<PAGE>
As filed with the Securities and Exchange Commission on February 5, 1999
Registration No. 333-71111
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
FERRELLGAS PARTNERS, L.P.
FERRELLGAS PARTNERS FINANCE CORP.
(Exact name of registrants as specified in their charters)
--------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 43-1698480
Delaware 43-1742520
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Numbers)
One Liberty Plaza Kevin T. Kelly
Liberty, Missouri 64068 One Liberty Plaza
(816) 792-1600 Liberty, Missouri 64068
(Address, including zip code, and telephone (816) 792-1600
number, including area code, of registrant's (Name, address, including zip code, and
principal executive offices) telephone number, including area code, of
agent for service)
</TABLE>
--------------------
Copies to:
William N. Finnegan, IV
Andrews & Kurth L.L.P.
4200 Chase Tower
600 Travis
Houston, Texas 77002
(713) 220-4200
--------------------
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this registration statement, as determined in
light of market conditions and other factors.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------------
THE REGISTRANTS HEREBY AMEND 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.
<PAGE>
Subject to completion. Dated February 5, 1999
PROSPECTUS
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
$300,000,000
Common Units
Deferred Participation Units
Warrants
Debt Securities
- --------------------------------------------------------------------------------
We will provide the specific terms of these securities in supplements to this
prospectus.
You should read this prospectus and any supplement carefully before you invest.
- --------------------------------------------------------------------------------
This prospectus provides you with a general description of the securities
we may offer. Each time we sell securities we will provide a prospectus
supplement that will contain specific information about the terms of that
offering. The prospectus supplement may also add, update or change information
contained in this prospectus.
The Common Units are traded on the New York Stock Exchange under the symbol
"FGP".
We will provide information in the prospectus supplement for the expected
trading market, if any, for the Deferred Participation Units, Warrants and Debt
Securities.
Our executive offices are located at One Liberty Plaza, Liberty, Missouri
64068, and our telephone number is (816) 792-1600.
See "Risk Factors" beginning on page 5 of this prospectus for a discussion
of the material risks involved in investing in our securities.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
- --------------------------------------------------------------------------------
The date of this Prospectus is , 1999.
<PAGE>
TABLE OF CONTENTS
Who We Are.................................................................. 2
About this Prospectus....................................................... 2
Where You Can Find More Information......................................... 3
Forward-Looking Statements.................................................. 4
Risk Factors................................................................ 5
Ferrellgas.................................................................. 17
Conflicts of Interest and Fiduciary Responsibilities........................ 18
Ratio of Earnings to Fixed Charges.......................................... 20
Description of Units........................................................ 21
Description of Warrants..................................................... 24
Description of Debt Securities.............................................. 26
Tax Considerations.......................................................... 37
Use of Proceeds............................................................. 52
Plan of Distribution........................................................ 52
Legal Matters............................................................... 53
Experts..................................................................... 53
WHO WE ARE
We are a publicly traded Delaware limited partnership engaged in the sale,
distribution, marketing and trading of propane and other natural gas liquids in
the United States. We believe that we are the second largest retail marketer of
propane in the United States (as measured by retail gallons sold). We currently
serve more than 800,000 residential, industrial/commercial and agricultural
customers in 45 states and the District of Columbia through approximately 563
retail outlets with 302 satellite locations in 38 states. Our retail propane
business consists of selling propane to retail (primarily residential)
customers. We purchase this propane in the contract and spot markets, primarily
from major oil companies, and then transport it to our retail distribution
outlets and then to tanks located on our customers' premises and to portable
propane cylinders. Through our natural gas liquids trading operations and
wholesale marketing, we believe that we are one of the largest independent
marketers of propane and natural gas liquids in the United States.
As used in this prospectus, "we," "us," "our," "Ferrellgas," and the
"Partnership" means Ferrellgas Partners, L.P. and, unless the context requires
otherwise, includes our subsidiary operating partnership, Ferrellgas, L.P., and
our wholly owned subsidiary Ferrellgas Partners Finance Corp. Our subsidiary
operating partnership is sometimes referred to in this prospectus as the
"Operating Partnership."
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed with
the Securities and Exchange Commission ("SEC") using a "shelf" registration
process. Under this shelf registration process, we may sell the Common Units,
Deferred Participation Units, Warrants and Debt Securities described in this
prospectus, in one or more offerings up to a total dollar amount of
$300,000,000. The Common Units, Deferred Participation Units, Warrants and Debt
Securities are sometimes referred to in this prospectus as the "Securities."
This prospectus provides you with a general description of us and the
Securities. Each time we sell Securities with this prospectus, we will provide
a prospectus supplement that will contain specific information about the terms
of that offering. The prospectus supplement may also add to, update or change
information in this prospectus. The information in this prospectus is accurate
as of , 1999. You should carefully read this prospectus, the
prospectus supplement and the documents we have incorporated by reference under
the heading "Where You Can Find More Information."
-2-
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and other reports and other information with the
SEC. You may read and download our SEC filings over the Internet at the SEC's
website at http://www.sec.gov. You may also read and copy our SEC filings at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. You may also access additional
information about us at our website at http://www.ferrellgas.com.
Because the Common Units are traded on the New York Stock Exchange
("NYSE"), we also provide information to the NYSE. You may obtain our reports
and other information at the offices of the NYSE at 20 Broad Street, New York,
New York 10002.
The SEC allows us to "incorporate by reference" the information we have
filed with them, which means that we can disclose important information to you
without actually including the specific information in this prospectus by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus. Information that we file later with the
SEC will automatically update and may supersede information in this prospectus
and information previously filed with the SEC. The documents listed below are
incorporated by reference:
. our annual report on Form 10-K for the year ended July 31, 1998;
. our quarterly report on Form 10-Q for the quarter ended October 31, 1998;
. our current report on Form 8-K dated August 5, 1998;
. the description of the Common Units in our registration statement on Form
8-A filed on May 12, 1994 and any amendments or reports filed to update
the description;
. all documents that we file under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 after the date of the initial
registration statement and before the registration statement becomes
effective; and
. all documents that we file under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 between the date of this prospectus and
the termination of the registration statement.
If information in incorporated documents conflicts with information in this
prospectus you should rely on the most recent information. If information in an
incorporated document conflicts with information in another incorporated
document, you should rely on the most recent incorporated document.
You may request a copy of these filings at no cost, by writing or telephoning us
at the following address:
Ferrellgas Partners, L.P.
One Liberty Plaza
Liberty, MO 64068
Attention: Theresa A. Schekirke
(816) 792-0203
You should rely only on the information contained in this prospectus, the
prospectus supplement and the documents we have incorporated by reference. We
have not authorized anyone else to provide you with different information. We
are not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus, the
prospectus supplement or any documents incorporated by reference is accurate as
of any date other than the date on the front of those documents.
-3-
<PAGE>
FORWARD-LOOKING STATEMENTS
Some information in this prospectus, the prospectus supplement and the
documents we have incorporated by reference may contain forward-looking
statements. Such statements use forward-looking words such as "anticipate,"
"continue," "estimate," "expect," "may," "will," or other similar words. These
statements discuss future expectations or contain projections. Specific
factors which could cause actual results to differ from those in the forward-
looking statements, include:
. the effect of weather conditions on demand for propane;
. price and availability of propane supplies;
. the availability of capacity to transport propane to market areas;
. competition from other energy sources and within the propane
industry;
. operating risks incidental to transporting, storing, and distributing
propane;
. changes in interest rates;
. governmental legislation and regulations;
. energy efficiency and technology trends;
. our ability to acquire other retail propane distributors and
successfully integrate them into our existing operations and make
cost saving changes;
. our ability to obtain new customers and retain existing customers;
. the condition of the capital markets in the United States; and
. the political and economic stability of the oil producing nations of
the world.
In addition, our classification as a partnership for federal income tax
purposes means that generally we do not pay federal income taxes on our net
income. We are relying on a legal opinion from our counsel, and not a ruling
from the Internal Revenue Service, as to our proper classification for federal
income tax purposes. See "Tax Considerations."
When considering forward-looking statements, you should keep in mind the
risk factors described in "Risk Factors" below. The risk factors could cause
our actual results to differ materially from those contained in any forward-
looking statement. We disclaim any obligation to update any forward-looking
statement or to announce publicly the result of any revisions to any of the
forward-looking statements to reflect future events or developments.
You should consider the above information when reviewing any forward-
looking statements in:
. this prospectus;
. the prospectus supplement;
. any documents incorporated in this prospectus by reference;
. press releases; or
. oral statements made by us or any of our officers or other persons
acting on our behalf.
-4-
<PAGE>
RISK FACTORS
Before you invest in our Securities, you should be aware that there are
various risks, including those described below. You should consider carefully
these risk factors together with all of the other information included in this
prospectus, any prospectus supplement and the documents we have incorporated by
reference before buying our Securities.
If any of the following risks actually occurs, then our business, financial
condition or results of operations could be materially adversely affected. In
such event, we may be unable to make distributions to our unitholders or pay
interest on or the principal of any Debt Securities, the trading price of our
Securities could decline, and you may lose all or part of your investment.
Risks Inherent in Our Business
Weather conditions affect the demand for propane
Weather conditions have a significant impact on the demand for propane for
both heating and agricultural purposes. Many of our customers rely heavily on
propane as a heating fuel. Accordingly, the volume of retail propane sold is
highest during the six-month peak heating season of October through March and is
directly affected by the severity of the winter weather. During fiscal 1998,
approximately 67% of our retail propane volume was attributable to sales during
the peak heating season. Actual weather conditions can vary substantially from
year to year, which may significantly affect our financial performance.
Furthermore, variations in weather in one or more regions in which we operate
can significantly affect the total volume of propane that we sell and the
profits realized on these sales. A negative effect on our sales volume may in
turn affect our results of operations. The agricultural demand for propane is
also affected by weather, as dry weather during the harvest season will reduce
the demand for propane used in crop drying.
We are subject to pricing and inventory risk
We believe that one of the primary reasons we have been able to retain our
retail customers has been our ability to deliver propane during periods of
extreme demand. We engage in the brokerage and trading of propane and other
natural gas liquids primarily to generate profit in addition to our retail and
wholesale operations. We also engage in such activities to help insure the
availability of propane during periods of short supply. Our trading policy
places certain restrictions on our trading activity such as volume limitations,
stop loss limits, time limits on contracts, and limitations on the ability to
enter into certain derivative contracts. The volume and stop loss limits are
applicable to both the individual product level and to our trading as a whole.
Our trading policy also dictates that reports on our current trading positions
are to be provided to management on a daily basis. In addition, our bank credit
facility places limitations on our ability to modify our trading policy.
Certain of these limits may be waived on a case by case basis with the
authorization of senior management of our general partner. From time to time,
such authorization has been obtained to allow certain trading positions to
exceed our trading policy limits. If we sustain material losses from our
trading operations, our ability to make distributions to our unitholders or pay
interest on or principal of any Debt Securities may be adversely affected.
While we generally attempt to minimize our inventory risk by purchasing
propane on a short-term basis, depending on inventory and price outlooks, we may
purchase and store propane or other natural gas liquids. We may purchase large
volumes of propane during periods of low demand and accordingly, low prices,
which generally occur during the summer months, at the then current market
price. Because of the potential volatility of propane prices, if we make such
purchases, the market price for propane could fall below the price at which we
made the purchases which would adversely affect our profits or cause sales from
such inventory to be unprofitable.
-5-
<PAGE>
In the retail propane business, the amount of gross profit we make depends
on the excess of the sales price over our propane supply costs. Consequently,
our profitability is sensitive to changes in wholesale propane prices. Propane
is a commodity, the market price of which can be subject to volatile changes in
response to changes in supply or other market conditions. We have no control
over these market conditions. Consequently, the unit price for the propane we
purchase can change rapidly over a short period of time. A percentage of our
propane sales (approximately 15% in fiscal 1998 based on total retail gallons
sold) are pursuant to fixed-price contracts. In order to manage these fixed
price sale commitments, we enter into certain propane purchase contracts with
our suppliers whereby the volume, price and date of delivery have been mutually
determined. We enter into these agreements to purchase propane at volume levels
that we believe are necessary to mitigate the price risk related to our
anticipated fixed price sales volumes. If our retail customers do not purchase
volumes that are anticipated pursuant to their fixed price sales contracts, we
will still be obligated to purchase the volumes established under the purchase
contracts we have entered into with our suppliers. Such a scenario may cause us
to incur losses if the price of propane declines prior to the sale to other
retail customers. In general, product supply contracts permit suppliers to
charge posted prices (plus transportation costs) at the time of delivery or the
current prices established at major delivery points. As it may not be possible
to immediately pass on to customers any rapid increases in the wholesale cost of
propane, such increases could reduce our gross profit.
The retail propane business is highly competitive
Our profitability is affected by the competition for customers among all of
the participants in the retail propane business. We compete with a number of
large national and regional firms and several thousand small independent firms.
Because of the relatively low barriers to entry into the retail propane market,
there is potential for small independent propane retailers, as well as other
companies (not necessarily then engaged in retail propane distribution) to
compete with our retail outlets. As a result, we are always subject to the risk
of additional competition in the future. Certain of our competitors may have
greater financial resources than we do. Should a competitor attempt to increase
market share by reducing prices, our financial condition and results of
operations could be materially adversely affected. Generally, warmer-than-
normal weather further intensifies competition. We believe that our ability to
compete effectively depends on the reliability of our service, our
responsiveness to customers and our ability to maintain competitive retail
propane prices.
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. Based on information available from the
Energy Information Administration, we believe the overall demand for propane has
remained relatively constant over the past several years, with year-to-year
industry volumes being impacted primarily by weather patterns. Therefore, our
ability to grow within the industry is dependent upon our ability to acquire
other retail distributors and the success of our marketing efforts to acquire
new customers.
We may not be successful in growing through acquisitions
While our business strategy includes internal growth and start-ups of new
customer service locations, our ability to grow our retail propane business will
depend principally upon our ability to acquire other retail propane distributors
and successfully integrate them into our existing operations and make cost
saving changes. We cannot guarantee that we will be able to identify attractive
acquisition candidates in the future, that we will be able to acquire such
businesses on economically acceptable terms or successfully integrate them into
our existing operations and make cost saving changes, that any acquisitions will
not be dilutive to earnings and distributions to unitholders or that any
additional debt incurred to finance acquisitions will not adversely affect our
ability to make distributions to unitholders or service our existing debt. We
are subject to certain covenants contained in our debt agreements that restrict
our ability to incur indebtedness. In addition, to the extent that warm weather
or other factors adversely affect our operating and financial results, our
access to capital to finance acquisitions may be further limited.
-6-
<PAGE>
The retail propane business faces competition from other energy sources
Propane competes with other sources of energy, some of which are less
costly for equivalent energy value. We compete for customers against suppliers
of electricity, natural gas and fuel oil. Electricity is a major competitor of
propane, but propane generally enjoys a competitive price advantage over
electricity. Except for certain industrial and commercial applications, propane
is generally not competitive with natural gas in areas where natural gas
pipelines already exist because natural gas is generally a less expensive source
of energy than propane. The gradual expansion of the nation's natural gas
distribution systems has resulted in the availability of natural gas in many
areas that were previously dependent upon propane. Although propane is similar
to fuel oil in certain applications and market demand, propane and fuel oil
compete to a lesser extent primarily because of the cost of converting from one
to the other. We cannot predict the effect that the development of alternative
energy sources might have on our operations.
Energy efficiency and technology advances may affect demand for propane
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 adversely affected the
demand for propane by retail customers. We cannot predict the materiality of
the effect of future conservation measures or the effect that any technological
advances in heating, conservation, energy generation or other devices might have
on our operations.
We are subject to operating and litigation risks which may not be covered
by insurance
Our operations are subject to all operating hazards and risks normally
incidental to the handling, storing and delivering of combustible liquids such
as propane. As a result, we have been, and are likely to be, a defendant in
various legal proceedings arising in the ordinary course of business. We will
maintain insurance policies with insurers in such amounts and with such
coverages and deductibles as we believe are reasonable and prudent. However, we
cannot guarantee that such insurance will be adequate to protect us 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.
Risks Inherent in an Investment in Us
The distribution priority of holders of Common Units terminates at the end
of the subordination period
Assuming that the restrictions under our debt agreements are met, our
partnership agreement requires us to distribute, on a quarterly basis, 100% of
our "Available Cash" to our partners. "Available Cash" is generally all of our
cash receipts, less cash disbursements and adjustments for net changes in
reserves. Currently the Common Units have the right to receive distributions of
Available Cash from our operations in an amount equal to $0.50 per unit before
any distributions of such Available Cash are made on our Subordinated Units.
This priority right is scheduled to end when certain financial tests, which are
related to generating cash from operations and distributing at least $0.50 per
unit on all Common Units and Subordinated Units, are satisfied for each of three
consecutive four quarter periods ending on or after July 31, 1999. If these
financial tests are met, the Common Units and the Subordinated Units will
thereafter share equally in distributions of Available Cash. We met these
financial tests for the four quarter periods ended July 31, 1997 and July 31,
1998, however, there can be no assurance that we will meet the remaining
financial tests in the four quarter period ended July 31, 1999. The period
during which the Common Units have a priority right to distributions and in
which the right of the Subordinated Units to distributions is subordinate is
referred to as the subordination period.
-7-
<PAGE>
We may sell additional limited partner interests, diluting existing
interests of unitholders
Our partnership agreement generally allows us to issue additional limited
partner interests and other equity securities. During the subordination period,
however, the number of Common Units that we may issue is subject to certain
limitations. These limitations do not apply to issuances in connection with
acquisitions that are accretive. When we issue additional equity securities,
your proportionate partnership interest will decrease. Such an issuance could
negatively affect the amount of cash distributed to unitholders and the market
price of Common Units. Issuance of additional Common Units will also diminish
the relative voting strength of the previously outstanding units. Following the
end of the subordination period there are no limits on the total number of
Common Units or other equity securities that we may issue.
The amount of our outstanding indebtedness is substantial and could have
adverse consequences
As of October 31, 1998, we had an aggregate of $546 million of long-term
indebtedness (excluding current maturities). Our leverage could have important
consequences to investors in the Securities. Our ability to make scheduled
payments on, or refinance our existing indebtedness, or our ability to obtain
additional financing in the future will depend on our financial and operating
performance, which, in turn, is subject to prevailing economic conditions and to
financial, business and other factors beyond our control. We believe that we
will have sufficient cash flow from operations and available borrowings under
our credit facility to service our indebtedness, although the principal amount
of the Senior Notes and the Senior Secured Notes will likely need to be
refinanced at maturity in whole or in part. A significant downturn in the
propane industry or other development adversely affecting our cash flow,
however, could materially impair our ability to service our indebtedness. If
our cash flow and capital resources are insufficient to fund our debt service
obligations, we may be forced to refinance all or a portion of our debt or sell
assets. We cannot guarantee that we will be able to refinance our existing
indebtedness or sell assets on terms that are commercially reasonable. As of
October 31, 1998, on a consolidated basis, we had outstanding approximately $70
million of indebtedness bearing interest at floating rates. In addition,
pursuant to our credit facility, we had available an additional $52 million of
borrowings, all of which would have borne interest at floating rates. Increases
in interest rates following an offering of Debt Securities, if material, could
adversely impact our ability to make payments in respect of the Debt Securities.
We have entered into an interest rate collar agreement with a major bank
effectively fixing the LIBOR component of $25.0 million notional principal
amount of floating rate debt between 5.05% and 6.5%. This agreement expires in
January 2001.
