<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1994
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FERRELLGAS, L.P.
FERRELLGAS FINANCE CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 5984 TO BE APPLIED FOR
DELAWARE 6799 TO BE APPLIED FOR
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
----------------
ONE LIBERTY PLAZA
LIBERTY, MISSOURI 64068
(816) 792-1600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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DANLEY K. SHELDON
ONE LIBERTY PLAZA
LIBERTY, MISSOURI 64068
(816) 792-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
SMITH, GILL, FISHER & BUTTS, P.C. LATHAM & WATKINS
1200 MAIN STREET 885 THIRD AVENUE
KANSAS CITY, MISSOURI 64105 NEW YORK, NEW YORK 10022
(816) 474-7400 (212) 906-1200
ATTENTION: KENDRICK T. WALLACE ATTENTION: PHILIP E. COVIELLO
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
----------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT PRICE(1) FEE
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<S> <C> <C> <C> <C>
% Senior Notes due
2001................... $250,000,000 100% $250,000,000 $86,207
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
FERRELLGAS, L.P.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
-------------------------------- ----------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages Inside Front and Outside Back
of Prospectus............................. Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges.............. Prospectus Summary; Risk
Factors; Selected Historical
and Pro Forma Consolidated
Financial and Operating Data
4. Use of Proceeds............................ Prospectus Summary; Use of
Proceeds
5. Determination of Offering Price............ Underwriting
6. Dilution................................... *
7. Selling Security Holders................... *
8. Plan of Distribution....................... Outside Front Cover Page;
Underwriting
9. Description of Securities to be Registered. Prospectus Summary;
Description of Senior Notes;
Certain Federal Income Tax
Consequences
10. Interests of Named Experts and Counsel..... *
11. Information with Respect to the Registrant. Outside Front Cover Page;
Prospectus Summary; Risk
Factors; The Transactions;
Capitalization; Selected
Historical and Pro Forma
Consolidated Financial and
Operating Data; Management's
Discussion and Analysis of
Financial Condition and
Results of Operations;
Business; Management; Cash
Distributions to Partners;
The Partnership; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... *
</TABLE>
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* Not Applicable
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 29, 1994
PROSPECTUS
, 1994
$250,000,000
[LOGO OF FERRELLGAS, L.P.
FERRELLGAS] FERRELLGAS FINANCE CORP.
% SENIOR NOTES DUE 2001
The % Senior Notes due 2001 (the "Senior Notes") offered hereby (the
"Offering") are being issued, jointly and severally, by Ferrellgas, L.P. (the
"Partnership") and Ferrellgas Finance Corp., a wholly owned subsidiary of the
Partnership ("Finance Corp." and, together with the Partnership, the
"Issuers").
The Senior Notes will bear interest from the date of issuance at the rate of
% per annum, payable semi-annually in arrears on and
of each year, commencing , 1994. The Issuers will not be required to
make any mandatory redemption or sinking fund payment with respect to the
Senior Notes prior to maturity. The Senior Notes are redeemable at the option
of the Issuers, in whole or in part, at any time on or after , 1998
at the redemption prices set forth herein, plus accrued and unpaid interest to
the date of redemption. In the event of a Change of Control (as defined
herein), holders of the Senior Notes will have the right to require the Issuers
to purchase each such holder's Senior Notes, in whole or in part, at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest to the date of purchase.
The Senior Notes will be general unsecured obligations of the Issuers and
will rank pari passu with all existing and future senior indebtedness of the
Issuers and senior to all existing and future subordinated indebtedness of the
Issuers. At January 31, 1994, on a pro forma basis after giving effect to the
Offering and the other transactions described herein, the Partnership and its
subsidiaries would have had outstanding approximately $300.6 million in
aggregate principal amount of indebtedness on a consolidated basis (excluding
trade payables and other accrued liabilities). See "The Transactions."
The sale of the Senior Notes offered hereby is subject to, among other
things, completion of a public offering of approximately 13,100,000 million
Common Units by the sole limited partner of the Partnership, Ferrellgas
Partners, L.P., a Delaware limited partnership (the "Master Partnership").
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SENIOR NOTES OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) ISSUERS(3)
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<S> <C> <C> <C>
Per Senior Note.......................... % % %
Total.................................... $ $ $
</TABLE>
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(1) Plus accrued interest, if any, from the date of issuance.
(2) See "Underwriting" for indemnification arrangements with the Underwriters.
(3) Before deducting estimated expenses of $ payable by the Issuers.
The Senior Notes are being offered by the several Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, subject to
various prior conditions, including the right to reject any order in whole or
in part. It is expected that delivery of the Senior Notes will be made in New
York, New York on or about , 1994, against payment therefor.
DONALDSON, LUFKIN & JENRETTE GOLDMAN, SACHS & CO.
SECURITIES CORPORATION
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY STATE.
<PAGE>
Map omitted
<PAGE>
ADDITIONAL INFORMATION
The Issuers have filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall encompass all
amendments, exhibits and schedules thereto) on Form S-1 under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the Senior
Notes being offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain items of which are omitted in accordance
with the rules and regulations of the Commission, and to which reference is
hereby made. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to herein are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by this reference.
The Issuers will be subject to the informational requirements of the
Securities Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith will file reports and other information with the Commission. The
Registration Statement and the exhibits and schedules thereto, as well as such
reports and other information filed by the Issuers with the Commission, can be
inspected and copies at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and the
following regional offices of the Commission, 7 World Trade Center, 13th Floor,
New York, New York 10048 and Northwestern Atrium Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such information can also be
obtained by mail from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Issuers intend to furnish to the holders of the Senior Notes (the
"Holders") annual reports containing audited financial statements and an
opinion thereon by its independent accountants and quarterly reports containing
unaudited financial information on the first three quarters of each fiscal
year. Notwithstanding the foregoing, to the extent permitted under the rules
and regulations of the Commission, the Issuers may instead supply such
information with respect to the Master Partnership.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and historical and pro forma financial statements appearing
elsewhere in this Prospectus and should be read only in conjunction with the
entire Prospectus.
FERRELLGAS, L.P.
Ferrellgas, L.P. (the "Partnership") is a Delaware limited partnership
recently formed to acquire and operate the propane business and assets of
Ferrellgas, Inc. (the "Company" or "Ferrellgas"). Ferrellgas is the general
partner (the "General Partner") of the Partnership and a wholly owned
subsidiary of Ferrell Companies, Inc. ("Ferrell"). Ferrell was founded in 1939
as a single retail propane outlet in Atchison, Kansas, and has grown
principally through the acquisition of retail propane operations throughout the
United States. The Company believes that it is the third largest retail
marketer of propane in the United States, based on gallons sold, serving more
than 600,000 residential, industrial/commercial and agricultural customers in
44 states and the District of Columbia through approximately 415 retail outlets
and 229 satellite locations in 36 states (some outlets serve an interstate
market). The Company's largest market concentrations are in the Midwest, Great
Lakes and Southeast regions of the United States. The Company operates in areas
of strong retail market competition, which has required it to develop and
implement strict capital expenditure and operating standards in its existing
and acquired retail propane operations in order to control operating costs.
This effort has resulted in upgrades in the quality of its field managers, the
application of strong return on asset benchmarks and improved productivity
methodologies.
The Company's retail propane sales volumes were approximately 553 million,
496 million and 482 million gallons during the fiscal years ended July 31,
1993, 1992 and 1991, respectively. Earnings before depreciation, amortization,
interest and taxes ("EBITDA") were $89.4 million, $87.6 million and $99.2
million for the fiscal years ended July 31, 1993, 1992 and 1991, respectively.
EBITDA for the twelve months ended January 31, 1994 was $98.4 million.
BUSINESS STRATEGY
Except for a few large competitors, the propane industry is highly fragmented
and principally composed of over 3,000 local and regional companies.
Historically, the Company has been successful in acquiring independent propane
retailers and integrating them into the Company's operations at what it
believes to be attractive returns. Two major acquisitions and many other
smaller acquisitions have significantly expanded and diversified the Company's
geographic presence and resulted in greater operating efficiencies and
increased profitability. The Partnership plans to continue to expand its
business principally through acquisitions in areas in close proximity to the
Company's existing operations so that such newly acquired operations can be
efficiently combined with existing operations and savings can be achieved
through the elimination of certain overlapping functions. An additional goal of
these acquisitions will be to improve the operations and profitability of the
businesses the Partnership acquires by integrating them into its established
propane supply network and by improving customer service. The Partnership also
plans to pursue acquisitions which broaden its geographic coverage. The Company
has historically increased its existing customer base and retained the
customers of acquired operations through marketing efforts that focus on
providing quality service to customers. The General Partner believes that there
are numerous local retail propane distribution companies that are possible
candidates for acquisition by the Partnership and that the Partnership's
geographic diversity of operations helps to create many attractive acquisition
opportunities for the Partnership.
In addition to growth through acquisitions, the General Partner believes that
the Partnership may also achieve growth within its existing propane operations.
Historically, the Company has experienced modest
3
<PAGE>
internal growth in its customer base. As a result of its experience in
responding to competition and in implementing more efficient operating
standards, the General Partner believes that it has positioned the Partnership
to be more successful in direct competition for customers. The Company
currently has marketing programs underway which focus specific resources toward
this effort. See "Business-- Retail Operations--Business Strategy."
GENERAL
Propane, a byproduct of natural gas processing and petroleum refining, is a
clean-burning energy source recognized for its transportability and ease of use
relative to alternative forms of stand alone energy sources. In the residential
and commercial markets, propane is primarily used for space heating, water
heating and cooking. In the agricultural market propane is primarily used for
crop drying, space heating, irrigation and weed control. In addition, propane
is used for certain industrial applications, including use as an engine fuel
which is burned in internal combustion engines that power vehicles and
forklifts and as a heating or energy source in manufacturing and drying
processes. Consumption of propane as a heating fuel peaks sharply in winter
months.
The Company sells propane primarily to four specific markets: residential,
industrial/commercial, agricultural and other (principally to other propane
retailers and as an engine fuel). During the fiscal year ended July 31, 1993,
sales to residential customers accounted for 61% of the Company's retail gross
profits, sales to industrial/commercial customers accounted for 26% of the
Company's retail gross profits, sales to agricultural customers accounted for
6% of the Company's retail gross profits and sales to other customers accounted
for 7% of the Company's retail gross profits. Residential sales have a greater
profit margin and a more stable customer base and tend to be less sensitive to
price changes than the other markets served by the Company. While the propane
distribution business is seasonal in nature and historically sensitive to
variations in weather, management believes that the Company's geographical
diversity of the Company's areas of operations helps to minimize the Company's
exposure to regional weather or economic patterns. Furthermore, long-term
historic weather data from the National Climatic Data Center indicate that
average annual temperatures have remained relatively constant over the last 30
years, with fluctuations occurring on a year-to-year basis only.
Profits in the retail propane are primarily based on the cents-per-gallon
difference between the purchase price and the sales price of propane. The
Company generally purchases propane on a short-term basis; therefore, its
supply costs generally fluctuate with market price fluctuations. Should the
wholesale cost of propane decline in the future, the Company believes that the
Partnership's margins on its retail propane distribution business should
increase in the short-term because retail prices tend to change less rapidly
than wholesale prices. Should the wholesale cost of propane increase, for
similar reasons retail margins and profitability would likely be reduced at
least for the short-term until retail prices can be increased. Historically,
the Company has been able to maintain margins on an annual basis following
changes in the wholesale cost of propane. The Company's success in maintaining
its margins is evidenced by the fact that since fiscal 1989 average annual
retail gross margins, measured on a cents-per-gallon basis, have generally
varied by a relatively low percentage. The General Partner is unable to
predict, however, how and to what extent a substantial increase or decrease in
the wholesale cost of propane would affect the Partnership's margins and
profitability.
Propane competes primarily with natural gas, electricity and fuel oil as an
energy source, principally on the basis of price, availability and portability.
Propane serves as an alternative to natural gas in rural and suburban areas
where natural gas is unavailable or portability of product is required. Propane
is generally
4
<PAGE>
more expensive than natural gas on an equivalent BTU basis in locations served
by natural gas, although propane is sold in such areas as a standby fuel for
use during peak demand periods and during interruption in natural gas service.
Propane is generally less expensive to use than electricity for space heating,
water heating and cooking. Although propane is similar to fuel oil in
application, market demand and price, propane and fuel oil have generally
developed their own distinct geographic markets, lessening competition between
such fuels.
The retail propane business of the Company consists principally of
transporting propane to its retail distribution outlets and then to tanks
located on its customers' premises. Propane supplies are purchased in the
contract and spot markets, primarily from natural gas processing plants and
major oil companies. In addition, retail propane customers typically lease
their stationary storage tanks from their propane distributors. Approximately
70% of the Company's customers lease their tank from the Company. The lease
terms and, in most states, certain fire safety regulations, restrict the
refilling of a leased tank solely to the propane supplier that owns the tank.
The cost and inconvenience of switching tanks minimizes a customer's tendency
to switch among suppliers of propane on the basis of minor variations in price.
The Company is also engaged in the trading of propane and other natural gas
liquids, chemical feedstocks marketing and wholesale propane marketing. In
fiscal year 1993, the Company's annual wholesale and trading sales volume was
approximately 1.2 billion gallons of propane and other natural gas liquids,
approximately 64% of which was propane. Because the Partnership will possess a
large distribution system, underground storage capacity and the ability to buy
large volumes of propane, the General Partner believes that the Partnership
will be in a position to achieve product cost savings and avoid shortages
during periods of tight supply to an extent not generally available to other
retail propane distributors.
PARTNERSHIP STRUCTURE AND MANAGEMENT
Concurrently herewith, the sole limited partner of the Partnership,
Ferrellgas Partners, L.P., a Delaware limited partnership (the "Master
Partnership"), will offer to the public 13,100,000 units representing limited
partnership interests in the Master Partnership (the "MLP Offering"). See "The
Transactions." The General Partner will serve as general partner of the
Partnership and the Master Partnership. Following this Offering, the officers
and employees of Ferrellgas who currently manage and operate the propane
business and assets to be owned by the Partnership will continue to manage and
operate the Partnership's business as officers and employees of the General
Partner. See "Management." Unless the context otherwise requires, references
herein to the Partnership include the Partnership and the Master Partnership.
The General Partner will receive no management fee in connection with its
management of the Partnership and will receive no remuneration for its services
other than reimbursement for expenses incurred in connection with the
Partnership's operations.
The principal executive offices of the Partnership are located at One Liberty
Plaza, Liberty, Missouri 64068, and its telephone number is (816) 792-1600.
5
<PAGE>
The following chart depicts the organization and ownership of the Partnership
and the Master Partnership after giving effect to the MLP Offering and related
transactions. The percentages reflected below represent the approximate
ownership interest in each of the Partnership and the Master Partnership,
individually. Except in the following chart, the ownership percentages referred
to in this Prospectus reflect the approximate effective ownership interest of
the holder in the Partnership and the Master Partnership on a combined basis.
(CHART)
6
<PAGE>
TRANSACTIONS AT CLOSING
At the closing of this Offering, the Partnership will become the owner of the
propane business and assets of Ferrellgas. In connection with the acquisition
of such business and assets, the Partnership will assume substantially all of
the liabilities, whether known or unknown, associated with such business and
assets (other than income tax liabilities), and the Master Partnership will
issue Common Units, Subordinated Units and Incentive Distribution Rights (each
as defined in the glossary) to Ferrellgas. Ferrellgas will also receive the
general partner interests in the Partnership and the Master Partnership.
Ferrellgas will make a dividend of such Common Units, Subordinated Units and
Incentive Distribution Rights to its parent, Ferrell. The Partnership has
agreed with Ferrellgas to assume the payment obligations of Ferrellgas under
its Series A and Series C Floating Rate Notes due 1996 (the "Existing Floating
Rate Notes"), the Series B and Series D Fixed Rate Notes due 1996 (the
"Existing Fixed Rate Notes" and, together with the Existing Floating Rate
Notes, the "Existing Senior Notes") and its 11 5/8% Senior Subordinated
Debentures (the "Existing Subordinated Debentures"). The Partnership's
agreement to assume the payment obligations of the Company under the Existing
Subordinated Debentures will be for the benefit of the Company and will be
subordinate to any other current or future debt for borrowed money of the
Partnership, including the Senior Notes. Substantially all of the Existing
Senior Notes and Existing Subordinated Debentures will be retired with the net
proceeds from the sale by the Master Partnership of the Common Units in the MLP
Offering (estimated to be approximately $260.3 million at an assumed initial
offering price of $21.375 per Common Unit) and the net proceeds from the
issuance of $250 million in aggregate principal amount of Senior Notes offered
hereby (estimated to be approximately $244.5 million).
Concurrently with the closing of this Offering, the Company will consummate a
tender offer and consent solicitation with respect to its Existing Subordinated
Debentures. The consent solicitation is necessary to modify the indenture
related to the Existing Subordinated Debentures in order to permit the Company
to consummate the transactions contemplated by this Prospectus. All of the
tendered Existing Subordinated Debentures will be retired by the Partnership,
as described above. The Partnership will agree with Ferrellgas to be primarily
responsible for the payment obligations of Ferrellgas with respect to any
Existing Subordinated Debentures that are not tendered and anticipates that it
will reduce the aggregate principal amount of the Senior Notes issued at the
closing of this Offering by an amount approximately equal to the principal
amount of the Existing Subordinated Debentures that are not tendered.
Concurrently with the closing of this Offering, the Company will mail to the
holders of the Existing Senior Notes a notice of redemption of all outstanding
Existing Senior Notes, pursuant to the optional redemption provisions of the
indenture governing the Existing Senior Notes (the "Existing Senior Notes
Indenture"). The redemption date will be 30 days after the date of mailing of
such notice. The Existing Senior Notes Indenture provides for a redemption
price equal to 100% of the principal amount plus accrued and unpaid interest,
if any, to the redemption date plus a premium which is based on certain yield
information for U.S. Treasury securities as of three business days prior to the
redemption date. The Partnership will deposit with the trustee on the date of
closing of this Offering an amount expected to be more than sufficient to pay
the redemption price. As a result of the transactions contemplated hereby,
during the 30-day period prior to the redemption date, an event of default will
exist under the Existing Senior Notes Indenture. The holders of at least 25% of
the principal amount of Existing Senior Notes, therefore, will be entitled, by
notice to the Company and the trustee, to declare the unpaid principal of, and
accrued and unpaid interest and the applicable premium on, the Existing Senior
Notes to be immediately due and payable. In the event of such a declaration,
the amount already deposited by the Partnership in payment of the redemption
price would be applied to pay the amount so declared immediately due and
payable.
At the closing of this Offering, it is anticipated that the Partnership will
borrow approximately $20 million under a bank credit facility (the "Credit
Facility") which will enable the Partnership to commence operations with an
initial cash balance of at least $20 million. To the extent that the initial
public offering
7
<PAGE>
price per Common Unit is less than $21.375, the Partnership may need to borrow
additional funds under the Credit Facility in order to commence operations with
an initial cash balance of at least $20 million.
The foregoing description assumes that the Underwriters' overallotment option
with respect to the MLP Offering is not exercised. If the Underwriters'
overallotment option is exercised in full, the Partnership will issue 1,965,000
additional Common Units. The Partnership will use the net proceeds from any
exercise of such Underwriters' overallotment option first to repay any amounts
borrowed under the Credit Facility or, if no such borrowings have been made, to
establish an initial cash balance of up to $20 million that will be used for
general partnership purposes. Any remaining net proceeds from the exercise of
such Underwriters' overallotment option will be used by the Partnership to
repurchase up to 1,000,000 Common Units held by Ferrell at a price per Unit
equal to the initial public offering price less the underwriting discount. Any
net proceeds remaining after such repurchase will be retained by the
Partnership for general partnership purposes.
Immediately following this Offering, Ferrellgas will own an effective 2%
general partner interest in the Master Partnership and the Partnership, on a
combined basis, and Ferrell will own 1,000,000 Common Units (if the
Underwriters' overallotment option with respect to the MLP Offering is
exercised in full all of such Common Units will be repurchased by the Master
Partnership) and 14,546,625 Subordinated Units representing an aggregate 53.2%
limited partner interest in the Master Partnership (48.1% if such Underwriters'
overallotment option is exercised in full) and the Incentive Distribution
Rights. See "The Transactions."
FERRELLGAS FINANCE CORP.
Ferrellgas Finance Corp., a Delaware corporation ("Finance Corp."), a wholly
owned subsidiary of the Partnership which has nominal assets and will not
conduct any operations, is acting as co-obligor for the Senior Notes. Certain
institutional investors that might otherwise be limited in their ability to
invest in securities issued by partnerships by reason of the legal investment
laws of their states of organization or their charter documents, may be able to
invest in the Senior Notes because Finance Corp. is a co-obligor.
8
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth for the periods and the dates indicated,
summary historical financial and operating data for the Company and pro forma
financial and operating data for the Partnership after giving effect to the
transactions contemplated by this Prospectus. The summary historical financial
data for the three years ended July 31, 1993 and the six-month periods ended
January 31, 1993 and 1994, are derived from the audited and unaudited
consolidated financial statements contained elsewhere in this Prospectus. The
historical financial information for the interim periods ended January 31, 1993
and 1994 and the Partnership's summary pro forma financial data are unaudited.
The Partnership's summary pro forma financial data should be read in
conjunction with the financial statements and the pro forma consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
In addition, the propane business is seasonal in nature with its peak activity
during the winter months. Therefore, the results for the interim periods are
not necessarily indicative of the results that can be expected for a full year.
See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
PARTNERSHIP
HISTORICAL PRO FORMA
-------------------------------------------------- --------------
YEAR ENDED JULY 31, YEAR ENDED
-------------------------------------------------- JULY 31,
1989 1990 1991 1992 1993 1993
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues......... $409,953 $467,641 $543,933 $501,129 $541,945 $541,945
Depreciation and
amortization.......... 32,528 33,521 36,151 31,196 30,840 30,840
Operating income....... 53,425 54,388 63,045 56,408 58,553 58,053
Interest expense....... 54,572 55,095 60,507 61,219 60,071 28,897
Earnings (loss) from
continuing operations. (1,506) (347) 1,979 (1,700)(1) 109 28,808
Ratio of earnings to
fixed charges(2)...... -- -- 1.1x -- 1.0x 1.9x
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital........ $(39,708) $ 50,456 $ 53,403 $ 67,973 $ 74,408
Total assets........... 487,631 554,580 580,260 598,613 573,376
Payable to (receivable
from) parent and
affiliates............ 13,109 10,743 3,763 2,236 (916)
Long-term debt......... 354,626 465,644 466,585 501,614 489,589
Stockholder's equity... 6,616 11,463 21,687 8,808 11,359
OPERATING DATA:
Retail propane sales
volumes (in gallons).. 498,395 499,042 482,211 495,707 555,413 553,413
Capital
expenditures(3):
Maintenance............ $ 7,271 $ 5,428 $ 7,958 $ 10,250 $ 10,527 $ 10,527
Growth................. 10,062 10,447 2,478 3,342 2,851 2,851
Acquisition............ 14,668 18,005 25,305 10,112 897 897
-------- -------- -------- -------- -------- --------
Total................. $ 32,001 $ 33,880 $ 35,741 $ 23,704 $ 14,275 $ 14,275
======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
EBITDA(4).............. $ 85,953 $ 87,909 $ 99,196 $ 87,604 $ 89,393 $ 88,893
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
PARTNERSHIP
HISTORICAL PRO FORMA
----------------- ----------------
SIX MONTHS ENDED
JANUARY 31, SIX MONTHS ENDED
----------------- JANUARY 31,
1993 1994 1994
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues............................ $307,996 $304,136 $304,136
Depreciation and amortization............. 15,637 14,778 14,778
Operating income.......................... 43,009 51,437 51,187
Interest expense.......................... 30,089 29,824 14,569
Earnings from continuing operations....... 8,378 14,043 36,558
Ratio of earnings to fixed charges(2)..... 1.4x 1.7x 3.2x
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital........................... $ 90,222 $103,018 $ 9,100
Total assets.............................. 617,862 630,996 517,554
Payable to (receivable from) parent and
affiliates............................... 2,030 (3,033) 967
Long-term debt............................ 500,641 488,841 252,958
Stockholder's equity...................... 17,448 25,402
Partners' capital:
Limited Partner........................... 116,916
General partner........................... 1,193
OPERATING DATA:
Retail propane sales volume (in gallons).. 315,859 322,562 322,562
Capital Expenditures(3)
Maintenance............................... $ 6,355 $ 2,203 $ 2,203
Growth.................................... 1,515 1,256 1,256
Acquisition............................... 16 1,484 1,484
-------- -------- --------
Total.................................... $ 7,886 $ 4,943 $ 4,943
======== ======== ========
SUPPLEMENTAL DATA:
EBITDA(4)................................. $ 58,646 $ 66,215 $ 65,965
</TABLE>
- --------------------
(1) In August 1991, the Company revised the estimated useful lives of storage
tanks from 20 to 30 years in order to more closely reflect the expected
useful lives of these assets. The effect of the change in accounting
estimates resulted in a favorable impact on net loss from continuing
operations of approximately $3.7 million for the fiscal year ended July 31,
1992.
(2) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings (loss) from continuing operations before
income taxes, plus fixed charges. Fixed charges consist of interest expense
on all indebtedness (including amortization of deferred debt issuance
costs) and the portion of operating lease rental expense that is
representative of the interest factor. For the fiscal years ended July 31,
1989, 1990 and 1992, earnings were inadequate to cover fixed charges by
$2.4 million, $0.1 million and $2.4 million, respectively. Earnings before
fixed charges for the periods presented were reduced by certain non-cash
expenses, consisting principally of depreciation and amortization. Such
non-cash charges totaled $34.7 million, $35.8 million, $38.5 million, $33.5
million and $33.0 million for the fiscal years ended July 31, 1989, 1990,
1991, 1992 and 1993, respectively, and totaled $16.7 million and $16.1
million for the six months ended January 31, 1993 and 1994, respectively.
(3) The Company's capital expenditures fall generally into three categories:
(i) maintenance capital expenditures, which include expenditures for repair
and replacement of property, plant and equipment; (ii) growth capital
expenditures, which include expenditures for purchases of new propane tanks
and other equipment to facilitate expansion of the Company's retail
customer base; and (iii) acquisition capital expenditures, which include
expenditures related to the acquisition of retail propane operations.
Acquisition capital expenditures include a portion of the purchase price
allocated to intangibles associated with the acquired businesses.
(4) EBITDA is calculated as operating income plus depreciation and
amortization. EBITDA is not intended to represent cash flow and does not
represent the measure of cash available for distribution. In addition,
EBITDA is not intended as an alternative to earnings from continuing
operations or net income. EBITDA provides additional information for
evaluating the Partnership's ability to make payments in respect of the
Senior Notes.
10
<PAGE>
THE OFFERING
Securities Offered.......... $250 million aggregate principal amount of %
Senior Notes due 2001 (the "Senior Notes").
Maturity Date............... , 2001.
Interest Payment Dates...... The Senior Notes will bear interest at the rate
of % per annum, payable semi-annually on
and of each year, commencing on
, 1994.
Optional Redemption......... The Senior Notes will be redeemable, in whole or
in part, at the option of the Issuers, at any
time on or after , 1998, at the
redemption prices set forth herein plus accrued
and unpaid interest thereon to the redemption
date.
Mandatory Redemption........ The Issuers are not required to make mandatory
redemption or sinking fund payments with respect
to the Senior Notes.
Ranking..................... The Senior Notes will be general unsecured joint
and several obligations of the Issuers. The
Senior Notes will rank pari passu in right of
payment to all existing and future senior
indebtedness of the Issuers, including borrowings
under the Credit Facility (as defined herein),
and senior in right of payment to all existing
and future subordinated indebtedness of the
Issuers. At January 31, 1994, after giving effect
to the Offering of the Senior Notes and the
transactions described herein, see "The
Transactions," the Partnership and its
subsidiaries would have had outstanding
approximately $300.6 million in aggregate
principal amount of indebtedness on a
consolidated basis (excluding trade payables and
other accrued liabilities).
Change of Control........... Upon a Change of Control (as defined herein),
each Holder of Senior Notes shall have the right
to require the Issuers to repurchase all or any
part of such Holder's Senior Notes at a purchase
price equal to 101% of the aggregate principal
amount thereof plus accrued and unpaid interest
to the date of purchase.
Asset Sales................. If the aggregate amount of Excess Proceeds (as
defined herein) received by the Partnership or
any of its Subsidiaries (as defined herein) from
Asset Sales (as defined herein) exceeds $15
million, the Issuers shall make an offer to all
Holders of Senior Notes to purchase the Senior
Notes with such Excess Proceeds at a purchase
price equal to 100% of the principal amount
thereof plus accrued and unpaid interest thereon
to the date of purchase.
Certain Covenants........... The Indenture will contain covenants restricting
or limiting the ability of the Partnership and
its Subsidiaries to, among other things, (i) pay
distributions or make other restricted payments,
(ii) incur additional indebtedness and issue
preferred stock, (iii) enter
11
<PAGE>
into sale and leaseback transactions, (iv) create
liens, (v) incur dividend and other payment
restrictions affecting Subsidiaries, (vi) enter
into mergers, consolidations or sales of all or
substantially all assets, (vii) enter into
transactions with affiliates or (viii) engage in
other lines of business.
Use of Proceeds............. The net proceeds from the Offering of the Senior
Notes (estimated to be approximately $244.5
million after deducting the underwriting
discounts and commissions and the expenses of
this Offering) will be used by the Partnership to
repay certain outstanding indebtedness of the
Company. See "Use of Proceeds."
RISK FACTORS
Prospective purchasers of the Senior Notes should consider carefully the
information set forth in "Risk Factors" and elsewhere in this Prospectus in
evaluating an investment in the Senior Notes.
12
<PAGE>
RISK FACTORS
Prospective purchasers should carefully consider the following investment
considerations and risks, as well as the other information set forth in this
Prospectus, before making a decision to invest in the Senior Notes.
Distributions of Available Cash
Pursuant to its governing partnership agreement (the "Partnership
Agreement"), the Partnership is required to distribute, on a quarterly basis,
100% of its Available Cash to the Master Partnership and the General Partner.
"Available Cash" is generally all of the cash receipts of the Partnership,
adjusted for cash disbursements and net changes in reserves. See "Glossary of
Terms," attached hereto as Appendix A. The Master Partnership in turn will
distribute 100% of its Available Cash to its partners. Distributions by the
Partnership will be subject to the covenant in the Indenture limiting
restricted payments. Such covenant provides that no such distributions may be
made unless, among other things, no default or event of default shall exist and
the specified pro forma coverage ratio shall be satisfied. See "Description of
Senior Notes--Certain Covenants."
The timing and amount of distributions by the Partnership could
significantly reduce the cash available to the Partnership to meet its business
needs and to pay principal, premium (if any) and interest on the Senior Notes.
The General Partner will determine the amount and timing of such distributions
and has broad discretion to establish and make additions to reserves of the
Partnership for any proper purpose, including but not limited to reserves for
the purpose of (i) complying with the terms of any agreement or obligation of
the Partnership (including the establishment of reserves to fund the payment of
interest and principal in the future), (ii) stabilizing distributions of cash,
and (iii) providing for future capital expenditures and other payments deemed
by the General Partner to be necessary or advisable.
Leverage
Upon the consummation of the transactions contemplated by this Prospectus,
the Partnership will be significantly leveraged and will have indebtedness that
is substantial in relation to its partners' equity. As of January 31, 1994,
after giving pro forma effect to such Transactions, the Partnership would have
had an aggregate of $253.0 million of long-term indebtedness (excluding current
maturities) and $118.1 million in partners' equity, resulting in a debt to
equity ratio of 2.1 to 1. See "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
The Partnership's leverage could have important consequences to investors in
the Senior Notes. The Partnership's ability to make scheduled payments, to
refinance its obligations with respect to its indebtedness or its ability to
obtain additional financing in the future will depend on its financial and
operating performance, which, in turn, is subject to prevailing economic
conditions and to financial, business and other factors beyond its control. The
Partnership believes that it will have sufficient cash flow from operations and
available borrowings under the Credit Facility to service its indebtedness,
although the principal amount of the Senior Notes will likely need to be
refinanced at maturity in whole or in part. However, a significant downturn in
the propane industry or other development adversely affecting the Partnership's
cash flow could materially impair the Partnership's ability to service its
indebtedness. If the Partnership's cash flow and capital resources are
insufficient to fund its debt service obligations, the Partnership may be
forced to refinance all or a portion of its debt or sell assets. There can be
no assurance that the Partnership would be able to refinance its existing
indebtedness or sell assets on terms that are commercially reasonable.
Limitations Imposed by Certain Indebtedness
The credit agreement relating to the Credit Facility (the "Credit Agreement")
and the Indenture are expected to contain a number of restrictive covenants
limiting the Partnership from incurring other indebtedness, making certain
restricted payments, entering into sale and leaseback transactions, incurring
liens and engaging in transactions with affiliates. A failure by the
Partnership to comply with the restrictions
13
<PAGE>
contained in the Credit Agreement, the Indenture or other agreements relating
to the Partnership's indebtedness could result in a default thereunder, which
in turn could cause such indebtedness (and, by reason of cross-default
provisions, other indebtedness) to become immediately due and payable. There
can be no assurance that such restrictions will not adversely affect the
Partnership's ability to conduct its operations or finance its capital needs or
impair the Partnership's ability to pursue attractive business and investment
opportunities if such opportunities arise. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of Senior Notes."
Fraudulent Conveyance Considerations
The incurrence by the Issuers of indebtedness such as the Senior Notes for
the purposes described herein may be subject to review under relevant federal
and state fraudulent conveyance laws if a bankruptcy case or a lawsuit
(including in circumstances where bankruptcy is not involved) is commenced by
or on behalf of unpaid creditors of the Issuers. Under these laws, if a court
were to find that, at the time the Senior Notes were issued, (a) the Issuers
either incurred indebtedness represented by the Senior Notes with the intent of
hindering, delaying or defrauding creditors or received less than reasonably
equivalent value or fair consideration for incurring such indebtedness and (b)
the Issuers (i) were insolvent or were rendered insolvent by reason of such
transaction, (ii) were engaged in a business or transaction for which the
assets remaining with them constituted unreasonably small capital or (iii)
intended to incur, or believed that they would incur, debts beyond their
ability to pay such debts as they matured, such court may subordinate the
Senior Notes to presently existing and future indebtedness of such entities,
void the issuance of the Senior Notes and direct the repayment of any amounts
paid thereunder to the Issuers or to a fund for the benefit of the Issuers'
creditors or take other action detrimental to the Holders of the Senior Notes.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the relevant jurisdiction. Generally, however, an entity would
be considered insolvent for purposes of the foregoing if the sum of its debts,
including contingent liabilities, were greater than the fair saleable value of
all of its assets at a fair valuation, or if the present fair saleable value of
its assets were less than the amount that would be required to pay its probable
liability on its existing debts, including contingent liabilities, as they
become absolute and matured.
The Issuers believe they will receive equivalent value at the time the
indebtedness represented by the Senior Notes is incurred. In addition, neither
of the Issuers believes that it, as a result of the issuance of the Senior
Notes, (i) will be insolvent or rendered insolvent under the foregoing
standards, (ii) will be engaged in a business or transaction for which its
remaining assets constitute unreasonably small capital or (iii) intends to
incur or believes that it will incur, debts beyond its ability to pay such
debts as they mature. These beliefs are based on the Company's operating
history, the Issuers' net worth and management's analysis of internal cash flow
projections and estimated values of assets and liabilities of the Issuers at
the time of this Offering. There can be no assurance, however, that a court
passing on these issues would make the same determination.
Lack of Previous Public Market
The Senior Notes will constitute a new issue of securities with no
established trading market. The Issuers do not intend to list the Senior Notes
on any national securities exchange or to seek the admission of the Senior
Notes for quotation and trading in the Nasdaq National Market. The Underwriters
have advised the Issuers that the Underwriters currently intend to make a
market in the Senior Notes, but they are not obligated to do so and may
discontinue any such market-making activities at any time without notice at
their
14
<PAGE>
sole discretion. Accordingly, there can be no assurance that an active public
market will develop or be sustained upon completion of the Offering or as to
the liquidity of any such trading market. If such a market were to develop, the
Senior Notes may trade at prices that are higher or lower than the initial
offering price depending upon many factors, including, among others, prevailing
interest rates, the Partnership's operating results, the market for similar
securities and general economic and political conditions.
Weather Conditions Affect the Demand For Propane
National weather conditions can have a substantial impact on the demand for
propane. In particular, the demand for propane by residential customers is
affected by weather, with peak sales typically occurring during the winter
months. Average winter temperatures as measured by degree days across the
Company's operating areas in fiscal 1991, 1992 and 1993 were warmer than
historical standards, thus lowering demand for propane. Average winter
temperatures as measured by degree days across the Company's operating areas in
fiscal 1994 to date have been slightly colder than historical averages. There
can be no assurance that average temperatures in future years will be close to
the historical average. Agricultural demand is also affected by weather. Wet
weather during harvest season causes an increase in propane used for crop
drying and dry weather during the growing season causes an increase in propane
used for irrigation. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Partnership Will Be Subject To Pricing and Inventory Risk
An important element of the Company's high retention of retail customers has
been its ability to deliver propane during periods of extreme demand. To help
insure this capability, the Partnership intends to continue engaging in the
brokerage and trading of propane and other natural gas liquids historically
performed by the Company. If the Partnership sustains material losses from its
trading activities, payments in respect of the Senior Notes and the other
indebtedness of the Partnership could be jeopardized. The Company has sought to
minimize its trading risks through the enforcement of trading policies, which
include total inventory limits and loss limits. The Partnership intends to
continue these policies. See "Business--Other Operations." In addition,
depending on inventory and price outlooks, the Partnership may purchase and
store propane or other natural gas liquids. This activity may subject the
Partnership to losses if the prices of propane or such other natural gas
liquids decline prior to their sale by the Partnership. The Partnership may be
unable to pass rapid increases in the wholesale cost of propane on to its
retail customers, reducing margins on retail sales. In the long term, however,
margins generally have not been materially impacted by rapid increases in the
wholesale cost of propane, as the Company has generally been able to eventually
pass on increases to its retail customers. There can be no assurance as to
whether the Partnership will be able to pass on such costs in the future.
The Retail Propane Business Experiences Competition From Other Energy Sources
and Within the Industry
The Partnership will compete for customers against suppliers of natural gas,
electricity and fuel oil. Because of the significant cost advantage of natural
gas over propane, propane is generally not competitive with natural gas in
those areas where natural gas is readily available. The expansion of the
nation's natural gas distribution systems has resulted in the availability of
natural gas in many areas that previously depended upon propane. Propane is
generally less expensive to use than electricity for space heating, water
heating and cooking and competes effectively with electricity in those parts of
the country where propane is cheaper than electricity on an equivalent BTU
basis. Although propane is similar to fuel oil in application, market demand
and price, propane and fuel oil have generally developed their own distinct
geographic markets. In addition, given the cost of conversion from fuel oil to
propane, potential customers of propane generally will only switch from fuel
oil if there is a significant price advantage with propane.
Long-standing customer relationships are also typical to the retail propane
industry. Retail propane customers generally lease their storage tanks from
their suppliers. The lease terms and, in most states, certain fire safety
regulations, restrict the refilling of a leased tank solely to the propane
supplier that owns the tank. The cost and inconvenience of switching tanks
minimizes a customers tendency to switch among suppliers of
15
<PAGE>
propane on the basis of minor variations in price. As a result, the Partnership
may experience difficulty in acquiring new retail customers in areas where
there are existing relationships between potential customers and other propane
distributors.
Partnership Operations are Subject to Operating Risks
The Partnership's operations will be subject to all operating hazards and
risks normally incidental to handling, storing, transporting and otherwise
providing for use by consumers of combustible liquids such as propane. As a
result, the Company is, and the Partnership will be, a defendant in various
legal proceedings and litigation arising in the ordinary course of business.
The Partnership will maintain insurance policies with insurers in such amounts
and with such coverages and deductibles as the General Partner believes are
reasonable and prudent. However, there can be no assurance that such insurance
will be adequate to protect the Partnership from all material expenses related
to potential future claims for personal and property damage or that such levels
of insurance will be available in the future at economical prices. After taking
into account the pending and threatened matters against the Company that will
be assumed by the Partnership and the insurance coverage and reserves to be
maintained by the Partnership, the General Partner is of the opinion that there
are no known contingent claims or uninsured claims that are likely to have a
material adverse effect on the results of operations or financial condition of
the Partnership. See "Business--Litigation." The occurrence of an event not
fully covered by insurance, or the occurrence of a large number of claims that
are self-insured, may have a material adverse effect on the results of
operations or financial position of the Partnership.
The Partnership May Not Be Successful in Making Acquisitions
The Company has historically expanded its business through acquisitions. The
Partnership intends to consider and evaluate opportunities for growth through
acquisitions in its industry, although it currently has no material
acquisitions under consideration. There can be no assurance that the
Partnership will find attractive acquisition candidates in the future, or that
the Partnership will be able to acquire such candidates on economically
acceptable terms.
Energy Efficiency and Technology Trends May Affect Demand For Propane
Retail customers primarily use propane as a heating fuel. Increased
technological advances in energy efficiency, including the development of more
efficient heating devices, has slowed the growth of demand for propane by
retail gas customers. The Partnership is unable to predict the effect that any
technological advances in energy efficiency, conservation, energy generation or
other devices might have on the Partnership's operations.
The Partnership Will Be Dependent Upon Key Personnel of the General Partner
The Company believes its success has been, and the Partnership's success will
be, dependent to a significant extent upon the efforts and abilities of its
senior management team, in particular James E. Ferrell, President and Chairman
of the Board of the Company. The failure of the General Partner to retain Mr.
Ferrell and other executive officers could adversely affect the Partnership's
operations. Mr. Ferrell, who has been associated with the Company for nearly 30
years and who will indirectly own approximately 55.2% of the Partnership, has
indicated to the Company that he intends to continue as chief executive officer
of the General Partner.
16
<PAGE>
THE TRANSACTIONS
At the closing of this Offering, the Partnership will become the owner of the
propane business and assets of Ferrellgas. In connection with the acquisition
of such business and assets, the Partnership will assume substantially all of
the liabilities, whether known or unknown, associated with such business and
assets (other than income tax liabilities) and will issue 1,000,000 Common
Units, 14,546,625 Subordinated Units and the Incentive Distribution Rights to
Ferrellgas. Ferrellgas will also receive the general partner interests in the
Master Partnership and the Partnership. Ferrellgas will make a dividend of such
Common Units, Subordinated Units and Incentive Distribution Rights to its
parent, Ferrell. The Partnership has agreed with Ferrellgas to assume the
payment obligations of Ferrellgas under its Existing Senior Notes and its
Existing Subordinated Debentures. The Partnership's agreement to assume the
payment obligation of the Company under the Existing Subordinated Debentures
will be for the benefit of the Company and will be subordinate to any other
current or future debt for borrowed money of the Partnership. Substantially all
of the Existing Senior Notes and the Existing Subordinated Debentures will be
retired with the net proceeds from the sale by the Master Partnership of the
Common Units in the MLP Offering (estimated to be approximately $260.3 million
at an assumed initial public offering price of $21.375 per Common Unit) and the
net proceeds from the issuance of approximately $250 million in aggregate
principal amount of the Senior Notes offered hereby (estimated to be
approximately $244.5 million).
Concurrently with the closing of this Offering, the Company will consummate a
tender offer and consent solicitation with respect to its Existing Subordinated
Debentures (the "Tender Offer"). The consent solicitation is necessary to
modify the indenture related to the Existing Subordinated Debentures in order
to permit the Company to consummate the transactions contemplated by this
Prospectus. All of the tendered Existing Subordinated Debentures will be
retired by the Partnership, as described above. The Partnership will agree with
Ferrellgas to be primarily responsible for the payment obligations of
Ferrellgas with respect to any Existing Subordinated Debentures that are not
tendered and anticipates that it will reduce the aggregate principal amount of
the Senior Notes issued at the closing of this Offering by an amount
approximately equal to the principal amount of the Existing Subordinated
Debentures that are not tendered.
Concurrently with the closing of this Offering, the Company will mail to the
holders of the Existing Senior Notes a notice of redemption of all outstanding
Existing Senior Notes, pursuant to the optional redemption provisions of the
Existing Senior Notes Indenture. The redemption date will be 30 days after the
date of mailing of such notice. The Existing Senior Notes Indenture provides
for a redemption price equal to 100% of the principal amount plus accrued and
unpaid interest, if any, to the redemption date plus in the case of the
Existing Fixed Rate Notes, a premium which is based on certain yield
information for U.S. Treasury securities as of three business days prior to the
redemption date. The Partnership will deposit with the trustee on the date of
closing of this Offering an amount sufficient to pay the redemption price. As a
result of the transactions contemplated hereby, during the 30-day period prior
to the redemption date, an event of default will exist under the Existing
Senior Notes Indenture. The holders of at least 25% of the principal amount of
Existing Senior Notes, therefore, will be entitled, by notice to the Company
and the trustee, to declare the unpaid principal of, and accrued and unpaid
interest and the applicable premium on, the Existing Senior Notes to be
immediately due and payable. In the event of such a declaration, the amount
already deposited by the Partnership in payment of the redemption price would
be applied to pay the amount so declared immediately due and payable.
At the closing of this Offering, it is anticipated that the Partnership will
borrow approximately $20 million under the Credit Facility which will enable
the Partnership to commence operations with an initial cash balance of at least
$20 million. To the extent that the initial public offering price per Common
Unit is less than $21.375, the Partnership may need to borrow additional funds
under the Credit Facility in order to commence operations with an initial cash
balance of at least $20 million.
17
<PAGE>
The foregoing description assumes that the Underwriters' overallotment option
with respect to the MLP Offering is not exercised. If the Underwriters'
overallotment option is exercised in full, the Partnership will issue 1,965,000
additional Common Units. The Partnership will use the net proceeds from any
exercise of such Underwriters' overallotment option first to repay any amounts
borrowed under the Credit Facility or, if no such borrowings have been made, to
establish an initial cash balance of up to $20 million. Any remaining net
proceeds from the exercise of such Underwriters' overallotment option will be
used by the Partnership to repurchase Common Units held by Ferrell. Any net
proceeds remaining after such repurchase, will be retained by the Partnership
for general partnership purposes.
Immediately following this Offering, Ferrellgas will own an effective 2%
general partner interest in the Master Partnership and the Partnership, on a
combined basis, and Ferrell will own 1,000,000 Common Units (if the
Underwriters' overallotment option with respect to the MLP Offering is
exercised in full all of such Common Units will be repurchased by the Master
Partnership) and 14,546,625 Subordinated Units representing an aggregate 53.2%
limited partner interest in the Master Partnership (48.1% if the Underwriters'
overallotment option is exercised in full) and the Incentive Distribution
Rights.
USE OF PROCEEDS
The net proceeds to the Partnership from the sale of the Senior Notes offered
hereby are estimated to be approximately $244.5 million after deducting the
underwriting discount and the expenses of this Offering. The net proceeds of
this Offering, together with the net proceeds from the issuance of the Common
Units in the MLP Offering (estimated to generate net proceeds of approximately
$260.3 million), will be used by the Partnership to repay indebtedness of
Ferrellgas.
The indebtedness to be repaid consists of $50 million of Existing Floating
Rate Notes, which have a floating rate of interest (5.6875% per annum at
January 31, 1994) and mature in August 1996, $177.5 million of Existing Fixed
Rate Notes, which have an interest rate of 12% per annum and mature in August
1996, and up to $246.4 million of Existing Subordinated Debentures, which have
an interest rate of 11 5/8% and mature in December 2003. See "Capitalization."
If the Underwriters' overallotment option with respect to the MLP Offering is
exercised in full, the estimated additional net proceeds to the Partnership
will be approximately $39.3 million. The Partnership will use the net proceeds
from any exercise of such Underwriters' option first to repay any amounts
borrowed under the Credit Facility or, if no such borrowings have been made, to
establish an initial cash balance of up to $20 million that will be used for
general partnership purposes. See "The Transactions." Any remaining net
proceeds from the exercise of such Underwriters' overallotment option will be
used by the Partnership to repurchase up to 1,000,000 Common Units held by
Ferrell. Any net proceeds remaining after such repurchase will be retained by
the Partnership for general partnership purposes.
