availability in the case of revolving Indebtedness), the Operating Partnership
Indenture or any other Indebtedness permitted to be incurred by the Operating
Partnership under the Indenture or (b) an investment in capital expenditures
or other long-term/tangible assets, in each case, in the same line of business
as the Partnership and its Subsidiaries were engaged in on the date of the
Indenture. Pending the final application of any such Net Proceeds, the
Partnership may temporarily reduce borrowings under the Credit Facility or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from the Asset Sale that are not applied or
invested as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $15 million, the Issuers shall make an offer to all Holders of Senior
Notes (an "Asset Sale Offer") to purchase the maximum principal amount of
Senior Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, to the
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date of purchase, in accordance with the procedures set forth in the
Indenture. The Issuers will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations to the extent
such laws and regulations are applicable in connection with the repurchase of
the Senior Notes in connection with an Asset Sale Offer. To the extent that
the aggregate amount of Senior Notes tendered pursuant to an Asset Sale Offer
is less than the Excess Proceeds, the Partnership may use such deficiency for
general business purposes. If the aggregate principal amount of Senior Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Senior Notes to be purchased on a pro rata basis.
Upon completion of such offer to purchase, the amount of Excess Proceeds shall
be reset at zero.
SELECTION AND NOTICE
If less than all of the Senior Notes are to be redeemed pursuant to the
optional redemption provisions of the Indenture, the Trustee shall select the
Senior Notes to be redeemed among the Holders on a pro rata basis. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of Senior Notes to be
redeemed at its registered address. If any Senior Note is to be redeemed in
part only, the notice of redemption that relates to such Senior Note shall
state the portion of the principal amount thereof to be redeemed. A new Senior
Note in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Senior Note. On and after the redemption date, interest ceases to accrue on
Senior Notes or portions of them called for redemption.
SUBSIDIARY GUARANTEE
On and after the Subsidiary Guarantee Effectiveness Date, the Issuers'
Obligations under the Senior Notes and the Indenture will be guaranteed on a
senior subordinated basis by the Operating Partnership (the "Subsidiary
Guarantee"), which Subsidiary Guarantee will be subordinate and junior in
right of payment only to all Senior Operating Partnership Indebtedness as
provided in the Indenture.
The Credit Facility and the Operating Partnership Indenture currently
prohibit the Operating Partnership from guaranteeing or becoming directly or
indirectly liable with respect to any Indebtedness unless (i) the Fixed Charge
Coverage Ratio for the Operating Partnership is 2.75 to 1.0 prior to August 1,
1996 and 3.0 to 1.0 thereafter and (ii) such Indebtedness is subordinated in
right of payment to the obligations of the Operating Partnership under both
the Credit Facility and the Operating Partnership Indenture. In addition, the
Credit Facility prohibits the incurrence of such subordinated indebtedness if
the payment of principal thereon is required prior to July 1, 2000, whether
upon stated maturity, mandatory prepayment, acceleration or otherwise; and the
Operating Partnership Indenture requires that the Weighted Average Life to
Maturity of such other Indebtedness be greater than the Weighted Average Life
to Maturity of the Operating Partnership Notes. See "Description of Existing
Indebtedness." As of April 30, 1996, the Operating Partnership's fixed charge
coverage ratio as calculated according to the Credit Facility and the
Operating Partnership's Indenture was 2.94 to 1.0. Moreover, the Indenture and
the Subsidiary Guarantee do not prohibit or restrict the Operating Partnership
from modifying or revising these provisions in a manner that could extend or
defer the Subsidiary Guarantee Effectiveness Date. Accordingly, there can be
no assurance as to whether or when the Subsidiary Guarantee Effectiveness Date
will occur. Furthermore, the Indenture provides that after the Subsidiary
Guarantee Effectiveness Date and prior to July 1, 2000, the Operating
Partnership will be prohibited from making any payment in respect of the
principal of the Senior Notes pursuant to its obligations under the Subsidiary
Guarantee, and if such obligations are accelerated, any payment in respect of
such acceleration received by the Trustee or any Holders of the Senior Notes
must be turned over to the holders of the Senior Operating Partnership
Indebtedness pursuant to the subordination provisions of the Indenture. The
Indenture also provides that the Operating Partnership is prohibited from
incurring Subordinated Indebtedness until the Subordinated Guarantee
Effectiveness Date occurs. See "--Incurrence of Indebtedness and Issuance of
Disqualified Interests."
The obligations of the Operating Partnership under the Subsidiary Guarantee
will be limited so as not to constitute a fraudulent conveyance under
applicable law. See, however, "Risk Factors--Fraudulent Conveyance
Considerations--Subsidiary Guarantee."
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The Indenture provides that the Operating Partnership may not consolidate
with or merge with or into (whether or not the Operating Partnership is the
surviving Person), another Person whether or not affiliated with the Operating
Partnership unless (i) subject to the provisions of the following paragraph,
the Person formed by or surviving any such consolidation or merger (if other
than the Operating Partnership) assumes all the obligations of the Operating
Partnership pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, under the Senior Notes and the
Indenture; (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists; and (iii) the Operating Partnership, or
any Person formed by or surviving any such consolidation or merger, (A) would
have Consolidated Net Worth (immediately after giving effect to such
transaction), equal to or greater than the Consolidated Net Worth of the
Operating Partnership immediately preceding the transaction and (B) would be
permitted by virtue of the Operating Partnership's pro forma Fixed Charge
Coverage Ratio to incur, immediately after giving effect to such transaction,
at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the Credit Facility and in the covenant
entitled "Incurrence of Indebtedness and Issuance of Disqualified Interests"
in the Operating Partnership Indenture.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of the Operating Partnership, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the
Capital Interests of the Operating Partnership, then the Operating Partnership
(in the event of a sale or other disposition, by way of such a merger,
consolidation or otherwise, of all of the Capital Interests of the Operating
Partnership) or the corporation acquiring the property (in the event of a sale
or other disposition of all of the assets of the Operating Partnership) will
be released and relieved of any obligations under the Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the Indenture. See "--
Repurchase at the Option of Holders--Asset Sales."
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Partnership will not, and will not permit
any of its Subsidiaries to, directly or indirectly: (i) declare or make any
distribution or pay any dividend on account of the Partnership's or any
Subsidiary's Equity Interests (other than (x) distributions or dividends
payable in Equity Interests (other than Disqualified Interests) of the
Partnership, (y) distributions or dividends payable to the Partnership or the
Operating Partnership or (z) distributions or dividends payable pro rata to
all holders of Capital Interests of any such Subsidiary); (ii) purchase,
redeem or otherwise acquire or retire for value any Equity Interests of the
Partnership or any Subsidiary or other Affiliate of the Partnership (other
than any such Equity Interests owned by the Partnership or the Operating
Partnership); (iii) purchase, redeem or otherwise acquire or retire for value
any Indebtedness that is subordinated to the Senior Notes; or (iv) make any
Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) the Fixed Charge Coverage Ratio of the Partnership for the
Partnership's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date
on which such Restricted Payment is made, calculated on a pro forma basis
as if such Restricted Payment had been made at the beginning of such four-
quarter period, would have been more than 2.0 to 1.0; and
(c) such Restricted Payment (the amount of any such payment, if other
than cash, to be determined by the Board of Directors of the General
Partner, whose determination shall be conclusive and evidenced by a
resolution in an Officer's Certificate delivered to the Trustee), together
with the aggregate of all other Restricted Payments (other than any
Restricted Payments permitted by the provisions of clauses (ii) or (iii) of
the penultimate paragraph of this covenant) made by the Partnership and its
Subsidiaries in the fiscal quarter during which such Restricted Payment is
made shall not exceed an amount equal to the sum of (i)
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Available Cash of the Partnership for the immediately preceding fiscal
quarter (or, with respect to the first fiscal quarter during which
Restricted Payments are made, the amount of Available Cash of the
Partnership for the period commencing on the date of the Indenture and
ending on the last day of the immediately preceding fiscal quarter) plus
(ii) the lesser of (x) the amount of Available Cash of the Partnership for
the first 45 days of the fiscal quarter during which such Restricted
Payment is made and (y) the amount of working capital Indebtedness that the
Partnership could have incurred on the last day of the immediately
preceding fiscal quarter under the terms of the agreements and instruments
governing its outstanding Indebtedness on such date.
The foregoing provisions will not prohibit (i) the payment of any
distribution within 60 days after the date on which the Partnership becomes
committed to make such distribution, if at said date of commitment such
payment would have complied with the provisions of the Indenture; (ii) the
redemption, repurchase, retirement or other acquisition of any Equity
Interests of the Partnership in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Partnership)
of other Equity Interests of the Partnership (other than any Disqualified
Interests); and (iii) the defeasance, redemption or repurchase of Subordinated
Indebtedness with the proceeds of Permitted Refinancing Indebtedness.
Not later than the date of making any Restricted Payment, the General
Partner shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which
the calculations required by the covenant "Restricted Payments" were computed,
which calculations may be based upon the Partnership's latest available
financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED INTERESTS
The Indenture provides that the Issuers will not, and will not permit any of
their Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and that
the Issuers will not issue any Disqualified Interests and will not permit any
of their Subsidiaries to issue any shares of preferred stock; provided,
however, that the Issuers may incur Indebtedness and any Subsidiary of the
Issuers may incur Acquired Debt if the Fixed Charge Coverage Ratio for the
Partnership's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which
such additional Indebtedness is incurred would have been at least 2.25 to 1.0,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred at
the beginning of such four-quarter period.
Notwithstanding the foregoing, the Indenture provides that the Operating
Partnership will not, and will not permit any of its Subsidiaries to, directly
or indirectly incur any Subordinated Indebtedness (including Acquired Debt
which constitutes Subordinated Indebtedness) and that the Operating
Partnership will not issue any Disqualified Interests and will not permit any
of its Subsidiaries to issue any shares of preferred stock prior to the
Subsidiary Guarantee Effectiveness Date, irrespective of whether the
Partnership's Fixed Charge Coverage Ratio exceeds 2.25 to 1.0.
The foregoing limitations will not apply to: (i) the Indebtedness
represented by the Senior Notes and the Subsidiary Guarantee; (ii) the
incurrence by the Operating Partnership of Indebtedness pursuant to the Credit
Facility in an aggregate principal amount at any time outstanding not to
exceed $205.0 million; (iii) the Indebtedness represented by the existing
Fixed Rate Notes and Floating Rate Notes; (iv) revolving Indebtedness incurred
solely for working capital purposes in an aggregate outstanding principal
amount not to exceed $40.0 million at any time, provided, that the outstanding
principal balance of such revolving Indebtedness (or, if such revolving
Indebtedness is incurred as an addition or extension to the Credit Facility,
the outstanding principal balance under the Credit Facility in excess of the
limits set forth in clause (ii) above) shall be reduced to zero for a period
of 30 consecutive days during each fiscal year; (v) the incurrence by the
Partnership or any of its Subsidiaries of Indebtedness in respect of
Capitalized Lease Obligations in an aggregate principal amount not to exceed
$15.0 million; (vi) the Existing Indebtedness; (vii) the incurrence by the
Partnership or any of its
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Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
proceeds of which are used to extend, refinance, renew, replace, defease or
refund any then outstanding Indebtedness of the Partnership or such Subsidiary
not incurred in violation of the Indenture; (viii) Hedging Obligations that
are incurred for the purpose of fixing or hedging interest rate risk with
respect to any floating rate Indebtedness that is permitted by the terms of
the Indenture to be outstanding; (ix) Indebtedness of any Subsidiary of the
Partnership to the Partnership or any of its Wholly Owned Subsidiaries; (x)
the incurrence by the Partnership, the Operating Partnership or the Insurance
Company Subsidiary of Indebtedness owing directly to its insurance carriers
(without duplication) in connection with the Partnership's, the Operating
Partnership's, their Subsidiaries' or their Affiliates' self-insurance
programs or other similar forms of retained insurable risks for their
respective retail propane businesses, consisting of reinsurance agreements and
indemnification agreements (and guarantees of the foregoing) secured by
letters of credit, provided that the Indebtedness evidence by such reinsurance
agreements, indemnification agreements, guarantees and letters of credit shall
be counted (without duplication) for purposes of all calculations pursuant to
the Fixed Charge Coverage Ratio test above; (xi) surety bonds and appeal bonds
required in the ordinary course of business or in connection with the
enforcement of rights or claims of the Partnership or any of its Subsidiaries
or in connection with judgments that do not result in a Default or Event of
Default; (xii) the incurrence by the Partnership or the Operating Partnership
of Indebtedness in connection with acquisitions of retail propane businesses
in favor of the sellers of such businesses in a principal amount not to exceed
$15.0 million in any fiscal year or $60.0 million in the aggregate outstanding
at any one time, provided that the principal amount of such Indebtedness
incurred in connection with any such acquisition shall not exceed the fair
market value of the assets so acquired; and (xiii) Indebtedness of the
Partnership owing from time to time to the General Partner or an Affiliate of
the General Partner that is unsecured and that is Subordinated Indebtedness,
provided that the aggregate principal amount of such Indebtedness outstanding
at any time may not exceed $50.0 million.
The aggregate amount of Indebtedness permitted to be incurred by clauses
(ii), (iv), (v), (xii) and (xiii) above, shall be reduced by the aggregate
amount of any sale and leaseback transaction entered into by the Partnership
or its Subsidiaries pursuant to the terms of the last sentence of the covenant
"Limitation on Sale and Leaseback Transactions."
For purposes of the foregoing, any revolving Indebtedness shall be deemed to
have been incurred only at such time at which the agreements and instruments
(including any amendments thereto that increase the amount, reduce the
Weighted Average Life to Maturity, change any subordination provisions or
create any additional obligor of such revolving Indebtedness) are executed, in
an amount equal to the maximum amount of such revolving Indebtedness permitted
to be borrowed thereunder, and the Partnership's ability to borrow or reborrow
such revolving Indebtedness up to such maximum permitted amount shall not
thereafter be limited by the foregoing (other than the proviso set forth in
clause (iv) of the third paragraph of the description of such covenant
contained herein).
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Partnership will not, and will not permit
any of its Subsidiaries to, enter into any arrangement with any Person
providing for the leasing by the Partnership or such Subsidiary of any
property that has been or is to be sold or transferred by the Partnership or
such Subsidiary to such Person in contemplation of such leasing, unless (a)
the Partnership or such Subsidiary would be permitted under the Indenture to
incur Indebtedness secured by a Lien on such property in an amount equal to
the Attributable Debt with respect to such sale and leaseback transaction or
(b) the lease in such sale and leaseback transaction is for a term not in
excess of the lesser of (i) three years and (ii) 60% of the useful remaining
life of such property. Notwithstanding the foregoing, the Indenture permits
the Partnership and its Subsidiaries to enter into sale and leaseback
transactions relating to propane tanks up to an aggregate principal amount of
$25 million at any time, provided that such transaction would not cause a
default under the covenant "Incurrence of Indebtedness and Issuance of
Disqualified Interests."
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LIENS
The Indenture provides that the Partnership will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Partnership will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (a) pay dividends or make any other distributions
to the Partnership or any of its Subsidiaries (1) on its Capital Interests or
(2) with respect to any other interest or participation in, or measured by,
its profits, (b) pay any indebtedness owed to the Partnership or any of its
Subsidiaries, (c) make loans or advances to the Partnership or any of its
Subsidiaries or (d) transfer any of its properties or assets to the
Partnership or any of its Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (i) Existing Indebtedness as in
effect on the date of the Indenture, (ii) the Credit Facility, as in effect on
the date of the Indenture, the Indenture, the Senior Notes, the Subsidiary
Guarantee, the Operating Partnership Indenture as in effect on the date of the
Indenture, the Fixed Rate Notes and the Floating Rate Notes, (iii) applicable
law, (iv) any instrument governing Indebtedness or Capital Interests of a
Person acquired by the Partnership or any of its Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property or assets of
the Person, so acquired, provided that the Consolidated Cash Flow of such
Person to the extent that dividends, distributions, loans, advances or
transfers thereof is limited by such encumbrance or restriction on the date of
acquisition is not taken into account in determining whether such acquisition
was permitted by the terms of the Indenture, (v) customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (vi) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (d) above on the property so acquired, (vii)
Permitted Refinancing Indebtedness of any Existing Indebtedness, provided that
the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those contained in the
agreements governing the Indebtedness being refinanced, (viii) agreements
governing any Indebtedness that is permitted to be incurred pursuant to the
Indenture and that is incurred to extend, refinance, renew, replace, defease
or refund Indebtedness outstanding pursuant to the Credit Facility, provided
that the restrictions contained in the agreements governing such refinancing
Indebtedness are no more restrictive than those contained in the Credit
Facility, as in effect on the date of the Indenture or (ix) other Indebtedness
permitted to be incurred subsequent to the date of the Indenture pursuant to
the provisions of the covenant described under "--Incurrence of Indebtedness
and Issuance of Disqualified Interests;" provided that such restrictions are
no more restrictive that those contained in the Credit Facility and the
Operating Partnership Indenture, each as in effect on the date of the
Indenture.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Partnership may not consolidate or merge
with or into (whether or not the Partnership is the surviving Person), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another Person unless (i) the Partnership is the surviving
Person, or the Person formed by or surviving any such consolidation or merger
(if other than the Partnership) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a corporation
or partnership organized or existing under the laws of the United States, any
state thereof or the District of Columbia; (ii) the Person formed by or
surviving any such consolidation or merger (if other than the Partnership) or
the Person to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made assumes all the obligations of the
Partnership, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under the Senior Notes and the
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Indenture; (iii) immediately after such transaction no Default or Event of
Default exists; and (iv) the Partnership or such other Person formed by or
surviving any such consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made (A) will
have Consolidated Net Worth (immediately after the transaction but prior to
any purchase accounting adjustments resulting from the transaction) equal to
or greater than the Consolidated Net Worth of the Partnership immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at
the beginning of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the covenant entitled "Incurrence of Indebtedness and
Issuance of Disqualified Interests."
The Indenture also provides that Finance Corp. may not consolidate or merge
with or into (whether or not Finance Corp. is the surviving Person), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to
another Person unless (i) Finance Corp. is the surviving Person, or the Person
formed by or surviving any such consolidation or merger (if other than Finance
Corp.) or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia
and a Wholly Owned Subsidiary of the Partnership; (ii) the Person formed by or
surviving any such consolidation or merger (if other than Finance Corp.) or
the Person to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made assumes all the obligations of Finance
Corp., pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee, under the Senior Notes and the Indenture; and (iii)
immediately after such transaction no Default or Event of Default exists.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Partnership will not, and will not permit
any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from, or
enter into any contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate, including any Non-Recourse
Subsidiary (each of the foregoing, an "Affiliate Transaction"), unless (a)
such Affiliate Transaction is on terms that are no less favorable to the
Partnership or the relevant Subsidiary than those that would have been
obtained in a comparable transaction by the Partnership or such Subsidiary
with an unrelated Person and (b) with respect to (i) any Affiliate Transaction
with an aggregate value in excess of $500,000, a majority of the directors of
the General Partner having no direct or indirect economic interest in such
Affiliate Transaction determines by resolution that such Affiliate Transaction
complies with clause (a) above and approves such Affiliate Transaction and
(ii) any Affiliate Transaction involving the purchase or other acquisition or
sale, lease, transfer or other disposition of properties or assets other than
in the ordinary course of business, in each case, having a fair market value
or for net proceeds in excess of $15.0 million, the Partnership delivers to
the Trustee an opinion as to the fairness to the Partnership or such
Subsidiary from a financial point of view issued by an investment banking firm
of national standing; provided, however, that (A) any employment agreement or
stock option agreement entered into by the Partnership (or the General
Partner) in the ordinary course of business and consistent with the past
practice of the Partnership or such Subsidiary, (B) transactions permitted by
the provisions of the Indenture described above under the covenant "Restricted
Payments," and (C) transactions entered into by the Partnership, the Operating
Partnership or the Insurance Company Subsidiary in the ordinary course of
business in connection with reinsuring the self-insurance programs or other
similar forms of retained insurable risks of the retail propane businesses
operated by the Partnership, its Subsidiaries and its Affiliates, in each
case, shall not be deemed Affiliate Transactions. Notwithstanding the
foregoing, in any transaction involving a Flow-Through Acquisition, the dollar
amount equal to the purchase price paid by the General Partner or its parent
to any third party that is not an Affiliate for such property, assets or
equipment will be excluded from calculating the value and/or net proceeds set
forth in clauses (b)(i) and (ii) above.
RESTRICTIONS ON NATURE OF INDEBTEDNESS AND ACTIVITIES OF FINANCE CORP.
In addition to the restrictions set forth under the "Incurrence of
Indebtedness and Issuance of Disqualified Interests" covenant above, the
Indenture provides that Finance Corp. may not incur any Indebtedness unless
(a)
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the Partnership is a co-obligor or guarantor of such Indebtedness or (b) the
net proceeds of such Indebtedness are lent to the Partnership, used to acquire
outstanding debt securities issued by the Partnership or used directly or
indirectly to refinance or discharge Indebtedness permitted under the
limitations of this paragraph. The Indenture also provides that Finance Corp.
may not engage in any business not related directly or indirectly to obtaining
money or arranging financing for the Partnership.
LIMITATIONS ON SUBSIDIARY STRUCTURE
The Indenture also provides that each of the Operating Partnership and
Finance Corp. will at all times continue to be direct Wholly Owned
Subsidiaries of the Partnership. In addition, the Operating Partnership and
the Finance Corps. are not be permitted to be designated as Non-Recourse
Subsidiaries.
LINE OF BUSINESS
The Indenture provides that for so long as any Senior Notes are outstanding,
the Partnership and its Subsidiaries will not materially or substantially
engage in any business other than that in which the Partnership and its
Subsidiaries were engaged on the date of the Indenture.
REPORTS
Whether or not required by the rules and regulations of the Commission, so
long as any Senior Notes are outstanding, the Issuers will furnish to the
Holders of Senior Notes (i) all quarterly and annual financial information
that would be required to be contained in a filing with the Commission on
Forms 10-Q and 10-K if the Issuers were required to file such Forms, including
a "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Issuers' certified independent accountants and (ii) all reports that
would be required to be filed with the Commission on Form 8-K if the Issuers
were required to file such reports. In addition, whether or not required by
the rules and regulations of the Commission, the Issuers will file a copy of
all such information with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available
to investors who request it in writing. In addition, the Issuers have agreed
that, for so long as any Senior Notes remain outstanding, they will furnish to
the Holders and to securities analysts and prospective investors, upon their
written request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest and
Liquidated Damages, if any, on the Senior Notes; (ii) default in payment when
due of the principal of or premium, if any, on the Senior Notes; (iii) failure
by the Issuers for 20 days to comply with the provisions described under the
covenants "Change of Control," "Asset Sales," "Restricted Payments,"
"Incurrence of Indebtedness and Issuance of Preferred Stock" or "Merger,
Consolidation, or Sale of Assets"; (iv) failure by the Issuers or the
Guarantor for 60 days after notice to comply with any of their other
agreements in the Indenture or the Senior Notes; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Partnership or any of its Subsidiaries (or the payment of which is guaranteed
by the Partnership or any of its Subsidiaries), whether such Indebtedness or
guarantee now exists or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness (a "Payment Default") or (b) results in the
acceleration of such Indebtedness prior to its express maturity and, in each
case, the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$10 million or more; (vi) failure by the Partnership or any of its
Subsidiaries to pay final judgments aggregating in excess of $10 million,
which judgments are not paid, discharged or stayed within 60 days; (vii)
except as permitted by the Indenture, the
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Subsidiary Guarantee shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or the Guarantor, or any Person acting on behalf of the Guarantor,
shall deny or disaffirm its obligations under the Subsidiary Guarantee; (viii)
breach by the Partnership of any material representation or warranty set forth
in the Pledge Agreement, or default by the Partnership in the performance of
any covenant set forth in the Pledge Agreement subject to applicable grace
periods, or repudiation by the Partnership of its obligations under the Pledge
Agreement or the unenforceability of any material provision of the Pledge
Agreement for any reason; and (ix) certain events of bankruptcy or insolvency
with respect to the Partnership or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Senior Notes may
declare all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to either Issuer, any
Significant Subsidiary or any group of Subsidiaries that, taken together,
would constitute a Significant Subsidiary, all outstanding Senior Notes will
become due and payable immediately without further action or notice. Holders
of the Senior Notes may not enforce the Indenture or the Senior Notes except
as provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Senior Notes may direct
the Trustee in its exercise of any trust or power. The Trustee may withhold
from Holders of the Senior Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal, interest or Liquidated Damages, if any) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Issuers with
the intention of avoiding payment of the premium that the Issuers would have
had to pay if the Issuers then had elected to redeem the Senior Notes pursuant
to the optional redemption provisions of the Indenture, an equivalent premium
shall also become and be immediately due and payable to the extent permitted
by law upon the acceleration of the Senior Notes. If an Event of Default
occurs prior to June 15, 2001, by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Issuers with the intention of
avoiding the prohibition on redemption of the Senior Notes prior to such date,
then the premium specified in the Indenture shall also become immediately due
and payable to the extent permitted by law upon the acceleration of the Senior
Notes.
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all
of the Senior Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of
Default in the payment of principal of, premium, if any, interest or
Liquidated Damages, if any, on the Senior Notes.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF LIMITED PARTNERS, DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS
No limited partner of the Partnership or the Operating Partnership or
director, officer, employee, incorporator or stockholder of the General
Partner or Finance Corp., as such, shall have any liability for any
obligations of the Issuers or the Guarantor under the Senior Notes, the
Subsidiary Guarantee, the Pledge Agreement, the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Senior Notes by accepting a Senior Note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the Senior Notes. Such waiver may not be effective to waive
liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers may, at their option and at any time, elect to have all of their
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Senior Notes
to receive payments in respect of the principal of, premium, if any, and
interest including Liquidated Damages, if any, on such Senior Notes when such
payments are due, (ii) the Issuers' obligations with respect to the Senior
Notes concerning issuing temporary Senior Notes, registration of Senior Notes,
mutilated, destroyed, lost or stolen Senior Notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and
the Issuers' obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Issuers may, at their option and
at any time, elect to have the obligations of the Issuers released with
respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Senior Notes.