We may have to refinance our indebtedness; our existing indebtedness must
be repaid upon the occurrence of certain change of control events
The $350 million in principal amount of Senior Notes issued by the
Operating Partnership do not contain any sinking fund provision. Such
indebtedness will be due according to the following schedule:
. $109 million due 2005;
. $37 million due 2006;
. $52 million due 2008;
. $82 million due 2010; and
. $70 million due 2013.
The $160 million in principal amount of Senior Secured Notes issued by the
Partnership also contain no sinking fund provisions and such indebtedness will
be due in 2006. Our Senior Secured Notes and the Senior Notes of the Operating
Partnership are sometimes referred to in this prospectus as the "Notes." The
Senior Secured Notes also provide that upon the occurrence of certain change of
control events (including the failure by certain affiliates to
-8-
<PAGE>
control the General Partner, the removal of the General Partner as the sole
general partner of the Partnership or the Operating Partnership, the liquidation
or dissolution of the Partnership, the Operating Partnership or the General
Partner or the transfer of all or substantially all the assets of the
Partnership or the Operating Partnership to another entity), the holders of the
Senior Secured Notes have the right to require the issuer to repurchase any or
all of the outstanding Senior Secured Notes at 101% of the aggregate principal
amount thereof plus accrued and unpaid interest and liquidated damages, if any,
to the date of purchase. The Operating Partnership's bank credit facility also
contains a provision requiring the Operating Partnership to repay all
outstanding amounts under the credit facility within 30 days after the
occurrence of certain change of control events similar to those contained in the
Notes.
Our debt agreements may limit our ability to make distributions to
unitholders and our financial flexibility
The indenture governing our Senior Secured Notes (the "Senior Secured Note
Indenture") contains restrictive covenants that may limit or prohibit
distributions to unitholders under certain circumstances. The indenture
generally prohibits us from:
. distributing amounts in excess of 100% of Available Cash for the
immediately preceding fiscal quarter plus the lesser of (1) Available
Cash for the 45 days following such fiscal quarter and (2) the amount
of working capital that could have been borrowed on the last day of
such fiscal quarter;
. making any distributions to unitholders if an event of default exists
or would exist when such distribution is made; and
. making any distributions to unitholders if the fixed charge coverage
ratio as defined in the indenture for the preceding four fiscal
quarters is less than or equal to 2.0 to 1.0.
As of October 31, 1998, the Partnership's fixed charge coverage ratio as defined
in the indenture was 2.2 to 1.0.
The Senior Secured Note Indenture also requires us to maintain certain
financial ratios and contain restrictions on:
. incurring additional debt;
. entering into mergers, consolidations and sales of assets;
. making investments; and
. granting liens.
The restrictive covenants in the indenture may prevent us from engaging in
certain beneficial transactions.
We are a holding company and our ability to repay indebtedness depends on
the success of our subsidiary operating partnership
We are a holding company and have no material operations and only limited
assets. Accordingly, our ability to service our debt obligations will be
entirely dependent upon the receipt of distributions from our subsidiary
operating partnership. The Operating Partnership is restricted under the terms
of its debt agreements from making distributions to us in the following
situations, among others:
. if a default or event of default exists or would result therefrom;
-9-
<PAGE>
. if its fixed charge coverage ratio as defined in the agreements for
the preceding four fiscal quarters is less than or equal to 2.25 to
1.0;
. if the amount of the distribution exceeds 100% of Available Cash for
the immediately preceding fiscal quarter plus the lesser of (a)
Available Cash for the 45 days following such fiscal quarter and (b)
the amount of working capital that could have been borrowed on the
last day of such fiscal quarter; or
. if the Operating Partnership fails to meet the aggregate restricted
payments test as defined in the agreements.
As of October 31, 1998, the Operating Partnership's fixed charge coverage
ratio as defined in such agreements was 3.27 to 1.0.
Our indebtedness will be effectively subordinated to indebtedness and
liabilities of our subsidiary operating partnership
The Debt Securities will be effectively subordinated to claims of creditors
(other than the Partnership) of the Operating Partnership. Claims of creditors
(other than the Partnership) of the Operating Partnership, including trade
creditors, secured creditors, taxing authorities and creditors holding
guarantees, will generally have priority as to assets of the Operating
Partnership over the claims and equity interests of the Partnership and, thereby
indirectly, the holders of indebtedness of the Partnership, including the Debt
Securities.
We are required to distribute available cash, limiting cash reserves
available to service Debt Securities
Assuming that the restrictions under our debt agreements are met, our
partnership agreement requires us to distribute, on a quarterly basis, 100% of
our "Available Cash" to our partners. The timing and amount of distributions to
our partners could significantly reduce the cash available to us to meet our
future business needs and to pay future principal, interest and premium (if
any), including liquidated damages, if any, on the Debt Securities. Prior to
making any distribution on the Common Units, we must reimburse our general
partner and its affiliates at cost for all expenses that they have incurred on
our behalf. The reimbursement of such expenses and the payment of any such fees
could adversely affect our ability to make distributions to our unitholders.
The General Partner will determine the amount and timing of such distributions
and has broad discretion to establish and make additions to our reserves for any
proper purpose, including but not limited to reserves for the purpose of:
. 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;
. providing for level distributions of cash notwithstanding the
seasonality of our business; and
. providing for future capital expenditures and other payments deemed by
the General Partner to be necessary or advisable.
Cash distributions are not guaranteed and may fluctuate with our
performance and other external factors
Although we distribute all of our Available Cash, we cannot guarantee the
amounts of Available Cash that will be distributed to our unitholders. The
actual amounts of Available Cash will depend upon numerous factors, including:
. cash flow generated by operations;
-10-
<PAGE>
. required principal and interest payments on our debt;
. the costs of acquisitions (including related debt service payments);
. restrictions contained in debt instruments;
. issuances of debt and equity securities;
. fluctuations in working capital;
. capital expenditures;
. adjustments in reserves;
. prevailing economic conditions and
. financial, business and other factors, a number of which will be
beyond our control.
Cash distributions are dependent primarily on cash flow, including from
reserves and, subject to certain limitations, working capital borrowings and not
on profitability, which is affected by non-cash items. Therefore, cash
distributions might be made during periods when we record losses and might not
be made during periods when we record profits.
Potential change of control if Ferrell Companies, Inc. defaults on its
outstanding indebtedness
Ferrell Companies, Inc. ("FCI") owns all of the outstanding capital stock
of the General Partner in addition to Common Units and Subordinated Units in the
Partnership. FCI has pledged these securities to secure some of its debt.
Presently, FCI's only source of income to pay such debt is dividends that FCI
receives from the General Partner and distributions received on the Common Units
and Subordinated Units. If FCI defaults on its debt, the lenders could acquire
control of the General Partner and the Common Units and Subordinated Units owned
by FCI.
Risks Arising from Our Partnership Structure and Relationships with Our General
Partner
Unitholders have certain limits on their voting rights; the General Partner
manages and operates the Partnership
The General Partner manages and operates the Partnership. Unlike the
holders of common stock in a corporation, unitholders will have only limited
voting rights on matters affecting our business. Unitholders will have no right
to elect the General Partner on an annual or other continuing basis, and the
General Partner may not be removed except pursuant to the vote of the holders of
at least 66 2/3% of the outstanding units (including Common Units and
Subordinated Units owned by the General Partner and its affiliates) and upon the
election of a successor general partner by the vote of the holders of not less
than a majority of the outstanding Common Units. Because the General Partner and
its affiliates own approximately 57% of the outstanding units, the General
Partner cannot be removed without its consent.
The General Partner will have a limited call right with respect to the
limited partner interests
If at any time less than 20% of the then-issued and outstanding limited
partner interests of any class are held by persons other than the General
Partner and its affiliates, the General Partner will have the right, which it
may assign to any of its affiliates or to the Partnership, to acquire all, but
not less than all, of the remaining limited partner interests of such class held
by such unaffiliated persons at a price generally equal to the then-current
market price of limited partner interests of such class. As a consequence, a
unitholder may be required to sell his Common
-11-
<PAGE>
Units at a time when he may not desire to sell them or at a price that is less
than the price he would desire to receive upon such sale.
Unitholders may not have limited liability in certain circumstances and may
be liable for the return of certain distributions
The limitations on the liability of holders of limited partner interests
for the obligations of a limited partnership have not been clearly established
in some states. If it were determined that we had been conducting business in
any state without compliance with the applicable limited partnership statute, or
that the right, or the exercise of the right by the unitholders as a group, to:
(1) remove or replace the General Partner, (2) make certain amendments to our
partnership agreement, or (3) take other action pursuant to our partnership
agreement constituted participation in the "control" of our business, then the
unitholders could be held liable in certain circumstances for our obligations to
the same extent as a general partner.
In addition, under certain circumstances a unitholder may be liable to us
for the amount of a distribution for a period of three years from the date of
the distribution. Unitholders will not be liable for assessments in addition to
their initial capital investment in the Common Units. Under Delaware General
Corporate Law, we may not make a distribution to you if the distribution causes
all liabilities of the Partnership to exceed the fair value of the partnership's
assets. Liabilities to partners on account of their partnership interests and
non-recourse liabilities are not counted for purposes of determining whether a
distribution is permitted. Delaware law provides that a limited partner who
receives such a distribution and knew at the time of the distribution that the
distribution violated the Delaware law will be liable to the limited partnership
for the distribution amount for three years from the distribution date. Under
Delaware law, an assignee who becomes a substituted limited partner of a limited
partnership is liable for the obligations of the assignor to make contributions
to the partnership. However, such an assignee is not obligated for liabilities
unknown to him at the time he or she became a limited partner if the liabilities
could not be determined from the partnership agreement.
Persons owning 20% or more of the Common Units cannot vote
Any Common Units held by a person that owns 20% or more of the Common Units
cannot be voted. This limitation does not apply to the General Partner and its
affiliates. This provision may:
. discourage a person or group from attempting to remove the General
Partner or otherwise change management; and
. reduce the price at which the Common Units will trade under certain
circumstances.
The General Partner's liability to the Partnership and unitholders may be
limited
Our partnership agreement contains language limiting the liability of the
General Partner to the Partnership and the unitholders. For example, our
partnership agreement provides that:
. the General Partner does not breach any duty to the Partnership or
the unitholders by borrowing funds or approving any borrowing. The
General Partner is protected even if the purpose or effect of the
borrowing is to increase incentive distributions to the General
Partner;
. the General Partner does not breach any duty to the Partnership or
the unitholders by taking any actions consistent with the standards of
reasonable discretion outlined in the definitions of Available Cash
and Cash from Operations contained in our partnership agreement; and
. the General Partner does not breach any standard of care or duty by
resolving conflicts of interest unless the General Partner acts in bad
faith.
-12-
<PAGE>
The modifications of state law standards of fiduciary duty contained in our
partnership agreement may significantly limit the ability of unitholders to
successfully challenge the actions of the general partner as being a breach of
what would otherwise have been a fiduciary duty. These standards include the
highest duties of good faith, fairness and loyalty to the limited partners.
Such a duty of loyalty would generally prohibit a general partner of a Delaware
limited partnership from taking any action or engaging in any transaction for
which it has a conflict of interest. Under our partnership agreement, the
General Partner may exercise its broad discretion and authority in the
management of the Partnership and the conduct of its operations as long as the
General Partner's actions are in the best interest of the Partnership.
The General Partner and its affiliates may have conflicts with the
Partnership
The directors and officers of the General Partner and its affiliates have
fiduciary duties to manage the General Partner in a manner that is beneficial to
its shareholder. At the same time, the General Partner has fiduciary duties to
manage the Partnership in a manner that is beneficial to the Partnership.
Therefore, the General Partner's duties to us may conflict with the duties of
its officers and directors to its shareholder. Such conflicts of interest may
arise with respect to the following matters, among others.
. Decisions of the General Partner with respect to the amount and timing
of cash expenditures, borrowings, issuances of additional Common Units
and other securities, and changes in reserves in any quarter can
affect the amount of incentive distributions we pay to the General
Partner.
. We do not have any employees and rely solely on employees of the
General Partner.
. Under the terms of our partnership agreement, we will reimburse the
General Partner and its affiliates for costs incurred in managing and
operating our business, including costs incurred in rendering
corporate staff and support services to us.
. Our partnership agreement permits the General Partner to limit the
liability of the Partnership in contractual arrangements to all or
particular assets of the Partnership, thereby providing no recourse
against the General Partner, even if we could have obtained more
favorable terms without such limitations on the General Partner's
liability.
. Our partnership agreement provides that it is not a breach of the
General Partner's fiduciary duties to us or our partners for
affiliates of the General Partner to engage in activities, other than
retail propane sales to end users in the continental United States,
that compete with us.
The General Partner can protect itself against dilution
Whenever we issue equity securities to any person other than the General
Partner and its affiliates, the General Partner has the right to purchase
additional limited partnership interests on the same terms. This allows the
General Partner to maintain its partnership interest in the Partnership. No
other unitholder has a similar right. Therefore, only the General Partner may
protect itself against dilution caused by issuance of additional equity
securities.
Tax Risks
For a general discussion of the expected federal income tax consequences of
owning and disposing of Common Units, see "Tax Considerations."
-13-
<PAGE>
Tax treatment is dependent on partnership status
The availability to a unitholder of the federal income tax benefits of an
investment in the Common Units depends, in large part, on our classification as
a partnership for federal income tax purposes (unless the context otherwise
requires, references in this subdivision to "us" are references to the
Partnership and the Operating Partnership and not to Ferrellgas Partners Finance
Corp.). Based on certain representations of the General Partner and the
Partnership, Counsel is of the opinion that, under current law, we have been and
will continue to be classified as a partnership for federal income tax purposes.
However, no ruling from the IRS as to such status has been or is expected to be
requested. One of the representations on which the opinion of counsel is based
is that at least 90% of our gross income for each taxable year has been and will
be "qualifying income" within the meaning of Section 7704 of the Code. Whether
we will continue to be classified as a partnership in part depends on our
ability to meet this qualifying income test in the future. See "Tax
Considerations--Partnership Status."
If we were classified as a corporation for federal income tax purposes, we
would pay tax on our income at corporate rates (currently a 35% federal rate),
distributions would generally be taxed a second time in the hands of the
unitholders as corporate distributions, and no income, gains, losses or
deductions would flow through to the unitholders. Because a tax would be
imposed upon us as an entity, the cash available for distribution to the holders
of Common Units would be substantially reduced. Our treatment as a taxable
entity would result in a material reduction in the anticipated cash flow and
after-tax return to the unitholders and this would likely result in a
substantial reduction in the value of the Common Units. See "Tax
Considerations--Partnership Status."
No assurance can be given that the law will not be changed so as to cause
us to be treated as an association taxable as a corporation for federal income
tax purposes or otherwise to be subject to entity-level taxation. Our
partnership agreement provides that if a law is enacted or existing law is
modified or interpreted in a manner that subjects us to taxation as a
corporation or otherwise subjects us to entity-level taxation for federal, state
or local income tax purposes, certain provisions of our partnership agreement
will be subject to change. Such changes would include a decrease in the Minimum
Quarterly Distribution and the Target Distribution Levels to reflect the impact
of such law on us.
The IRS has not issued a ruling with respect to our classification as a
partnership
We have not requested a ruling from the IRS with respect to our
classification as a partnership for federal income tax purposes, whether our
propane operations generate "qualifying income" under Section 7704 of the Code
or any other matters affecting us. Accordingly, the IRS may adopt positions
that differ from counsel's conclusions. It may be necessary to resort to
administrative or court proceedings in an effort to sustain some or all of
counsel's conclusions, and some or all of those conclusions ultimately may not
be sustained. Any such contest with the IRS may materially and adversely impact
the market for the Common Units and the prices at which the Common Units trade.
In addition, the costs of any contest with the IRS will be borne directly or
indirectly by some or all of the unitholders and the General Partner.
A unitholders tax liability could exceed cash distributions on his units
A unitholder will be required to pay federal income taxes and, in certain
cases, state and local income taxes on his allocable share of our income, even
if he receives no cash distributions from us. We cannot guarantee that a
unitholder will receive cash distributions equal to his allocable share of our
taxable income or even the tax liability to him resulting from that income.
Further, a unitholder may incur a tax liability, in excess of the amount of cash
received, upon the sale of his Common Units. See "Tax Considerations --Tax
Treatment of Unitholders" and "Tax Considerations--Disposition of Units."
-14-
<PAGE>
Ownership of Common Units raises issues for tax-exempt organizations and
certain other investors
Investment in Common Units by certain tax-exempt entities, regulated
investment companies and foreign persons raises issues unique to such persons.
For example, virtually all of the taxable income derived by most organizations
exempt from federal income tax (including IRAs and other retirement plans) from
the ownership of a Common Unit will be unrelated business taxable income and
thus will be taxable to such a unitholder. See "Tax Considerations--Tax-Exempt
Organizations and Certain Other Investors."
There are limits on the deductibility of losses
In the case of taxpayers subject to the passive loss rules (generally,
individuals and closely held corporations), any losses generated by us will only
be available to offset our future income and cannot be used to offset income
from other activities, including passive activities or investments. Unused
losses may be deducted when the unitholder disposes of his entire investment in
us in a fully taxable transaction with an unrelated party. A unitholder's share
of our net passive income may be offset by unused losses carried over from prior
years, but not by losses from other passive activities, including losses from
other publicly traded partnerships. See "Tax Considerations--Tax Treatment of
Unitholders--Limitations on Deductibility of Partnership Losses."
Tax gain or loss on disposition of Common Units could be different than
expected
A unitholder who sells Common Units will recognize gain or loss equal to
the difference between the amount realized (including his share of our
nonrecourse liabilities) and his adjusted tax basis in such Common Units. Thus,
prior distributions in excess of cumulative net taxable income in respect of a
Common Unit which decreased a unitholder's tax basis in such Common Unit will,
in effect, become taxable income if the Common Unit is sold at a price greater
than the unitholder's tax basis in such Common Unit, even if the price is less
than his original cost. A portion of the amount realized (whether or not
representing gain) may be ordinary income. Furthermore, should the IRS
successfully contest certain conventions that we use, a unitholder could realize
more gain on the sale of Common Units than would be the case under such
conventions without the benefit of decreased income in prior years.
Reporting of partnership tax information is complicated and subject to
audits
We will furnish each unitholder with a Schedule K-1 that sets forth his
allocable share of income, gains, losses and deductions. In preparing these
schedules, we will use various accounting and reporting conventions and adopt
various depreciation and amortization methods. We cannot guarantee that these
schedules will yield a result that conforms to statutory or regulatory
requirements or to administrative pronouncements of the IRS.
Tax shelter registration could increase risk of potential IRS audit
We are registered with the Secretary of the Treasury as a "tax shelter."
The IRS has issued to us the following tax shelter registration number:
94201000010. Issuance of the registration number does not indicate that an
investment in us or the claimed tax benefits have been reviewed, examined or
approved by the IRS. We cannot guarantee that we will not be audited by the IRS
or that tax adjustments will not be made. The rights of a unitholder owning
less than a 1% profits interest in us to participate in the income tax audit
process are very limited. Further, any adjustments in our tax returns will lead
to adjustments in the unitholders' tax returns and may lead to audits of
unitholders' tax returns and adjustments of items unrelated to us. Each
unitholder would bear the cost of any expenses incurred in connection with an
examination of such unitholder's personal tax return.