18
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the consolidated capitalization of
Ferrellgas at January 31, 1994, (ii) the pro forma adjustments required to
reflect the transactions to be consummated at the closing of this offering,
including the issuance of Common Units pursuant to the MLP Offering at an
assumed offering price of $21.375 per Common Unit and (iii) the pro forma
capitalization of the Partnership at such date after giving effect thereto. The
table should be read in conjunction with the historical and pro forma
consolidated financial statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JANUARY 31, 1994
---------------------------------------
FERRELLGAS PRO FORMA PARTNERSHIP
HISTORICAL ADJUSTMENTS(1) PRO FORMA
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt, including current
portion of long-term debt.............. $ 1,604 $ 46,045 $ 47,649
======== ========= ========
Long-term debt:
Senior notes, interest at %, due in
2001................................. 250,000 250,000
Existing Floating Rate Notes, interest
at applicable LIBOR rate plus 2.25%
(5.6875% at January 31,1994), due in
August 1996.......................... 50,000 (50,000)
Existing Fixed Rate Notes, interest at
12%, due in August 1996.............. 189,500 (189,500)
Existing Subordinated Debentures,
interest at 11 5/8%, due in December
2003................................. 246,383 (246,383)(2)
Other long-term debt.................. 2,958 -- 2,958
-------- --------- --------
Total long-term debt................ 488,841 (235,883) 252,958
Stockholder's equity.................... 25,402 (25,402)
Partners' capital:
Limited partner....................... 116,916 116,916
General Partner....................... 1,193 1,193
-------- --------- --------
Total stockholder's equity/partners'
capital............................ 25,402 92,707 118,109
-------- --------- --------
Total capitalization................ $514,243 $(143,176) $371,067
======== ========= ========
</TABLE>
- ---------------------
(1) Reflects the conveyance of the assets of Ferrellgas to the Partnership in
return for the assumption of liabilities and the issuance of a 1.0101%
general partner interest. In addition, the Partnership will issue a
98.9899% limited partner interest to the Master Partnership in return for
the net proceeds of the MLP Offering estimated to be $260.3 million.
(2) Assumes that 100% of the Existing Subordinated Debentures are tendered to
Ferrellgas. To the extent holders of such debentures do not tender them to
Ferrellgas, it is anticipated that the amount of Senior Notes issued will
be reduced by an amount equal to the amount of Existing Subordinated
Debentures not tendered. The Partnership will agree with Ferrellgas to be
primarily responsible for the payment obligations of Ferrellgas related to
the Existing Subordinated Debentures.
Concurrent with the consummation of the transactions contemplated hereby, the
Master Partnership will issue 13,100,000 Common Units for aggregate net
proceeds of $260.3 million in the MLP Offering. It is anticipated that the
Partnership will also enter into the Credit Facility in the amount of $170
million. For a discussion of the Credit Facility and other capital resources
and liquidity of the Partnership, see "Managements Discussion and Analysis of
Financial Condition and Results of Operations--Pro Forma Financial Condition."
19
<PAGE>
SELECTED HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth for the periods and the dates indicated,
selected historical financial and operating data for the Company and selected
pro forma financial and operating data for the Partnership after giving effect
to the transactions contemplated by this Prospectus. The selected historical
income statement and balance sheet data of the Company for the five years ended
July 31, 1993, is derived from financial statements which have been audited by
Deloitte & Touche, independent auditors, certain of which appear elsewhere in
this Prospectus. The data for the six month periods ended January 31, 1994 and
1993, have been derived from the unaudited financial statements appearing
herein, and, in the opinion of management of the Company, contain all
adjustments, consisting only of normal recurring adjustments necessary for a
fair presentation of the Company's results of operation and financial
condition. The Partnership's selected pro forma financial data should be read
in conjunction with such consolidated financial statements and the pro forma
financial statements and notes thereto included elsewhere in this Prospectus.
The propane industry is seasonal in nature with its peak activity during the
winter months. Therefore, the results for the interim period are not
necessarily indicative of the results that can be expected for a full fiscal
year. The following should be read in conjunction with the Financial Statements
and Notes to Financial Statements contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PARTNERSHIP
HISTORICAL PRO FORMA
-------------------------------------------------- --------------------------
YEAR ENDED JULY 31, YEAR ENDED
-------------------------------------------------- JULY 31,
1989 1990 1991 1992 1993 1993
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues........... $409,953 $467,641 $543,933 $501,129 $541,945 $541,945
Depreciation and
amortization............ 32,528 33,521 36,151 31,196 30,840 30,840
Operating income......... 53,425 54,388 63,045 56,408 58,553 58,053
Interest expense......... 54,572 55,095 60,507 61,219 60,071 28,897
Earnings (loss) from
continuing operations... (1,506) (347) 1,979 (1,700)(1) 109 28,808
Ratio of earnings to
fixed charges(2)........ -- -- 1.1x -- 1.0x 1.9x
BALANCE SHEET DATA (AT END
OF PERIOD):
Working capital.......... $(39,708) $ 50,456 $ 53,403 $ 67,973 $ 74,408
Total assets............. 487,631 554,580 580,260 598,613 573,376
Payable to (receivable
from) parent and
affiliates.............. 13,109 10,743 3,763 2,236 (916)
Long-term debt........... 354,626 465,644 466,585 501,614 489,589
Stockholder's equity..... 6,616 11,463 21,687 8,808 11,359
OPERATING DATA:
Retail propane sales
volume (in gallons)..... 498,395 499,042 482,211 495,707 555,413 555,413
Capital expenditures(3):
Maintenance.............. $ 7,271 $ 5,428 $ 7,958 $ 10,250 $ 10,527 $ 10,527
Growth................... 10,062 10,447 2,478 3,342 2,851 2,851
Acquisition.............. 14,668 18,005 25,305 10,112 897 897
-------- -------- -------- -------- -------- --------
Total................... $ 32,001 $ 33,880 $ 35,741 $ 23,704 $ 14,275 $ 14,275
======== ======== ======== ======== ======== ========
SUPPLEMENTAL DATA:
EBITDA(4)................ $ 85,953 $ 87,909 $ 99,196 $ 87,604 $ 89,393 $ 88,893
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
PARTNERSHIP
HISTORICAL PRO FORMA
----------------- ----------------
SIX MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
-----------------
1993 1994 1994
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues............................ $307,996 $304,136 $304,136
Depreciation and amortization............. 15,637 14,778 14,778
Operating income.......................... 43,009 51,437 51,187
Interest expense.......................... 30,089 29,824 14,569
Earnings from continuing operations....... 8,378 14,043 36,558
Ratio of earnings to fixed charges(2)..... 1.4x 1.7x 3.2x
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital........................... $ 90,222 $103,018 $ 9,100
Total assets.............................. 617,862 630,996 517,554
Payable to (receivable from) parent and
affiliates............................... 2,030 (3,033) 967
Long-term debt............................ 500,641 488,841 252,958
Stockholder's equity...................... 17,448 25,402
Partners' capital:
Limited Partner........................... 116,916
General partner........................... 1,193
OPERATING DATA:
Retail Propane sales volumes (in gallons). 315,859 322,562 322,562
Capital expenditures(3)
Maintenance............................... $ 6,355 $ 2,203 $ 2,203
Growth.................................... 1,515 1,256 1,256
Acquisition............................... 16 1,484 1,484
-------- -------- --------
Total.................................... $ 7,886 $ 4,943 $ 4,943
======== ======== ========
SUPPLEMENTAL DATA:
EBITDA(4)................................. $ 58,646 $ 66,215 $ 65,965
</TABLE>
- ---------------------
(1) In August 1991, the Company revised the estimated useful lives of storage
tanks from 20 to 30 years in order to more closely reflect expected useful
lives of the assets. The effect of the change in accounting estimates
resulted in a favorable impact on net loss from continuing operations of
approximately $3.7 million for the fiscal year ended July 31, 1992.
(2) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings (loss) from continuing operations before
income taxes, plus fixed charges. Fixed charges consist of interest
expense on all indebtedness (including amortization of deferred debt
issuance costs) and the portion of operating lease rental expense that is
representative of the interest factor. For the fiscal years ended July 31,
1989, 1990 and 1992, earnings were inadequate to cover fixed charges by
$2.4 million, $0.1 million and $2.4 million, respectively. Earnings before
fixed charges for the periods presented were reduced by certain non-cash
expenses, consisting principally of depreciation and amortization. Such
non-cash charges totaled $34.7 million, $35.8 million, $38.5 million,
$33.5 million and $33.0 million for the fiscal years ended July 31, 1989,
1990, 1991, 1992 and 1993, respectively, and totaled $16.7 million and
$16.1 million for the six months ended January 31, 1993 and 1994,
respectively.
(3) The Company's capital expenditures fall generally into three categories:
(1) maintenance capital expenditures, which include expenditures for major
repair and replacement of property, plant and equipment; (ii) growth
capital expenditures, which include expenditures for purchases of new
propane tanks and other equipment to facilitate expansion of the Company's
retail customer base; and (iii) acquisition capital expenditures, which
include expenditures related to the acquisition of retail propane
operations. Acquisition capital expenditures include a portion of the
purchase price allocated to intangibles associated with the acquired
businesses.
(4) EBITDA is calculated as operating income plus depreciation and
amortization. EBITDA is not intended to represent cash flow and does not
represent the measure of cash available for distribution. In addition,
EBITDA is not intended as an alternative to earnings from continuing
operations and net income. EBITDA provides additional information for
evaluating the Partnership's ability to make the payments in respect of
the Senior Notes.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the historical and pro forma financial
condition and results of operations of the Company and the Partnership. The
discussion should be read in conjunction with the historical and pro forma
consolidated financial statements and the notes thereto included elsewhere in
this Prospectus.
GENERAL
The Partnership was recently formed to acquire and operate the business and
assets of the Company. The Company is engaged in the sale, distribution,
marketing and trading of propane and other natural gas liquids. The Company's
revenue is derived primarily from the retail propane marketing business. The
Company believes it is the third largest retail marketer of propane in the
United States, based on gallons sold, serving more than 600,000 residential,
industrial/commercial and agricultural customers in 44 states and the District
of Columbia through approximately 415 retail outlets and 229 satellite
locations. The Company's annual retail propane sales volume was approximately
553 million, 496 million and 482 million gallons during the fiscal years ended
July 31, 1993, 1992 and 1991, respectively.
The retail propane business of the Company consists principally of
transporting propane purchased in the contract and spot markets, primarily from
major oil companies, to its retail distribution outlets and then to tanks
located on the customers' premises as well as to portable propane cylinders. In
the residential and commercial markets, propane is primarily used for space
heating, water heating and cooking. In the agricultural market propane is
primarily used for crop drying, space heating, irrigation and weed control. In
addition, propane is used for certain industrial applications, including use as
an engine fuel which is burned in internal combustion engines that power
vehicles and forklifts and as a heating or energy source in manufacturing and
drying processes.
The retail market for propane is seasonal because of its primary use for
heating in residential and commercial buildings. In addition, sales volumes
have traditionally been affected by various factors, including competitive
conditions, demand for product, variations in weather and fluctuations in
propane prices. The Company's results for its first fiscal quarter (August,
September and October) and fourth fiscal quarter (May, June and July) are
typically lower than other quarters, primarily as a result of warmer weather in
its first and fourth fiscal quarters.
The Company is also engaged in the trading of propane and other natural gas
liquids, chemical feedstocks marketing and wholesale propane marketing. Through
its natural gas liquids trading operations and wholesale marketing, the Company
has become one of the largest independent traders of propane and natural gas
liquids in the United States. In fiscal year 1993, the Company's annual
wholesale and trading sales volume was approximately 1.2 billion gallons of
propane and other natural gas liquids, approximately 64% of which was propane.
This volume, when combined with the Company's retail volume, makes the Company
one of the largest purchasers of propane, which the General Partner believes
will help assure the Partnership favorable prices and supply of propane during
times of increased demand. For the fiscal years ended July 31, 1993, 1992 and
1991, the Company had net revenues of $6.7 million, $4.9 million and $9.9
million, respectively, from its trading activities.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1994 VERSUS JANUARY 31, 1993
Total Revenues. Total revenues decreased 1.3% to $304,136,000 as compared
with $307,996,000 for the prior year period. The overall decrease was
attributable to a decrease in revenues from other operations (net trading
operations, wholesale propane marketing and chemical feedstocks marketing) of
22.6% to $38,612,000, partially offset by an increase in revenues from retail
operations of 2.9% to $265,524,000.
The decrease in revenues from other operations is primarily due to higher
sales of chemical feedstocks in the prior period resulting from sales of
chemical feedstocks that were designated for storage but were sold
22
<PAGE>
due to storage limitations. Additional decreases are the result of lower
product costs for chemical feedstocks and wholesale propane marketing and
decreased net trading results due to reduced market volatility relative to the
prior period.
The increase in revenues from retail operations was primarily due to an
increase in sales volume due to cooler temperatures in the primary heating
months than that which existed in the prior period. The volume of gallons sold,
excluding acquisitions, increased revenues by $5,995,000. Fiscal year 1994 and
1993 acquisitions increased revenues in the six months ended January 31, 1994
by $1,153,000. These increases were offset by a $241,000 decrease in selling
prices due to lower product costs.
Gross Profit. Gross profit increased 7.1% to $148,157,000 as compared with
$138,310,000 for the prior period, primarily due to an increase in retail
operations. Retail operations results improved due to increased sales volume as
discussed previously and to margin increases as a result of favorable changes
in the competitive pressures of the industry and to normal fluctuations in the
Company's product mix. These increases were offset by a decrease in net trading
results due to reduced market volatility relative to the prior period.
Operating Expenses. Operating expenses increased 2.3% to $73,926,000 as
compared with $72,296,000, for the prior period, primarily due to (i) an
increase in incentive compensation expense, (ii) an increase in vehicle
expenses due to increased sales volume and (iii) general increases in the cost
of doing business. These increases were partially offset by a decrease in
general liability expense and a decrease in bad debt expense due to improved
claims administration and credit administration, respectively.
General and Administrative Expenses. General and administrative expenses
increased 18.5% to $5,872,000 as compared with $4,957,000 for the prior period
due to increased incentive compensation expense. This increase was partially
offset by a reduction in facilities rent expense in the second and third
quarters of fiscal year 1993 due to the purchase of the Liberty, Missouri,
corporate offices.
Depreciation and Amortization. Depreciation expense decreased 5.5% to
$14,778,000 as compared with $15,637,000 for the prior period due primarily to
extending the use of the Company's vehicles beyond the depreciable life and to
the reduction in the number of Company owned vehicles.
Net Interest Expense. Net interest expense decreased 1.9% to $28,131,000 as
compared with $28,681,000 for the prior period due to the repurchase of
$10,500,000 of senior notes in the fourth quarter of fiscal year 1993 offset by
increased non-cash amortization of financing costs.
Net Earnings. Net earnings increased 67.6% to $14,043,000 as compared with
$8,378,000 for the prior period primarily due to the increase in retail
operations sales volume and margins offset by increased operating and general
and administrative expenses.
FISCAL YEAR ENDED JULY 31, 1993 VERSUS JULY 31, 1992
Total Revenues. Total revenues increased 8.1% to $541,945,000 as compared
with $501,129,000 for the prior year. This increase was attributable to an
increase in revenues from retail operations of 10.6% to $451,966,000 partially
offset by a decrease in revenues from other operations (net trading operations,
chemical feedstocks marketing and wholesale propane marketing) of 2.6% to
$89,979,000.
The increase in revenues attributable to retail operations resulted from
increased sales volume. The sales volume increase was mainly due to a surge in
agricultural business from crop drying in farm belt states and cooler
temperatures than those which existed in the prior year. The volume of gallons
sold, excluding the effects of acquisitions, increased revenues by $42,648,000.
This increase was offset by a decrease in selling prices which reduced revenues
by $3,326,000. Acquisitions completed in fiscal 1993 and 1992 increased
revenues by $3,172,000.
Total revenues attributable to other operations decreased as compared with
the prior year. Wholesale propane marketing revenues decreased as a result of a
change in focus and marketing strategy. This decrease
23
<PAGE>
was offset by an increase in net trading operations as a result of increased
market volatility relative to the prior year.
Gross Profit. Gross profit increased 4.3% to $243,912,000 as compared with
$233,850,000 for the prior year. The increase was primarily due to an increase
in retail operations' sales volume and an increase in net trading and wholesale
marketing operating results. These increases were offset by a decrease in
retail operations' margins due to competitive pricing pressures in the
industry.
Operating Expenses. Operating expenses increased 4.1% to $139,617,000 as
compared with $134,165,000 for the prior year, due to (i) an increase in
personnel costs from increased sales volume and accrued incentive compensation
expense, (ii) an increase in vehicle expenses from increased sales volume,
(iii) an increase in other expenses from sales and use tax assessments on prior
year purchases and leases, and (iv) general increases in the cost of doing
business. These increases were partially offset by a decrease in general
liability expense due to improved claims administration and to a decrease in
bad debt expense due to improved credit and collections administration.
Depreciation and Amortization. Depreciation and amortization expense
decreased 1.1% to $30,840,000 as compared with $31,196,000 for the prior year
due to retirements and fully depreciated assets.
General and Administrative Expenses. General and administrative expenses
increased 33.3% to $10,079,000 as compared with $7,561,000 for the prior year
period due to an increase in compensation expense related to the long-term
incentive plan and an increase in non-capitalized software maintenance costs.
Net Interest Expense. Net interest expense of $56,805,000 remained
essentially unchanged as compared with $56,818,000 for the prior year.
Decreases in interest expense due to lower effective interest rates were offset
by a decrease in interest income as a result of lower interest rates on short-
term investments.
Extraordinary Loss. The extraordinary loss of $886,000, net of $543,000
income tax benefit, was due to the early extinguishment of $10,500,000 of the
senior notes as discussed in the notes to the consolidated financial
statements.
Net Loss. Net loss decreased to $777,000 as compared with a loss of
$11,679,000 for the prior year due to a $9,093,000 decrease in the
extraordinary loss from the early extinguishment of debt and to an increase in
net operating results.
FISCAL YEAR ENDED JULY 31, 1992 VERSUS JULY 31, 1991
Total Revenues. Total revenues decreased 7.9% to $501,129,000 as compared
with $543,933,000 for the prior year. This decrease was attributable to a
decrease in revenues from retail operations of 8.1% to $408,781,000 and a
decrease in revenues from other operations (net trading operations, chemical
feedstocks marketing and wholesale propane marketing) of 6.8% to $92,348,000.
The decrease in revenues attributable to retail operations resulted mainly
from a decrease in selling prices related to the end of the Persian Gulf crisis
and to competitive pressures within the industry. In fiscal 1991, selling
prices were increased in response to product cost increases brought about by
the Persian Gulf crisis. The volume of gallons sold, excluding the effects of
acquisitions, decreased due to temperatures being warmer than normal and warmer
than the prior year in the primary heating months, along with competitive
pressures within the industry. The decrease in selling prices and volumes
reduced total revenues by $45,080,000 and $1,727,000, respectively.
Acquisitions in fiscal 1991 and 1992 increased fiscal 1992 revenues by
$10,120,000.
The decrease in revenues attributable to other operations resulted from
declines in net trading operations and wholesale propane marketing revenues
offset by an increase in revenues from chemical feedstocks marketing. Net
trading operations decreased due to a less volatile market than that which
existed in fiscal 1991 during the Persian Gulf crisis. Wholesale propane
marketing revenues decreased as a result of changes in marketing strategy and
focus of the business and a decrease in selling price and volumes for the
reasons noted above for retail operations. Chemical feedstocks marketing
revenues increased due to additional emphasis on butane sales.
24
<PAGE>
Gross Profit. Gross profit decreased 4.9% to $233,850,000 as compared with
$245,965,000 for the prior year. Approximately half of the decrease was
attributable to retail operations as a result of competitive pressures in the
industry and warmer than normal and warmer than prior year temperatures in the
primary heating months. The remaining decrease was attributable to net trading
operations and wholesale propane marketing.
Operating Expenses. Operating expenses increased 3.5% to $134,165,000 as
compared with $129,684,000 for the prior year. This increase was primarily due
to an increase in payroll expenses, general liability and workers' compensation
insurance and an increase in expenses due to acquisitions in fiscal 1992 and
1991. These increases were partially offset by a reduction in incentive
compensation expense.
Depreciation and Amortization. Depreciation and amortization expense
decreased 13.7% to $31,196,000 as compared with $36,151,000 for the prior year
due primarily to a change in the useful lives of certain assets as discussed in
the notes to the consolidated financial statements. The change was based on the
expected useful lives of the assets and industry practice.
General and Administrative Expenses. General and administrative expenses
decreased 41.6% to $7,561,000 as compared with $12,953,000 for the prior year
due primarily to a reversal of expense previously provided related to the long-
term incentive plan and the elimination of certain management positions.
Net Interest Expense. Net interest expense increased 0.3% to $56,818,000 as
compared with $56,666,000 for the prior year. In connection with the
refinancing of the subordinated debt (as discussed in Note F to the notes to
the consolidated financial statements) the Company borrowed an additional
$40,000,000. The impact of this additional borrowing on interest expense was
offset by a lower effective interest rate on the new subordinated debt and the
investment of the excess cash proceeds from the refinancing.
Extraordinary Loss. The extraordinary loss of $9,979,000, net of income tax
benefit, was due to the refinancing of the subordinated debt as discussed in
the notes to the consolidated financial statements.
Net Earnings (Loss). Net earnings decreased to a net loss of $11,679,000 as
compared with net earnings of $1,979,000 for the prior year due primarily to
the decrease in gross profit and the extraordinary loss on the refinancing of
subordinated debt.
FISCAL YEAR ENDED JULY 31, 1991 VERSUS JULY 31, 1990
Total Revenues. Total revenues increased 16.3% to $543,933,000 as compared
with $467,641,000 for the prior year. This increase was attributable to (i) an
increase in revenues from retail operations of 12.6% to $444,886,000 and (ii)
an increase in revenues from other operations (wholesale propane marketing,
chemical feedstocks marketing and net trading operations) of 36.3% to
$99,047,000.
The increase in revenues from retail operations resulted primarily from an
increase in selling prices in response to an increase in product costs brought
about by the Persian Gulf crisis. Selling prices were increased in order to
maintain normal operating margins. Increased retail selling prices resulted in
a $62,505,000 revenue variance. The acquisitions of retail propane businesses
increased revenues by approximately $18,484,000. A reduction in residential,
motor fuel applications and reseller sales volumes decreased revenues
approximately $30,236,000. Retail operations volumes decreased 3.4% compared to
the prior year due to temperatures being warmer than the prior year and warmer
than normal in addition to customers requesting smaller volume deliveries while
propane selling prices remained high.
The increase in revenues from other operations resulted from increases in all
areas of other operations. Wholesale propane and chemical feedstocks marketing
revenues increased due primarily to an increase in selling prices in response
to increased product costs as noted above. Net trading operations revenues
increased due to increased volatility in the market generating a larger volume
of trades. Other operations volumes increased 35.2% compared to the prior year.
25
<PAGE>
Gross Profit. Gross profit increased 10.4% to $245,965,000 as compared with
$222,834,000 for the prior year. This increase was attributed to the
acquisitions of retail propane businesses in fiscal year 1991 and 1990 and an
increase in retail operations margins. Retail margins from existing business
increased to cover the increased costs of product delivery resulting from
smaller volume deliveries and increased carrying costs involved with higher
inventory and receivables balance. Also, gross profit for fiscal year 1990 was
adversely impacted by high product costs from inventory purchased in January
1990. Gross profit from other operations also increased primarily due to
increased wholesale propane marketing margins resulting from focusing marketing
efforts on higher margin sales and increased net trading operations volume and
margins resulting from the volatile propane market.
Operating Expenses. Operating expenses increased 13.1% to $129,684,000 as
compared with $114,639,000 for the prior period primarily due to (i) an
increase in full time payroll, incentive compensation expense and the related
payroll taxes as a result of increased retail operations margins and other
operations, (ii) an increase in vehicle expenses and in plant and office
expenses primarily from increases in vehicle fuel costs and customers
requesting more frequent, smaller volume deliveries and (iii) acquisitions of
retail propane businesses during fiscal year 1991 and 1990.
General and Administrative Expenses. General and administrative expenses
decreased 19.6% to $12,953,000 as compared with $16,113,000 for the prior
period. A cost reduction program which was implemented March 1990 included
reductions of staff in non-critical areas and cuts in non-essential projects.
The results of this program and a reversal of expense previously provided
related to the long-term incentive plan contributed to the general and
administrative expense decrease.
Net Interest Expense. Net interest expense increased 6.0% to $56,666,000 as
compared with $53,463,000 due to the issuance of senior notes in July of 1990.
The excess cash proceeds from the issuance of the senior notes were invested to
offset interest expense incurred.
Net Earnings (Loss). Net earnings increased to $1,979,000 as compared with a
net loss of $3,814,000 for the prior period due to the increase in gross profit
which was offset partially by an increase in operating expenses and net
interest expense. Also in 1990, earnings were unfavorably impacted by an
extraordinary loss from refinancing of debt.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended January 31, 1994 and the twelve months ended July
31, 1993, the Company's operating cash flow provided from operations (as
measured by operating income before depreciation and amortization, interest and
taxes) was sufficient to (i) make interest payments and required reductions to
existing debt and (ii) make purchases of property, plant and equipment.
Cash Flows from Operating Activities. Cash provided by (used in) operating
activities increased to $9,172,000 for the six months ended January 31, 1994,
as compared with ($1,792,000) for the prior period. This increase was primarily
attributable to an increase in net earnings and accounts payable, which were
offset by increases in inventory and accounts and notes receivable. Cash
provided by operating activities increased to $36,961,000 for the twelve months
ended July 31, 1993, as compared with $22,965,000 for the prior period. This
increase was primarily attributable to an increase in earnings and a decrease
in inventory purchases in anticipation of future propane requirements, offset
by a decrease in accounts payable.
Cash Flows From Investing Activities. During the six months ended January 31,
1994, the Company made aggregate expenditures for intangible assets and
property, plant and equipment of $4,943,000. During the twelve months ended
July 31, 1993, the Company made aggregate expenditures for intangible assets
and property, plant and equipment of $14,275,000. Total capital expenditures
are essentially governed by the cash interest coverage ratio covenants
contained in the various debt agreements. These covenants limited capital
expenditures depending upon the amount of cash flow and cash interest expense
of the Company.
The Company maintains its vehicle and transportation equipment fleet by
leasing light and medium duty trucks and tractors. The Company believes vehicle
leasing is a cost effective method for financing
26
<PAGE>
transportation equipment. Capital requirements for repair and maintenance of
property, plant and equipment are relatively low since technological change is
limited and the useful lives of propane tanks and cylinders, the Company's
principal physical assets, are generally long.
The Company invested in U.S. Treasury Bills and corporate commercial paper
with remaining maturities, as of January 31, 1994, ranging from one to nine
months. These investments are presented as short-term investments in the
Company's consolidated financial statements.
Cash Flows From Financing Activities. The Company currently has a $50 million
bank credit facility which terminates July 31, 1995. The facility provides for
a working capital facility and a letter of credit facility. At January 31,
1994, there were no borrowings outstanding under the working capital facility
and letters of credit outstanding under the letter of credit facility, which
are used primarily to secure obligations under certain insurance and leasing
arrangements, totaled $44,009,000, resulting in an available bank credit
facility of $5,991,000. The Company does not have any significant commitments
for fixed asset acquisitions, unusual working capital commitments or contingent
liabilities which might materially affect short-term liquidity.
Effects of Inflation. In the past the Company has been able to adjust its
sales price of product in response to market demand, cost of product,
competitive factors and other industry trends. Consequently, changing prices as
a result of inflationary pressures have not had a material adverse effect on
profitability although revenues may be affected. Inflation has not materially
impacted the results of operations and the Company does not believe normal
inflationary pressures will have a material adverse effect on the profitability
of the Partnership in the future.
Adoption of New Accounting Standards. The Company provides certain medical
benefits to a closed group of retired employees. Effective August 1, 1993, the
Company adopted Statement of Financial Accounting Standards No. 106--Employers'
Accounting for Postretirement Benefits Other Than Pensions. The Company elected
to amortize the accumulated obligation for postretirement benefits over a
period not to exceed the remaining life expectancy of the plan participants
(since all of the plan participants are retired). Since the Company has elected
to amortize the accumulated obligation, there is no difference in the amount
currently charged to expense based on benefits paid to reflect the cost of
providing postretirement benefits to this group of plan participants.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 112--Employers' Accounting For Postemployment Benefits
which is effective for fiscal years beginning after December 15, 1993. This
statement requires that employers recognize over the service lives of employees
the costs of postemployment benefits if certain conditions are met. The General
Partner does not believe that adoption of the statement will have a material
impact on earnings or cash flow of the Partnership.
PRO FORMA FINANCIAL CONDITION
The ability of the Partnership to satisfy its obligations will be dependent
upon future performance, which will be subject to prevailing economic
conditions and to financial, business and weather conditions and other factors,
many of which are beyond its control. For the fiscal year ending July 31, 1995,
the General Partner believes that the Partnership will generate sufficient
income to make all required payments in respect of the Senior Notes. Future
capital needs of the Partnership are expected to be provided by future
operations, existing cash balances and the working capital facility. The
Partnership may incur additional indebtedness in order to fund possible future
acquisitions.
Concurrent with the closing of the sale of the Senior Notes offered hereby,
the Master Partnership will sell in a registered public offering 13,100,000
Common Units for aggregate net proceeds of approximately $260.3 million, which
proceeds, along with the estimated $244.5 million net proceeds of the offering
of Senior Notes, will be used to retire substantially all of the approximately
$476.6 million of indebtedness of the Company to be assumed by the Partnership.
The sale of the Senior Notes offered hereby is subject to, among
27
<PAGE>
other things, the sale of the Common Units. Upon the consummation of the
transactions contemplated by this Prospectus, the Partnership will have total
indebtedness of approximately $272.7 million. See "The Transactions."
Credit Facility. The Partnership expects to enter into the Credit Facility
with one or more commercial banks, which facility is expected to permit
borrowings of up to $150 million on a revolving line of credit basis and $20
million on a term basis. Under certain circumstances new borrowings may not be
available under the Credit Facility. The General Partner expects that the
facility will also include covenants and restrictions relating to the
activities of the Partnership which are customary for similar credit facilities
and are not expected to affect materially and adversely the conduct of the
Partnership's business.
It is anticipated that the Credit Facility will be committed for up to a
three-year period, and revolving amounts drawn under the Credit Facility may be
converted to up to three-year term borrowings at the option of the borrower up
to a maximum amount of $50 million. It is anticipated that up to $100 million
in borrowings under the Credit Facility will be available to fund working
capital requirements (of which $50 million will be available to issue letters
of credit primarily to secure insurance obligations) and up to $50 million will
be available for possible future acquisitions and other expansive activities.
In connection with the transactions to be consummated at the closing of the
offering made hereby, the Partnership intends to borrow up to $20 million under
the Credit Facility if the Underwriters' overallotment option with respect to
the MLP Offering is not exercised. If such Underwriters' overallotment option
is exercised, the Partnership will use the net proceeds therefrom first to
repay any amounts borrowed under the Credit Facility.
The loan agreement relating to the Credit Facility will contain restrictive
covenants similar to those for the Senior Notes, but may also include
additional covenants.
TAX AUDIT
The IRS has examined Ferrell's consolidated income tax returns for the years
ended July 31, 1987 and 1986, and has proposed to disallow $90 million of
deductions for amortization of customer relationships taken or to be taken on
Ferrell's consolidated income tax returns. On April 20, 1993, the United States
Supreme Court held in Newark Morning Ledger v. United States that a taxpayer
may amortize customer-based intangibles if that taxpayer can prove such
intangibles are capable of being valued and the value diminishes over time. The
Company contends it has met this burden of proof and feels this recent Supreme
Court decision supports the positions taken during the Company's allocation of
purchase price to customer relationships.
The Company was originally made aware of the audit based on a letter received
from the IRS dated April 24, 1989. The Company received a closing conference
letter of the proposed adjustments on December 6, 1990, and finally, a 60-day
letter to act dated August 5, 1991. The 60-day letter has been extended through
December 31, 1994.
The Company intends to vigorously defend against these proposed adjustments
and is in the process of protesting these adjustments through the appeals
process of the IRS. At this time, it is not possible to determine the ultimate
resolution of this matter.
In connection with the formation of the Partnership, the Company will
contribute the customer relationships that are the subject of the IRS audit
together with additional customer relationships to the Partnership. The General
Partner intends to treat such customer relationships as amortizable assets of
the Partnership for federal income tax purposes. It is possible that the IRS
will challenge that treatment. If the IRS were to successfully challenge the
amortization of customer relationships by the Partnership, the ability of the
Partnership to make payments in respect of the Senior Notes and the other
indebtedness of the Partnership could be adversely affected, although the
Partnership does not believe the impact of such effect will be material.
28
<PAGE>
BUSINESS
GENERAL
The Partnership will be engaged in the sale, distribution, marketing and
trading of propane and other natural gas liquids. The discussion that follows
focuses on the Company's retail operations and its other operations, which
consist of propane and natural gas liquids trading operations, chemical
feedstocks marketing and wholesale propane marketing, all of which will be
conveyed to the Partnership. The Company believes it is the third largest
retail marketer of propane in the United States (as measured by gallons sold),
serving approximately 600,000 residential, commercial, agricultural and
industrial customers in 44 states and the District of Columbia through
approximately 415 retail outlets with 229 satellite locations in 36 states
(some outlets serve interstate markets). For the fiscal years ended July 31,
1993, 1992 and 1991, the Company's annual retail propane sales volumes were
approximately 553 million, 496 million and 482 million gallons, respectively.
EBITDA was $89.4 million, $87.6 million and $99.2 million for the fiscal years
ended July 31, 1993, 1992 and 1991, respectively. EBITDA for the twelve months
ended January 31, 1994 was $98.4 million. The retail propane business of the
Company consists principally of transporting propane purchased through various
suppliers to its retail distribution outlets, then to tanks located on its
customers' premises, as well as to portable propane cylinders. The Company also
believes it is a leading natural gas liquids trading company. The Company's
annual propane and natural gas liquids trading, chemical feedstocks and
wholesale propane sales volumes were approximately 1.2 billion, 1.8 billion and
1.5 billion gallons during the fiscal years ended July 31, 1993, 1992 and 1991,
respectively.
RETAIL OPERATIONS
FORMATION
Ferrell, the parent of the Company, was founded in 1939 as a single retail
propane outlet in Atchison, Kansas and was incorporated in 1954. In 1984, a
subsidiary was formed under the name Ferrellgas, Inc. to operate the retail
propane business previously conducted by Ferrell. Ferrell is owned by James E.
Ferrell and his family. The Company's initial growth was largely the result of
small acquisitions in the rural areas of eastern Kansas, northern and central
Missouri, Iowa, Western Illinois, Southern Minnesota, South Dakota and Texas.
In July 1984, the Company acquired propane operations with annual retail sales
volumes of approximately 33 million gallons and in December 1986, the Company
acquired propane operations with annual retail sales volumes of approximately
395 million gallons. These major acquisitions and many other smaller
acquisitions have significantly expanded and diversified the Company's
geographic coverage and resulted in greater operating efficiencies and
increased profitability.
BUSINESS STRATEGY
The Partnership's business strategy will be to continue the Company's
historical focus on residential and commercial retail propane operations and to
expand its operations through strategic acquisitions of smaller retail propane
operations located throughout the United States and through increased
competitiveness and efforts to acquire new customers. The propane industry is
relatively fragmented, with the ten largest retail distributors possessing less
than 35% of the total retail propane market and much of the industry consisting
of over 3,000 local or regional companies. The Company's retail operations
account for approximately 6% of the retail propane purchased in the United
States, as measured by gallons sold. Since 1986, and as of January 31, 1994,
the Company has acquired 67 smaller independent propane retailers which the
Company believes were not individually material. For the fiscal years ended
July 31, 1989 to 1993 the Company spent approximately $14.7 million, $18.0
million, $25.3 million, $10.1 million and $0.9 million, respectively, for
acquisitions of operations with annual retail sales of approximately 7.3
million, 11.3 million, 18.0 million, 8.6 million and 0.7 million gallons of
propane, respectively. The General Partner believes that approximately $7.5
million of capital expenditures will be required on an annual basis to maintain
the current business to be
29
<PAGE>
acquired by the Partnership and that approximately $2.5 million in additional
capital expenditures will be required on an annual basis to sustain the modest
level of growth historically experienced generated by the business to be
acquired.
The Partnership intends to initially concentrate its acquisition activities
in geographical areas in close proximity to the Company's existing operations
to acquire propane retailers that can be efficiently combined with such
operations to provide an attractive return on the Partnerships investment after
taking into account the efficiencies which may result from such combination.
The Partnership will, however, also pursue acquisitions which broaden its
geographic coverage. The Partnership's goal in any acquisition will be to
improve the operations and profitability of these smaller companies by
integrating them into the Partnership's established supply network and by
improving customer service. The Company has achieved significant administrative
and operating efficiencies and enhanced profitability in connection with its
substantial acquisitions in July 1984 and December 1986, as well as its recent
acquisitions of smaller retail propane distribution companies. The Company
regularly evaluates a number of propane distribution companies which may be
candidates for acquisition. The General Partner believes that there are
numerous local retail propane distribution companies that are possible
candidates for acquisition by the Partnership and that the Partnership's
geographic diversity of operations helps to create many attractive acquisition
opportunities for the Partnership. The Partnership intends to fund acquisitions
through internal cash flow, external borrowings or the issuance of additional
Partnership interests. The Partnership's ability to accomplish these goals will
be subject to the continued availability of acquisition candidates at prices
attractive to the Partnership. There is no assurance the Partnership will be
successful in increasing the level of acquisitions or that any acquisitions
that are made will prove beneficial to the Partnership.
In addition to growth through acquisitions, the Company believes that it can
be successful in competing for new customers. Since 1989, the Company has
experienced modest internal growth in its customer base. During that same
period of time the quality of field management has been improved and
improvements in operating efficiencies have been implemented. The residential
and commercial retail propane distribution business has been characterized by a
relatively stable customer base, primarily due to the expense of switching to
alternative fuels, as well as the quality of service and personal relations. In
addition, since safety regulations adopted in most states in which the Company
operates prohibit propane retailers from filling tanks owned by other
retailers, customers that lease tanks generally develop long-term relationships
with their suppliers. The cost and inconvenience of switching tanks minimizes a
customer's tendency to switch among suppliers of propane and among alternative
fuels on the basis of minor variations in price. Based on its market surveys,
the Company believes that within the retail propane industry, approximately 12%
of all residential propane users switch suppliers annually. The Partnership's
aim will be to minimize losses of existing customers while attracting as many
new customers as possible. To achieve this objective extensive market research
was conducted by the Company to determine the critical factors that cause
customers to value their propane supplier. Based upon the results of such
surveys, the Company has designed and implemented a monthly process of
assessing customer satisfaction in each of its local retail markets. The
Company believes that these surveys give it an advantage over its competitors,
none of whom it is believed conduct comparable surveys. By highlighting
specific areas of customer satisfaction, the Company believes that it can move
quickly to both retain existing customers who are at risk, and gain new
customers. Specific measures have been and are continuing to be designed to
take advantage of the information gained regarding customer satisfaction. The
Company has also begun the process of upgrading computer equipment and software
in order to improve customer service and achieve efficiencies that enable local
market personnel to direct more efforts towards sales activities.
Approximately 70% of the Company's customers lease their tanks from the
Company, as compared to approximately 60% of all propane customers nationwide.
The Company believes there is a significant growth opportunity in marketing to
the 40% of propane users that own their own tank. As a result, the Company has
directly sought to identify locations where it can achieve rapid growth by
marketing more effectively to these potential customers. The Company believes
that since the commencement of this effort in August 1992, it has added
thousands of new customers that own their own tank. For both customers who
lease their tank,
30
<PAGE>
and customers that own their tank, the Partnerships continued ability to
deliver propane to customers when needed and during periods of extreme demand,
especially in remote areas and during inclement weather, will be critical to
maintaining margins, maintaining the loyalty of its retail customers and
expanding its customer base.
MARKETING
Natural gas liquids are derived from petroleum products and sold in
compressed or liquefied form. Propane, the predominant type of natural gas
liquid, is typically extracted from natural gas or separated during crude oil
refining. Although propane is gaseous at normal pressures, it is compressed
into liquid form at relatively low pressures for storage and transportation.
Propane is a clean-burning energy source, recognized for its transportability
and ease of use relative to alternative forms of stand alone energy sources.
The retail propane marketing business generally involves large numbers of
small volume deliveries averaging approximately 200 gallons each. The market
areas are generally rural but also include suburban areas where natural gas
service is not available. In the residential and commercial markets, propane is
primarily used for space heating, water heating and cooking. In the
agricultural market propane is primarily used for crop drying, space heating,
irrigation and weed control. In addition, propane is used for certain
industrial applications, including use as engine fuel, which is burned in
internal combustion engines that power vehicles and forklifts and as a heating
or energy source in manufacturing and drying processes.
Profits in the retail propane business are primarily based on the cents-per-
gallon difference between the purchase price and the sales price of propane.
The Company generally purchases propane on a short-term basis; therefore, its
supply costs fluctuate with market price fluctuations. Should wholesale propane
prices decline in the future, the Company believes that the Partnership's
margins on its retail propane distribution business should increase in the
short-term because retail prices tend to change less rapidly than wholesale
prices. Should the wholesale cost of propane increase, for similar reasons
retail margins and profitability would likely be reduced at least for the
short-term until retail prices can be increased. The Company historically has
been able to maintain margins on an annual basis despite propane supply cost
changes. The General Partner is unable to predict, however, how and to what
extent a substantial increase or decrease in the wholesale cost of propane
would affect the Partnership's margins and profitability.
The Company has a network of approximately 415 retail outlets and 229
satellite locations marketing propane under the "Ferrellgas" trade name to
approximately 600,000 customers located in 44 states and the District of
Columbia. The Company's largest market concentrations are in the Midwest, Great
Lakes and Southeast regions of the United States. The Company operates in areas
of strong retail market competition, which has required it to develop and
implement strict capital expenditure and operating standards in its existing
and acquired retail propane operations in order to control operating costs.
The Company utilizes marketing programs targeting both new and existing
customers. The Company emphasizes its superior ability to deliver propane to
customers as well as its training and safety programs. During the fiscal year
ended July 31, 1993, sales to residential customers accounted for 44% of the
Company's retail propane sales volume, sales to industrial and other commercial
customers accounted for 33% of the Company's retail propane sales volume, sales
to agricultural customers accounted for 13% of the Company's retail propane
sales volume and sales to other customers accounted for 10% of the Company's
retail propane sales volume. Residential sales have a greater profit margin,
more stable customer base and tend to be less sensitive to price changes than
the other markets served by the Company. No single customer of Ferrellgas
accounts for 10% or more of the Company's consolidated revenues.
The retail market for propane is seasonal because it is used primarily for
heating in residential and commercial buildings. Consequently, sales and
operating profits are concentrated in the second and third fiscal quarters
(November through April). Cash inflows from these quarters will be realized in
the third and
31
<PAGE>
fourth quarters. In addition, sales volume traditionally fluctuates from year
to year in response to variations in weather, prices and other factors,
although the Company believes that the broad geographic distribution of the
Company's operations helps to minimize the Company's exposure to regional
weather or economic patterns. Long-term, historic weather data from the
National Climatic Data Center indicate that the average annual temperatures
have remained relatively constant over the last 30 years with fluctuations
occurring on a year-to-year basis only. During times of colder-than-normal
winter weather, such as the conditions experienced by certain regions served by
the Company in the second and third quarters of fiscal year 1994, the Company
has been able to take advantage of its larger and more efficient distribution
network to help avoid supply disruptions such as those experienced by some of
its competitors, thereby broadening its long-term customer base.
The following chart illustrates the impact of annual variations in weather on
the Company's sales volumes. Set forth are (i) the average national degree days
(population weighted) (a measure of the relative warmth of a particular year in
which a larger number indicates a colder year), (ii) degree days as a
percentage of the average normal degree days as of 1993 (100.0% represents a
normal year with larger percentages representing colder-than-normal years and
smaller percentages representing warmer-than-normal years), (iii) the annual
retail propane sales volumes of the Company, and (iv) a retail gross margin
index for the Company (demonstrating changes in retail gross margins from a
base year of 100.0% in 1989) for the five fiscal years ended July 31, 1989 to
1993 and the six months ended January 31, 1993 and 1994. The average degree
days in regions served by the Company have historically varied on an annual
basis by a greater amount than the average national degree days.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR ENDED JULY 31, JANUARY 31,
--------------------------------- ------------
1989 1990 1991 1992 1993 1993 1994
<S> <C> <C> <C> <C> <C> <C> <C>
National Degree Days.......... 4,673 4,549 4,211 4,303 4,663 2,538 2,706
Degree Days as % of 1993 Nor-
mal
Degree Days(1)............... 99.7% 97.0% 89.8% 91.8% 99.4% 97.2% 103.6%
Sales Volumes (in millions of
gallons)(2).................. 498 499 482 496 553 316 323
Retail gross margin index(3).. 100.0% 98.4% 114.5% 109.7% 101.1% 97.4% 103.2%
</TABLE>
- ---------------------
(1) The normal average national degree days as of the fiscal year ended July
31, 1993 were 4,689 and the normal average national degree days as of the
six months ended January 31, 1994 were 2,612.
(2) From 1989 through 1993, 51 acquisitions were completed at a total cost of
approximately $69.0 million. The aggregate annual sales volumes
attributable to these acquisitions (measured with respect to each
acquisition on the date of the acquisition) were estimated to be 7.3
million gallons, 11.3 million gallons, 18.0 million gallons, 8.6 million
gallons and 0.7 million gallons for the fiscal years ended July 31, 1989
through 1993, respectively.
(3) The Company's average retail gross margins, on a cents per gallon basis,
are measured as a percentage of fiscal 1989 retail gross margins. Average
retail gross margins in fiscal 1991 were affected by the Persian Gulf
crisis.
SUPPLY AND DISTRIBUTION
The Company purchases propane primarily from major domestic oil companies.
Supplies of propane from these sources have traditionally been readily
available, although no assurance can be given that supplies of propane will be
readily available in the future. As a result of (i) the Company's ability to
buy large volumes of propane and (ii) the Company's large distribution system
and underground storage capacity, the Company believes that it is in a position
to achieve product cost savings and avoid shortages during periods of tight
supply to an extent not generally available to other retail propane
distributors. The Company is not dependent upon any single supplier or group of
suppliers, the loss of which would have a material adverse effect on the
Company. For the year ended July 31, 1993, no supplier at any single delivery
point provided more than
32
<PAGE>
10% of the Company's total domestic propane supply. A portion of the Company's
propane inventory is purchased under supply contracts which typically have a
one year term and a fluctuating price relating to spot market prices. Certain
of the Company's contracts specify certain minimum and maximum amounts of
propane to be purchased thereunder. The Company may purchase and store
inventories of propane in order to help insure uninterrupted deliverability
during periods of extreme demand. The Company owns three underground storage
facilities with an aggregate capacity of approximately 168 million gallons.
Currently, approximately 118 million gallons of this capacity is leased to
third parties, and approximately 6 million gallons of capacity is exchanged
with another company for approximately 6 million gallons of storage capacity at
Bumstead, Arizona. The remaining space is available for the Company's own use.
Propane is generally transported from natural gas processing plants and
refineries, pipeline terminals and storage facilities to retail distribution
outlets and wholesale customers by railroad tank cars leased by the Company and
highway transport trucks owned or leased by the Company. The Company operates a
fleet of 61 transport trucks to transport propane from refineries, natural gas
processing plants or pipeline terminals to the Company's retail distribution
outlets. Common carrier transport trucks may be used during the peak delivery
season in the winter months or to provide service in areas where economic
considerations favor common carrier use. Propane is then transported from the
Company's retail distribution outlets to customers by the Company's fleet of
1,058 bulk delivery trucks, which are fitted generally with 2,000 to 3,000
gallon propane tanks. Propane storage tanks located on the customers' premises
are then filled from the delivery truck. Propane is also delivered to customers
in portable cylinders.
INDUSTRY AND COMPETITION
INDUSTRY
Based upon information contained in the Energy Information Administrations
Annual Energy Review 1993 magazine, propane accounts for approximately 3.0% of
household energy consumption in the United States, an average level which has
remained relatively constant for the past 10 years. It competes primarily with
natural gas, electricity and fuel oil as an energy source principally on the
basis of price, availability and portability. Propane serves as an alternative
to natural gas in rural and suburban areas where natural gas is unavailable or
portability of product is required. Propane is generally more expensive than
natural gas on an equivalent BTU basis in locations served by natural gas,
although propane is often sold in such areas as a standby fuel for use during
peak demands and during interruption in natural gas service. The expansion of
natural gas into traditional propane markets has historically been inhibited by
the capital costs required to expand distribution and pipeline systems.