In the event Covenant Defeasance occurs, certain events (not including non-
payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Issuers must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Senior Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
including Liquidated Damages, if any, on the outstanding Senior Notes on the
stated maturity or on the applicable redemption date, as the case may be, of
such principal or installment of principal of, premium, if any, interest or
Liquidated Damages, if any, on the outstanding Senior Notes; (ii) in the case
of Legal Defeasance, the Issuers shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Issuers shall have received from, or there shall have
been published by, the Internal Revenue Service a ruling or (B) since the date
of the Indenture, there shall have been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders of the outstanding Senior
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Issuers shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Senior Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Event of Default shall
have occurred and be continuing on the date of such deposit or insofar as
Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (v) such
Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under any material agreement or
instrument (other than the Indenture) to which the Issuers or any of their
Subsidiaries is a party or by which the Issuers or any of their Subsidiaries
is bound; (vi) the Issuers shall have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Issuers shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuers with the
intent of preferring the Holders of Senior Notes over the other creditors of
the Issuers with the intent of defeating, hindering, delaying or defrauding
creditors of the Issuers or others; and (viii) the Issuers shall have
delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers are not required to transfer or
exchange any Senior Note selected for redemption. Also, the Issuers are not
required to transfer or exchange any Senior Note for a period of 15 days
before a selection of Senior Notes to be redeemed.
The registered Holder of a Senior Note will be treated as its owner for all
purposes.
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form. Except as described below, the Issues expect that the
Exchange Notes initially will be represented by one Global Note (the "Global
Note"). The Global Note will be deposited with, or on behalf of, the
Depositary and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the "Global Note
Holder").
Senior Notes that are issued as described below under "--Certificated
Securities," will be issued in the form of registered definitive certificates
(the "Certificated Securities"). Upon the transfer of Certificated Securities,
such Certificated Securities may, unless the Global Note has previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of Senior Notes being
transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical transfer and delivery
of certificates. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only thorough the Depositary's
Participants or the Depositary's Indirect Participants.
The Issuers expect that pursuant to procedures established by the Depositary
(i) upon deposit of the Global Note, the Depositary will credit the accounts
of Participants designated by the Initial Purchasers with portions of the
principal amount of the Global Note and (ii) ownership of the Senior Notes
evidenced by the Global Note will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants (with
respect to the interests of persons other than the Participants). Prospective
purchasers are advised that the laws of some states require that certain
persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer Senior Notes evidenced by the Global
Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Senior
Notes, the Global Note Holder will be considered the sole Holder under the
Indenture of any Senior Notes evidenced by the Global Note. Beneficial owners
of Senior Notes evidenced by the Global Note will not be considered the owners
or Holders thereof under the Indenture for any purpose, including with respect
to the giving of any directions, instructions or approvals to the Trustee
thereunder. No beneficial owner of an interest in the Global Note will be able
to transfer that interest except in accordance with the Depositary's
procedures in addition to those provided under the Indenture with respect to
the Senior Notes. Neither the Issuers nor the Trustee will have any
responsibility or liability for any aspect of the records of the Depositary or
for maintaining, supervising or reviewing any records of the Depositary
relating to the Senior Notes.
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Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Senior Notes registered in the name of the
Global Note Holder on the applicable record date will be payable by the
Trustee to or at the direction of the Global Note Holder in its capacity as
the registered Holder under the Indenture. Under the terms of the Indenture,
the Issuers and the Trustee may treat the persons in whose names Senior Notes,
including the Global Note, are registered as the owners thereof for the
purpose of receiving such payments. Consequently, neither the Issuers nor the
Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of Senior Notes (including principal,
premium, if any, interest and Liquidated Damages, if any). The Issuers
believe, however, that it is currently the policy of the Depositary to
immediately credit the accounts of the relevant Participants with such
payments, in amounts proportionate to their respective holdings of beneficial
interests in the relevant security as shown on the records of the Depositary.
Payments by the Depositary's Participants and the Depositary's Indirect
Participants to the beneficial owners of Senior Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Depositary's Participants or the Depositary's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Senior Notes in the form of Certificated Securities. Upon any
such issuance, the Trustee is required to register such Certificated
Securities in the name of, and cause the same to be delivered to, such person
or persons (or the nominee of any thereof). In addition, if (i) the Issuers
notify the Trustee in writing that the Depositary is no longer willing or able
to act as a depositary and the Issuers are unable to locate a qualified
successor within 90 days or (ii) the Issuers, at their option, notify the
Trustee in writing that they elect to cause the issuance of Senior Notes in
the form of Certificated Securities under the Indenture, then, upon surrender
by the Global Note Holder of its Global Note, Certificated Securities in such
form will be issued to each person that the Global Note Holder and the
Depositary identify as being the beneficial owner of the related Senior Notes.
Neither the Issuers nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Senior Notes and the Issuers and the Trustee may conclusively rely on, and
will be protected in relying on, instructions from the Global Note Holder or
the Depositary for all purposes.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the Registration Rights Agreement, the Issuers and the Operating
Partnership agreed to file with the Commission the Registration Statement of
which this Prospectus is a part with respect to the Exchange Notes. If (i) the
Issuers and the Operating Partnership are not permitted to consummate the
Exchange Offer because the Exchange Offer is not permitted by applicable law
or Commission policy or (ii) any Holder of Transfer Restricted Securities
notifies the Issuers within the specified time period that (A) it is
prohibited by law or Commission policy from participating in the Exchange
Offer or (B) that it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and this
Prospectus is not appropriate or available for such resales or (C) that it is
a broker-dealer and owns Senior Notes acquired directly from the Issuers or an
affiliate of the Issuers, the Issuers and the Operating Partnership will file
with the Commission a Shelf Registration Statement to cover resales of the
Senior Notes by the Holders thereof who satisfy certain conditions relating to
the provision of information in connection with the Shelf Registration
Statement. The Issuers and the Operating Partnership will use their best
efforts to cause the Registration Statement to be declared effective as
promptly as possible by the Commission. For purposes of the foregoing,
"Transfer Restricted Securities" means each Senior Note until (i) the date on
which such Senior Note has been exchanged by a person other than a broker-
dealer for an Exchange Note in the Exchange Offer, (ii) following the exchange
by a broker-dealer in the Exchange Offer of a Private Note for an Exchange
Note, the date on which such Exchange Note is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of this
Prospectus, (iii) the date on which such Private Note has been effectively
registered under the Securities Act and disposed of in accordance with the
Shelf Registration Statement or (iv) the date on which such Private Note is
distributed to the public pursuant to Rule 144 under the Act.
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The Registration Rights Agreement will provide that if obligated to file the
Shelf Registration Statement, the Issuers and the Operating Partnership will
use their best efforts to file the Shelf Registration Statement with the
Commission on or prior to 30 days after such filing obligation arises and to
cause the Shelf Registration to be declared effective by the Commission on or
prior to 90 days after such obligation arises. If (a) the Issuers and the
Operating Partnership fail to file the Shelf Registration Statement required
by the Registration Rights Agreement on or before the date specified for such
filing, (b) the Shelf Registration Statement is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), or (c) the Shelf Registration Statement is
declared effective but thereafter ceases to be effective or usable in
connection with resales of Transfer Restricted Securities during the periods
specified in the Registration Rights Agreement (each such event referred to in
clauses (a) through (c) above a "Registration Default"), then the Issuers
(and, after the Subsidiary Guarantee Effectiveness Date, the Operating
Partnership) will pay Liquidated Damages to each Holder of Senior Notes, with
respect to the first 90-day period immediately following the occurrence of
such Registration Default in an amount equal to $.05 per week per $1,000
principal amount of Senior Notes held by such Holder. The amount of the
Liquidated Damages will increase by an additional $.05 per week per $1,000
principal amount of Senior Notes with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $.50 per week per $1,000 principal amount of Senior
Notes. All accrued Liquidated Damages will be paid by the Issuers (and, after
the Subsidiary Guarantee Effectiveness Date, the Operating Partnership) on
each Damages Payment Date to the Global Note Holder by wire transfer of
immediately available funds or by federal funds check and to Holders of
Certificated Securities by wire transfer to the accounts specified by them or
by mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of Senior Notes will be required to deliver information to be used
in connection with the Shelf Registration Statement and to provide comments on
the Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Senior Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraphs, the Indenture, the
Senior Notes or the Pledge Agreement may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the
Senior Notes then outstanding (including consents obtained in connection with
a tender offer or exchange offer for Senior Notes), and any existing default
or compliance with any provision of the Indenture or the Senior Notes may be
waived with the consent of the Holders of a majority in principal amount of
the then outstanding Senior Notes (including consents obtained in connection
with a tender offer or exchange offer for Senior Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non-consenting Holder): (i) reduce
the principal amount of Senior Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Senior Note or alter the provisions with respect to the
redemption of the Senior Notes (other than provisions relating to the
covenants described above under the caption "Repurchase at the Option of
Holders"), (iii) reduce the rate of or change the time for payment of
interest, including Liquidated Damages, if any, on any Senior Note, (iv) waive
a Default or Event of Default in the payment of principal of or premium, if
any, interest or Liquidated Damages, if any, on the Senior Notes (except a
rescission of acceleration of the Senior Notes by the Holders of at least a
majority in aggregate principal amount of the Senior Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Senior
Note payable in money other than that stated in the Senior Notes, (vi) make
any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of Senior Notes to receive payments of
principal of, premium, if any, interest or Liquidated Damages, if any, on the
Senior Notes, (vii) waive a redemption payment with respect to any Senior Note
(other than provisions relating to the covenants described above under the
caption "Repurchase at the Option of Holders"),
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(viii) except as otherwise permitted in the Indenture, release the Guarantor
from its obligations under the Subsidiary Guarantee or change the Subsidiary
Guarantee in any manner that would adversely affect the rights of Holders of
Senior Notes, (ix) release all or substantially all of the Collateral from the
Lien of the Indenture and the Pledge Agreement or (x) make any change in the
foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Notes, the Issuers and the Trustee may amend or supplement the Indenture, the
Pledge Agreement or the Senior Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Senior Notes in addition to or in
place of certificated Senior Notes, to provide for the assumption of the
Issuers' and the Guarantor's obligations to Holders of the Senior Notes in the
case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the Senior Notes (including
the creation of any Subsidiary Guarantees) or that does not adversely affect
the legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuers, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Senior
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of Senior Notes, unless such Holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person
and (ii) Indebtedness encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided, however, that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control.
"Attributable Debt" means, in respect of a sale and leaseback arrangement of
any property, as at the time of determination, the present value (calculated
using a discount rate equal to the interest rate of the Senior Notes
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and annual compounding) of the total obligations of the lessee for rental
payments during the remaining term of the lease included in such arrangement
(including any period for which such lease has been extended).
"Available Cash" has the meaning given to such term in the Partnership
Agreement, as amended to the date of the Indenture.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Capital Interests" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock,
including, without limitation, with respect to partnerships, partnership
interests (whether general or limited) and any other interest or participation
that confers on a Person the right to receive a share of the profits and
losses of, or distributions of assets of, such partnership.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than
eighteen months from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of six months or less from the
date of acquisition, bankers' acceptances with maturities not exceeding six
months and overnight bank deposits, in each case with any lender party to the
Credit Facility or with any domestic commercial bank having capital and
surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or
better, (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clauses (ii) and (iii)
entered into with any financial institution meeting the qualifications
specified in clause (iii) above, (v) commercial paper having the highest
rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's
Corporation and in each case maturing within nine months after the date of
acquisition and (vi) investments in money market funds all of whose assets
consist of securities of the types described in the foregoing clauses (i)
through (v).
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (a) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an asset sale (to the extent such losses were deducted in computing
Consolidated Net Income), plus (b) provision for taxes based on income or
profits of such Person for such period, to the extent such provision for taxes
was deducted in computing Consolidated Net Income, plus (c) consolidated
interest expense of such Person for such period, whether paid or accrued
(including amortization of original issue discount, non-cash interest payments
and the interest component of any payments associated with Capital Lease
Obligations and net payments (if any) pursuant to Hedging Obligations), to the
extent such expense was deducted in computing Consolidated Net Income, plus
(d) depreciation and amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) of such Person for such period to the extent such
depreciation and amortization were deducted in computing Consolidated Net
Income, in each case, for such period without duplication on a consolidated
basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided,
that (i) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid to the referent Person
or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any Person that
is a Subsidiary (other than a Wholly Owned Subsidiary) shall be included only
to the extent of the amount of dividends or distributions paid to the referent
Person or a Wholly Owned Subsidiary thereof, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded (except to the extent otherwise
includable under clause (i) above) and (iv) the cumulative effect of a change
in accounting principles shall be excluded.
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"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the partners or common stockholders
of such Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified
Interests) that by its terms is not entitled to the payment of dividends
unless such dividends may be declared and paid only out of net earnings in
respect of the year of such declaration and payment, but only to the extent of
any cash received by such Person upon issuance of such preferred stock, less
(x) all write-ups (other than write-ups resulting from foreign currency
translations and write-ups of tangible assets of a going concern business made
within 12 months after the acquisition of such business) subsequent to the
date of the Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except,
in each case, Permitted Investments), and (z) all unamortized debt discount
and expense and unamortized deferred charges as of such date, all of the
foregoing determined in accordance with GAAP.
"Credit Facility" means the credit facility under that certain Credit
Agreement, dated as of July 5, 1994, as amended, by and among the Operating
Partnership, the Insurance Company Subsidiary, the General Partner and Bank of
America National Trust and Savings Association, as Agent for the financial
institutions listed therein, providing for up to $205.0 million of credit
borrowings and letters of credit, including any related notes, instruments and
agreements executed in connection therewith, and in each case as amended,
modified, renewed, refunded, replaced or refinanced from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Interests" means any Capital Interests which, by their terms
(or by the terms of any security into which they are convertible or for which
they are exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the Holder thereof, in whole or in part, on or
prior to the maturity date of the Senior Notes.
"Equity Interests" means Capital Interests and all warrants, options or
other rights to acquire Capital Interests (but excluding any debt security
that is convertible into, or exchangeable for, Capital Interests).
"Existing Indebtedness" means the Fixed Rate Notes, the Floating Rate Notes
and up to $5.0 million in aggregate principal amount of all other Indebtedness
of the Partnership and its Subsidiaries (other than under the Credit Facility)
in existence on the date of the Indenture, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
reference Person or any of its Subsidiaries incurs, assumes, guarantees,
redeems or repays any Indebtedness (other than revolving credit borrowings)
subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the date of the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee, redemption
or repayment of Indebtedness, as if the same had occurred at the beginning of
the applicable reference period. The foregoing calculation of the Fixed Charge
Coverage Ratio shall also give pro forma effect to acquisitions (including all
mergers and consolidations), dispositions and discontinuance of businesses or
assets that have been made by the reference Person or any of its Subsidiaries
during the reference period or subsequent to such reference period and on or
prior to the Calculation Date assuming that all such acquisitions,
dispositions and discontinuance of businesses or assets had occurred on the
first day of the reference period; provided, however, that (a) Fixed Charges
shall be reduced by amounts attributable to businesses or assets that are so
disposed of or discontinued only to the extent that the obligations giving
rise to such Fixed Charges would no longer be obligations contributing to the
Partnership's Fixed Charges subsequent to the Calculation Date and (b)
Consolidated Cash Flow generated by an acquired business or asset shall be
determined by the actual gross profit (revenues minus cost of goods sold) of
such acquired business or asset during the immediately preceding number of
full fiscal
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quarters as in the reference period minus the pro forma expenses that would
have been incurred by the Partnership in the operation of such acquired
business or asset during such period computed on the basis of (i) personnel
expenses for employees retained by the Partnership in the operation of the
acquired business or asset and (ii) non-personnel costs and expenses incurred
by the Partnership on a per gallon basis in the operation of the Partnership's
business at similarly situated Partnership facilities. If the applicable
reference period for any calculation of the Fixed Charge Coverage Ratio with
respect to the Partnership shall include a portion prior to the date of the
Indenture, then such Fixed Charge Coverage Ratio shall be calculated based
upon the Consolidated Cash Flow and the Fixed Charges of the General Partner
for such portion of the reference period prior to the date of the Indenture
and the Consolidated Cash Flow and the Fixed Charges of the Partnership for
the remaining portion of the reference period on and after the date of the
Indenture, giving pro forma effect, as described in the two foregoing
sentences, to all applicable transactions occurring on the date of the
Indenture or otherwise.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (a) consolidated interest expense of such Person for
such period, whether paid or accrued, to the extent such expense was deducted
in computing Consolidated Net Income (including amortization of original issue
discount, non-cash interest payments, the interest component of all payments
associated with Capital Lease Obligations and net payments (if any) pursuant
to Hedging Obligations), (b) commissions, discounts and other fees and charges
incurred with respect to letters of credit and bankers' acceptances financing,
(c) any interest expense on Indebtedness of another Person that is Guaranteed
by such Person or secured by a Lien on assets of such Person and (d) the
product of (i) all cash dividend payments (and non-cash dividend payments in
the case of a Person that is a Subsidiary) on any series of preferred stock of
such Person, times (ii) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"Fixed Rate Notes" means the $200 million 10% Fixed Rate Senior Notes due
2001 of the Operating Partnership.
"Floating Rate Notes" means the $50 million Floating Rate Senior Notes due
2001 of the Operating Partnership.
"Flow-Through Acquisition" means an acquisition by the General Partner or
its parent from a Person that is not an Affiliate of the General Partner, its
parent or the Partnership, of property (real or personal), assets or equipment
(whether through the direct purchase of assets or the Capital Interests of the
Person owning such assets) in the same line of business as the Partnership and
its Subsidiaries are engaged in on the date of the Indenture, which is
promptly sold, transferred or contributed by the General Partner or its parent
to the Partnership or one of its Subsidiaries.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect in the United States of America on the date of
the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means the Operating Partnership and its successors and assigns,
or any other Subsidiary of the Partnership that Guarantees the Issuers'
Obligations under the Senior Notes and the Indenture pursuant to a form of
Guarantee and a supplemental indenture, in form and substance satisfactory to
the Trustee.
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"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing Capital Lease
Obligations or the balance deferred and unpaid of the purchase price of any
property or representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent any of
the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all indebtedness of other Persons
secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other
Person.
"Insurance Company Subsidiary" means Stratton Insurance Company, a Vermont
corporation, a Wholly Owned Subsidiary of the Operating Partnership.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans
(including Guarantees), advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any asset sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), or (b)
the disposition of any securities or the extinguishment of any Indebtedness of
such Person or any of its Subsidiaries, and (ii) any extraordinary gain (but
not loss), together with any related provision for taxes on such extraordinary
gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Partnership
or any of its Subsidiaries in respect of any Asset Sale, net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness secured by a Lien on the asset or assets the
subject of such Asset Sale and any reserve for adjustment in respect of the
sale price of such asset or assets.
"Non-Recourse Subsidiary" means (1) the Insurance Company Subsidiary and (2)
any other Person (other than the Operating Partnership and Finance Corps.)
that would otherwise be a Subsidiary of the Partnership but is designated as a
Non-Recourse Subsidiary in a resolution of the Board of Directors of the
General Partner, so long as (a) no portion of the Indebtedness or any other
obligation (contingent or otherwise) of such Person (i) is guaranteed by the
Partnership or any of its Subsidiaries, (ii) is recourse or obligates the
Partnership or any of its Subsidiaries in any way or (iii) subjects any
property or asset of the Partnership or any of its Subsidiaries, directly or
indirectly, contingently or otherwise, to satisfaction thereof, (b) neither
the Partnership nor any of its Subsidiaries has any contract, agreement,
arrangement or understanding or is subject to an obligation of any kind,
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written or oral, with such Person other than on terms no less favorable to the
Partnership and its Subsidiaries than those that might be obtained at the time
from persons who are not Affiliates of the Partnership, (c) neither the
Partnership nor any of its Subsidiaries has any obligation with respect to
such Person (i) to subscribe for additional shares of capital stock, Capital
Interests or other Equity Interests therein or (ii) maintain or preserve such
Person's financial condition or to cause such Person to achieve certain levels
of operating or other financial results, and (d) such Person has no more than
$1,000 of assets at the time of such designation.
"Obligations" means any principal, premiums, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Operating Partnership Indenture" means the indenture between the Operating
Partnership, Ferrellgas Finance Corp. and Norwest Bank, Minnesota, National
Association, as trustee, governing the Fixed Rate Notes and the Floating Rate
Notes as in existence from time to time.
"Permitted Investments" means (a) any Investments in Cash Equivalents; (b)
any Investments in the Partnership or in the Operating Partnership; (c)
Investments by the Partnership or any Subsidiary of the Partnership in a
Person, if as a result of such Investment such Person is merged, consolidated
or amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Partnership or the Operating
Partnership; and (d) other Investments in Non-Recourse Subsidiaries of the
Partnership that do not exceed $30 million at any time outstanding; provided
that in any transfer of assets to a Non-Recourse Subsidiary by the Partnership
or one of its Subsidiaries pursuant to the terms of the Indenture, which
assets were acquired in a Flow-Through Acquisition, the dollar amount equal to
the purchase price paid or Indebtedness assumed by such Non-Recourse
Subsidiary for such assets will not be deemed an Investment by the Partnership
or its Subsidiaries in such Non-Recourse Subsidiary for purposes of this
definition.
"Permitted Liens" means (a) Liens existing on the date of the Indenture; (b)
Liens in favor of the Issuers or Liens to secure Indebtedness of a Subsidiary
of the Partnership to the Partnership or a Wholly Owned Subsidiary of the
Partnership; (c) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Partnership or any Subsidiary
of the Partnership; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the
Partnership; (d) Liens on property existing at the time of acquisition thereof
by the Partnership or any Subsidiary of the Partnership; provided that such
Liens were in existence prior to the contemplation of such acquisition; (e)
Liens on any property or asset acquired by the Partnership or any of its
Subsidiaries in favor of the seller of such property or asset and construction
mortgages on property, in each case, created within six months after the date
of acquisition, construction or improvement of such property or asset by the
Partnership or such Subsidiary to secure the purchase price or other
obligation of the Partnership or such Subsidiary to the seller of such
property or asset or the construction or improvement cost of such property in
an amount up to 80% of the total cost of the acquisition, construction or
improvement of such property or asset; provided that in each case, such Lien
does not extend to any other property or asset of the Partnership and its
Subsidiaries; (f) Liens incurred or pledges and deposits made in connection
with worker's compensation, unemployment insurance and other social security
benefits and Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like nature, in
each case, incurred in the ordinary course of business; (g) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded; provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (h) Liens imposed by law, such as mechanics', carriers',
warehousemen's, materialmen's, and vendors' Liens, incurred in good faith in
the ordinary course of business; (i) zoning restrictions, easements, licenses,
covenants, reservations, restrictions on the use of real property or minor
irregularities of title incident thereto that do not, in the aggregate,
materially detract from the value of the property or the assets of the
Partnership or any of its Subsidiaries or impair the use of such property in
the operation of the business of the Partnership or any of its Subsidiaries;
(j) Liens of landlords or mortgagees of landlords, arising solely by operation
of law, on fixtures and movable property located on premises leased by the
Partnership or any of its Subsidiaries in the ordinary course of business; (k)
financing statements granted
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with respect to personal property leased by the Partnership and its
Subsidiaries pursuant to leases considered operating leases in accordance with
GAAP, provided that such financing statements are granted solely in connection
with such leases; (l) judgment Liens to the extent that such judgments do not
cause or constitute a Default or an Event of Default; (m) Liens incurred in
the ordinary course of business of the Partnership or any Subsidiary of the
Partnership with respect to obligations that do not exceed $5 million in the
aggregate at any one time outstanding and that (i) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (ii) do not
in the aggregate materially detract from the value of the property or
materially impair the use thereof in the operation of business by the
Partnership or such Subsidiary; (n) Liens securing Indebtedness incurred to
refinance Indebtedness that has been secured by a Lien permitted under the
Indenture, provided that (i) any such Lien shall not extend to or cover any
assets or property not securing the Indebtedness so refinanced and (ii) the
refinancing Indebtedness secured by such Lien shall have been permitted to be
incurred under the "Incurrence of Indebtedness and Issuance of Disqualified
Interests" covenant and shall not have a principal amount in excess of the
Indebtedness so refinanced; (o) Liens in favor of the Senior Notes created
pursuant to the terms of the Pledge Agreement; (p) Liens on Capital Interests
of the Operating Partnership securing Indebtedness other than Subordinated
Indebtedness that is permitted to be incurred by the Partnership pursuant to
the terms of the Indenture; and (q) any extension or renewal, or successive
extensions or renewals, in whole or in part, of Liens permitted pursuant to
the foregoing clauses (a) through (p); provided that no such extension or
renewal Lien shall (i) secure more than the amount of Indebtedness or other
obligations secured by the Lien being so extended or renewed or (ii) extend to
any property or assets not subject to the Lien being so extended or renewed.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Partnership or any Subsidiary of the Partnership issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund other Indebtedness of the Partnership or any of its
Subsidiaries permitted to be incurred under the Indenture (other than
Indebtedness under the Credit Facility); provided that (a) the principal
amount of such Indebtedness does not exceed the principal amount of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection therewith); (b)
such Indebtedness has a Weighted Average Life to Maturity equal to or greater
than the Weighted Average Life to Maturity of the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (c) such Indebtedness is
subordinated in right of payment to the Senior Notes on terms at least as
favorable to the Holders of Senior Notes as those, if any, contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (d) such Indebtedness is incurred by the
Partnership or the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Senior Operating Partnership Indebtedness" means all Indebtedness (other
than Subordinated Indebtedness) of the Operating Partnership permitted to be
incurred under the Credit Facility and the Operating Partnership Indenture, as
each is in effect from time to time and as the same may be extended,
refinanced, renewed, replaced, defeased or refunded.
"Significant Subsidiary" means any Subsidiary of the Partnership that would
be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Act, as such Regulation is in effect on the
date hereof.
"Subordinated Indebtedness" means any Indebtedness of the Partnership or any
of its Subsidiaries which is expressly by its terms subordinated in right of
payment to any other Indebtedness.
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"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the total voting power of
shares of Capital Interests entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof or, in the case of a partnership, more than 50% of the partners'
Capital Interests (considering all partners' Capital Interests as a single
class), is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person or a
combination thereof. Notwithstanding the foregoing, any Subsidiary of the
Partnership that is designated a Non-Recourse Subsidiary pursuant to the
definition thereof shall not thereafter be deemed a Subsidiary of the
Partnership.
"Subsidiary Guarantee" means, from and after the Subsidiary Guarantee
Effectiveness Date, the Guarantee by the Operating Partnership of the
Obligations under the Indenture and the Senior Notes.
"Subsidiary Guarantee Effectiveness Date" means the first date upon which
the Operating Partnership is permitted pursuant to the Fixed Charge Coverage
Ratio tests contained in the Operating Partnership Indenture and the Credit
Facility and pursuant to the terms of any other Senior Operating Partnership
Indebtedness to Guarantee, on a senior subordinated basis, the Issuers' total
payment Obligations under all of the then-outstanding Senior Notes.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
principal amount of such Indebtedness; provided, however, that with respect to
any revolving Indebtedness, the foregoing calculation of Weighted Average Life
to Maturity shall be determined based upon the total available commitments and
the required reductions of commitments in lieu of the outstanding principal
amount and the required payments of principal, respectively.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Interests or other ownership interests or, in
the case of a limited partnership, all of the partners' Capital Interests
(other than up to approximately 1% general partner interest), of which (other
than directors' qualifying shares) shall at the time be owned by such Person
or by one or more Wholly Owned Subsidiaries of such Person or by such Person
and one or more Wholly Owned Subsidiaries of such Person.