-15-
<PAGE>
There is a possibility of loss of tax benefits relating to non-uniformity
of Common Units and nonconforming depreciation conventions
Because we cannot match transferors and transferees of Common Units,
uniformity of the economic and tax characteristics of the Common Units to a
purchaser of Common Units of the same class must be maintained. To maintain
uniformity and for other reasons, we have adopted certain depreciation and
amortization conventions that do not conform with all aspects of certain
proposed and final Treasury Regulations. A successful challenge to those
conventions by the IRS could adversely affect the amount of tax benefits
available to a purchaser of Common Units and could have a negative impact on the
value of the Common Units. See "Tax Considerations--Tax Treatment of
Operations--Uniformity of Units."
There are state, local and other tax considerations
In addition to federal income taxes, unitholders will likely be subject to
other taxes, such as state and local taxes, unincorporated business taxes and
estate, inheritance or intangible taxes that are imposed by the various
jurisdictions in which we do business or own property. A unitholder will likely
be required to file state and local income tax returns and pay state and local
income taxes in some or all of the various jurisdictions in which we do business
or own property and may be subject to penalties for failure to comply with those
requirements. We currently conduct business in 45 states. It is the
responsibility of each unitholder to file all United States federal, state and
local tax returns that may be required of such unitholder. Counsel has not
rendered an opinion on the state or local tax consequences of an investment in
us. See "Tax Considerations--State, Local and Other Tax Considerations."
Unitholders may have negative tax consequences if we default on our debt or
sell assets
If we default on any of our debt, the lenders will have the right to sue us
for non-payment. Such an action could cause an investment loss and negative tax
consequences for unitholders through the realization of taxable income by
unitholders without a corresponding cash distribution. Likewise, if we were to
dispose of assets and realize a taxable gain while there is substantial debt
outstanding and proceeds of the sale were applied to the debt, unitholders could
have increased taxable income without a corresponding cash distribution.
-16-
<PAGE>
FERRELLGAS
We are a publicly traded Delaware limited partnership engaged in the sale,
distribution, marketing and trading of propane and other natural gas liquids in
the United States. We believe that we are the second largest retail marketer of
propane in the United States (as measured by retail gallons sold). We currently
serve more than 800,000 residential, industrial/commercial and agricultural
customers in 45 states and the District of Columbia through approximately 563
retail outlets with 302 satellite locations in 38 states. Our retail propane
business consists of selling propane to retail (primarily residential)
customers. We purchase this propane in the contract and spot markets, primarily
from major oil companies, and then transport it to our retail distribution
outlets and then to tanks located on our customers' premises and 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.
We also trade propane and other natural gas liquids and are engaged in
chemical feedstocks marketing and wholesale propane marketing. Through our
natural gas liquids trading operations and wholesale marketing, we believe that
we are one of the largest independent marketers of propane and natural gas
liquids in the United States.
We trade propane and other natural gas liquids for our account and for
supplying our retail and wholesale propane operations. We primarily trade
products purchased from our over 110 suppliers; however, we also conduct
transactions on the New York Mercantile Exchange. Trading of products is
conducted primarily to generate a profit independent of the retail and wholesale
operations, but is also conducted to help insure the availability of propane
during periods of short supply. We attempt to minimize trading risk through the
enforcement of our trading policies, which include total inventory limits and
loss limits, and attempt to minimize credit risk through credit checks and
application of its credit policies. However, we cannot guarantee that
historical experience or the existence of such policies will prevent trading
losses in the future. We regularly evaluate potential acquisitions of assets
and businesses that would complement our existing business. Our general partner
receives incentive distributions that provide it with a strong incentive to
increase unitholder distributions through successful management and growth of
our business.
Ferrellgas Partners Finance Corp., a co-obligor of the Debt Securities to be
offered by this prospectus, has only nominal assets and does not conduct any
operations.
-17-
<PAGE>
CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITIES
Conflicts of interest could arise as a result of the relationships between
the Partnership, on the one hand, and our general partner and its affiliates, on
the other. The directors and officers of the General Partner have fiduciary
duties to manage the General Partner in a manner beneficial to its stockholder.
At the same time, the General Partner has fiduciary duties to manage the
Partnership in a manner beneficial to the Partnership and the unitholders. The
duties of the General Partner to the Partnership and the unitholders, therefore,
may come into conflict with the duties of management of the General Partner to
its stockholder.
Conflicts of interest might arise with respect to the following matters,
among others:
(1) Decisions of the General Partner with respect to the amount and
timing of cash expenditures, borrowings, issuances of additional Common Units
and changes in reserves in any quarter can affect the amount of incentive
distributions the Partnership pays to the General Partner.
(2) The Partnership does not have any employees and relies solely on
employees of the General Partner and its affiliates.
(3) Under the terms of the Partnership Agreement, the Partnership
will reimburse the General Partner and its affiliates for costs incurred in
managing and operating the Partnership, including costs incurred in rendering
corporate staff and support services to the Partnership. The General Partner is
not restricted from causing the Partnership to pay the General Partner or its
affiliates for any services rendered on terms that are fair and reasonable to
the Partnership or causing the Partnership to enter into additional contractual
arrangements with any of such entities. Neither the Partnership Agreement nor
any of the other agreements, contracts and arrangements between the Partnership,
on the one hand, and the General Partner and its affiliates, on the other, are
or will be the result of arm's-length negotiations.
(4) Whenever possible, the General Partner limits the liability of the
Partnership under contractual arrangements to all or particular assets of the
Partnership, with the other party thereto having no recourse against the General
Partner or its assets. The Partnership Agreement permits the General Partner to
do this even if the Partnership could have obtained more favorable terms if it
had not limited the General Partner's liability.
(5) Any agreements between the Partnership and the General Partner and
its affiliates will not grant to the unitholders, separate and apart from the
Partnership, the right to enforce the obligations of the General Partner and
such affiliates in favor of the Partnership. Therefore, the General Partner, in
its capacity as the general partner of the Partnership, will be primarily
responsible for enforcing such obligations.
(6) The General Partner may exercise its right to call for and
purchase Common Units as provided in the Partnership Agreement or assign such
right to one of its affiliates or to the Partnership.
(7) The Partnership Agreement provides that it will not constitute a
breach of the General Partner's fiduciary duties to the Partnership for
affiliates of the General Partner to engage in certain activities of the type
conducted by the Partnership, other than retail propane sales to end users in
the continental United States, even if in direct competition with the
Partnership. In addition, the General Partner and such affiliates have no
obligation to present business opportunities to the Partnership.
Unless otherwise provided for in a partnership agreement, Delaware law
generally requires a general partner of a Delaware limited partnership to adhere
to fiduciary duty standards under which it owes its limited partners the highest
duties of good faith, fairness and loyalty and which generally prohibit the
general partner from taking any action or engaging in any transaction as to
which it has a conflict of interest. The Partnership Agreement expressly
permits the General Partner to resolve conflicts of interest between itself or
its affiliates, on the one hand,
-18-
<PAGE>
and the Partnership or the unitholders, on the other, and to consider, in
resolving such conflicts of interest, the interests of other parties in addition
to the interests of the unitholders. In addition, the Partnership Agreement
provides that a purchaser of Common Units is deemed to have consented to certain
conflicts of interest and actions of the General Partner and its affiliates that
might otherwise be prohibited, including those described above, and to have
agreed that such conflicts of interest and actions do not constitute a breach by
the General Partner of any duty stated or implied by law or equity. The General
Partner will not be in breach of its obligations under the Partnership Agreement
or its duties to the Partnership or the unitholders if the resolution of such
conflict is fair and reasonable to the Partnership. Any resolution of a conflict
approved by the Audit Committee of the General Partner is conclusively deemed
fair and reasonable to the Partnership. The latitude given in the Partnership
Agreement to the General Partner in resolving conflicts of interest may
significantly limit the ability of a unitholder to challenge what might
otherwise be a breach of fiduciary duty.
The Partnership Agreement expressly limits the liability of the General
Partner by providing that the General Partner, its affiliates and their officers
and directors will not be liable for monetary damages to the Partnership, the
limited partners or assignees for errors of judgment or for any acts or
omissions if the General Partner and such other persons acted in good faith. In
addition, the Partnership is required to indemnify the General Partner, its
affiliates and their respective officers, directors, employees, agents and
trustees to the fullest extent permitted by law against liabilities, costs and
expenses incurred by the General Partner or such other persons, if the General
Partner or such persons acted in good faith and in a manner they reasonably
believed to be in, or (in the case of a person other than the General Partner)
not opposed to, the best interests of the Partnership and, with respect to any
criminal proceedings, had no reasonable cause to believe the conduct was
unlawful.
-19-
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods indicated is
as follows:
<TABLE>
<CAPTION>
Historical
Historical Historical Historical Three Months
Eleven Months One Month Pro Forma Year Ended July 31, October 31,
Ended Ended Year Ended ------------------------- --------------------
June 30, 1994 July 31, 1994 /(1)/ July 31, 1994/(2)/ 1995 1996 1997 1998 1997/(3)/ 1998/(3)/
- ------------- ------------------ ----------------- ------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1.2 - 2.4 1.7 1.6 1.5 1.1 - -
</TABLE>
_________________
(1) For the one month ended July 31, 1994, earnings were inadequate to
cover fixed charges by $5.0 million.
(2) The pro forma year ended July 31, 1994 includes the eleven months
ended June 30, 1994 for our predecessor, Ferrellgas, Inc. and its
subsidiaries, and our historical financial data 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).
(3) For the three months ended October 31, 1997 and 1998, earnings were
inadequate to cover fixed charges by $13.3 million and $11.2 million,
respectively.
These computations include the Partnership and the Operating Partnership on a
consolidated basis. For these ratios, "earnings" is the amount resulting from
adding the following items:
. pre-tax income from continuing operations; and
. fixed charges.
The term "fixed charges" means the sum of the following:
. interest expensed;
. amortized premiums, discounts and capitalized expenses related to
indebtedness; and
. an estimate of the interest within rental expenses.
Earnings from continuing operations for the periods presented were reduced
by certain non-cash expenses, consisting principally of depreciation and
amortization and a non-cash employee stock ownership plan charge. Such non-cash
charges totaled $26.5 million for the eleven months ended June 30, 1994, $2.4
million for the one month ended July 31, 1994, $28.8 million for the pro forma
year ended July 31, 1994, $32.0 million for the year ended July 31, 1995, $37.0
million for the year ended July 31, 1996, $43.8 million for the year ended July
31, 1997, $45.4 million for the year ended July 31, 1998, and $11.5 million and
$12.2 million for the three months ended October 31, 1997 and 1998,
respectively.
-20-
<PAGE>
DESCRIPTION OF UNITS
General
As of October 31, 1998, we had 14,703,298 Common Units outstanding,
representing a 46% limited partner interest in the Partnership, and 16,593,721
Subordinated Units outstanding, representing a 52% limited partner interest in
the Partnership. All of the Subordinated Units are currently held by FCI, the
parent company of our general partner. The Common Units and the Subordinated
Units represent limited partner interests in the Partnership, which entitle the
holders thereof to participate in distributions and exercise the rights and
privileges available to limited partners under our partnership agreement. A
copy of our partnership agreement is filed as an exhibit to the registration
statement of which this prospectus is a part. A summary of the important
provisions of our partnership agreement is included in our reports filed with
the SEC.
Under our partnership agreement we may issue, without further unitholder
action, an unlimited number of additional limited partner interests and other
equity securities with such rights, preferences and privileges as shall be
established by the General Partner in its sole discretion, subject to the
following exceptions:
(1) during the subordination period, we may not issue limited partner
interests or other equity securities ranking prior or senior to the Common
Units or an aggregate of more than 7,000,000 additional Common Units or an
equivalent amount of other equity securities having rights to distributions
or in liquidation ranking on a parity with the Common Units, in either case
without the approval of two-thirds of the outstanding Common Units;
provided that we may issue an unlimited number of additional Common Units
or parity securities prior to the end of the subordination period and
without unitholder approval in connection with acquisitions if certain cash
flow criteria are met and
(2) during the subordination period, we may not issue limited partner
interests or other equity securities with rights to distributions or in
liquidation ranking prior or senior to the Common Units, without the
approval of two-thirds of the outstanding Common Units.
Common Units
Listing
Our outstanding Common Units are listed on the NYSE under the symbol "FGP".
Any additional Common Units we issue will also be listed on the NYSE.
Voting
Each holder of Common Units is entitled to one vote for each Common Unit on
all matters submitted to a vote of the unitholders; provided that, if at any
time any person or group (other than FCI and its affiliates) owns beneficially
20% or more of all Common Units, such Common Units so owned shall not be voted
on any matter and shall not be considered to be outstanding when sending notices
of a meeting of unitholders (unless otherwise required by law), calculating
required votes, determining the presence of a quorum or for other similar
purposes under our partnership agreement. Except as otherwise provided by law
or our partnership agreement, the holders of Common Units and Subordinated Units
vote as one class.
Distributions
Our partnership agreement requires us to distribute 100% of our "Available
Cash" to our unitholders and our general partner within 45 days following the
end of each fiscal quarter. "Available Cash" consists generally of all of our
cash receipts, less cash disbursements and adjustments for net changes to
reserves.
-21-
<PAGE>
Currently the Common Units have the right to receive distributions of
Available Cash from our operations in an amount equal to $0.50 per unit before
any distributions of such Available Cash are made on the Subordinated Units.
This priority right is scheduled to end when certain financial tests, which are
related to generating cash from operations and distributing at least $0.50 per
unit on all Common Units and Subordinated Units, are satisfied for each of three
consecutive four quarter periods ending on or after July 31, 1999. If these
financial tests are met, the Common Units and the Subordinated Units will
thereafter share equally in distributions of Available Cash. We met these
financial tests for the four quarter periods ended July 31, 1997 and July 31,
1998, however, there can be no assurance that we will meet the remaining
financial tests in the four quarter period ended July 31, 1999. The period
during which the Common Units have a priority right to distributions and in
which the right of the Subordinated Units to distributions is subordinate is
referred to as the subordination period.
During the subordination period we distribute Available Cash from our
operations as follows:
. first, 98% to the holders of Common Units and 2% to the General
Partner, until the holders of Common Units have received $0.50 per
Common Unit for such quarter and any prior quarter in which they
failed to receive $0.50 per Common Unit;
. second, 98% to the holders of Subordinated Units and 2% to the
General Partner, until the holders of Subordinated Units have received
$0.50 per Subordinated Unit for such quarter;
. third, 98% to all unitholders and 2% to the General Partner, until
all unitholders have received $0.55 per unit for such quarter;
. fourth, 85% to all unitholders, 13% to FCI as the holder of incentive
distribution rights and 2% to the General Partner, until all
unitholders have received $0.63 per unit for such quarter;
. fifth, 75% to all unitholders, 23% to FCI as the holder of incentive
distribution rights and 2% to the General Partner, until all
unitholders have received $0.82 per unit for such quarter; and
. sixth, thereafter 50% to all unitholders, 48% to FCI as the holder of
incentive distribution rights and 2% to the General Partner.
Following the end of the subordination period Available Cash from our
operations will be distributed as follows:
. first, 98% to all unitholders and 2% to the General Partner, until
all unitholders have received $0.55 per unit for such quarter;
. second, 85% to all unitholders, 13% to FCI as the holder of incentive
distribution rights and 2% to the General Partner, until all
unitholders have received $0.63 per unit for such quarter;
. third, 75% to all unitholders, 23% to FCI as the holder of incentive
distribution rights and 2% to the General Partner, until all
unitholders have received $0.82 per unit for such quarter; and
. fourth, thereafter 50% to all unitholders, 48% to FCI as the holder of
incentive distribution rights and 2% to the General Partner.
Transfer Agent and Registrar
Our transfer agent and registrar for the Common Units is Bank Boston, N.A.
You may contact our transfer agent and registrar at the following address:
-22-
<PAGE>
Bank Boston, N.A.
c/o Boston EquiServe
Attn: Investor Relations/Shareholder Services
P. O. Box 8040
Boston, Massachusetts 02266-8040
Telephone: (781) 575-3120
Deferred Participation Units
No Deferred Participation Units ("DPUs") are issued or outstanding. The
General Partner has the authority, without further unitholder action, to
establish one or more series of DPUs and to determine the rights, preferences
and privileges of each such series of DPUs.
A prospectus supplement relating to a particular series of DPUs offered
thereby will include the specific terms of such DPUs, including the following:
. the designation, stated value and liquidation preference of such
DPUs and the number of DPUs offered;
. the initial public offering price at which such DPUs will be
issued;
. the conversion or exchange provisions of such DPUs;
. any redemption or sinking fund provisions of such DPUs;
. the distribution rights of such DPUs, if any;
. a discussion of material federal income tax considerations, if
any; and
. any additional rights, preferences, privileges, limitations and
restrictions of such DPUs.
-23-
<PAGE>
DESCRIPTION OF WARRANTS
We may issue warrants to purchase Debt Securities (the "Debt Warrants"),
Common Units (the "Common Unit Warrants") or other securities issued by us or
another issuer (the "Other Warrants," collectively with the Debt Warrants and
the Common Unit Warrants, the "Warrants"). Warrants may be issued independently
or together with any Securities and may be attached to or separate from such
Securities. The Warrants are to be issued under warrant agreements (each a
"Warrant Agreement") to be entered into between us and a bank or trust company,
as warrant agent (the "Warrant Agent"), all as shall be set forth in a
prospectus supplement relating to the Warrants being offered pursuant thereto.
Debt Warrants
The applicable prospectus supplement will describe the terms of the Debt
Warrants offered thereby, the Warrant Agreement relating to such Debt Warrants
and the debt warrant certificates representing such Debt Warrants, including the
following:
. the title of such Debt Warrants;
. the aggregate number of such Debt Warrants;
. the price or prices at which such Debt Warrants will be issued;
. the designation, aggregate principal amount and terms of the Debt
Securities purchasable upon exercise of such Debt Warrants;
. the principal amount of Debt Securities purchasable upon exercise of
each Debt Warrant, and the price at which such principal amount of
Debt Securities may be purchased upon such exercise;
. the date, if any, on and after which such Debt Warrants and the
related Debt Securities will be separately transferable;
. the date on which the right to exercise such Debt Warrants shall
commence, and the date on which such right shall expire;
. the maximum or minimum number of such Debt Warrants that may be
exercised at any time;
. a discussion of material federal income tax considerations, if any;
and
. any other terms of such Debt Warrants, including terms, procedures and
limitations relating to the exchange and exercise of such Debt
Warrants.
Debt Warrant certificates will be exchangeable for new Debt Warrant
certificates of different denominations and Debt Warrants may be exercised at
the corporate trust office of the Warrant Agent or any other office indicated in
the prospectus supplement. Prior to the exercise of their Debt Warrants,
holders of Debt Warrants will not have any of the rights of holders of the Debt
Securities purchasable upon such exercise and will not be entitled to payments
of principal of (or premium, if any) or interest, if any, on the Debt Securities
purchasable upon such exercise.
-24-
<PAGE>
Common Unit Warrants and Other Warrants
The applicable prospectus supplement will describe the terms of the Common
Unit Warrants and Other Warrants offered thereby, the Warrant Agreement relating
to such Warrants and the warrant certificates representing such Warrants,
including the following:
. the title of such Warrants;
. the aggregate number of such Warrants;
. the price or prices at which such Warrants will be issued;
. the securities for which such Warrants are exercisable, and the price
at which such securities may be purchased upon such exercise;
. any provisions for adjustment of the number of Common Units or number
or amount of other securities of ours or another issuer receivable
upon exercise of such Warrants or the exercise price of such
Warrants;
. the date, if any, on and after which such Warrants and the related
Common Units or other securities of the Company or another issuer will
be separately transferable;
. the date on which the right to exercise such Warrants shall commence,
and the date on which such right shall expire;
. the maximum or minimum number of such Warrants that may be exercised
at any time;
. a discussion of material federal income tax considerations, if any;
and
. any other terms of such Warrants, including terms, procedures and
limitations relating to the exchange and exercise of such
Warrants.