Although the extension of natural gas pipelines tends to displace propane
distribution in the neighborhoods affected, the Company believes that new
opportunities for propane sales arise as more geographically remote
neighborhoods are developed. Propane is generally less expensive to use than
electricity for space heating, water heating and cooking and competes
effectively with electricity in those parts of the country where propane is
cheaper than electricity on an equivalent BTU basis. Although propane is
similar to fuel oil in application, market demand and price, propane and fuel
oil have generally developed their own distinct geographic markets. Because
residential furnaces and appliances that burn propane will not operate on fuel
oil, a conversion from one fuel to the other requires the installation of new
equipment. The Partnership's residential retail propane customers, therefore,
will have an incentive to switch to fuel oil only if fuel oil becomes
significantly less expensive than propane. Likewise, the Partnership may be
unable to expand its customer base in areas where fuel oil is widely used,
particularly the Northeast, unless propane becomes significantly less expensive
than fuel oil. Alternatively, many industrial customers who use propane as a
heating fuel have the capacity to switch to other fuels, such as fuel oil, on
the basis of availability or minor variations in price. Propane generally is
becoming increasingly favored over fuel oil and other alternative sources of
fuel as an environmentally preferred energy source.
COMPETITION
In addition to competing with marketers of other fuels, the Company competes
with other companies engaged in the retail propane distribution business.
Competition within the propane distribution industry
33
<PAGE>
stems from two types of participants: the larger multi-state marketers, and the
smaller, local independent marketers. Based upon information contained in the
National Propane Gas Association's LP-Gas Market Facts and the June 1993 issue
of LP Gas magazine, the Company believes that the ten largest multi-state
retail marketers of propane, including the Company, account for less than 35%
of the total retail sales of propane in the United States. Based upon
information contained in industry publications, the Company also believes no
single marketer has a greater than 10% share of the total market in the United
States and that the Company is the third largest retail marketer of propane in
the United States, with a market share of approximately 6.0% as measured by
volume of national retail propane sales.
Most of the Company's retail distribution outlets compete with three or more
marketers or distributors. The principal factors influencing competition among
propane marketers are price and service. The Company competes with other retail
marketers primarily on the basis of reliability of service and responsiveness
to customer needs, safety and price. Each retail distribution outlet operates
in its own competitive environment because retail marketers locate in close
proximity to customers to lower the cost of providing service. The typical
retail distribution outlet has an effective marketing radius of approximately
25 miles.
OTHER OPERATIONS
The other operations of the Company consist of: (1) trading, (2) chemical
feedstocks marketing, and (3) wholesale propane marketing. The Company, through
its natural gas liquids trading operations and wholesale marketing, has become
one of the largest independent traders of propane and natural gas liquids in
the United States. The Company owns no properties that are material to these
operations, but leases 361 railroad tank cars for use in its chemical
feedstocks marketing operations.
TRADING
The Company's traders are engaged in trading propane and other natural gas
liquids for the Company's account and for supplying the Company's retail and
wholesale propane operations. The Company primarily trades products purchased
from its over 200 suppliers, however, it also conducts transactions on the New
York Mercantile Exchange. Trading activity is conducted primarily to generate a
profit independent of the retail and wholesale operations, but is also
conducted to insure the availability of propane during periods of short supply.
Propane represents over 65% of the Company's total trading volume, with the
remainder consisting of various other natural gas liquids. The Company attempts
to minimize trading risk through the enforcement of its trading policies, which
include total inventory limits and loss limits, and attempts to minimize credit
risk through credit checks and application of its credit policies. However,
there can be no assurance that historical experience or the existence of such
policies will prevent trading losses in the future. For the fiscal years ended
July 31, 1993, 1992 and 1991, the Company had net revenues of $6.7 million,
$4.9 million and $9.9 million, respectively, from its trading activities.
CHEMICAL FEEDSTOCKS MARKETING
The Company is also involved in the marketing of refinery and petrochemical
feedstocks. Petroleum by-products are purchased from refineries and
petrochemical plants and sold to end users of such by-products. The Company had
net revenues of $54.0 million, $50.6 million and $31.8 million from such
activities for the fiscal years ended July 31, 1993, 1992 and 1991,
respectively.
WHOLESALE MARKETING
The Company engages in the wholesale distribution of propane to other retail
propane distributors. During the fiscal years ended July 31, 1993, 1992 and
1991 the Company sold 129 million, 95 million and 73 million gallons,
respectively, of propane to wholesale customers and had revenues attributable
to such sales of $29.3 million, $37.7 million and $57.4 million, respectively.
34
<PAGE>
EMPLOYEES
At January 31, 1994, the Company had 2,339 full-time employees and 1,148
temporary and part-time employees. The number of temporary and part-time
employees is generally higher by approximately 500 people during the winter
heating season. At January 31, 1994, the Company's full-time employees were
employed in the following areas:
<TABLE>
<S> <C>
Retail Market Locations............................................. 1,977
Transportation and Storage.......................................... 116
Field Services...................................................... 56
Corporate Offices (Liberty & Houston)............................... 190
-----
Total............................................................. 2,339
=====
</TABLE>
Approximately two percent of the Company's employees are represented by nine
local labor unions, which are all affiliated with the International Brotherhood
of Teamsters. The Company has not experienced any significant work stoppages or
other labor problems.
The Company's supply, trading, chemical feedstocks marketing, distribution
scheduling and product accounting functions are operated out of the Company's
offices located in Houston, Texas, by a total full time corporate staff of 58
people (which includes four traders as well as necessary support staff).
GOVERNMENTAL REGULATION; ENVIRONMENTAL AND SAFETY MATTERS
From August 1971 until January 1981, the United States Department of Energy
regulated the price and allocation of propane. The Company is no longer subject
to any similar regulation.
Propane is not a hazardous substance within the meaning of federal and state
environmental laws. In connection with all acquisitions of retail propane
businesses that involve the purchase of real estate, the Company conducts a due
diligence investigation to attempt to determine whether any substance other
than propane has been sold from or stored on any such real estate prior to its
purchase. Such due diligence includes questioning the sellers, obtaining
representations and warranties concerning the sellers' compliance with
environmental laws and visual inspections of the properties, whereby Company
employees look for evidence of hazardous substances or the existence of
underground storage tanks.
With respect to the transportation of propane by truck, the Company is
subject to regulations promulgated under the Federal Motor Carrier Safety Act.
These regulations cover the transportation of hazardous materials and are
administered by the United States Department of Transportation. National Fire
Protection Association Pamphlet No.58, which establishes a set of rules and
procedures governing the safe handling of propane, or comparable regulations,
have been adopted as the industry standard in a majority of the states in which
the Company operates. There are no material environmental claims pending and
the Company complies in all material respects with all material governmental
regulations and industry standards applicable to environmental and safety
matters.
SERVICE MARKS AND TRADEMARKS
The Company markets retail propane under the "Ferrellgas" tradename and uses
the tradename "Ferrell North America" for its other operations. In addition,
the Company has a trademark on the name "Ferrellmeter," its patented gas leak
detection device. The Company will contribute such tradenames and trademark to
the Partnership. The Company will have an option to purchase such tradenames
and trademark from the Partnership for a nominal value if the Company is
removed as general partner of the Partnership other than for cause. If the
Company ceases to serve as the general partner of the Partnership for any other
reason, it will have the option to purchase such tradenames and trademark from
the Partnership for fair market value.
35
<PAGE>
MANAGEMENT INFORMATION AND CONTROL SYSTEMS
The Company has, in each of its retail outlets, a computer-based information
and control system. This system provides for remote billing of, and collections
from, customers and is designed to enhance the local outlets' responsiveness to
customers. Each outlet can be monitored by headquarters to determine volume of
sales, selling price and gross margin.
PROPERTIES
At January 31, 1994, the Company owned or leased the following transportation
equipment which was utilized primarily in retail operations, except for
railroad tank cars, which are used primarily by chemical feedstocks operations:
The highway transport trailers have an average capacity of approximately
9,000 gallons. The bulk delivery trucks are generally fitted with 2,000 to
3,000 gallon propane tanks. Each railroad tank car has a capacity of
approximately 30,000 gallons.
<TABLE>
<CAPTION>
OWNED LEASED TOTAL
<S> <C> <C> <C>
Truck tractors............................................ 14 47 61
Transport trailers........................................ 69 -- 69
Bulk delivery trucks...................................... 446 612 1,058
Pickup and service trucks................................. 407 574 981
Railroad tank cars........................................ -- 361 361
</TABLE>
A typical retail distribution outlet is located on one to three acres of land
and includes a small office, a workshop, bulk storage capacity of 18,000
gallons to 60,000 gallons and a small inventory of stationary customer storage
tanks and portable propane cylinders that the Company provides to its retail
customers for propane storage. The Company owns the land and buildings of about
50% of its retail outlets and leases the remaining facilities on terms
customary in the industry and in the applicable local markets.
Approximately 500,000 propane tanks are owned by the Company, most of which
are located on customer property and leased to those customers. The Company
also owns approximately 564,000 portable propane cylinders, most of which are
leased to industrial and commercial customers for use in manufacturing and
processing needs, including forklift operations, and to residential customers
for home heating and cooking, and to local dealers who purchase propane from
the Company for resale.
Ferrellgas owns underground storage facilities at Hutchinson, Kansas;
Adamana, Arizona; and Moab, Utah. At January 31, 1994, the capacity of these
facilities approximated 73 million gallons, 88 million gallons and 7 million
gallons, respectively (an aggregate of approximately 168 million gallons).
Currently, approximately 118 million gallons of this capacity is leased to
third parties, and approximately 6 million gallons of capacity is exchanged
with another company for approximately 6 million gallons of storage capacity at
Bumstead, Arizona. The remaining space is available for the Company's own use.
The Company purchased, in fiscal year 1993, the land and two buildings
(50,245 square feet of office space) comprising its corporate headquarters in
Liberty, Missouri, from Ferrell Leasing Corp. The Company leases the 18,124
square feet of office space in Houston, Texas, where its trading, chemical
feedstocks marketing and wholesale marketing operations are located.
The Company believes that it has satisfactory title to all of its material
properties and, although some of such properties are subject to liabilities and
leases and, in certain cases, liens for taxes not yet currently due and payable
and immaterial encumbrances, easements and restrictions, the Company does not
believe that any such burdens will materially interfere with the continued use
of such properties by the Partnership in its business, taken as a whole. In
addition, the Company believes that it has, or is in the process of obtaining,
all
36
<PAGE>
required material approvals, authorizations, orders, licenses, permits,
franchises and consents of, and has obtained or made all required material
registrations, qualifications and filings with, the various state and local
governmental and regulatory authorities which relate to ownership of the
Company's properties or the operations of its business.
LITIGATION
Propane is a flammable, combustible gas. Serious personal and property damage
can occur in connection with its transportation, storage or use. The Company,
in the ordinary course of business, is threatened with or is named as a
defendant in various lawsuits which, among other items, seek actual and
punitive damages for products liability, personal injury and property damage.
The Company maintains liability insurance policies with insurers in such
amounts and with such coverages and deductibles as management of the Company
believes is reasonable and prudent. However, there can be no assurance that
such insurance will be adequate to protect the Company from material expenses
related to such personal injury or property damage or that such levels of
insurance will continue to be available in the future at economical prices. It
is not possible to determine the ultimate disposition of these matters
discussed above; however, after taking into consideration the Company's
insurance coverage and existing reserves, management is of the opinion that
there are no known uninsured claims or known contingent claims that are likely
to have a material adverse effect on the results of operations or financial
condition of the Company. When the Partnership assumes all outstanding
liabilities relating to the business, it will assume such liabilities, whether
or not asserted against or known by the Company at the time of the transfer.
TRANSFER OF THE PARTNERSHIP ASSETS
The Company will transfer its right, title and interest in its propane
business and assets to the Partnership at or shortly before the closing of this
offering, subject to the following. The assets include the Company's interests
in leases covering several types of assets, including railcars, trucks and
retail distribution centers. Many of these leases are transferable to the
Partnership only with the consent of the lessor. The Company expects to obtain,
prior to the closing of this offering, third party consents which are
sufficient to enable the Company to transfer to the Partnership the assets
necessary to enable the Partnership to conduct the Company's propane business
in all material respects as described in this Prospectus. In the event any such
consents are not obtained, the Company will enter into other agreements,
including the lease or purchase of other assets, in order to insure that the
Partnership has the assets necessary to enable it to conduct the Company's
propane business in all material respects as described in this Prospectus. In
addition, certain of the Company's licenses, permits and other similar rights
relating to the assets to be assigned to the Partnership are not transferable
or are transferable only with the consent of third parties. Such transferable
rights will not be transferred to the Partnership at the closing of this
offering unless applicable consents have been obtained. In the case of non-
transferable rights or rights where no consent has been obtained by the
closing, the Company will seek to obtain such consents in the normal course of
business after the closing or seek to have comparable rights granted to the
Partnership prior to the closing. Numerous licenses, permits and rights will be
required for the operation of the Partnership's business, and no assurance can
be given that the Partnership will obtain all licenses, permits and rights
which are required in connection with the ownership and operation of its
business. Although failure by the Partnership to obtain such licenses, permits
or rights could have a material adverse effect on the Partnership, the Company
believes that the Partnership will have the licenses, permits and rights which
will enable the Partnership to conduct its propane business in a manner which
is similar in all material respects to that which was conducted by the Company
prior to the closing of this offering and that any such failure to obtain
licenses, permits or rights will not have a material adverse impact on the
business of the Partnership as described in this Prospectus.
37
<PAGE>
MANAGEMENT
PARTNERSHIP MANAGEMENT
The General Partner will manage and operate the activities of the
Partnership, and the General Partner anticipates that its activities will be
limited to such management and operation. Notwithstanding any limitation on
obligations or duties, the General Partner will be liable, as the general
partner of the Partnership, for all the debts of the Partnership (to the extent
not paid by the Partnership), except to the extent that indebtedness incurred
by the Partnership is made specifically non-recourse to the General Partner.
The General Partner will appoint two persons who are neither officers nor
employees of the General Partner or any affiliate of the General Partner to
serve on a committee of the Partnership (the "Audit Committee") with the
authority to review, at the request of the General Partner, specific matters as
to which the General Partner believes there may be a conflict of interest in
order to determine if the resolution of such conflict proposed by the General
Partner is fair and reasonable to the Partnership. The Audit Committee members
will be elected no later than three months after the date of this Prospectus.
The Audit Committee will only review matters relating to conflicts of interest
at the request of the General Partner, and the General Partner has sole
discretion to determine which matters, if any, to submit to the Audit
Committee. Any matters approved by the Audit Committee will be conclusively
deemed to be fair and reasonable to the Partnership, approved by all partners
of the Partnership and not a breach by the General Partner of any duties it may
owe the Partnership.
The Partnership will not directly employ any of the persons responsible for
managing or operating the Partnership. The current management and workforce of
Ferrellgas will continue to manage and operate the Partnership's business as
officers and employees of the General Partner. At January 31, 1994, 2,339 full-
time and 1,148 temporary and part-time individuals were employed by the General
Partner.
DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER
The following table sets forth certain information with respect to the
directors and executive officers of the Company. Each of the persons named
below is elected to their respective office or offices annually. The executive
officers are not subject to employment agreements with their respective
employer or employers. The General Partner intends to promptly add additional
members to its Board of Directors, including at least two independent members.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE POSITION
<S> <C> <C> <C>
James E. Ferrell........... 54 1984 President, Chairman of the Board and a
Director of the Company
Bradley A. Cochennet....... 39 -- Executive Vice President and Chief
Operating Officer of the Company
Danley K. Sheldon.......... 35 -- Vice President and Chief Financial
Officer/Treasurer of the Company
Rhonda E. Smiley........... 38 -- Vice President of Legal Affairs
Vice President of Marketing and
Brian M. Smith............. 43 -- Communications
</TABLE>
James E. Ferrell--Mr. Ferrell has been with Ferrell or its predecessors and
its affiliates in various executive capacities since 1965.
Bradley A. Cochennet--Mr. Cochennet has been Chief Operating Officer since
January, 1993 and has been a Vice President of the Company since 1985. Mr.
Cochennet joined the Company in 1980.
38
<PAGE>
Danley K. Sheldon--Mr. Sheldon has been Chief Financial Officer of the
Company since January 1994 and has served as Treasurer since 1989. He joined
the Company in 1986.
Rhonda E. Smiley--Ms. Smiley joined the Company in 1991 as Director of Legal
Affairs and has been a Vice President of the Company since April 1994. Prior to
joining the Company, Ms. Smiley practiced law with Shook, Hardy & Bacon for ten
years, the last five years as a partner.
Brian M. Smith--Mr. Smith joined the Company in 1991 as Managing Director of
Marketing and Communications and has been a Vice President of the Company since
April 1994. Prior to joining the Company, Mr. Smith was President and owner of
The Smith Group, Inc., a marketing communications firm.
COMPENSATION OF THE GENERAL PARTNER
The General Partner will receive no management fee or similar compensation in
connection with its management of the Partnership and will receive no
remuneration other than:
(i) distributions in respect of its 2% general partner interest, on a
combined basis, in the Partnership and the Master Partnership; and
(ii) reimbursement for all direct and indirect costs and expenses
incurred on behalf of the Partnership, all selling, general and
administrative expenses incurred by the General Partner for or on behalf of
the Partnership and all other expenses necessary or appropriate to the
conduct of the business of, and allocable to, the Partnership.
In addition, Ferrell, the parent of the General Partner, will receive
1,000,000 Common Units, 14,546,625 Subordinated Units and the Incentive
Distribution Rights in connection with the transactions described in this
Prospectus and will be entitled to distributions thereon, as described under
"Cash Distributions Policy" above.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual salary, bonuses and all other
compensation awards and payouts to the Chief Executive Officer and to named
executive officers of the Company, for the fiscal years ended July 31, 1991,
1992 and 1993.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------- ------------------- ---------
OTHER
ANNUAL RESTRICTED STOCK LONG-TERM ALL OTHER
COMPEN- STOCK OPTIONS/ INCENTIVE COMPEN-
NAME AND SALARY BONUS SATION AWARDS SARS PAYOUTS SATION
POTENTIAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James E. Ferrell........ 1993 480,000 -- -- -- -- 1,502,080(1) 25,489(2)
Chairman and Chief 1992 480,000 13,000 -- -- -- -- 32,401
Executive Officer 1991 246,000 20,000 -- -- -- -- 18,439
Bradley A. Cochennet.... 1993 150,000 -- -- -- 2,762 -- 9,315(3)
Vice President and 1992 150,000 -- -- -- -- -- 12,317
Chief Operating Officer 1991 151,667 -- -- -- -- -- 18,373
Geoffrey H. Ramsden (4). 1993 120,000 -- -- -- 9,566 -- 7,453(3)
Vice President and 1992 120,000 -- -- -- -- -- 12,000
Chief Financial Officer 1991 120,000 -- -- -- -- -- 17,550
</TABLE>
- ---------------------
(1) Early purchase of all the employee's 64,000 Equity Units under Ferrell's
Long-Term Incentive Plan at a price per unit of $23.47.
(2) Includes (i) Company contributions of $13,787 to the employee's 401(k) and
profit sharing plans and (ii) compensation of $11,702 resulting from the
Company's payment of split dollar life insurance premiums.
(3) Company contributions to the employee's 401(k) and profit sharing plans.
(4) Mr. Ramsden resigned in January 1994.
39
<PAGE>
STOCK OPTION TABLES
The Board of Directors of Ferrell adopted the 1992 Key Employee Stock Option
Plan (the "Option Plan") on June 26, 1992. The Option Plan reserves 100,000
shares of Class M Common Stock of Ferrell for the purpose of allowing Ferrell
to offer options on the Class M Common Stock to officers and key employees of
Ferrell and the Company. The value of each share of Class M Common Stock is
determined by the Board of Directors of Ferrell and shall not be less than fair
market value of such stock on the date the option is granted. The following
table sets forth the option grants for the fiscal year ended July 31, 1993:
<TABLE>
<CAPTION>
INDIVIDUAL GRANT
-----------------------------------------------
POTENTIAL REALIZED
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK APPRECIATIONS
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(2)
OPTIONS TO EMPLOYEES PRICE EXPIRATION --------------------
NAME GRANTED IN FISCAL YEAR ($/SH) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Bradley A. Cochennet.... 2,762 22% $38.20 12/30/02 $29,000 $106,000
Geoffrey H. Ramsden..... 3,836(1) 31% $36.20 12/30/02 $41,000 $147,000
Geoffrey H. Ramsden..... 5,730(1) 47% $89.36 01/08/03 -- --
</TABLE>
- ---------------------
(1) Options terminated as a result of Mr. Ramsden's resignation in January
1994.
(2) These dollar amounts represent the potential realizable value of each grant
of options assuming that the market price of the Class M Common Stock
appreciates in value from the date of grant at 5% and 10% annual rates and
are not intended to forecast possible future appreciation, if any, of the
price of the Class M Common Stock.
The following table lists information on the named executive officer's
exercised/unexercised options for the fiscal year ended July 31, 1993:
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FY-END AT FY-END
------------- ----------------
NUMBER OF
SHARES
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME OR EXERCISE REALIZED ($) UNEXERCISABLE UNEXERCISABLE($)
<S> <C> <C> <C> <C>
Bradley A. Cochennet.... -- -- 2,762/-- $57,357/--
Geoffrey H. Ramsden(1).. -- -- 9,566/-- 79,674/--
</TABLE>
- ---------------------
(1) Options terminated as a result of Mr. Ramsden's resignation in January
1994.
LONG-TERM INCENTIVE PLAN AWARDS
The goal of Ferrell's Long-Term Incentive Plan (the "Plan") is to attract and
retain officers and key executives needed for the continued growth and success
of Ferrell and its affiliates through long-term incentives in the form of units
("Equity Units"). The plan is administered by the Compensation Committee (the
"Committee") of the Board of Directors of Ferrell. The Committee members who
hold an award under the Plan are ineligible to vote on matters relating to the
Plan. The Committee has the authority to determine, within the express
provisions of the Plan, the individuals to whom awards will be granted; the
amount, size and terms of each such award; the time when awards will be
granted; and the objectives and conditions for earning such awards. The
Committee has the full and final authority to interpret the provisions of the
Plan, to decide all questions of fact arising upon its application and to make
all other determinations necessary or advisable for the administration of the
plan.
The Equity Units awarded under the Plan, which were 100% vested as of July
31, 1993, are subject to purchase by Ferrell at a cash price related to the
increased value of Ferrell's common stock from 1986, as determined pursuant to
(i) an appraisal conducted by a nationally recognized investment banking firm,
(ii)
40
<PAGE>
the mean of the closing bid and asked price of a class of Ferrell's common
stock if a class of Ferrell's common stock is publicly traded, or (iii) in
certain limited circumstances, including if the appraisal referred to in (i) is
more than 90 days old or if there is no public market as referred to in (ii),
the Committee shall determine the value of the Equity Units. Unless purchased
earlier, Ferrell will purchase all of the issued and outstanding Equity Units
as of July 31, 1996. The value of the Equity Units as of July 31, 1996 will be
the value of Ferrell's common stock as of such date, determined in accordance
with the valuation methods described above, less the "deemed" value of
Ferrell's common equity as of August 1, 1986.
As of July 31, 1993, a total of 60,000 Equity Units, awarded in previous
years, were outstanding to the group of executive officers named in the Summary
Compensation Table as follows: Geoffrey H. Ramsden--30,000 Equity Units and
Bradley A. Cochennet--30,000 Equity Units. When Mr. Ramsden resigned in January
1994, all of his Equity Units were fully vested and were subsequently
repurchased by Ferrell. During fiscal 1993, James E. Ferrell had a total of
64,000 Equity Units repurchased by Ferrell. No additional Equity Units were
awarded under the Plan in fiscal 1993, therefore, no long-term incentive plan
awards table is presented.
During fiscal 1993, compensation expense of $80,000 was recorded pursuant to
the Plan for the benefit of the Equity Unit holders. As of July 31, 1993, a
liability totaling approximately $2,349,000 is recorded in the financial
statements of Ferrell and the Company as a result of the grants under this
Plan.
PROFIT SHARING PLAN
The Ferrell Profit Sharing Plan is a qualified defined contribution plan (the
"Profit Sharing Plan"). All full-time employees of Ferrell or any of its direct
or indirect wholly owned subsidiaries with at least one year of service are
eligible to participate in the Profit Sharing Plan. The Board of Directors of
Ferrell determines the amount of the annual contribution to the Profit Sharing
Plan, which is purely discretionary. This decision is based on the operating
results of Ferrell for the previous fiscal year and anticipated future cash
needs of the Company and Ferrell. The contributions are allocated to the Profit
Sharing Plan participant's based on each participant's wages or salary as
compared to the total of all participants' wages and salaries.
Historically, the annual contribution to the Profit Sharing Plan has been 2%
to 7% of each participant's annual wage or salary. The Profit Sharing Plan also
has a cash-or-deferred, or 401(k), feature allowing plan participants to
specify a portion of their pre-tax and/or after-tax compensation to be
contributed to the Profit Sharing Plan.
COMPENSATION OF DIRECTORS
The Company pays no additional remuneration to its employees (or employees
of, or legal counsel to, a direct or indirect wholly-owned subsidiary) for
serving as directors. Directors who are not employees of the Company, a direct
or indirect wholly-owned subsidiary, or counsel to any of the foregoing,
receive a fee per meeting of $500, plus reimbursement for out-of-pocket
expenses.
TERMINATION OF EMPLOYMENT ARRANGEMENT
On January 3, 1991, Warren Gfeller resigned as President of the Company and
as Director of Ferrell. In connection with such resignation, a severance
agreement was executed by and among Mr. Gfeller, the Company and Ferrell,
whereby Mr. Gfeller would receive $2.6 million, payable in four equal annual
installments commencing on or before January 11, 1991. As consideration for
these payments, Mr. Gfeller agreed not to compete with the Company and to the
termination and release of his participation in the Ferrell Long-Term Incentive
Plan and all bonus or performance plans maintained by the Company and Ferrell.
In connection with Geoffrey H. Ramsden's resignation in January 1994, Ferrell
and Mr. Ramsden entered into a severance agreement dated March 23, 1994.
Pursuant to the terms of the agreement, Mr.
41
<PAGE>
Ramsden received approximately $500,000 in exchange for the repurchase of his
Class M Stock and Equity Units and the termination of all rights under
Ferrell's bonus and performance plans.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a wholly owned subsidiary of Ferrell. The following table sets
forth the beneficial ownership of the outstanding capital stock of Ferrell by
beneficial owners of five percent or more of any class of capital stock of
Ferrell, by directors of Ferrell and by all directors and officers of Ferrell
as a group as of March 31, 1994.
<TABLE>
<CAPTION>
SHARES
TITLE OF BENEFICIALLY PERCENT
CLASS NAME OF BENEFICIAL OWNER OWNED(1) OF CLASS
<S> <C> <C> <C>
Class A Common Stock.... James E. Ferrell(2) 2,562,680(3) 99.6%
All Directors and Officers as a Group 2,562,680 99.6%
Class M Common Stock(4). James E. Ferrell -- --
Bradley A. Cochenet 2,770 4.7%
All Directors and Officers as a Group 4,325 27.9%
</TABLE>
- ---------------------
(1) Beneficial ownership for the purposes of the foregoing table is defined by
Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Under
that rule a person is generally considered to be the beneficial owner of a
security if he has or shares the power to vote or direct the voting thereof
("Voting Power") or to impose or direct the disposition thereof
("Investment Power") or has the right to acquire either of those powers
within 60 days.
(2) The address for James E. Ferrell is c/o Ferrell Companies, Inc., One
Liberty Plaza, Liberty, Missouri 64081.
(3) James E. Ferrell has sole Voting and Investment Power with respect to
1,525,817 shares of Class A Common Stock held by Mr. Ferrell as Trustee of
the James E. Ferrell Revocable Trust. Mr. Ferrell shares Voting and
Investment Power with respect to 1,036,823 shares of Class A Common Stock
held by himself and his wife, Elizabeth J. Ferrell, as joint tenants with
rights of survivorship.
(4) The shares of Class M Common Stock are restricted to eligible employees of
Ferrell and the Company and are non-voting and non-transferable. Ferrell
will repurchase all of the shares of Class M Common Stock owned by such
employees upon their death, disability, retirement, voluntary or
involuntary termination of employment or bankruptcy. The purchase price for
such shares is based on valuation formulas set forth in the Class M Stock
Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a discussion of certain relationships and related
transactions among affiliates of the Company. Upon the consummation of the
transactions contemplated hereby, the indebtedness set forth below will be
repaid and will no longer be outstanding.
In the second and third quarter of fiscal year 1993, Ferrell Leasing Corp., a
subsidiary of Ferrell Properties, Inc., sold to the Company for the fair market
value of $4,100,000, the land and two buildings comprising the Company's
corporate headquarters in Liberty, Missouri. The purchase price was based on an
independent appraisal. The land and building were acquired by Ferrell Leasing
Corp. in December 1989. James E. Ferrell, a director and executive officer of
the Company, owns all of the issued and outstanding stock of Ferrell
Properties, Inc. Prior to the purchase of the buildings, the Company paid total
rent to Ferrell Leasing of $403,000.
In fiscal year 1993, the Company received a capital contribution from
Ferrell. The contribution consisted of (i) the forgiveness of a $3,015,000
long-term note payable to an affiliate, including interest, and (ii) a $262,000
note receivable from an affiliate.
42
<PAGE>
During the three fiscal years ended July 31, 1993, the directors and
executive officers of the Company listed below have, or corporations in which
such directors or executive officers beneficially own ten percent or more of
any class of equity securities have, from time to time, been indebted to the
Company, Ferrell and/or their respective subsidiaries or affiliates in an
amount in excess of $60,000 as follows:
<TABLE>
<CAPTION>
HIGHEST AMOUNT AMOUNT
OUTSTANDING SINCE OUTSTANDING AT
NAME RELATIONSHIP AUGUST 1, 1990 MARCH 31, 1994
<S> <C> <C> <C>
James E. Ferrell(1)......... Executive Officer $8,154,023 $8,154,023
and Director
Ferrell Development,
Inc.(2).................... Affiliate $1,500,000 $1,500,000
One Liberty Plaza, Inc.(2).. Affiliate $3,000,000 $3,000,000
Ferrell Properties, Inc.(2). Affiliate $1,757,946 $ 262,199
</TABLE>
- ---------------------
(1) All loans or advances to Mr. Ferrell are cash loans made by the Company for
Mr. Ferrell's personal use. The loans or advances did not arise as a result
of any transactions with the Company. All loans or advances to Mr. Ferrell
are represented by a demand note which bears interest at the prime rate.
The interest rate charged on this loan ranged from 6% to 8.5% during fiscal
1993, from 8.5% to 10.5% during fiscal 1992, and 10.0% to 10.5% during
fiscal 1991.
(2) Ferrell Development, Inc., and One Liberty Plaza, Inc. are wholly owned
subsidiaries of Ferrell Properties, Inc. The indebtedness of Ferrell
Development and One Liberty Plaza arose as a result of cash loans made by
the Company. The indebtedness of Ferrell Properties, which was contributed
to the Company by Ferrell in fiscal 1993, arose as a result of cash loans
made by Ferrell. The loans did not arise as a result of any transactions
with the Company or Ferrell. The terms of the loans, as fixed by the loan
documents, are as favorable as could be obtained from a third party and the
loans were approved by a majority of the Company's or Ferrell's independent
directors. The interest income generated from the loans, which bear
interest of the prime rate plus 1.125%, is not material to the Company or
Ferrell.
43
<PAGE>
CASH DISTRIBUTIONS
A principal objective of the Partnership is to generate cash from Partnership
operations and to distribute Available Cash to the General Partner and the
Master Partnership for distribution, in turn, to its partners. "Available Cash"
is defined in the glossary and generally means, with respect to any fiscal
quarter of the Partnership, the sum of all of the cash received by the
Partnership from all sources plus reductions to reserves less all of its cash
disbursements and net additions to reserves.
The Partnership will make distributions to its partners with respect to each
fiscal quarter of the Partnership prior to liquidation in an amount equal to
100% of its Available Cash for such quarter. Distributions will also be made
upon liquidation of the Partnership as follows: (i) first to the creditors of
the Partnership (including the Holders of the Senior Notes) and to the creation
of a reserve for contingent liabilities and (ii) then to the General Partner
and the Master Partnership in accordance with the positive balance in their
respective capital accounts.
THE PARTNERSHIP
The following paragraphs are a summary of certain provisions of the
Partnership Agreement. The form of the Partnership Agreement for the
Partnership and the form of the Partnership Agreement for the Master
Partnership (the "Master Partnership Agreement") are included as exhibits to
the Registration Statement of which this Prospectus constitutes a part. The
following discussion is qualified in its entirety by reference to the
Partnership Agreement and the Master Partnership Agreement. The Master
Partnership will be the sole limited partner of the Partnership, which will
own, manage and operate the Partnership's business. The General Partner will
serve as the general partner of the Partnership and of the Master Partnership,
collectively owning a 2% general partner interest in the business and
properties owned by the Partnership and the Master Partnership on a combined
basis. Unless specifically described otherwise, references herein to the term
"Partnership Agreement" constitute references to the Partnership Agreement and
the Master Partnership Agreement, collectively.
THE PARTNERSHIP
The Partnership and the Master Partnership were recently organized as
Delaware limited partnerships. The General Partner is the general partner of
the Partnership and the Master Partnership. The Master Partnership is the sole
limited partner of the Partnership. Upon the sale of the Common Units offered
concurrently herewith, the General Partner will hold an aggregate 2% interest
as general partner, and the Unitholders (including Ferrell as an owner of
Common Units, Subordinated Units and Incentive Distribution Rights) will hold a
98% interest as limited partners in the Partnership and the Master Partnership,
on a combined basis. The Partnership will dissolve on July 31, 2084, unless
sooner dissolved pursuant to the terms of the Partnership Agreement.
The Common Units will be registered under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations
promulgated thereunder, and the Master Partnership will be subject to the
reporting and certain other requirements of the Exchange Act. Although the
partnership interests in the Partnership will not be registered under the
Exchange Act, as a result of the Offering and pursuant to the provisions of the
Indenture the Partnership will be required to file periodic reports containing
financial and other information regarding it with the Commission.
WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER
The General Partner has agreed not to voluntarily withdraw as general partner
of the Partnership and the Master Partnership prior to July 31, 2004 (with
limited exceptions described below), without obtaining the approval of at least
66 2/3% of the outstanding Units (excluding for purposes of such determination
Units held by the General Partner and its affiliates) and furnishing an opinion
of counsel that such withdrawal will
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not result in the loss of the limited liability of the limited partners of the
Partnership or cause the Partnership to be treated as an association taxable as
a corporation or otherwise taxed as an entity for federal income tax purposes
(an "Opinion of Counsel"). On or after July 31, 2004, the General Partner may
withdraw as general partner by giving 90 days' written notice (without first
obtaining approval from the Unitholders), and such withdrawal will not
constitute a violation of the Partnership Agreement. Notwithstanding the
foregoing, the General Partner may withdraw without Unitholder approval upon 90
days' notice to the limited partners if more than 50% of the outstanding Units
are held or controlled by one person and its affiliates (other than the General
Partner and its affiliates). In addition, the Partnership Agreement permits the
General Partner (in certain limited instances) to sell all of its general
partner interest in the Partnership and permits the parent corporation of the
General Partner to sell all or any portion of the capital stock of the General
Partner to a third party without the approval of the Unitholders. Upon the
withdrawal of the General Partner under any circumstances (other than as a
result of a transfer by the General Partner of all or a part of its general
partner interest in the Partnership), the holders of a majority of the
outstanding Units may select a successor to such withdrawing General Partner.
If such a successor is not elected, or is elected but an Opinion of Counsel
cannot be obtained, the Partnership will be dissolved, wound up and liquidated,
unless within 180 days after such withdrawal a majority of the Unitholders
agree in writing to continue the business of the Partnership and to the
appointment of a successor General Partner. See "--Termination and
Dissolution."
The General Partner may not be removed unless such removal is approved by the
vote of the holders of not less than 66 2/3% of the outstanding Units and the
Master Partnership receives an Opinion of Counsel. Any such removal is also
subject to the approval of a successor general partner by the vote of the
holders of not less than a majority of the outstanding Units.
Removal or withdrawal of the General Partner of the Master Partnership also
constitutes removal or withdrawal, as the case may be, of the General Partner
as general partner of the Partnership.
In the event of withdrawal of the General Partner where such withdrawal
violates the Partnership Agreement or removal of the General Partner by the
limited partners under circumstances where cause exists, a successor general
partner will have the option to acquire the general partner interest of the
departing General Partner (the "Departing Partner") in the Partnership and the
Master Partnership for a cash payment equal to the fair market value of such
interest. Under all other circumstances where the General Partner withdraws or
is removed by the limited partners, the Departing Partner will have the option
to require the successor general partner to acquire such general partner
interest of the Departing Partner for such amount. In each case such fair
market value will be determined by agreement between the Departing Partner and
the successor general partner, or if no agreement is reached, by an independent
investment banking firm or other independent experts selected by the Departing
Partner and the successor general partner (or if no expert can be agreed upon,
by the expert chosen by agreement of the experts selected by each of them). In
addition, the Partnership would also be required to reimburse the Departing
Partner for all amounts due the Departing Partner, including without
limitation, all employee related liabilities, including severance liabilities,
incurred in connection with the termination of the employees employed by the
Departing Partner for the benefit of the Partnership.
If the above-described option is not exercised by either the Departing
Partner or the successor general partner, as applicable, the Departing
Partner's general partner interest in the partnership will be converted into
Common Units equal to the fair market value of such interest as determined by
an investment banking firm or other independent expert selected in the manner
described in the preceding paragraph.
AMENDMENT OF PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed only by the General
Partner. In order to adopt a proposed amendment, the General Partner is
required to seek written approval of the holders of the number of Units
required to approve such amendment or call a meeting of the limited partners to
consider and vote upon the proposed amendment, except as described below.
Proposed amendments (other than those
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described below) must be approved by holders of at least 66 2/3% of the
outstanding Units, except that no amendment may be made which would (i) enlarge
the obligations of any limited partner, without its consent, (ii) enlarge the
obligations of the General Partner, without its consent, which may be given or
withheld in its sole discretion, (iii) restrict in any way any action by or
rights of the General Partner as set forth in the Partnership Agreement, (iv)
modify the amounts distributable, reimbursable or otherwise payable by the
Partnership to the General Partner, (v) change the term of the Partnership, or
(vi) give any person the right to dissolve the Partnership other than the
General Partner's right to dissolve the Partnership with the approval of at
least 66 2/3% of the Units during the Subordination Period, or a majority of
the outstanding Units thereafter or change such right of the General Partner in
any way.
The General Partner may make certain other amendments to the Partnership
Agreement without the approval of any limited partner or assignee of the
Partnership.
In addition, the General Partner may make amendments to the Partnership
Agreement without such consent if such amendments (i) do not adversely affect
the limited partners in any material respect, (ii) are necessary or desirable
to satisfy any requirements, conditions or guidelines contained in any opinion,
directive, ruling or regulation of any federal or state agency or judicial
authority or contained in any federal or state statute, (iii) are necessary or
desirable to implement certain tax-related provisions of the Partnership
Agreement, (iv) are necessary or desirable to facilitate the trading of the
Units or to comply with any rule, regulation, guideline or requirement of any
securities exchange on which the Units are or will be listed for trading,
compliance with any of which the General Partner deems to be in the best
interests of the Partnership and the Unitholders or (v) are required or
contemplated by the Partnership Agreement.
The General Partner will not be required to obtain an Opinion of Counsel as
to the tax consequences or the possible effect on limited liability of
amendments described in the two immediately preceding paragraphs. No other
amendments to the Partnership Agreement will become effective without the
approval of at least 95% of the Units unless the Partnership obtains an Opinion
of Counsel to the effect that such amendment will not cause the Partnership to
be treated as an association taxable as a corporation or otherwise cause the
Partnership to be subject to entity level taxation for federal income tax
purposes and will not affect the limited liability of any limited partner in
the Partnership or the Master Partnership.
Any amendment that materially and adversely affects the rights or preferences
of any type or class of limited partner interests in relation to other types of
classes of limited partner interests or the general partner interests will
require the approval of at least a majority of the type or class of limited
partner interests so affected (excluding any such limited partner interests
held by the General Partner and its affiliates).
TERMINATION AND DISSOLUTION
The Partnership will continue until July 31, 2084, unless sooner terminated
pursuant to the Partnership Agreement. The Partnership will be dissolved upon
(i) the election of the General Partner to dissolve the Partnership, if
approved by at least a majority of the Units (other than Units owned by the
General Partner and its affiliates) during the Subordination Period, or a
majority of all of the outstanding Units thereafter, (ii) the sale of all or
substantially all of the assets and properties of the Partnership and the
Operating Partnership, (iii) the entry of a decree of judicial dissolution of
the Partnership or (iv) withdrawal or removal of the General Partner or any
other event that results in its ceasing to be the General Partner (other than
by reason of a transfer in accordance with the Partnership Agreement or
withdrawal or removal following approval of a successor), provided that the
Partnership shall not be dissolved upon an event described in clause (iv) if
within 90 days after such event the partners agree in writing to continue the
business of the Partnership and to the appointment, effective as of the date of
such event, of a successor General Partner. Upon a dissolution pursuant to
clause (iv), the holders of at least a majority of the Units may also elect,
within certain time limitations, to reconstitute the Partnership and continue
its business on the same terms and conditions set forth in the Partnership
Agreement by forming a new limited partnership on terms identical to those set
forth in the Partnership Agreement and having as a general partner an entity
approved by at least the holders of a
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majority of the Units, subject to receipt by the Partnership of an opinion of
counsel that the exercise of such right will not result in the loss of the
limited liability of Unitholders or cause the Partnership or the reconstituted
limited partnership to be treated as an association taxable as a corporation or
otherwise subject to taxation as an entity for federal income tax purposes.
LIQUIDATION AND DISTRIBUTION OF PROCEEDS
Upon dissolution of the Partnership, unless the Partnership is reconstituted
and continued as a new limited partnership, the person authorized to wind up
the affairs of the Partnership (the "Liquidator") will, acting with all of the
powers of the general partner that such Liquidator deems necessary or desirable
in its good faith judgment in connection therewith, liquidate the Partnership's
assets and apply the proceeds of the liquidation as follows: (i) first towards
the payment of all creditors of the Partnership and the creation of a reserve
for contingent liabilities and (ii) then to all partners in accordance with the
positive balance in their respective capital accounts. Under certain
circumstances and subject to certain limitations, the Liquidator may defer
liquidation or distribution of the Partnership's assets for a reasonable period
of time or distribute assets to partners in kind if it determines that a sale
would be impractical or would cause undue loss to the partners.
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DESCRIPTION OF SENIOR NOTES
GENERAL
The Senior Notes will be issued pursuant to an Indenture (the "Indenture")
between the Issuers and Norwest Bank, Minnesota, National Association, as
trustee (the "Trustee"). The terms of the Senior Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Senior Notes
are subject to all such terms, and Holders of Senior Notes are referred to the
Indenture and the Trust Indenture Act for a statement thereof. The following
summary of certain provisions of the Senior Notes and the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Senior Notes and the Indenture, including the definitions therein of certain
terms used below. A copy of the proposed form of Indenture will be filed as an
exhibit to the Registration Statement of which this Prospectus is a part and is
available as set forth under "Available Information." The definitions of
certain terms used in the following summary are set forth below under "Certain
Definitions."
The Senior Notes will be unsecured general joint and several obligations of
the Issuers and will rank senior in right of payment to all subordinated
Indebtedness of the Issuers and pari passu in right of payment with all senior
Indebtedness of the Issuers, including the Partnership's borrowings under the
Credit Facility. The Senior Notes will be recourse to the property and assets
of the General Partner in its capacity as general partner of the Partnership.
PRINCIPAL, MATURITY AND INTEREST
The Senior Notes will be limited in aggregate principal amount to $250
million and will mature on , 2001. Interest on the Senior Notes will
accrue at the rate of % per annum and will be payable semi-annually in
arrears on and , commencing on , 1994, to
Holders of record on the immediately preceding and .
Interest on the Senior Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. The Senior Notes will be payable both as to
principal and interest at the office or agency of the Issuers maintained for
such purpose within the City and State of New York or, at the option of the
Issuers, payment of interest may be made by check mailed to the Holders of the
Senior Notes at their respective addresses set forth in the register of Holders
of Senior Notes. Until otherwise designated by the Issuers, the Issuers' office
or agency in New York will be the office of the Trustee maintained for such
purpose. The Senior Notes will be issued in registered form, without coupons,
and in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The Senior Notes are not redeemable at the Issuers' option prior to
, 1998. Thereafter, the Senior Notes will be subject to redemption at
the option of the Issuers, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the 12-month period
beginning on of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
1998.......................................................... %
1999.......................................................... %
2000.......................................................... 100.000%
</TABLE>
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Issuers are not required to make mandatory redemption or sinking fund payments
with respect to the Senior Notes.
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REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Senior Notes will
have the right to require the Issuers to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Senior Notes pursuant
to the offer described below (the "Change of Control Offer") at an offer price
in cash equal to 101% of the aggregate principal amount thereof plus accrued
and unpaid interest, if any, to the date of purchase (the "Change of Control
Payment"). Within 10 days following any Change of Control, the Issuers will
mail a notice to each Holder stating: (1) that the Change of Control Offer is
being made pursuant to the covenant entitled "Change of Control" and that all
Senior Notes tendered will be accepted for payment; (2) the purchase price and
the purchase date, which will be no earlier than 30 days nor later than 40 days
from the date such notice is mailed (the "Change of Control Payment Date"); (3)
that any Senior Note not tendered will continue to accrue interest; (4) that,
unless the Issuers default in the payment of the Change of Control Payment, all
Senior Notes accepted for payment pursuant to the Change of Control Offer will
cease to accrue interest after the Change of Control Payment Date; (5) that
Holders electing to have any Senior Notes purchased pursuant to a Change of
Control Offer will be required to surrender the Senior Notes, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Senior
Notes completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day preceding the Change
of Control Payment Date; (6) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business on
the second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Senior Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have such Senior
Notes purchased; and (7) that Holders whose Senior Notes are being purchased
only in part will be issued new Senior Notes equal in principal amount to the
unpurchased portion of the Senior Notes surrendered, which unpurchased portion
must be equal to $1,000 in principal amount or an integral multiple thereof.
The Issuers will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations to the extent such laws and
regulations are applicable in connection with the repurchase of the Senior
Notes in connection with a Change of Control.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (1) accept for payment Senior Notes or portions thereof tendered
pursuant to the Change of Control Offer, (2) deposit with the paying agent
therefor an amount equal to the Change of Control Payment in respect of all
Senior Notes or portions thereof so tendered and (3) deliver or cause to be
delivered to the Trustee the Senior Notes so accepted together with an
officers' certificate stating the aggregate amount of the Senior Notes or
portions thereof tendered to the Issuers. The Paying Agent will promptly mail
to each Holder of Senior Notes so accepted the Change of Control Payment for
such Senior Notes, and the Trustee will promptly authenticate and mail to each
Holder a new Senior Note equal in principal amount to any unpurchased portion
of the Senior Notes surrendered, if any; provided that each such new Senior
Note will be in a principal amount of $1,000 or an integral multiple thereof.
The Issuers will publicly announce the results of the Change of Control Offer
on or as soon as practicable after the Change of Control Payment Date.
"Change of Control" means (i) the sale, lease, conveyance or other
disposition of all or substantially all of the Partnership's assets to any
Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) other than James E. Ferrell, the Related Parties and any Person of
which James E. Ferrell and the Related Parties beneficially own in the
aggregate 51% or more of the voting Capital Interests (or if such Person is
a partnership, 51% or more of the general partnership interests), (ii) the
liquidation or dissolution of the Partnership or the General Partner, (iii)
the occurrence of any transaction, the result of which is that James E.
Ferrell and the Related Parties beneficially own in the aggregate, directly
or indirectly, less than 51% of the total voting power entitled to vote for
the election of directors of the General Partner and (iv) the occurrence of
any transaction, the result of which is that the General Partner is no
longer the sole general partner of the Partnership.
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"Related Party" means (i) the spouse or any lineal descendant of James E.
Ferrell, (ii) any trust for his benefit or for the benefit of his spouse or
any such lineal descendants or (iii) any corporation, partnership or other
entity in which James E. Ferrell and/or such other Persons referred to in
the foregoing clauses (i) and (ii) are the direct record and beneficial
owners of all of the voting and nonvoting Equity Interests.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the Holders of the Senior Notes to
require that the Issuers repurchase or redeem the Senior Notes in the event of
a takeover, recapitalization or similar restructuring.
With respect to the sale of assets referred to in the definition of "Change
of Control" above, the phrase "all or substantially all" as used in the
Indenture varies according to the facts and circumstances of the subject
transaction, has no clearly established meaning under New York law (which
governs the Indenture) and is subject to judicial interpretation. Accordingly,
in certain circumstances there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the assets of a person and therefore it may be unclear
whether a Change of Control has occurred and whether the Senior Notes are
subject to a Change of Control Offer.