DESCRIPTION OF EXISTING INDEBTEDNESS
THE OPERATING PARTNERSHIP NOTES
The following is a summary of the terms of the Operating Partnership Notes.
The Operating Partnership Notes are unsecured general obligations of the
Operating Partnership and are recourse to the General Partner in its capacity
as the general partner of the Operating Partnership. The $200 million
aggregate principal amount of Fixed Rate Notes bear interest at the rate of
10.0% per annum, payable semi-annually in arrears. The Operating Partnership
Notes mature on August 1, 2001. The Fixed Rate Notes do not require any
mandatory redemption or sinking fund payment prior to maturity. The Fixed Rate
Notes are redeemable at the option of the Operating Partnership, in whole or
in part, at any time on or after August 1, 1998 at redemption prices specified
in the Operating Partnership Indenture, plus accrued and unpaid interest to
the date of redemption. Upon the occurrence of certain events constituting a
"Change of Control" (as defined in the Operating Partnership Indenture),
including if James E. Ferrell or his affiliates do not control the General
Partner, other than in certain limited circumstances, holders of the Operating
Partnership Notes have the right to require the Operating Partnership to
purchase each such holder's Operating Partnership Notes, in whole or in part,
at a purchase price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of purchase.
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The Operating Partnership Indenture contains customary covenants applicable
to the Operating Partnership and its subsidiaries, including limitations on
the ability of the Operating Partnership and its subsidiaries to, among other
things, incur additional indebtedness (other than certain permitted
indebtedness) and issue preferred interests, create liens, incur dividends and
other payment restrictions affecting subsidiaries, enter into mergers,
consolidations or sales of all or substantially all assets, make asset sales
and enter into transactions with affiliates. Under the Operating Partnership
Indenture, the Operating Partnership is permitted to make cash distributions
in an amount in such fiscal quarter not to exceed Available Cash (as defined
in the Operating Partnership Indenture) of the Operating Partnership for the
immediately preceding fiscal quarter plus the lesser of (y) the amount of any
Available Cash of the Operating Partnership for the first 45 days of such
fiscal quarter during which such distributions are made and (z) the amount of
unused available working capital indebtedness that the Operating Partnership
could have incurred on the last day of the immediately preceding fiscal
quarter; provided, however, that the Operating Partnership is prohibited from
making any distribution to the Partnership (i) if a default or event of
default exists or would exist upon making such distribution, (ii) if the
Operating Partnership's Fixed Charge Coverage Ratio for the preceding four
fiscal quarters does not exceed 2.25 to 1 after giving effect to such
distribution or (iii) unless the Operating Partnership and its subsidiaries
shall have in the aggregate (a) acquired, improved or repaired property, plant
or equipment which is accounted for as a capital expenditure in accordance
with GAAP or (b) acquired, through merger or otherwise, all or substantially
all of the outstanding stock or other capital interests, or all or
substantially all of the assets, of any entity engaged in the business in
which the Operating Partnership is engaged on the date of the Operating
Partnership Indenture (each of the transactions referred to in clauses (a) and
(b) above, a "Capital Investment") for Aggregate Consideration since the date
of the Operating Partnership Indenture which, when added to all cash reserves
then funded and maintained by the Operating Partnership (the proceeds of which
shall be used solely for Capital Investments) is no less than the amounts set
forth in the table below, if such distribution is made in the 12-month period
beginning August 1 of the years indicated.
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1995............................ $ 15 million
1996............................ $ 30 million
1997............................ $ 45 million
1998............................ $ 70 million
1999............................ $ 95 million
2000............................ $120 million
</TABLE>
For purposes of the foregoing, "Aggregate Consideration" with respect to
Capital Investments shall mean at any date all cash paid in connection with
all Capital Investments consummated on or prior to such date, the fair market
value of all partnership interests of the Partnership or the Operating
Partnership (determined by the General Partner in good faith with reference
to, among other things, the trading price of such partnership interests, if
then traded on any national securities exchange or automated quotation system)
constituting all or a portion of the purchase price for all Capital
Investments consummated on or prior to such date, and the aggregate principal
amount of all indebtedness incurred or assumed by the Operating Partnership in
connection with all Capital Investments consummated on or prior to such date.
The Operating Partnership Indenture prohibits the Operating Partnership and
its Subsidiaries from incurring or guaranteeing Indebtedness unless (i) the
Fixed Charge Coverage Ratio (as defined in the Operating Partnership
Indenture) for the Operating Partnership's most recently ended four fixed
quarters immediately preceding the date on which such additional Indebtedness
is incurred would have been at least 2.75 to 1.0 if such date is on or prior
to August 1, 1996 and 3.00 to 1.0 if such date is after August 1, 1996, in
each case, determined on a pro forma basis, and (ii) either (x) such
Indebtedness shall be subordinated in right of payment to the Operating
Partnership Notes and shall have a Weighted Average Life to Maturity (as
defined in the Operating Partnership Indenture) greater than the remaining
Weighted Average Life to Maturity of the Operating Partnership Notes or (y)
such Indebtedness shall be Permitted Senior Debt (as defined in the Operating
Partnership Indenture) and the Senior Debt Ratio Test (as defined in the
Operating Partnership Indenture) shall have been met at the time of
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incurrence thereof. The "Senior Debt Ratio Test" will be met, generally, with
respect to the incurrence of any Indebtedness by the Operating Partnership or
any Subsidiary of the Operating Partnership, if the ratio of (1) the aggregate
outstanding principal amount of Senior Debt (as defined in the Operating
Partnership Indenture) on the date of and after giving effect to the
incurrence of such Indebtedness (the "Incurrence Date") to (2) the
Consolidated Cash Flow (as defined in the Operating Partnership Indenture) for
the Operating Partnership's most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the
Incurrence Date would have been 2.50 to 1.0 or less.
At the time of issuance, the Operating Partnership Notes consisted of the
$200 million aggregate principal amount of Fixed Rate Notes and $50 million
aggregate principal amount of Floating Rate Notes. The Floating Rate Notes
bear interest at the three-month LIBOR rate plus 3 1/8%, adjusted quarterly,
payable quarterly in arrears. The Floating Rate Notes require sinking fund
payments of $5.0 million in each of 1999 and 2000, calculated to retire an
aggregate of 20% of the Floating Rate Notes prior to maturity. On July 31,
1996, the Operating Partnership will redeem prior to maturity all of the
Floating Rate Notes at 100% of the principal amount thereof, plus accrued and
unpaid interest to such date, from borrowings under the Credit Facility.
CREDIT FACILITY
The Operating Partnership has entered into a $205 million Credit Facility
with Bank of America National Trust & Savings Association ("BofA"), a portion
of which is syndicated to a group of financial institutions (together with
BofA, the "Banks"). On July 31, 1996, the Partnership expects to enter into an
amendment to the Credit Facility which will increase the maximum borrowing
amount to $255,000,000. The amended Credit Facility will permit borrowings of
up to $20 million on a senior unsecured revolving line of credit basis (the
"Working Capital Facility") to fund working capital and borrowings of up to
$185 million on a senior unsecured revolving line of credit basis (the
"Revolving Credit Facility") for general partnership requirements (of which
$50 million is available to support letters of credit). In addition, the
amended credit facility will provide for a senior unsecured term loan (the
"Term Loan") in the amount of $50 million with the proceeds to be used to
redeem the Operating Partnership's Floating Rate Notes.
The Working Capital Facility and Revolving Credit Facility will be committed
through July 31, 1999, at which time the Working Capital Facility and the
Revolving Credit Facility will expire. The Term Loan matures on June 1, 2001.
At the Operating Partnership's option, borrowings under the Credit Facility
may bear interest either at the Base Rate (i.e., the higher of the Federal
funds rate plus 1/2% per annum or BofA's reference rate) or the London
Interbank Offered Rate, in each case plus the applicable margin. The
applicable margin will vary from 42.5 basis points to 137.5 basis points for
LIBOR and between zero basis points and 12.5 basis points for the Base Rate,
depending upon the Operating Partnership's "Leverage Ratio," which is defined
generally as the ratio of all debt for borrowed money to EBITDA. As of the
date hereof, the Operating Partnership's applicable LIBOR margin is 105 basis
points and its applicable Base Rate margin is 0 basis points. There can be no
assurance that the Operating Partnership will continue to maintain the
Leverage Ratio which currently exists.
The loan agreement for the Credit Facility contains restrictive covenants
substantially similar to those for the Operating Partnership Senior Notes
including restrictions on the Operating Partnership's ability to make cash
distributions, the requirement that the Operating Partnership make "Capital
Reinvestments" as described under "--The Operating Partnership Notes" and the
requirement that the Operating Partnership repay all outstanding amounts under
the Credit Facility within 30 days after the occurrence of a change of
control. See "--The Operating Partnership Notes." In the case of the Credit
Facility, however, there is an additional limitation in that the occurrence of
any transaction which results in James E. Ferrell and his affiliates
beneficially owning less than 20% of the equity interests of the Partnership
will constitute a "change of control," requiring repayment of the Credit
Facility. In addition, the Credit Facility currently prohibits the Operating
Partnership from guaranteeing and becoming directly or indirectly liable with
respect to any Indebtedness unless (i) the Fixed Charge Coverage Ratio (as
defined in the Credit Facility) for the Operating Partnership is 2.75 to 1.0
prior to August 1, 1996 and 3.0 to 1.0 thereafter and (ii) either (x) such
Indebtedness is subordinate in right of payment
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to the obligations of the Operating Partnership under the Credit Facility and
no principal payment is required thereon prior to July 1, 2000, whether upon
stated maturity, mandatory prepayment, acceleration or otherwise or (y) such
Indebtedness shall be Permitted Senior Debt and the Senior Debt Ratio Test
shall have been met at the time of incurrence thereof. The "Senior Debt Ratio
Test" will be met, generally, with respect to the incurrence of any
Indebtedness by the Operating Partnership or any Subsidiary of the Operating
Partnership if the ratio of (1) the aggregate outstanding principal amount of
Senior Debt on the Incurrence Date to (2) the Consolidated Cash Flow for the
Operating Partnership's most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the
Incurrence Date would have been 2.50 to 1 or less. The Credit Facility also
includes certain additional covenants and restrictions relating to the
activities of the Operating Partnership which are customary for similar credit
facilities and are not expected to affect materially and adversely the conduct
of the Partnership's business as described in this Offering Memorandum.
CASH DISTRIBUTIONS
A principal objective of the Partnership and the Operating Partnership is to
generate cash from Partnership operations and to distribute to its partners,
on a quarterly basis, all its Available Cash in the manner described herein.
"Available Cash" generally means, with respect to any fiscal quarter of the
Partnership or the Operating Partnership, as applicable, all cash on hand at
the end of such quarter less the amount of cash reserves that is necessary or
appropriate in the reasonable discretion of the General Partner to (i) provide
for the proper conduct of the Partnership's business, (ii) provide funds for
distributions during the next four quarters, or (iii) comply with applicable
law or any Partnership debt instrument or other agreement. The Partnership
Agreement provides that distribution of Available Cash to Subordinated Units
is reduced at any time that Available Cash distributable to all Units is less
than $2.00 per Unit. Under such circumstances, $2.00 per Unit will first be
distributed to the Common Units and any remaining Available Cash will be
distributed to the Subordinated Units. Distributions will also be made upon
liquidation of the Operating Partnership or the Partnership as follows: (i)
first to the creditors of the applicable entity (including, in the case of the
Partnership, the Holders of the Senior Notes) and to the creation of a reserve
for contingent liabilities and (ii) then to the partners in the priorities
established by their respective equity interests. Upon liquidation of the
Operating Partnership, all of its creditors, including holders of Operating
Partnership Notes and the lenders with respect to the Credit Facility, will be
paid in full before any funds are available for distribution to the
Partnership. See "Risk Factors--Holding Company Structure and Ability to Repay
the Senior Notes; Effective Subordination to Indebtedness and Liabilities of
the Operating Partnership and Subsidiaries."
THE PARTNERSHIP AGREEMENT
The following paragraphs are a summary of certain provisions of the
Partnership Agreement. 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, and the Unitholders (including the General Partner and/or Ferrell
as an owner of Common Units, Subordinated Units and Incentive Distribution
Rights (collectively the "Units")) hold a 98% interest as limited partners in
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.
ORGANIZATION AND DURATION
The Partnership and the Operating Partnership are Delaware limited
partnerships. The Partnership will dissolve on July 31, 2084, unless sooner
dissolved pursuant to the terms of the Partnership Agreement.
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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. 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.
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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.
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
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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).
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 (as
defined in the Partnership Agreement), 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.
INCENTIVE DISTRIBUTION RIGHTS
All cash distributions from the Operating Partnership will be made 1% to the
General Partner and 99% to the Partnership as limited partner.
As an incentive, if quarterly distributions of Available Cash by the
Partnership exceed certain specified target levels an affiliate of the General
Partner will receive distributions of Available Cash of the Partnership as
described below. The target levels are based on the amounts of Available Cash
distributed by the Partnership and incentive distributions will not be made
unless the Unitholders have received distributions at specified levels above
the minimum quarterly distribution of $.50 per Unit with respect to each
quarter, subject to adjustment under certain circumstances (the "Minimum
Quarterly Distribution"). The rights to receive incentive distributions are
referred to as "Incentive Distribution Rights."
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For any quarter for which Available Cash is distributed by the Partnership
in respect of both the Common Units and the Subordinated Units in an amount
equal to the Minimum Quarterly Distribution, then any additional Available
Cash of the Partnership will be distributed among the Unitholders, the General
Partner and the holders of the Incentive Distribution Rights in the following
manner:
first, 99% to all Unitholders, pro rata, and 1% to the General Partner,
until the Unitholders have received a total of $.55 for such quarter in
respect of each Unit;
second, 86% to all Unitholders, pro rata, 13% to the holders of the
Incentive Distribution Rights, pro rata, and 1% to the General Partner, until
the Unitholders have received a total $0.63 for such quarter in respect of
each Unit;
third, 76% to all Unitholders, pro rata, 23% to the holders of the Incentive
Distribution Rights, pro rata, and 1% to the General Partner, until the
Unitholders have received a total of $0.82 for such quarter in respect of each
Unit; and
fourth, 51% to all Unitholders, pro rata, 48% to the holders of the
Incentive Distribution Rights, pro rata, and 1% to the General Partner.
Because the General Partner also receives 1% from the Operating Partnership,
the effective distribution to the General Partner will be 2% under all
circumstances and the effective distribution to all Unitholders will be
reduced by 1% in each instance.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The exchange of Private Notes for Exchange Notes pursuant to the Exchange
Offer should not constitute a material modification of the terms of the
Private Notes and, accordingly, should not constitute an "exchange" for
federal income tax purposes. Accordingly, the Exchange Offer should have no
federal income tax consequences to holders of Private Notes, either those who
exchange or those who do not. Likewise, holders of Exchange Notes should have
a tax basis therein equal to that in their Private Notes and a holding period
which includes the period during which they held the Private Notes.
If, contrary to the above conclusion, the exchange of Private Notes for
Exchange Notes constitutes an "exchange" for federal income tax purposes, (i)
a holder would realize and recognize gain or loss for federal income tax
purposes in an amount equal to the difference between (a) the "issue price" of
the Exchange Notes determined on the date of the exchange and (b) the holder's
adjusted tax basis in the Private Notes exchanged therefor, and (ii)(a) gain
or loss, if any, recognized by a holder on the exchange generally would be
short-term capital gain or loss (if the Private Notes were held by such holder
as capital assets), (b) a holder's initial tax basis in the Exchange Notes
would be their "issue price", and (c) a holder's holding period for the
Exchange Notes would begin on the day after the date of the exchange. A holder
also could be required to include in income each year an amount of original
issue discount based upon the "issue price" of the Exchange Notes.
The foregoing discussion reflects the opinion of Bryan Cave LLP, counsel to
the Issuers, as to the material federal income tax consequences of the
consummation of the Exchange Offer to the holders of the Private Notes, and
does not consider the possible effect of any applicable state, local and
foreign income and other tax laws. It is included herein for general
information only and is based upon the provisions of the Internal revenue Code
of 1986, as amended, applicable Treasury Regulations, judicial authority and
current administrative rulings and practice, all of which are subject to
change, possibly on a retroactive basis.
EACH HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE NOTES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS.
101
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with the resales of Exchange Notes received in exchange for
Private Notes where such Private Notes were acquired as a result of market-
making activities or other trading activities. The Issuers have agreed that
for a period of up to 180 days from the date that the Registration Statement
of which this Prospectus is a part is declared effective by the Commission,
they will make this Prospectus, as amended or supplemented, available to any
broker-dealer that requests such document in the Letter of Transmittal for use
in connection with any such resale.
The Issuers will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other persons. Exchange Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that
by acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The Issuers have agreed to pay all expenses incident to the Issuers'
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders of Private Notes (including any broker-dealers), and
certain parties related to such holders, against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
Exchange Notes will be passed upon for the Partnership and the Operating
Partnership by Bryan Cave LLP, Kansas City, Missouri. David S. Mouber, a
Partner at Bryan Cave LLP, is currently serving as Secretary of the General
Partner. Kendrick T. Wallace, a Partner at Bryan Cave LLP, is currently
serving as Assistant Secretary of the General Partner and Finance Corp.
Michael J. Beal, Counsel at Bryan Cave LLP, is currently serving as Assistant
Secretary of the General Partner and Finance Corp.
EXPERTS
The consolidated financial statements and the related financial statement
schedules of Ferrellgas Partners, L.P. (formerly Ferrellgas, Inc.) and
subsidiary 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), the
eleven months ended June 30, 1994 and the year ended July 31, 1993
(Predecessor), included and incorporated by reference in this Prospectus have
been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports, which are included and incorporated by reference herein, and
have been so included and incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
102
<PAGE>
The consolidated financial statements and the related financial statement
schedules of Ferrellgas, L.P. (formerly Ferrellgas, Inc.) and subsidiary 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), the eleven months ended
June 30, 1994 and the year ended July 31, 1993 (Predecessor), included and
incorporated by reference in this Prospectus have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their reports which are
included and incorporated by reference herein, and have been so included and
incorporated in reliance upon the reports of such firm given their authority
as experts in accounting and auditing.
The financial statements of Ferrellgas Partners Finance Corp. as of April 8,
1996 included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and has been
so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of Ferrellgas Finance Corp. as of July 31, 1995 and
1994 and for the year ended July 31, 1995 and the period from inception to
July 31, 1994, incorporated by reference in this Prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report
incorporated by reference herein and has been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting
and auditing.
The consolidated financial statements of Skelgas Propane, Inc. as of
December 31, 1995 and 1994 and for the year ended December 31, 1995, included
and incorporated by reference in this Prospectus have been audited by Deloitte
& Touche, chartered accountants, as stated in their report included and
incorporated by reference herein, and has been so included and incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Skelgas Propane, Inc. for the year
ended December 31, 1994, included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
included herein, and has been so included and incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting
and auditing.
103
<PAGE>
FERRELLGAS PARTNERS, L.P.
FERRELLGAS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
SKELGAS PROPANE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Ferrellgas Partners, L.P. and Subsidiaries Consolidated Financial
Statements (Unaudited):
Consolidated Balance Sheet--April 30, 1996.............................. F-2
Consolidated Statements of Earnings--Three Months and Nine Months Ended
April 30, 1996 and 1995................................................ F-3
Consolidated Statements of Partners' Capital--Nine Months Ended April
30, 1996............................................................... F-4
Consolidated Statements of Cash Flows--Nine Months Ended April 30, 1996
and 1995............................................................... F-5
Notes to Consolidated Financial Statements.............................. F-6
Ferrellgas, L.P. and Subsidiaries Consolidated Financial Statements
(Unaudited):
Consolidated Balance Sheets--April 30, 1996 and July 31, 1995........... F-8
Consolidated Statements of Earnings--Three Months and Nine Months Ended
April 30, 1996 and 1995................................................ F-9
Consolidated Statements of Partners' Capital--Nine Months Ended April
30, 1996............................................................... F-10
Consolidated Statements of Cash Flows--Nine Months Ended April 30, 1996
and 1995............................................................... F-11
Notes to Consolidated Financial Statements.............................. F-12
Ferrellgas Partners, L.P. and Subsidiary Consolidated Financial
Statements:
Independent Auditors' Report............................................ F-14
Consolidated Balance Sheets--July 31, 1995 and 1994..................... F-15
Consolidated Statements of Earnings--Year Ended July 31, 1995, One Month
Ended July 31, 1994, Eleven Months Ended June 30, 1994 (Predecessor)
and Year Ended July 31, 1993 (Predecessor)............................ F-16
Consolidated Statements of Stockholder's Equity/Partners' Capital--Year
Ended July 31, 1995, One Month Ended July 31, 1994, Eleven Months Ended
June 30, 1994 (Predecessor) and Year Ended July 31, 1993 (Predecessor). F-17
Consolidated Statements of Cash Flows--Year Ended July 31, 1995, One
Month Ended July 31, 1994, Eleven Months Ended June 30, 1994
(Predecessor) and Year Ended July 31, 1993 (Predecessor).............. F-18
Notes to Consolidated Financial Statements.............................. F-19
Skelgas Propane, Inc. and Subsidiaries Consolidated Financial Statements:
Independent Auditors' Report............................................ F-31
Consolidated Balance Sheets--April 30, 1996 (unaudited) December 31,
1995 and 1994.......................................................... F-33
Consolidated Statements of Income (Loss) and Accumulated Deficit--Four
Months Ended April 30, 1996 and 1995 (unaudited) and Years Ended
December 31, 1995 and 1994............................................. F-34
Consolidated Statements of Cash Flows--Four Months Ended April 30,1996
and 1995 (unaudited) and Years Ended December 31, 1995 and 1994........ F-35
Notes to Consolidated Financial Statements.............................. F-36
Ferrellgas Partners Finance Corp. Balance Sheets:
Independent Auditors' Report............................................ F-41
Balance Sheet--April 30, 1996 (unaudited) and April 8, 1996............. F-42
Notes to Balance Sheet.................................................. F-43
</TABLE>
F-1
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
APRIL 30,
ASSETS 1996
------ -----------
(UNAUDITED)
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 87,809
Accounts and notes receivable..................................... 80,639
Inventories....................................................... 24,316
Prepaid expenses and other current assets......................... 5,619
--------
TOTAL CURRENT ASSETS............................................ 198,383
Property, plant and equipment, net................................ 342,593
Intangible assets, net............................................ 98,697
Other assets, net................................................. 11,455
--------
TOTAL ASSETS.................................................... $651,128
========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
<S> <C>
CURRENT LIABILITIES:
Accounts payable.................................................. $ 44,912
Other current liabilities......................................... 30,446
Short-term borrowings............................................. 0
--------
TOTAL CURRENT LIABILITIES....................................... 75,358
Long-term debt..................................................... 432,307
Other liabilities.................................................. 12,288
Commitments and contingencies
Minority interest................................................... 2,902
PARTNERS' CAPITAL:
Common unitholders, (14,571,377 units outstanding)................ 91,073
Subordinated unitholders (16,593,721 units outstanding)........... 94,780
General partner................................................... (57,580)
--------
TOTAL PARTNERS' CAPITAL......................................... 128,273
--------
TOTAL LIABILITIES AND PARTNERS' CAPITAL......................... $651,128
========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER UNIT DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
------------------ ------------------
APRIL APRIL APRIL APRIL
30, 30, 30, 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Gas liquids and related product
sales............................... $181,241 $162,821 $522,446 $483,290
Other................................ 9,502 5,192 31,266 22,797
-------- -------- -------- --------
TOTAL REVENUES..................... 190,743 168,013 553,712 506,087
COST OF PRODUCT SOLD (EXCLUSIVE OF
DEPRECIATION, SHOWN SEPARATELY BELOW). 105,263 94,759 300,844 285,059
-------- -------- -------- --------
GROSS PROFIT........................... 85,480 73,254 252,868 221,028
Operating expense...................... 45,743 40,638 134,363 120,335
Depreciation and amortization expense.. 8,703 8,443 25,839 23,855
General and administrative expense..... 2,981 3,118 9,535 8,366
Vehicle lease expense.................. 1,418 1,080 3,621 3,227
-------- -------- -------- --------
OPERATING INCOME....................... 26,635 19,975 79,510 65,245
Interest expense....................... (8,567) (8,221) (26,775) (23,536)
Interest income........................ 443 433 1,068 947
Loss on disposal of assets............. (314) (126) (1,084) (429)
-------- -------- -------- --------
EARNINGS BEFORE MINORITY INTEREST...... 18,197 12,061 52,719 42,227
Minority interest...................... 185 122 534 427
-------- -------- -------- --------
NET EARNINGS........................... 18,012 11,939 52,185 41,800
General partner's interest in net
earnings.............................. 180 119 522 418
-------- -------- -------- --------
Limited partners' interest in net
earnings.............................. $ 17,832 $ 11,820 $ 51,663 $ 41,382
======== ======== ======== ========
NET EARNINGS PER LIMITED PARTNER UNIT.. $ 0.57 $ 0.38 $ 1.66 $ 1.34
======== ======== ======== ========
WEIGHT AVERAGE NUMBER OF UNITS
OUTSTANDING........................... 31,139 30,993 31,103 30,880
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF UNITS
------------------
TOTAL
SUB- SUB- GENERAL PARTNERS'
COMMON ORDINATED COMMON ORDINATED PARTNER CAPITAL
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
JULY 31, 1995........... 14,398.9 16,593.7 $ 84,489 $ 91,824 $(57,676) $118,637
Assets contributed in
connection with
acquisitions......... 284 325 6 615
Common units issued in
connection with
acquisitions......... 172.5 3,900 39 3,939
Quarterly
distributions........ (21,741) (24,891) (471) (47,103)
Net earnings.......... 24,141 27,522 522 52,185
-------- -------- -------- -------- -------- --------
APRIL 30, 1996.......... 14,571.4 16,593.7 $ 91,073 $ 94,780 $(57,580) $128,273
======== ======== ======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
-----------------
APRIL APRIL
30, 30,
1996 1995
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................... $ 52,185 $41,800
Reconciliation of net earnings to net cash from operating
activities:
Depreciation and amortization.............................. 25,839 23,855
Other...................................................... 3,602 2,710
Changes in operating assets and liabilities net of effects
from business acquisitions:
Accounts and notes receivable............................ (21,800) (10,344)
Inventories.............................................. 20,062 19,505
Prepaid expenses and other current assets................ 429 (1,143)
Accounts payable......................................... (12,573) (6,270)
Other current liabilities................................ (2,435) (4,567)
Other liabilities........................................ 704 (100)
-------- -------
Net cash provided by operating activities.............. 66,013 65,446
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions...................................... (3,342) (17,135)
Capital expenditures....................................... (10,391) (13,273)
Other...................................................... (2,572) 456
-------- -------
Net cash used by investing activities.................. (16,305) (29,952)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net reductions to short-term borrowings.................... (20,000) (3,000)
Additions to long-term debt (exclusive of debt assumed in
acquisitions)............................................. 167,752 60,000
Reductions of long-term debt............................... (94,319) (53,750)
Distributions.............................................. (47,103) (36,001)
Contributions from general partner......................... 2,338 66
Other...................................................... (444) (315)
-------- -------
Net cash provided (used) by financing activities....... 8,224 (33,000)
-------- -------
Increase in cash and cash equivalents...................... 57,932 2,494
Cash and cash equivalents--beginning of period............. 29,877 14,535
-------- -------
CASH AND CASH EQUIVALENTS--END OF PERIOD................... $ 87,809 $17,029
======== =======
Cash paid for interest..................................... $ 31,839 $17,153
======== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996
(UNAUDITED)
A. The unaudited consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of
the interim periods presented. All adjustments to the financial statements
were of a normal recurring nature.