Warrant certificates will be exchangeable for new Warrant certificates of
different denominations and Warrants may be exercised at the corporate trust
office of the Warrant Agent or any other office indicated in the prospectus
supplement. Prior to the exercise of their Warrants, holders of Warrants will
not have any of the rights of holders of the securities purchasable upon such
exercise and will not be entitled to any distributions or dividends on the
securities purchasable upon exercise.
Exercise of Warrants
Each Warrant will entitle the holder of the Warrant to purchase for cash
such principal amount of Debt Securities, number of Common Units, or number or
amount of other securities at such exercise price as shall in each case be set
forth in, or be determinable as set forth in, the prospectus supplement relating
to the Warrants offered thereby. Warrants may be exercised at any time up to
the close of business on the expiration date set forth in the prospectus
supplement relating to the Warrants offered thereby. After the close of
business on the expiration date, unexercised Warrants will become void.
Warrants may be exercised as set forth in the prospectus supplement
relating to the Warrants offered thereby. Upon receipt of payment and the
warrant certificate properly completed and duly executed at the corporate trust
office of the Warrant Agent or any other office indicated in the prospectus
supplement, we will, as soon as practicable, forward the Debt Securities, Common
Units or other securities purchasable upon such exercise. If less than all of
the Warrants represented by such warrant certificate are exercised, a new
warrant certificate will be issued for the remaining Warrants.
-25-
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be:
. direct secured or unsecured general obligations of Ferrellgas
Partners, L.P. and Ferrellgas Partners Finance Corp. as co-obligors;
and
. either senior debt securities or subordinated debt securities.
Senior Debt Securities will be issued under a Senior Indenture and
Subordinated Debt Securities will be issued under a Subordinated Indenture. The
Senior Indenture and the Subordinated Indenture are each referred to as an
"Indenture" and collectively referred to as the "Indentures." We will enter
into the Indentures with a trustee that is qualified to act under the Trust
Indenture Act of 1939, as amended (the "TIA") (together with any other
trustee(s) chosen by us and appointed in a supplemental indenture with respect
to a particular series of Debt Securities, the "Trustee"). The Trustee for each
series of Debt Securities will be identified in the applicable prospectus
supplement. The form of Indentures and any supplemental indentures will be
filed by us from time to time by means of an exhibit to a Current Report on Form
8-K and will be available for inspection at the corporate trust office of the
Trustee, or as described above under "Where You Can Find More Information." The
Indentures will be subject to, and governed by, the TIA. We will execute an
Indenture and supplemental indenture if and when we issue any Debt Securities.
We summarized the material provisions of the Indentures in the following
order:
. those provisions that apply only to the Senior Indenture;
. those provisions that apply only to the Subordinated Indenture; and
. those provisions that apply to both Indentures.
We have not restated the Indentures in their entirety in this prospectus.
You should read the Indentures, because they, and not this description, control
your rights as holders of the Debt Securities. Capitalized terms used in the
summary have the meanings specified in the Indentures.
In this section, references to the Partnership relate only to Ferrellgas
Partners, L.P., the issuer of the Debt Securities, and not to our Subsidiaries.
In the Indentures, the term "Subsidiary" means, with respect to any person:
. any partnership of which more than 50% of the partners' equity
interests (considering all partners' equity 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
combination thereof, or
. any corporation, association or other business entity of which more
than 50% of the total voting power of the equity interests entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof 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 combination thereof.
At present, our only Subsidiaries are Ferrellgas, L.P., our subsidiary operating
partnership, and Ferrellgas Partners Finance Corp.
-26-
<PAGE>
Specific Terms of Each Series of Debt Securities in the Prospectus Supplement
A prospectus supplement and a supplemental indenture relating to any series
of Debt Securities being offered will include specific terms relating to such
Debt Securities. These terms will include some or all of the following:
. the form and title of the Debt Securities;
. the total principal amount of the Debt Securities;
. the assets, if any, that are pledged as security for the payment of
the Debt Securities;
. the portion of the principal amount that will be payable if the
maturity of the Debt Securities is accelerated;
. the currency or currency unit in which the Debt Securities will be
payable, if not U.S. dollars;
. any right we may have to defer payments of interest by extending the
dates payments are due whether interest on those deferred amounts will
be payable as well;
. the dates on which the principal of the Debt Securities will be
payable;
. the interest rate that the Debt Securities will bear and the interest
payment dates for the Debt Securities;
. any conversion or exchange provisions;
. any optional redemption provisions;
. any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the Debt Securities;
. any changes to or additional Events of Default or covenants; and
. any other terms of the Debt Securities.
Provisions Only in the Senior Indenture
Summary
The Senior Debt Securities will rank equally in right of payment with all
of our other senior and unsubordinated debt and senior in right of payment to
any of our subordinated debt (including the Subordinated Debt Securities). The
Senior Indenture will contain provisions that:
. limit our ability to put liens on our principal assets; and
. limit our ability to sell and lease back our principal assets.
The Subordinated Indenture will not contain any similar provisions. We
have described below these provisions and some of the defined terms used in
them.
-27-
<PAGE>
Limitations on Liens
The Senior Indenture will provide that the Partnership will not, nor will
it permit any Subsidiary to, create, assume, incur or suffer to exist any lien
upon any property or assets, whether owned or leased on the date of the Senior
Indenture or thereafter acquired, to secure any debt of the Partnership or any
other person (other than the Senior Debt Securities issued thereunder), without
in any such case making effective provision whereby all of the Senior Debt
Securities outstanding thereunder shall be secured equally and ratably with, or
prior to, such debt so long as such debt shall be so secured.
There is excluded from this restriction:
(1) Permitted Liens (as defined below);
(2) with respect to any series, any lien upon any property or assets of
the Partnership or any Subsidiary in existence on the date the Senior Debt
Securities of such series are first issued or provided for pursuant to
agreements existing on such date;
(3) any lien upon any property or assets created at the time of
acquisition of such property or assets by the Partnership or any Subsidiary or
within one year after such time to secure all or a portion of the purchase price
for such property or assets or debt incurred to finance such purchase price,
whether such debt was incurred prior to, at the time of or within one year after
the date of such acquisition;
(4) any lien upon any property or assets existing thereon at the time of
the acquisition thereof by the Partnership or any Subsidiary; provided, however,
that such lien only encumbers the property or assets so acquired;
(5) any lien upon any property or assets of a person existing thereon at
the time such person becomes a Subsidiary by acquisition, merger or otherwise;
provided, however, that such lien only encumbers the property or assets of such
person at the time such person becomes a Subsidiary;
(6) any lien upon any property or assets to secure all or part of the
cost of construction, development, repair or improvements thereon or to secure
debt incurred prior to, at the time of, or within one year after completion of
such construction, development, repair or improvements or the commencement of
full operations thereof (whichever is later), to provide funds for any such
purpose;
(7) liens imposed by law or order as a result of any proceeding before
any court or regulatory body that is being contested in good faith, and liens
which secure a judgment or other court-ordered award or settlement as to which
the Partnership or the applicable Subsidiary has not exhausted its appellate
rights;
(8) any lien upon any additions, improvements, replacements, repairs,
fixtures, appurtenances or component parts thereof attaching to or required to
be attached to property or assets pursuant to the terms of any mortgage, pledge
agreement, security agreement or other similar instrument, creating a lien upon
such property or assets permitted by clauses (1) through (7) above; or
(9) any extension, renewal, refinancing, refunding or replacement (or
successive extensions, renewals, refinancing, refunding or replacements) of
liens, in whole or in part, referred to in clauses (1) through (8) above;
provided, however, that any such extension, renewal, refinancing, refunding or
replacement lien shall be limited to the property or assets covered by the lien
extended, renewed, refinanced, refunded or replaced and that the obligations
secured by any such extension, renewal, refinancing, refunding or replacement
lien shall be in an amount not greater than the amount of the obligations
secured by the lien extended, renewed, refinanced, refunded or replaced and any
expenses of the Partnership and its subsidiaries (including any premium)
incurred in connection with such extension, renewal, refinancing, refunding
replacement; or
-28-
<PAGE>
(10) any lien resulting from the deposit of moneys or evidence of
indebtedness in trust for the purpose of defeasing debt of the Partnership or
any Subsidiary.
Notwithstanding the foregoing, under the Senior Indenture, the Partnership
may, and may permit any Subsidiary to, create, assume, incur, or suffer to exist
any lien upon any property or assets to secure debt of the Partnership or any
person (other than the Senior Debt Securities) that is not excepted by clauses
(1) through (10), inclusive, above without securing the Senior Debt Securities
issued under the Senior Indenture, provided that the aggregate principal amount
of all debt then outstanding secured by such lien and all similar liens,
together with all Attributable Indebtedness (as defined below) from Sale-
Leaseback Transactions (excluding Sale-Leaseback Transactions permitted by
clauses (1) through (4), inclusive, of the first paragraph of the restriction on
sale-leasebacks covenant described below) does not exceed 10% of Consolidated
Net Tangible Assets (as defined below).
"Permitted Liens" means:
(1) 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;
(2) any statutory or governmental lien or lien arising by operation of
law, or any mechanics', repairmen's, materialmen's, suppliers',
vendors', carriers', landlords', warehousemen's or similar lien
incurred in the ordinary course of business which is not yet due or
which is being contested in good faith by appropriate proceedings and
any undetermined lien which is incidental to construction,
development, improvement or repair;
(3) the right reserved to, or vested in, any municipality or public
authority by the terms of any right, power, franchise, grant, license,
permit or by any provision of law, to purchase or recapture or to
designate a purchaser of, any property;
(4) liens of taxes and assessments which are (A) for the then current
year, (B) not at the time delinquent, or (C) delinquent but the
validity of which is being contested at the time by the Partnership or
any Subsidiary in good faith;
(5) liens of, or to secure performance of, leases, other than capital
leases;
(6) any lien upon, or deposits of, any assets in favor of any surety
company or clerk of court for the purpose of obtaining indemnity or
stay of judicial proceedings;
(7) any lien upon property or assets acquired or sold by the Partnership
or any Subsidiary resulting from the exercise of any rights arising
out of defaults on receivables;
(8) any lien incurred in the ordinary course of business in connection
with workmen's compensation, unemployment insurance, temporary
disability, social security, retiree health or similar laws or
regulations or to secure obligations imposed by statute or
governmental regulations;
(9) any lien in favor of the Partnership or any Subsidiary;
(10) any lien in favor of the United States of America or any state
thereof, or any department, agency or instrumentality or political
subdivision of the United States of America or any state thereof, to
secure partial, progress, advance, or other payments pursuant to any
contract or statute, or any
-29-
<PAGE>
debt incurred by the Partnership or any Subsidiary for the purpose of
financing all or any part of the purchase price of, or the cost of
constructing, developing, repairing or improving, the property or
assets subject to such lien;
(11) any lien securing industrial development, pollution control or similar
revenue bonds;
(12) any lien securing debt of the Partnership or any Subsidiary, all or a
portion of the net proceeds of which are used, substantially
concurrent with the funding thereof (and for purposes of determining
such "substantial concurrence," taking into consideration, among other
things, required notices to be given to holders of outstanding
securities under the Indenture (including the Debt Securities) in
connection with such refunding, refinancing or repurchase, and the
required corresponding durations thereof), to refinance, refund or
repurchase all outstanding securities under the Indenture (including
the Debt Securities), including the amount of all accrued interest
thereon and reasonable fees and expenses and premium, if any, incurred
by the Partnership or any Subsidiary in connection therewith;
(13) liens in favor of any person to secure obligations under the
provisions of any letters of credit, bank guarantees, bonds or surety
obligations required or requested by any governmental authority in
connection with any contract or statute; or
(14) any lien upon or deposits of any assets to secure performance of bids,
trade contracts, leases or statutory obligations.
"Consolidated Net Tangible Assets" means, at any date of determination, the
total amount of assets after deducting therefrom:
(1) all current liabilities (excluding (A) any current liabilities that by
their terms are extendable or renewable at the option of the obligor
thereon to a time more than 12 months after the time as of which the
amount thereof is being computed, and (B) current maturities of debt),
and
(2) the value (net of any applicable reserves) of all goodwill, trade
names, trademarks, patents and other like intangible assets, all as
set forth, or on a proforma basis would be set forth, on the
consolidated balance sheet of the Partnership and its consolidated
subsidiaries for the Partnership's most recently completed fiscal
quarter, prepared in accordance generally accepted accounting
principles.
Restriction on Sale-Leasebacks
The Senior Indenture will provide that the Partnership will not, and will
not permit any Subsidiary to, engage in the sale or transfer by the Partnership
or any Subsidiary of any property or assets to a person (other than the
Partnership or a Subsidiary) and the taking back by the Partnership or any
Subsidiary, as the case may be, of a lease of such property or assets (a "Sale-
Leaseback Transaction"), unless:
(1) such Sale-Leaseback Transaction occurs within one year from the date
of completion of the acquisition of the property or assets subject
thereto or the date of the completion of construction, development or
substantial repair or improvement, or commencement of full operations
on such property or assets, whichever is later;
(2) the Sale-Leaseback Transaction involves a lease for a period,
including renewals, of not more than the lesser of (A) three years and
(B) 60% of the useful remaining life of such property;
-30-
<PAGE>
(3) the Partnership or such Subsidiary would be entitled to incur debt
secured by a lien on the property or assets subject thereto in a
principal amount equal to or exceeding the Attributable Indebtedness
from such Sale-Leaseback Transaction without equally and ratably
securing the Senior Debt Securities; or
(4) the Partnership or such Subsidiary, within a one-year period after
such Sale-Leaseback Transaction, applies or causes to be applied an
amount not less than the Attributable Indebtedness from such Sale-
Leaseback Transaction to (A) the prepayment, repayment, redemption,
reduction or retirement of any debt of the Partnership or any
Subsidiary that is not subordinated to the Senior Debt Securities, or
(B) the expenditure or expenditures for property or assets used or to
be used in the ordinary course of business of the Partnership or its
Subsidiaries.
Notwithstanding the foregoing, the Indenture will permit the Partnership and its
Subsidiaries to enter into Sale-Leaseback Transactions relating to propane tanks
up to an aggregate principal amount of $25 million at any time, provided that
such transactions would not cause a default.
"Attributable Indebtedness," when used with respect to any to any Sale-
Leaseback Transaction, means, as at the time of determination, the present value
(discounted at the rate set forth or implicit in the terms of the lease included
in such transaction) of the total obligations of the lessee for rental payments
(other than amounts required to be paid on account of property taxes,
maintenance, repairs, insurance, assessments, utilities, operating and labor
costs and other items that do not constitute payments for property rights)
during the remaining term of the lease included in such Sale-Leaseback
Transaction (including any period for which such lease has been extended). In
the case of any lease that is terminable by the lessee upon the payment of a
penalty or other termination payment, such amount shall be the lesser of the
amount determined assuming termination upon the first date such lease may be
terminated (in which case the amount shall also include the amount of the
penalty or termination payment, but no rent shall be considered as required to
be paid under such lease subsequent to the first date upon which it may be so
terminated) or the amount determined assuming no such termination.
Notwithstanding the foregoing, under the Senior Indenture the Partnership
may, and may permit any Subsidiary to, effect any Sale-Leaseback Transaction
that is not excepted by clauses (1) through (4), inclusive, of the above
paragraph, provided that the Attributable Indebtedness from such Sale-Leaseback
Transaction, together with the aggregate principal amount of outstanding debt
(other than the Senior Debt Securities) secured by liens upon property and
assets not excepted by clauses (1) through (10), inclusive, of the second
paragraph of the limitation on liens covenant described above, do not exceed 10%
of Consolidated Net Tangible Assets.
Provisions Only in the Subordinated Indenture
Subordinated Debt Securities Subordinated to Senior Debt
The Subordinated Debt Securities will rank junior in right of payment to
all of our Senior Debt. "Senior Debt" is defined to include all notes or other
evidences of indebtedness, including guarantees of the Partnership for money
borrowed by the Partnership, not expressed to be subordinate or junior in right
of payment to any other indebtedness of the Partnership.
Payment Blockages
The Subordinated Indenture will provide that no payment of principal,
interest and any premium on the Subordinated Debt Securities may be made in the
event:
. we or our property are involved in any voluntary or involuntary
liquidation or bankruptcy;
-31-
<PAGE>
. we fail to pay the principal, interest, any premium or any other
amounts on any Senior Debt when due; or
. we have a nonpayment default on any Senior Debt that imposes a
payment blockage on the Subordinated Debt Securities for a maximum of
179 days at any one time.
No Limitation on Amount of Senior Debt
The Subordinated Indenture will not limit the amount of Senior Debt that we
may incur.
Consolidation, Merger or Asset Sale
Each Indenture will, in general, allow us to consolidate or merge with a
domestic partnership or corporation. They will also allow us to sell, lease or
transfer all or substantially all of our property and assets to a domestic
partnership or corporation. If this happens, the remaining or acquiring
partnership or corporation must assume all of our responsibilities and
liabilities under the Indentures including the payment of all amounts due on the
Debt Securities and performance of the covenants in the Indentures.
However, we will only consolidate or merge with or into a partnership or
corporation or sell, lease or transfer all or substantially all of our assets
according to the terms and conditions of the Indentures, which will include the
following requirements:
. the remaining or acquiring partnership or corporation is organized
under the laws of the United States, any state or the District of
Columbia;
. the remaining or acquiring partnership or corporation assumes the
Partnership's obligations under the Indentures; and
. immediately after giving effect to the transaction no Default or
Event of Default (as defined below) exists.
The remaining or acquiring partnership or corporation will be substituted
for us in the Indentures with the same effect as if it had been an original
party to the Indentures. Thereafter, the successor may exercise our rights and
powers under the Indentures, in our name or in its own name. If we sell or
transfer all or substantially all of our assets, we will be released from all
our liabilities and obligations under the Indentures and under the Debt
Securities. If we lease all or substantially all of our assets, we will not be
released from our obligations under the Indentures.
Modification of Indentures
Under each Indenture, generally we and the Trustee may modify our rights
and obligations and the rights of the holders with the consent of the holders of
a majority in aggregate principal amount of the outstanding Debt Securities of
each series affected by the modification. No modification of the principal or
interest payment terms, and no modification reducing the percentage required for
modifications, is effective against any holder without its consent. In
addition, the Partnership and the Trustee may amend the Indentures without the
consent of any holder of the Debt Securities to make certain technical changes,
such as:
. correcting errors;
. providing for a successor trustee;
. qualifying the Indentures under the Trust Indenture Act; or
-32-
<PAGE>
. adding provisions relating to a particular series of Debt Securities.
Events of Default and Remedies
"Event of Default" when used in an Indenture, will mean any of the
following:
. failure to pay the principal of or any premium on any Debt Security
when due;
. failure to pay interest on any Debt Security for 30 days;
. failure to perform any other covenant in the Indenture that continues
for 60 days after being given written notice;
. certain events of bankruptcy, insolvency or reorganization of the
Partnership; or
. any other Event of Default included in any Indenture or supplemental
indenture.
An Event of Default for a particular series of Debt Securities does not
necessarily constitute an Event of Default for any other series of Debt
Securities issued under an Indenture. The Trustee may withhold notice to the
holders of Debt Securities of any default (except in the payment of principal or
interest) if it considers such withholding of notice to be in the best interests
of the holders.