The agreement governing the Credit Facility will contain prohibitions of
certain events that would constitute a Change of Control. In addition, the
exercise by the Holders of Senior Notes of their right to require the
Partnership to repurchase the Senior Notes could cause a default under the
Credit Facility, even if the occurrence of a Change of Control itself does not,
due to the financial effect of such repurchases on the Partnership. Finally,
the Partnership's ability to pay cash to the Holders of Senior Notes upon a
repurchase may be limited by the Partnership's then existing financial
resources.
ASSET SALES
The Indenture will provide that the Partnership will not, and will not permit
any of its Subsidiaries to, (i) sell, lease, convey or otherwise dispose of any
assets (including by way of a sale-and-leaseback) other than sales of inventory
in the ordinary course of business consistent with past practice (provided that
the sale, lease, conveyance or other disposition of all or substantially all of
the assets of the Partnership shall be governed by the provisions of the
Indenture described above under the caption "Change of Control" and/or the
provisions described below under the caption "Merger, Consolidation or Sale of
Assets" and not by the provisions of this paragraph) or (ii) issue or sell
Equity Interests of any of its Subsidiaries, in the case of either clause (i)
or (ii) above, whether in a single transaction or a series of related
transactions, (a) that have a fair market value in excess of $5 million, or (b)
for net proceeds in excess of $5 million (each of the foregoing, an "Asset
Sale"), unless (x) the Partnership (or the Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the
fair market value of the assets sold or otherwise disposed of and (y) at least
80% of the consideration therefor received by the Partnership or such
Subsidiary is in the form of cash; provided, however, that the amount of (A)
any liabilities (as shown on the Partnership's or such Subsidiary's most recent
balance sheet or in the notes thereto) of the Partnership or any Subsidiary
(other than liabilities that are by their terms subordinated in right of
payment to the Senior Notes) that are assumed by the transferee of any such
assets and (B) any notes or other obligations received by the Partnership or
any such Subsidiary from such transferee that are immediately converted by the
Partnership or such Subsidiary into cash (to the extent of the cash received),
shall be deemed to be cash for purposes of this provision; and provided,
further, that the 80% limitation referred to in this clause (y) shall not apply
to any Asset Sale in which the cash portion of the consideration received
therefrom, determined in accordance with the foregoing proviso, is equal to or
greater than what the after-tax proceeds would have been had such Asset Sale
complied with the aforementioned 80% limitation. Notwithstanding the foregoing,
Asset Sales shall not be deemed to include (1) any transfer of assets by the
Partnership or any of its Subsidiaries to a Subsidiary of the Partnership that
is a Guarantor, (2) any transfer of assets by the Partnership or any of its
Subsidiaries to any Person in exchange for other assets used in a line of
business permitted under the "Line of Business" covenant
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and having a fair market value not less than that of the assets so transferred
and (3) any transfer of assets pursuant to a Permitted Investment.
Within 270 days after any Asset Sale, the Partnership may apply the Net
Proceeds from such Asset Sale to (a) permanently reduce Indebtedness
outstanding under the Credit Facility (with a permanent reduction of
availability in the case of revolving Indebtedness) or (b) an investment in
capital expenditures or other long-term/tangible assets, in each case, in the
same line of business as the Partnership was engaged in on the date of the
Indenture. Pending the final application of any such Net Proceeds, the
Partnership may temporarily reduce borrowings under the Credit Facility or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from the Asset Sale that are not applied or
invested as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $15 million, the Issuers shall make an offer to all Holders of Senior
Notes (an "Asset Sale Offer") to purchase the maximum principal amount of
Senior Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase, in accordance
with the procedures set forth in the Indenture. The Issuers will comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations to the extent such laws and regulations are applicable in
connection with the repurchase of the Senior Notes in connection with an Asset
Sale Offer. To the extent that the aggregate amount of Senior Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Partnership may use such deficiency for general business purposes. If the
aggregate principal amount of Senior Notes surrendered by Holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Senior
Notes to be purchased on a pro rata basis. Upon completion of such offer to
purchase, the amount of Excess Proceeds shall be reset at zero.
Selection and Notice
If less than all of the Senior Notes are to be redeemed at any time,
selection of Senior Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, or the Nasdaq National Market on which the Senior Notes are listed or
quoted, as applicable, or, if the Senior Notes are not so listed or quoted,
then, on a pro rata basis, by lot or by such method as the Trustee shall deem
fair and appropriate, provided that no Senior Notes of $1,000 or less shall be
redeemed in part. Notices of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder of
Senior Notes to be redeemed at its registered address. If any Senior Note is to
be redeemed in part only, the notice of redemption that relates to such Senior
Note shall state the portion of the principal amount thereof to be redeemed. A
new Senior Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original Senior Note. On and after the redemption date, interest ceases to
accrue on Senior Notes or portions of them called for redemption.
SUBSIDIARY GUARANTEES
The Indenture will provide that the Partnership may, at any time that it
transfers or causes to be transferred to any of its Subsidiaries assets,
businesses or properties having a fair market value (as determined in good
faith by the Board of Directors of the General Partner, whose determination
shall be conclusive and evidenced by a resolution of such Board) of $5 million
or more, cause such Subsidiary (each such Subsidiary, a "Guarantor") to
unconditionally guarantee (each such guarantee, a "Subsidiary Guarantee"),
jointly and severally, the Issuers' payment obligations under the Senior Notes.
Each Guarantor shall execute and deliver to the Trustee a supplemental
indenture evidencing its Subsidiary Guarantee, together with an opinion of
counsel with respect to certain matters set forth in the Indenture. The
obligations of each Guarantor under its Subsidiary Guarantee will be limited so
as not to constitute a fraudulent conveyance under applicable law. See,
however, "Risk Factors--Fraudulent Conveyance Matters."
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The Indenture will provide that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
Person whether or not affiliated with such Guarantor unless (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the Senior Notes and
the Indenture; (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists; and (iii) such Guarantor, or any Person
formed by or surviving any such consolidation or merger, (A) would have
Consolidated Net Worth (immediately after giving effect to such transaction),
equal to or greater than the Consolidated Net Worth of such Guarantor
immediately preceding the transaction and (B) would be permitted by virtue of
the Partnership's pro forma Fixed Charge Coverage Ratio to incur, immediately
after giving effect to such transaction, to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock."
The Indenture will provide that in the event of a sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the Capital Interests of
any Guarantor, then such Guarantor (in the event of a sale or other
disposition, by way of such a merger, consolidation or otherwise, of all of the
Capital Interests of such Guarantor) or the corporation acquiring the property
(in the event of a sale or other disposition of all of the assets of such
Guarantor) will be released and relieved of any obligations under its
Subsidiary Guarantee; provided that the Net Proceeds of such sale or other
disposition are applied in accordance with the applicable provisions of the
Indenture. See "Redemption or Repurchase at Option of Holders--Asset Sales."
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture will provide that the Partnership will not, and will not permit
any of its Subsidiaries to, directly or indirectly: (i) declare or make any
distribution or pay any dividend on account of the Partnership's or any
Subsidiary's Equity Interests (other than (x) distributions or dividends
payable in Equity Interests (other than Disqualified Interests) of the
Partnership, (y) distributions or dividends payable to the Partnership or a
Wholly Owned Subsidiary of the Partnership that is a Guarantor or (z)
distributions or dividends payable pro rata to all holders of Capital Interests
of any such Subsidiary); (ii) purchase, redeem or otherwise acquire or retire
for value any Equity Interests of the Partnership or any Subsidiary or other
Affiliate of the Partnership (other than any such Equity Interests owned by the
Partnership or a Wholly Owned Subsidiary of the Partnership that is a
Guarantor); (iii) purchase, redeem or otherwise acquire or retire for value any
Indebtedness that is subordinated to the Senior Notes; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) the Fixed Charge Coverage Ratio of the Partnership for the
Partnership's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date
on which such Restricted Payment is made, calculated on a pro forma basis
as if such Restricted Payment had been made at the beginning of such four-
quarter period, would have been more than 2.25 to 1; and
(c) such Restricted Payment (the amount of any such payment, if other
than cash, to be determined by the Board of Directors of the General
Partner, whose determination shall be conclusive and evidenced by a
resolution in an Officer's Certificate delivered to the Trustee), together
with the aggregate of all other Restricted Payments made by the Partnership
and its Subsidiaries in the fiscal quarter during
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which such Restricted Payment is made shall not exceed the amount of
Available Cash of the Partnership for the immediately preceding fiscal
quarter (or, with respect to the first fiscal quarter during which
Restricted Payments are made, the amount of Available Cash of the
Partnership for the period commencing on the date of the Indenture and
ending on the last day of the immediately preceding fiscal quarter);
provided that for purposes of this clause (c), the principal amount of any
working capital Indebtedness (net of repayments) incurred by the
Partnership during the first 45 days of any fiscal quarter may be included
in the amount of Available Cash for the immediately preceding fiscal
quarter so long as (i) the Partnership would have been permitted to incur
such working capital Indebtedness on the last day of such immediately
preceding fiscal quarter under the terms of the agreements and instruments
governing its outstanding Indebtedness on such date and (ii) the principal
amount of such working capital Indebtedness so included (but not
reborrowings thereof after repayment) shall be excluded from the amount of
Available Cash for purposes of determining the amount of Restricted
Payments permitted in any subsequent fiscal quarter.
The foregoing provisions will not prohibit (i) the payment of any
distribution within 60 days after the date on which the Partnership becomes
committed to make such distribution, if at said date of commitment such payment
would have complied with the provisions of the Indenture; (ii) the redemption,
repurchase, retirement or other acquisition of any Equity Interests of the
Partnership in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Partnership) of other Equity
Interests of the Partnership (other than any Disqualified Interests); (iii) the
defeasance, redemption or repurchase of subordinated Indebtedness with the
proceeds of Permitted Refinancing Indebtedness; and (iv) the defeasance,
redemption or repurchase of any Existing Subordinated Debentures of the Company
outstanding on the date of the Indenture.
Not later than the date of making any Restricted Payment, the General Partner
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed,
which calculations may be based upon the Partnership's latest available
financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture will provide that the Partnership will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with
respect to (collectively, "incur") any Indebtedness (including Acquired Debt)
and that the Partnership will not issue any Disqualified Interests and will not
permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Partnership may incur Indebtedness and any
Subsidiary of the Partnership may incur Acquired Debt if:
(a) the Fixed Charge Coverage Ratio for the Partnership's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred would have been at least 2.75 to 1 if such date is
on or prior to , 1996 and 3.00 to 1 if such date is after
, 1996, in each case, determined on a pro forma basis (including
a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred at the beginning of such four-
quarter period; and
(b) either (x) such Indebtedness shall be subordinated in right of
payment to the Senior Notes and shall have a Weighted Average Life to
Maturity greater than the remaining Weighted Average Life to Maturity of
the Senior Notes or (y) such Indebtedness shall be Permitted Senior Debt
and the Senior Debt Ratio Test shall have been met at the time of
incurrence thereof.
The foregoing limitations will not apply to: (i) the Indebtedness represented
by the Senior Notes and any Subsidiary Guarantees; (ii) the incurrence by the
Partnership of Indebtedness pursuant to the Credit Facility in an aggregate
principal amount at any time outstanding not to exceed $170 million (which
amount shall be reduced on the 40th day after the date of the Indenture by the
lesser of (A) $20 million and (B) the aggregate amount of net proceeds received
on or prior to such date by the Master Partnership upon exercise
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of over-allotment options granted to the underwriters in connection with the
offering of Common Units); (iii) the incurrence by the Partnership of
Indebtedness in respect of Capitalized Lease Obligations in an aggregate
principal amount not to exceed $15 million; (iv) the Existing Indebtedness; (v)
the incurrence by the Partnership or any of its Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the proceeds of which are used to
extend, refinance, renew, replace, defease or refund any then outstanding
Indebtedness of the Partnership or such Subsidiary not incurred in violation of
the Indenture; (vi) Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the Indenture to be outstanding;
(vii) Indebtedness of any Subsidiary of the Partnership to the Partnership or
any of its Wholly Owned Subsidiaries; (viii) the incurrence by the Partnership
or the Insurance Company Subsidiary of Indebtedness owing directly to its
insurance carriers (without duplication) in connection with the Partnership's,
its Subsidiaries' or its Affiliates' self-insurance programs or other similar
forms of retained insurable risks for their respective retail propane
businesses, consisting of reinsurance agreements and indemnification agreements
(and guarantees of the foregoing) secured by letters of credit, provided that
the Indebtedness evidence by such reinsurance agreements, indemnification
agreements, guarantees and letters of credit shall be counted (without
duplication) for purposes of all calculations pursuant to the Fixed Charge
Coverage Ratio test above; (ix) surety bonds and appeal bonds required in the
ordinary course of business or in connection with the enforcement of rights or
claims of the Partnership or any of its Subsidiaries or in connection with
judgments that do not result in a Default or Event of Default; (x) the
incurrence by the Partnership (or any Subsidiary of the Partnership that is a
Guarantor) of Indebtedness in connection with acquisitions of retail propane
businesses in favor of the sellers of such businesses in a principal amount not
to exceed $15 million in any fiscal year or $45 million in the aggregate
outstanding at any one time, provided that the principal amount of such
Indebtedness incurred in connection with any such acquisition shall not exceed
the fair market value of the assets so acquired; and (xi) in addition to the
Indebtedness permitted under the foregoing clauses (i) through (x), the
incurrence by the Partnership of Indebtedness in an aggregate principal amount
outstanding not to exceed $15 million at any time, provided that any
Indebtedness incurred pursuant to this clause (xi) shall be subordinated in
right of payment to the Senior Notes and shall have a Weighted Average Life to
Maturity greater than the remaining Weighted Average Life to Maturity of the
Senior Notes.
The "Senior Debt Ratio Test" will be met with respect to the incurrence of
any Indebtedness by the Partnership or any Subsidiary of the Partnership if the
ratio of (1) the aggregate outstanding principal amount of Senior Debt on the
date of and after giving effect to the incurrence of such Indebtedness (the
"Incurrence Date") to (2) the Consolidated Cash Flow for the Partnership's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the Incurrence Date would have
been 2.50 to 1 or less. For purposes of the computation in clause (1) of the
foregoing sentence, the outstanding principal amount of Indebtedness under the
Credit Facility shall be deemed to equal the principal amount of such
Indebtedness actually outstanding plus the maximum additional principal amount
of such Indebtedness available thereunder, and letters of credit shall be
deemed to have a principal amount equal to the maximum potential liability of
the Partnership or any of its Subsidiaries thereunder. The foregoing
calculation of Consolidated Cash Flow shall give pro forma effect to
acquisitions (including all mergers and consolidations), dispositions and
discontinuance of operations that have been made by the Partnership or any of
its Subsidiaries during the four-quarter reference period or subsequent to such
reference period and on or prior to the Incurrence Date assuming that all such
acquisitions, dispositions and discontinuance of operations had occurred on the
first day of the four-quarter reference period.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
The Indenture will provide that the Partnership will not, and will not permit
any of its Subsidiaries to, enter into any arrangement with any Person
providing for the leasing by the Partnership or such Subsidiary of any property
that has been or is to be sold or transferred by the Partnership or such
Subsidiary to such Person in contemplation of such leasing, unless (a) the
Partnership or such Subsidiary would be permitted under the Indenture to incur
Indebtedness secured by a Lien on such property in an amount equal to the
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Attributable Debt with respect to such sale and leaseback transaction or (b)
the lease in such sale and leaseback transaction is for a term not in excess of
the lesser of (i) three years and (ii) 60% of the useful remaining life of such
property.
LIENS
The Indenture will provide that the Partnership will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture will provide that the Partnership will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (a) pay dividends or make any other distributions
to the Partnership or any of its Subsidiaries (1) on its Capital Interests or
(2) with respect to any other interest or participation in, or measured by, its
profits, (b) pay any indebtedness owed to the Partnership or any of its
Subsidiaries, (c) make loans or advances to the Partnership or any of its
Subsidiaries or (d) transfer any of its properties or assets to the Partnership
or any of its Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of (i) Existing Indebtedness as in effect on the
date of the Indenture, (ii) applicable law, (iii) any instrument governing
Indebtedness or Capital Interests of a Person acquired by the Partnership or
any of its Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that
the Consolidated Cash Flow of such Person is not taken into account in
determining whether such acquisition was permitted by the terms of the
Indenture, (iv) customary non-assignment provisions in leases entered into in
the ordinary course of business and consistent with past practices, (v)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (d) above
on the property so acquired, or (vi) Permitted Refinancing Indebtedness of any
Existing Indebtedness, provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture will provide that the Partnership may not consolidate or merge
with or into (whether or not the Partnership is the surviving Person), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to another
Person unless (i) the Partnership is the surviving Person, or the Person formed
by or surviving any such consolidation or merger (if other than the
Partnership) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made is a corporation or partnership
organized or existing under the laws of the United States, any state thereof or
the District of Columbia; (ii) the Person formed by or surviving any such
consolidation or merger (if other than the Partnership) or the Person to which
such sale, assignment, transfer, lease, conveyance or other disposition shall
have been made assumes all the obligations of the Partnership, pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee, under
the Senior Notes and the Indenture; (iii) immediately after such transaction no
Default or Event of Default exists; and (iv) the Partnership or such other
Person formed by or surviving any such consolidation or merger, or to which
such sale, assignment, transfer, lease, conveyance or other disposition shall
have been made (A) will have Consolidated Net Worth (immediately after the
transaction but prior to any purchase accounting adjustments resulting from the
transaction) equal to or greater than the Consolidated Net Worth of the
Partnership immediately preceding the transaction and (B) will, at the time of
such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter
period, be
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permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the covenant entitled "Incurrence
of Indebtedness and Issuance of Preferred Stock."
The Indenture will also provide that Finance Corp. may not consolidate or
merge with or into (whether or not Finance Corp. is the surviving Person), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another Person unless (i) Finance Corp. is the surviving
Person, or the Person formed by or surviving any such consolidation or merger
(if other than Finance Corp.) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state thereof or
the District of Columbia and a Wholly Owned Subsidiary of the Partnership; (ii)
the Person formed by or surviving any such consolidation or merger (if other
than Finance Corp.) or the Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of Finance Corp., pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee, under the Senior Notes and the
Indenture; and (iii) immediately after such transaction no Default or Event of
Default exists.
TRANSACTIONS WITH AFFILIATES
The Indenture will provide that the Partnership will not, and will not permit
any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from, or
enter into any contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate, including any Non-Recourse
Subsidiary (each of the foregoing, an "Affiliate Transaction"), unless (a) such
Affiliate Transaction is on terms that are no less favorable to the Partnership
or the relevant Subsidiary than those that would have been obtained in a
comparable transaction by the Partnership or such Subsidiary with an unrelated
Person and (b) with respect to (i) any Affiliate Transaction with an aggregate
value in excess of $500,000, a majority of the directors of the General Partner
having no direct or indirect economic interest in such Affiliate Transaction
determines by resolution that such Affiliate Transaction complies with clause
(a) above and approves such Affiliate Transaction and (ii) any Affiliate
Transaction involving the purchase or other acquisition or sale, lease,
transfer or other disposition of properties or assets other than in the
ordinary course of business, in each case, having a fair market value or for
net proceeds in excess of $15 million, the Partnership delivers to the Trustee
an opinion as to the fairness to the Partnership or such Subsidiary from a
financial point of view issued by an investment banking firm of national
standing; provided, however, that (A) any employment agreement or stock option
agreement entered into by the Partnership or any of its Subsidiaries in the
ordinary course of business and consistent with the past practice of the
Partnership or such Subsidiary, (B) transactions permitted by the provisions of
the Indenture described above under the covenant "Restricted Payments," and (C)
transaction entered into by the Partnership or the Insurance Company Subsidiary
in the ordinary course of business in connection with reinsuring the self-
insurance programs or other similar forms of retained insurable risks of the
retail propane businesses operated by the Partnership, its Subsidiaries and its
Affiliates, in each case, shall not be deemed Affiliate Transactions.
RESTRICTIONS ON NATURE OF INDEBTEDNESS AND ACTIVITIES OF FINANCE CORP.
In addition to the restrictions set forth under the "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant above, the Indenture
will provide that Finance Corp. may not incur any Indebtedness unless (a) the
Partnership is a co-obligor or guarantor of such Indebtedness or (b) the net
proceeds of such Indebtedness are lent to the Partnership, used to acquire
outstanding debt securities issued by the Partnership or used directly or
indirectly to refinance or discharge Indebtedness permitted under the
limitations of this paragraph. The Indenture will also provide that Finance
Corp. may not engage in any business not related directly or indirectly to
obtaining money or arranging financing for the Partnership.
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LINE OF BUSINESS
The Indenture will provide that for so long as any Senior Notes are
outstanding, the Partnership and its Subsidiaries will not materially or
substantially engage in any business other than that in which the Partnership
and its Subsidiaries were engaged on the date of the Indenture.
REPORTS
Whether or not required by the rules and regulations of the Securities and
Exchange Commission (the "Commission"), so long as any Senior Notes are
outstanding, the Issuers will furnish to the Holders of Senior Notes (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Issuers
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Issuers' certified
independent accountants and (ii) all reports that would be required to be filed
with the Commission on Form 8-K if the Issuers were required to file such
reports. In addition, whether or not required by the rules and regulations of
the Commission, the Issuers will file a copy of all such information with the
Commission for public availability (unless the Commission will not accept such
a filing) and make such information available to investors who request it in
writing.
EVENTS OF DEFAULT AND REMEDIES
The Indenture will provide that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Senior Notes; (ii) default in payment when due of the principal of or premium,
if any, on the Senior Notes; (iii) failure by the Issuers for 20 days to comply
with the provisions described under the covenants "Change of Control," "Asset
Sales," "Restricted Payments," "Incurrence of Indebtedness and Issuance of
Preferred Stock" or "Merger, Consolidation, or Sale of Assets"; (iv) failure by
the Issuers for 60 days after notice to comply with any of its other agreements
in the Indenture or the Senior Notes; (v) default under any mortgage, indenture
or instrument under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by the Partnership or any of
its Subsidiaries (or the payment of which is guaranteed by the Partnership or
any of its Subsidiaries), whether such Indebtedness or guarantee now exists or
is created after the date of the Indenture, which default (a) is caused by a
failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any
other such Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $10 million or more,
excluding any acceleration of maturity of the Indebtedness represented by the
Company's Existing Floating Rate Notes and Existing Fixed Rate Notes to the
extent that such Indebtedness shall be redeemed on or prior to the 40th day
after the date of the Indenture; (vi) failure by the Partnership or any of its
Subsidiaries to pay final judgments aggregating in excess of $10 million, which
judgments are not paid, discharged or stayed within 60 days; (vii) except as
permitted by the Indenture, any Subsidiary Guarantee shall be held in any
judicial proceeding to be unenforceable or invalid or shall cease for any
reason to be in full force and effect or any Guarantor, or any Person acing on
behalf of any Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee; and (viii) certain events of bankruptcy or insolvency
with respect to the Partnership or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Senior Notes may
declare all the Senior Notes to be due and payable immediately. Notwithstanding
the foregoing, in the case of an Event of Default arising from certain events
of bankruptcy or insolvency, with respect to either Issuer, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute
a Significant Subsidiary, all outstanding Senior Notes will become due and
payable immediately without further action or notice. Holders of the Senior
Notes may not enforce the
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Indenture or the Senior Notes except as provided in the Indenture. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Senior Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the Senior Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Issuers with the
intention of avoiding payment of the premium that the Issuers would have had to
pay if the Issuers then had elected to redeem the Senior Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Senior Notes. If an Event of Default occurs prior
to , 1998, by reason of any willful action (or inaction) taken (or
not taken) by or on behalf of the Issuers with the intention of avoiding the
prohibition on redemption of the Senior Notes prior to such date, then the
premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Senior
Notes.
The Holders of a majority in aggregate principal amount of the Senior Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all
of the Senior Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of
Default in the payment of principal of, premium, if any, or interest on the
Senior Notes.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF LIMITED PARTNERS, DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS
No limited partner of the Partnership or director, officer, employee,
incorporator or stockholder of the General Partner or Finance Corp., as such,
shall have any liability for any obligations of the Issuers or any Guarantor
under the Senior Notes, the Subsidiary Guarantees, the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Senior Notes by accepting a Senior Note waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Senior Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers may, at their option and at any time, elect to have all of their
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Senior Notes
to receive payments in respect of the principal of, premium, if any, and
interest on such Senior Notes when such payments are due, (ii) the Issuers'
obligations with respect to the Senior Notes concerning issuing temporary
Senior Notes, registration of Senior Notes, mutilated, destroyed, lost or
stolen Senior Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Issuers' obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Issuers may, at their option and at any time, elect to have
the obligations of the Issuers released with respect to certain covenants that
are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with such obligations shall not constitute a Default or
Event of Default with respect to the Senior Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Senior Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Issuers must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Senior Notes, cash in U.S. dollars,
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non-callable Government Securities, or a combination thereof, in such amounts
as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on the outstanding Senior Notes on the stated maturity or on the
applicable redemption date, as the case may be, of such principal or
installment of principal of, premium, if any, or interest on the outstanding
Senior Notes; (ii) in the case of Legal Defeasance, the Issuers shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Issuers shall have received
from, or there shall have been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there shall have been a change
in the applicable federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel shall confirm that, the Holders of
the outstanding Senior Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Issuers shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Senior
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such Covenant Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred; (iv) no Event of
Default or payment Default shall have occurred and be continuing on the date of
such deposit or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after
the date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Issuers or any
of their Subsidiaries is a party or by which the Issuers or any of their
Subsidiaries is bound; (vi) the Issuers shall have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Issuers shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuers with the
intent of preferring the Holders of Senior Notes over the other creditors of
the Issuers with the intent of defeating, hindering, delaying or defrauding
creditors of the Issuers or others; and (viii) the Issuers shall have delivered
to the Trustee an Officers' Certificate and an opinion of counsel, each stating
that all conditions precedent provided for relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers are not required to transfer or
exchange any Senior Note selected for redemption. Also, the Issuers are not
required to transfer or exchange any Senior Note for a period of 15 days before
a selection of Senior Notes to be redeemed.
The registered Holder of a Senior Note will be treated as its owner for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraphs, the Indenture or the
Senior Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the Senior Notes then outstanding
(including consents obtained in connection with a tender offer or exchange
offer for Senior Notes), and any existing default or compliance with any
provision of the Indenture or the Senior Notes may be waived with the consent
of the Holders of a majority in principal amount of the then outstanding Senior
Notes (including consents obtained in connection with a tender offer or
exchange offer for Senior Notes).
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Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Senior Notes held by a non-consenting Holder): (i) reduce
the principal amount of Senior Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Senior Note or alter the provisions with respect to the
redemption of the Senior Notes (other than provisions relating to the covenants
described above under the caption "Repurchase at the Option of Holders"), (iii)
reduce the rate of or change the time for payment of interest on any Senior
Note, (iv) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Senior Notes (except a rescission of
acceleration of the Senior Notes by the Holders of at least a majority in
aggregate principal amount of the Senior Notes and a waiver of the payment
default that resulted from such acceleration), (v) make any Senior Note payable
in money other than that stated in the Senior Notes, (vi) make any change in
the provisions of the Indenture relating to waivers of past Defaults or the
rights of Holders of Senior Notes to receive payments of principal of, premium,
if any, or interest on the Senior Notes, (vii) waive a redemption payment with
respect to any Senior Note (other than provisions relating to the covenants
described above under the caption "Repurchase at the Option of Holders"),
(viii) except as otherwise permitted in the Indenture, release any Guarantor
from its obligations under its Subsidiary Guarantee or change any Subsidiary
Guarantee in any manner that would adversely affect the rights of Holders of
Senior Notes or (ix) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any Holder of Senior
Notes, the Issuers and the Trustee may amend or supplement the Indenture or the
Senior Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Senior Notes in addition to or in place of certificated Senior
Notes, to provide for the assumption of the Issuers' obligations to Holders of
the Senior Notes in the case of a merger or consolidation, to make any change
that would provide any additional rights or benefits to the Holders of the
Senior Notes (including the creation of any Subsidiary Guarantees) or that does
not adversely affect the legal rights under the Indenture of any such Holder,
or to comply with requirements of the Commission in order to effect or maintain
the qualification of the Indenture under the Trust Indenture Act.
THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuers, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding Senior
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Senior Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Senior Note Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Debt" means, with respect to any specified Person, (i) Indebtedness
of any other Person existing at the time such other Person merged with or into
or became a Subsidiary of such specified Person, including Indebtedness
incurred in connection with, or in contemplation of, such other Person merging
with
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or into or becoming a Subsidiary of such specified Person and (ii) Indebtedness
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Attributable Debt" means, in respect of a sale and leaseback arrangement of
any property, the greater of, as at the time of determination, (a) the fair
market value of the property subject to such arrangement (as determined in good
faith by the Board of Directors of the General Partner) or (b) the present
value (calculated using a discount rate equal to the interest rate of the
Senior Notes and annual compounding) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in such
arrangement (including any period for which such lease has been extended).
"Available Cash" has the meaning given to such term in the Partnership
Agreement, as amended to the date of the Indenture.
"Capital Lease Obligation" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Capital Interests" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock, including,
without limitation, with respect to partnerships, partnership interests
(whether general or limited) and any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, such partnership.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued or
directly and fully guaranteed or insured by the United States government or any
agency or instrumentality thereof having maturities of not more than six months
from the date of acquisition, (iii) certificates of deposit and eurodollar time
deposits with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight
bank deposits, in each case with any lender party to the Credit Facility or
with any domestic commercial bank having capital and surplus in excess of $500
million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clauses (ii) and (iii) entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within six months after the date of acquisition and (vi) investments
in money market funds all of whose assets consist of securities of the types
described in the foregoing clauses (i) through (v).
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (a) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an asset sale (to the extent such losses were deducted in computing
Consolidated Net Income), plus (b) provision for taxes based on income or
profits of such Person for such period, to the extent such provision for taxes
was deducted in computing Consolidated Net Income, plus (c) consolidated
interest expense of such Person for such period, whether paid or accrued
(including amortization of original issue discount, non-cash interest payments
and the interest component of any payments associated with Capital Lease
Obligations and net payments (if any) pursuant to Hedging Obligations), to the
extent such expense was deducted in computing Consolidated Net Income, plus (d)
depreciation and amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses
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that were paid in a prior period) of such Person for such period to the extent
such depreciation and amortization were deducted in computing Consolidated Net
Income, in each case, for such period without duplication on a consolidated
basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided,
that (i) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid to the referent Person
or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any Person that is
a Subsidiary (other than a Wholly Owned Subsidiary) shall be included only to
the extent of the amount of dividends or distributions paid to the referent
Person or a Wholly Owned Subsidiary thereof, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded and (iv) the cumulative effect of a
change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the partners or common stockholders
of such Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Interests)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by such Person or a consolidated
Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except,
in each case, Permitted Investments), and (z) all unamortized debt discount and
expense and unamortized deferred charges as of such date, all of the foregoing
determined in accordance with GAAP.
"Credit Facility" means the credit facility under that certain Credit
Agreement, dated as of , 1994, by and among the Partnership and
, providing for up to $170 million of credit borrowings and
letters of credit, including any related notes, instruments and agreements
executed in connection therewith, and in each case as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Interests" means any Capital Interests which, by their terms
(or by the terms of any security into which they are convertible or for which
they are exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the Holder thereof, in whole or in part, on or
prior to .
"Equity Interests" means Capital Interests and all warrants, options or other
rights to acquire Capital Interests (but excluding any debt security that is
convertible into, or exchangeable for Capital Interests).
"Existing Indebtedness" means up to $ million in aggregate principal
amount of Indebtedness of the Partnership and its Subsidiaries (other than
under the Credit Facility) in existence on the date of the Indenture, until
such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
reference Person or any of its Subsidiaries incurs, assumes, guarantees,
redeems or repays
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any Indebtedness (other than revolving credit borrowings) subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date of the event for which the calculation of the
Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, guarantee, redemption or repayment of Indebtedness as
if the same had occurred at the beginning of the applicable reference period.
The foregoing calculation of the Fixed Charge Coverage Ratio shall also give
pro forma effect to acquisitions (including all mergers and consolidations),
dispositions and discontinuance of operations that have been made by the
reference Person or any of its Subsidiaries during the reference period or
subsequent to such reference period and on or prior to the Calculation Date
assuming that all such acquisitions, dispositions and discontinuance of
operations had occurred on the first day of the reference period; provided,
however, that Fixed Charges shall be reduced by amounts attributable to
operations that are so disposed of or discontinued only to the extent that the
obligations giving rise to such Fixed Charges would no longer be obligations
contributing to the Partnership's Fixed Charges subsequent to the Calculation
Date. If the applicable reference period for any calculation of the Fixed
Charge Coverage Ratio with respect to the Partnership shall include a portion
prior to the date of the Indenture, then such Fixed Charge Coverage Ratio shall
be calculated based upon the Consolidated Cash Flow and the Fixed Charges of
the Company for such portion of the reference period prior to the date of the
Indenture and the Consolidated Cash Flow and the Fixed Charges of the
Partnership for the remaining portion of the reference period on and after the
date of the Indenture, giving pro forma effect, as described in the two
foregoing sentences, to all applicable transactions occurring on the date of
the Indenture or otherwise.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (a) consolidated interest expense of such Person for
such period, whether paid or accrued, to the extent such expense was deducted
in computing Consolidated Net Income (including amortization of original issue
discount, non-cash interest payments, the interest component of all payments
associated with Capital Lease Obligations and net payments (if any) pursuant to
Hedging Obligations), (b) commissions, discounts and other fees and charges
incurred with respect to letters of credit and bankers' acceptances financing,
(c) any interest expense on Indebtedness of another Person that is Guaranteed
by such Person or secured by a Lien on assets of such Person and (d) the
product of (i) all cash dividend payments (and non-cash dividend payments in
the case of a Person that is a Subsidiary) on any series of preferred stock of
such Person, times (ii) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect in the United States of America on the date of
the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing Capital Lease
Obligations or the balance deferred and unpaid of the purchase price of any
property or representing any Hedging Obligations, except any such balance that
constitutes an accrued expense or trade payable, if and to the extent
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any of the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all indebtedness of others secured
by a Lien on any asset of such Person (whether or not such indebtedness is
assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person.
"Insurance Company Subsidiary" means Stratton Insurance Company, a Vermont
corporation, a wholly owned subsidiary of the Partnership.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans (including
Guarantees), advances or capital contributions (excluding commission, travel
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of such
Person, determined in accordance with GAAP and before any reduction in respect
of preferred stock dividends, excluding, however, (i) any gain (but not loss),
together with any related provision for taxes on such gain (but not loss),
realized in connection with (a) any asset sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions), or (b) the
disposition of any securities or the extinguishment of any Indebtedness of such
Person or any of its Subsidiaries, and (ii) any extraordinary gain (but not
loss), together with any related provision for taxes on such extraordinary gain
(but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Partnership
or any of its Subsidiaries in respect of any Asset Sale, net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets the
subject of such Asset Sale and any reserve for adjustment in respect of the
sale price of such asset or assets.
"Non-Recourse Subsidiary" means (1) the Insurance Company Subsidiary and (2)
any other Person that would otherwise be a Subsidiary of the Partnership but is
designated as a Non-Recourse Subsidiary in a resolution of the Board of
Directors of the General Partner, so long as (a) no portion of the Indebtedness
or any other obligation (contingent or otherwise) of such Person (i) is
guaranteed by the Partnership or any of its Subsidiaries, (ii) is recourse or
obligates the Partnership or any of its Subsidiaries in any way or (iii)
subjects any property or asset of the Partnership or any of its Subsidiaries,
directly or indirectly, contingently or otherwise, to satisfaction thereof, (b)
neither the Partnership nor any of its Subsidiaries has any contract,
agreement, arrangement or understanding or is subject to an obligation of any
kind, written or oral, with such Person other than on terms no less favorable
to the Partnership and its Subsidiaries than those that might be obtained at
the time from persons who are not Affiliates of the Partnership, (c) neither
the Partnership nor any of its Subsidiaries has any obligation with respect to
such Person (i) to subscribe for
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additional shares of Capital Stock or other Equity Interests therein or (ii)
maintain or preserve such Person's financial condition or to cause such Person
to achieve certain levels of operating or other financial results, and (d) such
Person has no more than $1,000 of assets at the time of such designation.
"Obligations" means any principal, premiums, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (a) any Investments in Cash Equivalents; (b)
any Investments in the Partnership or in a Wholly Owned Subsidiary of the
Partnership that is a Guarantor; (c) Investments by the Partnership or any
Subsidiary of the Partnership in a Person, if as a result of such Investment
(i) such Person becomes a Wholly Owned Subsidiary of the Partnership and a
Guarantor or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Partnership or a Wholly Owned Subsidiary of the
Partnership that is a Guarantor; and (d) other Investments in Non-Recourse
Subsidiaries of the Partnership that do not exceed $30 million at any time
outstanding.
"Permitted Liens" means (a) Liens existing on the date of the Indenture; (b)
Liens in favor of the Issuers or Liens to secure Indebtedness of a Subsidiary
of the Partnership to the Partnership or a Wholly Owned Subsidiary of the
Partnership; (c) Liens on property of a Person existing at the time such Person
is merged into or consolidated with the Partnership or any Subsidiary of the
Partnership; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the
Partnership; (d) Liens on property existing at the time of acquisition thereof
by the Partnership or any Subsidiary of the Partnership; provided that such
Liens were in existence prior to the contemplation of such acquisition; (e)
Liens on any property or asset acquired by the Partnership or any of its
Subsidiaries in favor of the seller of such property or asset and construction
mortgages on property, in each case, created within six months after the date
of acquisition, construction or improvement of such property or asset by the
Partnership or such Subsidiary to secure the purchase price or other obligation
of the Partnership or such Subsidiary to the seller of such property or asset
or the construction or improvement cost of such property in an amount up to 80%
of the total cost of the acquisition, construction or improvement of such
property or asset; provided that in each case, such Lien does not extend to any
other property or asset of the Partnership and its Subsidiaries; (f) Liens
incurred or pledges and deposits made in connection with worker's compensation,
unemployment insurance and other social security benefits and Liens to secure
the performance of statutory obligations, surety or appeal bonds, performance
bonds or other obligations of a like nature, in each case, incurred in the
ordinary course of business; (g) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded; provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; (h) Liens
imposed by law, such as mechanics', carriers', warehousemen's, materialmen's,
and vendors' Liens, incurred in good faith in the ordinary course of business;
(i) zoning restrictions, easements, licenses, covenants, reservations,
restrictions on the use of real property or minor irregularities of title
incident thereto that do not, in the aggregate, materially detract from the
value of the property or the assets of the Partnership or any of its
Subsidiaries or impair the use of such property in the operation of the
business of the Partnership or any of its Subsidiaries; (j) Liens of landlords
or mortgagees of landlords, arising solely by operation of law, on fixtures and
movable property located on premises leased by the Partnership or any of its
Subsidiaries in the ordinary course of business; (k) financing statements
granted with respect to personal property leased by the Partnership and its
Subsidiaries in the ordinary course of business to the owners of such personal
property, provided that such financing statements are granted solely in
connection with such leases and not the borrowing of money or the obtaining of
advances or credit; (l) judgment Liens to the extent that such judgments do not
cause or constitute a Default or an Event of Default; (m) Liens incurred in the
ordinary course of business of the Partnership or any Subsidiary of the
Partnership with respect to obligations that do not exceed $5 million in the
aggregate at any one time outstanding and that (i) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
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(other than trade credit in the ordinary course of business) and (ii) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Partnership or such
Subsidiary; (n) Liens securing Indebtedness incurred to refinance Indebtedness
that has been secured by a Lien permitted under the Indenture, provided that
(i) any such Lien shall not extend to or cover any assets or property not
securing the Indebtedness so refinanced and (ii) the refinancing Indebtedness
secured by such Lien shall have been permitted to be incurred under the
"Incurrence of Indebtedness and Issuance of Preferred Stock" covenant and shall
not have a principal amount in excess of the Indebtedness so refinanced; and
(o) any extension or renewal, or successive extensions or renewals, in whole or
in part, of Liens permitted pursuant to the foregoing clauses (a) through (m);
provided that no such extension or renewal Lien shall (i) secure more than the
amount of Indebtedness or other obligations secured by the Lien being so
extended or renewed or (ii) extend to any property or assets not subject to the
Lien being so extended or renewed.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Partnership or any Subsidiary of the Partnership issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Partnership or any of its Subsidiaries (other
than Indebtedness under the Credit Facility) or the Indebtedness represented by
the then outstanding existing Subordinated Debentures of the Company; provided
that (a) the principal amount of such Indebtedness does not exceed the
principal amount of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (b) such Indebtedness has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (c) such Indebtedness is subordinated in right of payment to the
Senior Notes on terms at least as favorable to the Holders of Senior Notes as
those, if any, contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (d) such
Indebtedness is incurred by the Partnership or the Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Permitted Senior Debt" means, with respect to any Person, (i) any Acquired
Debt of such Person, (ii) any Indebtedness incurred by such Person, the
proceeds of which are applied solely to finance capital expenditures made to
improve or enhance the existing capital assets of such Person or to acquire or
construct new capital assets (but excluding capital expenditures necessary to
maintain the existing capital assets of such Person) and (iii) any Indebtedness
incurred by such Person, the proceeds of which are used solely for working
capital purposes.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Senior Debt" means, without duplication, (i) the Senior Notes, (ii) all
other Indebtedness of the Partnership or Finance Corp., unless the instrument
under which such Indebtedness is incurred expressly provides that it is
subordinated in right of payment to the Notes and (iii) all Indebtedness of
Subsidiaries of the Partnership, other than Finance Corp.
"Significant Subsidiary" means any Subsidiary of the Partnership that would
be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Act, as such Regulation is in effect on the
date hereof.
"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the total voting power of
shares of Capital Interests entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of such Person or a combination thereof.
Notwithstanding the foregoing, any Subsidiary of the Partnership that is
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designated a Non-Recourse Subsidiary pursuant to the definition thereof shall
not thereafter be deemed a Subsidiary of the Partnership.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all
of the outstanding Capital Interests or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the principal federal income tax consequences
of ownership and disposition of the Senior Notes to Holders who are initial
holders and who purchase the Senior Notes at the "issue price" (as defined
below) and certain federal income tax issues affecting the Partnership. This
summary is based on the Internal Revenue Code of 1986, as amended to the date
hereof (the "Code"), administrative pronouncements, judicial decisions and
existing and proposed Treasury Regulations, changes to any of which subsequent
to the date of this Prospectus may affect the tax consequences described
herein. This summary discusses only Senior Notes that are held as capital
assets within the meaning of Section 1221 of the Code. It does not discuss all
of the tax consequences that may be relevant to a Holder in light of its
particular circumstances or to Holders subject to special rules, such as
certain financial institutions, insurance companies, dealers in securities and
foreign persons. This summary also does not discuss any aspects of state, local
or foreign tax laws.
PERSONS CONSIDERING THE PURCHASE OF SENIOR NOTES SHOULD CONSULT THEIR TAX
ADVISORS WITH REGARD TO THE APPLICATION OF THE FEDERAL INCOME TAX LAWS TO THEIR
PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF
ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.
CLASSIFICATION OF PARTNERSHIP
Concurrently with the closing of this Offering, the Partnership will receive
an opinion of counsel that, based on certain representations by the General
Partner, under current law the Partnership will be classified as a partnership
for federal income tax purposes. No ruling has been requested from the Internal
Revenue Service ("IRS") with respect to the classification of the Partnership
as a partnership for federal income tax purposes and there can be no assurance
that the IRS will not challenge this position or that a court would not sustain
such a challenge. In addition, the continued applicability of counsel's opinion
is conditioned upon continued compliance by the Partnership with certain
representations by the General Partner. If the Partnership were treated as an
association or otherwise taxable as a corporation in any taxable year, its
items of income, gain, loss, deduction and credit would be reflected only on
its tax return rather than being passed through to the Unitholders, and the
Partnership would be taxable on its net income at corporate rates.
PAYMENTS OF INTEREST
Interest paid on a Senior Note will generally be taxable to a Holder as
ordinary interest income at the time it accrues or is received in accordance
with the Holder's method of accounting for federal income tax purposes.
AMORTIZABLE BOND PREMIUM
If a Holder purchases a Senior Note for an amount that is greater than its
principal amount, such Holder will be considered to have purchased such Senior
Note with "amortizable bond premium" equal in amount to such excess, and may
elect (in accordance with applicable Code provisions) to amortize such premium,
using a constant-yield method, over the term of the Senior Note. Because the
Senior Notes are redeemable prior to maturity, the amount of amortizable bond
premium will be determined with reference to the amount payable on the earlier
redemption date if such determination results in a smaller premium attributable
to the period ending on the earlier redemption date. A Holder who elects to
amortize bond premium must reduce its tax basis in the Senior Note by the
amount of the premium amortizable in any year. Amortizable bond premium is
treated as an offset to interest received on the obligation rather than as an
interest deduction, except as provided in the Treasury Regulations. An election
to amortize bond premium applies to all taxable debt obligations then owned and
thereafter acquired by the taxpayer and may be revoked only with the consent of
the IRS.
68
<PAGE>
SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION OF THE SENIOR NOTES
Upon the sale, retirement or other taxable disposition of a Senior Note, a
Holder will recognize taxable gain or loss equal to the difference between (a)
the amount of cash and the fair market value of property received (not
including any amount attributable to accrued interest not previously included
in income) in exchange therefor and (b) such Holder's adjusted tax basis in the
Senior Note. A Holder's adjusted tax basis in a Senior Note will equal the cost
of the Senior Note to such Holder reduced by any amortized premium and any
principal payments previously received by the Holder.
Any gain or loss recognized on the sale, retirement or other taxable
disposition of a Senior Note will be capital gain or loss and will be long-term
capital gain or loss if at the time of such sale, retirement or other taxable
disposition the Senior Note has been held for more than one year.
SUBSEQUENT PURCHASERS
The foregoing does not discuss special rules which may affect the treatment
of purchasers that acquire Senior Notes other than at the time of original
issuance at the issue price, including those provisions of the Code relating to
the treatment of "market discount," "acquisition premium" and "amortizable bond
premium." For example, the market discount provisions of the Code may require a
subsequent purchaser of a Senior Note at a market discount to treat all or a
portion of any gain recognized upon sale or other disposition of the Senior
Note as ordinary income and to defer a portion of any interest expense that
would otherwise be deductible on any indebtedness incurred or maintained to
purchase or carry such Senior Note until the holder disposes of the Senior Note
in a taxable transaction.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain noncorporate Holders may be subject to backup withholding at a rate
of 31% on payments of principal, premium and interest on, and the proceeds of
disposition of, a Senior Note. Backup withholding will apply only if the Holder
(i) fails to furnish its Taxpayer Identification Number ("TIN") which, for an
individual, would be his Social Security number, (ii) furnishes an incorrect
TIN, (iii) is notified by the IRS that such Holder has failed to properly
report payments of interest and dividends or (iv) under certain circumstances,
fails to certify, under penalty of perjury, that it has furnished a correct TIN
and has not been notified by the IRS that such Holder is subject to backup
withholding for failure to report interest and dividend payments. Holders
should consult their tax advisers regarding their qualification for exemption
from backup withholding and the procedure for obtaining such an exemption if
applicable.
The amount of any backup withholding from a payment to a Holder will be
allowed as a credit against such Holder's federal income tax liability and may
entitle such Holder to a refund, provided that the required information is
furnished to the IRS.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE SENIOR NOTES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
69
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") between the Issuers, and Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") and Goldman, Sachs & Co. as
underwriters (collectively, the "Underwriters"), the Issuers have agreed to
issue and sell to the Underwriters, and each Underwriter has severally agreed
to purchase from the Issuers, the respective principal amounts of Senior Notes
set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITERS AMOUNT
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation......... $
Goldman, Sachs & Co.........................................
------------
Total..................................................... $250,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to the approval of certain legal matters by counsel
and to certain other conditions. If any of the Senior Notes are purchased by
the Underwriters pursuant to the Underwriting Agreement, all such Senior Notes
must be so purchased.
The Underwriters have advised the Issuers that the Underwriters propose to
offer the Senior Notes to the public initially at the price set forth on the
cover page of this Prospectus and to certain dealers (who may include the
Underwriters) at such offering price less a concession not to exceed % of
the principal amount of the Senior Notes. The Underwriters may allow and such
dealers may reallow discounts not in excess of % of such principal amount to
any other Underwriter and certain other dealers. After the initial public
offering, the public offering price and such concessions may be changed at any
time without notice. The Underwriters do not intend to confirm sales of Senior
Notes offered hereby to any account over which they exercise discretionary
authority.