B. The propane industry is seasonal in nature because propane issued primarily
for heating in residential and commercial buildings. Therefore, the results
of operations for the periods ended April 30, 1996 and April 30, 1995 are
not necessarily indicative of the results to be expected for a full year.
C. Supplemental balance sheet information (in thousands)
Inventories consist of:
<TABLE>
<CAPTION>
APRIL
30,
1996
-------
<S> <C>
Liquefied propane gas and related products.......................... $17,483
Appliances, parts and supplies...................................... 6,833
-------
$24,316
=======
</TABLE>
In addition to inventories on hand, Ferrellgas Partners, L.P.
("Partnership") enters into contracts to buy product for supply purposes.
All such contracts have terms of less than one year and call for payment
based on market prices at date of delivery.
Property, plant and equipment, net consist of:
<TABLE>
<CAPTION>
APRIL
30, 1996
--------
<S> <C>
Property, plant and equipment...................................... $528,740
Less: accumulated depreciation..................................... 186,147
--------
$342,593
========
</TABLE>
Intangibles, net consist of:
<TABLE>
<CAPTION>
APRIL
30, 1996
--------
<S> <C>
Intangibles........................................................ $188,166
Less: accumulated amortization..................................... 89,469
--------
$ 98,697
========
</TABLE>
D. On April 26, 1996, the Partnership issued $160,000,000 of 9 3/8% Senior
Notes due 2006 ("Senior Notes"). The Senior Notes will become guaranteed by
Ferrellgas, L.P. (the "Operating Partnership" or the "OLP") on a senior
subordinated basis if certain conditions are met. The Operating
Partnership's Credit Agreement and the Operating Partnership Indenture
currently prohibit the Operating Partnership from guaranteeing any
indebtedness unless, among meeting other conditions, fixed charge coverage
ratios for the Operating Partnership meets certain levels at prescribed
dates. Currently the OLP does not meet such conditions and, therefore,
there can be no assurance as to whether or when this guarantee will become
effective.
The Senior Notes are redeemable at the option of the Partnership, in whole
or in part, at any time on or after June 15, 2001. The Senior Notes bear
interest from the date of issuance, payable semi-annually in arrears on
June 15 and December 15 of each year commencing on December 15, 1996.
F-6
<PAGE>
E. The Partnership is threatened with or named as a defendant in various
lawsuits which, among other items, claim damages for product liability. It
is not possible to determine the ultimate disposition of these matters;
however, management is of the opinion that there are no known claims or
contingent claims that are likely to have a material adverse effect on the
results of operations, financial condition or liquidity of the Partnership.
F. On April 30, 1996, Ferrellgas, Inc. ("Ferrellgas"), the General Partners of
(the Partnership), consummated the purchase of all of the stock of Skelgas
Propane, Inc. ("Skelgas"), a subsidiary of Superior Propane, Inc. of
Toronto, Canada for a cash purchase price of $89,650,000, including working
capital and the first installment on a noncompete agreement of $400,000.
Skelgas was the seventh-largest propane supplier in the nation, based on
gallons sold, with 92 retail propane outlets across the United States and
sales of approximately 96 million gallons a year to residential,
industrial/commercial and agricultural customers. Ferrellgas borrowed the
funds for such purchase from Bank of America National Trust & Savings
Association ("BofA" and the "BofA Acquisition Loan").
As of May 1, 1996, Ferrellgas (i) caused Skelgas and each of its
subsidiaries to be merged into Ferrellgas and (ii) transferred all of the
assets of Skelgas and its subsidiaries to the Operating Partnership. In
exchange, the Operating Partnership assumed substantially all of the
liabilities, whether known or unknown, association with Skelgas and its
subsidiaries and their propane business (excluding income tax liabilities).
In consideration of the retention by Ferrellgas of certain income tax
liabilities, the Partnership issued 41,203 Common Units to Ferrellgas. The
liabilities assumed by the Operating Partnership included the obligations
of Ferrellgas under the BofA Acquisition Loan. Immediately following the
transfer of assets and related transactions described above, the Operating
Partnership repaid the BofA Acquisition Loan with cash and borrowings under
the Operating Partnership's existing acquisition bank credit line. The
accompanying financial statements do not reflect this subsequent event.
F-7
<PAGE>
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, JULY 31,
ASSETS 1996 1995
------ ----------- --------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................ $ 87,809 $ 29,877
Accounts and notes receivable............................ 80,639 58,239
Inventories.............................................. 24,316 44,090
Prepaid expenses and other current assets................ 5,619 5,884
-------- --------
TOTAL CURRENT ASSETS................................... 198,383 138,090
Property, plant and equipment, net....................... 342,593 345,642
Intangible assets, net................................... 98,697 86,886
Other assets, net........................................ 7,456 7,978
-------- --------
TOTAL ASSETS........................................... $647,129 $578,596
======== ========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable......................................... $ 44,912 $ 57,729
Other current liabilities................................ 30,278 31,432
Short-term borrowings.................................... 0 20,000
-------- --------
TOTAL CURRENT LIABILITIES.............................. 75,190 109,161
Long-term debt........................................... 272,307 338,188
Other liabilities........................................ 12,288 11,398
Contingencies and commitments
PARTNERS' CAPITAL:
Limited partner.......................................... 284,442 118,638
General partner.......................................... 2,902 1,211
-------- --------
TOTAL PARTNERS' CAPITAL................................ 287,344 119,849
-------- --------
TOTAL LIABILITIES AND PARTNER'S CAPITAL................ $647,129 $578,596
======== ========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
------------------ ------------------
APRIL APRIL APRIL APRIL
30, 30, 30, 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Gas liquids and related product
sales............................... $181,241 $162,821 $522,446 $483,290
Other................................ 9,502 5,192 31,266 22,797
-------- -------- -------- --------
TOTAL REVENUES..................... 190,743 168,013 553,712 506,087
COST OF PRODUCT SOLD (EXCLUSIVE OF
DEPRECIATION, SHOWN SEPARATELY BELOW). 105,263 94,759 300,844 285,059
-------- -------- -------- --------
GROSS PROFIT........................... 85,480 73,254 252,868 221,028
Operating expense...................... 45,742 40,638 134,362 120,334
Depreciation and amortization expense.. 8,703 8,443 25,839 23,855
General and administrative expense..... 2,981 3,118 9,535 8,366
Vehicle lease expense.................. 1,418 1,080 3,621 3,227
-------- -------- -------- --------
OPERATING INCOME....................... 26,636 19,975 79,511 65,246
Interest expense....................... (8,400) (8,221) (26,608) (23,536)
Interest income........................ 443 433 1,068 947
Loss on disposal of assets............. (314) (126) (1,084) (429)
-------- -------- -------- --------
NET EARNINGS........................... $ 18,365 $ 12,061 $ 52,887 $ 42,228
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
LIMITED GENERAL PARTNERS'
PARTNER PARTNER CAPITAL
-------- ------- ---------
<S> <C> <C> <C>
JULY 31, 1995...................................... $118,638 $1,211 $119,849
Cash contributed in connection with debt offering.. 156,000 1,592 157,592
Assets contributed in connection with acquisitions. 614 6 620
Additions to capital in connection with
acquisitions...................................... 3,938 41 3,979
Quarterly distributions............................ (47,103) (480) (47,583)
Net earnings....................................... 52,355 532 52,887
-------- ------ --------
APRIL 30, 1996..................................... $284,442 $2,902 $287,344
======== ====== ========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
FERRELLGAS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------
APRIL APRIL
30, 30,
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings.............................................. $ 52,887 $ 42,228
Reconciliation of net earnings to net cash from operating
activities:
Depreciation and amortization........................... 25,839 23,855
Other................................................... 3,068 2,283
Changes in operating assets and liabilities net of effects
from business acquisitions:
Accounts and notes receivable........................... (21,800) (10,344)
Inventories............................................. 20,062 19,505
Prepaid expenses and other current assets............... 429 (1,143)
Accounts payable........................................ (12,573) (6,270)
Other current liabilities............................... (2,602) (4,568)
Other................................................... 704 (100)
-------- --------
Net cash provided by operating activities............. 66,014 65,446
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions..................................... (3,342) (17,135)
Capital expenditures...................................... (10,391) (13,273)
Other..................................................... 1,427 456
-------- --------
Net cash provided by investing activities............. (12,306) (29,952)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution from partners................................ 158,372 135
Net reductions to short-term borrowings................... (20,000) (3,000)
Additions to long-term debt (exclusive of debt assumed in
acquisitions)............................................ 7,752 60,000
Reductions of long-term debt.............................. (94,319) (53,750)
Distributions............................................. (47,583) (36,369)
Other..................................................... 2 (16)
-------- --------
Net cash provided (used) by financing activities...... 4,224 (33,000)
-------- --------
Increase in cash and cash equivalents..................... 57,932 2,494
Cash and cash equivalents--beginning of period............ 29,877 14,535
-------- --------
CASH AND CASH EQUIVALENTS--END OF PERIOD.................. $ 87,809 $ 17,029
======== ========
Cash paid for interest.................................... $ 31,839 $ 17,153
======== ========
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE>
FERRELLGAS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1996
(UNAUDITED)
A. The unaudited consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary for a fair statement of
the interim periods presented. All adjustments to the financial statements
were of a normal recurring nature.
B. The propane industry is seasonal in nature because propane is used
primarily for heating in residential and commercial buildings. Therefore,
the results of operations for the periods ended April 30, 1996 and April
30, 1995 are not necessarily indicative of the results to be expected for a
full year.
C. Supplementary balance sheet information (in thousands)
Inventories consist of:
<TABLE>
<CAPTION>
APRIL JULY
30, 31,
1996 1995
------- -------
<S> <C> <C>
Liquefied propane gas and related products.................. $17,483 $37,550
Appliances, parts and supplies.............................. 6,833 6,540
------- -------
$24,316 $44,090
======= =======
</TABLE>
In addition to inventories on hand, Ferrellgas, L.P. (the "Operating
Partnership" or "OLP") enters into contracts to buy products for supply
purposes. All such contracts have terms of less than one year and call for
payment based on market prices at date of delivery.
Property, plant and equipment, net consist of:
<TABLE>
<CAPTION>
APRIL
30, JULY 31,
1996 1995
-------- --------
<S> <C> <C>
Property, plant and equipment............................. $528,740 $521,110
Appliances, parts and supplies............................ 186,147 175,468
-------- --------
$342,593 $345,642
======== ========
</TABLE>
Intangibles, net consist of:
<TABLE>
<CAPTION>
APRIL
30, JULY 31,
1996 1995
-------- --------
<S> <C> <C>
Property, plant and equipment............................. $188,166 $168,881
Appliances, parts and supplies............................ 89,469 81,995
-------- --------
$98,697 $ 86,886
======== ========
</TABLE>
D. On April 26, 1996, Ferrellgas Partners, L.P. (the "Partnership" or "MLP")
issued $160,000,000 of 9 3/8 Senior Notes due 2006 ("Senior Notes") see
note F. The Senior Notes will become guaranteed by the Operating
Partnership on a senior subordinated basis if certain conditions are met.
The Operating Partnership's Credit Agreement and the Operating Partnership
Indenture currently prohibit the Operating Partnership from guaranteeing
any indebtedness unless, among meeting other conditions, fixed charge
coverage ratio for the Operating Partnership meets certain levels at
prescribed dates. Currently the OLP does not meet such conditions and,
therefore, there can be no assurance as to whether or when this guarantee
will become effective.
E. The Partnership is threatened with or named as a defendant in various
lawsuits which, among other items, claim damages for product liability. It
is not possible to determine the ultimate disposition of these matters;
F-12
<PAGE>
however, management is of the opinion that there are no known claims or
contingent claims, that are likely to have a material adverse effect on the
results of operations, financial condition or liquidity or the Operating
Partnership.
F. Partners' capital is comprised of a 98.9899% limited partner interest held
by the MLP and a 1.0101% General Partner interest held by Ferrellgas, Inc.
In connection with the Senior Note offering mentioned above, the MLP
contributed $156,000,000 in cash to the OLP, thereby increasing its limited
partner interest. This cash will be used as working capital and for future
acquisitions. The General Partner then contributed $1,592,000 in cash to
the OLP to maintain its 1.0101% equity ownership.
G. On April 30, 1996, Ferrellgas, Inc. ("Ferrellgas"), the General Partner of
the Operating Partnership, consummated the purchase of all of the stock of
Skelgas Propane, Inc. ("Skelgas"), a subsidiary of Superior Propane, Inc.
of Toronto, Canada for a cash purchase price of $89,650,000, including
working capital and the first installment on a noncompete agreement of
$400,000. Skelgas was the seventh-largest propane supplier in the nation,
based on gallons sold, with 92 retail propane outlets across the United
States and sales of approximately 96 million gallons a year to residential
industrial/commercial and agricultural customers. Ferrellgas borrowed the
funds for such purchase from Bank of America National Trust & Savings
Association ("BofA" and the "BofA Acquisition Loan").
As of May 1, 1996, Ferrellgas (i) caused Skelgas and each of its
subsidiaries to be merged into Ferrellgas and (ii) transferred all of the
assets of Skelgas and its subsidiaries to the Operating Partnership. In
exchange the Operating Partnership assumed substantially all of the
liabilities, whether known or unknown, associated with Skelgas and its
subsidiaries and their propane business (excluding income tax liabilities).
In consideration of the retention by Ferrellgas of certain income tax
liabilities, the Partnership issued 41,203 Common Units to Ferrellgas. The
liabilities assumed by the Operating Partnership included the obligations
of Ferrellgas under the BofA Acquisition Loan. Immediately following the
transfer of assets and related transactions described above, the Operating
Partnership repaid the BofA Acquisition Loan will cash and borrowings under
the Operating Partnership's existing acquisition bank credit line. The
accompanying financial statements do not reflect this subsequent event.
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Ferrellgas Partners, L.P.
Liberty, Missouri
We have audited the accompanying consolidated balance sheets of Ferrellgas
Partners, L.P. (formerly Ferrellgas, Inc.) and subsidiary as of July 31, 1995
and 1994 (Successor), and the related consolidated statements of earnings,
partners' capital and cash flows for the year ended July 31, 1995 and for the
one month ended July 31, 1994 (Successor), the eleven months ended June 30,
1994 and the year ended July 31, 1993 (Predecessor). These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Ferrellgas Partners, L.P. and
subsidiary as of July 31, 1995 and 1994 (Successor), and the results of their
operations and their cash flows for the year ended July 31, 1995 and for the
one month ended July 31, 1994 (Successor), the eleven months ended June 30,
1994 and the year ended July 31, 1993 (Predecessor) in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 12, 1995
F-14
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
JULY 31, JULY 31,
ASSETS 1995 1994
------ -------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 29,877 $ 14,535
Accounts and notes receivable (net of allowance for
doubtful accounts of $874 and $798 in 1995 and 1994,
respectively)............................................ 58,239 50,780
Inventories............................................... 44,090 43,562
Prepaid expenses and other current assets................. 5,884 2,042
-------- --------
TOTAL CURRENT ASSETS.................................... 138,090 110,919
Property, plant and equipment, net.......................... 345,642 294,765
Intangible assets, net...................................... 86,886 63,291
Other assets, net........................................... 7,978 8,218
-------- --------
TOTAL ASSETS............................................ $578,596 $477,193
======== ========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable.......................................... $ 57,729 $ 46,368
Other current liabilities................................. 31,433 26,603
Short-term borrowings..................................... 20,000 3,000
-------- --------
TOTAL CURRENT LIABILITIES............................... 109,162 75,971
Long-term debt.............................................. 338,188 267,062
Other liabilities........................................... 11,398 11,528
Contingencies and commitments
Minority interest........................................... 1,211 1,239
PARTNERS' CAPITAL:
Common units (14,398,942 and 14,100,000 units outstanding
in 1995 and 1994, respectively).......................... 84,489 84,532
Subordinated units (16,593,721 units outstanding in 1995
and 1994)............................................ 91,824 99,483
General partners.......................................... (57,676) (62,622)
-------- --------
TOTAL PARTNERS' CAPITAL................................. 118,637 121,393
-------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL................. $578,596 $477,193
======== ========
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1994
--------------------------------
FOR THE YEAR ONE MONTH ELEVEN MONTHS FOR THE YEAR
ENDED ENDED ENDED ENDED
JULY 31, 1995 JULY 31, 1994 JUNE 30, 1994 JULY 31, 1993
------------- ------------- ------------- -------------
(PREDECESSOR) (PREDECESSOR)
REVENUES:
<S> <C> <C> <C> <C>
Gas liquids and
related product sales. $565,607 $22,411 $477,285 $516,891
Other................. 30,829 2,155 24,705 25,054
-------- -------- -------- --------
TOTAL REVENUES...... 596,436 24,566 501,990 541,945
COST OF PRODUCT SOLD
(EXCLUSIVE OF
DEPRECIATION, SHOWN
SEPARATELY BELOW)...... 339,641 13,211 256,095 298,033
-------- -------- -------- --------
GROSS PROFIT............ 256,795 11,355 245,895 243,912
Operating expense....... 153,226 10,078 135,058 139,617
Depreciation and
amortization expense.... 32,014 2,383 26,452 30,840
General and
administrative expense.. 11,357 935 8,923 10,079
Vehicle leases expense.. 4,271 350 3,940 4,823
-------- -------- -------- --------
OPERATING INCOME (LOSS). 55,927 (2,391) 71,522 58,553
Interest expense........ (31,993) (2,662) (53,693) (60,071)
Interest income
(including related
parties of $1,108 and
$725 in eleven months
ended June 30, 1994 and
year ended July 31,
1993, respectively).... 1,268 73 3,599 3,266
Loss on disposal of
assets.................. (1,139) (97) (1,215) (1,153)
-------- -------- -------- --------
EARNINGS (LOSS) BEFORE
INCOME TAXES, MINORITY
INTEREST AND
EXTRAORDINARY LOSS..... 24,063 (5,077) 20,213 595
Income tax provision.... -- -- 7,876 486
Minority interest....... 243 (51) -- --
-------- -------- -------- --------
EARNINGS (LOSS) BEFORE
EXTRAORDINARY LOSS...... 23,820 (5,026) 12,337 109
Extraordinary loss on
early extinguishment of
debt, net of minority
interest of $607 in one
month ended July 31,
1994 and tax benefit of
$531 and $543 in eleven
months ended June 30,
1994 and year ended
July 31, 1993,
respectively........... -- 59,455 867 886
-------- -------- -------- --------
NET EARNINGS (LOSS)..... 23,820 (64,481) $ 11,470 $ (777)
======== ========
General partner's
interest in net
earnings (loss)........ 238 (64,481)
-------- --------
Limited partners'
interest in net
earnings (loss)........ $ 23,582 $ 0
======== ========
NET EARNINGS (LOSS) PER
LIMITED PARTNER UNIT:
Earnings (loss) before
extraordinary loss.... $ 0.76 $ --
Extraordinary loss.... -- --
-------- --------
NET EARNINGS (LOSS) PER
LIMITED PARTNER UNIT.... $ 0.76 $ --
======== ========
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING.... 30,908.1 30,693.7
======== ========
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY/PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL TOTAL
COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES STOCK CAPITAL DEFICIT EQUITY
--------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
AUGUST 1, 1992
(PREDECESSOR)............ 1.0 $ 1 $29,535 $(20,728) $ 8,808
Capital contribution
from Ferrell
Companies, Inc........ -- -- 3,277 -- 3,277
Capital transaction--
Ferrell Companies,
Inc. long-term
incentive plan........ -- -- 51 -- 51
Net loss............... -- -- -- (777) (777)
--- --- ------- -------- -------
JULY 31, 1993
(PREDECESSOR)............ 1.0 1 32,863 (21,505) 11,359
Net earnings........... -- -- -- 11,470 11,470
--- --- ------- -------- -------
JUNE 30, 1994
(PREDECESSOR)............ 1.0 $ 1 $32,863 $(10,035) $22,829
=== === ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF UNITS
---------------------
GENERAL TOTAL PARTNERS'
COMMON SUBORDINATED COMMON SUBORDINATED PARTNER CAPITAL
-------- ------------ -------- ------------ --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
APRIL 19, 1994.......... -- -- $ -- $ -- $ -- $ --
Contributions in
connection with
formation of the
Partnership.......... 14,100.0 16,593.7 84,532 99,483 1,859 185,874
Net loss.............. -- -- -- -- (64,481) (64,481)
-------- -------- -------- -------- --------- --------
JULY 31, 1994........... 14,100.0 16,593.7 84,532 99,483 (62,622) 121,393
Special allocation of
prior year operating
loss................. -- -- (2,312) (2,664) 4,976 --
Assets contributed in
connection with
acquisitions......... -- -- 3,324 3,830 72 7,226
Common units issued in
connection with
acquisitions......... 298.9 -- 6,600 -- 66 6,666
Quarterly
distributions......... -- -- (23,756) (27,380) (518) (51,654)
Adjustments to capital
related to resolution
of income tax
contingencies........ -- -- 5,145 5,929 112 11,186
Net earnings.......... -- -- 10,956 12,626 238 23,820
-------- -------- -------- -------- --------- --------
JULY 31, 1995........... 14,398.9 16,593.7 $ 84,489 $ 91,824 $(57,676) $118,637
======== ======== ======== ======== ========= ========
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31, 1994
--------------------------------
FOR THE YEAR ONE MONTH ELEVEN MONTHS FOR THE YEAR
ENDED ENDED ENDED ENDED
JULY 31, 1995 JULY 31, 1994 JUNE 30, 1994 JULY 31, 1993
------------- ---------------- ---------------- -------------
(PREDECESSOR) (PREDECESSOR)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net earnings (loss)... $ 23,820 $ (64,481) $ 11,470 $ (777)
Reconciliation of net
earnings (loss) to net
cash from operating
activities:
Depreciation and
amortization.......... 32,014 2,383 26,452 30,840
Extraordinary loss.... -- 59,455 867 886
Minority interest..... 243 658 -- --
Other................. 3,191 22 5,130 5,236
Changes in operating
assets and liabilities
net of effects from
business acquisitions:
Accounts and notes
receivable............ (906) 196 (816) (252)
Inventories........... 7,388 (5,631) (14,279) 10,229
Prepaid expenses and
other current assets.. (3,497) 618 (763) 977
Accounts payable...... 5,246 (2,809) 16,231 (11,918)
Accrued interest
expense............... 10,680 (3,448) (4,765) (233)
Other current
liabilities........... (11,703) 1,715 7,001 1,962
Other liabilities..... (446) (35) (1,072) 131
Deferred income taxes. -- -- 7,667 (120)
-------- ---------------- --------------- --------
Net cash provided (used)
by operating
activities............. 66,030 (11,357) 53,123 36,961
-------- ---------------- --------------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Business acquisitions. (19,677) (874) (2,451) (810)
Capital expenditures.. (19,722) (1,894) (7,826) (13,378)
Other................. 173 31 26 27
-------- ---------------- --------------- --------
Net cash used by
investing activities... (39,226) (2,737) (10,251) (14,161)
-------- ---------------- --------------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net reductions to
short-term borrowings. 17,000 3,000 -- --
Additions to long-term
debt.................. 85,000 265,000 -- 81
Reductions of long-
term debt............. (61,400) (477,903) (13,640) (12,796)
Distributions......... (51,654) -- -- --
Minority interest
activity.............. (459) (1,202) -- --
Additional payments to
retire debt........... -- (48,364) (1,190) (1,195)
Additions to financing
costs................. -- (6,575) (51) (627)
Reacquisition of Class
B redeemable common
stock................. -- -- -- (3,218)
Net issuance of Common
Units................. -- 255,006 -- --
Cash transfer from
predecessor company... -- 39,791 -- --
Other................. 51 (124) (6,330) (298)
-------- ---------------- --------------- --------
Net cash used by
financing activities... (11,462) 28,629 (21,211) (18,053)
-------- ---------------- --------------- --------
Increase in cash and
cash equivalents........ 15,342 14,535 21,661 4,747
Cash and cash
equivalents--beginning
of period............... 14,535 -- 32,706 27,959
-------- ---------------- --------------- --------
CASH AND CASH
EQUIVALENTS--END OF
PERIOD.................. $ 29,877 $ 14,535 $ 54,367 $ 32,706
======== ================ =============== ========
Cash paid for interest.. $ 19,918 $ 6,093 $ 55,681 $ 57,563
======== ================ =============== ========
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE>
FERRELLGAS PARTNERS, L.P.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1995
A.PARTNERSHIP ORGANIZATION AND FORMATION
Ferrellgas Partners, L.P. was formed April 19, 1994, and is a publicly
traded limited partnership, owning a 99% limited partner interest in
Ferrellgas, L.P. (the "Operating Partnership"), both Delaware limited
partnerships, and collectively known as the Partnership. Ferrellgas
Partners, L.P., was formed to acquire and hold a limited partner interest
in the Operating Partnership. The Operating Partnership was formed to
acquire, own and operate the propane business and assets of Ferrellgas,
Inc. (the "Company" or "General Partner"), a wholly-owned subsidiary of
Ferrell Companies, Inc. The Company has retained a 1% general partner
interest in Ferrellgas Partners, L.P. and also holds a 1.0101% general
partner interest in the Operating Partnership, representing a 2% general
partner interest in the Partnership on a combined basis. As General Partner
of the Partnership, the Company performs all management functions required
for the Partnership.