If an Event of Default for any series of Debt Securities occurs and
continues, the Trustee or the holders of at least 25% in aggregate principal
amount of the Debt Securities of the series may declare the entire principal of
all the Debt Securities of that series to be due and payable immediately. If
this happens, subject to certain conditions, the holders of a majority of the
aggregate principal amount of the Debt Securities of that series can void the
declaration.
Other than its duties in case of a default, a Trustee is not obligated to
exercise any of its rights or powers under any Indenture at the request, order
or direction of any holders, unless the holders offer the Trustee reasonable
indemnity. If they provide this reasonable indemnification, the holders of a
majority in principal amount of any series of Debt Securities may direct the
time, method and place of conducting any proceeding or any remedy available to
the Trustee, or exercising any power conferred upon the Trustee, for any series
of Debt Securities.
No Limit on Amount of Debt Securities
Neither of the Indentures will limit the amount of Debt Securities that we
may issue. Each Indenture allows us to issue Debt Securities up to the
principal amount that we authorize.
Registration of Notes
We may issue Debt Securities of a series in registered, bearer, coupon or
global form.
Minimum Denominations
Unless the prospectus supplement for each issuance of Debt Securities
states otherwise the securities will be issued in registered form in amounts of
$1,000 each or multiples of $1,000.
No Personal Liability of General Partner
Unless otherwise stated in a prospectus supplement and supplemental
indenture relating to a series of Debt Securities being offered, the General
Partner and its directors, officers, employees and shareholders will not have
-33-
<PAGE>
any liability for our obligations under the Indentures or the Debt Securities.
Each holder of Debt Securities by accepting a Debt Security waives and releases
all such liability. The waiver and release are part of the consideration for
the issuance of the Debt Securities.
Payment and Transfer
Principal, interest and any premium on fully registered securities will be
paid at designated places. Payment will be made by check mailed to the persons
in whose names the Debt Securities are registered on days specified in the
Indentures or any prospectus supplement. Debt Securities payments in other forms
will be paid at a place designated by us and specified in a prospectus
supplement.
Fully registered securities may be transferred or exchanged at the
corporate trust office of the Trustee or at any other office or agency
maintained by us for such purposes, without the payment of any service charge
except for any tax or governmental charge.
Discharging Our Obligations
We may choose to either discharge our obligations on the Debt Securities of
any series in a legal defeasance, or to release ourselves from our covenant
restrictions on the Debt Securities of any series in a covenant defeasance. We
may do so at any time on the 91st day after we deposit with the Trustee
sufficient cash or government securities to pay the principal, interest, any
premium and any other sums due to the stated maturity date or a redemption date
of the Debt Securities of the series. If we choose the legal defeasance option,
the holders of the Debt Securities of the series will not be entitled to the
benefits of the Indenture except for registration of transfer and exchange of
Debt Securities, replacement of lost, stolen or mutilated Debt Securities
conversion or exchange of Debt Securities, sinking fund payments and receipt of
principal and interest on the original stated due dates or specified redemption
dates.
We may discharge our obligations under the Indentures or release ourselves
from covenant restrictions only if we meet certain requirements. Among other
things, we must deliver an opinion of our legal counsel that the discharge will
not result in holders of Debt Securities having to recognize taxable income or
loss or subject then to different tax treatment. In the case of legal
defeasance, this opinion must be based on either an IRS letter ruling or change
in federal tax law. We may not have a default on the Debt Securities discharged
on the date of deposit. The discharge may not violate any of our agreements.
The discharge may not result in our becoming an investment company in violation
of the Investment Company Act of 1940.
Book Entry, Delivery and Form
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global certificates that will be deposited with a depositary
identified in a prospectus supplement.
Unless otherwise stated in any prospectus supplement, The Depository Trust
Company, New York, New York ("DTC") will act as depositary. Book-entry notes of
a series will be issued in the form of a global note that will be deposited with
DTC. This means that we will not issue certificates to each holder. One global
note will be issued to DTC who will keep a computerized record of its
participants (for example, your broker) whose clients have purchased the notes.
The participant will then keep a record of its clients who purchased the notes.
Unless it is exchanged in whole or in part for a certificate note, a global note
may not be transferred; except that DTC, its nominees and their successors may
transfer a global note as a whole to one another.
Beneficial interests in global notes will be shown on, and transfers of
global notes will be made only through, records maintained by DTC and its
participants.
-34-
<PAGE>
DTC has provided us the following information: DTC is a limited-purpose
trust company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the United States
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds
securities that its participants ("Direct Participants") deposit with DTC. DTC
also records the settlement among Direct Participants of securities
transactions, such as transfers and pledges, in deposited securities through
computerized records for Direct Participant's accounts. This eliminates the need
to exchange certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations.
DTC's book-entry system is also used by other organizations such as
securities brokers and dealers, banks and trust companies that work through a
Direct Participant. The rules that apply to DTC and its participants are on file
with the SEC.
DTC is owned by a number of its Direct Participants and by the New York
Stock Exchange, Inc., The American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc.
We will wire principal and interest payments to DTC's nominee. We and the
Trustee will treat DTC's nominee as the owner of the global notes for all
purposes. Accordingly, we, the Trustee and any paying agent will have no direct
responsibility or liability to pay amounts due on the global notes to owners of
beneficial interests in the global notes.
It is DTC's current practice, upon receipt of any payment of principal or
interest, to credit Direct Participants' accounts on the payment date according
to their respective holdings of beneficial interests in the global notes as
shown on DTC's records. In addition, it is DTC's current practice to assign any
consenting or voting rights to Direct Participants whose accounts are credited
with notes on a record date, by using an omnibus proxy. Payments by participants
to owners of beneficial interests in the global notes, and voting by
participants, will be governed by the customary practices between the
participants and owners of beneficial interests, as is the case with notes held
for the account of customers registered in "street name." However, payments
will be the responsibility of the participants and not of DTC, the Trustee or
us.
Notes represented by a global note will be exchangeable for certificated
notes with the same terms in authorized denominations only if:
. DTC notifies us that it is unwilling or unable to continue as
depositary or if DTC ceases to be a clearing agency registered under
applicable law and a successor depositary is not appointed by us
within 90 days; or
. we determine not to require all of the notes of a series to be
represented by a global note and notify the Trustee of our decision.
The Trustee
Resignation or Removal of Trustee
Under provisions of the Indentures and the Trust Indenture Act of 1939, as
amended, governing trustee conflicts of interest, any uncured Event of Default
with respect to any series of Senior Debt Securities will force the trustee to
resign as trustee under either the Subordinated Indenture or the Senior
Indenture. Also, any uncured Event of Default with respect to any series of
Subordinated Debt Securities will force the trustee to resign as trustee under
either the Senior Indenture or the Subordinated Indenture. Any resignation will
require the appointment of a successor trustee under the applicable Indenture in
accordance with the terms and conditions of such Indenture.
-35-
<PAGE>
The Trustee may resign or be removed by us with respect to one or more
series of Debt Securities and a successor trustee may be appointed to act with
respect to any such series. The holders of a majority in aggregate principal
amount of the Debt Securities of any series may remove the Trustee with respect
to the Debt Securities of such series.
Limitations on Trustee if it is a Creditor of the Partnership
Each Indenture will contain certain limitations on the right of the Trustee
thereunder, in the event that it becomes a creditor of the Partnership, 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.
Annual Trustee Report to Holders of Debt Securities
The Trustee is required to submit an annual report to the holders of the
Debt Securities regarding, among other things, the Trustee's eligibility to
serve as such, the priority of the Trustee's claims regarding certain advances
made by it, and any action taken by the Trustee materially affecting the Debt
Securities.
Certificates and Opinions to Be Furnished to Trustee
Each Indenture will provide that, in addition to other certificates or
opinions that may be specifically required by other provisions of an Indenture,
every application by us for action by the Trustee shall be accompanied by a
certificate of certain of our officers and an opinion of counsel (who may be our
counsel) stating that, in the opinion of the signers, all conditions precedent
to such action have been complied with by us.
-36-
<PAGE>
TAX CONSIDERATIONS
This section is a summary of material tax considerations that may be
relevant to prospective owners of Common Units and, to the extent set forth
below under "--Legal Opinions and Advice," expresses the opinion of Andrews &
Kurth L.L.P. ("Counsel"), insofar as it relates to matters of law and legal
conclusions. This section is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change. Subsequent changes in such authorities may cause the tax
consequences to vary substantially from the consequences described below. Unless
the context otherwise requires, references in this section to "us" are
references to the Partnership and the Operating Partnership and not to
Ferrellgas Partners Finance Corp.
No attempt has been made in the following discussion to comment on all
federal income tax matters affecting us or the unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or residents of
the United States and has only limited application to corporations, estates,
trusts, non-resident aliens or other unitholders subject to specialized tax
treatment (such as tax-exempt institutions, foreign persons, individual
retirement accounts, REITs or mutual funds). Accordingly, each prospective
unitholder should consult, and should depend on, his own tax advisor in
analyzing the federal, state, local and foreign tax consequences peculiar to him
of the ownership or disposition of Common Units.
Legal Opinions and Advice
Counsel is of the opinion that, based on the accuracy of the
representations and subject to the qualifications set forth in the detailed
discussion that follows, for federal income tax purposes we and the Operating
Partnership will each be treated as a partnership, and owners of Common Units
(with certain exceptions, as described in "--Limited Partner Status" below) will
be treated as partners of the Partnership (but not the Operating Partnership).
In addition, all statements as to matters of law and legal conclusions contained
in this section, unless otherwise noted, reflect the opinion of Counsel. (All
references to "us," "we" or "our" are to the Partnership and not Counsel.)
We have not requested, and do not expect to request a ruling from the
Internal Revenue Service (the "IRS") with respect to our classification as a
partnership for federal income tax purposes, whether our propane operations
generate "qualifying income" under Section 7704 of the Code or any other matter
affecting us or prospective unitholders. Instead, we have relied, and will
rely, on the opinions of counsel as to these matters stated here.
An opinion of counsel represents only that counsel's best legal judgment
and does not bind the IRS or the courts. No assurance can be provided that the
opinions and statements set forth herein would be sustained by a court if
contested by the IRS. Any such contest with the IRS may materially and
adversely impact the market for the Common Units and the prices at which Common
Units trade even if we prevail. In addition, the costs of any contest with the
IRS will be borne directly or indirectly by the unitholders and the General
Partner. Furthermore, no assurance is given that our treatment or an investment
in us will not be significantly modified by future legislative or administrative
changes or court decisions. Any such modification may even be retroactively
applied.
For the reasons hereinafter described, Counsel has not rendered an opinion
with respect to the following specific federal income tax issues: (1) the
treatment of a unitholder whose Common Units are loaned to a short seller to
cover a short sale of Common Units (see "--Tax Treatment of Unitholders--
Treatment of Short Sales"), (2) whether a unitholder acquiring Common Units in
separate transactions must maintain a single aggregate adjusted tax basis in his
Common Units (see "--Disposition of Common Units-- Recognition of Gain or
Loss"), (3) whether our monthly convention for allocating taxable income and
losses is permitted by existing Treasury Regulations (see "--Disposition of
Common Units--Allocations Between Transferors and Transferees"), (4) whether
our method for depreciating Section 743 adjustments is sustainable (see "--
Disposition of Common Units--Section 754 Election") and (5) whether the
allocations of recapture income contained in the Partnership Agreement will be
respected for federal income tax purposes (see "--Tax Treatment of Unitholders--
Allocation of Partnership Income, Gain, Loss and Deduction").
-37-
<PAGE>
Partnership Status
A partnership is not a taxable entity and incurs no federal income tax
liability. Instead, each partner is required to take into account his allocable
share of items of income, gain, loss and deduction of the partnership in
computing his federal income tax liability, regardless of whether cash
distributions are made. Distributions by a partnership to a partner are
generally not taxable unless the amount of any cash distributed is in excess of
the partner's adjusted basis in his partnership interest.
As we said earlier, we have not requested, and do not expect to request any
ruling from the IRS as to our status or that of the Operating Partnership for
federal income tax purposes. Instead we have relied on the opinion of Counsel
that, based upon the Code, the regulations thereunder, published revenue rulings
and court decisions, we and the Operating Partnership have been and will each be
classified as a partnership for federal income tax purposes.
In rendering its opinion with respect to taxable years beginning before
January 1, 1997, Counsel relied on different factual matters which the General
Partner believes are true. In rendering its opinion as to taxable years
beginning after December 31, 1996, Counsel has relied on certain factual
representations made by us and the General Partner. Such factual matters are as
follows:
(1) Neither we nor the Operating Partnership has elected nor will elect to
be treated as an association or corporation;
(2) We and the Operating Partnership have been and will be operated in
accordance with (A) all applicable partnership statutes, (B) the Partnership
Agreement or Operating Partnership Agreement (whichever is applicable), and
(C) the description of the applicable agreement in this Prospectus; and
(3) For each taxable year, more than 90% of our gross income will be (A)
derived from the exploration, development, production, processing, refining,
transportation or marketing of any mineral or natural resource, including oil,
gas or products thereof, or (B) other items of "qualifying income" within the
meaning of Section 7704(d) of the Code.
Section 7704 of the Code provides that publicly-traded partnerships will,
as a general rule, be taxed as corporations. However, an exception (the
"Qualifying Income Exception") exists with respect to publicly-traded
partnerships of which 90% or more of the gross income for every taxable year
consists of "qualifying income." Qualifying income includes interest (from other
than a financial business), dividends and income and gains from the processing,
transportation and marketing crude oil, natural gas, and products thereof,
including the retail and wholesale marketing of propane, certain hedging
activities and the transportation of propane and natural gas liquids.
If we fail to meet the Qualifying Income Exception (other than a failure
which is determined by the IRS to be inadvertent and which is cured within a
reasonable time after discovery), we will be treated as if we transferred all of
our assets (subject to liabilities) to a newly formed corporation (on the first
day of the year in which we fail to meet the Qualifying Income Exception) in
return for stock in that corporation, and then distributed that stock to the
partners in liquidation of their interests in us. This contribution and
liquidation should be tax-free to unitholders and us, so long as we, at that
time, do not have liabilities in excess of the tax basis of our assets.
Thereafter, we would be treated as a corporation for federal income tax
purposes.
If we or the Operating Partnership were treated as an association taxable
as a corporation in any taxable year, either as a result of a failure to meet
the Qualifying Income Exception or otherwise, our items of income, gain, loss
and deduction would be reflected only on our tax return rather than being passed
through to the unitholders, and our net income would be taxed to us or the
Operating Partnership at corporate rates. In addition, any distributions we
made to a unitholder would be treated as either taxable dividend income (to the
extent of our current or accumulated earnings and profits) or (in the absence of
earnings and profits) a nontaxable return of capital (to the
-38-
<PAGE>
extent of the unitholder's tax basis in his Common Units) or taxable capital
gain (after the unitholder's tax basis in the Common Units is reduced to zero).
Accordingly, treatment of either us or the Operating Partnership as an
association taxable as a corporation would result in a material reduction in a
unitholder's cash flow and after-tax return and thus would likely result in a
substantial reduction of the value of the Common Units.
The discussion below is based on the assumption that we will be classified
as a partnership for federal income tax purposes.
Tax Treatment of Unitholders
Limited Partner Status
Unitholders who have become our limited partners will be treated as our
partners for federal income tax purposes. Assignees who have executed and
delivered Transfer Applications, and are awaiting admission as limited partners
and unitholders whose Common Units are held in street name or by a nominee and
who have the right to direct the nominee in the exercise of all substantive
rights attendant to the ownership of their Common Units will be treated as our
partners for federal income tax purposes. Because there is no direct authority
addressing assignees of Common Units who are entitled to execute and deliver
Transfer Applications and thereby become entitled to direct the exercise of
attendant rights, but who fail to execute and deliver Transfer Applications, it
is not clear whether that conclusion extends to them. Income, gain, deductions
or losses would not appear to be reportable by a unitholder who is not a partner
for federal income tax purposes, and any cash distributions received by such a
unitholder would therefore be fully taxable as ordinary income. These holders
should consult their own tax advisors with respect to their status as our
partners for federal income tax purposes. Furthermore, a purchaser or other
transferee of Common Units who does not execute and deliver a Transfer
Application may not receive certain federal income tax information or reports
furnished to record holders of Common Units unless the Common Units are held in
a nominee or street name account and the nominee or broker has executed and
delivered a Transfer Application with respect to such Common Units. A
beneficial owner of Common Units whose Common Units have been transferred to a
short seller to complete a short sale would appear to lose his status as a
partner with respect to such Common Units for federal income tax purposes.
These holders should consult their own tax advisors with respect to their status
as our partners for federal income tax purposes. See "--Tax Treatment of
Unitholders--Treatment of Short Sales."
Flow-through of Taxable Income
We will pay no federal income tax. Instead, each unitholder will be
required to report on his income tax return his allocable share of our income,
gains, losses and deductions without regard to whether corresponding cash
distributions are received by such unitholder. Consequently, a unitholder may
be allocated a share of our income even if he has not received a cash
distribution. Each unitholder will be required to include in income his
allocable share of our income, gain, loss and deduction for our taxable year
ending with or within his taxable year.
Treatment of Partnership Distributions
Our distributions to a unitholder generally will not be taxable to the
unitholder for federal income tax purposes to the extent of his tax basis in his
Common Units immediately before the distribution. Our cash distributions in
excess of a unitholder's tax basis generally will be considered to be gain from
the sale or exchange of the Common Units, taxable in accordance with the rules
described under "--Disposition of Common Units" below. Any reduction in a
unitholder's share of our liabilities for which no partner, including the
General Partner, bears the economic risk of loss ("nonrecourse liabilities")
will be treated as a distribution of cash to that unitholder. To the extent that
our distributions cause a unitholder's "at risk" amount to be less than zero at
the end of any taxable year, he must recapture any losses deducted in previous
years. See "--Tax Treatment of Unitholders --Limitations on Deductibility of
Partnership Losses."
-39-
<PAGE>
A decrease in a unitholder's percentage interest in us because of our
issuance of additional Common Units will decrease such unitholder's share of
nonrecourse liabilities, and thus will result in a corresponding deemed
distribution of cash. Our non-pro rata distribution of money or property may
result in ordinary income to a unitholder, regardless of his tax basis in his
Common Units, if such distribution reduces the unitholder's share of our
"unrealized receivables" (including depreciation recapture) and/or substantially
appreciated "inventory items" (both as defined in Section 751 of the Code)
(collectively, "Section 751 Assets"). To that extent, the unitholder will be
treated as having been distributed his proportionate share of the Section 751
Assets and having exchanged such assets with us in return for the non-pro rata
portion of the actual distribution made to him. This latter deemed exchange
will generally result in the unitholder's realization of ordinary income under
Section 751(b) of the Code. Such income will equal the excess of (1) the non-pro
rata portion of such distribution over (2) the unitholder's tax basis for the
share of such Section 751 Assets deemed relinquished in the exchange.
Alternative Minimum Tax
Each unitholder will be required to take into account his distributive
share of any of our items of income, gain, deduction or loss for purposes of the
alternative minimum tax. A portion of our depreciation deductions may be
treated as an item of preference for this purpose. A unitholder's alternative
minimum taxable income derived from us may be higher than his share of our net
income because we may use accelerated methods of depreciation for purposes of
computing federal taxable income or loss. The minimum tax rate for noncorporate
taxpayers is 26% on the first $175,000 of alternative minimum taxable income in
excess of the exemption amount and 28% on any additional alternative minimum
taxable income. Prospective unitholders should consult with their tax advisors
as to the impact of an investment in Common Units on their liability for the
alternative minimum tax.