The Senior Notes will constitute a new class of securities with no
established trading market. The Issuers do not intend to list the Senior Notes
on any national securities exchange or to seek the admission of the Senior
Notes for quotation and trading in the Nasdaq National Market. The Issuers have
been advised by the Underwriters that following the completion of the Offering,
the Underwriters currently intend to make a market in the Senior Notes.
However, the Underwriters are not obligated to do so and any market-making
activities with respect to the Senior Notes may be discontinued at any time
without notice at the Underwriters' sole discretion. In addition, such market
making activity will be subject to the limits imposed by the Securities Act and
the Exchange Act. Accordingly, no assurance can be given as to the liquidity of
or the trading market for the Senior Notes.
The Issuers have agreed to indemnify the Underwriters against certain
liabilities in connection with the offer and sale of the Senior Notes,
including liabilities under the Securities Act, and to contribute to payments
that the Underwriters may be required to make in respect thereof.
Each of the Underwriters is acting as an underwriter in connection with the
concurrent offering of Common Units by the Master Partnership and will receive
underwriting discounts and commissions in connection therewith. See "The
Transactions." In addition, the Company has retained DLJ as Dealer/Manager for
the Tender Offer.
LEGAL MATTERS
Certain legal matters relating to the Senior Notes being offered hereby are
being passed upon for the Issuers by Smith, Gill, Fisher & Butts, P.C., Kansas
City, Missouri. The validity of the Senior Notes is being passed upon for the
Underwriters by Latham & Watkins, New York, New York.
70
<PAGE>
EXPERTS
The consolidated financial statements of Ferrellgas, Inc. as of July 31, 1992
and 1993 and for each of the three years in the period ended July 31, 1993
included in this Prospectus and the related financial statement schedules
included elsewhere in the Registration Statement (which reports expressed an
unqualified opinion and included explanatory paragraphs concerning an
uncertainty involving an income tax matter and the change in the Company's
method of accounting for income taxes) have been audited by Deloitte & Touche,
independent auditors, as stated in their reports appearing herein and elsewhere
in the Registration Statement, and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
71
<PAGE>
FERRELLGAS L.P.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Ferrellgas L.P. Pro Forma Financial Statements (Unaudited):
Pro Forma Balance Sheet--January 31, 1994............................... F-2
Pro Forma Statements of Earnings--Six Months Ended January 31, 1994 and
Year Ended July 31, 1993............................................... F-3
Notes to Pro Forma Financial Statements................................. F-4
Ferrellgas, Inc. Historical Consolidated Financial Statements:
Independent Auditors' Report............................................ F-6
Consolidated Balance Sheet--July 31, 1993 and 1992...................... F-7
Consolidated Statement of Operations.................................... F-8
Consolidated Statements of Cash Flows--Years Ended July 31, 1993, 1992
and 1991............................................................... F-9
Consolidated Statement of Stockholder's Equity--Years Ended July 31,
1993, 1992 and 1991.................................................... F-10
Notes to Consolidated Financial Statements.............................. F-11
Ferrellgas, Inc.--Historical Consolidated Interim Financial Statements
(Unaudited):
Consolidated Balance Sheet--January 31,1994 and July 31, 1993........... F-20
Consolidated Statement of Earnings--Six Months Ended January 31, 1994
and 1993............................................................... F-21
Consolidated Statement of Cash Flows--Six Months Ended January 31, 1994
and 1993............................................................... F-22
Notes to Consolidated Financial Statements.............................. F-23
</TABLE>
Ferrellgas, L.P. was legally formed on April 22, 1994, however it has been
inactive to date and has no assets, liabilities, capital, revenues, expenses or
contingent liabilities. Therefore separate financial statements of Ferrellgas,
L.P. have not been included in this registration statement.
Ferrellgas Finance Corp. was legally formed on April 28, 1994, however it has
been inactive to date and has no assets, liabilities, capital, revenues,
expenses or contingent liabilities. Therefore separate financial statements of
Ferrellgas Finance Corp. have not been included in this registration statement.
F-1
<PAGE>
FERRELLGAS, L.P.
PRO FORMA BALANCE SHEET
AS OF JANUARY 31, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMPANY PARTNERSHIP
HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and short-term invest-
ments......................... $ 57,639 $ 260,314 (A) $ --
(260,345)(B)
(2,721)(C)
(54,887)(D)
Accounts and notes receivable.. 102,471 (500)(D) 101,971
Inventories.................... 40,627 -- 40,627
Prepaid expenses and other cur-
rent assets................... 2,835 -- 2,835
-------- --------- --------
TOTAL CURRENT ASSETS......... 203,572 (58,139) 145,433
Property, plant and equipment.. 297,711 -- 297,711
Intangible assets.............. 67,816 -- 67,816
Investment in Class B redeem-
able common stock of parent... 36,031 (36,031)(D) --
Other assets................... 21,866 (15,272)(B),(C),(D) 6,594
Note receivable from parent.... 4,000 (4,000)(D) --
-------- --------- --------
TOTAL ASSETS................. $630,996 $(113,442) $517,554
======== ========= ========
LIABILITIES AND SPONSOR
EQUITY/PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable............... $ 69,571 $ -- $ 69,571
Short-term debt................ -- 46,045 (C) 46,045
Current portion of long-term
debt.......................... 1,604 -- 1,604
Accrued interest expense....... 10,397 (10,266)(B),(C) 131
Other current liabilities...... 18,015 -- 18,015
Payable to parent.............. 967 -- 967
-------- --------- --------
TOTAL CURRENT LIABILITIES.... 100,554 35,779 136,333
Long-term debt................. 488,841 (235,883)(B),(C) 252,958
Other liabilities.............. 10,154 -- 10,154
Deferred income taxes.......... 6,045 (6,045)(D) --
SPONSOR EQUITY/PARTNERS' CAPITAL:
Equity of sponsor.............. 25,402 260,314 (A) --
(25,914)(B)
(39,944)(C)
(101,749)(D)
(118,109)(E)
PARTNERS' CAPITAL:
Limited partner................ -- 116,916 (E) 116,916
General partner................ -- 1,193 (E) 1,193
-------- --------- --------
TOTAL SPONSOR
EQUITY/PARTNERS' CAPITAL.... 25,402 92,707 118,109
-------- --------- --------
TOTAL LIABILITIES AND SPONSOR
EQUITY/PARTNERS' CAPITAL.... $630,996 $(113,442) $517,554
======== ========= ========
</TABLE>
See accompanying notes to pro forma financial statements.
F-2
<PAGE>
FERRELLGAS, L.P.
PRO FORMA STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT RATIO)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31, 1993 SIX MONTHS ENDED JANUARY 31, 1994
------------------------------------ ------------------------------------
COMPANY PARTNERSHIP COMPANY PARTNERSHIP
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Gas liquids and
related product
sales................ $516,891 $ -- $516,891 $289,795 $ -- $289,795
Other................. 25,054 -- 25,054 14,341 -- 14,341
-------- ------- -------- -------- ------- --------
Total revenues...... 541,945 -- 541,945 304,136 -- 304,136
COSTS AND EXPENSES:
Cost of product sold.. 298,033 -- 298,033 155,979 -- 155,979
Operating............. 139,617 -- 139,617 73,926 -- 73,926
Depreciation and
amortization......... 30,840 -- 30,840 14,778 -- 14,778
General and
administrative....... 10,079 500 (F) 10,579 5,872 250 (F) 6,122
Vehicle leases........ 4,823 -- 4,823 2,144 -- 2,144
-------- ------- -------- -------- ------- --------
Total costs and
expenses........... 483,392 500 483,892 252,699 250 252,949
-------- ------- -------- -------- ------- --------
OPERATING INCOME........ 58,553 (500) 58,053 51,437 (250) 51,187
Loss on disposal of
assets............... (1,153) -- (1,153) (410) -- (410)
Interest income....... 3,266 (2,461)(G) 805 1,693 (1,343)(G) 350
Interest expense...... (60,071) 31,174 (H) (28,897) (29,824) 15,255 (H) (14,569)
-------- ------- -------- -------- ------- --------
EARNINGS BEFORE INCOME
TAXES AND EXTRAORDINARY
ITEM................... 595 28,213 28,808 22,896 13,662 36,558
Income tax expense...... 486 (486)(I) -- 8,853 (8,853)(I) --
-------- ------- -------- -------- ------- --------
EARNINGS FROM CONTINUING
OPERATIONS (BEFORE
EXTRAORDINARY ITEM).... $ 109 $28,699 28,808 $ 14,043 $22,515 36,558
======== ======= ======== =======
GENERAL PARTNER'S
INTEREST IN EARNINGS
FROM CONTINUING
OPERATIONS............. 291 369
-------- --------
LIMITED PARTNERS'
INTEREST IN NET
EARNINGS FROM
CONTINUING OPERATIONS.. $ 28,517 $ 36,189
======== ========
RATIO OF EARNINGS TO
FIXED CHARGES.......... 1.9x 3.2x
======== ========
</TABLE>
See accompanying notes to pro forma financial statements.
F-3
<PAGE>
FERRELLGAS, L.P. NOTES TO PRO FORMA FINANCIAL STATEMENTS JULY 31, 1993 AND
JANUARY 31, 1994
(DOLLARS IN THOUSANDS EXCEPT UNIT DATA)
(UNAUDITED)
The pro forma financial statements are based upon the historical financial
position and results of operations of Ferrellgas, Inc. and its subsidiaries
("Ferrellgas"). The propane business of Ferrellgas will be owned and operated
by a newly formed limited partnership (the "Partnership").
Ferrellgas will convey substantially all of its assets to the Partnership
(excluding cash, receivables from parent and affiliates and an investment in
the Class B Stock of parent) and the Partnership will assume all of the
liabilities associated with the business that are reflected or should be
reflected on the balance sheet of the Company prepared in accordance with
generally accepted accounting principles (excluding income tax liabilities). In
connection with the acquisition of the propane business, the Master Partnership
will issue Common Units, Subordinated Units and Incentive Distribution Rights
to Ferrellgas, as well as general partner interests in the Partnership and the
Operating Partnership. Ferrellgas will make a dividend of the Common Units,
Subordinated Units and Incentive Distribution Rights to its parent, Ferrell
Companies, Inc.
The Partnership has also agreed with Ferrellgas to be primarily responsible
for all obligations of Ferrellgas under the approximately $490,445 of
Ferrellgas long-term debt outstanding as of January 31, 1994. Substantially all
of this long-term debt will be retired with the net proceeds from the sale by
the Master Partnership of the Common Units (estimated to be approximately
$260,314), and the net proceeds from the issuance of an aggregate principal
amount of % Senior Notes due 2001 (the "Senior Notes") (estimated to be
approximately $244,500 and assuming an interest rate of 9.75%) to be issued by
the Operating Partnership concurrent with the closing of this offering.
The following pro forma adjustments have been prepared as if the transactions
to be effected at the closing of this offering and the offering of Common Units
by the Master Partnership (assuming that the Underwriters' overallotment option
is not exercised) had taken place on January 31, 1994, in the case of the pro
forma consolidated balance sheet, or as of August 1, 1992, in the case of the
pro forma consolidated statement of income for the year ended July 31, 1993, or
as of August 1, 1993 in the case of the pro forma consolidated statement of
income for the six months ended January 31, 1994. The adjustments are based
upon currently available information and certain estimates and assumptions, and
therefore the actual adjustments may differ from the pro forma adjustments.
However, management believes that the assumptions provide a reasonable basis
for presenting the significant effects of the transactions as contemplated and
that the pro forma adjustments give appropriate effect to those assumptions and
are properly applied in the pro forma financial information.
(A) Reflects the net proceeds to the Master Partnership of approximately
$260,314 from the issuance and sale of 13,100,000 Common Units at an assumed
offering price of $21.375 per Common Unit, net of the Underwriters' discount
(estimated to be $18,200) and offering expenses (estimated to be $1,500), and a
concurrent transfer of such net proceeds to the Partnership in return for an
additional limited partnership interest in the Operating Partnership to the
Master Partnership.
(B) Reflects the retirement of $239,500 in aggregate principal amount of
Existing Senior Notes and the payment of related accrued interest of $6,472,
from the net proceeds from the sale by the Partnership of the Common Units and
from borrowings on the Partnership Credit Facility of approximately $46,045.
The early extinguishment of the Existing Senior Notes results in an
extraordinary loss of approximately $25,914, resulting from prepayment premiums
of $20,845 and the write-off of unamortized financing costs of $5,069.
(C) Reflects the net proceeds to the Partnership of approximately $244,500
from the issuance of $250,000 of Senior Notes by the Partnership offered
hereby, and proceeds from borrowings on the Partnership's Credit Facility
borrowings of approximately of $46,045. The net proceeds from the issuance of
the Senior Notes and Credit Facility borrowings are used to retire the $250,000
face amount (carrying amount of $246,383
F-4
<PAGE>
million) Existing Subordinated Debentures, related consent solicitation and
tender and consent fees and prepayment premiums on the Existing Subordinated
Debentures and the payment of related accrued interest of $3,794. The early
extinguishment of the Existing Subordinated Debentures results in an
extraordinary loss of approximately $39,944, resulting from subordinated
bondholder tender and consent fees of $32,500, prepayment premiums of $3,617,
and write-off of unamortized financing costs of $3,827. The Operating
Partnership will incur estimated additional financing costs of approximately
$6,000 in connection with the issuance of the Senior Notes which will be
deferred and amortized over the term of the indebtedness.
(D) Reflects elimination of the assets, liabilities and equity of the Company
that will not be conveyed to the Partnership, including approximately $54,887
of cash, receivables from parent and affiliates of $16,876, investment in Class
B stock of Ferrell of $36,031, income tax liabilities of $6,045 and equity of
the Company of $101,749.
(E) Reflects the allocation of Partnership equity resulting from the
completion of the transactions associated with the closing of this offering,
using the following relative partnership interests: (1) general partner
interest in the Partnership equal to 1.0101% of total partners' capital; and
(2) limited partner interest in the Partnership equal to 98.9899%.
(F) Reflects estimated incremental general and administrative costs (e.g.
costs of tax return preparation and annual and quarterly reports to
Unitholders, investor relations and registrar and transfer agent fees)
associated with the Partnership at an annual rate of $500.
(G) Reflects the reduction of interest income to the Partnership as a result
of the reduction in cash balances available for short-term investment
opportunity.
(H) Reflects the adjustment to interest expense resulting from the
transactions described in (B) and (C) above, reconciled as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR
ENDED SIX MONTHS
JULY ENDED
31, JANUARY 31,
1993 1994
<S> <C> <C>
Historical interest expense attributable to retired debt:
Interest expense on senior notes........................ $26,741 $12,796
Interest expense on subordinated debentures............. 29,063 14,531
Amortization of note discount and financing costs....... 2,577 1,473
------- -------
58,381 28,800
------- -------
Pro forma interest expense applicable to the Partnership:
Interest expense at 9.75% per annum on the Senior Notes. (24,372) (12,186)
Amortization of note discount and financing costs on all
indebtedness........................................... (600) (300)
Interest attributable to Credit Facility................ (2,235) (1,059)
------- -------
(27,207) (13,545)
------- -------
Pro forma interest expense reductions................... $31,174 $15,255
======= =======
</TABLE>
(I) Reflects the elimination of the provision for current and deferred income
taxes as income taxes will be borne by the partners and not the Partnership.
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ferrellgas, Inc.
Liberty, Missouri
We have audited the accompanying consolidated balance sheet of Ferrellgas,
Inc. (a wholly owned subsidiary of Ferrell Companies, Inc.) and subsidiaries as
of July 31, 1993 and 1992, and the related consolidated statements of
operations, stockholder's equity and cash flows for each of the three years in
the period ended July 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Ferrellgas, Inc. and subsidiaries
as of July 31, 1993 and 1992, and the results of their operations and their
cash flows for each of the three years in the period ended July 31, 1993, in
conformity with generally accepted accounting principles.
As discussed in Note H to the consolidated financial statements, the Internal
Revenue Service has proposed certain adjustments to the Company's consolidated
income tax returns for the years ended July 31, 1987 and 1986. The ultimate
outcome of this matter cannot presently be determined. Accordingly, no
provision for any loss that may result upon resolution of this matter has been
made in the accompanying consolidated financial statements.
As discussed in Note A(6) to the consolidated financial statements,
Ferrellgas, Inc. and subsidiaries changed its method of accounting for income
taxes, effective August 1, 1992, to conform with Statement of Financial
Accounting Standards No. 109.
DELOITTE & TOUCHE
Kansas City, Missouri
November 5, 1993
F-6
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AS OF JULY 31
------------------
ASSETS 1993 1992
------ -------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................ $ 32,706 $ 27,959
Short-term investments................................... 25,040 23,165
Accounts and notes receivable including related party
(1993--$500;
1992--$1,000), less allowance for doubtful accounts
(1993--$607;
1992--$837)............................................. 52,190 53,802
Inventories.............................................. 23,652 33,881
Prepaid expenses and other current assets................ 1,898 3,020
Receivable from parent and affiliate (eliminated in con-
solidation)............................................. 916 26
-------- --------
TOTAL CURRENT ASSETS................................... 136,402 141,853
Property, plant and equipment.............................. 303,816 313,126
Intangible assets.......................................... 72,537 82,448
Other assets, including notes receivable from related
parties (1993--$10,909;
1992--$10,088)............................................ 21,833 23,137
Investment in Class B redeemable common stock of parent
(eliminated
in consolidation)......................................... 36,031 32,813
Deferred income taxes...................................... 2,757 2,094
Note receivable from parent (eliminated in consolidation).. -- 3,142
-------- --------
TOTAL ASSETS........................................... $573,376 $598,613
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable......................................... $ 32,946 $ 44,864
Other current liabilities................................ 29,048 29,016
-------- --------
TOTAL CURRENT LIABILITIES.............................. 61,994 73,880
Long-term debt............................................. 489,589 501,614
Other liabilities.......................................... 10,434 8,907
Payable to parent (eliminated in consolidation)............ -- 2,542
Note and accrued interest payable to parent and affiliate
(eliminated
in consolidation)......................................... -- 2,862
STOCKHOLDER'S EQUITY:
Common stock, one dollar par value; 10,000 shares autho-
rized;
990 shares issued....................................... 1 1
Additional paid-in capital............................... 32,863 29,535
Accumulated deficit...................................... (21,505) (20,728)
-------- --------
TOTAL STOCKHOLDER'S EQUITY............................. 11,359 8,808
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY............. $573,376 $598,613
======== ========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31
----------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Gas liquids and related products............... $516,891 $480,088 $515,507
Other.......................................... 25,054 21,041 28,426
-------- -------- --------
Total revenues............................... 541,945 501,129 543,933
-------- -------- --------
COSTS AND EXPENSES:
Cost of products sold.......................... 298,033 267,279 297,968
Operating...................................... 139,617 134,165 129,684
Depreciation and amortization.................. 30,840 31,196 36,151
General and administrative..................... 10,079 7,561 12,953
Vehicle leases................................. 4,823 4,520 4,132
-------- -------- --------
Total costs and expenses..................... 483,392 444,721 480,888
-------- -------- --------
OPERATING INCOME................................. 58,553 56,408 63,045
Loss on disposal of assets....................... (1,153) (1,959) (2,842)
Interest income, including related parties
(1993--$725; 1992--
$890; 1991--$696), $208 and $70 eliminated in
consolidation in
1992 and 1991, respectively..................... 3,266 4,401 3,841
Interest expense, including parent and affiliate
(1993--$153;
1992--$180; 1991--$238) eliminated in consolida-
tion............................................ (60,071) (61,219) (60,507)
-------- -------- --------
Earnings (loss) before income taxes and extraor-
dinary loss..................................... 595 (2,369) 3,537
Income tax expense (benefit)..................... 486 (669) 1,558
-------- -------- --------
Earnings (loss) before extraordinary loss........ 109 (1,700) 1,979
Extraordinary loss on early extinguishment of
debt, net of income
taxes (1993--$543; 1992--$6,116)................ 886 9,979 --
-------- -------- --------
NET EARNINGS (LOSS).............................. $ (777) $(11,679) $ 1,979
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31
-----------------------------
1993 1992 1991
-------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings (loss) before extraordinary loss..... $ 109 $ (1,700) $ 1,979
Reconciliation of earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization............... 30,840 31,196 36,151
Amortization of capitalized financing costs. 2,196 2,350 2,305
Amortization of note discount............... 544 627 571
Provision for losses on accounts receivable. 1,343 2,071 2,423
Loss on disposal of assets.................. 1,153 1,959 2,842
Decrease (increase) in assets:
Accounts and notes receivable............. (252) (1,475) (10,001)
Inventories............................... 10,229 (12,447) (4,620)
Prepaid expenses and other current assets. 977 (801) (218)
Increase (decrease) in liabilities:
Accounts payable.......................... (11,918) 3,742 7,851
Other current liabilities................. 1,729 (1,912) 9,780
Other liabilities......................... 131 325 871
Deferred income taxes..................... (120) (970) 1,006
-------- --------- --------
Net cash provided by operating activities....... 36,961 22,965 50,940
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................... (14,188) (20,392) (25,942)
Net short-term investment activity............ (1,875) (23,165) --
Proceeds from asset sales..................... 1,983 3,040 1,315
Net additions to intangible assets............ (82) (3,175) (9,619)
Net reductions (additions) to other assets.... 1 (520) (14)
-------- --------- --------
Net cash used in investing activities........... (14,161) (44,212) (34,260)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt................... 81 246,804 3,202
Reductions of long-term debt.................. (12,796) (212,637) (2,964)
Additional payments to retire debt............ (1,195) (11,983) --
Additions to financing costs.................. (627) (4,918) (644)
Investment in Class B redeemable common stock
of parent.................................... (3,218) (9,092) (7,249)
Advances to related party..................... (59) (3,832) (2,756)
Advances from (to) parent and affiliates...... (239) (2,907) 718
-------- --------- --------
Net cash provided by (used in) financing
activities..................................... (18,053) 1,435 (9,693)
-------- --------- --------
Increase (decrease) in cash and cash
equivalents.................................... 4,747 (19,812) 6,987
Cash and cash equivalents--beginning of year.... 27,959 47,771 40,784
-------- --------- --------
CASH AND CASH EQUIVALENTS--END OF YEAR.......... $ 32,706 $ 27,959 $ 47,771
======== ========= ========
</TABLE>
See notes to consolidated financial statements.
F-9
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NUMBER OF ADDITIONAL TOTAL
COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDER'S
SHARES STOCK CAPITAL DEFICIT EQUITY
--------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AUGUST 1, 1990... 990 $ 1 $22,490 $(11,028) $ 11,463
Capital contribution from
parent................... -- -- 6,687 -- 6,687
Capital transaction--
Ferrell Companies, Inc.
Long-Term Incentive
Plan.................... -- -- 1,558 -- 1,558
Net earnings............. -- -- -- 1,979 1,979
--- ------ ------- -------- --------
BALANCE JULY 31, 1991.... 990 1 30,735 (9,049) 21,687
Capital transaction--
Ferrell Companies, Inc.
Long-Term Incentive
Plan.................... -- -- (1,200) -- (1,200)
Net loss................. -- -- -- (11,679) (11,679)
--- ------ ------- -------- --------
BALANCE JULY 31, 1992.... 990 1 29,535 (20,728) 8,808
Capital contribution from
parent.................. -- -- 3,277 -- 3,277
Capital transaction --
Ferrell Companies, Inc.
Long-Term Incentive
Plan.................... -- -- 51 -- 51
Net loss................. -- -- -- (777) (777)
--- ------ ------- -------- --------
BALANCE JULY 31, 1993.... 990 $ 1 $32,863 $(21,505) $ 11,359
=== ====== ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-10
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(1) PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Ferrellgas,
Inc. and its subsidiaries (the "Company"). All material intercompany profits,
transactions and balances have been eliminated.
(2) RECLASSIFICATIONS:
Certain reclassifications have been made to the 1992 consolidated balance
sheet and the 1992 and 1991 consolidated statement of cash flows in order to
conform with the 1993 presentation.
(3) SHORT-TERM INVESTMENTS:
Short-term investments consist of U.S. Treasury Bills and corporate
commercial paper with remaining maturities as of July 31, 1993, ranging from
approximately three to eight months. Short-term investments are carried at cost
which approximates market value.
(4) INVENTORIES:
Inventories are stated at the lower of cost or market using average cost and
actual cost methods.
(5) PROPERTY, PLANT AND EQUIPMENT AND OTHER NONCURRENT ASSETS:
Property, plant and equipment is stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed by the straight-
line method over the estimated useful lives of the assets ranging from two to
thirty years. Expenditures for maintenance and routine repairs are expensed as
incurred.
On August 1, 1991, the Company revised the estimated useful lives of storage
tanks from twenty to thirty years in order to more closely reflect expected
useful lives of the assets. The effect of this change in accounting estimate
resulted in a favorable impact on loss before extraordinary loss of $3,763,000
for the year ended July 31, 1992.
Intangible assets, consisting primarily of customer location values and
goodwill, are stated at cost, net of amortization computed on the straight-line
method over fifteen years for customer location values and forty years for
goodwill. Accumulated amortization of intangible assets totaled $59,181,000 in
1993 and $49,188,000 in 1992.
Other assets consist primarily of non-current notes receivable and deferred
financing costs. The deferred financing costs are amortized using the effective
interest method over the terms of the respective debt agreements. Accumulated
amortization of other assets totaled $7,592,000 in 1993 and $5,286,000 in 1992.
(6) INCOME TAXES:
The Company files a consolidated Federal income tax return with its parent
and affiliates. Income taxes are computed as though each company filed its own
income tax return.
F-11
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
Deferred income taxes are provided as a result of temporary differences
between financial and tax reporting as described in NOTE G.
Effective August 1, 1992, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109--Accounting for Income Taxes. The adoption
of this statement changed the Company's method of accounting for income taxes
from the deferred method, under APB 11, to the asset/liability method. Under
SFAS No. 109, deferred income taxes are recognized for the tax consequences of
temporary differences between the financial statement carrying amounts and the
tax basis of existing assets and liabilities. The statement is adopted on a
prospective basis and prior year amounts are not restated. The current year and
cumulative effect of adopting the statement as of August 1, 1992, did not have
a material impact on earnings or cash flow and is therefore not disclosed
separately.
(7) CONSOLIDATED STATEMENT OF CASH FLOWS:
For purposes of the consolidated statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Interest paid during 1993, 1992 and 1991 totaled $57,563,000, $59,054,000,
and $51,518,000, respectively.
In 1993 and 1991, the Company received capital contributions, as described in
NOTE K, from its parent.
In connection with the early extinguishment of certain senior notes in 1993
and the refinancing of subordinated debentures in 1992, as described in NOTE F,
the Company recorded noncash extraordinary losses from the write-off of
financing costs, net of income tax benefits of $145,000 and $2,550,000,
respectively.
B. INVENTORIES:
<TABLE>
<CAPTION>
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Liquified propane gas and related products..................... $19,378 $29,658
Appliances, parts and supplies................................. 4,274 4,223
------- -------
$23,652 $33,881
======= =======
</TABLE>
C. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements........................................ $ 18,459 $ 17,150
Buildings and improvements................................... 23,001 20,339
Vehicles..................................................... 37,564 39,205
Furniture and fixtures....................................... 16,402 14,194
Bulk equipment and market facilities......................... 33,612 32,051
Tanks and customer equipment................................. 314,127 313,634
Other........................................................ 1,456 99
-------- --------
444,621 436,672
Less accumulated depreciation and amortization............... 140,805 123,546
-------- --------
$303,816 $313,126
======== ========
</TABLE>
F-12
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
D. INVESTMENT IN CLASS B REDEEMABLE COMMON STOCK OF PARENT:
The investment in Class B redeemable common stock of parent represents all of
the authorized and issued shares of the parent's Class B redeemable common
stock. All shares were purchased from unrelated parties and are recorded at
historical cost. It is the intent of the parent to repay the Company the full
amount of its investment in Class B redeemable common stock with funds from
sources other than the Company. Upon redemption by the parent, the difference,
if any, between the Company's cost and the redemption amount received from the
parent will be recorded as a capital contribution from or dividend to the
parent.
E. OTHER CURRENT LIABILITIES:
<TABLE>
<CAPTION>
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt.............................. $ 1,766 $ 1,912
Accrued insurance.............................................. 8,846 10,515
Accrued interest............................................... 10,374 10,759
Accrued payroll................................................ 3,273 2,122
Other.......................................................... 4,789 3,708
------- -------
$29,048 $29,016
======= =======
</TABLE>
F. LONG-TERM DEBT:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Fixed rate senior notes, interest at 12%, due in August 1996. $189,500 $200,000
Floating rate senior notes, interest at applicable LIBOR rate
plus 2.25%
(5.5% at July 31, 1993), due in August 1996................. 50,000 50,000
Senior subordinated debentures, interest at 11 5/8%,
$250,000,000 face amount, due in December 2003.............. 246,293 246,293
Notes payable, including approximately $2,975,000 and
$3,848,000 secured by property and equipment, interest rates
ranging from noninterest-bearing to 12%, due on various
dates through 2001.......................................... 5,562 7,233
-------- --------
491,355 503,526
Less current portion......................................... 1,766 1,912
-------- --------
$489,589 $501,614
======== ========
</TABLE>
In fiscal year 1993, the Company redeemed $10,500,000 of its fixed rate
senior notes, at an approximate aggregate redemption price of 111.35% of face
value, together with accrued interest. The early extinguishment of senior notes
resulted in an extraordinary loss from debt premium and write-off of financing
costs of approximately $886,000, net of income tax benefit of $543,000.
In December 1991, the Company issued, at 98.418% of face value, $250,000,000
of 11 5/8% senior subordinated debentures due 2003. A portion of the proceeds
were used to redeem the Company's existing subordinated debt, together with a
prepayment premium, leaving the remainder available to finance future
acquisitions and for additional working capital purposes. The refinancing of
the subordinated debt resulted
F-13
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
in an extraordinary loss from prepayment premium and write-off of financing
costs of approximately $9,979,000, net of income tax benefit of $6,116,000.
The Company currently has a $50,000,000 bank credit facility which terminates
July 31, 1995. The facility provides for a working capital facility and a
letter of credit facility. At July 31, 1993, there were no borrowings
outstanding under the then $45,000,000 working capital facility and letters of
credit outstanding under the letter of credit facility, which are used
primarily to secure obligations under certain insurance and leasing
arrangements, totaled $36,116,000.
The various agreements for the senior notes and bank credit facility have
similar requirements for maintaining certain working capital and net worth
amounts and meeting interest coverage tests. These loan agreements and the
senior subordinated debentures also place various restrictions on the Company,
the most restrictive relating to additional indebtedness and guarantees, sale
and disposition of assets, intercompany transactions, common stock issuance,
and essentially prohibit the payment of dividends. The Company is in compliance
with all requirements, tests, limitations and covenants related to the senior
notes and bank credit facility. The senior notes and bank credit agreement are
collateralized by the stock of the Company.
Annual principal payments on long-term debt for each of the next five fiscal
years are $1,766,000 in 1994, $1,311,000 in 1995, $723,000 in 1996,
$239,795,000 in 1997 and $165,000 in 1998.
G. INCOME TAXES:
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
1993 1992 1991
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current................................................. $ 606 $ 301 $ 552
Deferred................................................ (663) (7,086) 1,006
------ ------- ------
$ (57) $(6,785) $1,558
====== ======= ======
Allocated to:
Operating activities.................................. $ 486 $ (669) $1,558
Extraordinary loss.................................... (543) (6,116) --
------ ------- ------
$ (57) $(6,785) $1,558
====== ======= ======
</TABLE>
Deferred taxes result from temporary differences in the recognition of income
and expense for tax and financial statement purposes. The significant temporary
differences and related deferred tax provision (credits) are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Depreciation expense............................ $ 1,568 $ 7,010 $ 19,555
Net operating loss.............................. (1,975) (9,055) (15,539)
Net cash, accrual and other differences......... (752) (5,427) (3,260)
Amortization.................................... 496 386 250
------- ------- --------
$ (663) $(7,086) $ 1,006
======= ======= ========
</TABLE>
F-14
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
For Federal income tax purposes, the Company has net operating loss
carryforwards of approximately $226,000,000 available to offset future taxable
income. These net operating loss carryforwards expire at various dates through
2008.
A reconciliation between the effective tax rate and the statutory Federal
rate of 34% follows:
<TABLE>
<CAPTION>
1993 1992 1991
------------- -------------- -----------
AMOUNT % AMOUNT % AMOUNT %
------ ----- ------- ----- ------ ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income tax expense (benefit) at
statutory rate...................... $(284) (34.0) $(6,278) (34.0) $1,202 34.0
State income taxes, net of Federal
benefit............................. 182 21.8 (518) (2.7) 310 8.7
Nondeductible meal and entertainment
expense............................. 36 4.3 42 .2 41 1.2
Other................................ 9 1.1 (31) (.2) 5 .1
----- ----- ------- ----- ------ ----
$ (57) (6.8) $(6,785) (36.7) $1,558 44.0
===== ===== ======= ===== ====== ====
</TABLE>
The significant components of the net deferred tax asset included in the
Consolidated Balance Sheet as of July 31, 1993, are as follows:
<TABLE>
<S> <C>
DEFERRED TAX ASSET (LIABILITY):
Operating loss carry forwards....................................... $ 85,790
Differences between book and tax basis of property.................. (86,533)
Reserves not currently deductible................................... 6,767
Other............................................................... (3,267)
--------
DEFERRED INCOME TAXES................................................. $ 2,757
========
</TABLE>
H. CONTINGENCIES AND COMMITMENTS:
The Company is threatened with or named as a defendant in various lawsuits
which, among other items, claim damages for product liability. It is not
possible to determine the ultimate disposition of these matters; however, after
taking into consideration the Company's insurance coverage and its existing
reserves, management is of the opinion that there are no known uninsured claims
or known contingent claims that are likely to have a material adverse effect on
the results of operations or financial condition of the Company.
The Internal Revenue Service ("IRS") has examined the Company's consolidated
income tax returns for the years ended July 31, 1987 and 1986, and has proposed
certain adjustments which relate principally to the purchase price allocations
for an acquisition made during 1987. The IRS has proposed to disallow $61
million of deductions taken or to be taken for depreciation of customer tanks
for which the Company asserts the methods and principles used during the
valuation of the customer tanks are defensible. Also, the IRS has proposed to
disallow $90 million of deductions for amortization of customer relationships
taken or to be taken on the Company's consolidated income tax returns. On April
20, 1993, the United States Supreme Court held in Newark Morning Ledger v.
United States that a taxpayer may amortize customer based intangibles if that
taxpayer can prove such intangibles are capable of being valued and the value
diminishes over time. The Company contends it has met this burden of proof and
feels this recent Supreme Court decision supports the
F-15
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
positions taken during the Company's allocation of purchase price to customer
relationships. The Company intends to vigorously defend against these proposed
adjustments and is in the process of protesting these adjustments through the
appeals process of the IRS. At this time, it is not possible to determine the
ultimate resolution of this matter.
Certain property and equipment is leased under noncancellable operating
leases which require fixed monthly rental payments and which expire at various
dates through 2016. Rental expense under these leases totalled $10,903,000 in
1993, $10,317,000 in 1992, and $9,334,000 in 1991. Future minimum lease
commitments for such leases are $9,325,000 in 1994, $7,251,000 in 1995,
$6,132,000 in 1996, $4,452,000 in 1997, and $3,268,000 in 1998.
I. EMPLOYEE BENEFITS:
The Company and its parent have a defined contribution profit-sharing plan
which covers substantially all employees with more than one year of service.
Contributions are made to the plan at the discretion of the parent's Board of
Directors. This plan also provides for matching contributions under a cash or
deferred arrangement (401(k) plan) based upon participant salaries and employee
contributions to the plan. Total contributions under the profit sharing
provision of the plan in 1993, 1992 and 1991 were $1,000,000, $2,711,000 and
$2,200,000, respectively. Company matching contributions to the plan under the
401(k) provision of the plan in 1993, 1992 and 1991 were $1,541,000, $1,420,000
and $1,398,000, respectively.
The Company has a defined benefit plan that provides participants who were
covered under a previously terminated plan with a guaranteed retirement benefit
at least equal to the benefit they would have received under the terminated
plan. Benefits under the terminated plan are determined by years of credited
service and salary levels. The Company's funding policy for this plan is to
contribute amounts deductible for Federal income tax purposes. Plan assets
consist primarily of corporate stocks and bonds, U.S. Treasury bonds and short-
term cash investments.
The actuarially computed pension expense for 1993, 1992 and 1991 is $243,000,
$416,000 and $468,000, respectively. The net benefit obligation of the plan at
July 31, 1993 and 1992, is $4,214,000 and $4,296,000, respectively, and is
recorded as a liability in the accompanying consolidated financial statements.
The following table sets forth the plan's projected funded status for the
respective periods based on the most recent actuarial valuations:
ACTUARIALLY COMPUTED PENSION EXPENSE INCLUDES THE FOLLOWING COMPONENTS:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost............................................... $ 285 $ 318 $ 361
Interest on obligations.................................... 378 407 407
Actual return on plan assets............................... (448) (320) 92
Amortization and deferral of:
Prior service cost....................................... (31) 1 1
Gain..................................................... (98) (98) (83)
Deferred asset gain/(loss)............................... 157 108 (310)
----- ----- -----
ACTUARIALLY COMPUTED PENSION EXPENSE....................... $ 243 $ 416 $ 468
===== ===== =====
</TABLE>
F-16
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
Vested benefit obligation................................... $ 2,215 $ 1,840
Accumulated benefit obligation.............................. 2,747 2,378
------- -------
$ 4,962 $ 4,218
======= =======
Projected benefit obligation................................ 4,917 4,981
Less: plan assets at fair value............................. (3,605) (2,727)
Benefit obligation in excess of plan assets................. 1,312 2,254
Unrecognized prior service cost............................. 329 (12)
Unrecognized gain........................................... 2,573 2,054
------- -------
ACCRUED BENEFIT OBLIGATION.................................... $ 4,214 $ 4,296
======= =======
</TABLE>
The actuarial computations assumed a discount rate, annual salary increase
and expected long-term rate of return on plan assets of 8%, 5% and 9.5%,
respectively, for fiscal year 1993 and 1992 and 8.5%, 5.5% and 9.5%,
respectively, for fiscal year 1991.
In fiscal 1987, Ferrell Companies, Inc. (Ferrell) established the Ferrell
Companies, Inc. Long-Term Incentive Plan (the Plan). The Plan provides long-
term incentives to officers and executives of Ferrell and its subsidiaries in
the form of units (Equity Units). The Plan provides for the redemption of the
Equity Units after July 31, 1996, based upon the excess of an appraised value
as of July 31, 1996, over a minimum value established at Plan inception. Earned
awards are 100% vested by the participants at July 31, 1993.
Because the participants are primarily employees of Ferrellgas, compensation
expense charges (credits) representing increases (decreases) in the estimated
value of the vested Equity Units are recorded by the Company. Compensation
expense charged (credited) to income was $80,000, $(1,934,000) and $2,508,000,
respectively, for the three fiscal years ended July 31, 1993, 1992 and 1991.
J. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company provides certain medical benefits to a closed group of retired
employees. The medical care benefits are recognized as an expense as claims are
incurred.
Statement of Financial Accounting Standards No. 106--Employers' Accounting
for Postretirement Benefits Other Than Pensions, which is effective for the
fiscal year ending July 31, 1994, requires accrual of postretirement benefits
(such as health care benefits) during the years an employee provides services.
Upon adoption of this statement in 1994, the Company may immediately recognize
the accumulated obligation for postretirement benefits at the date of
implementation or amortize the obligation over a period not to exceed the
remaining life expectancy of the plan participants (since all of the plan
participants are retired). Management estimates the accumulated obligation for
postretirement benefits to be approximately $2,714,000. If the Company elects
to amortize, rather than immediately recognize the accumulated obligation,
there would not be any difference in the amount currently charged to expense to
reflect the cost of providing postretirement benefits to this group of plan
participants. Management is currently evaluating the two alternatives for
recognizing this obligation.
F-17
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
K. TRANSACTIONS WITH RELATED PARTIES:
All notes receivable from related parties bear interest at the prime rate
plus 1.375% (7.375% at July 31, 1993) except for one note totaling $6,647,000
which bears interest at the prime rate (6% at July 31, 1993).
In 1993 and 1991, the Company received capital contributions from its parent.
In 1993, the contribution consisted of (i) the forgiveness of a $3,015,000
long-term note payable to affiliate, including interest, and (ii) a $262,000
note receivable from affiliate. In 1991, the contribution consisted of
forgiveness of $6,687,000 long-term note payable to parent, including interest.
In the second and third quarter of fiscal year 1993, Ferrell Leasing
Corporation, a subsidiary of Ferrell Properties, Inc., sold to the Company for
the fair market value of $4,100,000, the land and two buildings comprising the
Company's corporate headquarters in Liberty, Missouri. James E. Ferrell, a
director and executive officer in the Company, owns all of the issued and
outstanding stock of Ferrell Properties, Inc. Prior to the purchase of the
buildings, the Company paid rent to Ferrell Leasing of $403,000, $692,000 and
$661,000 in fiscal years 1993, 1992 and 1991, respectively.
A. Andrew Levison, a director of the parent, is a Managing Director of
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). DLJ acted as
placement agent with regard to the senior subordinated notes issued in December
1991.
The law firm of Smith, Gill, Fisher & Butts, a Professional Corporation, is
general counsel to each of the Company, the parent and their respective
subsidiaries and affiliates. David S. Mouber, a director of the parent, is a
member of such law firm. During the three fiscal years ended July 31, 1993,
1992 and 1991, such law firm was paid $1,381,000, $2,189,000 and $2,776,000,
respectively, in fees by the Company, the parent and their respective
subsidiaries.
L. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
In fiscal year 1993, the Company adopted Statement of Financial Accounting
Standards No. 107--Disclosures about Fair Value of Financial Instruments which
requires disclosing the fair value of financial instruments which can be
reasonably determined. These disclosures are not required for prior years'
financial statements that are being presented for comparative purposes.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Current Assets. The carrying amount of cash and cash equivalents and
short-term investments approximates fair value because of the short
maturity of those instruments.
Long-term Debt. The estimated fair value of the Company's long-term debt
is $539,651,000 as of July 31, 1993. The fair value is estimated based on
quoted market prices and discounted cash flows.
F-18
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
M. SUMMARIZED FINANCIAL DATA--FERRELL COMPANIES, INC. AND SUBSIDIARIES:
The Company is the sole operating subsidiary of Ferrell Companies, Inc.
Summarized consolidated financial information for Ferrell Companies, Inc. and
subsidiaries is presented below:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
SUMMARY OF OPERATIONS:
Operating revenues.............................. $542,116 $501,297 $544,021
Operating expenses.............................. 483,782 445,048 481,246
Earnings (loss) before extraordinary loss....... 174 (1,653) 2,102
Extraordinary loss.............................. (886) (9,979) --
Net earnings (loss)............................. (712) (11,632) 2,102
<CAPTION>
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
SUMMARY OF FINANCIAL POSITION:
Current assets.................................. $136,373 $142,161
Non-current assets.............................. 401,702 423,906
Current liabilities............................. 62,804 74,517
Non-current liabilities and equity.............. 475,271 491,550
</TABLE>
F-19
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
ASSETS 1994 1993
------ ----------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 30,107 $ 32,706
Short-term investments................................. 27,532 25,040
Accounts and notes receivable.......................... 102,471 52,190
Inventories............................................ 40,627 23,652
Prepaid expenses and other current assets.............. 2,835 1,898
Receivable from parent and affiliate................... -- 916
-------- --------
TOTAL CURRENT ASSETS................................. 203,572 136,402
Property, plant and equipment.......................... 297,711 303,816
Intangible assets...................................... 67,816 72,537
Investment in Class B redeemable common stock of par-
ent................................................... 36,031 36,031
Other assets........................................... 21,866 21,833
Note receivable from parent............................ 4,000 --
Deferred income taxes.................................. -- 2,757
-------- --------
TOTAL ASSETS......................................... $630,996 $573,376
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable....................................... $ 69,571 $ 32,946
Payable to parent and affiliate........................ 967 --
Current portion of long-term debt...................... 1,604 1,766
Accrued interest expense............................... 10,397 10,374
Other current liabilities.............................. 18,015 16,908
-------- --------
TOTAL CURRENT LIABILITIES............................ 100,554 61,994
Long-term debt......................................... 488,841 489,589
Other liabilities...................................... 10,154 10,434
Deferred income taxes.................................. 6,045 --
STOCKHOLDER'S EQUITY:
Common stock, one dollar par value; 10,000 shares au-
thorized; 990 shares issued and outstanding........... 1 1
Additional paid-in capital............................. 32,863 32,863
Accumulated deficit.................................... (7,462) (21,505)
-------- --------
TOTAL STOCKHOLDER'S EQUITY........................... 25,402 11,359
-------- --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........... $630,996 $573,376
======== ========
</TABLE>
See notes to consolidated financial statements
F-20
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
-----------------------
JANUARY 31, JANUARY 31,
1994 1993
----------- -----------
<S> <C> <C>
REVENUES:
Gas liquids and related product sales................. $289,795 $292,172
Other................................................. 14,341 15,824
-------- --------
TOTAL REVENUES...................................... 304,136 307,996
COSTS AND EXPENSES:
Cost of product sold.................................. 155,979 169,686
Operating............................................. 73,926 72,296
Depreciation and amortization......................... 14,778 15,637
General and administrative............................ 5,872 4,957
Vehicle leases........................................ 2,144 2,411
-------- --------
TOTAL COSTS AND EXPENSES............................ 252,699 264,987
-------- --------
OPERATING INCOME........................................ 51,437 43,009
Loss on disposal of assets............................ (410) (519)
Interest income....................................... 1,693 1,408
Interest expense...................................... (29,824) (30,089)
-------- --------
EARNINGS BEFORE INCOME TAXES............................ 22,896 13,809
Income tax expense.................................... 8,853 5,431
-------- --------
NET EARNINGS............................................ $ 14,043 $ 8,378
======== ========
</TABLE>
See notes to consolidated financial statements.
F-21
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
----------------------------
JANUARY 31, JANUARY 31,
1994 1993
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................. $ 14,043 $ 8,378
Reconciliation of net earnings to net cash
from operating activities:
Depreciation and amortization................ 14,778 15,637
Other........................................ 2,604 3,010
Increase in assets:
Accounts and notes receivable................ (50,888) (34,987)
Inventories.................................. (16,975) (9,522)
Prepaid expenses and other current assets.... (937) (685)
Increase (decrease) in liabilities:
Accounts payable............................. 36,625 10,288
Accrued interest expense..................... 23 (80)
Other current liabilities.................... 978 674
Other liabilities............................ 119 334
Deferred income taxes........................ 8,802 5,161
------------ ------------
Net cash provided (used) by operating ac-
tivities.................................. 9,172 (1,792)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net short-term investment activity........... (2,492) 19,208
Capital expenditures......................... (4,910) (7,875)
Proceeds from asset sales.................... 425 1,526
Additions to intangibles..................... (12) --
Net additions to other assets................ (10) --
------------ ------------
Net cash provided (used) by investing ac-
tivities (6,999) 12,859
CASH FLOWS FROM FINANCING ACTIVITIES:
Reductions to long-term debt................. (1,135) (1,397)
Additions to financing costs................. (53) (7)
Reacquisition of Class B redeemable common
stock....................................... -- (1,351)
Net advances to related party................ (1,467) (42)
Net advances to parent and affiliates........ (2,117) (283)
------------ ------------
Net cash used by financing activities...... (4,772) (3,080)
------------ ------------
Increase (decrease) in cash and cash equiva-
lents......................................... (2,599) 7,987
Cash and cash equivalents--beginning of year... 32,706 27,959
------------ ------------
CASH AND CASH EQUIVALENTS--END OF PERIOD....... $ 30,107 $ 35,946
============ ============
</TABLE>
See notes to consolidated financial statements.
F-22
<PAGE>
FERRELLGAS, INC.
(A WHOLLY OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JANUARY 31, 1994 AND 1993
(UNAUDITED)
A. Reference should be made to the Notes to Financial Statements for the
fiscal years ending July 31, 1993, 1992 and 1991, included elsewhere in this
Prospectus.
B. The financial statements reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of the interim periods presented.
All adjustments to the financial statements were of a normal, recurring nature.
C. The propane industry is seasonal in nature with peak activity during the
winter months. Therefore, the results of operations for the periods ended
January 31, 1994 and 1993, are not necessarily indicative of the results to be
expected for a full year.