On July 5, 1994, the Partnership completed an initial public offering of
13,100,000 Common Units representing limited partner interests (the "Common
Units") at $21 per Common Unit. As of the date of the offering, the
13,100,000 Common Units represented a 41.8% limited partner interest in the
Partnership. Concurrent with the closing of the offering, the Company
contributed all of its propane business and assets to the Partnership
(excluding approximately $39,000,000 in cash, payables to or receivables
from its parent and affiliates and an investment in the Class B Stock of
Ferrell Companies, Inc.) in exchange for 1,000,000 Common Units, 16,593,721
Subordinated Units and Incentive Distribution Rights, representing a 56.2%
limited partner interest in the Partnership, as of the date of the
offering, in addition to the 2% general partner interest in the
Partnership.
In connection with the contribution of the propane business and assets by
the Company, the Operating Partnership assumed all of the liabilities,
whether known or unknown, associated with such assets (other than income
tax liabilities). The net book value contributed to the Partnership,
adjusted for the settlement of a tax contingency (see Note H), is reported
below:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Total assets conveyed.......................................... $ 509,535
Total liabilities assumed...................................... 565,471
---------
Net liabilities................................................ $ (55,936)
=========
</TABLE>
Supplementary Pro Forma Consolidated Statements of Earnings (Unaudited):
The following pro forma consolidated statement of earnings for the fiscal
year ended July 31, 1994, was derived from the historical statement of
earnings of the Company for the eleven months ended June 30, 1994, and the
statement of earnings of the Partnership from inception to July 31, 1994.
The pro forma statement of earnings for the fiscal year ended July 31,
1993, was derived from the historical statement of earnings of the Company.
The pro forma consolidated statements of earnings of the Partnership should
be read in conjunction with the consolidated financial statements of the
Partnership and the Company and the notes thereto. The objective of this
data is to show the effects on the historical financial information as if
the Partnership formation had occurred on August 1, 1992.
F-19
<PAGE>
The following supplementary pro forma consolidated statements of earnings
are for comparative purposes and are not indicative of the results of
future operations of the Partnership:
<TABLE>
<CAPTION>
(In thousands, except per unit amounts)
AUDITED PRO FORMA PRO FORMA
JULY 31, 1995 JULY 31, 1994 JULY 31, 1993
-------------- -------------- -------------
<S> <C> <C> <C>
REVENUES:
Gas liquids and related
product sales................. $565,607 $499,696 $516,891
Other........................ 30,829 26,860 25,054
-------- -------- --------
Total revenues.............. 596,436 526,556 541,945
COST OF PRODUCT SOLD
(EXCLUSIVE OF
DEPRECIATION, SHOWN
SEPARATELY BELOW)............. 339,641 269,306 298,033
-------- -------- --------
GROSS PROFIT.................. 256,795 257,250 243,912
Operating expense............. 153,226 145,136 139,617
Depreciation and amortization
expense....................... 32,014 28,835 30,840
General and administrative
expense....................... 11,357 10,358 (1) 10,579 (1)
Vehicle leases expense........ 4,271 4,290 4,823
-------- -------- --------
OPERATING INCOME.............. 55,927 68,631 58,053
Interest expense.............. (31,993) (28,130)(2) (29,220)(2)
Interest income............... 1,268 1,123 (3) 898 (3)
Loss on disposal of assets.... (1,139) (1,312) (1,153)
-------- -------- --------
EARNINGS BEFORE MINORITY
INTEREST AND
EXTRAORDINARY LOSS........... 24,063 40,312 28,578
Minority interest............. 243 403 (4) 286 (4)
-------- -------- --------
EARNINGS BEFORE EXTRAORDINARY
LOSS.......................... $ 23,820 $ 39,909 $ 28,292
======== ======== ========
EARNINGS BEFORE EXTRAORDINARY
LOSS PER
LIMITED PARTNER UNIT......... $ 0.76 $ 1.29 $ 0.91
======== ======== ========
WEIGHTED AVERAGE LIMITED
PARTNER UNITS................. 30,908.1 30,693.7 30,693.7
======== ======== ========
</TABLE>
--------
(1) Reflects estimated general and administrative costs associated with
the Partnership.
(2) Reflects the adjustment to interest expense resulting from the early
retirement of debt, net of additional borrowings.
(3) Reflects the reduction of interest income to the Partnership as a
result of lower cash balances available for short-term investment
opportunities.
(4) Reflects that portion of earnings from continuing operations allocated
to the General Partner for its ownership in the Operating Partnership.
F-20
<PAGE>
B.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) NATURE OF OPERATIONS: The partnership is engaged primarily in the sale,
distribution, marketing and trading of propane and other natural gas
liquids throughout the United States. The retail market is seasonal because
propane is used primarily for heating in residential and commercial
buildings. The Partnership serves more than 700,000 residential,
industrial/commercial and agricultural customers.
(2) PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial
statements present the consolidated financial position, results of
operations and cash flows of the Partnership. The Company's 1.0101% General
Partner interest in Ferrellgas, L.P. is accounted for as a minority
interest. All material intercompany profits, transactions and balances have
been eliminated.
(3) CASH AND CASH EQUIVALENTS: For purposes of the Consolidated Statements
of Cash Flows, the Partnership considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash equivalents.
(4) INVENTORIES: Inventories are stated at the lower of cost or market
using average cost and actual cost methods.
(5) PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS: Property, plant
and equipment is stated at cost less accumulated depreciation. Expenditures
for maintenance and routine repairs are expensed as incurred. Depreciation
is calculated using the straight-line method based on estimated useful
lives of the assets ranging from two to thirty years. Intangible assets,
consisting primarily of customer location values and goodwill, are stated
at cost, net of amortization calculated using the straight-line method over
periods ranging from 15 to 40 years. Accumulated amortization of intangible
assets totaled $81,995,000 and $68,489,000 as of July 31, 1995 and 1994,
respectively.
On July 31, 1995, the Partnership adopted the provisions of FASB Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of
impairment are present, and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Adoption of FASB Statement No. 121 had no impact on the financial
statements.
(6) FORWARD, FUTURES AND OPTION CONTRACTS: The Partnership enters into
forward and futures purchase/sale agreements and options involving propane
and related products which are for trading and overall risk management
purposes. To the extent such contracts are entered into at fixed prices and
thereby subject the Partnership to market risk, the contracts are accounted
for on a mark-to-market basis.
(7) INCOME TAXES: The Partnership is a limited partnership. As a result,
the Partnership's earnings or loss for Federal income tax purposes is
included in the tax returns of the individual partners. Accordingly, no
recognition has been given to income taxes in the accompanying financial
statements of the Partnership. Net earnings for financial statement
purposes may differ significantly from taxable income reportable to
unitholders as a result of differences between the tax basis and financial
reporting basis of assets and liabilities and the taxable income allocation
requirements under the Partnership agreement.
The Predecessor filed a consolidated Federal income tax return with its
parent and affiliates. Income taxes were computed as though each company
filed its own income tax return in accordance with the tax sharing
agreement. Deferred income taxes were provided as a result of temporary
differences between financial and tax reporting as described in Note M,
using the asset/liability method. Deferred income taxes were recognized for
the tax consequences of temporary differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities.
F-21
<PAGE>
(8) NET EARNINGS (LOSS) PER LIMITED PARTNER UNIT: Net earnings (loss) per
limited partner unit is computed by dividing net earnings, after deducting
the General Partner's 1% interest, by the weighted average number of
outstanding Common Units, Subordinated Units and the dilutive effect of
subordinated unit options. As described in Note F, the 1994 net loss before
extraordinary loss of approximately $5,026,000, and the 1994 extraordinary
loss from early extinguishment of debt of approximately $59,455,000, net of
607,000 minority interest, were allocated 100% to the General Partner.
Accordingly, there was no net earnings per limited partner unit calculation
attributable to the limited partners from inception to July 31, 1994.
In accordance with the terms of the Partnership Agreement, the Partnership
reallocated 99% of the initial year's net loss before extraordinary loss
($4,976,000) based on ownership percentages to the limited partners in
1995. The fiscal 1995 special allocation of the prior year operating loss
to the limited partners resulted in a reduction in equity of $0.16 per
limited partner unit.
C.QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
The Partnership makes quarterly cash distributions of all of its "Available
Cash", generally defined as consolidated cash receipts less consolidated
cash disbursements and net changes in reserves established by the General
Partner for future requirements. These reserves are retained to provide for
the proper conduct of the Partnership business, or to provide funds for
distributions with respect to any one or more of the next four fiscal
quarters.
Distributions by the Partnership in an amount equal to 100% of its
Available Cash will generally be made 98% to the Common and Subordinated
Unitholders (the "Unitholders") and 2% to the General Partner, subject to
the payment of incentive distributions to the holders of Incentive
Distribution Rights to the extent that certain target levels of cash
distributions are achieved. To the extent there is sufficient Available
Cash, the holders of Common Units have the right to receive the "Minimum
Quarterly Distribution" ($0.50 per Unit), plus any "arrearages", prior to
any distribution of Available Cash to the holders of Subordinated Units.
Common Units will not accrue arrearages for any quarter after the
"Subordination Period" (as defined below) and Subordinated Units will not
accrue any arrearages with respect to distributions for any quarter.
In general, the Subordination Period will continue indefinitely until the
first day of any quarter beginning on or after August 1, 1999, in which (i)
distributions of Available Cash equal or exceed the Minimum Quarterly
Distribution on the Common Units and the Subordinated Units for each of the
three consecutive four quarter periods immediately preceding such date and
(ii) the Partnership has invested at least $50 million in acquisitions and
capital additions or improvements to increase the operating capacity of the
Partnership. Prior to the end of the Subordination Period (but not prior to
August 1, 1997), 5,531,240 Subordinated Units held by the Company will
convert into Common Units if (i) distributions of Available Cash on the
Common Units and Subordinated Units equaled or exceeded the Minimum
Quarterly Distribution for each of the two consecutive four-quarter period
preceding August 1, 1997, and (ii) the operating cash generated by the
Partnership in each of such four-quarter periods equaled or exceeded 125%
of the Minimum Quarterly Distribution on all Common Units and all
Subordinated Units. Upon expiration of the Subordination Period, all
remaining Subordinated Units will convert to Common Units.
The Partnership makes distributions of all of its Available Cash within 45
days after the end of each fiscal quarter ending January, April, July and
October to holders of record on the applicable record date.
F-22
<PAGE>
D.SUPPLEMENTAL BALANCE SHEET INFORMATION
Inventories consist of:
<TABLE>
<CAPTION>
1995 1994
(In thousands) ------- -------
<S> <C> <C>
Liquefied propane gas and related products................... $37,550 $38,890
Appliances, parts and supplies............................... 6,540 4,672
------- -------
$44,090 $43,562
======= =======
</TABLE>
In addition to inventories on hand, the Partnership enters into contracts
to buy product for supply purposes. All such contracts have terms of less
than one year and call for payment based on market prices at date of
delivery.
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
1995 1994
(In thousands) -------- --------
<S> <C> <C>
Land and improvements..................................... $ 21,380 $ 18,589
Buildings and improvements................................ 29,117 23,005
Vehicles.................................................. 46,199 37,283
Furniture and fixtures.................................... 23,336 17,776
Bulk equipment and district facilities.................... 37,086 33,091
Tanks and customer equipment.............................. 357,167 317,631
Other..................................................... 6,825 5,097
-------- --------
521,110 452,472
Less: accumulated depreciation............................ 175,468 157,707
-------- --------
$345,642 $294,765
======== ========
</TABLE>
Depreciation expense totaled $21,649,000, $1,602,000, $17,659,000, and
$20,449,000 for the year ended July 31, 1995, the one month ended July 31,
1994, the eleven months ended June 30, 1994 and the year ended July 31,
1993.
Other current liabilities consist of:
<TABLE>
<CAPTION>
1995 1994
(In thousands) ------- -------
<S> <C> <C>
Accrued insurance............................................ $ 6,045 $ 6,624
Accrued interest............................................. 12,972 2,161
Accrued payroll.............................................. 4,036 9,394
Other........................................................ 8,380 8,424
------- -------
$31,433 $26,603
======= =======
</TABLE>
F-23
<PAGE>
E.LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
1995 1994
(In thousands) -------- --------
<S> <C> <C>
SENIOR NOTES
Fixed rate, 10%, due 2001................................ $200,000 $200,000
Floating rate, 9.3125% and 7.375%, respectively, due 2001
(1)....................................................... 50,000 50,000
CREDIT AGREEMENT
Term loan, 7.3125 and 7.375%, respectively, due 1997 (2). 15,000 15,000
Revolving credit loans, 7.125% to 9.125%, due 1997 (2)... 70,000 --
NOTES PAYABLE, 5.6% and 4.3% weighted average interest
rates,
respectively, due 1995 to 2004 (3)....................... 3,983 3,373
-------- --------
338,983 268,373
Less: current portion..................................... 795 1,311
-------- --------
$338,188 $267,062
======== ========
</TABLE>
(1) The floating rate senior notes bear interest at the London Interbank
Offered Rate ("LIBOR") plus 3.125% and have mandatory sinking fund
payments of $5,000,000 in 1999 and 2000. To offset the variable rate
characteristic of the notes, the Partnership entered into interest rate
collar agreements with two major banks limiting interest rates to
between 8.135% and 9.625%.
(2) The Operating Partnership has a Credit Agreement with a major bank, as
Agent, consisting of a $15,000,000 term loan facility and $170,000,000
revolving credit facilities, of which $50,000,000 is available to
support letters of credit. Borrowings under the agreement generally
bear interest at Prime plus 0.25% or LIBOR plus 1.25%. On July 21,
1995, the Operating Partnership entered into an amended Credit
Agreement which, effective August 1, 1995, increased the revolving
credit facilities to $190,000,000 and decreased the applicable interest
rate ranges to Prime plus 0% to .25% or LIBOR plus .052% to 1.25%.
At the Partnership's option, amounts borrowed under the term loan and
non-working capital borrowings under the revolving credit loans may be
converted to borrowings which mature in twelve quarterly installments
beginning September 1997.
(3) The notes payable are secured by approximately $1,413,000 and
$2,056,000 of property and equipment at July 31, 1995 and 1994,
respectively.
At July 31, 1995 and 1994, $20,000,000 and $3,000,000, respectively, of
short-term borrowings were outstanding under the revolving line of credit
and letters of credit outstanding, used primarily to secure obligations
under certain insurance arrangements, totaled $24,471,000.
The Senior Note Indenture and Credit Agreement contain various restrictive
covenants applicable to the Operating Partnership and its subsidiaries, the
most restrictive relating to additional indebtedness, sale and disposition
of assets, and transactions with affiliates. In addition, the Operating
Partnership is prohibited from making cash distributions of the Minimum
Quarterly Distribution if a default or event of default exists or would
exist upon making such distribution, or if the Operating Partnership fails
to meet certain coverage and capital expenditure tests. With respect to the
capital expenditure tests, the Operating Partnership shall in the aggregate
make future "Capital Investments" (as defined in the Senior Note Indenture)
of approximately $25,000,000 by July 31, 1999, and $50,000,000 by the end
of fiscal year 2000. The Partnership is in compliance with all
requirements, tests, limitations and covenants related to the Senior Note
Indenture and Credit Agreement.
F-24
<PAGE>
Annual principal payments on long-term debt for each of the next five
fiscal years are $795,000 in 1996, $438,000 in 1997, $5,252,000 in 1998,
$28,569,000 in 1999 and $33,600,000 in 2000.
During the one month ended July 31, 1994, the Partnership recognized an
extraordinary loss from the debt premium and write off of financing costs
of $59,455,000, net of minority interest of $607,000, resulting from the
early extinguishment of $477,600,000 of indebtedness of the Company assumed
by the Operating Partnership. During the eleven months ended June 30, 1994,
the Predecessor recognized an extraordinary loss from debt premium and
write-off of financing costs of approximately $867,000, net of income tax
benefit of $531,000, resulting from the early extinguishment of $11,900,000
of its fixed rate senior notes. During fiscal year 1993, the Predecessor
recognized an extraordinary loss from debt premium and write-off of
financing costs of approximately $886,000, net of income tax benefit of
$543,000, resulting from the early extinguishment of $10,500,000 of its
fixed rate senior notes.
F.PARTNERS' CAPITAL
Partners' capital consists of 14,398,942 Common Units representing a 46%
limited partner interest, 16,593,721 Subordinated Units representing a 53%
limited partner interest, and a 1% General Partner interest.
The Agreement of Limited Partnership of Ferrellgas Partners, L.P. (the
"Partnership Agreement") contains specific provisions for the allocation of
net earnings and loss to each of the partners for purposes of maintaining
the partner capital accounts. In addition, the Partnership Agreement
contains special provisions for the allocation of the extraordinary loss
from the retirement of indebtedness, and the net loss from operations of
the Partnership from the closing date on July 5, 1994, to July 31, 1994. In
accordance with these special provisions of the Partnership Agreement, the
extraordinary loss of $59,455,000, net of $607,000 minority interest, was
allocated 100% to the General Partner and will not be reallocated to the
limited partners. The net loss from operations of approximately $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 percentages.
(See Note B.)
During the Subordination Period, the Partnership may issue up to 7,000,000
Common Units (excluding Common Units issued in connection with conversion
of Subordinated Units into Common Units) or an equivalent number of
securities ranking on a parity with the Common Units and an unlimited
number of partnership interests junior to the Common Units without a
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. After the Subordination Period, the Partnership
Agreement authorizes the General Partner to cause the Partnership to issue
an unlimited number of additional general and limited partner interests and
other equity securities of the Partnership for such consideration and on
such terms and conditions as shall be established by the General Partner
without the approval of any Unitholders.
On November 14, 1994, the Partnership filed Amendment No. 1 to the
Registration Statement on Form S-1 with the Securities and Exchange
Commission a shelf registration statement on Form S-1 to register 2,400,000
Common Units representing limited partner interests in the Partnership. The
registration statement was declared effective November 15, 1994. The Common
Units may be issued from time to time by the Partnership in connection with
the Partnership's acquisition of other businesses, properties or securities
in business combination transactions.
F-25
<PAGE>
G.TRANSACTIONS WITH RELATED PARTIES
The Partnership has no employees and is managed and controlled by the
General Partner. Pursuant to the Partnership Agreement, the General Partner
is entitled to reimbursement for all direct and indirect expenses incurred
or payments it makes on behalf of the Partnership, and all other necessary
or appropriate expenses allocable to the Partnership or otherwise
reasonably incurred by the General Partner in connection with operating the
Partnership's business. These costs, which totaled $100,750,000 for the
year ended July 31, 1995 and $7,561,000 from inception to July 31, 1994,
include compensation and benefits paid to officers and employees of the
General Partner, and general and administrative costs. In addition, the
conveyance of the net assets of the Company to the Partnership described in
Note A included the assumption of specific liabilities related to employee
benefit and incentive plans for the benefit of the officers and employees
of the General Partner.
A. Andrew Levison, a director of the General Partner is a Managing Director
of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). DLJ acted
as an underwriter with regard to the public offering of Common Units and
Senior Notes, and was paid total fees of $5,100,000 during 1994. No fees
were paid in 1995.
The law firm of Bryan Cave, LLP (formerly Smith, Gill, Fisher & Butts, a
Professional Corporation), is general counsel to the Partnership, General
Partner, Ferrell Companies, Inc. ("Ferrell") and their respective
subsidiaries and affiliates. David S. Mouber, a director of Ferrell at July
31, 1994, is a member of such law firm. The Partnership, Ferrell and their
respective subsidiaries paid such firm fees of $151,000 from inception to
July 31, 1994. The Predecessor, its parent and their respective
subsidiaries paid such firm fees of $1,243,000 for the eleven months ended
June 30, 1994 and $1,381,000 for the year ended July 31, 1993.
In 1993, the Company received capital contributions from its parent
consisting of (i) the forgiveness of a $3,015,000 long-term note payable to
affiliate, including interest, and (ii) a $262,000 note receivable from
affiliate.
H.CONTINGENCIES AND COMMITMENTS
The Partnership is threatened with or named as a defendant in various
lawsuits which, among other items, claim damages for product liability. It
is not possible to determine the ultimate disposition of these matters;
however, management is of the opinion that there are no known claims or
known contingent claims that are likely to have a material adverse effect
on the results of operations or financial condition of the Partnership.
In connection with the formation of the Partnership, the General Partner
contributed certain assets and liabilities. The Internal Revenue Service
("IRS") has examined the General Partner's consolidated income tax returns
for the years ended July 31, 1987 and 1986, and has proposed certain
adjustments which relate to these contributed assets. The General Partner
has reached a settlement agreement which substantially resolves all issues
with the IRS with the exception of minor items which are presently being
negotiated at the appellate level. Due to the settlement of these issues,
additional deferred taxes were recorded by the General Partner. This
noncash adjustment retroactively increased the basis of the assets the
General Partner contributed to the Operating Partnership by $11,300,000
which, in turn, caused an increase to the General Partner's contributed
capital that was allocated pro rata among all partners. In addition,
Operating Partnership goodwill also increased by $11,300,000 (to be
amortized prospectively over a period of 15 years). These adjustments were
not material to the financial position or the results of operations or
liquidity, nor have they impacted the limited partners' tax basis in the
Partnership units.
F-26
<PAGE>
Certain property and equipment is leased under noncancellable operating
leases which require fixed monthly rental payments and which expire at
various dates through 2016. Rental expense under these leases totaled
$11,233,000, $725,000, $9,556,000, and $10,903,000 for the year ended July
31, 1995, the one month ended July 31, 1994, the eleven months ended June
30, 1994, and the year ended July 31, 1993, respectively. Future minimum
lease commitments for such leases are $8,414,000 in 1996, $6,195,000 in
1997, $3,874,000 in 1998, $2,227,000 in 1999, $1,005,000 in 2000 and
$3,985,000 thereafter.
I.EMPLOYEE BENEFITS
The Partnership has no employees and is managed and controlled by the
General Partner. The Partnership assumed all liabilities, which included
specific liabilities related to the following employee benefit plans for
the benefit of the officers and employees of the General Partner.
The General Partner and its parent have a defined contribution profit-
sharing plan which covers substantially all employees with more than one
year of service. Contributions are made to the plan at the discretion of
the parent's Board of Directors. This plan, which qualifies under section
401(k) of the Internal Revenue Code, also provides for matching
contributions under a cash or deferred arrangement based upon participant
salaries and employee contributions to the plan. Contributions for the year
ended July 31, 1995, under the profit sharing provision and the 401(k)
provision were $1,300,000 and $1,407,000 respectively. There were no
contributions under the profit sharing provision or 401(k) provision of the
plan from inception to July 31, 1994. Contributions during the eleven
months ended June 30, 1994 and the year ended July 31, 1993 were $1,200,000
and $1,000,000 under the profit sharing provision, and $1,445,000 and
$1,541,000 under the 401(k) provision.
J.UNIT OPTIONS
On October 14, 1994, the General Partner adopted the Ferrellgas, Inc. Unit
Option Plan (the "Unit Option Plan"), which currently authorizes the
issuance of options (the "Unit Options") covering up to 850,000
Subordinated Units to certain officers and employees of the General
Partner, of which 775,000 options were granted, while 73,500 options were
terminated and cancelled; thus 701,500 options were issued and outstanding
at July 31, 1995 having an aggregate exercise price of $11,868,000. The
Unit Options have the following characteristics: 1) exercise prices ranging
from $16.80 to $18.54 per unit, which is an estimate of the fair market
value of the Subordinated Units at the time of grant, 2) vest immediately
or over a one to five year period, 3) exercisable beginning after July 31,
1999, assuming the subordination period has elapsed, and 4) expire on the
tenth anniversary of the date of grant. Upon conversion of the Subordinated
Units held by the General Partner and its affiliates, the Unit Options
granted will convert to Common Unit Options.
F-27
<PAGE>
K.DISCLOSURES ABOUT OFF BALANCE SHEET RISK AND FAIR VALUE OF FINANCIAL
INSTRUMENTS
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of the instruments. Short-term borrowings
approximates fair value as of July 31, 1995 and 1994. The estimated fair
value of the Partnership's long-term debt was $347,485,000 and $269,547,000
as of July 31, 1995 and 1994, respectively. The fair value is estimated
based on quoted market prices adjusted for discounted cash flows.
INTEREST RATE COLLAR AGREEMENTS. On June 5, 1995, the Partnership entered
into three-year interest rate collar agreements involving the exchange of
fixed and floating interest payment obligations without the exchange of the
underlying principal amounts. At July 31, 1995, the total notional
principal amount of these agreements was $50,000,000. The counterparties to
these agreements are large financial institutions. The interest rate collar
agreements subject the company to financial risk that will vary during the
life of these agreements in relation to market interest rates.
OPTION CONTRACTS. The Partnership is a party to certain option contracts,
involving various liquefied petroleum products, for overall risk management
purposes in connection with its trading activities. Contracts are executed
with private counterparties and to a lesser extent on national mercantile
exchanges. Open contract positions are summarized below.
FORWARD AND FUTURES CONTRACTS. The Partnership is a party to certain
forward and futures contracts for trading purposes. Net gains from trading
activities were $5,818,000, $331,000, $6,458,000 and $6,739,000 for the
year ended July 31, 1995, the one month ended July 31, 1994, the eleven
months ended June 30, 1994 and the year ended July 31, 1993, respectively.
Such contracts permit settlement by delivery of the commodity. Open
contract positions are summarized below.
AS OF JULY 31
(IN THOUSANDS, EXCEPT PRICE PER GALLON DATA)
<TABLE>
<CAPTION>
DERIVATIVE FINANCIAL INSTRUMENTS
HELD FOR PURPOSES OTHER THAN FINANCIAL INSTRUMENTS HELD FOR
TRADING TRADING PURPOSES
(OPTIONS) (FORWARD AND FUTURES)
------------------------------------- ----------------------------------
1995 1994 1995 1994
------------------ ----------------- ---------------- ----------------
ASSET LIAB. ASSET LIAB. ASSET LIAB. ASSET LIAB.
-------- -------- -------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Volume
(gallons)...... 1,071 (9,765) 8,358 (6,174) 170,057 (129,198) 194,800 (146,562)
Price (c/gal).. 16-36 16-36 30-31 29-55 13-45 14-52 19-38 30-39
Maturity Dates. 8/95- 8/95- 11/94- 9/94- 8/95- 8/95- 8/94- 8/94-
1/96 1/96 1/95 10/94 1/96 1/96 12/94 1/95
Contract
Amounts ($).... 380 (3,572) 2,522 (1,935) 57,419 (43,605) 62,237 (51,031)
Fair Value ($). 340 (3,758) 2,603 (2,000) 57,463 (43,504) 63,147 (50,680)
Unrealized
gain(loss) ($). (40) (186) 81 (65) 44 101 910 351
</TABLE>
F-28
<PAGE>
Risks related to these contracts arise from the possible inability of
counterparties to meet the terms of their contracts and changes in
underlying product prices. The Partnership attempts to minimize market risk
through the enforcement of its trading policies, which include total
inventory limits and loss limits, and attempts to minimize credit risk
through application of its credit policies.