Basis of Common Units
A unitholder will have an initial tax basis for his Common Units equal to
the amount he paid for the Common Units plus his share of our nonrecourse
liabilities. His basis will be increased by his share of our income and by any
increases in his share of our nonrecourse liabilities. His basis will be
decreased (but not below zero) by his share of our distributions, our losses,
any decrease in our nonrecourse liabilities and our expenditures that are not
deductible in computing our taxable income and are not required to be
capitalized. A limited partner will have no share of our debt which is recourse
to the General Partner, but will have a share, generally based on his share of
profits, of our debt which is not recourse to any partner. See "--Disposition
of Common Units--Recognition of Gain or Loss."
Limitations on Deductibility of Partnership Losses
The deduction by a unitholder of his share of our losses will be limited to
his tax basis in his Common Units and, in the case of an individual unitholder
or a corporate unitholder (if more than 50% of the value of its stock is owned
directly or indirectly by five or fewer individuals or certain tax-exempt
organizations), to the amount for which the unitholder is considered to be "at
risk" with respect to our activities, if that is less than the unitholder's tax
basis. A unitholder must recapture losses deducted in previous years to the
extent that our distributions cause the unitholder's at risk amount to be less
than zero at the end of any taxable year. Losses disallowed to a unitholder or
recaptured as a result of these limitations will carry forward and will be
allowable to the extent that the unitholder's tax basis or at risk amount
(whichever is the limiting factor) subsequently increases. Upon the taxable
disposition of a Common Unit, any gain recognized by a unitholder can be offset
by losses that were previously suspended by the at risk limitation but may not
be offset by losses suspended by the basis limitation. Any excess loss (above
such gain) previously suspended by the at risk or basis limitations is no longer
utilizable.
In general, a unitholder will be at risk to the extent of his tax basis in
his Common Units, excluding any portion of that basis attributable to his share
of our nonrecourse liabilities, reduced by any amount of money the unitholder
borrows to acquire or hold his Common Units if the lender of such borrowed funds
owns an interest in us, is related to such a person or can look only to Common
Units for repayment. A unitholder's at risk amount
-40-
<PAGE>
will increase or decrease as the tax basis of the unitholder's Common Units
increases or decreases (other than tax basis increases or decreases attributable
to increases or decreases in his share of our nonrecourse liabilities).
The passive loss limitations generally provide that individuals, estates,
trusts and certain closely-held corporations and personal service corporations
can deduct losses from passive activities (generally, activities in which the
taxpayer does not materially participate) only to the extent of the taxpayer's
income from those passive activities. The passive loss limitations are applied
separately with respect to each publicly-traded partnership. Consequently, any
passive losses generated by us will only be available to offset future income
generated by us and will not be available to offset income from other passive
activities or investments (including other publicly-traded partnerships) or
salary or active business income. Passive losses which are not deductible
because they exceed a unitholder's share of our income may be deducted in full
when he disposes of his entire investment in us in a fully taxable transaction
to an unrelated party. The passive activity loss rules are applied after other
applicable limitations on deductions such as the at risk rules and the basis
limitation.
A unitholder's share of our net income may be offset by any suspended
passive losses from us, but it may not be offset by any other current or
carryover losses from other passive activities, including those attributable to
other publicly-traded partnerships. The IRS has announced that Treasury
Regulations will be issued which characterize net passive income from a
publicly-traded partnership as investment income for purposes of the limitations
on the deductibility of investment interest.
Limitations on Interest Deductions
The deductibility of a non-corporate taxpayer's "investment interest
expense" is generally limited to the amount of such taxpayer's "net investment
income." As noted, a unitholder's net passive income from us will be treated as
investment income for this purpose. In addition, the unitholder's share of our
portfolio income will be treated as investment income. Investment interest
expense includes (1) interest on indebtedness properly allocable to property
held for investment, (2) our interest expense attributed to portfolio income,
and (3) the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to portfolio income.
The computation of a unitholder's investment interest expense will take into
account interest on any margin account borrowing or other loan incurred to
purchase or carry a Common Unit. Net investment income includes gross income
from property held for investment and amounts treated as portfolio income
pursuant to the passive loss rules less deductible expenses (other than
interest) directly connected with the production of investment income, but
generally does not include gains attributable to the disposition of property
held for investment.
Allocation of Partnership Income, Gain, Loss and Deduction
In general, if we have a net profit, our items of income, gain, loss and
deduction will be allocated among the General Partner and the unitholders in
accordance with their respective percentage interests in us. At any time that
distributions are made to the Common Units and not to the Subordinated Units, or
that Incentive Distributions are made to the General Partner, gross income will
be allocated to the recipients to the extent of such distributions. If we have a
net loss, our items of income, gain, loss and deduction will generally be
allocated first, to the General Partner and the unitholders in accordance with
their respective Percentage Interests to the extent of their positive capital
accounts (as maintained under the Partnership Agreement) and, second, to the
General Partner.
As required by Section 704(c) of the Code and as permitted by Regulations
thereunder, certain items of our income, deduction, gain and loss will be
allocated to account for the difference between the tax basis and fair market
value of property contributed to us by the General Partner or any other person
contributing property to us ("Contributed Property"), and to account for the
difference between the fair market value of our assets and their carrying value
on our books at the time of any offering made pursuant to this prospectus. The
effect of these allocations to a unitholder purchasing Common Units pursuant to
this prospectus will be essentially the same as if the tax basis of our assets
were equal to their fair market value at the time of purchase. In addition,
certain items of recapture income will be allocated to the extent possible to
the partner allocated the deduction or curative allocation
-41-
<PAGE>
giving rise to the treatment of such gain as recapture income in order to
minimize the recognition of ordinary income by some unitholders. Finally,
although we do not expect that our operations will result in the creation of
negative capital accounts, if negative capital accounts nevertheless result,
items of our income and gain will be allocated in an amount and manner
sufficient to eliminate the negative balance as quickly as possible.
Regulations provide that an allocation of items of partnership income,
gain, loss or deduction, other than an allocation required by Section 704(c) of
the Code to eliminate the difference between a partner's "book" capital account
(credited with the fair market value of Contributed Property) and "tax" capital
account (credited with the tax basis of Contributed Property) (the "Book-Tax
Disparity"), will generally be given effect for federal income tax purposes in
determining a partner's distributive share of an item of income, gain, loss or
deduction only if the allocation has substantial economic effect. In any other
case, a partner's distributive share of an item will be determined on the basis
of the partner's interest in the partnership, which will be determined by taking
into account all the facts and circumstances, including the partner's relative
contributions to the partnership, the interests of the partners in economic
profits and losses, the interest of the partners in cash flow and other
nonliquidating distributions and rights of the partners to distributions of
capital upon liquidation. Counsel is of the opinion that, with the exception of
the allocation of recapture income discussed above, allocations under our
partnership agreement will be given effect for federal income tax purposes in
determining a partner's distributive share of an item of income, gain, loss or
deduction.
Entity-Level Collections
If we are required or elect under applicable law to pay any federal, state
or local income tax on behalf of any unitholder or the General Partner or any
former unitholder, we are authorized to pay those taxes from our funds. Such
payment, if made, will be treated as a distribution of cash to the partner on
whose behalf the payment was made. If the payment is made on behalf of a person
whose identity cannot be determined, we are authorized to treat the payment as a
distribution to current unitholders. We are authorized to amend our partnership
agreement in the manner necessary to maintain uniformity of intrinsic tax
characteristics of Common Units and to adjust subsequent distributions, so that
after giving effect to such distributions, the priority and characterization of
distributions otherwise applicable under our partnership agreement is maintained
as nearly as is practicable. Payments by us as described above could give rise
to an overpayment of tax on behalf of an individual partner in which event the
partner could file a claim for credit or refund.
Treatment of Short Sales
A unitholder whose Common Units are loaned to a "short seller" to cover a
short sale of Common Units may be considered as having disposed of ownership of
those Common Units. If so, he would no longer be a partner with respect to
those Common Units during the period of the loan and may recognize gain or loss
from the disposition. As a result, during this period, any of our income, gain,
deduction or loss with respect to those Common Units would not be reportable by
the unitholder, any cash distributions received by the unitholder with respect
to those Common Units would be fully taxable and all of such distributions would
appear to be treated as ordinary income. Unitholders desiring to assure their
status as partners and avoid the risk of gain recognition should modify any
applicable brokerage account agreements to prohibit their brokers from borrowing
their Common Units. The IRS has announced that it is actively studying issues
relating to the tax treatment of short sales of partnership interests. See also
"--Disposition of Common Units--Recognition of Gain or Loss."
Tax-Exempt Organizations and Certain Other Investors
Ownership of Common Units by employee benefit plans, other tax-exempt
organizations, nonresident aliens, foreign corporations, other foreign persons
and regulated investment companies raises issues unique to such persons and, as
described below, may have substantially adverse tax consequences. Employee
benefit plans and most other organizations exempt from federal income tax
(including individual retirement accounts ("IRAs") and other retirement plans)
are subject to federal income tax on unrelated business taxable income. Much of
the taxable
-42-
<PAGE>
income derived by such an organization from the ownership of a Common Unit will
be unrelated business taxable income and thus will be taxable to such a
unitholder.
A regulated investment company or "mutual fund" is required to derive 90%
or more of its gross income from interest, dividends, gains from the sale of
stocks or securities or foreign currency or certain related sources. It is not
anticipated that any significant amount of our gross income will include that
type of income.
Non-resident aliens and foreign corporations, trusts or estates which hold
Common Units will be considered to be engaged in business in the United States
on account of ownership of Common Units. As a consequence they will be required
to file federal tax returns in respect of their share of our income, gain, loss
or deduction and pay federal income tax at regular rates on any net income or
gain. Generally, a partnership is required to pay a withholding tax on the
portion of the partnership's income which is effectively connected with the
conduct of a United States trade or business and which is allocable to the
foreign partners, regardless of whether any actual distributions have been made
to such partners. However, under rules applicable to publicly-traded
partnerships, we will withhold (currently at the rate of 39.6%) on actual cash
distributions made quarterly to foreign unitholders. Each foreign unitholder
must obtain a taxpayer identification number from the IRS and submit that number
to our Transfer Agent on a Form W-8 in order to obtain credit for the taxes
withheld. A change in applicable law may require us to change these procedures.
Because a foreign corporation which owns Common Units will be treated as
engaged in a United States trade or business, such a corporation may be subject
to United States branch profits tax at a rate of 30%, in addition to regular
federal income tax, on its allocable share of our income and gain (as adjusted
for changes in the foreign corporation's "U.S. net equity") which are
effectively connected with the conduct of a United States trade or business. An
income tax treaty between the United States and the country with respect to
which the foreign corporate unitholder is a "qualified resident" may reduce or
eliminate this tax. In addition, such a unitholder is subject to special
information reporting requirements under Section 6038C of the Code.
Under a ruling of the IRS a foreign unitholder who sells or otherwise
disposes of a Common Unit will be subject to federal income tax on gain realized
on the disposition of such Common Unit to the extent that such gain is
effectively connected with a United States trade or business of the foreign
unitholder. Apart from the ruling, a foreign unitholder will not be taxed upon
the disposition of a Common Unit if that foreign unitholder has held less than
5% in value of the Common Units during the five-year period ending on the date
of the disposition and if the Common Units are regularly traded on an
established securities market at the time of the disposition.
Tax Treatment of Operations
Accounting Method and Taxable Year
We currently use the fiscal year ending July 31 as our taxable year and we
have adopted the accrual method of accounting for federal income tax purposes.
We have requested permission from the IRS to continue using a fiscal year ending
July 31 as our taxable year but if that permission is not granted, we may be
required to use the calendar year. Each unitholder will be required to include
in income his allocable share of our income, gain, loss and deduction for our
fiscal year ending within or with his taxable year. In addition, a unitholder
who disposes of Common Units following the close of our taxable year but before
the close of his taxable year must include his allocable share of our income,
gain, loss and deduction in income for his taxable year with the result that he
will be required to report in income for his taxable year his distributive share
of more than one year of our income, gain, loss and deduction. See "--
Disposition of Common Units--Allocations Between Transferors and Transferees."
In view of our publicly-traded nature, it may be impossible to determine our
appropriate taxable year. If, as a result, we failed to timely provide
information to unitholders, we could be exposed to certain penalties. We do not
expect to incur such penalties and, even if incurred, do not expect that such
penalties would be material.
-43-
<PAGE>
Initial Tax Basis, Depreciation and Amortization
We will use the tax basis of our various assets for purposes of computing
depreciation and cost recovery deductions and, ultimately, gain or loss on the
disposition of such assets. Our assets initially had an aggregate tax basis
equal to the tax basis of the assets in the possession of the General Partner
immediately prior to our formation. The federal income tax burden associated
with the difference between the fair market value of our property and its tax
basis immediately prior to this offering will be borne by partners holding
interests in us prior to this offering. See "--Tax Treatment of Unitholders--
Allocation of Partnership Income, Gain, Loss and Deduction." If we dispose of
depreciable property by sale, foreclosure, or otherwise, all or a portion of any
gain (determined by reference to the amount of depreciation previously deducted
and the nature of the property) may be subject to the recapture rules and taxed
as ordinary income rather than capital gain. Similarly, a partner who has taken
cost recovery or depreciation deductions with respect to property owned by us
may be required to recapture such deductions as ordinary income upon a sale of
his interest in us. See "--Tax Treatment of Unitholders--Allocation of
Partnership Income, Gain, Loss and Deduction" and "--Disposition of Common
Units--Recognition of Gain or Loss." Costs incurred in our organization are
being amortized over a period of 60 months. The costs incurred in promoting the
issuance of Common Units (i.e. syndication expenses) must be capitalized and
cannot be deducted currently, ratably or upon our termination. Uncertainties
exist regarding the classification of costs as organization expenses, which may
be amortized, and as syndication expenses, which may not be amortized. Under
recently adopted regulations, underwriting discounts and commissions are treated
as a syndication cost.
Uniformity of Common Units
Because we cannot match transferors and transferees of Common Units,
uniformity of the economic and tax characteristics of the Common Units to a
purchaser of such Common Units must be maintained. In the absence of
uniformity, compliance with a number of federal income tax requirements, both
statutory and regulatory, could be substantially diminished. A lack of
uniformity can result from a literal application of Treasury Regulation Section
1.167(c)-1(a)(6) and Proposed Treasury Regulation Section 1.197-2(g)(3). Any
non-uniformity could have a negative impact on the value of the Common Units.
See "--Disposition of Common Units--Section 754 Election."
We intend to depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of contributed property or
adjusted property (to the extent of any unamortized Book-Tax Disparity) using a
rate of depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the basis of such property, or
treat that portion as nonamortizable, to the extent attributable to property the
basis of which is not amortizable consistent with the proposed regulations under
Section 743 (but despite its apparent inconsistency with Treasury Regulation
Section 1.167(c)-1(a)(6) (which is not expected to directly apply to a material
portion of our assets) and Proposed Treasury Regulation Section 1.197-2(g)(3)).
See "--Disposition of Common Units--Section 754 Election." To the extent such
Section 743(b) adjustment is attributable to appreciation in value in excess of
the unamortized Book-Tax Disparity, we will apply the rules described in the
Regulations and legislative history. If we determine that such a position
cannot reasonably be taken, we may adopt a depreciation and amortization
convention under which all purchasers acquiring Common Units in the same month
would receive depreciation and amortization deductions, whether attributable to
Basis or Section 743(b) basis, based upon the same applicable rate as if they
had purchased a direct interest in our property. If such an aggregate approach
is adopted, it may result in lower annual depreciation and amortization
deductions than would otherwise be allowable to certain unitholders and risk the
loss of depreciation and amortization deductions not taken in the year that such
deductions are otherwise allowable. This convention will not be adopted if we
determine that the loss of depreciation and amortization deductions will have a
material adverse effect on the unitholders. If we choose not to utilize this
aggregate method, we may use any other reasonable depreciation and amortization
convention to preserve the uniformity of the intrinsic tax characteristics of
any Common Units that would not have a material adverse effect on the
unitholders. The IRS may challenge any method of depreciating the Section
743(b) adjustment described in this paragraph. If such a challenge were
sustained, the uniformity of Common Units might
-44-
<PAGE>
be affected, and the gain from the sale of Common Units might be increased
without the benefit of additional deductions. See "-- Disposition of Common
Units--Recognition of Gain or Loss."
Valuation of Partnership Property and Basis of Properties
The federal income tax consequences of the ownership and disposition of
Common Units will depend in part on our estimates as to the relative fair market
values, and determinations of the initial tax bases, of our assets. Although we
may from time to time consult with professional appraisers with respect to
valuation matters, we will make many of the relative fair market value
estimates. These estimates and determinations of basis are subject to challenge
and will not be binding on the IRS or the courts. If the estimates of fair
market value or determinations of basis are subsequently found to be incorrect,
the character and amount of items of income, gain, loss or deductions previously
reported by unitholders might change, and unitholders might be required to
adjust their tax liability for prior years.
State and Local Tax Considerations
For a discussion of the state and local tax considerations arising from an
investment in Common Units, see "-- State, Local and Other Tax Considerations."
Administrative Matters
Information Returns and Audit Procedures
We intend to furnish to each unitholder, within 60 days after the close of
each calendar year, certain tax information, including a Substitute Schedule K-
1, which sets forth each unitholder's share of our income, gain, loss and
deduction for our preceding taxable year. In preparing this information, which
will generally not be reviewed by counsel, we will use various accounting and
reporting conventions, some of which have been mentioned in the previous
discussion, to determine the unitholder's share of income, gain, loss and
deduction. There is no assurance that any of those conventions will yield a
result which conforms to the requirements of the Code, regulations or
administrative interpretations of the IRS. We cannot assure prospective
unitholders that the IRS will not successfully contend in court that such
accounting and reporting conventions are impermissible. Any such challenge by
the IRS could negatively affect the value of the Common Units.
The IRS may audit our federal income tax information returns. Adjustments
resulting from any such audit may require each unitholder to adjust a prior
year's tax liability, and possibly may result in an audit of the unitholder's
own return. Any audit of a unitholder's return could result in adjustments not
related to our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for purposes of
federal tax audits, judicial review of administrative adjustments by the IRS and
tax settlement proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership proceeding rather than
in separate proceedings with the partners. The Code provides for one partner to
be designated as the "Tax Matters Partner" for these purposes. Our partnership
agreement appoints the General Partner as our Tax Matters Partner.
The Tax Matters Partner will make certain elections on our behalf and on
behalf of the unitholders and can extend the statute of limitations for
assessment of tax deficiencies against unitholders with respect to items in our
returns. The Tax Matters Partner may bind a unitholder with less than a 1%
profits interest in us to a settlement with the IRS unless that unitholder
elects, by filing a statement with the IRS, not to give such authority to the
Tax Matters Partner. The Tax Matters Partner may seek judicial review (by which
all the unitholders are bound) of a final partnership administrative adjustment
and, if the Tax Matters Partner fails to seek judicial review, such review may
be sought by any unitholder having at least a 1% interest in our profits and by
the unitholders having in the aggregate at least a 5% profits interest.
However, only one action for judicial review will go forward, and each
-45-
<PAGE>
unitholder with an interest in the outcome may participate. However, if we
elect to be treated as a large partnership (which we do not intend to do because
of the costs of application), a unitholder will not have a right to participate
in settlement conferences with the IRS or to seek a refund.