D. The Internal Revenue Service ("IRS") has examined the Company's
consolidated income tax returns for the years ended July 31, 1987 and 1986, and
has proposed certain adjustments which relate principally to the purchase price
allocations for an acquisition made during 1987. The IRS has proposed to
disallow $61 million of deductions taken or to be taken for depreciation of
customer tanks for which the Company asserts the methods and principles used
during the valuation of the customer tanks are defensible. Also, the IRS has
proposed to disallow $90 million of deductions for amortization of customer
relationships taken or to be taken on the Company's consolidated income tax
returns. On April 20, 1993, the United States Supreme Court held in Newark
Morning Ledger v. United States that a taxpayer may amortize customer based
intangibles if that taxpayer can prove such intangibles are capable of being
valued and the value diminishes over time. The Company contends it has met this
burden of proof and feels this recent Supreme Court decision supports the
positions taken during the Company's allocation of purchase price to customer
relationships. The Company intends to vigorously defend against these proposed
adjustments and is in the process of protesting these adjustments through the
appeals process of the IRS. At this time, it is not possible to determine the
ultimate resolution of this matter.
F-23
<PAGE>
APPENDIX A
GLOSSARY OF TERMS
AVAILABLE CASH: Generally, for any quarter, all of the cash receipts of the
Partnership during such quarter (other than cash receipts that are attributable
to the liquidation of the Partnership) plus net reductions to reserves less all
of its cash disbursements and net additions to reserves during such quarter,
including, for the period from the closing of this offering through October 31,
1994, the cash balance of the Partnership on the date the Partnership commences
operations. The full definition of Available Cash is set forth in the
Partnership Agreement, a form of which is included as an exhibit to the
Registration Statement of which this Prospectus is a part. The definition of
Available Cash permits the General Partner to maintain reserves for
distributions with respect to any of the next four succeeding quarters in order
to reduce quarter-to-quarter variations in distributions. The General Partner
has broad discretion in establishing reserves for other purposes, and its
decisions regarding reserves could have a significant impact on the amount of
Available Cash available for distribution.
COMMON UNITS: The 13,100,000 Common Units (15,065,000 if the Underwriters'
overallotment option is exercised in full) of the Master Partnership offered
concurrently herewith and to be issued at the closing of this offering together
with the 1,000,000 Common Units (if the Underwriters' overallotment option is
exercised in full, all of such Common Units will be repurchased by the
Partnership) to be held by Ferrell at the closing of this offering. Each Common
Unit represents a fractional part of the partnership interests of all limited
partners and assignees and has the rights and obligations specified with
respect to Common Units in the Partnership Agreement.
COMPANY: Ferrellgas, Inc., a Delaware corporation and a wholly owned
subsidiary of Ferrell. Also referred to in this Prospectus as "Ferrellgas" and
the "General Partner."
CREDIT FACILITY: The working capital credit facility to be entered into by
the Operating Partnership and one or more commercial banks to permit borrowings
by the Operating Partnership of up to $150 million on a revolving line of
credit and $20 million on a term basis.
EBITDA: Earnings before interest, income taxes and depreciation and
amortization, calculated as operating income plus depreciation and amortization
excluding interest.
FERRELL: Ferrell Companies, Inc., a Kansas corporation.
FERRELLGAS: Ferrellgas, Inc., a Delaware corporation and a wholly owned
subsidiary of Ferrell. Also referred to in this Prospectus as the "Company" and
the "General Partner."
FGP: The trading symbol for the Common Units on the NYSE.
GENERAL PARTNER: Ferrellgas, a wholly owned subsidiary of Ferrell, and its
successors as general partner of the Partnership.
HOLDERS: Holders of the Senior Notes.
INCENTIVE DISTRIBUTION RIGHTS: The right to receive specified incentive
distributions of Available Cash constituting Cash from Operations if quarterly
distributions of Available Cash constituting Cash from Operations exceed
certain specified target levels, issued to Ferrellgas in connection with the
transfer of its assets to the Partnership.
INDENTURE: The indenture pursuant to which the Senior Notes will be issued
(the form of which has been filed as an exhibit to the registration statement
of which this Prospectus is a part).
A-1
<PAGE>
MASTER PARTNERSHIP: Ferrellgas Partners, L.P., a Delaware limited
partnership.
MINIMUM QUARTERLY DISTRIBUTION OR MQD: $0.50 per Unit with respect to each
quarter, subject to adjustment as described in "Cash Distribution Policy--
Quarterly Distributions of Available Cash--Distributions of Cash from Interim
Capital Transactions" and "Cash Distribution Policy--Quarterly Distributions of
Available Cash--Adjustment of Minimum Quarterly Distribution and Target
Distribution Levels."
PARTNERSHIP: Ferrellgas, L.P., a Delaware limited partnership of which the
Master Partnership will own a 99% limited partner interest and Ferrellgas will
own a 1% general partner interest. The Partnership will conduct the Master
Partnership's business and has been established to simplify the Partnership's
obligations under the laws of certain jurisdictions in which it will conduct
business.
PARTNERSHIP AGREEMENT: The partnership agreement for the Partnership (the
form of which has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part), and unless the context requires otherwise,
references to the Partnership Agreement constitute references to the
Partnership Agreements of the Partnership and of the Master Partnership,
collectively.
SUBORDINATED UNITS: The subordinated limited partner interests to be issued
to Ferrellgas in connection with the transfer of its assets to the Partnership.
SUBORDINATION PERIOD: The Subordination Period will extend from the closing
of this offering until the first day of any quarter beginning on or after
August 1, 1999 in respect of which (i) distributions of Available Cash on the
Common Units and the Subordinated Units equaled or exceeded the Minimum
Quarterly Distribution for each of the three consecutive four-quarter periods
immediately preceding such date (excluding any such Available Cash that is
attributable to net increases in working capital borrowings, net decreases in
reserves and any positive balance in Cash from Operations at the beginning of
such four-quarter periods) and (ii) the Partnership has invested at least $50
million in the expansion of its business. In addition, the Subordination Period
ends if the General Partner is removed other than for cause.
UNITHOLDERS: Holders of the Common Units and the Subordinated Units.
UNITS: The Common Units and the Subordinated Units, collectively.
A-2
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUERS OR ANY UNDERWRIT-
ER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RE-
LATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHO-
RIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALI-
FIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HERE-
UNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Additional Information.................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 13
The Transactions.......................................................... 17
Use of Proceeds........................................................... 18
Capitalization............................................................ 19
Selected Historical and Pro Forma Consolidated Financial and Operating
Data..................................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 29
Management................................................................ 38
Cash Distributions........................................................ 44
The Partnership........................................................... 44
Description of Senior Notes............................................... 48
Certain Federal Income Tax Consequences................................... 68
Underwriting.............................................................. 70
Legal Matters............................................................. 70
Experts................................................................... 71
Index to Financial Statements............................................. F-1
Glossary of Terms......................................................... A-1
</TABLE>
-----------
UNTIL , 1994 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF FERRELLGAS]
$250,000,000
FERRELLGAS, L.P.
FERRELLGAS FINANCE CORP.
% SENIOR NOTES DUE 2001
---------------
PROSPECTUS
---------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
, 1994
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below are the expenses (other than underwriting discounts and
commissions) expected to be incurred in connection with the issuance and
distribution of the securities registered hereby. With the exception of the
Securities and Exchange Commission registration fee and the NASD filing fee,
the amounts set forth below are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $86,207
NASD filing fee................................................... 25,500
Rating agency fees................................................ *
Printing and engraving expenses................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue Sky fees and expenses........................................ *
Trustee fees and expenses......................................... *
Miscellaneous..................................................... *
-------
Total........................................................... $ *
=======
</TABLE>
--------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Section of the Prospectus entitled "The Partnership Agreement--
Indemnification" is incorporated herein by reference.
Article VII of the Company's bylaws provides, with respect to
indemnification, as follows:
"Section 7.01. Indemnification of Authorized Representatives in Third Party
Proceedings. The Corporation shall indemnify any person who was or is an
"authorized representative" of the Corporation (which shall mean for purposes
of this Article a Director or officer of the Corporation, or a person serving
at the request of the Corporation as a director, officer, or trustee, of
another corporation, partnership, joint venture, trust or other enterprise) and
who was or is a "party" (which shall include for purposes of this Article the
giving of testimony or similar involvement) or is threatened to be made a party
to any "third party proceeding" (which shall mean for purposes of this Article
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative, other than an action by or in the
right of the Corporation) by reason of the fact that such person was or is an
authorized representative of the Corporation, against expenses (which shall
include for purposes of this Article attorneys' fees), judgments, penalties,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such third party proceeding if such person acted in
good faith and in a manner such person reasonably believed to be in, or not
opposed to, the best interests of the Corporation and, with respect to any
criminal third party proceeding (which could or does lead to a criminal third
party proceeding) had no reasonable cause to believe such conduct was unlawful.
The termination of any third party proceeding by judgment, order, settlement,
indictment, conviction or upon a plea of nolo contendere or its equivalent,
shall not of itself create a presumption that the authorized representative did
not act in good faith and in a manner which such person reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal third party proceeding, had reasonable cause to believe
that such conduct was unlawful.
II-1
<PAGE>
Section 7.02. Indemnification of Authorized Representatives in Corporate
Proceedings. The Corporation shall indemnify any person who was or is an
authorized representative of the Corporation and who was or is a party or is
threatened to be made a party to any "corporation proceeding" (which shall mean
for purposes of this Article any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor
or investigative proceeding by the Corporation) by reason of the fact that such
person was or is an authorized representative of the Corporation, against
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of such corporate action if such person acted in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of such
person's duty to the Corporation unless and only to the extent that the Court
of Chancery or the court in which such corporate proceeding was pending shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such authorized representative is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
Section 7.03. Mandatory Indemnification of Authorized Representatives. To the
extent that an authorized representative of the Corporation has been successful
on the merits or otherwise in defense of any third party or corporate
proceeding or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses actually and reasonably incurred by such
person in connection therewith.
Section 7.04. Determination of Entitlement to Indemnification. Any
indemnification under Section 7.01, 7.02 or 7.03 of this Article (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the authorized
representative is proper in the circumstances because such person has either
met the applicable standards of conduct set forth in Section 7.01 or 7.02 or
has been successful on the merits or otherwise as set forth in Section 7.03 and
that the amount requested has been actually and reasonably incurred. Such
determination shall be made:
(1) By the Board of Directors by a majority of a quorum consisting of
Directors who were not parties to such third party or corporate proceeding,
or
(2) If such a quorum is not obtainable, or, even if obtainable, a
majority vote of such a quorum so directs, by independent legal counsel in
a written opinion, or
(3) By the stockholders.
Section 7.05. Advancing Expenses. Expenses actually and reasonably incurred
in defending a third party or corporate proceeding shall be paid on behalf of
an authorized representative by the Corporation in advance of the final
disposition of such third party or corporate proceeding as authorized in the
manner provided in Section 7.04 of this Article upon receipt of an undertaking
by or on behalf of the authorized representative to repay such amount unless it
shall ultimately be determined that such person is entitled to be indemnified
by the Corporation as authorized in this Article. The financial ability of such
authorized representative to make such repayment shall not be a prerequisite to
the making of an advance.
Section 7.06. Employee Benefit Plans. For purposes of this Article, the
Corporation shall be deemed to have requested an authorized representative to
serve an employee benefit plan where the performance by such person of duties
to the Corporation also imposes duties on, or otherwise involves services by,
such person to the plan or participants or beneficiaries of the plan; excise
taxes assessed on an authorized representative with respect to an employee
benefit plan pursuant to applicable law shall be deemed "fines"; and action
taken or omitted by such person with respect to an employee benefit plan in the
performance of duties for a purpose reasonably believed to be in the interest
of the participants and beneficiaries of the plan shall be deemed to be for a
purpose which is not opposed to the best interests of the Corporation.
II-2
<PAGE>
Section 7.07. Scope of Article. The indemnification of authorized
representatives, as authorized by this Article, shall (1) not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any statute, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in an official capacity and as to
action in another capacity, (2) continue as to a person who has ceased to be an
authorized representative and (3) inure to the benefit of the heirs, executors
and administrators of such a person.
Section 7.08. Reliance on Provisions. Each person who shall act as an
authorized representative of the Corporation shall be deemed to be doing so in
reliance upon rights of indemnification provided by this Article."
Article EIGHTH of Ferrell's Articles of Incorporation provides, with respect
to indemnification, as follows:
"Article EIGHTH. No Director shall be personally liable to this Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director provided that nothing in this Article EIGHTH shall be construed so as
to eliminate or limit the liability of a director (A) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (B) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (C) under the provisions of K.S.A. 17-6424 and
amendments thereto, (D) for any transaction from which the director derived an
improper personal benefit or (E) for any act or omission occurring prior to the
effective date of this Article EIGHTH. No amendment to or repeal of this
Article EIGHTH shall adversely affect any right, benefit or protection of a
director of the Corporation existing at the time of such amendment or repeal
with respect to any acts or omissions occurring prior to such amendment or
repeal."
In addition, paragraph 22 of Ferrell's bylaws provides as follows:
"22. Indemnification of Directors and Officers. (a) Subject to subparagraph
(c) below, the corporation shall indemnify every director and officer who is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation),
by reason of the fact that he is or was a director or officer of the
corporation, or is or was serving at the request of the corporation, as a
director or officer, of another corporation, partnership, joint venture, trust
or other enterprise, against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement, actually and reasonably incurred by him
in connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) Subject to subparagraph (c) below, the corporation shall indemnify every
person who is a party or is threatened to be made a party, to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director or officer of the corporation, or is or was serving at the request of
the corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against expenses, including attorneys'
fees, and amounts paid in settlement actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation; except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty to the corporation unless and only to the extent that the court in
which the action or suit was brought determines upon application that, despite
the adjudication of liability and in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for such expense
which the court shall deem proper.
II-3
<PAGE>
(c) Any indemnification under the subparagraphs (a) or (b) above, unless
ordered by a court, shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director or
officer is proper in the circumstances because he has met the applicable
standard of conduct set forth in this Section 22. The determination shall be
made by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding, or if such a
quorum is not obtainable, or even if obtainable a quorum of disinterested
directors so directs, by independent counsel in a written opinion, or by the
stockholders.
(d) It is the intent of this Section 22 that the corporation shall be
obligated to indemnify every officer and director of this corporation to the
fullest extent permitted by law provided that the officer and director has met
the standard of conduct applicable by law which entitles such director and
officer to such indemnification. To such end:
(i) The indemnification and advancement of expenses provided by this
Section 22 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a
person who has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person; and
(ii) In the event the matter with respect to which indemnification is
sought under this Section 22 is required by law to be authorized in
accordance with subparagraph (c) above, then the exercise of discretion in
granting any such authorization shall be on the basis of the utmost good
faith consistent with the intent of this Section 22 to indemnify every
officer and director of this corporation to the fullest extent permitted by
law.
(e) Expenses incurred in defending a civil or criminal action, suit or
proceeding shall be paid by the corporation in advance of the final disposition
of the action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director or officer to repay such amounts if it is ultimately
determined that the director or officer is not entitled to be indemnified by
the corporation as authorized in this Section 22.
(f) Absent a vote by a majority of the Board of Directors or a determination
by independent legal counsel appointed by a majority of the Board of Directors
upon the facts of a specific case, indemnification described in this Section 22
will be limited to defensive application.
(g) The corporation may purchase and maintain insurance on behalf of any
person who is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have
the power to indemnify him against such liability under the provisions of this
Section 22.
(h) For purposes of this Section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consideration or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors or officers so that any person who is or
was a director or officer of such constituent corporation, or is or was serving
at the request of such constituent corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this Section with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued.
(i) For purposes of this Section, reference to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as director or
II-4
<PAGE>
officer of the corporation which imposes duties on, or involves services by,
such director or officer, with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the corporation"
as referred to in this Section."
Section 145 of the General Corporation Law of the State of Delaware
authorizes the indemnification of directors and officers of a corporation
against liability incurred by reason of being a director or officer and against
expenses (including attorneys' fees) in connection with defending any action
seeking to establish such liability, in the case of third party claims, if the
director or officer acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and in the
case of action by or in the right of the corporation, if the director or
officer acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and if such director or
officer shall not have been adjudged liable to the corporation, unless a court
otherwise determines. Indemnification is also authorized with respect to any
criminal action or proceeding where the director or officer had no reasonable
cause to believe his conduct was unlawful.
Reference is made to Section of the Underwriting Agreement filed as Exhibit
1.1 to this Registration Statement.
Subject to any terms, conditions or restrictions set forth in the Partnership
Agreements, Section 17-108 of the Delaware Revised Limited Partnership Act
empowers a Delaware limited partnership to indemnify and hold harmless any
partner or other person from and against any and all claims and demands
whatsoever.
Under insurance policies maintained by Ferrell, directors and officers of
Ferrell and its subsidiaries may be indemnified against losses arising from
certain claims, including claims under the Securities Act of 1933, as amended,
which may be made against such persons by reason of their being directors or
officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
There has been no sale of securities of the Partnership within the past three
years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<C> <S>
*1.1 --Form of Underwriting Agreement
*3.1 --Form of Agreement of Limited Partnership of Ferrellgas, L.P.
*5.1 --Opinion of Smith, Gill, Fisher & Butts, P.C. as to the legality of
the securities being registered
*8.1 --Opinion of Smith, Gill, Fisher & Butts, P.C. relating to tax
matters
*10.1 --Form of working capital credit agreement among Ferrellgas, L.P.
and certain banks in the amount of $170,000,000
*10.2 --Form of Indenture among Ferrellgas, L.P., and Norwest Bank
Minnesota, National Association, as Trustee, relating to % Senior
Notes due 2001
10.3 --$250,000,000 11 5/8% Senior Subordinated Debenture Indenture due
2003, dated as of December 1, 1991, between the Company and Norwest
Bank Minnesota, National Association, as Trustee
10.4 --Assignment and Agreement dated as of January 1, 1989 between BP
Oil Company and Ferrell Petroleum, Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
10.5 --Ferrell Long-Term Incentive Plan, dated June 23, 1987, between
Ferrell and the participants in the Plan
10.6 --Ferrell 1992 Key Employee Stock Option Plan
*10.7 --Form of Contribution and Closing Agreement between Ferrell,
Ferrellgas, the Partnership and the Master Partnership
12.1 --Computation of Ratio of Net Earnings to Fixed Charges
*21.1 --List of subsidiaries
23.1 --Consent of Deloitte & Touche
*23.2 --Consent of Smith, Gill, Fisher & Butts, P.C. (included in Exhibit
5.1)
*23.3 --Consent of Smith, Gill, Fisher & Butts, P.C. (included in Exhibit
8.1)
24.1 --Powers of Attorney (included on signature page)
</TABLE>
- --------
* To be supplied by amendment
(b) FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Index of Financial Statement Schedules..................................... S-1
Independent Auditors' Report............................................... S-2
Schedule I--Marketable Securities--Other Investments ...................... S-3
Schedule II--Amounts Receivable From Related Parties and Employees......... S-4
Schedule V--Property, Plant and Equipment.................................. S-5
Schedule VI--Accumulated Depreciation and Amortization of Property, Plant
and Equipment ............................................................ S-6
Schedule VIII--Valuation and Qualifying Accounts........................... S-7
Schedule IX--Short-Term Borrowings......................................... S-8
Schedule X--Supplementary Income Statement Information..................... S-9
</TABLE>
All other financial statement schedules are omitted because the information
is not required, is not material or is otherwise included in the financial
statements or related notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers or
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.
II-6
<PAGE>
(2) For the purposes of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON,
STATE OF TEXAS, ON THE 28TH DAY OF APRIL, 1994.
Ferrellgas Finance Corp.
/s/ James E. Ferrell
By: _________________________________
JAMES E. FERRELL
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below appoints James E. Ferrell and
Danley K. Sheldon, and each of them, any of whom may act without the joinder of
the other, as his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities to sign any and all amendments (including post-
effective amendments) to this Registration Statement and to file the same, with
all exhibits thereto and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their substitute or substitutes may lawfully do
or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ James E. Ferrell Director, Chairman April 28, 1994
- ------------------------------------- of the Board and
JAMES E. FERRELL Chief Executive
Officer (Principal
Executive Officer)
/s/ Danley K. Sheldon Chief Financial April 28, 1994
- ------------------------------------- Officer/Treasurer
DANLEY K. SHELDON (Principal
Financial and
Accounting Officer)
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON,
STATE OF TEXAS, ON THE DAY OF APRIL, 1994.
Ferrellgas, L.P.
By: Ferrellgas, Inc., as General
Partner
/s/ James E. Ferrell
By: _________________________________
JAMES E. FERRELL
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below appoints James E. Ferrell and
Danley K. Sheldon, and each of them, any of whom may act without the joinder of
the other, as his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities to sign any and all amendments (including post-
effective amendments) to this Registration Statement and to file the same, with
all exhibits thereto and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their substitute or substitutes may lawfully do
or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ James E. Ferrell Director, Chairman April 28, 1994
- ------------------------------------- of the Board and
JAMES E. FERRELL Chief Executive
Officer (Principal
Executive Officer)
/s/ Danley K. Sheldon Chief Financial April 28, 1994
- ------------------------------------- Officer/Treasurer
DANLEY K. SHELDON (Principal
Financial and
Accounting Officer)
II-9
<PAGE>
INDEX OF FINANCIAL STATEMENTS SCHEDULES
<TABLE>
<S> <C>
Independent Auditors' Report............................................... S-2
Schedule I--Marketable Securities--Other Investments ...................... S-3
Schedule II--Amounts Receivable From Related Parties and Employees......... S-4
Schedule V--Property, Plant and Equipment.................................. S-5
Schedule VI--Accumulated Depreciation and Amortization of Property, Plant
and Equipment ............................................................ S-6
Schedule VIII--Valuation and Qualifying Accounts........................... S-7
Schedule IX--Short-Term Borrowings......................................... S-8
Schedule X--Supplementary Income Statement Information..................... S-9
</TABLE>
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ferrellgas, Inc.
Liberty, Missouri
We have audited the consolidated financial statements of Ferrellgas, Inc. and
subsidiaries as of July 31, 1993 and 1992, and for each of the three years in
the period ended July 31, 1993, and have issued our report thereon dated
November 5, 1993, which expressed an unqualified opinion and included
explanatory paragraphs concerning an uncertainty involving an income tax matter
and the change in the Company's method of accounting for income taxes. Our
audits also included the financial statement schedules listed at Item 16(b).
These financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information therein set forth.
DELOITTE & TOUCHE
Kansas City, Missouri
November 5, 1993
S-2
<PAGE>
SCHEDULE I
FERRELLGAS, INC. AND SUBSIDIARIES
MARKETABLE SECURITIES--OTHER INVESTMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SHARES/ MARKET BALANCE
ISSUANCE/ISSUER PAR VALUE COST VALUE SHEET VALUE
<S> <C> <C> <C> <C>
Year ended July 31, 1993
United States Treasury Bills
United States Government....... $15,000 $14,497 $14,703 $14,497(1)
United States Treasury Notes
United States Government....... $ 5,000 $ 5,116 $ 5,171 $ 5,116(1)
Corporate Commercial Paper
Beta Finance, Inc.............. $ 2,500 $ 2,474 $ 2,474 $ 2,474(1)
General Electric Capital Corp.. $ 3,000 $ 2,953 $ 2,977 $ 2,953(1)
Class B Redeemable Common Stock
Ferrell Companies, Inc......... 643(4) $36,031 $36,031(2) $36,031(3)
Year ended July 31, 1992
United States Treasury Bills
United States Government....... $24,000 $23,165 $23,600 $23,165(1)
Class B Redeemable Common Stock
Ferrell Companies, Inc......... 576 $32,813 $32,813(2) $32,813(3)
Year ended July 31, 1991
Class B Redeemable Common Stock
Ferrell Companies, Inc. ....... 394 $23,721 $23,721(2) $23,721(3)
</TABLE>
- ---------------------
(1) Short-term investments on Consolidated Balance Sheet.
(2) Class B redeemable common stock is not publicly traded. Therefore, market
value was considered the same as cost for this schedule.
(3) Investment in Class B redeemable common stock of parent (eliminated in
consolidation) on Balance Sheet.
(4) Total authorized and issued shares of Ferrell's Class B redeemable common
stock.
S-3
<PAGE>
SCHEDULE II
FERRELLGAS, INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND EMPLOYEES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT END
BALANCE OF PERIOD
AT ---------------
BEGINNING AMOUNTS NOT
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED CURRENT CURRENT
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1993
One Liberty Plaza, Inc.
(1).................... $3,000 $ -- $ -- $ -- $3,000
====== ====== ====== ====== ======
Ferrell Development,
Inc. (1)............... $1,500 $ -- $ -- $ -- $1,500
====== ====== ====== ====== ======
Ferrell Properties, Inc.
(1).................... $ -- $ 262(3) $ -- $ -- $ 262
====== ====== ====== ====== ======
James E. Ferrell (2).... $6,588 $4,400 $4,341 $ 500 $6,147
====== ====== ====== ====== ======
Year ended July 31, 1992
One Liberty Plaza, Inc.
(1).................... $3,000 $ -- $ -- $ -- $3,000
====== ====== ====== ====== ======
Ferrell Development,
Inc. (1)............... $1,500 $ -- $ -- $ -- $1,500
====== ====== ====== ====== ======
James E. Ferrell (2).... $2,756 $5,480 $1,648 $1,000 $5,588
====== ====== ====== ====== ======
Year ended July 31, 1991
One Liberty Plaza, Inc.
(1).................... $3,000 $ -- $ -- $ -- $3,000
====== ====== ====== ====== ======
Ferrell Development,
Inc. (1)............... $1,500 $ -- $ -- $ -- $1,500
====== ====== ====== ====== ======
James E. Ferrell (2).... $ -- $6,216 $3,460 $2,756 $ --
====== ====== ====== ====== ======
</TABLE>
- ---------------------
(1) Notes are due December 31, 1997, and bear interest at the prime rate plus
1.375%.
(2) Note is due on demand and bears interest at the prime rate.
(3) Contributed by Ferrell in fiscal year 1993.
S-4
<PAGE>
SCHEDULE V
FERRELLGAS, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1993 JULY 31, 1992 JULY 31, 1991
<S> <C> <C> <C>
Land and improvements... $ 18,459 $ 17,150 $ 16,974
Buildings and improve-
ments.................. 23,001 20,339 18,560
Vehicles................ 37,564 39,205 40,662
Furniture and fixtures.. 16,402 14,194 11,182
Bulk equipment and mar-
ket facilities......... 33,612 32,051 30,462
Tanks and customer
equipment.............. 314,127 313,634 307,210
Other................... 1,456 99 1,790
-------- -------- --------
$444,621 $436,672 $426,840
======== ======== ========
Additions, at cost...... $ 14,187 $ 20,392 $ 25,942
======== ======== ========
Retirements............. $ 6,238 $ 10,560 $ 9,854
======== ======== ========
</TABLE>
- ---------------------
Note: See Notes to financial statements for a description of the methods and
estimated useful lives used in computing depreciation and amortization.
Detail of additions and retirements by major classification is not
provided as the totals for such additions and retirements are less than
10% of the total property, plant and equipment for each year.
S-5
<PAGE>
SCHEDULE VI
FERRELLGAS, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO
BEGINNING COSTS AND END OF
OF YEAR EXPENSES RETIREMENTS YEAR
<S> <C> <C> <C> <C>
Year ended July 31, 1993
Land and improvements.............. $ 1,293 $ 263 $ 5 $ 1,551
Buildings and improvements......... 5,831 996 124 6,703
Vehicles........................... 21,804 4,466 2,260 24,010
Furniture and fixtures............. 8,162 2,433 92 10,503
Bulk equipment and market facili-
ties.............................. 9,186 1,712 92 10,806
Tanks and customer equipment....... 77,270 10,579 617 87,232
-------- ------- ------ --------
$123,546 $20,449 $3,190 $140,805
======== ======= ====== ========
Year ended July 31, 1992
Land and improvements.............. $ 1,049 $ 248 $ 4 $ 1,293
Buildings and improvements......... 5,033 979 181 5,831
Vehicles........................... 20,403 5,107 3,706 21,804
Furniture and fixtures............. 6,742 2,072 652 8,162
Bulk equipment and market facili-
ties.............................. 7,955 1,507 276 9,186
Tanks and customer equipment....... 67,455 10,573 758 77,270
-------- ------- ------ --------
$108,637 $20,486 $5,577 $123,546
======== ======= ====== ========
Year ended July 31, 1991
Land and improvements.............. $ 826 $ 234 $ 11 $ 1,049
Buildings and improvements......... 5,095 1,057 1,119 5,033
Vehicles........................... 17,323 5,115 2,035 20,403
Furniture and fixtures............. 5,301 1,978 537 6,742
Bulk equipment and market facili-
ties.............................. 6,263 1,826 134 7,955
Tanks and customer equipment....... 52,521 15,775 841 67,455
-------- ------- ------ --------
$ 87,329 $25,985 $4,677 $108,637
======== ======= ====== ========
</TABLE>
S-6
<PAGE>
SCHEDULE VIII
FERRELLGAS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED DEDUCTIONS BALANCE
BEGINNING TO COST/ (AMOUNTS AT END
DESCRIPTION OF PERIOD EXPENSES CHARGED-OFF) OF PERIOD
<S> <C> <C> <C> <C>
Year ended July 31, 1993
Allowance for uncollectible re-
ceivables........................ $ 837 $ 1,343 $1,573 $ 607
======= ======= ====== =======
Accumulated amortization of intan-
gible assets..................... $49,188 $ 9,993 $ -- $59,181
======= ======= ====== =======
Accumulated amortization of other
assets........................... $ 5,286 $ 2,538 $ 232 $ 7,592
======= ======= ====== =======
Year ended July 31, 1992
Allowance for uncollectible re-
ceivables........................ $ 1,005 $ 2,071 $2,239 $ 837
======= ======= ====== =======
Accumulated amortization of intan-
gible assets..................... $38,901 $10,306 $ 19 $49,188
======= ======= ====== =======
Accumulated amortization of other
assets........................... $ 6,895 $ 2,654 $4,263 $ 5,286
======= ======= ====== =======
Year ended July 31, 1991
Allowance for uncollectible re-
ceivables........................ $ 1,005 $ 2,423 $2,423 $ 1,005
======= ======= ====== =======
Accumulated amortization of intan-
gible assets..................... $29,116 $ 9,785 $ -- $38,901
======= ======= ====== =======
Accumulated amortization of other
assets........................... $ 4,309 $ 2,586 $ -- $ 6,895
======= ======= ====== =======
</TABLE>
S-7
<PAGE>
SCHEDULE IX
FERRELLGAS, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAXIMUM WEIGHTED
WEIGHTED AMOUNT AVERAGE AVERAGE
BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST
AT END INTEREST DURING DURING RATE DURING
CATEGORY OF YEAR RATE THE YEAR THE YEAR THE YEAR*
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1993
(There were no short-term borrowings during the fiscal year ended July 31,
1993).
Year ended July 31, 1992
Working capital loan.... $ -- -- $1,000 $ 453 7.82%
==== ==== ====== ====== ====
Revolving loan.......... $ -- -- $4,275 $2,640 7.53%
==== ==== ====== ====== ====
Year ended July 31, 1991
(There were no short-term borrowings during the fiscal year ended July 31,
1991).
</TABLE>
- ---------------------
* Based upon the actual rate in effect and the average daily outstanding
balance.
S-8
<PAGE>
SCHEDULE X
FERRELLGAS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO COSTS AND
EXPENSES
-----------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
JULY JULY JULY
31, 31, 31,
1993 1992 1991
<S> <C> <C> <C>
1. Maintenance and repairs............................. $10,110 $ 9,855 $ 8,819
======= ======= =======
2. Depreciation........................................ $20,472 $20,486 $25,985
Amortization of intangibles......................... 9,993 10,306 9,785
Amortization of other assets........................ 2,538 2,654 2,586
------- ------- -------
$33,003 $33,446 $38,356
======= ======= =======
</TABLE>
- ---------------------
Note: Detail for the other items required for this schedule has been omitted
since each of the other items is less than 1% of total revenues.
S-9
<PAGE>
GRAPHICS APPENDIX LIST
PAGE WHERE
GRAPHIC DESCRIPTION OF GRAPHIC OR CROSS-REFERENCE
- ------------ -----------------------------------------
INSIDE FRONT A map depicting the locations of assets and operations of
COVER PAGE Ferrellgas Partners, L.P. (the "Master Partnership") in the
OF PROSPECTUS United States. The map is coded to reflect the locations of the
(FOLDOUT) following: (1) retail markets; (ii) the headquarters; (iii) the
North America headquarters; (iv) a service center; (v) owned
underground storage; and (vi) owned throughput terminals. The
map also depicts LPG common carrier pipelines not owned by the
Master Partnership and seaborne import terminals not owned
by the Master Partnership.
PAGE 6 A chart depicting the organization and ownership of
Ferrellgas, L.P. (the "Partnership") and the Master Partnership
after giving effect to the sale of the Common Units by the
Master Partnership and related transactions. The ownership
interests as depicted are as follow: (1) Ferrell Companies,
Inc. ("Ferrell") will own 1,000,000 Common Units, 14,546,625
Subordinated Units and Incentive Distribution Rights
representing a 53.7% limited partner interest in the Master
Partnership; Ferrellgas, Inc. ("Ferrellgas"), a wholly owned
subsidiary of Ferrell, will own a 1% general partner interest
in the Master Partnership and a 1.0101% general partner
interest in the Partnership; the Master Partnership will own a
98.9899% limited partner interest in the Partnership; and the
public unitholders will own 13,100,000 Common Units
representing a 45.3% limited partner interest in the Master
Partnership.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBITS DESCRIPTION NO.
<S> <C> <C>
*1.1 --Form of Underwriting Agreement
*3.1 --Form of Agreement of Limited Partnership of Ferrellgas, L.P. (included
as Appendix A to the Prospectus)
*5.1 --Opinion of Smith, Gill, Fisher & Butts, P.C. as to the legality of the
securities being registered
*8.1 --Opinion of Smith, Gill, Fisher & Butts, P.C. relating to tax matters
*10.1 --Form of working capital credit agreement among Ferrellgas, L.P. and
certain banks in the amount of $170,000,000
*10.2 --Form of Indenture among Ferrellgas, L.P., and Norwest Bank Minnesota,
National Association as Trustee, relating to % Senior Notes due 2001
10.3 --$250,000,000 11 5/8% Senior Subordinated Debenture Indenture due 2003,
dated as of December 1, 1991, between the Company and Norwest Bank
Minnesota, National Association, as Trustee
10.4 --Assignment and Agreement dated as of January 1, 1989 between BP Oil
Company and Ferrell Petroleum, Inc.
10.5 --Ferrell Long-Term Incentive Plan, dated June 23, 1987, between Ferrell
and the participants in the Plan
10.6 --Ferrell 1992 Key Employee Stock Option Plan
*10.7 --Form of Contribution and Closing Agreement between Ferrell,
Ferrellgas, the Partnership and the Operating Partnership
12.1 --Computation of Ratio of Net Earnings to Fixed Charges
*21.1 --List of subsidiaries
23.1 --Consent of Deloitte & Touche
*23.2 --Consent of Smith, Gill, Fisher & Butts, P.C. (included in Exhibit 5.1)
*23.3 --Consent of Smith, Gill, Fisher & Butts, P.C. (included in Exhibit 8.1)
24.1 --Powers of Attorney (included on signature page)
</TABLE>
- ---------------------
* To be supplied by amendment
<PAGE>
EXHIBIT 10.3
EXECUTION COPY
================================================================================
FERRELLGAS, INC.
as Obligor
$250,000,000
11-5/8% Senior Subordinated Debentures
due December 15, 2003
________________________________________________________________________________
INDENTURE
Dated as of December 1, 1991
________________________________________________________________________________
Norwest Bank Minnesota, National Association
Trustee
================================================================================
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
- --------------- -----------------
<S> <C>
310(a)(1)..................................................... 7.10
(a)(2)..................................................... 7.10
(a)(3)..................................................... N.A.
(a)(4)..................................................... N.A.
(b)........................................................ 7.08;7.10;
(c)........................................................ N.A.
311(a)........................................................ 7.11
(b)........................................................ 7.11
(c)........................................................ N.A.
312(a)........................................................ 2.05
(b)........................................................ N.A.
(c)........................................................ N.A.
313(a)........................................................ 7.06
(b)(1)..................................................... N.A.
(b)(2)..................................................... 7.06
(c)........................................................ 7.06
(d)........................................................ 7.06
314(a)........................................................ 4.03
(b)........................................................ N.A.
(c)(1)..................................................... N.A.
(c)(2)..................................................... N.A.
(c)(3)..................................................... N.A.
(d)........................................................ N.A.
(e)........................................................ N.A.
(f)........................................................ N.A.
315(a)........................................................ 7.01(2)
(b)........................................................ 7.05
(c)........................................................ 7.01(1)
(d)........................................................ 7.01(3)
(e)........................................................ 6.112
316(a) (last sentence)........................................ 2.09
(a)(1)(A).................................................. 6.05
(a)(1)(B).................................................. 6.04
(a)(2)..................................................... N.A.
(b)........................................................ 6.07
317(a)(1)..................................................... 6.08
(a)(2)..................................................... 6.09
(b)........................................................ 2.04
318(a)........................................................ N.A.
</TABLE>
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
<S> <C> <C>
Section 1.01. Definitions............................................. 1
Section 1.02. Other Definitions....................................... 9
Section 1.03. Incorporation by Reference of Trust
Indenture Act. ......................................... 10
Section 1.04. Rules of Construction................................... 10
<CAPTION>
ARTICLE 2
THE SECURITIES
<S> <C> <C>
Section 2.01. Form and Dating......................................... 11
Section 2.02. Execution and Authentication............................ 11
Section 2.03. Registrar and Paving Agent.............................. 12
Section 2.04. Paying Agent to Hold Money in Trust..................... 12
Section 2.05. Security-holder Lists................................... 13
Section 2.06. Transfer and Exchange................................... 13
Section 2.07. Replacement Securities.................................. 14
Section 2.08. Outstanding Securities.................................. 14
Section 2.09. Treasury Securities..................................... 15
Section 2.10. Temporary Securities.................................... 15
Section 2.11. Cancellation............................................ 15
Section 2.12. Defaulted Interest...................................... 16
<CAPTION>
ARTICLE 3
REDEMPTION
<S> <C> <C>
Section 3.01. Notices to Trustee...................................... 16
Section 3.02. Selection of Securities to Be
Redeemed................................................ 17
Section 3.03. Notice of Redemption.................................... 17
Section 3.04. Effect of Notice Of Redemption.......................... 18
Section 3.05. Deposit of Redemption Price............................. 18
Section 3.06. Securities Redeemed in Part............................. 19
Section 3.07. Optional Redemption..................................... 19
Section 3.08. Mandatory Redemption.................................... 19
Section 3.09. Offer to Redeem by Application of
Net Proceeds............................................ 19
<CAPTION>
ARTICLE 4
COVENANTS
<S> <C> <C>
Section 4.01. Payment of Securities................................... 20
Section 4.02. Maintenance of Office or Agency......................... 21
Section 4.03. SEC Reports............................................. 22
1
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 4.04. Compliance Certificate.................................. 23
Section 4.05. Taxes................................................... 24
Section 4.06. Stay, Extension and Usury Laws.......................... 24
Section 4.07. Limitation on Restricted Payments....................... 24
Section 4.08. Limitation on Dividend and Other
Payment Restrictions Affecting
Subsidiaries............................................ 27
Section 4.09. Limitation on Additional Debt........................... 28
Section 4.10. Sale of Assets.......................................... 30
Section 4.11. Limitation on Transactions With
Affiliates.............................................. 33
Section 4.12. Limitation on Liens..................................... 33
Section 4.13. Corporate Existence..................................... 35
Section 4.14. Liquidation............................................. 36
Section 4.15. No Senior Subordinated Debt............................. 37
Section 4.16. Change of Control....................................... 37
<CAPTION>
ARTICLE 5
SUCCESSORS
<S> <C> <C>
Section 5.01. When the Company May Merge, etc. ....................... 40
Section 5.02. Successor Corporation Substituted. ..................... 41
<CAPTION>
ARTICLE 6
DEFAULTS AND REMEDIES
<S> <C> <C>
Section 6.01. Events of Default....................................... 41
Section 6.02. Acceleration............................................ 43
Section 6.03. Other Remedies.......................................... 44
Section 6.04. Waiver of Past Defaults................................. 44
Section 6.05. Control by Majority..................................... 45
Section 6.06. Limitation on Suits..................................... 45
Section 6.07. Rights of Holders to Receive
Payment................................................. 45
Section 6.08. Collection Suit by Trustee.............................. 46
Section 6.09. Trustee May File Proofs of Claim........................ 46
Section 6.10. Priorities.............................................. 47
Section 6.11. Undertaking for Costs................................... 47
<CAPTION>
ARTICLE 7
TRUSTEE
<S> <C> <C>
Section 7.01. Duties of Trustee....................................... 48
Section 7.02. Rights of Trustee....................................... 49
Section 7.03. Individual Rights of Trustee............................ 49
Section 7.04. Trustee's Disclaimer.................................... 50
Section 7.05. Notice of Defaults...................................... 50
Section 7.06. Reports by Trustee to Holders........................... 50
Section 7.07. Compensation and Indemnity.............................. 51
Section 7.08. Replacement of Trustee.................................. 52
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
Section 7.09. Successor Trustee by Merger, etc. ...................... 53
Section 7.10. Eligibility; Disqualification........................... 53
Section 7.11. Preferential Collection of Claims
Against Company......................................... 53
<CAPTION>
ARTICLE 8
DISCHARGE OF INDENTURE
<S> <C> <C>
Section 8.01. Termination of Company's
Obligations............................................. 53
Section 8.02. Application of Trust Money.............................. 55
Section 8.03. Repayment to Company.................................... 55
Section 8.04. Reinstatement........................................... 55
<CAPTION>
ARTICLE 9
AMENDMENTS
<S> <C> <C>
Section 9.01. Without Consent of Holders.............................. 56
Section 9.02. With Consent of Holders................................. 57
Section 9.03. Compliance with Trust Indenture Act..................... 58
Section 9.04. Revocation and Effect of Consents....................... 58
Section 9.05. Notation on or Exchange of
Securities.............................................. 59
Section 9.06. Trustee to Sign Amendments, etc......................... 59
<CAPTION>
ARTICLE 10
SUBORDINATION
<S> <C> <C>
Section 10.01. Agreement to Subordinate................................ 59
Section 10.02. Certain Definitions..................................... 59
Section 10.03. Liquidation; Dissolution;
Bankruptcy.............................................. 60
Section 10.04. Default on Senior Indebtedness.......................... 61
Section 10.05. Acceleration of Securities.............................. 62
Section 10.06. When Distribution Must Be Paid Over.
62
Section 10.07. Notice by Company....................................... 63
Section 10.08. Subrogation............................................. 63
Section 10.09. Relative Rights......................................... 63
Section 10.10. Subordination May Not Be Impaired by
the Company............................................. 64
Section 10.11. Distribution or Notice to
Representative.......................................... 64
Section 10.12. Rights of Trustee and Paying Agent...................... 64
Section 10.13. Authorization to Effect
Subordination........................................... 65
<CAPTION>
ARTICLE 11
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
MISCELLANEOUS
<S> <C> <C>
Section 11.01. Trust Indenture Act Controls............................ 65
Section 11.02. Notices................................................. 65
Section 11.03. Communication by Holders with Other
Holders................................................. 67
Section 11.04. Certificate and Opinion as to
Conditions Precedent.................................... 67
Section 11.05. Statements Required in Certificate
or Opinion.............................................. 67
Section 11.06. Rules by Trustee and Agents............................. 68
Section 11.07. Legal Holidays.......................................... 68
Section 11.08. No Recourse Against Others.............................. 68
Section 11.09. Duplicate Originals..................................... 68
Section 11.10. Governing Law........................................... 69
Section 11.11. No Adverse Interpretation of Other
Agreements.............................................. 69
Section 11.12. Successors.............................................. 69
Section 11.13. Severability............................................ 69
Section 11.14. Counterpart Originals................................... 69
Section 11.15. Table of Contents, Headings, etc........................ 69
</TABLE>
SIGNATURES
EXHBIT A FORM OF SECURITY
4
<PAGE>
INDENTURE dated as of December 1, 1991 among Ferrellgas, Inc., a
Delaware corporation (the "Company") and Norwest Bank Minnesota, National
Association, as trustee ("Trustee").
Each party agrees as follows for the benefit of each other and for the
equal and ratable benefit of the Holders of the 11-5/8% Senior Subordinated
Notes due December 15, 2003 (the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
- ------------ -----------
"Affiliate" of any specified person means any other person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. A person shall be deemed to "control"
(including the correlative meanings, the terms "controlling," "controlled by,"
and "under common control with"), another person if the controlling person
possesses, directly or indirectly, the power to direct or cause the direction of
the management or policies of the controlled person, whether through ownership
of voting securities, by agreement or otherwise; provided, however, that the
-------- -------
beneficial ownership of 10% or more of the voting securities of a person shall
be deemed to constitute control.
"Agent" means any Registrar, Paying Agent or co-registrar.
-----
"Board of Directors" means the Board of Directors of the Company, or
------------------
any authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
------------
"Capital Lease" means, at the time any determination thereof is to be
-------------
made, any lease of property, real or personal, in respect of which the present
value of the minimum rental commitment would be capitalized on a balance sheet
of the lessee in accordance with generally accepted accounting principles.
"Capital Lease Obligation" means, at the time any determination
------------------------
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be so required to be capitalized on the balance sheet in
accordance with generally accepted accounting principles.
"Capital Stock" means any and all shares, interests, participation or
-------------
other equivalents (however designated) of corporate stock or partnership
interests.
"Cash Flow Coverage Ratio" means the ratio of
------------------------
<PAGE>
Consolidated Cash Flow to Fixed Charges.
"Class B Stock" means the Class B Common Stock, no par value, of
-------------
Ferrell.
"Company" means the party named as such above, or any other obligor
-------
hereunder and under the Securities, unless and until a successor replaces it in
accordance with Article 5 hereof and thereafter includes such successor.
"Consolidated Cash Flow" means, with respect to any person for any
----------------------
period, the Consolidated Net Income of such person for such period plus (a) an
amount equal to any net loss realized upon the sale or other disposition of any
asset or property outside of the ordinary course of business (to the extent such
loss was deducted in computing Consolidated Net Income), plus (b) provision for
taxes based on income or profits to the extent such provision for taxes was
included in computing Consolidated Net Income, plus (c) consolidated interest
expense (net of interest income), whether paid or accrued, to the extent such
expense was deducted in computing Consolidated Net Income (including
amortization of original issue discount, non-cash interest payments and the
interest component of capital leases but excluding the amortization of deferred
financing costs), plus (d) all depreciation, amortization and other non-cash
charges, to the extent such depreciation, amortization and other non-cash
charges were deducted in computing Consolidated Net Income (including
amortization of goodwill and other intangibles).
"Consolidated Net Income" means, with respect to any person for any
-----------------------
period, the aggregate of the Net Income of such person and its subsidiaries for
such period, on a consolidated basis, determined in accordance with generally
accepted accounting principles, provided that (i) the Net Income of any person
that (A) is not a subsidiary, (B) is an Unrestricted Subsidiary or (C) is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid to the referent person
or a subsidiary thereof (of which at least 80% of the capital stock having
ordinary voting power for the election of directors or other governing body of
such subsidiary is owned by the referent person directly or indirectly through
one or more subsidiaries), (ii) the Net Income of any person that is a
subsidiary (other than an Unrestricted Subsidiary or a subsidiary of which at
least 80% of the capital stock having ordinary voting power for the election of
directors or other governing body of such subsidiary is owned by the referent
person, directly or indirectly, through one or more subsidiaries) shall be
included only to the extent of the lesser of (a) the amount of dividends or
distributions paid to the referent person or a subsidiary (of which at least 80%
of the capital stock having ordinary voting power for the election of directors
or other governing body of such subsidiary is owned by the referent person
2
<PAGE>
directly or indirectly through one or more subsidiaries), or (b) the Net Income
of such person, and (iii) the Net Income of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded.
"Consolidated Net Worth" means, with respect to any person, the sum of
----------------------
(i) the consolidated equity of the common stockholders of such person and its
consolidated subsidiaries plus (ii) the respective amounts reported on such
person's most recent balance sheet with respect to any series of preferred stock
(other than Disqualified Stock) which by its terms is not entitled to the
payment of dividends unless such dividends may be declared and paid only out of
net earnings in respect of the year of such declaration and payment, but only to
the extent of any cash received by such person upon issuance of such preferred
stock, all as determined on a consolidated basis, less (x) all write-ups (other
than write-ups of tangible assets of a going concern business made within twelve
months after the acquisition of such business) subsequent to the date of the
most recent fiscal quarter in the book value of any asset owned by such person
or a consolidated subsidiary of such person, (y) all investments in
unconsolidated subsidiaries and in persons that are not subsidiaries (except, in
each case, investments in marketable securities) and (z) all unamortized debt
discount and expense and unamortized deferred charges, all of the foregoing
determined in accordance with generally accepted accounting principles.