L.ACQUISITIONS
On November 1, 1994, the General Partner purchased all of the capital stock
of Vision Energy Resources, Inc. ("Vision") for a cash purchase price of
$45 million. Immediately following the closing of the purchase of Vision,
the General Partner (i) caused Vision and each of its subsidiaries to be
merged into the General Partner (except for a trucking subsidiary which
dividended substantially all of its assets to the General Partner). As a
result of the contribution, the Operating Partnership assumed substantially
all of the liabilities, whether known or unknown, associated with Vision
and its subsidiaries (excluding income tax liabilities), including
obligation of the General Partner under a $45,000,000 loan agreement under
which the General Partner borrowed funds to pay the purchase price for
Vision. The Operating Partnership repaid the loan immediately after the
transfer of assets with funds borrowed under its Credit Facility. In
consideration of the retention by the General Partner of certain income tax
liabilities, the Partnership issued 138,392 Common Units to the General
Partner. The Operating Partnership received a contribution of $7,300,000
from the General Partner, representing the excess of the value of the
assets over the liabilities conveyed and the units issued to the General
Partner. This contribution is allocated to each partner based on their
relative ownership percentages following the closing of the Vision
acquisition. The total assets contributed to the Operating Partnership of
approximately $57,100,000 (the General Partner's cost basis) has been
preliminarily allocated as follows (i) working capital of $2,443,000, (ii)
property, plant and equipment of $36,919,000 and (iii) intangible assets of
$17,738,000. The total liabilities assumed by the Operating Partnership
were approximately $45,000,000. The transaction has been accounted for
similar to purchase accounting and, accordingly, the results of operations
of Vision have been included in the consolidated financial statements from
the date of contribution.
The following pro forma financial information assumes the Vision
transaction occurred at the beginning of each of the periods presented and
also includes the pro forma effects of the Partnership formation as of
August 1, 1993 (as described in Note A):
<TABLE>
<CAPTION>
(In thousands, except per unit amounts)
PRO FORMA PRO FORMA
YEAR ENDED YEAR ENDED
JULY 31, 1995 JULY 31, 1994
(Unaudited) --------------- --------------
<S> <C> <C>
Total revenues............................... $612,227 $594,792
Net earnings................................. 24,386 43,735
Net earnings per limited partner unit........ $ 0.78 $ 1.40
</TABLE>
During the year ended July 31, 1995, the Partnership made acquisitions and
received contributions of businesses valued at $80,651,000 (including
working capital acquired of $3,282,000). This total consists of $19,677,000
cash payments and the following noncash transactions: $45,000,000 debt
assumed, $7,300,000 contributed capital, $6,600,000 issuance of Partnership
units, and $2,074,000 other costs and consideration.
F-29
<PAGE>
M.INCOME TAXES (PREDECESSOR)
As stated in Note B, the Partnership's earnings or loss for Federal income
tax purposes is included in the tax returns of the individual partners.
Accordingly, no recognition has been given to income taxes in the
accompanying financial statements of the Partnership. The information
presented below pertains to the Predecessor.
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
ELEVEN FISCAL YEAR
MONTHS ENDED ENDED
JUNE 30, 1994 JULY 31,1993
(In thousands) --------------- -------------
<S> <C> <C>
Current........................................ $ 209 $606
Deferred....................................... 7,136 (663)
------ ----
$7,345 $(57)
====== ====
Allocated to:
Operating activities.......................... $7,876 $486
Extraordinary loss............................ (531) (543)
------ ----
$7,345 $(57)
====== ====
</TABLE>
Deferred taxes result from temporary differences in the recognition of
income and expense for tax and financial statement purposes. The
significant temporary differences and related deferred tax provision
(benefit) are as follows:
<TABLE>
<CAPTION>
ELEVEN FISCAL YEAR
MONTHS ENDED ENDED
JUNE 30, 1994 JULY 31, 1993
(In thousands) --------------- --------------
<S> <C> <C>
Depreciation expense.......................... $ 104 $1,568
Net operating loss carryforwards.............. 9,258 (1,975)
Net cash, accrual and other differences....... (2,696) (752)
Amortization.................................. 470 496
------ ------
$7,136 $ (663)
====== ======
</TABLE>
For Federal income tax purposes, the Company had net operating loss
carryforwards of approximately $201,000,000 at June 30, 1994 available to
offset future taxable income. These net operating loss carryforwards expire
at various dates through 2009.
A reconciliation between the effective tax rate and the statutory Federal
rate follows:
<TABLE>
<CAPTION>
ELEVEN FISCAL YEAR
MONTHS ENDED ENDED
JUNE 30, 1994 JULY 31, 1993
(In thousands) ----------------- -----------------
AMOUNT % AMOUNT %
---------- ------ -----------------
<S> <C> <C> <C> <C>
Income tax expense (benefit)
at statutory rate..................... $6,585 35.0 $(284) (34.0)
Statutory surtax....................... (188) (1.0) -- --
State income taxes, net of
Federal benefit....................... 827 4.4 182 21.8
Nondeductible meal and
entertainment expense................. 54 0.3 36 4.3
Other.................................. 67 0.3 9 1.1
-------- ------ ------- -------
$7,345 39.0 $ (57) (6.8)
======== ====== ======= =======
</TABLE>
F-30
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Skelgas Propane, Inc.:
We have audited the consolidated balance sheets of Skelgas Propane, Inc. as
at December 31, 1995 and 1994 and the consolidated statements of income (loss)
and accumulated deficit and cash flows for the year ended December 31, 1995.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at December
31, 1995 and 1994 the results of its operations and its cash flows for the
year ended December 31, 1995 in accordance with the accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE
Chartered Accountants
Markham, Canada
April 15, 1996
F-31
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the General Partner of
Ferrellgas Partners, L.P.
Liberty, Missouri
We have audited the accompanying consolidated statements of income (loss)
and accumulated deficit and cash flows of Skelgas Propane, Inc. and
subsidiaries for the year ended December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of Skelgas
Propane, Inc. for the year ended December 31, 1994, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
June 7, 1996
F-32
<PAGE>
SKELGAS PROPANE, INC.
CONSOLIDATED BALANCE SHEET
APRIL 30, 1996 (UNAUDITED)
DECEMBER 31, 1995 AND 1994
(U.S. DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
APRIL 30, --------------------------
ASSETS 1996 1995 1994
------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......... $ 9,335,000 $ 3,490,359 $ 3,132,411
Trade accounts receivable (net of
allowance for doubtful accounts at
December 31,1995--$285,760;
1994--$267,800)................... 7,494,000 7,516,865 5,867,971
Other receivables.................. -- 437,564 1,025,172
Current environmental costs
recoverable (note 2).............. 319,000 319,138 181,669
Receivable from related companies
(note 3).......................... 1,679,000 1,559,619 3,497,933
Inventories (note 4)............... 4,648,000 8,630,846 6,937,849
Prepaid expenses................... 208,000 1,134,563 1,604,979
------------ ------------ ------------
TOTAL CURRENT ASSETS............. 23,683,000 23,088,954 22,247,984
------------ ------------ ------------
Environmental costs recoverable (note
2).................................. 686,000 686,243 135,603
Appliances on rental, at cost less
accumulated depreciation............ 546,000 574,128 623,834
Property, plant and equipment (note
5).................................. 49,645,000 51,816,208 53,419,549
Other assets (note 6)................ 9,201,000 9,733,804 61,689,733
------------ ------------ ------------
TOTAL ASSETS..................... $ 83,761,000 $ 85,899,337 $138,116,703
============ ============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable................... $ 1,330,000 $ 3,001,730 $ 3,621,461
Accrued liabilities................ 3,818,000 6,638,518 4,556,075
Accrued environmental liability
(note 2).......................... 452,000 561,022 330,015
Income and other taxes payable..... 559,000 424,913 399,097
Current portion of long-term debt
(note 7).......................... 42,000 52,938 52,350
------------ ------------ ------------
TOTAL CURRENT LIABILITIES........ 6,201,000 10,679,121 8,958,998
------------ ------------ ------------
Long-term debt (note 7).............. 9,000 18,377 70,771
------------ ------------ ------------
STOCKHOLDER'S EQUITY:
Preferred stock, $1 par value;
100,000 shares authorized, none
issued or outstanding............. -- -- --
Common stock, $1,000 par value;
200,000 shares
authorized, 155,000 shares issued
and outstanding................... 155,000,000 155,000,000 155,000,000
Accumulated deficit................ (77,449,000) (79,798,161) (25,913,066)
------------ ------------ ------------
TOTAL STOCKHOLDER'S EQUITY....... 77,551,000 75,201,839 129,086,934
------------ ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY............ $ 83,761,000 $ 85,899,337 $138,116,703
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-33
<PAGE>
SKELGAS PROPANE, INC.
CONSOLIDATED STATEMENT OF INCOME (LOSS) AND ACCUMULATED DEFICIT
FOUR MONTHS ENDED APRIL, 1996 AND 1995 (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995 AND 1994
(U.S. DOLLARS)
<TABLE>
<CAPTION>
FOUR MONTHS ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
-------------------------- --------------------------
1996 1995 1995 1994
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES................ $ 44,451,000 $ 33,795,000 $ 75,230,313 $ 81,480,332
COST OF PRODUCTS SOLD
(INCLUDING DEPRECIATION
OF $162,516 AND
$151,594 FOR THE YEARS
ENDED DECEMBER 31, 1995
AND 1994,
RESPECTIVELY).......... 26,911,000 17,111,000 39,897,582 41,856,645
------------ ------------ ------------ ------------
GROSS PROFIT............ 17,540,000 16,684,000 35,332,731 39,623,687
EXPENSES:
Operating and
overhead............. 11,342,839 8,919,934 26,288,549 23,350,927
Selling............... 600,000 804,000 2,056,836 3,284,963
General and
administrative....... 1,170,000 1,090,000 3,090,539 4,328,746
Restructuring charges. -- -- -- 475,367
Interest and foreign
exchange adjustments. 51,000 17,000 18,033 245,262
Depreciation and
amortization (note
9)................... 1,937,000 3,405,000 57,472,523 8,844,137
------------ ------------ ------------ ------------
15,100,839 14,235,934 88,926,480 40,529,402
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE
INCOME TAXES........... 2,439,161 2,448,066 (53,593,749) (905,715)
INCOME TAXES (NOTE 10).. 90,000 20,000 291,346 63,513
------------ ------------ ------------ ------------
NET INCOME (LOSS)....... 2,349,161 2,428,066 (53,885,095) (969,228)
ACCUMULATED DEFICIT, AT
BEGINNING OF PERIOD.... (79,798,161) (25,913,066) (25,913,066) (24,943,838)
------------ ------------ ------------ ------------
ACCUMULATED DEFICIT, AT
END OF PERIOD.......... $(77,449,000) $(23,485,000) $(79,798,161) $(25,913,066)
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-34
<PAGE>
SKELGAS PROPANE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOUR MONTHS ENDED APRIL 30, 1996 AND 1995 (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995 AND 1994
(U.S. DOLLARS)
<TABLE>
<CAPTION>
FOUR MONTHS ENDED YEAR ENDED
APRIL 30, DECEMBER 31,
----------------------- -------------------------
1996 1995 1995 1994
---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED
FOR):
OPERATIONS:
Net income (loss).......... $2,349,161 $ 2,428,066 $(53,885,095) $ ( 969,228)
Items not involving cash:
Depreciation and
amortization............ 1,964,000 3,442,000 57,635,039 8,995,641
Change in non-cash
operating working
capital................. 782,480 (3,651,477) 685,873 (6,320,069)
---------- ----------- ------------ -----------
Net cash provided by
operating activities.... 5,095,641 2,218,589 4,435,817 1,706,344
---------- ----------- ------------ -----------
FINANCING:
Repayment of long-term
debt...................... (19,000) (18,000) (51,806) (51,806)
---------- ----------- ------------ -----------
Net Cash used for financing
activities................ (19,000) (18,000) (51,806) (51,806)
---------- ----------- ------------ -----------
INVESTMENTS:
Proceeds from disposal of
property, plant and
equipment................. 768,000 -- 384,615 277,618
Purchases of property,
plant and equipment....... -- (1,639,000) (4,297,868) (2,599,507)
Purchases of appliance on
rental.................... -- -- (112,810) (247,587)
---------- ----------- ------------ -----------
Net cash provided by (used
for) investing activities. 768,000 (1,639,000) (4,026,063) (2,569,476)
---------- ----------- ------------ -----------
Increase (decrease) in cash
position.................. 5,844,641 561,589 357,948 (914,938)
Cash at beginning of
period.................... 3,490,359 3,132,411 3,132,411 4,047,349
---------- ----------- ------------ -----------
Cash at end of period ..... $9,335,000 $ 3,694,000 $ 3,490,359 $ 3,132,411
========== =========== ============ ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Income taxes paid........ $ 40,000 $ 56,000 $ 277,795 $ 100,265
========== =========== ============ ===========
Interest paid............ $ 2,000 $ 6,600 $ 6,311 $ 262,407
========== =========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
F-35
<PAGE>
SKELGAS PROPANE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOUR MONTHS ENDED APRIL 30, 1996 AND 1995 (UNAUDITED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
Skelgas Propane, Inc. (the "Company"), incorporated under the laws of
Delaware, has as its principal business activity the marketing of propane. The
Company is a wholly-owned subsidiary of Superior Propane Inc., (the "Parent")
incorporated under the laws of Canada.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The Company's significant accounting policies are as follows:
BASIS OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
INVENTORIES:
Inventories of propane are valued at the lower of cost and market
determined on the basis of net realizable value. Inventories of appliances,
materials and supplies are stated at the lower of cost and market value
determined on the basis of replacement cost or net realizable value. Cost
is determined on the first-in, first-out (FIFO) method.
APPLIANCES ON RENTAL:
Appliances on rental are stated at cost less accumulated depreciation.
Depreciation is provided on a straight-line basis, generally over a period
of six years.
PROPERTY, PLANT AND EQUIPMENT:
Properties, plant and equipment are recorded at cost and depreciated over
the estimated useful life using the straight line method except for loaned
dispensers which use the declining balance method at a rate of 10%.
Property, plant and equipment are evaluated periodically, and if conditions
warrant, an impairment is recorded. The estimated useful life of major
asset classes are:
<TABLE>
<S> <C>
Buildings......................... 20 years
Propane marketing equipment....... 7-20 years
</TABLE>
GOODWILL:
Goodwill and non-compete agreements are recorded at cost less accumulated
amortization. Non-compete agreements are amortized on a straight line basis
over 10 years. Effective January 1, 1993, the Company revised the
amortization period for goodwill from 40 years to 20 years prospectively.
Management periodically evaluates the Company's intangible assets,
including goodwill, for impairment by calculating the anticipated cash flow
attributable to the underlying operations over their expected remaining
lives. Such expected cash flows, on an undiscounted basis, are compared to
the carrying value of the tangible and intangible assets, and if impairment
is indicated, the carrying value of the intangible assets are adjusted.
INCOME TAXES:
The Company follows Statement of Financial Accounting Standards (SFAS) No.
109--"Accounting for Income Taxes". This Statement requires the liability
method of accounting for income taxes. The Company has established
valuation reserves on the deferred tax asset related to the net operating
loss carryforwards.
F-36
<PAGE>
ENVIRONMENTAL REMEDIATION:
The Company accrues environmental remediation costs for work at identified
sites where an assessment has indicated that cleanup costs are probable and
reasonably estimable. Such accruals are based on currently available facts,
estimated timing of remedial actions, existing technology and presently
enacted laws and regulations. The accruals are routinely reviewed as events
and developments warrant.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the Company has made all adjustments,
consisting of only normal recurring accruals, necessary for fair
representation of the balance sheet and results of operations and cash
flows as of April 30, 1996 and for the four months ended April 30, 1996 and
1995, as presented in the accompanying unaudited financial statements.
2. ACCRUED ENVIRONMENTAL LIABILITY AND COSTS RECOVERABLE:
The Company is subject to federal, state and local laws regulating
environmental remediation. These laws result in loss contingencies for
remediation at some of the Company's current locations as well as third
party or formerly owned facilities. The estimated costs for restoration and
remediation of these locations was accrued separately in the amount of
$452,000 (unaudited) as of April 30, 1996, and $561,022 as of December 31,
1995 (1994--$330,015). Realization of claims from governmental authorities
for recovery of costs incurred in respect of environmental liabilities
totalling $1,005,000 (unaudited) as of April 30, 1996 and $1,005,381 as of
December 31, 1995 (1994--$317,272) will be recovered between 1996 and 1999.
3. RELATED PARTY TRANSACTIONS:
The Company buys propane from an affiliate. During the year, such purchases
amounted to $7,696,773 (1994--$6,640,322).
The Company received administrative services which are provided by an
affiliate for which it pays a fee. The charge for these services is based
on a reasonable estimation of time and effort spent by the Parent's various
corporate office groups to provide services to the Company. For the year
ended December 31, 1995 the fees were $2,170,072 (1994--$2,356,725).
In addition, certain other transactions are entered into with affiliated
companies. The receivable from the affiliate was $1,559,619 as of December
31, 1995 (1994--$3,497,933).
4. INVENTORIES:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
----------- ----------
<S> <C> <C>
Propane............................................... $ 5,790,211 $4,215,443
Appliances............................................ 1,777,809 1,842,690
Materials and supplies................................ 1,062,826 879,716
----------- ----------
$ 8,630,846 $6,937,849
=========== ==========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------------ -----------------
ACCUMULATED
DEPRECIATION
AND NET BOOK
COST AMORTIZATION VALUE NET BOOK VALUE
----------- ------------ ----------- -----------------
<S> <C> <C> <C> <C>
Land.................... $ 3,605,798 $ -- $ 3,605,798 $ 3,611,415
Buildings............... 6,958,062 2,715,773 4,242,289 4,322,885
Propane marketing
equipment.............. 84,154,952 40,186,831 43,968,121 45,485,249
----------- ----------- ----------- -----------
$94,718,812 $42,902,604 $51,816,208 $53,419,549
=========== =========== =========== ===========
</TABLE>
Accumulated depreciation at December 31, 1994 was $37,827,206.
F-37
<PAGE>
6. OTHER ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
---------- -----------
<S> <C> <C>
Goodwill (net of accumulated amortization of
$59,835,876; 1994--$9,289,725)...................... $2,354,026 $52,900,177
Noncompete agreements (net of accumulated
amortization of $8,834,052; 1994--$6,749,883)....... 7,379,778 8,789,556
---------- -----------
$9,733,804 $61,689,733
========== ===========
</TABLE>
In the last quarter of the year ended December 31, 1995, the Company
evaluated the carrying value of its intangible assets, including goodwill
considering the effects of the Parent's decision to divest its interest in
the Company. This necessitated a write down of the goodwill in the amount
of $47,612,072, which is included as part of the amortization of goodwill
in 1995 as set out in note 9.
7. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------- --------
<S> <C> <C>
Notes payable for noncompete agreement..................... $71,315 $123,121
Less: Current portion of long-term debt.................... 52,938 52,350
------- --------
$18,377 $ 70,771
======= ========
</TABLE>
8.RESTRUCTURING CHARGES
During the year ended December 31, 1994 the Company reorganized its field
operations which resulted in the consolidation and closure of certain field
offices and severance of employees. The costs attributable to such
reorganization aggregated $475,367 which has been reflected as
restructuring charges in the accompanying Statement of Income (Loss) for
the year ended December 31, 1994.
9.DEPRECIATION AND AMORTIZATION EXPENSE:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1995 1994
----------- ----------
<S> <C> <C>
Depreciation........................................ $ 5,690,165 $4,741,112
Amortization of goodwill............................ 50,546,151 2,752,680
Amortization of noncompete agreements............... 1,409,778 1,368,456
Gain on disposal of property, plant and equipment... (173,571) (18,111)
----------- ----------
$57,472,523 $8,844,137
=========== ==========
</TABLE>
10.INCOME TAXES:
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1995 1994
-------- -------
<S> <C> <C>
Current taxes:
Federal................................................... $ -- $ --
State..................................................... 291,346 63,513
-------- -------
Total current taxes..................................... 291,346 63,513
Deferred taxes.............................................. -- --
-------- -------
Total income taxes...................................... $291,346 $63,513
======== =======
</TABLE>
F-38
<PAGE>
The provision for income taxes differs from applying the federal statutory
income tax rate of 34 percent to the loss before income taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER
31,
-------------
1995 1994
----- -----
<S> <C> <C>
Statutory federal rate....................................... (34.0)% (34.0)%
Goodwill..................................................... 33.0% 34.0%
Other........................................................ 1.5% 0.7%
----- -----
Effective income tax rate.................................... 0.5% 0.7%
===== =====
</TABLE>
The types and tax effects of the temporary differences that cause
significant portions of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------
1995 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................... $23,966,000 $23,812,000
Self insurance reserve.............................. 670,000 --
Investment tax credits.............................. 250,000 250,000
Inventory costs capitalized for tax purposes........ 155,000 155,000
Non deductible allowance for doubtful accounts...... 114,000 107,000
Restructuring charge................................ -- 190,000
----------- -----------
Total deferred tax assets......................... 25,155,000 24,514,000
Deferred tax liabilities:
Fixed asset basis differences/depreciation.......... 14,033,000 14,427,000
----------- -----------
Subtotal.............................................. 11,122,000 10,087,000
Total valuation allowance............................. 11,122,000 10,087,000
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
</TABLE>
As at December 31, 1995, the Company had net operating loss carryforwards
of approximately $60,000,000. These carryforwards expire between 1999 and
2008. Restrictions on the utilization of the net operating loss
carryforwards apply as a result of the change in the control that occurred
upon acquisition of the Company in 1990.
As of December 31, 1995, the Company has investment tax credit
carryforwards of $250,000. These carryforwards expire between 1999 and
2000.
11.EMPLOYEE RETIREMENT PLANS:
Many of the Company's employees are eligible to participate in 401(k)
Savings Plans, some of which provide for company matching under various
formulas. The Company's matching expense for the plans was $235,051 for the
year ended December 31, 1995 (1994--250,904).
12.FINANCIAL INSTRUMENTS:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Company's customer
base.
Financial instruments comprise cash, accounts receivable, accounts payable,
accrued liabilities, and long-term debt. The fair value of these financial
instruments approximates their carrying value.
F-39
<PAGE>
13.OPERATING LEASE COMMITMENTS:
The Company leases buildings and propane marketing equipment under
operating leases which expire in various years through 2000.
Future minimum lease payments by year under operating leases with initial
terms or remaining terms of one year or more consisted of the following at
December 31, 1995:
<TABLE>
<S> <C>
1996................................................................ $253,869
1997................................................................ 188,438
1998................................................................ 185,836
1999................................................................ 184,686
2000................................................................ 122,059
</TABLE>
14.CONTINGENCIES:
At December 31, 1995 and April 30, 1996 (unaudited), there are a number of
lawsuits and claims pending against the Company, the ultimate results of
which have been estimated and included in accrued liabilities. Management
is of the opinion that these claims are adequately reflected in the
consolidated balance sheet of the Company as at December 31, 1995 and April
30, 1996 (unaudited), and that any additional amounts assessed against the
Company would not have a material adverse effect upon the consolidated
financial position of the Company or the results of its operations.
15.SUBSEQUENT EVENT:
On March 23, 1996, an agreement to sell the shares of the Company was
signed with a prospective acquiror. The transaction was completed on April
30, 1996 pending closing adjustments as required by the Sales Agreement.
F-40
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ferrellgas Partners Finance Corp.
Liberty, Missouri
We have audited the accompanying balance sheet of Ferrellgas Partners
Finance Corp. (a wholly-owned subsidiary of Ferrellgas Partners, L.P.), as of
April 8, 1996. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of Ferrellgas Partners Finance Corp. as of
April 8, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
April 8, 1996
F-41
<PAGE>
FERRELLGAS PARTNERS FINANCE CORP.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELLGAS PARTNERS, L.P.)
BALANCE SHEET
<TABLE>
<CAPTION>
APRIL
APRIL 30, 8,
ASSETS 1996 1996
------ ----------- ------
(UNAUDITED)
<S> <C> <C>
Cash........................................................ $1,000 $1,000
------ ------
TOTAL ASSETS................................................ $1,000 $1,000
====== ======
<CAPTION>
STOCKHOLDER'S EQUITY
--------------------
<S> <C> <C>
Common stock, $1.00 par value; 2,000 shares authorized;
1,000 shares issued and outstanding........................ $1,000 $1,000
------ ------
TOTAL STOCKHOLDER'S EQUITY.................................. $1,000 $1,000
====== ======
</TABLE>
See notes to balance sheet.
F-42
<PAGE>
FERRELLGAS PARTNERS FINANCE CORP.
(A WHOLLY-OWNED SUBSIDIARY OF FERRELLGAS PARTNERS, L.P.)
NOTES TO BALANCE SHEET
APRIL 8, 1996
A. Ferrellgas Partners Finance Corp. (the "Finance Corp."), a Delaware
corporation, was formed on March 28, 1996 and is a wholly-owned subsidiary
of Ferrellgas Partners, L.P. (the "Partnership").
The Partnership intends to offer $160,000,000 aggregate principal amount of
Senior Notes. The Finance Corp. will serve as a co-obligor for the new
Senior Notes to be offered.
The Partnership contributed $1,000 to the Finance Corp. on April 8, 1996 in
exchange for 1,000 shares of common stock. There have been no other
transactions involving the Finance Corp. as of April 8, 1996 and April 30,
1996 (unaudited).
B. The unaudited financial statements reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the interim
periods presented.
F-43
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PRO-
SPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE ISSUERS. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPA-
NYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 3
Information Incorporated by Reference...................................... 4
Prospectus Summary......................................................... 5
Risk Factors............................................................... 21
The Exchange Offer......................................................... 28
Use of Proceeds............................................................ 37
Capitalization............................................................. 37
Unaudited Pro Forma Combined Financial Statements.......................... 38
Selected Historical Consolidated Financial Data............................ 47
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................................ 50
Business................................................................... 58
The Skelgas and Superior Acquisitions...................................... 66
Management................................................................. 67
Principal Unitholders...................................................... 69
Description of Exchange Notes.............................................. 70
Description of Existing Indebtedness....................................... 94
Cash Distributions......................................................... 97
The Partnership Agreement.................................................. 97
Certain Federal Income Tax Considerations.................................. 101
Plan of Distribution....................................................... 102
Legal Matters.............................................................. 102
Experts.................................................................... 102
Index to Financial Statements.............................................. F-1
</TABLE>
----------------
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS
EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF FERRELLGAS APPEARS HERE]
FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
OFFER TO EXCHANGE
ANY AND ALL OUTSTANDING
9-3/8% SERIES A SENIOR SECURED
NOTES DUE 2006
FOR
9-3/8% SERIES B SENIOR SECURED
NOTES DUE 2006
--------------------
PROSPECTUS
--------------------
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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.