A unitholder must file a statement with the IRS identifying the treatment
of any item on his federal income tax return that is not consistent with the
treatment of the item on our return. Intentional or negligent disregard of the
consistency requirement may subject a unitholder to substantial penalties.
Partners in electing large partnerships are required to treat all items from the
partnership's return in a manner consistent with such return.
If we elect to be treated as a large partnership, each partner would take
into account separately his share of the following items, determined at the
partnership level: (1) taxable income or loss from passive loss limitation
activities; (2) taxable income or loss from other activities (such as portfolio
income or loss); (3) net capital gains to the extent allocable to passive loss
limitation activities and other activities; (4) tax exempt interest; (5) a net
alternative minimum tax adjustment separately computed for passive loss
limitation activities and other activities; (6) general credits; (7) low-income
housing credit; (8) rehabilitation credit; (9) foreign income taxes; (10) credit
for producing fuel from a nonconventional source; and (11) any other items the
Secretary of Treasury deems appropriate. Moreover, miscellaneous itemized
deductions would not be passed through to the partners and 30% of such
deductions would be used at the partnership level.
Currently adjustments relating to partnership items for a previous taxable
year are taken into account by those persons who were partners in the previous
taxable year. If we elect to be treated as a large partnership, our partners
would each take into account their share of any adjustments to partnership items
in the year such adjustments are made. Alternatively, a large partnership could
elect to or, in some circumstances, could be required to directly pay the tax
resulting from any such adjustments. In either case, therefore, unitholders of
an electing large partnership could bear significant economic burdens associated
with tax adjustments relating to periods predating their acquisition of units.
Nominee Reporting
Persons who hold an interest in us as a nominee for another person are
required to furnish to us (1) the name, address and taxpayer identification
number of the beneficial owner and the nominee; (2) whether the beneficial owner
is (A) a person that is not a United States person, (B) a foreign government, an
international organization or any wholly-owned agency or instrumentality of
either of the foregoing, or (C) a tax-exempt entity; (3) the amount and
description of Common Units held, acquired or transferred for the beneficial
owner; and (4) certain information including the dates of acquisitions and
transfers, means of acquisitions and transfers, and acquisition cost for
purchases, as well as the amount of net proceeds from sales. Brokers and
financial institutions are required to furnish additional information, including
whether they are United States persons and certain information on Common Units
they acquire, hold or transfer for their own account. A penalty of $50 per
failure (up to a maximum of $100,000 per calendar year) is imposed by the Code
for failure to report such information to us. The nominee is required to supply
the beneficial owner of the Common Units with the information furnished to
us.
Registration as a Tax Shelter
The Code requires that "tax shelters" be registered with the Secretary of
the Treasury. The temporary Treasury Regulations interpreting the tax shelter
registration provisions of the Code are extremely broad. It is arguable that we
are not subject to the registration requirement on the basis that it will not
constitute a tax shelter. However, the General Partner, as our principal
organizer, has registered us as a tax shelter with the Secretary of the Treasury
in the absence of assurance that we will not be subject to tax shelter
registration and in light of the substantial penalties which might be imposed if
registration is required and not undertaken. The IRS has issued us the
following tax shelter registration number: 94201000010. ISSUANCE OF THE
REGISTRATION NUMBER DOES NOT INDICATE THAT AN INVESTMENT IN US OR THE CLAIMED
TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE IRS. We must
furnish the registration number to the
-46-
<PAGE>
unitholders, and a unitholder who sells or otherwise transfers a Common Unit in
a subsequent transaction must furnish the registration number to the transferee.
The penalty for failure of the transferor of a Common Unit to furnish the
registration number to the transferee is $100 for each such failure. The
unitholders must disclose our tax shelter registration number on Form 8271 to be
attached to the tax return on which any deduction, loss or other benefit
generated by us is claimed or our income is included. A unitholder who fails to
disclose the tax shelter registration number on his return, without reasonable
cause for that failure, will be subject to a $250 penalty for each failure. Any
penalties discussed herein are not deductible for federal income tax purposes.
Registration as a tax shelter may increase the risk of an audit.
Accuracy-Related Penalties
An additional tax equal to 20% of the amount of any portion of an
underpayment of tax which is attributable to one or more of certain listed
causes, including negligence or disregard of rules or regulations, substantial
understatements of income tax and substantial valuation misstatements, is
imposed by the Code. No penalty will be imposed, however, with respect to any
portion of an underpayment if it is shown that there was a reasonable cause for
that portion and that the taxpayer acted in good faith with respect to that
portion.
A substantial understatement of income tax in any taxable year exists if
the amount of the understatement exceeds the greater of 10% of the tax required
to be shown on the return for the taxable year or $5,000 ($10,000 for most
corporations). The amount of any understatement subject to penalty generally is
reduced if any portion is attributable to a position adopted on the return (i)
with respect to which there is, or was, "substantial authority" or (ii) as to
which there is a reasonable basis and the pertinent facts of such position are
disclosed on the return. Certain more stringent rules apply to "tax shelters," a
term that in this context does not appear to include us. If any item of our
income, gain, loss or deduction included in the distributive shares of
unitholders might result in such an "understatement" of income for which no
"substantial authority" exists, we must disclose the pertinent facts on our
return. In addition, we will make a reasonable effort to furnish sufficient
information for unitholders to make adequate disclosure on their returns to
avoid liability for this penalty.
A substantial valuation misstatement exists if the value of any property
(or the adjusted basis of any property) claimed on a tax return is 200% or more
of the amount determined to be the correct amount of such valuation or adjusted
basis. No penalty is imposed unless the portion of the underpayment
attributable to a substantial valuation misstatement exceeds $5,000 ($10,000 for
most corporations). If the valuation claimed on a return is 400% or more than
the correct valuation, the penalty imposed increases to 40%.
Disposition of Common Units
Recognition of Gain or Loss
Gain or loss will be recognized on a sale of Common Units equal to the
difference between the amount realized and the unitholder's tax basis for the
Common Units sold. A unitholder's amount realized will be measured by the sum
of the cash or the fair market value of other property received plus his share
of our nonrecourse liabilities. Because the amount realized includes a
unitholder's share of our nonrecourse liabilities, the gain recognized on the
sale of Common Units could result in a tax liability in excess of any cash
received from such sale.
Prior distributions from us in excess of cumulative net taxable income in
respect of a Common Unit which decreased a unitholder's tax basis in such Common
Unit will, in effect, become taxable income if the Common Unit is sold at a
price greater than the unitholder's tax basis in such Common Unit, even if the
price is less than his original cost.
Should the IRS successfully contest our convention to amortize only a
portion of the Section 743(b) adjustment (described under "--Disposition of
Common Units--Section 754 Election") attributable to an amortizable Section 197
intangible after a sale by the General Partner of Common Units, a unitholder
could realize
-47-
<PAGE>
additional gain from the sale of Common Units than had such convention been
respected. In that case, the unitholder may have been entitled to additional
deductions against income in prior years but may be unable to claim them, with
the result to him of greater overall taxable income than appropriate. Counsel is
unable to opine as to the validity of the convention but believes such a contest
by the IRS to be unlikely because a successful contest could result in
substantial additional deductions to other unitholders.
Gain or loss recognized by a unitholder (other than a "dealer" in Common
Units) on the sale or exchange of a Common Unit will generally be taxable as
capital gain or loss. Capital gain recognized on the sale of Common Units held
for more than 12 months will generally be taxed at a maximum rate of 20%. A
portion of this gain or loss (which could be substantial), however, will be
separately computed and taxed as ordinary income or loss under Section 751 of
the Code to the extent attributable to assets giving rise to depreciation
recapture or other "unrealized receivables" or to "inventory items" owned by us.
The term "unrealized receivables" includes potential recapture items, including
depreciation recapture. Ordinary income attributable to unrealized receivables,
inventory items and depreciation recapture may exceed net taxable gain realized
upon the sale of the Common Unit and may be recognized even if there is a net
taxable loss realized on the sale of the Common Unit. Thus, a unitholder may
recognize both ordinary income and a capital loss upon a disposition of Common
Units. Net capital loss may offset no more than $3,000 of ordinary income in
the case of individuals and may only be used to offset capital gain in the case
of corporations.
The IRS has ruled that a partner who acquires interests in a partnership in
separate transactions must combine those interests and maintain a single
adjusted tax basis. Upon a sale or other disposition of less than all of such
interests, a portion of that tax basis must be allocated to the interests sold
using an "equitable apportionment" method. The ruling is unclear as to how the
holding period of these interests is determined once they are combined. If this
ruling is applicable to the holders of Common Units, a unitholder will be unable
to select high or low basis Common Units to sell as would be the case with
corporate stock. It is not clear whether the ruling applies to us because,
similar to corporate stock, our interests are evidenced by separate
certificates. Accordingly, Counsel is unable to opine as to the effect such
ruling will have on the unitholders. A unitholder considering the purchase of
additional Common Units or a sale of Common Units purchased in separate
transactions should consult his tax advisor as to the possible consequences of
such ruling.
Certain provisions of the Code affect the taxation of certain financial
products and securities, including partnership interests by treating a taxpayer
as having sold an "appreciated" partnership interest (one in which gain would be
recognized if it were sold, assigned or otherwise terminated at its fair market
value) if the taxpayer or related persons enter into (1) a short sale, (2) an
offsetting notional principal contract or (3) a futures or forward contract with
respect to the same or substantially identical property. The Secretary of the
Treasury is also authorized to issue regulations that treat a taxpayer that
enters in transactions or positions that have substantially the same effect as
the preceding transactions as having constructively sold the financial
position.
Allocations Between Transferors and Transferees
In general, our taxable income and losses will be determined annually, will
be prorated on a monthly basis and will be subsequently apportioned among the
unitholders in proportion to the number of Common Units owned by each of them as
of the opening of the principal national securities exchange on which the Common
Units are then traded on the first business day of the month (the "Allocation
Date"). However, gain or loss realized on a sale or other disposition of our
assets other than in the ordinary course of business will be allocated among the
unitholders on the Allocation Date in the month in which that gain or loss is
recognized. As a result, a unitholder transferring Common Units in the open
market may be allocated income, gain, loss and deduction accrued after the date
of transfer.
The use of this method may not be permitted under existing Treasury
Regulations. Accordingly, Counsel is unable to opine on the validity of this
method of allocating income and deductions between the transferors and the
transferees of Common Units. If this method is not allowed under the Treasury
Regulations (or only applies to
-48-
<PAGE>
transfers of less than all of the unitholder's interest), our taxable income or
losses might be reallocated among the unitholders. We are authorized to revise
its method of allocation between transferors and transferees (as well as among
partners whose interests otherwise vary during a taxable period) to conform to a
method permitted under future Treasury Regulations.
A unitholder who owns Common Units at any time during a quarter and who
disposes of such Common Units prior to the record date set for a cash
distribution with respect to such quarter will be allocated items of Partnership
income, gain, loss and deductions attributable to such quarter but will not be
entitled to receive that cash distribution.
Section 754 Election
We have made the election permitted by Section 754 of the Code. The
election is irrevocable without the consent of the IRS. The election generally
permits us to adjust a Common Unit purchaser's tax basis in our assets ("inside
basis") pursuant to Section 743(b) of the Code to reflect his purchase price.
The Section 743(b) adjustment belongs to the purchaser and not to other
partners. (For purposes of this discussion, a partner's inside basis in our
assets will be considered to have two components: (1) his share of our tax basis
in such assets ("common basis") and (2) his Section 743(b) adjustment to that
basis.)
Proposed Treasury Regulations promulgated under Section 743 of the Code
would require, if adopted in their current form, if the remedial allocation
method is adopted (which we have done), a portion of the Section 743(b)
adjustment attributable to recovery property to be depreciated over the
remaining cost recovery period for the Section 704(c) built-in gain.
Nevertheless, the proposed regulations under Section 197 indicate that the
Section 743(b) adjustment attributable to an amortizable Section 197 intangible
should be treated as a newly-acquired asset placed in service in the month when
the purchaser acquires the Common Unit. Under Treasury Regulation Section
1.167(c)-1(a)(6), a Section 743(b) adjustment attributable to property subject
to depreciation under Section 167 of the Code rather than cost recovery
deductions under Section 168 is generally required to be depreciated using
either the straight-line method or the 150% declining balance method. Although
the proposed regulations under Section 743 will likely eliminate many of the
apparent inconsistencies if finalized in their current form, the depreciation
and amortization methods and useful lives associated with the Section 743(b)
adjustment may differ from the methods and useful lives generally used to
depreciate the basis in such properties. Pursuant to our Partnership Agreement,
we are authorized to adopt a convention to preserve the uniformity of Common
Units even if such convention is not consistent with certain Treasury
Regulations. See "--Tax Treatment of Operations--Uniformity of Common Units."
Although Counsel is unable to opine as to the validity of such an approach,
we intend to depreciate the portion of a Section 743(b) adjustment attributable
to unrealized appreciation in the value of Contributed Property (to the extent
of any unamortized Book-Tax Disparity) using a rate of depreciation or
amortization derived from the depreciation or amortization method and useful
life applied to the Basis of such property, or treat that portion as non-
amortizable to the extent attributable to property the Basis of which is not
amortizable. This method is consistent with the proposed regulations under
Section 743 but is arguably inconsistent with Treasury Regulation Section
1.167(c)-1(a)(6) (which is not expected to directly apply to a material portion
of our assets) and Proposed Treasury Regulation Section 1.197-2(g)(3). To the
extent such Section 743(b) adjustment is attributable to appreciation in value
in excess of the unamortized Book-Tax Disparity, we will apply the rules
described in the Regulations and legislative history. If we determine that such
position cannot reasonably be taken, we may adopt a depreciation or amortization
convention under which all purchasers acquiring Common Units in the same month
would receive depreciation or amortization, whether attributable to Basis or
Section 743(b) adjustment, based upon the same applicable rate as if they had
purchased a direct interest in our assets. Such an aggregate approach may
result in lower annual depreciation or amortization deductions than would
otherwise be allowable to certain unitholders. See "--Tax Treatment of
Operations--Uniformity of Common Units."
-49-
<PAGE>
The allocation of the Section 743(b) adjustment must be made in accordance
with the Code. The IRS may seek to reallocate some or all of any Section 743(b)
adjustment not so allocated by us to goodwill which, as an intangible asset,
would be amortizable over a longer period of time than our tangible assets.
A Section 754 election is advantageous if the transferee's tax basis in his
Common Units is higher than such Common Units' share of the aggregate tax basis
of our assets immediately prior to the transfer. In such a case, as a result of
the election, the transferee would have a higher tax basis in his share of our
assets for purposes of calculating, among other items, his depreciation and
depletion deductions and his share of any gain or loss on a sale of our assets.
Conversely, a Section 754 election is disadvantageous if the transferee's tax
basis in such Common Units is lower than such Common Unit's share of the
aggregate tax basis of our assets immediately prior to the transfer. Thus, the
fair market value of the Common Units may be affected either favorably or
adversely by the election.
The calculations involved in the Section 754 election are complex and will
be made by us on the basis of certain assumptions as to the value of our assets
and other matters. There is no assurance that the determinations made by us
will not be successfully challenged by the IRS and that the deductions resulting
from them will not be reduced or disallowed altogether. Should the IRS require
a different basis adjustment to be made, and should, in our opinion, the expense
of compliance exceed the benefit of the election, we may seek permission from
the IRS to revoke our Section 754 election. If such permission is granted, a
subsequent purchaser of Common Units may be allocated more income than he would
have been allocated had the election not been revoked.
Notification Requirements
A unitholder who sells or exchanges Common Units is required to notify us
in writing of that sale or exchange within 30 days after the sale or exchange
and in any event by no later than January 15 of the year following the calendar
year in which the sale or exchange occurred. We are required to notify the IRS
of that transaction and to furnish certain information to the transferor and
transferee. However, these reporting requirements do not apply with respect to
a sale by an individual who is a citizen of the United States and who effects
the sale or exchange through a broker. Additionally, a transferee of a Common
Unit will be required to furnish a statement to the IRS, filed with its income
tax return for the taxable year in which the sale or exchange occurred, that
sets forth the amount of the consideration paid for the Common Unit. Failure to
satisfy these reporting obligations may lead to the imposition of substantial
penalties.
Constructive Termination
We will be considered to have been terminated if there is a sale or
exchange of 50% or more of the total interests in our capital and profits within
a 12-month period. Our termination will result in the closing of our taxable
year for all unitholders. In the case of a unitholder reporting on a taxable
year other than a fiscal year ending July 31 (or other than a calendar year
ending December 31 if we are required to change our taxable year to a calendar
year), the closing of our taxable year may result in more than 12 months of our
taxable income or loss being includable in his taxable income for the year of
termination. New tax elections required to be made by us, including a new
election under Section 754 of the Code, must be made subsequent to a
termination, and a termination could result in a deferral of our deductions for
depreciation. A termination could also result in penalties if we were unable to
determine that the termination had occurred. Moreover, a termination might
either accelerate the application of, or subject us to, any tax legislation
enacted prior to the termination.
State, Local and Other Tax Considerations
In addition to federal income taxes, unitholders will be subject to other
taxes, such as state and local income taxes, unincorporated business taxes, and
estate, inheritance or intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property. Although an analysis of
those various taxes is not presented here, each prospective unitholder should
consider their potential impact on his investment in us. We
-50-
<PAGE>
currently conduct business in 45 states. A unitholder will be required to file
state income tax returns and to pay state income taxes in some or all of the
states in which we do business or own property and may be subject to penalties
for failure to comply with those requirements. In certain states, tax losses may
not produce a tax benefit in the year incurred (if, for example, we have no
income from sources within that state) and also may not be available to offset
income in subsequent taxable years. Some of the states may require that we, or
we may elect to, withhold a percentage of income from amounts to be distributed
to a unitholder who is not a resident of the state. Withholding, the amount of
which may be greater or less than a particular unitholder's income tax liability
to the state, generally does not relieve the non-resident unitholder from the
obligation to file an income tax return. Amounts withheld may be treated as if
distributed to unitholders for purposes of determining the amounts distributed
by us. See "--Tax Treatment of Unitholders--Entity-Level Collections." Based on
current law and our estimate of future operations, we anticipate that any
amounts required to be withheld will not be material.
It is the responsibility of each unitholder to investigate the legal and
tax consequences, under the laws of pertinent states and localities of his
investment in us. Accordingly, each prospective unitholder should consult, and
must depend upon, his own tax counsel or other advisor with regard to those
matters. Further, it is the responsibility of each unitholder to file all state
and local, as well as U.S. federal, tax returns that may be required of such
unitholder. Counsel has not rendered an opinion on the state or local tax
consequences of an investment in us.
-51-
<PAGE>
USE OF PROCEEDS
Unless otherwise specified in a related prospectus supplement, the net
proceeds received by us from the sale of the Securities will be used for general
business purposes, including debt repayment, the financing of future
acquisitions, capital expenditures and working capital.
PLAN OF DISTRIBUTION
We may sell the Securities directly, through agents, or to or through
underwriters or dealers (possibly including our affiliates). The prospectus
supplement contains the specific information about the terms of the Securities
offering, including:
. the names of any underwriters, dealers or agents;
. the offering price;
. underwriting discounts;
. sales agents' commissions;
. other forms of underwriter or agent compensation;
. discounts, concessions or commissions that underwriters may pass on
to other dealers; and
. any exchange on which the Securities are listed.