"Contributions" means any loans, cash advances, investments, capital
-------------
contributions or other transfers of assets by the Company or its subsidiaries to
or for the benefit of any Affiliate of the Company or its subsidiaries, and any
guarantee, and the assumption of any liability (primary or contingent), by the
Company or its subsidiaries with respect to any obligations of any kind of any
Affiliate of the Company or its subsidiaries.
"Corporate Trust Office of the Trustee" shall be at the address of the
-------------------------------------
Trustee specified in Section 11.02 or such other address as the Trustee may give
notice to the Company.
"Credit Agent" means, respectively, each of the persons named as agent
------------
for financial institutions in connection with a Credit Agreement, from time to
time, and their respective successors and assigns.
"Credit Agreement" means, respectively, the Loan Agreement and each
----------------
other agreement with the parties thereto and/or any other persons that provides
for working capital borrowings (including letters of credit) and, in each case,
as amended, modified, extended or renewed or as any or all of the foregoing may
be refunded or refinanced, from time to time.
3
<PAGE>
"Default" means any event which is, or after notice or passage of time
-------
or both would be, an Event of Default.
"Disqualified Stock" means any capital stock that, by its terms (or by
--------------------
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the Holder thereof, in whole or in part, on or prior to
December 15, 2003.
"Employee Stock Investment Plan" means any plan adopted by the Company
------------------------------
and Ferrell pursuant to which selected employees of the Company will be afforded
the opportunity to purchase common stock of Ferrell.
"Equity Interests" means capital stock or other equity interests or
----------------
warrants, options or other rights to acquire, or that are measured in relation
to, capital stock or other equity interests (but excluding any debt security
that is convertible into, or exchangeable for, capital stock and cash payments
to employees under current and future long-term incentive compensation plans).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Existing Indebtedness" means (i) all Indebtedness and capital lease
---------------------
obligations of the Company and its subsidiaries and (ii) all Indebtedness
relating to letters of credit of the Company and its subsidiaries, in each case,
in existence on the date of the Indenture, until such amounts are repaid.
"Ferrell" means Ferrell Companies, Inc., a Kansas corporation and the
-------
parent of the Company.
"Fixed Charges" means, with respect to any person for any period, the
-------------
sum of (a) the consolidated interest expense (net of interest income) of such
person (excluding consolidated interest expense of Unrestricted Subsidiaries),
whether paid or accrued, to the extent such expense was deducted in computing
Consolidated Net Income of such person (including amortization of original issue
discount, non-cash interest payments and the interest component of capital
leases, but not including the amortization of deferred financing charges), plus
(b) the product of (i) the amount of all cash dividend payments on any series of
preferred stock of such person times (ii) a fraction, the numerator of which is
one and the denominator of which is one minus the then current effective
federal, state and local tax rate of such person (expressed as a decimal), in
each case, on a consolidated basis and in accordance with generally accepted
accounting principles.
4
<PAGE>
"Guaranty" means a guaranty (other than by endorsement of negotiable
--------
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Holder" means a person in whose name a security is registered.
------
"Indebtedness" means any indebtedness, whether or not contingent, in
------------
respect of borrowed money or evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in respect
thereof) or representing the balance deferred and unpaid of the purchase price
of any property (including pursuant to capital leases), except any such balance
that constitutes an accrued expense or a trade payable, if and to the extent any
of the foregoing indebtedness would appear as a liability on a balance sheet of
such person prepared on a consolidated basis in accordance with generally
accepted accounting principles, and also includes (without duplication), to the
extent not otherwise included, the guarantee of items that would be included
within this definition.
"Indenture" means this Indenture, as amended or supplemented from time
---------
to time.
"Insurance Company Subsidiary" means any subsidiary of the Company
----------------------------
organized to engage solely and exclusively in the business of reinsuring the
Company's, its subsidiaries' and Affiliates' self insurance programs or other
similar forms of retained insurable risks for their respective retail propane
businesses.
"International Subsidiary" means Ferrellgas International (F.L.)
------------------------
Establishment, Vaduz, a Liechtenstein Anstalt.
"Liberty" means One Liberty Oil Company, a Missouri corporation, which
-------
is a wholly owned subsidiary of Ferrell.
"Lien" means any mortgage, lien, pledge, charge, security interest or
----
other encumbrance of any kind, whether or not filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give any security interest in and any filing or other
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"Loan Agreement" means the Loan Agreement, dated as of July 17, 1990,
--------------
among the Company, Ferrell, Liberty, Wells Fargo Bank, National Association, as
Loan Agent, and certain financial institutions party thereto, as amended,
modified, extended,
5
<PAGE>
renewed, refunded or refinanced from time to time.
"Net Income" of any person means the net income (loss) of such person,
----------
determined in accordance with generally accepted accounting principles,
excluding, however, any gain (but not loss), together with any related provision
for taxes on such gain, realized upon the sale or other disposition (including,
without limitation, dispositions pursuant to sale and leaseback transactions) of
any asset or property outside of the ordinary course of business and any gain
(but not loss) realized upon the sale or other disposition by such person of any
capital stock or marketable securities.
"Net Proceeds" means the aggregate cash proceeds received by the
------------
Company or any of its subsidiaries in respect of any Asset Sale, net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any taxes
paid or payable as a result thereof (after taking into account any available tax
credits or deductions and any tax sharing arrangements), net of all amounts
required to be applied to the repayment of Indebtedness secured by a Lien on the
asset or assets that are the subject of such Asset Sale, and net of any reserve
for adjustment in respect of the sale price of such asset or assets required by
generally accepted accounting principles.
"Obligations" means any principal, interest, penalties, fees,
-----------
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers" means the Chairman of the Board, the President, the Chief
--------
Financial Officer, the Treasurer, any Assistant Treasurer, Controller, Secretary
or any Vice-President of the Company.
"Officers Certificate" means a certificate signed by two Officers, one
--------------------
of whom must be the principal executive officer, principal financial officer or
principal accounting officer of the Company.
"Opinion of Counsel" means an opinion from legal counsel who is
------------------
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Contributions" means (i) investments, advances and loans to
-----------------------
the Company by any subsidiary; (ii) investments, advances and loans by the
Company and any subsidiaries to subsidiaries that are not Unrestricted
Subsidiaries arising in the ordinary course of business and consistent with past
practice; (iii) loans to employees (other than to James E. Ferrell) in the
ordinary course of business not to exceed $750,000 to any one
6
<PAGE>
individual and $3 million in the aggregate outstanding at any one time, provided
that such loans bear interest at a floating rate equal to or higher than the
prime rate as in effect from time to time (based on a 360-day year for actual
days elapsed) and that no Event of Default exists at the time of such loans or
will occur after giving effect to such loans; (iv) loans to James E. Ferrell not
to exceed $10 million in the aggregate outstanding at any one time, provided
that such loans bear interest at a floating rate equal to or higher than the
prime rate as in effect from time to time (based on a 360-day year for actual
days elapsed) and that no Event of Default exists at the time of such loans or
will occur after giving effect to such loans; (v) loans to Ferrell not to exceed
$5 million in the aggregate outstanding at any one time, provided that no Event
of Default exists at the time of such loans or will occur after giving effect to
such loans; (vi) any transfer of assets to subsidiaries permitted by the Sale of
Assets covenant; (vii) transactions involving the Insurance Company Subsidiary
that are permitted by Section 4.09 hereof and (viii) payments by the Company to
Ferrell in accordance with the Tax Sharing Agreement dated December 11, 1986,
among Ferrell and its subsidiaries party thereto, as in effect on the date of
the Indenture; provided that the amount and frequency of such payments are equal
to or less than the payments that the Company would have made to all taxing
authorities if its tax liability was computed under Section 1552(a)(2) of the
Internal Revenue Code and such payments are made by Ferrell on behalf of the
Company to such taxing authorities not later than 30 days following receipt of
such payment from the Company.
"Person" means any individual, corporation, partnership, joint
------
venture, association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"SEC" means the Securities and Exchange Commission.
---
"Securities" means the Securities described above issued under this
----------
Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Security-holder" means a Holder of one or more Securities.
---------------
"Senior Bank Indebtedness" means all Indebtedness and other
------------------------
obligations of the Company now or hereafter existing under the Loan Agreement
(providing for working capital borrowings or letters of credit) and the
promissory notes and letters of credit issued pursuant thereto, whether for
principal, interest (including, without limitation, interest occurring after the
filing of a petition initiating any bankruptcy proceeding), reimbursement
7
<PAGE>
of amounts drawn under letters of credit, fees, expenses or otherwise.
"Senior Notes" means the Series A Floating Rate Senior Notes due 1996,
------------
the Series B Fixed Rate Senior Notes due 1996, the Series C Floating Rate Senior
Notes due 1996 and the Series D Fixed Rate Senior Notes due 1996, all issued
pursuant to an Indenture, dated as of July 1, 1990, among the Company, Ferrell,
Liberty and The Connecticut Bank and Trust Company, National Association, as
Trustee.
"Senior Note Indenture" means the Indenture, dated as of July 1, 1990,
---------------------
by and among the Company, Ferrell, Liberty and The Connecticut Bank and Trust
Company, National Association pursuant to which the Senior Notes are issued, as
amended or supplemented from time to time.
"Senior Note Trustee" means the Trustee under the Senior Note
-------------------
Indenture.
"Subsidiary" means any person of which at least a majority of the
----------
capital stock having ordinary voting power for the election of directors or
other governing body of such person is beneficially owned by the Company
directly and/or through one or more subsidiaries.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
---
77bbbb) as in effect on the date on which this Indenture is qualified under the
TIA.
"Trustee" means the party named as such above until a successor
-------
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Trust Officer" means the Chairman of the Board, the President, any
-------------
Vice-President or any other officer or assistant officer of the Trustee assigned
by the Trustee to administer its corporate trust matters.
"Unrestricted Subsidiary" means Ferrell Propane Gas Company of
-----------------------
Missouri and any subsidiary formed or acquired after the date hereof that is
designated by the Board of Directors of the Company to be an Unrestricted
Subsidiary as of the date of its formation or acquisition and prior to the
transfer of any assets thereto.
"U.S. Government Obligations" means direct obligations of the United
---------------------------
States of America, or any agency or instrumentality thereof for the payment of
which the full faith and credit of the United States of America is pledged.
8
<PAGE>
Section 1.02. Other Definitions.
- ------------ -----------------
<TABLE>
<CAPTION>
Defined in
Term Section
-------
<S> <C>
"Affiliate Transaction".......................................... 4.11(a)
"Asset-Sale"..................................................... 4.10(a)
"Asset Sale Offer"............................................... 3.09
"Bankruptcy Law"................................................. 6.01
"Blockage Notice"................................................ 10.02
"Change of Control".............................................. 4.16
"Change of Control Date"......................................... 4.16
"Change of Control Offer"........................................ 4.16
"Change of Control Payment Date"................................. 4.16
"Custodian"...................................................... 6.01
"Event of Default"............................................... 6.01
"incur".......................................................... 4.09
"Legal Holiday".................................................. 11.07
"Mandatory Redemption Date"...................................... 3.08
"Paying Agent"................................................... 2.03
"Registrar"...................................................... 2.03
"Representative"................................................. 10.02
"Restricted Payments"............................................ 4.07
"Senior Default@'................................................ 10.02
"Senior Indebtedness"............................................ 10.02
"U.S. Government Obligations".................................... 8.01
</TABLE>
Section 1.03. Incorporation by Reference of Trust Indenture Act.
- ------------ -------------------------------------------------
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Securities and the Subsidiary
--------------------
Guaranties;
"indenture security holder" means a Security-holder;
-------------------------
"indenture to be qualified" means this Indenture;
-------------------------
"indenture trustee" or "institutional trustee" means the Trustee;
----------------- ---------------------
"obligor" on the Securities means the Company or any successor obligor
-------
upon the Securities.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined
9
<PAGE>
by SEC rule under the TIA have the meanings so assigned to them.
Section 1.04. Rules of Construction.
- ------------ ---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles in the United
States;
(3) references to "generally accepted accounting principles" shall
mean generally accepted accounting principles in effect in the United States as
of the date hereof;
(4) "or" is not exclusive;
(5) words in the singular include the plural, and in the plural
include the singular; and
(6) provisions apply to successive events and transactions.
ARTICLE 2
THE SECURITIES
Section 2.01. Form and Dating.
- ------------ ---------------
The Securities and the Trustee's certificate of authentication shall
be substantially in the form of Exhibit A, the terms of which are incorporated
in and made a part of this Indenture. The Securities may have notations,
legends or endorsements required by law, stock exchange rule, agreements to
which the Company is subject or usage. Each Security shall be dated the date of
its authentication. The Securities shall be issued initially in denominations
of $1,000 and integral multiples thereof.
Section 2.02. Execution and Authentication.
- ------------ ----------------------------
An Officer of the Company shall sign the Securities for the Company by
manual or facsimile signature. The Company's seal shall be reproduced on the
Securities.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall
nevertheless be valid.
A Security shall not be valid until authenticated by the manual
signature of the Trustee. The signature of the Trustee
10
<PAGE>
shall be conclusive evidence that the Security has been authenticated under this
Indenture. The form of Trustee's certificate of authentication to be borne by
the Securities shall be substantially as set forth in Exhibit A hereto.
The Trustee shall, upon a written order of the Company signed by two
Officers, authenticate Securities for original issue up to an aggregate
principal amount stated in paragraph 4 of the Securities. The aggregate
principal amount of Securities outstanding at any time may not exceed the amount
set forth herein except as provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. Unless limited by the terms of such
appointment, an authenticating agent may authenticate securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate.
Section 2.03. Registrar and Paving Agent.
- ------------ --------------------------
The Company shall maintain (i) an office or agency where Securities
may be presented for registration of transfer or for exchange ("Registrar") and
(ii) an office or agency where Securities may be presented for payment ("Paying
Agent"). The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company may appoint one or more co-registrars and
one or more additional paying agents. The term "Paying Agent" includes any
additional paying agent. The Company may change any Paying Agent, Registrar or
co-registrar without notice to any Security-holder. The Company shall notify
the Trustee of the name and address of any Agent not a party to this Indenture.
If the Company fails to appoint or maintain another entity as Registrar or
Paying Agent, the Trustee shall act as such. The Company or any of its
subsidiaries may act as Paying Agent, Registrar or co-registrar. The Company
shall enter into an appropriate agency agreement with any Agent not a party to
this Indenture, which shall incorporate the provisions of the TIA. The
agreement shall implement the provisions of this Indenture that relate to such
Agent. The Company shall notify the Trustee of the name and address of any such
Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails
to give the foregoing notice, the Trustee shall act as such, and shall be
entitled to appropriate compensation in accordance with Section 7.07 hereof.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of notices and demands in connection with the Securities.
11
<PAGE>
Section 2.04. Paying Agent to Hold Money in Trust.
- ------------ -----------------------------------
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Security-holders or the Trustee all money held by the Paying Agent for the
payment of principal or interest on the Securities, and will notify the Trustee
of any default by the Company in making any such payment. While any such
default continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent (if other than the Company) shall have no further liability for the
money delivered to the Trustee. If the Company acts as Paying Agent, it shall
segregate and hold in a separate trust fund for the benefit of the Security-
holders all money held by it as Paying Agent.
Section 2.05. Security-holder Lists.
- ------------ ---------------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Security-holders and shall otherwise comply with TIA (S) 312 (a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee at least
seven Business Days before each interest payment date and at such other times as
the Trustee may request in writing a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of Security-
holders, including the aggregate principal amount thereof, and the Company shall
otherwise comply with TIA S 312(a).
Section 2.06. Transfer and Exchange.
- ------------ ---------------------
When Securities are presented to the Registrar or a co-registrar with
a request to register, transfer or exchange them for an equal principal amount
of securities of other denominations, the Registrar shall register the transfer
or make the exchange if its requirements for such transactions are met;
provided, however, that any Security presented or surrendered for registration
- -------- -------
of transfer or exchange shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar and the Trustee
duly executed by the Holder thereof or by his attorney duly authorized in
writing. To permit registrations of transfer and exchanges, the Company shall
issue and the Trustee shall authenticate Securities at the Registrar's request,
subject to such rules as the Trustee may reasonably require.
Neither the Company nor the Registrar shall be required (i) to issue,
register the transfer of or exchange Securities during a period beginning at the
opening of business on a Business Day 15 days before the day of any selection of
Securities for redemption under Section 3.02 and ending at the close of business
12
<PAGE>
on the day of selection, (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part, or (iii) to register the
transfer or exchange of a Security between the record date and the next
succeeding interest payment date.
No service charge shall be made to any Security-holder for any
registration of transfer or exchange (except as otherwise expressly permitted
herein), but the Company may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith
(other than such transfer tax or similar governmental charge payable upon
exchanges pursuant to Sections 2.10, 3.06 or 9.05 hereof, which shall be paid by
the Company).
Prior to due presentment for registration of transfer of any Security,
the Trustee, any Agent and the Company may deem and treat the person in whose
name any Security is registered as the absolute owner of such Security for the
purpose of receiving payment of principal of and interest on such Security and
for all other purposes whatsoever, whether or not such Security is overdue, and
neither the Trustee, any Agent nor the Company shall be affected by notice to
the contrary.
Section 2.07. Replacement Securities.
- ------------ ----------------------
If any mutilated Security is surrendered to the Trustee, or the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, the Company shall issue and the
Trustee, upon the written order of the Company signed by two Officers of the
Company, shall authenticate a replacement Security if the Trustee's requirements
for replacements of Securities are met. If required by the Trustee or the
Company, an indemnity bond must be supplied by the Holder that is sufficient in
the judgment of the Trustee and the Company to protect the Company, the Trustee,
any Agent or any authenticating agent from any loss which any of them may suffer
if a Security is replaced. The Company and the Trustee may charge for its
expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
Section 2.08. Outstanding Securities.
- ------------ ----------------------
The Securities outstanding at any time are all the Securities
authenticated by the Trustee except those cancelled by it, those delivered to it
for cancellation and those described in this Section as not outstanding.
13
<PAGE>
If a Security is replaced pursuant to Section 2.07 hereof, it ceases
to be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the principal amount of any Security is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
Subject to Section 2.09 hereof, a Security does not cease to be
outstanding because the Company or an Affiliate of the Company holds the
Security.
Section 2.09. Treasury Securities.
- ------------ -------------------
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or any Affiliate of the Company shall be considered as though not
outstanding, except that for purposes of determining whether the Trustee shall
be protected in relying on any such direction, waiver or consent, only
Securities which a Trust Officer knows to be so owned shall be so considered.
Section 2.10. Temporary Securities.
- ------------ --------------------
Until definitive securities are ready for delivery, the company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee, upon
receipt of the written order of the Company signed by two Officers of the
Company, shall authenticate definitive securities in exchange for temporary
Securities. Until such exchange, temporary Securities shall be entitled to the
same rights, benefits and privileges as definitive Securities.
Section 2.11. Cancellation.
- ------------ ------------
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration
of transfer, exchange, payment, replacement or cancellation. The Company may
not issue new Securities to replace Securities that it has redeemed or paid or
that have been delivered to the Trustee for cancellation. All cancelled
Securities held by the Trustee shall be destroyed and certification of their
destruction delivered to the Company unless by a written order, signed by an
Officer of the Company, the Company shall direct that cancelled Securities be
14
<PAGE>
returned to it.
Section 2.12. Defaulted Interest.
- ------------ ------------------
If the Company defaults in a payment of interest on the Securities, it
shall pay the defaulted interest in any lawful manner, plus, to the extent
lawful, interest payable on the defaulted interest, to the persons who are
Security-holders on a subsequent special record date, which date shall be at the
earliest practicable date but in all events at least five Business Days prior to
the payment date, in each case at the rate provided in the Securities and in
Section 4.01 hereof. The Company shall, with the consent of the Trustee, fix or
cause to be fixed each such special record date and payment date. At least 15
days before the special record date, the Company (or the Trustee, in the name of
and at the expense of the Company) shall mail to Security-holders a notice that
states the special record date, the related payment date and the amount of such
interest to be paid.
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee.
- ------------ ------------------
If the Company elects to redeem Securities pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 45 days but not more than 60 days (unless a shorter time period shall
have been agreed to in writing by the Trustee) before a redemption date, an
Officers' Certificate setting forth the Section of this Indenture pursuant to
which the redemption shall occur, the redemption date, the principal amount of
Securities to be redeemed and the redemption price.
If on the redemption date any Indebtedness is outstanding under the
Credit Agreement or the Senior Notes, the Company shall deliver the notice set
forth in the preceding paragraph to the Credit Agent (if Indebtedness is
outstanding under the Credit Agreement) and to the Senior Note Trustee (if
Senior Notes are outstanding).
If the Company is required to make an offer to redeem Securities
pursuant to the provisions of Section 3.09 hereof, it shall notify the Trustee
in writing of the Section of this Indenture pursuant to which the redemption
shall occur, the redemption date, the principal amount of Securities to be
redeemed and the redemption price and shall furnish to the Trustee an Officers'
Certificate to the effect that (a) the Company or one of its subsidiaries has
effected an Asset Sale (as hereinafter defined) and (b) the conditions set forth
in Section 4.10 have been satisfied.
15
<PAGE>
Section 3.02. Selection of Securities to Be Redeemed.
- ------------ --------------------------------------
If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed among the Holders of the Securities
pro rata or in accordance with a method the Trustee considers fair and
appropriate (and in such manner as complies with applicable legal and stock
exchange requirements, if any). In the event of partial redemption by lot, the
particular Securities to be redeemed shall be selected, unless otherwise
provided herein, not less than 30 nor more than 60 days prior to the redemption
date by the Trustee from the outstanding Securities not previously called for
redemption.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Security selected for
partial redemption, the principal amount thereof to be redeemed. Securities and
portions of them selected shall be in amounts of $1,000 or whole multiples of
$1,000; except that if all of the Securities of a Holder are to be redeemed, the
entire outstanding amount of Securities held by such Holder, even if not a
multiple of $1,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to Securities called for
redemption also apply to portions of Securities called for redemption.
In the event the Company is required to make an offer to redeem
securities pursuant to Sections 3.09 and 4.10 hereof and the amount of the Net
Proceeds from the Asset Sale is not evenly divisible by $1,000, the Trustee
shall promptly refund to the company any remaining Net Proceeds.
Section 3.03. Notice of Redemption.
- ------------ ---------------------
Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail a notice
of redemption to each Holder whose Securities are to be redeemed at its
registered address.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
redemption date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion will be
issued;
(4) the name and address of the Paying Agent;
16
<PAGE>
(5) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making such redemption
payment, interest on Securities called for redemp-tion ceases to accrue on
and after the redemption date;
(7) the paragraph of the Securities and/or Section of this Indenture
pursuant to which the Securities called for redemption are being redeemed;
and
(8) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; however, that the Company
-------
shall deliver to the Trustee, at least 45 days prior to the redemption date, an
Officers' Certificate requesting that the Trustee give such notice and setting
forth the information to be stated in such notice as provided in the preceding
paragraph.
Section 3.04. Effect of Notice Of Redemption.
- ------------ ------------------------------
Once notice of redemption is mailed in accordance with Section 3.03
herein, Securities called for redemption become due and payable on the
redemption date at the redemption price.
Section 3.05. Deposit of Redemption Price.
- ------------ ---------------------------
One Business Day prior to the redemption date, the Company shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Securities to be redeemed on
that date. The Trustee or the Paying Agent shall return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price of, and accrued interest on,
all Securities to be redeemed.
Interest on the Securities to be redeemed will cease to accrue on the
applicable redemption date, whether or not such Securities are presented for
payment, if the Company makes the redemption payment. If any Security called
for redemption shall not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, interest will be
paid on the unpaid principal, from the redemption date until such principal is
paid, and to the extent lawful on any interest not paid on such unpaid
principal, in each case at the rate provided in the Securities and in Section
4.01 hereof.
17
<PAGE>
Section 3.06. Securities Redeemed in Part.
- ------------ ---------------------------
Upon surrender of a Security that is redeemed in part, the Company
shall issue and the Trustee shall authenticate for the Holder at the expense of
the Company a new Security equal in principal amount to the unredeemed portion
of the Security surrendered.
Section 3.07. Optional Redemption.
- ------------ -------------------
The Company may redeem all or any portion of the Securities at any
time at 100% of the principal amount thereof, plus accrued interest to the
redemption date, if redeemed on or after December 15, 1998. The Securities may
not be so redeemed before December 15, 1998. Any redemption pursuant to this
Section 3.07 shall be made pursuant to the provisions of Sections 3.01 through
3.06 hereof.
Section 3.08. Mandatory Redemption.
- ------------ --------------------
The company shall have no mandatory redemption or sinking fund
obligations with respect to the Securities. However, the Company shall be
required to make an offer to repurchase securities under certain circumstances
pursuant to Sections 4.10 and 4.16 hereof.
Section 3.09. Offer to Redeem by Application of Net Proceeds.
- ------------ ----------------------------------------------
If applicable, within 30 days after the occurrence of any event
requiring the Company to offer to redeem Securities pursuant to the provisions
of Section 4.10 hereof, the Company shall deliver to the Trustee a notice of
redemption pursuant to Section 3.01 hereof (without regard to the number of
prior days notice required). Within 10 days thereafter, the Trustee shall
select the Securities to be offered to be redeemed in accordance with Section
3.02 hereof. Within 10 days thereafter, the Company shall mail or cause the
Trustee to mail (in the Company's name and at its expense and pursuant to an
Officers' Certificate as required by Section 3.03 hereof) an offer to redeem
(the "Asset Sale Offer") to each Holder of Securities whose Securities are to be
offered to be redeemed. The Asset Sale Offer shall be made in compliance with
all applicable laws, including, without limitation, all applicable federal and
state securities laws. The Asset Sale Offer shall identify the Securities to
which it relates and shall contain the information required by clauses (1)
through (8) (other than clause (6)) of Section 3.03 hereof and shall provide for
a redemption date no earlier than 65 days after the giving of the Asset Sale
Offer. The redemption price shall be 100% of the principal amount of the
Securities, plus accrued interest to the redemption date.
A Holder receiving an Asset Sale Offer may elect to have redeemed the
Securities to which the Asset Sale Offer relates by
18
<PAGE>
completing the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Security and providing such form to the Trustee and the Company on or
before 35 days preceding the redemption date. A Holder may not elect to have
redeemed less than all of the Securities to which the Asset Sale Offer relates.
In the event that less than all of the Holders receiving an Asset Sale Offer
elect to have Securities redeemed, the Company or the Trustee (in the Company's
name and at its expense and pursuant to an Officer's Certificate as required by
Section 3.03 hereof) shall, no later than 25 days preceding the redemption date,
mail an additional Asset Sale Offer to the Holders of the Securities, if any,
who have provided written notice of election to redeem Securities and whose
Securities have not been completely redeemed. Such additional Asset Sale Offer
shall be deemed accepted by the Holder unless such Holder provides written
notice of non-acceptance to the Trustee and to the Company on or before 15 days
preceding the redemption date. The Trustee shall thereafter mail a notice of
redemption in accordance with Section 3.03 hereof at least 10 days prior to the
redemption date.
Other than as specifically provided in this Section 3.09, any
redemption pursuant to this Section 3.09 shall be made pursuant to the
provisions of Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Securities.
- ------------ ---------------------
The Company shall pay the principal of and interest on the Securities
on the dates and in the manner provided in the securities. Principal and
interest shall be considered paid on the date due if the Paying Agent, other
than the Company or a subsidiary of the Company, holds by 11:00 A.M., New York
City time, on that date money deposited by the Company in immediately available
funds and designated for and sufficient to pay all principal and interest then
due; provided, however, that principal and interest shall not be considered paid
-------- -------
within the meaning of this Section 4.01 if money is held by the Paying Agent for
the benefit of holders of Senior Indebtedness pursuant to the provisions of
Article 10 hereof. Such Paying Agent shall return to the Company, no later than
five days following the date of payment, any money (including accrued interest)
that exceeds such amount of principal and interest paid on the Securities.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Securities
to the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of
19
<PAGE>
interest (without regard to any applicable grace period) at the same rate to the
extent lawful.
Section 4.02. Maintenance of Office or Agency.
- ------------ -------------------------------
The Company will maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee, Registrar or
co-registrar) where Securities may be surrendered for registration of transfer
or exchange and where notices and demands to or upon the Company in respect of
the Securities and this Indenture may be served. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the securities may be presented or surrendered for any
or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
- -------- -------
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York for such purposes. The Company will
give prompt written notice to the Trustee of any such designation or rescission
and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Off ice of the
Trustee as one such of f ice or agency of the Company in accordance with Section
2.03.
Section 4.03. SEC Reports.
- ------------ -----------
(a) The Company shall file with the Trustee within 15 days after
filing with the SEC copies of the annual reports and the information, documents,
and other reports (or copies of such portions of any of the foregoing as the SEC
may by rules and regulations prescribe) which the Company is required to file
with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. If the
Company is not subject to the requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall continue to file with the Trustee on the same
timely basis its financial statements, including any notes thereto (and, with
respect to annual reports, an auditors' report by an accounting firm of
established national reputation) and a "Management's Discussion and Analysis of
Financial Condition and Results of operations," comparable to that which would
have been required to appear in such annual reports, information and other
documents as it would file if it were subject to the requirements of Section 13
or 15(d) of the Exchange Act. The Company shall also comply with the
provisions of TIA (S) 314(a).
20
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(b) So long as any of the Securities remain outstanding, the Company
shall cause an annual report to stockholders and each quarterly or other
financial report furnished by it generally to stockholders to be filed with the
Trustee and mailed to the Holders at their addresses appearing in the register
of Securities maintained by the Registrar, in each case, at the time of such
mailing or furnishing to stockholders. If the Company is not required to
furnish annual or quarterly reports to its stockholders pursuant to the Exchange
Act, the Company shall cause its financial statements, including any notes
thereto (and, with respect to annual reports, an auditors' report by an
accounting firm of established national reputation) and a "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
comparable to that which would have been required to appear in annual or
quarterly reports filed under Section 13 or 15(d) of the Exchange Act to be so
filed with the Trustee and mailed to the Holders within 120 days after the end
of each of the Company's fiscal years and within 60 days after the end of each
of the first three quarters of each such fiscal year.
(c) The Company shall provide the Trustee with a sufficient number of
copies of all reports and other documents and information that the Trustee may
be required to deliver to the Security-holders under this Section 4.03.
Section 4.04. Compliance Certificate.
- ------------ ----------------------
(a) The Company shall deliver to the Trustee, within 120 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether each has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his knowledge each has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions hereof (or, if a Default or Event of Default
shall have occurred, describing all such Defaults or Events of Default of which
he may have knowledge and what action each is taking or proposes to take with
respect thereto) and that to the best of his knowledge no event has occurred and
remains in existence by reason of which payments on account of the principal of
or interest, if any, on the Securities are prohibited or if such event has
occurred, a description of the event and what action each is taking or proposes
to take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03 above shall be accompanied by a
written statement
21
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of the Company's independent public accountants (who shall be a firm of
established national reputation reasonably satisfactory to the Trustee) that in
making the examination necessary for certification of such financial statements
nothing has come to their attention which would lead them to believe that the
Company has violated any provisions of Sections 4.01, 4.05, 4.07, 4.09, 4.10,
4.11, 4.12, 4.13 or 4.15 hereof or of Article 5 of this Indenture or, if any
such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any person for any failure to obtain knowledge of any such
violation.
(c) The Company will, so long as any of the Securities are
outstanding, deliver to the Trustee, forthwith upon any officer becoming aware
of (i) any Default or Event of Default or (ii) any event of default under any
other mortgage, indenture or instrument as that term is used in Section 6.01(5),
an Officers' Certificate specifying such Default, Event of Default or default
and what action the Company is taking or proposes to take with respect thereto.
Section 4.05. Taxes.
- ------------ -----
The Company shall, and shall cause each of its subsidiaries to, pay
prior to delinquency all material taxes, assessments, and governmental levies
except as contested in good faith and by appropriate proceedings.
Section 4.06. Stay, Extension and Usury Laws.
- ------------ ------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resorting to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law has
been enacted.
Section 4.07. Limitation on Restricted Payments.
- ------------ ---------------------------------
(a) Subject to the other provisions of this Section 4.07, the Company
will not, and will not permit any of its subsidiaries to, directly or
indirectly:
(i) declare or pay any dividend or make any dis-tribution on
account of the Company's or any of its subsidiaries' capital stock or other
Equity Interests (other
22
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than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or such subsidiary or dividends or
distributions payable to the Company);
(ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company or any subsidiary or other Affiliate of
the Company (other than any such Equity Interests owned by the Company or
any subsidiary of the Company);
(iii) voluntarily purchase, redeem or otherwise acquire or retire
for value any Indebtedness (other than the 12-3/4% Senior Subordinated
Notes due 1996 and the 13-3/8% Subordinated Debentures due 1998) that is
pari passu with or subordinated to the Securities; or
----------
(iv) make any Contributions;
(all of the foregoing dividends, distributions, purchases, redemptions or other
acquisitions, retirements, prepayments or Contributions set forth in clauses (i)
through (iv) above being collectively referred to as "Restricted Payments"), if
at the time of such Restricted Payment:
(A) a Default or Event of Default shall have occurred and
be continuing or shall occur as a consequence thereof; or
(B) immediately after such Restricted Payment and after
giving effect thereto on a pro forma basis, the Consolidated Net Worth
of the Company shall be less than $75 million; or
(C) the Cash Flow Coverage Ratio of the Company for its
four full fiscal quarters immediately preceding the date on which such
Restricted Payment is made, on a pro forma basis as if such Restricted
Payment had been made at the beginning of such four quarter period,
shall be less than 2 to 1; or
(D) such Restricted Payment, together with the aggregate of
all other Restricted Payments made after the date hereof, exceeds (x)
25% of the amount of the Consolidated Net Income of the Company for
the period (taken as one accounting period) from the beginning of the
first quarter immediately after the first date on which the Company's
Consolidated Net Worth exceeds $75 million to the end of the Company's
most recently ended fiscal quarter at the time of such Restricted
Payment (or, if Consolidated Net Income for such period is a deficit,
100% of such deficit) plus (y) 100% of the
23
<PAGE>
aggregate net cash proceeds received by the Company from the issue or
sale after the date hereof of Equity Interests (other than Equity
Interests issued or sold to a subsidiary of the Company and other than
Disqualified Stock).
(b) Notwithstanding anything to the contrary contained herein, the
provisions of this Section 4.07 shall not prohibit:
(i) cash payments by the Company or dividends to Ferrell to
repurchase Class B Stock; provided, however, that such payments or
-------- -------
dividends shall be permitted only if (A) used for directly purchasing (by
itself or through its agent) Class B Stock originally issued by Ferrell on
or prior to July 28, 1988, (B) such Class B Stock is not, directly or
indirectly, owned by any Affiliate of Ferrell, and (C) the cash payments or
dividends to repurchase the Class B Stock do not exceed $34 million in the
aggregate;
(ii) the payment of any dividend within sixty days after the date
of declaration thereof, if at said date of declaration such payment would
have complied with the limitations set forth above;
(iii) distributions by the Company to Ferrell to pay
administrative expenses actually paid by Ferrell in the ordinary course of
business and consistent with past practices in an aggregate amount not to
exceed $4 million in the aggregate in any fiscal year;
(iv) cash payments by the Company or dividends to Ferrell to
repurchase Equity Interests of Ferrell or the Company held by employees
(other than James E. Ferrell) upon termination of such employee's
employment with the Company in connection with the Company's Employee Stock
Investment Plan, not to exceed an aggregate of $3 million in any fiscal
year; provided, however, that in the event the Company has declared
dividends to Ferrell pursuant to this Section 4.07(b) (iv) and Ferrell
resells any Equity Interests that have been repurchased from employees
pursuant to the Employee Stock Investment Plan, the proceeds of such
resale, up to the aggregate amount of the dividends previously declared,
shall be contributed to the capital of the Company;
(v) purchases of Equity Interests of subsidiaries of the Company
owned by persons who are not Affiliates of the Company;
(vi) the retirement of any Equity Interests in exchange for, or
out of the net proceeds of the substantially concurrent sale (other than to
a subsidiary of the Company), of, other Equity Interests (other than any
Disqualified
24
<PAGE>
Stock), provided that in the case of any such net proceeds such amounts
shall be included in all calculations required by clause (D) of Section
4.07(a) above;
(vii) pro rata dividends and other distributions by a subsidiary
on its Equity Interests;
(viii) if the Company forms an Employee Stock Ownership Plan,
purchases by the Employee Stock Ownership Plan of Equity Interests of
Ferrell;
(ix) Contributions to Unrestricted Subsidiaries for the purpose
of acquiring retail propane businesses, not to exceed $20 million
outstanding at any one time, in each case valued at the time such
Contributions are made; and
(x) Permitted Contributions.
Not later than the date of making any Restricted Payment (other than
those payments specifically permitted pursuant to the provisions of (b) above),
the Company shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.07 were computed which calculations may
be based upon the Company's latest available internal financial statements.
Section 4.08. Limitation on Dividend and Other Payment Restrictions Affecting
- ------------ ---------------------------------------------------------------
Subsidiaries.
------------
The Company will not, and will not permit any of its subsidiaries
(other than Unrestricted Subsidiaries) to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any subsidiary to (a) pay dividends or make any
other distributions on its capital stock or any other interest or participation
in, or measured by, its profits, owned by the Company or any of its
subsidiaries, or pay any Indebtedness owed to the Company or any of its
subsidiaries, (b) make loans or advances to the Company or any of its
subsidiaries, or (c) transfer any of its properties or assets to the Company or
any of its subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (i) this Indenture and the Securities, (ii) applicable
law, (iii) any instrument governing Indebtedness or capital stock of a person
acquired by the Company or any of its subsidiaries at the time of such
acquisition (but not in connection with such acquisition), including any
renewals, refundings or refinancings thereof (provided that the restrictions
contained in such renewals, refundings or refinancings are no more restrictive
than those contained in such instrument at the time of such acquisition), which
encumbrance or restriction is not applicable to any person, or the properties or
assets of any person, other than the person,
25
<PAGE>
or the property or assets of the person, so acquired or its subsidiaries, (iv)
by reason of customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (v) with respect
to clause (c) above, purchase money obligations for property acquired in the
ordinary course of business, (vi) of restrictions and encumbrances imposed on
the Insurance Company Subsidiary by (a) the laws, rules and regulations
applicable to insurance companies in the state of its incorporation and in those
jurisdictions where it may become authorized to do business or (b) the terms of
any reinsurance agreement or guaranty thereof or indemnification agreement with
respect thereto, or (vii) Existing Indebtedness, or any amendment, modification,
renewal, extension, replacement, refinancing or refunding thereof or any Credit
Agreement; provided, that the restrictions contained in any such amendment,
modification, renewal, extension, replacement, refinancing or refunding of
Existing Indebtedness or in any Credit Agreement is no less favorable in all
material respects to the Holders of the Securities than those restrictions
contained in Existing Indebtedness.
Section 4.09. Limitation on Additional Debt.
- ------------ -----------------------------
The Company will not, and will not permit any of its subsidiaries to,
directly or indirectly, "incur," (as hereinafter defined) any Indebtedness
(other than Indebtedness between or among the Company and its subsidiaries
(other than Unrestricted Subsidiaries) unless the Company's Cash Flow Coverage
Ratio for the four fiscal quarter period ending with the most recently completed
fiscal quarter of the Company next preceding the date such additional
Indebtedness is incurred would have been at least 1.5 to 1, determined on a pro
forma basis (including a pro forma application of the net proceeds of such
Indebtedness) as if the additional Indebtedness had been incurred at the
beginning of such fiscal quarter period; provided, however, that such
-------- -------
calculation shall give effect on a pro forma basis to (A) the incurrence of any
Indebtedness in connection with any acquisition of any person, business,
property or assets and in connection with any acquisitions consummated during
such period, (B) the application of the Net Proceeds of such Indebtedness and
(C) the Consolidated Cash Flow generated by such acquired person, business,
property or assets, in each case, on a pro forma basis giving effect to such
incurrence, application of proceeds and Consolidated Cash Flow as if such
acquisition had occurred at the beginning of such four-quarter period. For
purposes of the foregoing proviso, Consolidated Cash Flow generated by an
acquired person, business, property or asset shall be determined by the actual
gross profit (revenues minus cost of goods sold) of such acquired person,
business, property or asset during the immediately preceding four full fiscal
quarters minus the pro forma expenses that would have been incurred by the
Company in the operation of such acquired person, business, property or asset
during such period computed on the basis of (i) personnel expenses for employees
retained by the
26
<PAGE>
Company in the operation of the acquired person, business, property or asset and
(ii) non-personnel costs and expenses incurred by the Company on a per gallon
basis in the operation of the Company's business at similarly situated Company
facilities.,
Notwithstanding the foregoing, the limitations of this Section 4.09
shall not apply to (i) the incurrence by the Company of (v) Senior Bank
Indebtedness in a principal amount not to exceed $50 million, provided that such
principal amount may exceed $50 million if such excess arises from any amendment
to the Loan Agreement and the Company is permitted to incur Indebtedness equal
to such excess under the Cash Flow Coverage test set forth above at the time
such amendment is executed by the Company, (w) without duplication, any
Indebtedness pursuant to a Credit Agreement providing for working capital
borrowings or letters of credit purposes if the Indebtedness represented by such
Credit Agreement was permitted to be incurred under the Cash Flow Coverage Ratio
test set forth above at the time such Credit Agreement was executed by the
Company, (x) the Senior Notes in a principal amount not to exceed $250 million
less the aggregate principal amount of all Senior Notes redeemed, retired, or
otherwise acquired by the Company from time to time since the date of the
Indenture, (y) the Securities, and (z) Existing Indebtedness; (ii) the
incurrence by the Company or its subsidiaries of Indebtedness in connection with
acquisitions of retail propane businesses in favor of the sellers of such
businesses in an amount not to exceed $15 million in any fiscal year or $45
million in the aggregate outstanding at any one time; (iii) the incurrence or
guarantee of up to $25 million in aggregate principal amount of Indebtedness
outstanding at any one time for the purpose of establishing an Employee Stock
ownership Plan; (iv) surety bonds and appeal bonds required in the ordinary
course of business or in connection with the enforcement of rights or claims of
the Company or any of its subsidiaries or in connection with judgments that do
not result in a Default under the Indenture; (v) Indebtedness under interest
rate swap agreements; (vi) the incurrence by the Company or the Insurance
Company Subsidiary of Indebtedness owing directly or indirectly to its
insurance carriers (without duplication) in connection with the Company's, its
subsidiaries, and its Affiliates' self insurance programs or other similar
forms of retained insurable risks for their respective retail propane
businesses, consisting of reinsurance agreements and indemnification
agreements (and guarantees of the foregoing) secured by letters of credit,
provided that the Indebtedness evidenced by such reinsurance agreements,
indemnification agreements, guarantees and letters of credit shall be counted
(without duplication) for purposes of all calculations pursuant to the Cash
Flow Coverage Ratio set forth above; (vii) the incurrence of Indebtedness by
Unrestricted Subsidiaries, provided that such Indebtedness is non-recourse to
the Company and its subsidiaries (other than Unrestricted Subsidiaries) and
their respective assets; (viii) the incurrence by the Company of any
Indebtedness that extends, renews, refunds, replaces or refinances
27
<PAGE>
any Indebtedness permitted by clause (i) of this paragraph (the "Refinancing
Indebtedness"); provided, however, that such Refinancing Indebtedness (A) has a
-------- -------
principal amount not in excess of the principal amount of the Indebtedness being
so extended, renewed, refunded, replaced or refinanced and (B) ranks in right of
payment no more senior to the Securities than did the' Indebtedness being
extended, renewed, refunded, replaced or refinanced; (ix) Indebtedness of the
International Subsidiary under letters of credit issued for its own account,
provided that the Company would have been permitted to incur such Indebtedness
under a Credit Agreement at such time; and (x) the incurrence by the Company of
Indebtedness under any guarantee of the obligations of the International
Subsidiary permitted clause (ix) hereof.
The terms "incur" or "incurred" or "incurrence" with respect to any
Indebtedness shall mean to create, issue, assume, guarantee, or otherwise become
directly or indirectly liable with respect to such Indebtedness.
Section 4.10. Sale of Assets.
- ------------ --------------
(a) The Company will not, and will not permit any of its subsidiaries
(other than Unrestricted Subsidiaries) to, (i) sell, lease, convey or otherwise
dispose of any assets (including by way of a sale-and-leaseback) other than in
the ordinary course of business (provided that the sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company shall
be governed by the provisions of Section 5.01 hereof), or (ii) issue or sell
equity securities of any of its subsidiaries (other than Unrestricted
Subsidiaries), in the case of each of clauses (i) and (ii), in one or a series
of related transactions involving assets or securities having a fair market
value in excess of $5 million in the aggregate, (each of the foregoing, an
"Asset Sale"), unless at least 90% of the consideration therefor received by the
Company or such subsidiary is in the form of cash; provided, however, that the
-------- -------
amount of (x) any liabilities (as shown on the Company's or such subsidiary's
most recent balance sheet or in the notes thereto), of the Company or any
subsidiary that are assumed by the transferee of any such assets and (y) any
notes, other obligations or other marketable securities received by the Company
or any such subsidiary from such transferee that are immediately converted by
the Company or such subsidiary into cash, shall be deemed to be cash for
purposes of this provision; and provided further, that the 90% limitation
-------- -------
referred to above shall not apply to any Asset Sale in which the cash portion of
the consideration received therefor is equal to or greater than what the net
after-tax proceeds would have been had such Asset Sale complied with the
aforementioned 90% limitation.
(b) The Company shall apply 100% of the Net Proceeds from an Asset
Sale first to the prepayment of any Senior
28
<PAGE>
Indebtedness (or any Indebtedness which refunds or refinances the same)
outstanding at the time of the consummation of such Asset Sale. If (x) no
Senior Indebtedness is outstanding (or any Indebtedness that refunds or
refinances the same) or (y) the Holders of such Indebtedness elect not to
receive the payments provided for in the previous sentence, or (z) the
application of such Net Proceeds results in the complete prepayment of all such
Indebtedness (or all Indebtedness that refunds or refinances the same), then
such Net Proceeds or any remaining portion thereof shall be applied by the
Company to an offer to redeem the Securities pursuant to the provisions of
Section 3.09 hereof.
(c) An offer to redeem the Securities pursuant to this Section 4.10
shall be made pursuant to the provisions of Section 3.09 hereof. Simultaneously
with the notification of such offer of redemption to the Trustee as required by
Sections 3.01, 3.03 and 3.09 hereof, the Company shall provide the Trustee with
an Officers' Certificate setting forth the information required to be included
therein by Section 3.01 hereof and, in addition, setting forth the calculations
used in determining the amount of Net Proceeds to be applied to the redemption
of Securities.
(d) In the event that the Company shall make any payment of Net
Proceeds to the Trustee which, to the knowledge of the Trustee, should properly
have been made (i) to the Credit Agent for the prepayment of outstanding
Indebtedness under the Credit Agreement or (ii) to the Senior Note Trustee for
the prepayment of outstanding Senior Notes, in each case, pursuant to the
provisions of this Section 4.10, such payment shall be held by the Trustee for
the benefit of the Credit Agent and the Senior Note Trustee, as the case may be,
and shall be paid forthwith over and delivered for application in accordance
with the provisions of this Section 4.10. With respect to the Credit Agent and
the Senior Note Trustee, the Trustee undertakes to perform only such obligations
on the part of the Trustee as are specifically set forth in this Section
4.10(d), and no implied covenants or obligations with respect to the Credit
Agent or the Senior Note Trustee shall be read into this Indenture against the
Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the
Credit Agent or the Senior Note Trustee and shall not be liable to the Credit
Agent or the Senior Note Trustee if the Trustee shall distribute any such
payment or any portion thereof to the Security-holders, except if such
distribution is made as a result of the willful misconduct or gross negligence
of the Trustee. If Net Proceeds are received by Security-holders which,
pursuant to the provisions of this Section 4.10, should properly have been
received by the Credit Agent or the Senior Note Trustee for the prepayment of
outstanding Indebtedness under the Credit Agreement or the Senior Notes, the
Security-holders who receive such Net Proceeds shall hold such Net Proceeds in
trust for, and pay such Net Proceeds over to, the Credit Agent and the Senior
Note Trustee, as the case may be.