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.
II-1
<PAGE>
Section 7.02. Indemnification of Authorized Representatives in Corporate
Proceedings. The Corporation shall indemnify any person who was or is an
authorized representative of the Corporation and who was or is a party or
is threatened to be made a party to any "corporation proceeding" (which
shall mean for purposes of this Article any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
adjustment 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 amounts 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
II-2
<PAGE>
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 person to 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.
II-3
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following exhibits listed are filed as part of this report. Exhibits
required by Item 601 of Regulation S-K which are not listed are not
applicable.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
(1) 2.1 Stock Purchase Agreement dated September 30, 1994, between
Ferrellgas, Inc. and Bell Atlantic Enterprises International,
Inc.
(2) 3.1 Agreement of Limited Partnership of Ferrellgas Partners, L.P.
(3) 3.2 Amended and Restated Agreement of Limited Partnership of
Ferrellgas, L.P. dated as of April 23, 1996.
(4) 4.1 Indenture dated as of April 26, 1996 among Ferrellgas Partners,
L.P., Ferrellgas Partners Finance Corp., Ferrellgas, L.P., as
guarantor, and American Bank National Association, as trustee,
relating to $160,000,000 9 3/8% Senior Secured Notes due 2006.
(4) 4.2 Registration Rights Agreement, dated as of April, 26, 1996 among
Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp.,
Ferrellgas, L.P., Donaldson, Lufkin & Jenrette Securities
Corporation and Goldman, Sachs & Co.
** 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.
(5) 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.
(6) 10.4 Agreement dated as of April 1, 1994, between BP Exploration & Oil,
Inc. and Ferrellgas, L.P. dba Ferrell North America
(7) 10.5 Ferrell Long-Term Incentive Plan, dated June 23, 1987, between
Ferrell and the participants in the Plan.
(7) 10.6 Ferrell 1992 Key Employee Stock Option Plan.
(5) 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.
(8) 10.10 First Amendment to Contribution, Conveyance and Assumption
Agreement between Ferrellgas, the Partnership and the Operating
Partnership.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
(5) 10.11 Second Amendment to Contribution, Conveyance and Assumption
Agreement between Ferrellgas, the Partnership and the Operating
Partnership.
(1) 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.
(9) 10.13 Purchase Agreement dated as of April 23, 1996 between Ferrellgas
Partners, L.P., Ferrellgas Partners Finance Corp., Ferrellgas,
Inc., Ferrellgas, L.P., Donaldson, Lufkin & Jenrette Securities
Corporation and Goldman, Sachs & Co.
(10) 10.14 Pledge and Security Agreement dated as of April 26, 1996 among
Ferrellgas Partners, L.P., Ferrellgas, Inc., and American Bank
National Association, as collateral agent.
(9) 10.15 Agreement for Purchase and Sale of Stock dated March 23, 1996
between Superior Propane, Inc. and Ferrellgas, Inc.
* 12.1 Statement re computation of ratios.
* 21.1 List of subsidiaries.
** 23.1 Consent of Deloitte & Touche LLP.
** 23.2 Consent of Deloitte & Touche.
** 23.3 Consent of Bryan Cave LLP (included in Exhibit 5.1).
** 23.4 Consent of Bryan Cave LLP (included in Exhibit 8.1).
* 24.1 Power of Attorney of A. Andrew Levison (included on signature
page).
* 24.2 Power of Attorney of Daniel M. Lambert (included on signature
page).
* 24.3 Power of Attorney of James E. Ferrell (included on signature page)
** 25.1 Statement of Eligibility of Trustee.
** 99.1 Form of Letter of Transmittal.
** 99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- --------
(1) Incorporated by reference to the same numbered Exhibit to Partnership's
Registration Statement on Form S-1 (File No. 33-55185 filed with the
Commission on November 14, 1994).
(2) Incorporated by reference to the same numbered Exhibit to the
Partnership's Current Report on Form 8-K filed August 15, 1994.
(3) Incorporated by reference to Exhibit 3 to Partnership's Quarterly Report
on Form 10-Q filed on June 12, 1996.
(4) Incorporated by reference to the same numbered Exhibit to Partnership's
Current Report on Form 8-K filed on May 6, 1996.
(5) Incorporated by reference to the same numbered Exhibit to Partnership's
Annual Report on Form 10-K filed on October 17,1995.
(6) Incorporated by reference to the same numbered Exhibit to Partnership's
Annual Report on Form 10-K filed on October 20, 1994.
(7) Incorporated by reference to the same numbered Exhibit to Partnership's
Registration Statement on Form S-1 (File No. 33-53383 filed with the
Commission on April 29, 1994).
(8) Incorporated by reference to Exhibit 10.8 to Partnership's Annual Report
on Form 10-K filed on October 20, 1994.
(9) Incorporated by reference to Exhibit 10.1 to Partnership's Current Report
on Form 8-K filed on May 6, 1996.
(10) Incorporated by reference to Exhibit 10.2 to Partnership's Current Report
on Form 8-K filed on May 6, 1996.
* Previously Filed
** Filed Concurrently herewith
(b) Financial Statement Schedules:
II-5
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY
Independent Auditors' Report on Schedules............................... S-1
Schedule I Parent Company Only Balance sheets as of July 31, 1995 and
1994, and Statements of Earnings and Cash Flows for the
Year ended July 31, 1995 and the One month ended
July 31, 1994............................................. S-2
Schedule II Valuation and Qualifying Accounts for the Year ended July,
31, 1995, the One month ended July 31, 1994 and the Eleven
months ended June 30, 1994................................ S-6
FERRELLGAS, L.P. AND SUBSIDIARIES
Independent Auditors' Report on Schedules............................... S-7
Schedule II Valuation and Qualifying Accounts for the Year ended July
31, 1995, the One month ended July 31, 1994 and the Eleven
months ended June 30, 1994................................ S-8
</TABLE>
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required
by such omitted schedules is set forth in the financial statements or the
notes thereto.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake that 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 Registrants pursuant to the foregoing provisions, or otherwise,
the Registrants have 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 of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or the registrant in the successful defense of
any action, suit 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.
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into this 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 Registration Statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes 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.
(d) The undersigned registrants hereby undertake to do the following:
(1) 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 1933; (ii)
to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement;
II-6
<PAGE>
(2) 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.
(3) 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.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT
TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
THE CITY OF LIBERTY, STATE OF MISSOURI, ON JULY 30, 1996.
FERRELLGAS PARTNERS, L.P.
By: Ferrellgas, Inc., as General
Partner
/s/ Danley K. Sheldon
By __________________________________
Danley K. Sheldon
Senior Vice President and Chief
Financial Officer
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, Chairman of the July 30, 1996
____________________________________ Board and Chief Executive
James E. Ferrell Officer (Principal Executive
Officer)
/s/ Danley K. Sheldon Senior Vice President and July 30, 1996
____________________________________ Chief Financial Officer
Danley K. Sheldon (Principal Financial and
Accounting Officer)
* Director July 30, 1996
____________________________________
A. Andrew Levison
* Director July 30, 1996
____________________________________
Daniel M. Lambert
*By: /s/ Danley K. Sheldon
____________________________________
Danley K. Sheldon
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To the Partners of
Ferrellgas Partners, L.P.
Liberty, Missouri
We have audited the consolidated financial statements of Ferrellgas
Partners, L.P. (formerly Ferrellgas, Inc.) and subsidiary 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) and have issued
our report thereon dated September 12, 1995 (included elsewhere in this
Registration Statement). Our audit also included the financial statement
schedules listed at Item 21(b) of this Registration Statement. These financial
statement schedules are the responsibility of the Partnership's management.
Our responsibility is to express an opinion based on our audit. In our
opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information therein set forth.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 12, 1995
S-1
<PAGE>
SCHEDULE I
FERRELLGAS PARTNERS, L.P.
PARENT ONLY
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 31, JULY 31,
ASSETS 1995 1994
------ -------- --------
<S> <C> <C>
Investment in Ferrellgas, L.P.............................. $118,638 $121,393
-------- --------
Total Assets........................................... $118,538 $121,393
======== ========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
<S> <C> <C>
Other current liabilities.................................. $ 1 $ --
PARTNERS' CAPITAL
Common unitholders....................................... 84,489 84,532
Subordinated unitholders................................. 91,824 99,483
General partner.......................................... (57,676) (62,622)
-------- --------
Total Partners' Capital................................ 118,637 121,393
-------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL................ $118,638 $121,393
======== ========
</TABLE>
S-2
<PAGE>
SCHEDULE I
FERRELLGAS PARTNERS, L.P.
PARENT ONLY
STATEMENTS OF EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED INCEPTION TO
JULY 31, 1995 JULY 31, 1994
------------------ -------------
<S> <C> <C>
Equity in earnings (loss) of
Ferrellgas, L.P............ $23,821 $(64,481)
------- --------
Operating expense........... 1 --
------- --------
Net earnings (loss)..... $23,820 $(64,481)
======= ========
</TABLE>
S-3
<PAGE>
SCHEDULE I
FERRELLGAS PARTNERS, L.P.
PARENT ONLY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED INCEPTION TO
JULY 31, 1995 JULY 31, 1994
------------------ -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings (loss).......................... $23,820 $(64,481)
Reconciliation of net earnings (loss) to Net
cash from operating activities:
Equity in (earnings) loss of Ferrellgas,
L.P....................................... (23,821) 64,481
Distributions received from Ferrellgas,
L.P....................................... 51,654 --
Increase in other current liabilities...... 1 --
------- --------
Net cash provided by operating
activities.............................. 51,654 --
------- --------
Cash Flows From Investing Activities:
Investment in Ferrellgas, L.P................ -- (255,006)
------- --------
Net cash used by investing activities.... -- (255,006)
------- --------
Cash Flows From Financing Activities:
Distributions to partners.................... (51,654) --
Net issuance of Common Units................. -- 255,006
------- --------
Net cash provided (used) by financial
activities.............................. (51,654) 255,006
------- --------
Increases in cash and cash equivalents....... -- --
Cash and cash equivalents--beginning of
period...................................... -- --
------- --------
Cash and cash equivalents--end of period..... $ -- $ --
======= ========
</TABLE>
S-4
<PAGE>
Supplemental disclosure of noncash financing activity:
Effective July 5, 1994, substantially all of the propane assets and
liabilities of Ferrellgas, Inc. were conveyed at historical cost to
Ferrellgas, L.P. in return for 1,000,000 Common Units, 16,593,721 Subordinated
Units and the Incentive Distribution Rights of Ferrellgas Partners, L.P., as
well as a 2% general partner interest in Ferrellgas Partners, L.P. and
Ferrellgas, L.P., on a combined basis. Net liabilities assumed by Ferrellgas,
L.P., adjusted for the settlement of a tax contingency, are as follows:
<TABLE>
<CAPTION>
JULY 5, 1994
------------
<S> <C>
Cash......................................................... $ 39,791
Accounts receivable.......................................... 50,747
Inventories.................................................. 37,931
Prepaid expenses and other current assets.................... 2,660
Property, plant and equipment, net........................... 293,729
Intangible assets, net....................................... 75,350
Other assets................................................. 9,327
--------
Total assets conveyed...................................... 509,535
--------
Accounts payable............................................. 49,177
Other current liabilities.................................... 30,296
Long-term debt, net.......................................... 476,441
Other non-current liabilities................................ 9,557
--------
Total liabilities assumed.................................. 565,471
--------
Net liabilities assumed by Ferrellgas, L.P................... $(55,936)
========
</TABLE>
S-5
<PAGE>
SCHEDULE II
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO DEDUCTIONS
BEGINNING COST/ OTHER (AMOUNTS BALANCE AT END
DESCRIPTION OF PERIOD EXPENSES ADDITIONS (A) CHARGED-OFF) OF PERIOD
----------- ---------- ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1995
Allowance for doubtful
accounts............... $ 798 $1,191 $ 400 $1,515 $ 874
Accumulated
amortization:
Intangible assets....... $68,489 $9,997 $3,509 $ -- $81,995
Other assets............ $ 1,860 $ 368 $1,109 $ -- $ 3,337
One month ended July 31,
1994 (B)
Allowance for doubtful
accounts............... $ 906 $ 119 $ -- $ 227 $ 798
Accumulated
amortization:
Intangible assets....... $67,730 $ 759 $ -- $ -- $68,489
Other assets............ $ 9,845 $ 23 $ -- $8,008 $ 1,860
Eleven months ended June
30, 1994 (Predecessor)
Allowance for doubtful
accounts............... $ 607 $1,569 $ -- $1,270 $ 906
Accumulated
amortization:
Intangible assets....... $59,181 $8,549 $ -- $ -- $67,730
Other assets............ $ 7,592 $2,626 $ -- $ 373 $ 9,845
</TABLE>
- --------
(A) On November 1, 1994, the General Partner purchased all of the capital
stock of Vision Energy Resources, Inc. Immediately following the close of
the purchase, the General Partner contributed the assets and substantially
all of the liabilities associated with Vision Energy Resources, Inc. to
the Operating Partnership. The amounts reflected as "Other Additions
represent valuation and qualifying accounts assumed by the Operating
Partnership in connection with the contribution by the General Partner.
(B) On July 5, 1994, substantially all of the propane assets and liabilities
of Ferrellgas, Inc. were conveyed at historical cost to Ferrellgas, L.P.
Total allowance for uncollectible receivables, accumulated amortization of
intangible assets and accumulated amortization of other assets transferred
to Ferrellgas, L.P. was $906, $67,730 and $9,845, respectively.
S-6
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To the Partners of
Ferrellgas, L.P.
Liberty, Missouri
We have audited the consolidated financial statements of Ferrellgas, L.P.,
(formerly Ferrellgas, Inc.) and subsidiaries 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), the eleven months ended June 30, 1994 and for the
year ended July 31, 1993 (Predecessor) and have issued our report thereon
dated September 12, 1995 (incorporated by reference into this Registration
Statement). Our audit also included the financial statement schedules listed
at Item 21(b) of this Registration Statement. These financial statement
schedules are the responsibility of the Partnership's management. Our
responsibility is to express an opinion based on our audit. In our opinion,
such financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information therein set forth.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
September 12, 1995
S-7
<PAGE>
SCHEDULE II
FERRELLGAS, L.P. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO DEDUCTIONS
BEGINNING COST/ OTHER (AMOUNTS BALANCE AT END
DESCRIPTION OF PERIOD EXPENSES ADDITIONS (A) CHARGED-OFF) OF PERIOD
----------- ---------- ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1995
Allowance for doubtful
accounts............... $ 798 $1,191 $ 400 $1,515 $ 874
Accumulated
amortization:
Intangible assets....... $68,489 $9,997 $3,509 $ -- $81,995
Other assets............ $ 1,860 $ 368 $1,109 $ -- $ 3,337
One month ended July 31,
1994 (B)
Allowance for doubtful
accounts............... $ 906 $ 119 $ -- $ 227 $ 798
Accumulated
amortization:
Intangible assets....... $67,730 $ 759 $ -- $ -- $68,489
Other assets............ $ 9,845 $ 23 $ -- $8,008 $ 1,860
Eleven months ended June
30, 1994 (Predecessor)
Allowance for doubtful
accounts............... $ 607 $1,569 $ -- $1,270 $ 906
Accumulated
amortization:
Intangible assets....... $59,181 $8,549 $ -- $ -- $67,730
Other assets............ $ 7,592 $2,626 $ -- $ 373 $ 9,845
</TABLE>
- --------
(A) On November 1, 1994, the General Partner purchased all of the capital
stock of Vision Energy Resources, Inc. Immediately following the close of
the purchase, the General Partner contributed the assets and substantially
all of the liabilities associated with Vision Energy Resources, Inc. to
the Operating Partnership. The amounts reflected as "Other Additions
represent valuation and qualifying accounts assumed by the Operating
Partnership in connection with the contribution by the General Partner.
(B) On July 5, 1994, substantially all of the propane assets and liabilities
of Ferrellgas, Inc. were conveyed at historical cost to Ferrellgas, L.P.
Total allowance for uncollectible receivables, accumulated amortization of
intangible assets and accumulated amortization of other assets transferred
to Ferrellgas, L.P. was $906, $67,730 and $9,845, respectively.
S-8
<PAGE>
BRYAN CAVE LLP
1200 MAIN STREET, SUITE 3500
KANSAS CITY, MISSOURI 64105
(816) 374-3200
FACSIMILE: (816) 374-3300
July 30, 1996
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
One Liberty Plaza
Liberty, MO 64068
Ladies and Gentlemen:
We are acting as special counsel for Ferrellgas Partners, L.P., a Delaware
limited partnership (the "Partnership"), and Ferrellgas Partners Finance Corp.,
a Delaware corporation ("Finance Corp.", and, together with the Partnership, the
"Issuers"), in connection with various legal matters relating to the filing with
the Securities and Exchange Commission of a Registration Statement on Form S-4
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), covering an offer to exchange (the "Exchange Offer") $1,000 principal
amount of the Issuers 9-3/8% Series B Senior Secured Notes due 2006 (the
"Exchange Notes") for each $1,000 principal amount of their outstanding 9-3/8%
Series A Senior Secured Notes due 2006 (the "Private Notes"), of which
$160,000,000 aggregate principal amount is outstanding on the date hereof. The
Exchange Notes are to be issued pursuant to an Indenture, dated as of April 26,
1996 (the "Indenture"), among the Issuers, Ferrellgas L.P., as guarantor, and
American Bank National Association, as Trustee, which is filed as an exhibit to
the Registration Statement.
In connection herewith, we have examined and relied without independent
investigation as to matters of fact upon such certificates of public officials,
such statements and certificates of officers of Ferrellgas, Inc., a Delaware
corporation (the "General Partner"), in its capacity as general partner of the
Partnership, and Finance Corp. and originals or copies certified to our
satisfaction of the Registration Statement and the Indenture, the partnership
agreement of the Partnership and the Certificate of Incorporation and By-laws of
Finance Corp., proceedings of the Board of Directors of the General Partner and
Finance Corp. and such other corporate records, documents, certificates and
instruments as we have deemed necessary or appropriate in order to enable us to
render the opinions expressed below. In rendering this opinion, we have assumed
the genuineness of all signatures on all documents examined by us, the
authenticity of all documents submitted to us as originals and the conformity to
authentic
<PAGE>
Ferrellgas Partners, L.P.
July 30, 1996
Page 2
originals of all documents submitted to us as certified or photostatted copies.
We express no opinion as to the applicability or effect of (i) any
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally, or (ii) general principles
of equity, including, without limitation, concepts of reasonableness,
materiality, good faith and fair dealing and the possible unavailability of
specific performance, injunctive relief or other equitable remedies, regardless
of whether enforceability is considered in a proceeding in equity or at law.
Based upon the foregoing and in reliance thereon and subject to the
qualifications and limitations stated herein, we are of the opinion that the
Exchange Notes will be valid and binding obligations of the Issuers when (i) the
Registration Statement, including any amendments thereto, shall have become
effective under the Act, (ii) the Indenture has been duly qualified under the
Trust Indenture Act of 1939, as amended, and (iii) the Exchange Notes shall have
been duly executed and authenticated in accordance with the provisions of the
Indenture and duly delivered to the holders thereof in exchange for the Private
Notes.
This opinion is not rendered with respect to any laws other than the General
Corporation Law of the State of Delaware, the laws of the State of New York and
the federal laws of the United States.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus included as a part thereof. We also consent to your
filing copies of this opinion as an exhibit to the Registration Statement with
agencies of such states as you deem necessary in the course of complying with
the laws of such states regarding the Exchange Offer. In giving this consent, we
do not admit that we are in the category of persons whose consent is required
under Secton 7 of the Act or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
Bryan Cave LLP
<PAGE>
BRYAN CAVE LLP
July 30, 1996
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
One Liberty Plaza
Liberty, MO 64068
Ladies and Gentlemen:
We are acting as special counsel for Ferrellgas Partners, L.P., a Delaware
limited partnership (the "Partnership"), and Ferrellgas Partners Finance Corp.,
a Delaware corporation ("Finance Corp.", and, together with the Partnership, the
"Issuers"), in connection with various legal matters relating to the filing with
the Securities and Exchange Commission of a Registration Statement on Form S-4
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), covering an offer to exchange (the "Exchange Offer") $1,000 principal
amount of the Issuers' 9-3/8% Series B Senior Secured Notes due 2006 (the
"Exchange Notes") for each $1,000 principal amount of their outstanding 9-3/8%
Series A Senior Secured Notes due 2006 (the "Private Notes"), of which
$160,000,000 aggregate principal amount is outstanding on the date hereof.
We are of the opinion that the material income tax consequences of the
Exchange Offer are accurately set forth under the heading "Certain Federal
Income Tax Considerations" in the Preliminary Prospectus dated July 30, 1996
included in the Registration Statement.
In rendering the opinion expressed above, we have relied upon the facts as set
forth in the Registration Statement. Any variation or difference in the facts
from those forth in the Registration Statement could affect our opinion.
Such opinion is also based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm in the Preliminary
Prospectus dated July 30, 1996 included in the Registration Statement.
Very truly yours,
Bryan Cave LLP
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-06693 of Ferrellgas Partners, L.P. on Form S-4 of our report dated
September 12, 1995 relating to the financial statements of Ferrellgas
Partners, L.P., appearing in the Prospectus, which is part of this
Registration Statement, and of our report dated September 12, 1995 relating to
the financial statement schedules appearing elsewhere in this Registration
Statement.
We also consent to the incorporation by reference in this Registration
Statement of Ferrellgas Partners, L.P., on Form S-4 of our report dated
September 12, 1995 related to the financial statements of Ferrellgas, L.P.,
incorporated by reference in the Prospectus, which is part of this
Registration Statement and of our report dated September 12, 1995 relating to
the financial statement schedules appearing elsewhere in this Registration
Statement.
We also consent to the use in this Registration Statement of Ferrellgas
Partners, L.P. on Form S-4 of our report dated April 8, 1996 relating to the
financial statements of Ferrellgas Partners Finance Corp., appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the incorporation by reference in this Registration
Statement of Ferrellgas Partners, L.P. on Form S-4 of our report dated
September 12, 1995 relating to the financial statements of Ferrellgas Finance
Corp., incorporated by reference in the Prospectus, which is part of this
Registration Statement.
We also consent to the use in this Registration Statement of Ferrellgas
Partners, L.P. on Form S-4 of our report dated June 7, 1996 on Skelgas
Propane, Inc., appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
July 30, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-06693 of Ferrellgas Partners, L.P. on Form S-4 of our report dated April
15, 1996 on Skelgas Propane, Inc., appearing in the Prospectus, which is part
of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE
Chartered Accountants
Markham, Canada
July 30, 1996
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
---------------------
FIRSTAR BANK OF MINNESOTA, N.A.
(as Successor in interest to American Bank National Association)
(Exact name of Trustee as specified in its charter)
A National Banking Association 41-0122055
(State of incorporation if (IRS Employer Identification No.)
not a national bank)
101 East Fifth Street
Corporate Trust Department
St. Paul, Minnesota 55101
(Address of principal executive offices) (Zip Code)
FIRSTAR BANK OF MINNESOTA, N.A.
101 East Fifth Street
St. Paul, Minnesota 55101
(612) 229-2600
(Exact name, address, and telephone number of agent for service)
---------------------
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
Ferrellgas, L.P.
(Exact name of obligor as specified in its charter)
Delaware 43-1698480
(State of incorporation 43-1742520
or other jurisdiction) 43-1698481
(IRS Employer Identification
incorporation or organization)
One Liberty Plaza
Liberty, Missouri 64068
(Address of principal executive offices) (Zip Code)
---------------------
9-3/8% Series B Senior Secured Notes Due 2006
(Title of Indenture securities)
<PAGE>
Item 1. General Information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
- Comptroller of the Currency
Treasury Department
Washington, DC
- Federal Deposit Insurance Corporation
Washington, DC
- The Board of Governors of the Federal Reserve System
Washington, DC
(b) The Trustee is authorized to exercise corporate trust powers.
GENERAL
Item 2. Affiliations With Obligor and Underwriters. If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe each such
affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's knowledge the
obligor is not in default under any Indenture for which the Trustee acts as
Trustee.
Item 16. List of Exhibits. Listed below are all the exhibits filed as a part of
this statement of eligibility and qualification. Such exhibits are incorporated
by reference from a previous filing.
Exhibit 1. Copy of Articles of Association of the trustee now in effect.
Exhibit 2. a. A copy of the certificate of the Comptroller of Currency
dated June 1, 1965, authorizing Firstar Bank of Minnesota,
N.A. to act as fiduciary.
b. A copy of the certificate of authority of the trustee to
commence business issued June 9, 1903, by the Comptroller of
the Currency to Firstar Bank of Minnesota, N.A.
<PAGE>
Exhibit 3. A copy of the authorization of the trustee to exercise corporate
trust powers issued by the Federal Reserve Board.
Exhibit 4. Copy of By-laws of the trustee as now in effect.
Exhibit 5. Copy of each Indenture referred to in Item 4. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b) of the
Act.
Exhibit 7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its supervising
or examining authority.
NOTE
The answers to this statement insofar as such answers relate to what persons
have been underwriters for any securities of the obligor within three years
prior to the date of filing this statement, or what persons are owners of 10% or
more of the voting securities of the obligor, or affiliates, are based upon
information furnished to the Trustee by the obligor. While the Trustee has no
reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, a national banking association organized and existing under the laws of
the United States, has duly caused this statement of eligibility and
qualification to be signed on its behalf by the undersigned, thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the City of
Saint Paul and State of Minnesota on the 29th day of July, 1996.
FIRSTAR BANK OF MINNESOTA, N.A.
[SEAL]
/s/ Frank P. Leslie III
------------------------------------------
Frank P. Leslie III
Vice President
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939, the
undersigned, Firstar Bank of Minnesota, N.A., hereby consents that reports of
examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.
Dated: July 29, 1996
FIRSTAR BANK OF MINNESOTA, N.A.
/s/ Frank P. Leslie III
------------------------------------------
Frank P. Leslie III
Vice President
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
OFFER TO EXCHANGE ALL OUTSTANDING
9-3/8% SERIES A SENIOR SECURED NOTES DUE 2006
FOR
9-3/8% SERIES B SENIOR SECURED NOTES DUE 2006
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON SEPTEMBER , 1996, UNLESS EXTENDED
BY THE ISSUERS (THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
Deliver To The Exchange Agent:
American Bank National Association
By Registered or Certified Mail, Overnight Courier or Hand Delivery:
American Bank National Association
101 East 5th Street, 9th Floor
St. Paul, Minnesota 55101
Attention: Corporate Trust Department
By Facsimile:
(612) 229-6415
Confirm by Telephone:
(612) 229-2600
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL
IS COMPLETED.