We may change the offering price, underwriter discounts or concessions, or
the price to dealers when necessary. Discounts or commissions received by
underwriters or agents and any profits on the resale of Securities by them may
constitute underwriting discounts and commissions under the Securities Act of
1933.
Unless we state otherwise in the prospectus supplement, underwriters will
need to meet certain requirements before purchasing Securities. Underwriters
will be required to purchase all of the Securities offered if any are purchased.
Agents will act on a "best efforts" basis during their appointment. We will
also state the net proceeds from the sale in the prospectus supplement.
Any brokers or dealers that participate in the distribution of the
Securities may be "underwriters" within the meaning of the Securities Act of
1933 for such sales. Profits, commissions, discounts or concessions received by
any such broker or dealer may be underwriting discounts and commissions under
the Securities Act of 1933.
When necessary, we may fix Securities distribution using changeable, fixed
prices, market prices at the time of sale, prices related to market prices, or
negotiated prices.
We may agree to indemnify underwriters, dealers or agents who participate
in the distribution of the Securities against certain liabilities including
liabilities under the Securities Act of 1933. We may also reimburse
underwriters, dealers or agents for payments they are required to make in
connection with the offering, or we may make such payments directly.
Underwriters, dealers and agents, and their affiliates may conduct business with
us and our affiliates in the ordinary course of their business.
-52-
<PAGE>
LEGAL MATTERS
Unless otherwise indicated in the applicable prospectus supplement, certain
legal matters relating to the Securities being offered will be passed upon for
us by Andrews & Kurth L.L.P. If certain legal matters in connection with an
offering of Securities made by this prospectus and a related prospectus
supplement are passed on by counsel for the underwriters of such offering, that
counsel will be named in the applicable prospectus supplement relating to that
offering.
EXPERTS
The consolidated financial statements and the related financial statement
schedules incorporated in this prospectus by reference from Ferrellgas Partners,
L.P. Annual Report on Form 10-K for the year ended July 31, 1998, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated balance sheet of Ferrellgas, Inc. and Subsidiaries as of
July 31, 1998, filed as an exhibit to the registration statement of which this
prospectus is a part, has been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein and is included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
-53-
<PAGE>
$300,000,000
Common Units
Deferred Participation Units
Warrants
Debt Securities
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
-------------------------
PROSPECTUS
, 1999
-------------------------
<PAGE>
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
We will incur and pay the following costs of this transaction. All amounts
other than the Securities and Exchange Commission registration fee are
estimated.
Securities and Exchange Commission registration fee $ 83,400
Legal fees and expenses 75,000
Accounting fees and expenses 10,000
Printing expenses 5,000
Miscellaneous 1,600
---------
Total $ 175,000
=========
Item 15. Indemnification of Directors and Officers
The partnership agreements of the Partnership and the Operating Partnership
provide that the Partnership or the Operating Partnership, as the case may be,
will indemnify (to the fullest extent permitted by applicable law) certain
persons (each, an "Indemnitee") 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 and which relates to the Partnership Agreement or the
Operating Partnership Agreement or the property, business, affairs or management
of the Partnership or the Operating Partnership. This indemnity is available
only if the Indemnitee acted in good faith, in a manner in which such Indemnitee
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. Indemnitees include the General Partner, any departing
partner, any affiliate of the General Partner or any departing partner, any
person who is or was a director, officer, employee or agent of the General
Partner or any departing partner or any affiliate of either, or any person who
is or was serving at the request of the General Partner, any, or any such
affiliate as a director, officer, partner, trustee, employee or agent of another
person. Expenses subject to indemnity will be paid by the applicable partnership
to the Indemnitee in advance, subject to receipt of an undertaking by or on
behalf of the Indemnitee to repay such amount if it is ultimately determined by
a court of competent jurisdiction that the Indemnitee is not entitled to
indemnification. The Partnership will, to the extent commercially reasonable,
purchase and maintain insurance on behalf of the Indemnitees, whether or not the
Partnership would have the power to indemnify such Indemnitees against liability
under the applicable partnership agreement.
Item 16. Exhibits
*1.1 - Form of Underwriting Agreement
**3.1 - Agreement of Limited Partnership dated as of July 5, 1994
(Exhibit 3.1 to the Partnership's Current Report on
Form 8-K filed August 16, 1994)
**4.1 - Specimen Certificate representing Common Units (Exhibit A to
Exhibit 3.1 to the Partnership's Current Report on Form 8-K filed
August 16, 1994)
*4.2 - Specimen Certificate representing Deferred Participation Units
*4.3 - Form of Senior Indenture
II-1
<PAGE>
*4.4 - Form of Subordinated Indenture
*4.5 - Form of Note
*4.6 - Form of Warrant
*4.7 - Form of Warrant Agreement
5.1 - Opinion of Andrews & Kurth L.L.P. as to the legality of the
securities registered hereby
8.1 - Opinion of Andrews & Kurth L.L.P. as to tax matters
***12.1 - Calculation of Ratio of Earnings to Fixed Charges
***23.1 - Consent of Andrews & Kurth L.L.P. (included in Exhibits 5.1 and
8.1)
23.2 - Consent of Deloitte & Touche LLP
***24.1 - Power of Attorney (included on signature page)
*25.1 - Statement of Eligibility of Trustee on Form T-1
***99.1 - Balance Sheet of Ferrellgas, Inc. as of July 31, 1998
- -----------------------
* To be filed as an exhibit to a Current Report on Form 8-K or a post-
effective amendment to this registration statement.
** Incorporated by reference.
*** Previously filed.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, 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 for indemnification against such liabilities
(other than the payment by the Registrants of expenses incurred or paid by a
director, officer or controlling person of the Registrants 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
Registrants 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 them is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrants hereby undertake:
(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
Act;
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;
Provided, however, that paragraphs (1)(i) and 1(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by
II-2
<PAGE>
the Registrants pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act") that are incorporated by reference into
the registration statement;
(2) That, for the purpose of determining any liability under the Act, 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; and
(3) To remove from registration by means of a post-effective amendment any
of the Securities which remain unsold at the termination of the
offering.
The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Act, each filing of the Registrants' annual
reports pursuant to Section 13(a) or Section 15(d) of the Exchange Act that are
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrants hereby undertake to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Trust Indenture Act.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and 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
February 5, 1999.
FERRELLGAS PARTNERS, L.P.
(A Delaware Limited Partnership)
By: FERRELLGAS, INC.
as General Partner
By: /s/ Kevin T. Kelly
---------------------------------
Kevin T. Kelly
Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933 this Amendment
No. 1 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
*
___________________________ Chairman of the Board of Ferrellgas, Inc. February 5, 1999
James E. Ferrell
*
___________________________ President, Chief Executive Officer and Director February 5, 1999
Danley K. Sheldon of Ferrellgas, Inc. (principal executive officer)
*
___________________________ Director of Ferrellgas, Inc. February 5, 1999
A. Andrew Levison
*
___________________________ Director of Ferrellgas, Inc. February 5, 1999
Elizabeth T. Solberg
/s/ Kevin T. Kelly
___________________________ Vice President and Chief Financial Officer of February 5, 1999
Kevin T. Kelly Ferrellgas, Inc. (principal financial officer and
principal accounting officer)
</TABLE>
*By: /s/ Kevin T. Kelly
--------------------------------
Kevin T. Kelly, Attorney-in-Fact
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and 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
February 5, 1999.
FERRELLGAS PARTNERS FINANCE CORP
By: /s/ Kevin T. Kelly
-----------------------------------------------
Kevin T. Kelly,
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933 this Amendment
No. 1 to the registration statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
*
___________________________ Chairman of the Board, Chief Executive Officer February 5, 1999
Danley K. Sheldon and Sole Director (principal executive officer)
/s/ Kevin T. Kelly
___________________________ Chief Financial Officer (principal financial February 5, 1999
Kevin T. Kelly officer and principal accounting officer)
</TABLE>
*By: /s/ Kevin T. Kelly
--------------------------------
Kevin T. Kelly, Attorney-in-Fact
II-5
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
*1.1 - Form of Underwriting Agreement
**3.1 - Agreement of Limited Partnership dated as of July 5, 1994
(Exhibit 3.1 to the Partnership's Current Report on Form
8-K filed August 16, 1994)
**4.1 - Specimen Certificate representing Common Units (Exhibit A to
Exhibit 3.1 to the Partnership's Current Report on Form 8-K filed
August 16, 1994)
*4.2 - Specimen Certificate representing Deferred Participation Units
*4.3 - Form of Senior Indenture
*4.4 - Form of Subordinated Indenture
*4.5 - Form of Note
*4.6 - Form of Warrant
*4.7 - Form of Warrant Agreement
5.1 - Opinion of Andrews & Kurth L.L.P. as to the legality of the
securities registered hereby
8.1 - Opinion of Andrews & Kurth L.L.P. as to tax matters
***12.1 - Calculation of Ratio of Earnings to Fixed Charges
***23.1 - Consent of Andrews & Kurth L.L.P. (included in Exhibits 5.1 and
8.1)
23.2 - Consent of Deloitte & Touche LLP
***24.1 - Power of Attorney (included on signature page)
*25.1 - Statement of Eligibility of Trustee on Form T-1
***99.1 - Balance Sheet of Ferrellgas, Inc. as of July 31, 1998
- -----------------------
* To be filed as an exhibit to a Current Report on Form 8-K or a post-
effective amendment to this registration statement.
** Incorporated by reference.
*** Previously filed.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF ANDREWS & KURTH L.L.P.]
February 5, 1999
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
One Liberty Plaza
Liberty, Missouri 64068
Ladies and Gentlemen:
We have acted as counsel to Ferrellgas Partners, L.P., a Delaware
limited partnership (the "Partnership") and Ferrellgas Partners Finance Corp., a
Delaware corporation ("Finance Corp."), in connection with the preparation of a
registration statement on Form S-3, as amended (Registration No. 333-71111) (the
"Registration Statement"), filed with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Act of 1933, as amended (the
"Act"). The Registration Statement relates to the offering from time to time,
as set forth in the Registration Statement, the form of prospectus contained
therein (the "Prospectus") and one or more supplements to the Prospectus (each,
a "Prospectus Supplement"), of common units ("Common Units"), deferred
participation units ("DPUs") and warrants ("Warrants") of the Partnership and
debt securities ("Debt Securities") of the Partnership and Finance Corp., having
an aggregate initial public offering price not to exceed U.S. $300,000,000, on
terms to be determined at the time of the offering. The Common Units, DPUs,
Warrants and Debt Securities are collectively referred to herein as the
"Securities." All capitalized terms which are not defined herein shall have the
meanings assigned to them in the Registration Statement.
In arriving at the opinions expressed below, we have examined (1) the
Partnership's Certificate of Limited Partnership and Agreement of Limited
Partnership, each as amended to date, (2) the Certificate of Incorporation and
Bylaws of Finance Corp., each as amended to date, (3) the Registration
Statement, (4) the Prospectus and (5) the originals or copies certified or
otherwise identified to our satisfaction of such other instruments and other
certificates of public officials, officers and representatives of the
Partnership, Finance Corp. and such other persons, and we have made such
investigations of law, as we have deemed appropriate as a basis for the opinions
expressed below.
In rendering the opinions expressed below, we have assumed and have
not verified (1) the genuineness of the signatures on all documents that we have
examined, (2) the legal capacity of all natural persons, (3) the conformity to
the originals of all documents supplied to us as certified or photostatic or
faxed copies and (4) the authenticity of the originals of such documents.
Based on the foregoing, and subject to the limitations and other
qualifications set forth below:
1. With respect to Common Units, we are of the opinion that, when
(a) the Partnership has taken all necessary action to approve the issuance of
such Common Units, the terms of the offering thereof and related matters and (b)
such Common Units have been issued and delivered in accordance with the terms of
the applicable definitive purchase, underwriting or similar agreement approved
by the Partnership upon payment (or delivery) of the consideration therefor
provided for therein, such Common Units will be validly issued and, on the
assumption that the holder of such Common Units is not also a general partner of
the Partnership and does not participate in the control of the Partnership's
business, such Common Units will be fully paid and nonassessable.
2. With respect to DPUs, we are of the opinion that, when (a) the
Partnership has taken all necessary action to approve the issuance and terms of
such DPUs, the terms of the offering thereof and related matters and (b) such
DPUs have been issued and delivered in accordance with the terms of the
applicable definitive purchase, underwriting or similar agreement approved by
the Partnership upon payment (or delivery) of the consideration therefor
provided for therein, such DPUs will be validly issued and, on the assumption
that the holder of such DPUs is not also
<PAGE>
Ferrellgas Partners, L.P.
February 5, 1999
Page 2
a general partner of the Partnership and does not participate in the control of
the Partnership's business, such DPUs will be fully paid and nonassessable.
3. With respect to Warrants to be issued under a Warrant Agreement,
we are of the opinion that, when (a) the Partnership has taken all necessary
action to approve the issuance and terms of such Warrants, the terms of the
offering thereof and related matters, (b) the Warrant Agreement has been duly
authorized and validly executed and delivered by the Partnership and the Warrant
Agent and (c) such Warrants have been duly executed, authenticated, issued and
delivered in accordance with the terms of the Warrant Agreement and the
applicable definitive purchase, underwriting or similar agreement approved by
the Partnership upon payment (or delivery) of the consideration therefor
provided for therein, such Warrants will be legally issued and will constitute
valid and binding obligations of the Partnership.
4. With respect to Debt Securities to be issued under a Senior
Indenture, we are of the opinion that, when (a) the Senior Indenture has been
duly authorized and validly executed and delivered by the Partnership, Finance
Corp. and the Trustee, (b) the Senior Indenture has been duly qualified under
the Trust Indenture Act of 1939, as amended, (c) the Partnership and Finance
Corp. have taken all necessary action to approve the issuance and terms of such
Debt Securities, the terms of the offering thereof and related matters and (d)
such Debt Securities have been duly executed, authenticated, issued and
delivered in accordance with the terms of the Senior Indenture and the
applicable definitive purchase, underwriting or similar agreement approved by
the Partnership and Finance Corp. upon payment (or delivery) of the
consideration therefor provided for therein, such Debt Securities will be
legally issued and will constitute valid and legally binding obligations of the
Partnership and Finance Corp.
5. With respect to Debt Securities to be issued under a Subordinated
Indenture, we are of the opinion that, when (a) the Subordinated Indenture has
been duly authorized and validly executed and delivered by the Partnership,
Finance Corp. and the Trustee, (b) the Subordinated Indenture has been duly
qualified under the Trust Indenture Act of 1939, as amended, (c) the Partnership
and Finance Corp. have taken all necessary action to approve the issuance and
terms of such Debt Securities, the terms of the offering thereof and related
matters and (d) such Debt Securities have been duly executed, authenticated,
issued and delivered in accordance with the terms of the Subordinated Indenture
and the applicable definitive purchase, underwriting or similar agreement
approved by the Partnership and Finance Corp. upon payment (or delivery) of the
consideration therefor provided for therein, such Debt Securities will be
legally issued and will constitute valid and legally binding obligations of the
Partnership and Finance Corp.
The validity and binding effect of any of the obligations of the
Partnership and Finance Corp. with reference to any Security are subject to
applicable bankruptcy, insolvency (including, without limitation, all laws
relating to fraudulent transfer), reorganization, moratorium and other similar
laws affecting creditors' rights generally and to general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law). The opinions expressed above are also subject to possible judicial action
giving effect to governmental actions or foreign laws affecting creditors'
rights.
For the purposes of the opinions expressed above, we have assumed that
(1) the Registration Statement, and any amendments thereto (including post-
effective amendments), will have become effective and such effectiveness shall
not have been terminated or rescinded, (2) a Prospectus Supplement will have
been prepared and filed with the Commission describing the Securities offered
thereby, (3) all Securities will have been issued and sold in compliance with
applicable United States federal and state securities laws and in the manner
stated in the Registration Statement and the applicable Prospectus Supplement
and (4) a definitive purchase, underwriting or similar agreement with respect to
any Securities offered will have been duly authorized and validly executed and
delivered by the Partnership, Finance Corp. (if applicable) and the other
parties thereto.
With respect to our opinions expressed above as they relate to Debt
Securities denominated in a currency other than U.S. dollars, we note that
effective enforcement of a foreign currency claim in a New York State
<PAGE>
Ferrellgas Partners, L.P.
February 5, 1999
Page 3
court or a federal court sitting in the State of New York may be limited by
requirements that the claim (or a foreign currency judgment in respect of such
claim) be converted into U.S. dollars at the rate of exchange prevailing on a
specified date. We express no opinion as to whether a New York State court or a
federal court sitting in the State of New York would award a judgment in a
currency other than U.S. dollars.
We express no opinion other than as to the federal laws of the United
States of America, the laws of the State of New York, the General Corporation
Law of the State of Delaware and the Revised Uniform Limited Partnership Act of
the State of Delaware. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to this firm under
the heading "Legal Matters" in the Prospectus. In giving this consent we do not
admit that we are "experts" under the Act, or the rules and regulations of the
Commission issued thereunder, with respect to any part of the Registration
Statement, including this exhibit. This opinion is rendered solely for your
benefit in connection with the above matter and may not be relied upon in any
manner by any other person or entity without our express written consent.
Very truly yours,
ANDREWS & KURTH L.L.P.
<PAGE>
EXHIBIT 8.1
[Letterhead of Andrews & Kurth L.L.P.]
February 5, 1999
Ferrellgas Partners, L.P.
Ferrellgas Partners Finance Corp.
One Liberty Plaza
Liberty, Missouri 64068
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel in connection with the Registration Statement
on Form S-3 (the "Registration Statement") of Ferrellgas Partners, L.P. (the
"Partnership") and Ferrellgas Partners Finance Corp. ("Finance Corp."), relating
to the registration of the offering and sale (the "Offering") of up to
$300,000,000 of common units (the "Common Units"), deferred participation units
("DPUs") and warrants (the "Warrants") of the Partnership and debt securities
(the "Debt Securities") of the Partnership and Finance Corp. In connection
therewith, we have participated in the preparation of the discussion set forth
under the caption "Tax Considerations" (the "Discussion") in the Registration
Statement with respect to the Common Units. Capitalized terms used and not
otherwise defined herein are used as defined in the Registration Statement.
The Discussion, subject to the qualifications stated therein,
constitutes our opinion as to the material United States federal income tax
consequences for purchasers of the Common Units pursuant to the Offering.
A discussion with regard to the material United States federal income
tax consequences, if any, for purchasers of the DPUs, Warrants and Debt
Securities pursuant to the Offering will be included in a prospectus supplement
relating to the issuance of such securities. An opinion with respect to any such
discussion will be filed as an exhibit to a Current Report on Form 8-K of the
Partnership.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Discussion. In giving
this consent we do not admit that we are "experts" under the Securities Act of
1933, as amended, or the rules and regulations of the Commission issued
thereunder, with respect to any part of the Registration Statement, including
this exhibit.
Very truly yours,
Andrews & Kurth L.L.P.
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to the
Registration Statement of Ferrellgas Partners, L.P on Form S-3 of our reports
dated September 24, 1998, appearing in the Annual Report on Form 10-K of
Ferrellgas Partners, L.P. for the year ended July 31, 1998. We also consent to
the use in this Amendment No. 1 to the Registration Statement of Ferrellgas
Partners, L.P. on Form S-3 of our report relating to Ferrellgas, Inc. and
Subsidiaries dated October 2, 1998, and filed as an Exhibit to the Registration
Statement and to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Amendment No. 1 to the Registration Statement.
DELOITTE & TOUCHE LLP
Kansas City, Missouri
February 4, 1999