The undersigned acknowledges receipt of the Prospectus dated August , 1996
(the "Prospectus") of Ferrellgas Partners, L.P., a Delaware limited partnership
(the "Partnership"), and Ferrellgas Partners Finance Corp., a Delaware
corporation and wholly owned subsidiary of the Partnership ("Finance Corp." and,
together with the Partnership, the "Issuers") and this Letter of Transmittal
(the "Letter of Transmittal"), which together constitute the Issuers' offer (the
"Exchange Offer") to exchange up to $1,000 principal amount of their 9-3/8%
Series B Senior Secured Notes due 2006 (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which the Prospectus is a part, for each
$1,000 principal amount of their outstanding 9-3/8% Series A Senior Secured
Notes due 2006 (the "Private Notes"), of which $160,000,000 aggregate principal
amount is outstanding. Capitalized terms used but not defined herein have the
meaning given to them in the Prospectus.
This Letter of Transmittal is to be used by a Holder of Private Notes either
if original certificates for Private Notes are to be forwarded herewith or if
delivery of certificates for Private Notes, if available, is to be made by
<PAGE>
book-entry transfer to the account maintained by the Exchange Agent at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in the Prospectus under the caption "The Exchange
Offer--Book-Entry Transfer." Holders of Private Notes whose certificates are not
immediately available, or who are unable to deliver their certificates and all
other documents required by this Letter of Transmittal to the Exchange Agent on
or prior to the Expiration Date, or who are unable to complete the procedure for
book-entry transfer on a timely basis, must tender their Private Notes according
to the guaranteed delivery procedures set forth in the Prospectus under the
caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 1.
Delivery of Documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Private Notes are registered on the books of the Issuers or any other
person who has obtained a properly completed bond power from the registered
Holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Private Notes must
complete this Letter of Transmittal in its entirety.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS
INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND
REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER
OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Private Notes to which this Letter of Transmittal relates. If
the space below is inadequate, list the registered numbers and principal amounts
on a separate signed schedule and affix the list to this Letter of Transmittal.
================================================================================
DESCRIPTION OF PRIVATE NOTES TENDERED
- --------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF AGGREGATE
REGISTERED HOLDER(S), PRINCIPAL
EXACTLY AS NAME(S) APPEAR(S) AMOUNT PRINCIPAL
ON PRIVATE NOTES REGISTERED REPRESENTED AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* BY NOTE(S) TENDERED**
- --------------------------------------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
TOTAL
- --------------------------------------------------------------------------------
* Need not be completed if Private Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated, any tendering Holder of Private Notes will be
deemed to have tendered the entire aggregate principal amount represented by
such Notes. All tenders must be in integral multiples of $1,000.
================================================================================
[ ] CHECK HERE IF TENDERED PRIVATE NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-
ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE
INSTITUTIONS ONLY):
2
<PAGE>
Name of Tendering Institution _________________________________________________
Account Number ________________________________________________________________
Transaction Code Number _______________________________________________________
[ ] CHECK HERE IF TENDERED PRIVATE NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Holder(s) of Private Notes ______________________________
Date of Execution of Notice of Guaranteed Delivery ____________________________
Window Ticket Number (if available) ___________________________________________
Name of Eligible Institution that Guaranteed Delivery _________________________
If delivered by book-entry transfer, complete the following:
Account Number ____________________ Transaction Code Number _________________
<TABLE>
<S> <S>
- -------------------------------------- --------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4, 5 and 6) (See Instructions 4, 5 and 6)
To be completed ONLY (i) if To be completed ONLY (i) if
certificates for Private Notes in certificates for Private Notes in
a principal amount not tendered, a principal amount not tendered,
or certificates for Exchange Notes or certificates for Exchange Notes
issued in exchange for Private issued in exchange for Private
Notes accepted for exchange, are Notes accepted for exchange, are
to be issued in the name of some- to be mailed or delivered to some-
one other than the undersigned, one other than the undersigned,
or (ii) if Private Notes tendered or to the undersigned at an
by book-entry transfer which are address shown below the undersigned's
not exchanged are to be returned signature.
by credit to an account maintained
at the Book-Entry Transfer Facility Mail or Deliver to:
other than the account indicated
above. Name ______________________________
(Please Print)
Issue to:
Address ___________________________
Name ______________________________
(Please Print) ___________________________________
(Include Zip Code)
Address ___________________________
___________________________________
___________________________________ (Tax Identification or
(Include Zip Code) Social Security No.)
___________________________________ --------------------------------------
(Tax Identification or
Social Security No.)
Credit Private Notes not exchanged
and delivered by book-entry transfer
to the Book-Entry Transfer Facility
account set forth below:
____________________________________
Account Number
- --------------------------------------
</TABLE>
3
<PAGE>
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Issuers for exchange the principal amount of
Private Notes indicated above in this Letter of Transmittal.
Subject to and effective upon the acceptance for exchange of the principal
amount of Private Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to the Issuers all right, title and interest in and to the Private
Notes tendered hereby and hereby irrevocably constitutes and appoints the
Exchange Agent as the agent and attorney-in-fact of the undersigned (with full
knowledge that the Exchange Agent also acts as the agent of the Issuers
in connection with the Exchange Offer) with respect to the tendered Private
Notes with full power of substitution to (i) deliver such Private Notes, or
transfer ownership of such Private Notes on the account books maintained by the
Book-Entry Transfer Facility, to the Issuers and deliver all accompanying
evidences of transfer and authenticity, and (ii) present such Private Notes for
transfer on the books of the Issuers and receive all benefits and otherwise
exercise all rights of beneficial ownership of such Private Notes, all in
accordance with the terms of the Exchange Offer. The power of attorney granted
in this paragraph shall be deemed to be irrevocable and coupled with an
interest.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Private Notes
tendered hereby and to acquire the Exchange Notes issuable upon the exchange of
such tendered Private Notes, and that the Issuers will acquire good, marketable
and unencumbered title thereto, free and clear of all liens, restrictions,
charges and encumbrances and not subject to any adverse claim, when the same are
accepted for exchange by the Issuers. The undersigned hereby further represents
that any Exchange Notes acquired in exchange for Private Notes tendered hereby
will have been acquired in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such person is the undersigned,
that neither the holder of such Private Notes nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes and that neither the holder of such Private Notes nor any
such other person is an "affiliate," as defined in Rule 405 under the Securities
Act of 1993, as amended (the "Securities Act") of the Issuers.
The undersigned acknowledges that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the "SEC") that
the Exchange Notes issued in exchange for the Private Notes pursuant to the
Exchange Offer may be offered for resale, resold and otherwise transferred by
Holders thereof (other than any such Holder that is an "affiliate" of the
Issuers within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such Holders' business and such Holders are not engaging in and do not
intend to engage in a distribution of the Exchange Notes and have no arrangement
or understanding with any person to participate in a distribution of such
Exchange Notes.
If the undersigned or the person receiving the Exchange Notes is a
broker-dealer that is receiving Exchange Notes for its own account in exchange
for Private Notes that were acquired as a result of market-making activities or
other trading activities, the undersigned acknowledges that it or such other
person will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that the undersigned or such other
person is an "underwriter" within the meaning of the Securities Act. The
undersigned acknowledges that if the undersigned is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes (i) the
undersigned cannot rely on the position of the staff of the SEC in certain
no-action letters and, in the absence of an exemption therefrom, must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale transaction of the Exchange Notes, in
which case the registration statement must contain the selling security holder
information required by Item 507 or Item 508, as applicable, of regulation S-K
of the SEC, and (ii) failure to
4
<PAGE>
comply with such requirements in such instance could result in the undersigned
incurring liability under the Securities Act for which the undersigned is not
indemnified by the Issuers.
If the undersigned or the person receiving the Exchange Notes is an
"affiliate" (as defined in Rule 405 under the Securities Act), the undersigned
represents to the Issuers that the undersigned understands and acknowledges that
the Exchange Notes may not be offered for resale, resold or otherwise
transferred by the undersigned or such other person without registration under
the Securities Act or an exemption therefrom.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Issuers to be necessary or
desirable to complete the exchange, assignment and transfer of the Private Notes
tendered hereby, including the transfer of such Private Notes on the account
books maintained by the Book-Entry Transfer Facility. All authority conferred
or agreed to be conferred by this Letter of Transmittal shall survive the death,
incapacity or dissolution of the undersigned, and every obligation of the
undersigned under this Letter of Transmittal shall be binding upon the
undersigned's heirs, personal representatives, successors and assigns.
For purposes of the Exchange Offer, the Issuers shall be deemed to have
accepted for exchange validly tendered Private Notes when, as and if the Issuers
gives oral or written notice thereof to the Exchange Agent. Any tendered
Private Notes that are not accepted for exchange pursuant to the Exchange Offer
for any reason will be returned, without expense, to the undersigned at the
address shown below or at a different address as may be indicated herein under
"Special Delivery Instructions" as promptly as practicable after the Expiration
Date.
The undersigned acknowledges that the Issuers' acceptance of properly
tendered Private Notes pursuant to the procedures described under the caption
"The Exchange Offer--Procedures for Tendering" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Issuers upon the terms and subject to the conditions of the Exchange
Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the Exchange Notes issued in exchange for the Private Notes accepted for
exchange and return any Private Notes not tendered or not exchanged, in the
names(s) of the undersigned. Similarly, unless otherwise indicated under
"Special Delivery Instructions," please mail or deliver the Exchange Notes
issued in exchange for the Private Notes accepted for exchange and any Private
Notes not tendered or not exchanged (and accompanying documents, as appropriate)
to the undersigned at the address shown below the undersigned's signature(s).
5
<PAGE>
PLEASE SIGN HERE WHETHER OR NOT
PRIVATE NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X _______________________________________________________ ___________________
Date
X _______________________________________________________ ___________________
Signature(s) of Registered Holder(s) or Authorized Date
Signatory
Area Code and Telephone Number: _________________________
This Letter of Transmittal must be signed by the registered Holder(s) of
Private Notes as their name(s) appear(s) on the certificates for Private Notes
or on a security position listing, or by person(s) authorized to become
registered Holder(s) by a properly completed bond power from the registered
Holder(s), a copy of which must be transmitted with this Letter of Transmittal.
If Private Notes to which this Letter of Transmittal relate are held of record
by two or more joint Holders, then all such Holders must sign this Letter of
Transmittal. If signature is by trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, then such person must (i) set forth his or her full
title below and (ii) unless waived by the Issuers, submit evidence satisfactory
to the Issuers of such person's authority so to act. See Instruction 4 regarding
the completion of this Letter of Transmittal, printed below.
Name(s): ______________________________________________________________________
_______________________________________________________________________________
(Please Print)
Capacity: _____________________________________________________________________
Address: _____________________________________________________________________
_____________________________________________________________________
(Include Zip Code)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 4)
____________________________________________________________
(Authorized Signature)
____________________________________________________________
(Name and Title)
____________________________________________________________
(Name of Firm)
____________________________________________________________
(Area Code and Telephone Number)
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND PRIVATE NOTES. This
Letter of Transmittal is to be completed by Holders of Private Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer as set forth in the
Prospectus under the caption "The Exchange Offer-Book-Entry Transfer."
Certificates for Private Notes or any confirmation of a book-entry transfer to
the Exchange Agent's account at the Book-Entry Transfer Facility of Private
Notes tendered by book-entry transfer (a "Book-Entry Confirmation"), as well as
a properly completed and duly executed copy of this Letter of Transmittal or
facsimile hereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date, or the
tendering holder must comply with the guaranteed delivery procedures set forth
below. The method of delivery of the tendered Private Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the tendering Holder and, except as otherwise provided
below, the delivery will be deemed made only when actually received or confirmed
by the Exchange Agent. Instead of delivery by mail, it is recommended that the
Holder use an overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure delivery to the Exchange Agent before prior to 5:00
p.m., New York City time, on the Expiration Date. No Letter of Transmittal or
Private Notes should be sent to the Issuers.
Holders who wish to tender their Private Notes and (i) whose
certificates for Private Notes are not immediately available, or (ii) who cannot
deliver their Private Notes, this Letter of Transmittal or any other documents
required hereby to the Exchange Agent prior to the Expiration Date or (iii) who
are unable to complete the procedure for book-entry transfer on a timely basis,
must tender their Private Notes according to the guaranteed delivery procedures
set forth in the Prospectus. Pursuant to such procedures: (i) such tender must
be made by or through an Eligible Institution (as defined below); (ii) prior to
the Expiration Date, the Exchange Agent must have received from the Eligible
Institution a properly completed and duly executed Notice of Guaranteed Delivery
(by facsimile transmission, mail or hand delivery) setting forth the name and
address of the Holder of the Private Notes, the registration number(s) of such
Private Notes and the principal amount of Private Notes tendered, stating that
the tender is being made thereby and guaranteeing that, within five New York
Stock Exchange trading days after the Expiration Date, this Letter of
Transmittal (or facsimile hereof) together with the Private Notes (or a
Book-Entry Confirmation) and any other required documents will be deposited by
the Eligible Institution with the Exchange Agent; and (iii) such properly
completed and executed Letter of Transmittal (or facsimile hereof), as well as
all other documents required by this Letter of Transmittal and the tendered
Private Notes (or a Book-Entry Confirmation) in proper form for transfer, must
be received by the Exchange Agent within five New York Stock Exchange trading
days after the Expiration Date, all as provided in the Prospectus under the
caption "The Exchange Offer--Guaranteed Delivery Procedures." Any Holder of
Private Notes who wishes to tender Private Notes pursuant to the guaranteed
delivery procedures described above must ensure that the Exchange Agent receives
the Notice of Guaranteed Delivery prior to 5:00 p.m., New York City time, on the
Expiration Date. Upon request of the Exchange Agent, a Notice of Guaranteed
Delivery will be sent to Holders who wish to tender their Private Notes
according to the guaranteed delivery procedures set forth above.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Private Notes and withdrawal of tendered
Private Notes will be determined by the Issuers in its sole discretion, which
determination will be final and binding. The Issuers reserve the absolute right
to reject any and all Private Notes not properly tendered or any Private Notes
the Issuers' acceptance of which would, in the opinion of counsel for the
Issuers, be unlawful. The Issuers also reserve the right to waive any defects,
irregularities or conditions of tender as to particular Private Notes. The
Issuers' interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Private Notes must be cured within such time as the
Issuers shall determine. Although the Issuers intend to notify Holders of
defects or irregularities with respect to tenders of Private Notes, neither the
Issuers, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Private Notes will not be deemed
to have been made until such defects
7
<PAGE>
or irregularities have been cured or waived. Any Private Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders of Private Notes, unless otherwise provided in
this Letter of Transmittal, as soon as practicable following the Expiration
Date.
2. TENDER BY HOLDER. Only a Holder of Private Notes may tender such
Private Notes in the Exchange Offer. Any beneficial Holder of Private Notes who
is not the registered Holder and who wishes to tender should arrange with the
registered Holder to execute and deliver this Letter of Transmittal on his
behalf or must, prior to completing and executing this Letter of Transmittal and
delivering his Private Notes, either make appropriate arrangements to register
ownership of the Private Notes in such Holder's name or obtain a properly
completed bond power from the registered Holder.
3. PARTIAL TENDERS. Tenders of Private Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Private Notes is tendered, the tendering Holder should fill in the principal
amount tendered in the third column of the box entitled "Description of Private
Notes" above. The entire principal amount of Private Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
If the entire principal amount of all Private Notes is not tendered, then
Private Notes for the principal amount of Private Notes not tendered and
Exchange Notes issued in exchange for any Private Notes accepted will be sent to
the Holder at his or her registered address, unless a different address is
provided in the appropriate box on this Letter of Transmittal, promptly after
the Private Notes are accepted for exchange.
4. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or
facsimile hereof) is signed by the registered Holder(s) of the Private Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the Private Notes without alteration, enlargement or any change
whatsoever. If the Letter of Transmittal is signed by a participant in the
Book-Entry Transfer Facility, the signature must correspond with the name as it
appears on the security position listing as the Holder of the Private Notes.
If any tendered Private Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any tendered
Private Notes are registered in different names on several certificates or
securities positions listings, it will be necessary to complete, sign and submit
as many separate copies of this Letter as there are different registrations.
When this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Private Notes listed herein and tendered hereby,
and the Exchange Notes issued in exchange therefor are to be issued (or any
untendered principal amount of Private Notes is to be reissued) to the
registered Holder, no endorsements or certificates or bond powers are required.
In any other case, such Holder must either properly endorse the Private Notes
tendered or transmit a properly completed separate bond power with this Letter
of Transmittal, with the signatures on the endorsement or bond power guaranteed
by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a
person other than the registered Holder or Holders of any certificates for
Private Notes listed herein, such certificates must be endorsed or accompanied
by appropriate bond powers, in each case signed as the name or names of the
registered Holder or Holders appears on the certificates, and the signatures
on such certificates must be guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) or any certificate
for Private Notes or bond powers are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Issuers, evidence satisfactory
to the Issuers of their authority so to act must be submitted with this Letter
of Transmittal.
Endorsements on certificates for Private Notes or signatures on bond
powers required by this Instruction 4 must be guaranteed by an Eligible
Institution.
8
<PAGE>
Except as otherwise provided below, all signatures on this Letter of
Transmittal must be guaranteed by a participant in a Recognized Signature
Guarantee Medallion Program (an "Eligible Institution"). Signatures on this
Letter of Transmittal need not be guaranteed if (a) this Letter of Transmittal
is signed by the registered Holder(s) of the Private Notes tendered herewith and
such Holder(s) have not completed the box set forth herein entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions," or
(b) if such Private Notes are tendered for the account of an Eligible
Institution.
5. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering Holders of
Private Notes should indicate, in the applicable box or boxes, the name and
address (or account at the Book-Entry Transfer Facility) to which Exchange Notes
or substitute Private Notes for principal amounts not tendered or not accepted
for exchange are to be issued or sent, if different from the name and address of
the person signing this Letter of Transmittal. In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated. If no such instructions are given, such
Private Notes not exchanged will be returned to the name or address of the
person signing this Letter of Transmittal.
6. TRANSFER TAXES. The Issuers will pay all transfer taxes, if any,
applicable to the exchange of Private Notes pursuant to the Exchange Offer. If,
however, Exchange Notes or Private Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered Holder of the Private Notes
tendered hereby, or if tendered Private Notes are registered in the name of any
person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Private Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or on any other persons) will be
payable by the tendering Holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with this Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
Holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Private Notes listed in this Letter of
Transmittal.
7. WAIVER OF CONDITIONS. The Issuers reserve the absolute right to
waive, in whole or in part, any of the conditions to the Exchange Offer set
forth in the Prospectus.
8. MUTILATED, LOST, STOLEN OR DESTROYED PRIVATE NOTES. Any holder whose
Private Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated above for further instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering, as well as requests for assistance or for
additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover of this Letter of Transmittal. Holders may also contact their broker,
dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
10. TAX IDENTIFICATION NUMBER. Federal income tax law generally
requires that a tendering Holder whose Private Notes are accepted for exchange
must provide the Issuers (as payor) with such Holder's correct Taxpayer
Identification Number ("TIN") on Substitute Form W-9 below, which, in the case
of a tendering Holder who is an individual, is his or her social security
number. If the Issuers are not provided with the current TIN or an adequate
basis for an exemption, such tendering Holder may be subject to a $50 penalty
imposed by the Internal Revenue Service. In addition, delivery to such tendering
Holder of Exchange Notes may be subject to backup withholding in an amount equal
to 31% of all reportable payments made after the exchange. If withholding
results in an overpayment of taxes, a refund may be obtained.
Exempt Holders of Private Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. See the enclosed Guidelines of
Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9
Guidelines") for additional instructions.
9
<PAGE>
To prevent backup withholding, each tendering Holder of Private Notes
must provide its correct TIN by completing the Substitute Form W-9 set forth
below, certifying that the TIN provided is correct (or that such Holder is
awaiting a TIN) and that (i) the Holder is exempt from backup withholding, (ii)
the Holder has not been notified by the Internal Revenue Service that such
Holder is subject to backup withholding as a result of a failure to report all
interest or dividends or (iii) the Internal Revenue Service has notified the
Holder that such Holder is no longer subject to backup withholding. If the
tendering Holder of Private Notes is a nonresident alien or foreign entity not
subject to backup withholding, such Holder must give the Issuers a completed
Form W-8, Certificate of Foreign Status. These forms may be obtained from the
Exchange Agent. If the Private Notes are in more than one name or are not in the
name of the actual owner, such Holder should consult the W-9 Guidelines for
information on which TIN to report. If such Holder does not have a TIN, such
Holder should consult the W-9 Guidelines for instructions on applying for a TIN,
check the box in Part 2 of the Substitute Form W-9 and write "applied for" in
lieu of its TIN. Note: Checking this box and writing "applied for" on the form
means that such Holder has already applied for a TIN or that such Holder intends
to apply for one in the near future. If such Holder does not provide its TIN to
the Issuers within 60 days, backup withholding will begin and continue until
such Holder furnishes its TIN to the Issuers.
(DO NOT WRITE IN SPACE BELOW)
<TABLE>
<CAPTION>
<S> CERTIFICATE PRIVATE NOTES PRIVATE NOTES
SURRENDERED TENDERED ACCEPTED
<C> <C> <C>
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
--------------------------------------------------
</TABLE>
Delivery Prepared by _______________ Checked by______________ Date__________
THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH PRIVATE NOTES OR
CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A
NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT OR PRIOR TO
THE EXPIRATION DATE.
10
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY FOR
FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
As set forth in the Prospectus dated August , 1996 (the "Prospectus") of
Ferrellgas Partners, L.P., a Delaware limited partnership ("Ferrellgas"), and
Ferrellgas Partners Finance Corp., a Delaware corporation ("Finance Corp." and,
together with Ferrellgas, the "Issuers") under the caption "The Exchange
Offer-Guaranteed Delivery Procedures," this form or one substantially equivalent
hereto must be used to accept the Exchange Offer made by the Issuers in the
Prospectus and in the accompanying Letter of Transmittal if (i) certificates for
the outstanding Private Notes are not immediately available, (ii) certificates
for the outstanding Private Notes, the Letter of Transmittal or other required
documents cannot be delivered to the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date, or (iii) the procedure for book-entry
transfer cannot be completed on a timely basis. This Notice of Guaranteed
Delivery may be delivered by registered or certified mail, overnight delivery,
hand delivery or facsimile transmission to the Exchange Agent as set forth
below. See "The Exchange Offer-Procedures for Tendering" in the Prospectus. In
addition, in order to utilize the guaranteed delivery procedure to tender
Private Notes pursuant to the Exchange Offer, a completed, signed and dated
Letter of Transmittal (or a manually signed facsimile thereof) must also be
received by the Exchange Agent on or prior to 5:00 p.m., New York City time, on
the Expiration Date. All capitalized terms used but not defined herein are
defined in the Prospectus.
The Exchange Agent for the Exchange Offer is:
American Bank National Association
By Registered or Certified Mail, Overnight Courier or Hand Delivery:
American Bank National Association
101 East 5th Street, 9th Floor
St. Paul, Minnesota 55101
Attention: Corporate Trust Department
By Facsimile:
(612) 229-6415
Confirm by Telephone:
(612) 229-2600
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET
FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE SIGNATURES.
IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN
"ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE
MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER
OF TRANSMITTAL.
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions set forth in the Prospectus and
the related Letter of Transmittal, the undersigned hereby tenders to the Issuers
the principal amount of Private Notes set forth below pursuant to the guaranteed
delivery procedures described in the Prospectus under the caption "The Exchange
Offer--Guaranteed Delivery Procedures." By so tendering, the undersigned hereby
makes, at and as of the date hereof, the representations and warranties of a
tendering Holder of Private Notes set forth in the Letter of Transmittal.
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------- -----------------------------------------------------------
Principal Amount Tendered: If Private Notes will be tendered by book-entry transfer to
the Book-Entry Transfer Facility, provide name of
$______________________________ tendering institution and account number.
Registration Nos. (if available): Name of Tendering Institution:
_______________________________ _______________________________________________________
Account Number:
Total Principal Amount Represented
by Private Note Certificate(s):
$______________________________ ________________________________________________________
- ---------------------------------- ----------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PLEASE SIGN HERE
X____________________________________________ ________________________
X____________________________________________ ________________________
Signature(s) of Registered Holder(s) or Date
Authorized Signatory
Area Code and Telephone Number:________________________________
Must be signed by the registered Holder(s) of Private Notes exactly as their
name(s) appear(s) on certificates for Private Notes or on a security position
listing, or by person(s) authorized to become registered Holders(s) by a
properly completed bond power from the registered Holder(s), a copy of which
must be transmitted with this Notice of Guaranteed Delivery. If signature is by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
then such person must provide the following information:
Please print name(s) and address(es)
Name(s): _______________________________________________________________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
Capacity: _______________________________________________________________
Address(es): _______________________________________________________________
_______________________________________________________________
_______________________________________________________________
- --------------------------------------------------------------------------------
2
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a member of a registered national securities exchange, or a
member of the National Association of Securities Dealers, Inc., or a commercial
bank or trust company having an office or correspondent in the United States, or
an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities and Exchange Act of 1934 that is a member of one of the following
recognized Signature Guarantee Programs: (i) The Securities Transfer Agents
Medallion Program, (ii) The New York Stock Exchange Medallion Signature Program,
or (iii) The Stock Exchange Signature Program, hereby guarantees that
certificates for the principal amount of Private Notes tendered hereby in proper
form for transfer, or timely confirmation of the book-entry transfer of such
Private Notes into the Exchange Agent's account at The Depository Trust Company
pursuant to the procedures for book-entry transfer set forth in the Prospectus
under the caption "The Exchange Offer--Book-Entry Transfer", together with a
properly completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof) with any required signature guarantee and any other documents
required by the Letter of Transmittal, will be delivered to the Exchange Agent
at the address set forth above, no later than 5:00 p.m., New York City time,
five New York Stock Exchange trading days after the Expiration Date.
____________________________________ ___________________________________
Name of Firm Authorized Signature
____________________________________ ___________________________________
Address Title
____________________________________ ___________________________________
Zip Code (Please Type or Print)
Area Code and Telephone No. ________ Date: _____________________________
================================================================================
NOTE: DO NOT SEND CERTIFICATES FOR PRIVATE NOTES WITH THIS NOTICE OF GUARANTEED
DELIVERY. ACTUAL SURRENDER OF PRIVATE NOTES MUST BE MADE PURSUANT TO, AND BE
ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND
ANY OTHER REQUIRED DOCUMENTS.
================================================================================
3