29
<PAGE>
(e) Notwithstanding any provision of this Section 4.10 to the
contrary, (i) the Company shall have no obligation to make an offer to redeem
the Securities if the Company has a bona fide intent to reinvest the Net
Proceeds from an Asset Sale in another asset or business in the same or similar
line of business as the Company and the Net Proceeds thereof are so reinvested
within 180 days of the receipt thereof; (ii) the Company or any subsidiary may
exchange like assets for like value (as determined in good faith by the
Company's Board of Directors), with unaffiliated third parties, provided that
the Liens, if any, on the assets received by the Company or such subsidiary are
no more extensive than the Liens on the assets so exchanged by the Company or
such subsidiary; and (iii) the Company may sell to unaffiliated third parties
real property that in the good faith opinion of the Company's Board of Directors
is immaterial to the business or operations of the Company and its subsidiaries,
in the aggregate, and the sale of which would not have a material adverse effect
on the business, prospects, operations, earnings, liabilities or condition
(financial or otherwise) of the Company or such subsidiaries or the Company's
ability to perform its obligations hereunder or under the Securities.
(f) Notwithstanding the foregoing, neither the Company nor any of its
subsidiaries may sell, lease, convey or otherwise dispose of any assets to any
subsidiary of the Company unless: (a) such subsidiary is a wholly owned
subsidiary of the Company and (i) the Company shall have received fair market
value therefor as determined in good faith by the Board of Directors of Ferrell
(without regard to any Equity Interests or debt securities of such wholly owned
subsidiary or any Affiliate thereof received in exchange therefor) and (ii) such
wholly owned subsidiary, concurrently with such sale, lease, conveyance or other
disposition, guarantees the obligations of the Company hereunder on terms
acceptable the Trustee; provided, however, that if such sale, lease, conveyance
-------- -------
or other disposition pertains to an Asset Sale, such sale, lease, conveyance or
other disposition must be a transaction that would be permissible pursuant to
the provisions of this Section 4.10 as if such subsidiary were a third party; or
(b) such subsidiary is an Unrestricted Subsidiary and either (i) such sale,
lease, conveyance or other disposition is permitted by the terms of Section 4.07
hereof or (ii) is an arm's length transaction on terms that are comparable to
those that would have been obtained between two unaffiliated third parties.
Section 4.11. Limitation on Transactions With Affiliates.
- ------------ ------------------------------------------
The Company will not, and will not permit any of its subsidiaries to,
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into any contract,
agreement, understanding, loan, advance or guarantee with, or for the
30
<PAGE>
benefit of, any Affiliate (each of the foregoing an "Affiliate Transaction"),
except on terms that are no less favorable to the Company or the relevant
subsidiary than those that would have been obtained in a comparable transaction
by the Company or such subsidiary with an unrelated person (in the case of each
such transaction or series of related transactions with an aggregate value in
excess of $500,000, as determined by a majority of the directors of Ferrell
having no direct or indirect economic interest in such Affiliate Transactions);
provided, however, that (i) payments to employees or consultants for services
- -------- -------
rendered to the Company or its subsidiaries in the ordinary course of business
and consistent with the past practices of the Company or such subsidiary, (ii)
transactions permitted by the provisions of Section 4.07 hereof, and (iii)
transactions entered into by the Insurance Company Subsidiary of the Company in
connection with reinsuring the self-insurance programs or other forms of
retained insurable risk of the retail propane businesses operated by the
Company, its subsidiaries and its Affiliates, in each case, shall not be deemed
Affiliate Transactions.
Section 4.12. Limitation on Liens.
- ------------ -------------------
Neither the Company nor any of its subsidiaries (other than
Unrestricted Subsidiaries) shall, directly or indirectly, create, incur, assume
or suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except:
(i) Liens existing on the date hereof, Liens related to or
incurred in connection with the Loan Agreement, the Senior Notes
Indenture, any Credit Agreement and other Senior Indebtedness, in each
case only to the extent permitted by the terms hereof to be incurred,
Liens arising under Section 8.01 hereof and Liens relating to judgments
to the extent permitted by Section 6.01(6) hereof;
(ii) Liens for taxes or assessments and similar charges either
(x) not delinquent or (y) contested in good faith by appropriate
proceedings and as to which the Company has set aside on its books
adequate reserves;
(iii) Liens incurred or pledges and deposits in connection with
workmen's compensation, unemployment insurance and other social security
benefits, or securing performance bids, tenders, leases, contracts (other
than for the repayment of borrowed money), statutory obligations, progress
payments, surety and appeal bonds and other obligations of like nature,
incurred in the ordinary course of business;
(iv) Liens imposed by law, such as mechanics',
31
<PAGE>
carriers', landlord's, warehousemen's, materialmen's and vendors' Liens,
incurred in good faith in the ordinary course of business;
(v) 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 assets of the
Company or any of its subsidiaries or impair the use of such property in
the operation of the Company's or any of its subsidiaries' business;
(vi) Liens to secure Indebtedness of a subsidiary to the
Company or to a wholly owned subsidiary;
(vii) Liens on any property or asset acquired by the Company or
a subsidiary that are in existence on the date of the acquisition of such
property (and, except in the case of an Unrestricted Subsidiary, not
created in anticipation of such acquisition) and, in the case of a person
that becomes a subsidiary, Liens on its property or Equity Interests in
existence on the date such person becomes a Subsidiary; provided that no
such Lien shall extend to or cover any other property or asset of the
Company or such subsidiary;
(viii) Liens on any property or asset acquired by the Company or
any of its subsidiaries in favor of the seller of such property or asset
or construction mortgages on property created within six months after the
acquisition, construction or improvement of such property by the Company
or a subsidiary to secure the purchase price or other obligations of the
Company to the sellers of such property or asset or the construction cost
or improvement cost of only such property in an amount up to 80% of the
total cost of such property, construction or improvement; provided that
in each case, such Lien does not extend to or cover or include any other
property or assets of the Company or any of its subsidiaries;
(ix) Liens other than those set forth above, provided that the
aggregate principal amount of Indebtedness secured by such other Liens
shall not exceed $10 million in the aggregate outstanding at any one time;
(x) Liens of landlords or mortgagees of landlords, arising
solely by operation of law, on fixtures and movable property located on
premises leased by the Company or any subsidiary in the ordinary course
of business;
(xi) Liens granted in connection with the refinancing of any
Indebtedness secured by Liens permitted to be
32
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incurred or to exist pursuant to the foregoing clauses; provided, however,
-------- -------
that no additional assets are encumbered by such Liens in connection with
such refinancing, unless permitted by clause (i) above;
(xii) the Lien granted to the Trustee pursuant to Section 7.07
hereof; and
(xiii) any extension or renewal, or successive extensions or
renewals, in whole or in part, of Liens permitted pursuant to subsection
(i) through (xii) above; provided, however, no such Lien shall secure
-------- -------
more than the original amount of the Indebtedness or other obligation
secured by the Lien being so extended or renewed nor shall such Lien
extend to or cover any property or assets to which it did not extend or
cover at the time of extension or renewal.
Section 4.13. Corporate Existence.
- ------------ -------------------
Subject to Sections 4.14 and Article 5 hereof, the Company will do
or cause to be done all things necessary to preserve and keep in full force
and effect (a) its corporate existence, and the corporate, partnership or
other existence of each of its subsidiaries, in accordance with its
organizational documents (as the same may be amended from time to time) of
each subsidiary and (b) its (and its subsidiaries) rights (charter and
statutory), licenses and franchises; provided, however, that the Company shall
-------- -------
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any subsidiary, if the Board of
Directors of the Company shall determine that the preservation thereof is no
longer desirable in the conduct of the business of the Company and its
subsidiaries taken as a whole and that the loss thereof is not adverse in any
material respect to the Holders.
Section 4.14. Liquidation.
- ------------ -----------
The Board of Directors or the stockholders of the Company may not
adopt a plan of liquidation which provides for, contemplates or the
effectuation of which is preceded by (a) the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company otherwise
than substantially as an entirety (Section 5.01 of this Indenture being the
Section hereof which governs any such sale, lease, conveyance or other
disposition substantially as an entirety) and (b) the distribution of all or
substantially all of the proceeds of such sale, lease, conveyance or other
disposition and of the remaining assets of the Company to the holders of
capital stock of the Company unless the Company prior to making any
liquidating distribution pursuant to such plan, makes provision for the
satisfaction of the Company's Obligations hereunder and under the Securities
as to the payment of principal and interest. The
33
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Company shall be deemed to make provision for such payments only if (i) the
Company delivers in trust to the Trustee or Paying Agent (other than the
Company or its subsidiaries) money or U.S. Government Obligations maturing as
to principal and interest in such amounts and at such times as are sufficient
without consideration of any reinvestment of such interest to pay, when due,
the principal of and interest on the Securities or (ii) there is an express
assumption and observance of all covenants and conditions to be performed by
the Company hereunder by the execution and delivery of a supplemental
indenture in form satisfactory to the Trustee by a person that acquires or
will acquire (otherwise than pursuant to a lease) a portion of the assets of
the Company and which person will have Consolidated Net Worth (immediately
after the acquisition) and Consolidated Net Income (for such person's four
full fiscal quarters immediately preceding the acquisition) equal to or
greater than the consolidated Net Worth of the Company immediately preceding
the acquisition and the Consolidated Net Income of the Company (for its four
full fiscal quarters immediately preceding such acquisition), respectively,
and which is organized and existing under the laws of the United States, any
State thereof or the District of Columbia; provided, however, that the Company
-------- -------
shall not make any liquidating distribution until after the Company shall have
certified to the Trustee with an Officers' Certificate at least five days
prior to the making of any liquidating distribution that it has complied with
the provisions of this Section 4.14 and that no Default or Event of Default
then exists or would occur as a result of any such liquidating distribution.
Section 4.15. No Senior Subordinated Debt.
- ------------ ---------------------------
Notwithstanding the provisions of Section 4.09 hereof, (i) the
Company will not incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment
to any Senior Indebtedness and senior in any respect (including by virtue of a
security interest) in right of payment to the Securities.
Section 4.16. Change of Control.
- ------------ -----------------
(a) In the event that there is a Change of Control (the date of
such Change of Control being the "Trigger Date"), the Company shall notify the
Trustee in writing of such occurrence and shall promptly make an offer to
purchase (the "Change of Control Offer"), on the Change of Control Payment
Date (as hereinafter defined), all Securities then outstanding at a purchase
price equal to 101% of the then outstanding principal amount thereof plus
accrued and unpaid interest, if any, to and including the Change of Control
Payment Date. The "Change of Control Payment Date" shall be the last day of
the fiscal quarter of the Company next following the Trigger Date or (i) if
such day is not a Business Day, the next succeeding Business Day, or (ii)
34
<PAGE>
if such day would result in the Change of Control Offer not remaining open for
a sufficient period of time to comply with applicable securities laws, the
next succeeding Business Day on which consummation of such purchase may take
place without violating such securities laws.
(b) At least five Business Days prior to the Company's mailing
of a notice of a Change of Control Offer, the Company shall notify the Trustee
of the Company's obligation to offer to repurchase all of the Securities.
Prior to the mailing of the notice to Holders of the Securities, but in any
event within 180 days following the Trigger Date, the Company covenants to (i)
repay in full all Obligations under the Credit Agreement and the Senior Notes,
or (ii) obtain the requisite consent under the Credit Agreement and the Senior
Note Indenture to permit the repurchase of the Securities as contemplated by
this covenant. The Company shall first comply with the covenant in the
preceding sentence before it shall be required to repurchase Securities
pursuant to this Section 4.16. Notice of a Change of Control offer shall be
mailed by the Company by overnight courier not less than 15 days before the
Change of Control Payment Date (or such other period of time as is necessary
for the Change of Control Offer to remain open for a sufficient period of time
to comply with applicable securities laws) to the Holders of the Securities at
their last registered addresses with a copy to the Trustee and the Paying
Agent. The Change of Control Offer shall remain open from the time of mailing
until the Change of Control Payment Date. The notice shall contain all
instructions and materials necessary to enable such Holders to tender
Securities pursuant to the Change of Control Offer. The notice, which shall
govern the terms of the Change of Control Offer, shall state.
(i) that the Change of Control Offer is being made pursuant to this
Section 4.16, that Securities may be surrendered in whole or in part (in
denominations of $1,000 and integral multiple thereof), and that all
Securities will be accepted for payment.
(ii) the purchase price and the Change of Control Payment Date;
(iii) that any Securities not tendered will continue to accrue-
interest;
(iv) that any Securities accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest after the Change of Control
Payment Date;
(v) that Holders electing to have Securities purchased pursuant to a
Change of Control Offer will be required to surrender their Securities,
with the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Security
35
<PAGE>
completed, to the Company prior to the close of business on the Change of
Control Payment Date;
(vi) that Holders will be entitled to withdraw their election if the
Company receives, not later than the close of business on the Business Day
three Business Days preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of
the Holder, the principal amount of Securities the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to
have such Securities purchased;
(vii) that Holders whose Securities are purchased only in part will be
issued Securities representing the unpurchased portion of the Securities
surrendered;
(viii) the instructions that Holders must follow in order to tender
their securities; and
(ix) the circumstances and relevant facts regarding such Change of
Control (including but not limited to information with respect to pro forma
historical and projected financial information after giving effect to such
Change of Control, information regarding the persons acquiring control and
such person's business plans going forward).
On the Change of Control Payment Date, the Company shall (i) accept
for payment securities or portions thereof tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Securities or portions thereof so tendered, and (iii)
deliver to the Trustee Securities so accepted together with an Officer's
Certificate stating the Securities or portions thereof tendered to the Company.
The Paying Agent shall promptly mail to the Holder of Securities so accepted
payment in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Security equal in principal amount
to any unpurchased portion of the Security surrendered.
"Change of Control" means (i) the liquidation or dissolution of
Ferrell, (ii) any transaction the result of which is that James E. Ferrell and
the Related Parties (as defined below) beneficially own, in the aggregate,
directly or indirectly, less than 51% of the total voting power entitled to vote
for the election of directors of Ferrell, or (iii) any transaction the result of
which is that the Company ceases to be a wholly owned subsidiary of Ferrell
(other than on account of a consolidation or merger with Ferrell or a sale of
all or substantially all of the assets of the Company to Ferrell that
36
<PAGE>
complies with Sections 5.01 and 4.10 hereof).
"Related Parties" means any lineal descendant of James E. Ferrell, any
trust for his benefit or for the benefit of his spouse or any such lineal
descendant or any corporation or partnership in which James E. Ferrell and/or
any of the foregoing Persons is the direct record and beneficial owner of all of
the voting and nonvoting equity interests.
ARTICLE 5
SUCCESSORS
Section 5.01. When the Company May Merge, etc.
- ------------ -------------------------------
The Company will not consolidate or merge with or into (whether or not
the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, another corporation, person or
entity unless:
(i) either the Company is the surviving person or the entity or the
person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia;
(ii) the person formed by or surviving any such consolidation or
merger (if other than the Company) or the person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have
been made assumes all of the Obligations of the Company pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee,
under the Securities and this Indenture;
(iii) immediately after such transaction no Default or Event of Default
exists; and
(iv) the Company or any corporation formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (A) shall have
Consolidated Net Worth (immediately after the transaction but prior to any
purchase accounting adjustments resulting from the transaction) equal to or
greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) shall be permitted by virtue of its Cash
Flow Coverage Ratio for the immediately preceding four fiscal quarters to
incur at least $1.00 of additional Indebtedness
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<PAGE>
pursuant to the terms of this Indenture; provided, however, that for
-------- -------
purposes of this provision, the Cash Flow Coverage Ratio will be calculated
after giving pro forma effect to such consolidation or merger, or such
sale, assignment, transfer, lease, conveyance or other disposition, as if
the same had occurred at the beginning of the applicable four-quarter
period.
The Company shall deliver to the Trustee prior to the -consummation of
the proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such Supplemental
Indenture comply with this Indenture. The Trustee shall be entitled to
conclusively rely upon such Officers' Certificate and Opinion of Counsel.
Section 5.02. Successor Corporation Substituted.
- ------------ ---------------------------------
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company, in
accordance with Section 5.01, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor person has been named
as the Company herein; provided,, however, that the Company shall not be
--------- -------
released or discharged from the obligation to pay the principal of or interest
on the securities.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
- ------------ -----------------
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any Security
when the same becomes due and payable and the Default continues for a
period of 30 days, whether or not such payment is prohibited by the
provisions of Article 10 hereof;
(2) the Company defaults in the payment of the principal of any
Security when the same becomes due and payable at maturity, upon redemption
or otherwise, whether or not such payment is prohibited by the provisions
of Article 10 hereof;
(3) the Company fails to observe or perform any
38
<PAGE>
covenant, condition or agreement on the part of the Company to be
observed or performed pursuant to Sections 4.04, 4.07 to 4.16 inclusive
and 5.01 hereof;
(4) the Company fails to comply with any of its other agreements or
covenants in, or provisions of, the Securities or this Indenture and the
Default continues for the period and after the notice specified below;
(5) a default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any of its
subsidiaries other than Unrestricted Subsidiaries with respect to
Indebtedness permitted by Section 4.09(viii) hereof (or the payment of
which is guaranteed by the Company or any of its subsidiaries other than
Unrestricted Subsidiaries with respect to Indebtedness permitted by Section
4.09(viii) hereof) whether such Indebtedness or guarantee now exists or is
created in the future, if either (i) such default results from a failure to
pay scheduled principal installments aggregating at least $10 million, or
scheduled interest installments aggregating at least $2 million, in respect
of any such Indebtedness on the date such payments were due (after giving
effect to any extension of such due date by the holder of such Indebtedness
and after the expiration of any grace period in respect of such principal
installments or interest payments contained in the instrument under which
such Indebtedness is outstanding), or (ii) as a result of such default, the
maturity of such Indebtedness has been accelerated prior to its expressed
maturity and the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness the maturity of which has
been so accelerated, aggregates $10 million or more;
(6) a final judgment or final judgments for the payment of money are
entered by a court or courts of competent jurisdiction against the Company
or any of its subsidiaries and such judgment or judgments remain
undischarged for a period (during which execution shall not be effectively
stayed) of 60 days, provided that the aggregate of all such judgments
exceeds $1.5 million;
(7) the Company or any of its subsidiaries pursuant to or within the
meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief against it in an
involuntary case,
39
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(c) consents to the appointment of a Custodian of it or for all
or substantially all of its property,
(d) makes a general assignment for the benefit of its creditors,
(e) admits in writing its inability to pay debts as the same
become due; or
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(a) is for relief against the Company or any of its subsidiaries
in an involuntary case,
(b) appoints a Custodian of the Company or any of its
subsidiaries or for all or substantially all of their property,
(c) orders the liquidation of the Company or any of its
subsidiaries, and
the order or decree remains unstayed and in effect for 60 days;
The term "Bankruptcy Law" means title 11, U.S. Code or any similar
Federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
A Default under clause (4) is not an Event of Default until the
Trustee notifies the Company, or the Holders of at least 25% in principal amount
of the then outstanding Securities notify the Company and the Trustee, of the
Default and the Company does not cure the Default within 30 days after receipt
of the notice. The notice must specify the Default, demand that it be remedied
and state that the notice is a "Notice of Default."
Section 6.02. Acceleration.
- ------------ ------------
If an Event of Default (other than an Event of Default specified in
clauses (7) and (8) of Section 6.01) occurs and is continuing, the Trustee by
notice to the Company or the Holders of at least 25% in principal amount of the
then outstanding Securities by written notice to the Company, the Trustee, the
Credit Agent and the Senior Note Trustee may declare the unpaid principal of and
any accrued interest on all the Securities to be due and payable. Upon such
declaration the principal and interest shall be due and payable immediately;
provided, however, that if any Indebtedness is outstanding pursuant to the
- -------- -------
Credit Agreement or the Senior Notes, upon a declaration of acceleration by the
Holders, all principal and interest under this Indenture shall be due and
payable upon the
40
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earlier of (x) the day which is five Business Days after the provision to the
Company, the Credit Agent and the Senior Note Trustee of such written notice
of acceleration or (y) the date of acceleration of any Indebtedness under the
Credit Agreement or the Senior Notes. If an Event of Default specified in
clause (7) or (8) of Section 6.01 occurs, such an amount shall ipso facto
---- -----
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder. The Holders of a majority in
principal amount of the then outstanding Securities by written notice to the
Trustee may rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if all existing Events of
Default (except nonpayment of principal or interest that has become due solely
because of the acceleration) have been cured or waived.
Section 6.03. Other Remedies.
- ------------ --------------
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal or interest on
the Securities or to enforce the performance of any provision of the Securities
or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Security-holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
- ------------ -----------------------
Holders of a majority in principal amount of the then outstanding
Securities by notice to the Trustee may waive an existing Default or Event of
Default and its consequences except a continuing Default or Event of Default in
the payment of the principal of or interest on any Security held by a non-
consenting Holder. Upon any such waiver, such Default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Default or impair any right consequent thereon.
Section 6.05. Control by Majority.
- ------------ -------------------
The Holders of a majority in principal amount of the then outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, that the Trustee determines may be unduly
prejudicial to the rights of other Security-holders, or that may
41
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involve the Trustee in personal liability.
Section 6.06. Limitation on Suits.
- ------------ -------------------
A Security-holder may pursue a remedy with respect to this Indenture
or the Securities only if:
(1) the Holder gives to the Trustee written notice of a continuing
Event of Default;
(2) the Holders of at least 25% in principal amount of the then
outstanding Securities make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer and, if requested, provide to the
Trustee indemnity satisfactory to the Trustee against any loss, liability
or expenses;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(5) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Securities do not give the Trustee a
direction inconsistent with the request.
A Security-holder may not use this Indenture to prejudice the rights of another
Security-holder or to obtain a preference or priority over another Security-
holder.
Section 6.07. Rights of Holders to Receive Payment.
- ------------ ------------------------------------
Notwithstanding any other provision of this Indenture, but subject to
Article 10 hereof, the right of any Holder of a Security to receive payment of
principal and interest on the Security, on or after the respective due dates
expressed in the Security, or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of the Holder.
Section 6.08. Collection Suit by Trustee.
- ------------ --------------------------
If an Event of Default specified in Section 6.01(1) or (2) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount of
principal and interest remaining unpaid on the Securities and interest on
overdue principal and, to the extent lawful, interest and such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
42
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Section 6.09. Trustee May File Proofs of Claim.
- ------------ --------------------------------
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Security-holders allowed in any judicial proceedings relative to the Company (or
any other obligor upon the Securities), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Security-holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Security-holders, to pay to the Trustee
any amount due to it for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.07 hereof. To the extent that the payment of any
such compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee under Section 7.07
hereof out of the estate in any such proceeding, shall be denied for any reason,
payment of the same shall be secured by a Lien on, and shall be paid out of, any
and all distributions, dividends, money, securities and other properties which
the Holders of the Securities may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise. Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Security-holder any
plan of reorganization, arrangement, adjustment or composition affecting the
securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Security-holder in any such proceeding.
If the Trustee does not file a proper claim or proof of debt in the
form required in any such proceeding prior to 30 days before the expiration of
the time to file such claim or claims, then the holders of Senior Indebtedness
have the right to file and are hereby authorized to file an appropriate claim
for and on behalf of the Security-holders.
Section 6.10. Priorities.
- ------------ ----------
If the Trustee collects any money pursuant to this Article, it shall,
subject to the provisions of Article 10 hereof, pay out the money in the
following order:
First: to the Trustee, its agents and attorneys for amounts due
under Section 7.07, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
43
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Second: to holders of Senior Indebtedness to the extent
required by Article 10 hereof;
Third: to Security-holders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or priority
of any kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Security-holders.
Section 6.11. Undertaking for Costs.
- ------------ ---------------------
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, or a suit by Holders of more than 10% in principal
amount of the then outstanding Securities.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
- ------------ -----------------
(1) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
(2) Except during the continuance of an Event of Default:
(a) The duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee.
44
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(b) In the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture.
(3) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(a) This paragraph does not limit the effect of paragraph (2) of this
section.
(b) This Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(c) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(4) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(1), (2) and (3) of this Section.
(5) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee may refuse to
perform any duty or exercise any right or power unless it receives indemnity
satisfactory to it against any loss, liability or expense.
(6) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.02. Rights of Trustee.
- ------------ -----------------
(1) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper person. The
Trustee need not investigate any fact or matter stated in the document.
(2) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an opinion of Counsel or both. The Trustee shall
not be liable for any action it takes or omits to take in good faith in reliance
on such officers' Certificate or Opinion of Counsel. The Trustee may consult
with
45
<PAGE>
counsel and the written advice of such counsel or any opinion of
Counsel shall be full and complete authorization and protection from liability
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon.
(3) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
(4) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers conferred upon it by the Indenture.
(5) Unless otherwise specifically provided in the Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an officer of the Company.
Section 7.03. Individual Rights of Trustee.
- ------------ ----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or an
Affiliate of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. However, the Trustee
is subject to Sections 7.10 and 7.11.
Section 7.04. Trustee's Disclaimer.
- ------------ --------------------
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Securities, it shall not
be accountable for the Company's use of the proceeds from the Securities or any
money paid to the Company or upon the Company or upon the Company's direction
under any provision hereof, it shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee and
it shall not be responsible for any statement or recital herein or any statement
in the Securities or any other document in connection with the sale of the
Securities or pursuant to this Indenture other than its certificate of
authentication.
Section 7.05. Notice of Defaults.
- ------------ ------------------
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Security-holders a notice of the
Default or Event of Default within 90 days after it occurs and so long as any
Indebtedness is outstanding pursuant to the Credit Agreement or Senior Notes,
shall mail a copy thereof to the Credit Agent or the Senior Note Trustee, as the
case may be. Except in the case of a Default or Event of Default in payment on
any Security, the Trustee may withhold the notice if and so long as a committee
of its Trust Officers in good
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faith determines that withholding the notice is in the interests of Security-
holders.
The Trustee shall not be deemed to owe any fiduciary duty to the
Credit Agent or the Senior Note Trustee.
Section 7.06. Reports by Trustee to Holders.
- ------------ -----------------------------
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, the Trustee shall mail to Security-holders a brief
report dated as of such reporting date that complies with TIA (S) 313(a) (but if
no event described in TIA (S) 313(a) has occurred within the twelve months
preceding the reporting date, no report need be transmitted). The Trustee also
shall comply with TIA (S) 313(b). The Trustee shall also transmit by mail all
reports as required by TIA (S) 313(c).
Commencing at the time this Indenture is qualified under the TIA, a
copy of each report at the time of its mailing to Security-holders shall be
filed with the SEC and each stock exchange on which the Securities are listed.
The Company shall promptly notify the Trustee when the Securities are listed on
any stock exchange.
Section 7.07. Compensation and Indemnity.
- ------------ --------------------------
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, except as set
forth in the next paragraph. The Trustee shall notify the Company promptly of
any claim for which it may seek indemnity. Failure by the Trustee to so notify
the Company shall not relieve the Company of its obligations hereunder. The
Company shall defend the claim and the Trustee shall cooperate in the defense.
The Trustee may have separate counsel and the Company shall pay the reasonable
fees and expenses of such counsel. The Company need not pay for any settlement
made without its consent, which consent shall not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
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The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through its own negligence or bad
faith.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Securities on all money or property held
or collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities. Such Lien shall survive the satisfaction and
discharge of the Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(7) or (8) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.08. Replacement of Trustee.
- ------------ ----------------------
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this section.
The Trustee may resign at any time and be discharged from the trust
hereby created by so notifying the Company. The Holders of a majority in
principal amount of the then outstanding Securities may remove the Trustee by so
notifying the Trustee and the Company. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee or its
property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Securities may appoint
a successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal
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amount of the then outstanding Securities may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
If the Trustee after written request by any Security-holder who has
been a Security-holder for at least six months fails to comply with Section
7.10, such Security-holder may petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Security-holders. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07. Notwithstanding replacement of the Trustee pursuant to
this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
- ------------ --------------------------------
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
Section 7.10. Eligibility; Disqualification.
- ------------ -----------------------------
There shall at all times be a Trustee hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America or of any state thereof authorized under such laws to exercise corporate
trustee power, shall be subject to supervision or examination by Federal or
state authority and shall have a combined capital and surplus of at least
$100,000,000 as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1). The Trustee is subject to TIA (S) 310(b).
Section 7.11. Preferential Collection of Claims Against Company.
- ------------ -------------------------------------------------
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
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ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.01. Termination of Company's Obligations.
- ------------ ------------------------------------
This Indenture shall cease to be of further effect (except that the
Company's obligations under Section 7.07 and 8.04 and the Company's, Trustee's
and Paying Agent's obligations under Section 8.03 shall survive) when all
outstanding Securities theretofore authenticated and issued have been delivered
(other than destroyed, lost or stolen Securities which have been replaced or
paid) to the Trustee for cancellation and the Company have paid all sums payable
by the Company. In addition, the Company may terminate all of its obligations
under this Indenture if:
(1) the Company irrevocably deposits in trust with the Trustee or at
the option of the Trustee, with a trustee reasonably satisfactory to the
Trustee and the Company under the terms of an irrevocable trust agreement
in form and substance satisfactory to the Trustee, money or U.S. Government
obligations sufficient to pay principal and interest on the Securities to
maturity or redemption, as the case may be, and to pay all other sums
payable by it hereunder, provided that (i) the trustee of the irrevocable
trust shall have been irrevocably instructed to pay such money or the
proceeds of such U.S. Government Obligations to the Trustee and (ii) the
Trustee shall have been irrevocably instructed to apply such money or the
proceeds of such U.S. Government Obligations to the payment of said
principal and interest with respect to the Securities;
(2) the Company delivers to the Trustee an Officers' Certificate
stating that all conditions precedent to satisfaction and discharge of this
Indenture have been complied with, and an opinion of Counsel to the same
effect; and
(3) no Event of Default or event (including such deposit) which, with
notice or lapse of time, or both, would become an Event of Default with
respect to the Securities shall have occurred and be continuing on the date
of such deposit.
Then, this Indenture shall cease to be of further effect (except as
provided this paragraph), and the Trustee, on demand of the Company, shall
execute proper instruments acknowledging confir-mation of and discharge under
this Indenture. The Company may make the deposit only if Article 10 hereof does
not prohibit such payment. However, the Company's obligations in Sections 2.03,
2.04, 2.05, 2.06, 2.07, 4.01, 4.06, 7.07, 7.08, 8.03 and 8.04 and the Trustee's
and Paying Agent's obligations in Section 8.03 shall survive until the
Securities are no longer outstanding.
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Thereafter, only the Company's obligations in section 7.07 and 8.04 and the
Company's, Trustee's and Paying Agent's obligations in Section 8.03 shall
survive.
After such irrevocable deposit made pursuant to this Section 8.01 and
satisfaction of the other conditions set forth herein, the Trustee upon request
shall acknowledge in writing the discharge of the Company's obligations under
this Indenture except for those surviving obligations specified above.
In order to have money available on a payment date to pay principal or
interest on the Securities, the U.S. Government Obligations shall be payable as
to principal or interest at least one Business Day before such payment date in
such amounts as will provide the necessary money. U.S. Government Obligations
shall not be callable at the issuer's option.
Section 8.02. Application of Trust Money.
- ------------ --------------------------
The Trustee or a trustee satisfactory to the Trustee and the company
shall hold in trust money or U.S. Government Obligations deposited with it
pursuant to Section 8.01. It shall apply the deposited money and the money from
U.S. Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal and interest on the Securities.
Section 8.03. Repayment to Company.
- ------------ --------------------
The Trustee and the Paying Agent shall promptly pay to the Company
upon written request any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon written
request any money held by them for the payment of principal or interest that
remains unclaimed for 2 years after the date upon which such payment shall have
become due; provided, however, that the Company shall have either caused notice
-------- -------
of such payment to be mailed to each Security-holder entitled thereto no less
than 30 days prior to such repayment or within such period shall have published
such notice in a financial newspaper of widespread circulation published in The
City of New York. After payment to the Company, Security-holders entitled to
the money must look to the Company for payment as general creditors unless an
applicable abandoned property law designates another person, and all liability
of the Trustee and such Paying Agent with respect to such money shall cease.
Section 8.04. Reinstatement.
- ------------ -------------
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section
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8.02 by reason of any legal proceeding or by reason of any order or judgment of
any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, the Company's obligations under this Indenture and
the Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.01 until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government obligations in accordance
with Section 8.02; provided, however, that if the Company has made any payment
-------- -------
of interest on or principal of any Securities because of the reinstatement of
its obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENTS
Section 9.01. Without Consent of Holders.
- ------------ --------------------------
The Company and the Trustee may amend this Indenture or the Securities
without the consent of any Security-holder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Section 5.01 or 11.03;
(3) to provide for uncertificated Securities in addition to
certificated Securities; or
(4) to make any change that does not adversely affect the legal
rights hereunder of any Security-holder.
Upon the request of the Company, accompanied by a resolution of each
of their Boards of Directors authorizing the execution of any such Supplemental
Indenture, and upon receipt by the Trustee of the documents described in Section
9.06 hereof, the Trustee shall join with the Company in the execution of any
Supplemental Indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations which may be
therein contained, but the Trustee shall not be obligated to enter into such
Supplemental Indenture which affects its own rights, duties or immunities under
this Indenture or otherwise.
Section 9.02. With Consent of Holders.
- ------------ -----------------------
The Company and the Trustee may amend this Indenture or the Securities
with the written consent of the Holders of at least a majority in principal
amount of the then outstanding Securities.
Upon the request of the Company, accompanied by a
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resolution of their Boards of Directors authorizing the execution of any such
Supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Security-holders as aforesaid,
and upon receipt by the Trustee of the documents described in Section 9.06
hereof, the Trustee shall join with the Company in the execution of such
Supplemental Indenture unless such Supplemental Indenture affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise, in which
case the Trustee may in its discretion, but shall not be obligated to, enter
into such Supplemental Indenture.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment or waiver, but
it shall be sufficient if such consent approves the substance thereof.
After an amendment or waiver under this Section becomes effective, the
Company shall mail to the Holders of each security affected thereby a notice
briefly describing the amendment or waiver. Any failure of the Company to mail
such notice, or any defect therein, shall not, however, in any way impair or
affect the validity of any such Supplemental Indenture or waiver. Subject to
Sections 6.04 and 6.07 hereof, the Holders of a majority in principal amount of
the Securities then outstanding may waive compliance in a particular instance by
the Company with any provision of this Indenture or the Securities. However,
without the consent of each Security-holder affected, an amendment or waiver
under this Section may not (with respect to any Securities held by a non-
consenting Security-holder):
(1) reduce the principal amount of Securities whose Holders must
consent to an amendment or waiver;
(2) reduce the rate of or change the time for payment of interest,
including default interest, on any Security;
(3) reduce the principal of or change the fixed maturity of any
Security or alter the optional or mandatory redemption provisions or the
price at which the Company shall offer to purchase such Securities pursuant
to Sections 3.09 and 4.16 hereof;
(4) make any Security payable in money other than that stated in the
Security;
(5) make any change in Section 6.04 or 6.07 hereof or in this
sentence of this Section 9.02;
(6) make any change in Article 10 that adversely affects the rights
of any Security-holders; or
(7) waive a Default in the payment of principal of or
53
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interest on, or redemption payment with respect to, any Security;
No amendment or waiver under this Section 9.02 or Section 9.01 hereof
shall make any change that adversely affects the rights under Article 10 or 11
hereof of any holder of an issue of Senior Indebtedness unless the holders of
the issue, pursuant to the terms of such Senior Indebtedness, consent to the
change. No amendment or waiver under this Section 9.02 or Section 9.01 hereof
shall make any change that adversely affects the rights under this Indenture of
the Senior Note Trustee or Credit Agent or the financial institutions party to
the Credit Agreement unless the Credit Agent consents to the change.
Section 9.03. Compliance with Trust Indenture Act.
- ------------ -----------------------------------
If at the time, this Indenture shall be qualified under the TIA, every
amendment to this Indenture or the Securities shall be set forth in a
Supplemental Indenture that complies with the TIA as then in effect.
Section 9.04. Revocation and Effect of Consents.
- ------------ ---------------------------------
Until an amendment or waiver becomes effective, a consent to it by a
Holder of a Security is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. An amendment or waiver becomes effective in accordance with its
terms and thereafter binds every Security-holder.
The Company may fix a record date for determining which Holders must
consent to such amendment or waiver. If the Company fixes a record date, the
record date shall be fixed at (i) the later of 30 days prior to the first
solicitation of such consent or the date of the most recent list of Holders
furnished to the Trustee prior to such solicitation pursuant to Section 2.05, or
(ii) such other date as the Company shall designate.
Section 9.05. Notation on or Exchange of Securities.
- ------------ -------------------------------------
The Trustee may place an appropriate notation about an amendment or
waiver on any Security thereafter authenticated. The Company in exchange for
all Securities may issue and the Trustee shall authenticate new Securities that
reflect the amendment or waiver.
Failure to make the appropriate notation or issue a new Security shall
not affect the validity and effect of such amendment or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
- ------------ -------------------------------
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<PAGE>
The Trustee shall sign any amendment or Supplemental Indenture
authorized pursuant to this Article 9 if the amendment does not adversely affect
the rights, duties, liabilities or immunities of the Trustee. If it does, the
Trustee may, but need not, sign it. In signing or refusing to sign such
amendment or Supplemental Indenture, the Trustee shall be entitled to receive,
if requested, an indemnity reasonably satisfactory to it and to receive and,
subject to Section 7.01, shall be fully protected in relying upon, an officers'
Certificate and an Opinion of Counsel as conclusive evidence that such amendment
or Supplemental Indenture is authorized or permitted by this Indenture, that it
is not inconsistent herewith, and that it will be valid and binding upon the
Company in accordance with its terms. The Company may not sign an amendment or
Supplemental Indenture until the Board of Directors approves it.
ARTICLE 10
SUBORDINATION
Section 10.01. Agreement to Subordinate.
- ------------- ------------------------
The Company agrees, and each Security-holder by accepting a Security
consents and agrees, that the Indebtedness evidenced by the Security (including
any guarantees thereof) is subordinated in right of payment, to the extent and
in the manner provided in this Article, to the prior payment in full of all
Senior Indebtedness, and that the subordination is for the benefit of the
holders of Senior Indebtedness.
Section 10.02. Certain Definitions.
- ------------- -------------------
"Blockage Notice" means a written notice to the Company to the effect
that (i) a Senior Default has occurred and is continuing and (ii) the Company is
obligated under Section 10.04(a)(ii) of the Indenture to suspend payments and
distributions to the Trustee and the Security-holders in accordance with the
terms thereof.
"Senior Default" means any "Default" as such term is defined in the
Loan Agreement; any "Default" as such term is defined in the Senior Note
Indenture; and any other default with respect to any Senior Indebtedness.
"Representative" means each indenture trustee or other trustee, agent
or representative for Senior Indebtedness, respectively.
"Senior Indebtedness" means all Existing Indebtedness, all
Indebtedness outstanding pursuant to any Credit Agreement (including Senior Bank
Indebtedness) that is permitted by the terms of the Indenture to be incurred,
all Indebtedness outstanding
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pursuant to the Senior Notes, all other Indebtedness permitted by the terms of
the Indenture to be incurred that is not expressly made pari passu with or
---- -----
subordinated to the Senior Subordinated Debentures, all obligations of the
Company with respect to each of the foregoing, and all permissible renewals,
extensions, refundings or refinancing thereof. Notwithstanding anything to the
contrary in the foregoing, Senior Indebtedness will not include (i) any
Indebtedness of the Company to any of its subsidiaries, other than the Insurance
Company Subsidiary (ii) any Indebtedness of the Company or any of its
subsidiaries to Ferrell or any of its subsidiaries, or (iii) any Indebtedness
incurred for the purchase of goods or materials or for services obtained in the
ordinary course of business.
Section 10.03. Liquidation; Dissolution; Bankruptcy.
- ------------- ------------------------------------
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property or in
an assignment for the benefit of creditors or any marshalling of the assets and
liabilities of the Company:
(i) holders of Senior Indebtedness shall be entitled to receive
payment in full in accordance with its terms of all Obligations with
respect to the Senior Indebtedness (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness, whether or not such interest is an allowable claim in
any such proceeding) before Security-holders shall be entitled to receive
any payment of any Obligations with respect to the Securities; and
(ii) until all obligations with respect to Senior Indebtedness (as
provided in subsection (1) above) are paid in full in accordance with its
terms, any distribution to which Security-holders would be entitled but for
this Article shall be made to holders of Senior Indebtedness, as their
interests may appear, except that Security-holders may receive securities
that are subordinated to at least the same extent as the Securities to (a)
Senior Indebtedness and (b) any securities issued in exchange for Senior
Indebtedness.
A distribution may consist of cash, securities or other property, by
set-off or otherwise.
Section 10.04. Default on Senior Indebtedness.
- ------------- ------------------------------
(a) The Company may not make or permit any payment or distribution to
the Trustee or any Security-holder in respect of Obligations with respect to the
Securities and may not acquire from the Trustee or any Security-holder any
Securities for cash or
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property (other than securities that are subordinated to at least the same
extent as the Securities to (x) Senior Indebtedness and (y) any securities
issued in exchange for Senior Indebtedness) until all Obligations with respect
to the Senior Indebtedness have been paid in full if:
(i) a Senior Default involving payment of any Obligation with
respect to Senior Indebtedness occurs and is continuing that permits
holders of such Senior Indebtedness to accelerate its maturity (or that
would permit such acceleration with the giving of notice or the passage of
time or both); or
(ii) a Senior Default, other than one referred to in clause (i)
above, occurs and is continuing that permits holders of the Senior
Indebtedness as to which such Senior Default relates to accelerate its
maturity (or that would permit such acceleration with the giving of notice
or the passage of time or both), the Company receives a Blockage Notice
from a Representative or a holder of any such Senior Indebtedness and 180
days have not passed since the date of receipt of such notice (such date
being the "Initial Date"); provided, however, that only one Blockage Notice
-------- -------
relating to the same default or any other non-payment default then
permitting acceleration of such Senior Indebtedness existing and actually
known on the Initial Date to the person giving such Blockage Notice may be
given during the 270-day period commencing on the Initial Date.
(b) The Company may and shall resume payments on and distributions in
respect of the Securities and may acquire them when:
(i) the default is cured or waived, or
(ii) in the case of a default referred to in Section 10.04(a)(ii)
hereof, 180 days pass after the Blockage Notice is received if the default
is not the subject of judicial proceedings, and
if this Article otherwise permits the payment, distribution or acquisition at
the time of such payment, distribution or acquisition.
Section 10.05. Acceleration of Securities.
- ------------- --------------------------
If payment of the Securities is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Indebtedness of the
acceleration.
Section 10.06. When Distribution Must Be Paid Over.
- ------------- -----------------------------------
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<PAGE>
If a payment or distribution is made to the Trustee or any Security-
holder that because of this Article should not have been made to it, the Trustee
or such Security-holder who receives the payment or distribution shall hold it
in trust for the benefit of, and, upon written request, pay it over (less any
amount owed to the Trustee under Section 7.07 hereof) to, the holders of Senior
Indebtedness as their interests may appear or their Representatives, as their
respective interests may appear, for application to the payment of all Senior
Indebtedness remaining unpaid, to the extent necessary to pay such Senior
Indebtedness in full in accordance with its respective terms, after giving
effect to any concurrent payment or distribution to or for the holders and
owners of Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness, and shall not be
liable to any such holders if the Trustee shall pay over or distribute to or on
behalf of Security-holders or the Company or any other person money or assets to
which any holders of Senior Indebtedness shall be entitled by virtue of this
Article 10, except if such payment is made as a result of the willful misconduct
or gross negligence of the Trustee.
Section 10.07. Notice by Company.
- ------------- -----------------
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of any Obligations
with respect to the Company to violate this Article, but failure to give such
notice shall not affect the subordination of the Securities to the Senior
Indebtedness provided in this Article.
Section 10.08. Subrogation.
- ------------- -----------
After all Senior Indebtedness is paid in full and until the Securities
are paid in full, Security-holders shall be subrogated (equally and ratably with
all other Indebtedness pari passu with the Securities) to the rights of holders
---- -----
of Senior Indebtedness to receive distributions applicable to Senior
Indebtedness to the extent that distributions otherwise payable to the Security-
holders have been applied to the payment of Senior Indebtedness. A distribution
made under this Article to holders of Senior Indebtedness which otherwise would
have been made to Security-holders is not, as between the Company and security-
holders, a payment by the Company on the Senior Indebtedness.
Section 10.09. Relative Rights.
- ------------- ---------------
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<PAGE>
This Article defines the relative rights of Security-holders and
holders of Senior Indebtedness. Nothing in this Indenture shall:
(1) impair, as between the Company and Security-holders, the
obligations of the Company, which are absolute and unconditional, to pay
principal of and interest on the securities in accordance with their terms;
(2) affect the relative rights of Security-holders and creditors of
the Company other than their rights in relation to holders of Senior
Indebtedness; or
(3) prevent the Trustee or any security-holder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders and owners of Senior Indebtedness to receive
distributions and payments otherwise payable to Security-holders.
If the Company fails because of this Article to pay principal of or
interest on a Security on the due date, the failure is still a Default or Event
of Default.
Section 10.10. Subordination May Not Be Impaired by the Company.
- ------------- ------------------------------------------------
No right of any holder of Senior Indebtedness to enforce the
subordination of the indebtedness evidenced by the Securities shall be impaired
by any act or failure to act by the Company or by the failure of the Company to
comply with this Indenture.
Section 10.11. Distribution or Notice to Representative.
- ------------- ----------------------------------------
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice given to their
Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article 10, the Trustee and the Security-holders shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction or
upon any certificate of such Representative or of the liquidating trustee or
agent or other person making any distribution to the Trustee or to the Security-
holders for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other Indebtedness
of the Company the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
10.
Section 10.12. Rights of Trustee and Paying Agent.
- ------------- ----------------------------------
Notwithstanding the provisions of this Article 10 or any
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<PAGE>
other provision of this Indenture, the Trustee shall not be charged with
knowledge of the existence of any facts which would prohibit the making of any
payment or distribution by the Trustee, or the taking of any action by the
Trustee, and the Trustee or Paying Agent may continue to make payments on the
Securities unless it shall have received at its Corporate Trust Office at least
one Business Day prior to the date of such payment written notice of facts that
would cause the payment of any Obligations with respect to the securities to
violate this Article. Only the Company, a Representative or a holder of an
issue of Senior Indebtedness that has no Representative may give the notice.
Nothing in this Article 10 shall apply to amounts due to, or impair the claims
of, or payments to, the Trustee under or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
Section 10.13. Authorization to Effect Subordination.
- ------------- -------------------------------------
Each Holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination as provided in this Article 10, and
appoints the Trustee his attorney-in-fact for any and all such purposes.
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.
- ------------- ----------------------------
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA (S) 318(c), the imposed duties shall control.
Section 11.02. Notices.
- ------------- -------
Any notice or communication by the Company, the Trustee, the Credit
Agent or the Senior Note Trustee to the others is duly given if in writing and
delivered in person or mailed by first-class mail (registered or certified,
return receipt requested), telex, telecopier or overnight air courier
guaranteeing next day delivery, to the other's address:
If to the Company:
Ferrellgas, Inc.
One Liberty Plaza
Liberty, Missouri 64068
Attention: Geoffrey H. Ramsden
Telecopier No.: (816) 792-7985
60
<PAGE>
With a copy to:
Smith, Gill, Fisher & Butts
One Kansas City Plaza
1200 Main Street
Kansas City, Missouri 64105
Attention: Kendrick T. Wallace, Esq.
Telecopier No.: (816) 391-7600
If to the Trustee:
Norwest Bank Minnesota,
National Association
6th Street and Marquette
Minneapolis, Minnesota 55479
Attention: Ray Haverstock
Telecopier No.: (612) 667-9825
If to the Credit Agent under the Loan Agreement:
Wells Fargo Bank, N.A.
Ninth Floor
420 Montgomery Street
MAC 0101-091
San Francisco, CA 94163
Attention: Perrie H. Dunne
Telecopier No.: (415) 421-1352
If to the Senior Note Trustee:
The Connecticut Bank and Trust
Company, National Association
One Constitution Plaza
Hartford, Connecticut 06115
Attention: Corporate Trust Department
The Company, the Trustee, the Credit Agent or the Senior Note Trustee
by notice to the others may designate additional or different addresses for
subsequent notices or communications.
All notices and communications (other than those sent to Security-
holders) shall be deemed to have been duly given: at the time delivered by hand,
if personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Security-holder shall be mailed by
first-class mail, certified or registered, return receipt requested, to his
address shown on the register kept by the
61
<PAGE>
Registrar. Failure to mail a notice or communication to a Security-holder or
any defect in it shall not affect its sufficiency with respect to other
Security-holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
Notwithstanding any provisions of this Indenture to the contrary, the
Trustee shall have no liability to the Credit Agent or the Senior Note Trustee
based upon or arising from the failure to receive any notice required by or
relating to this Indenture or the Securities.
If the Company mails a notice or communication to Security-holders, it
shall mail a copy to the Trustee and each Agent at the same time.
Section 11.03. Communication by Holders with Other Holders.
- ------------- -------------------------------------------
Security-holders may communicate pursuant to TIA (S) 312(b) with other
Security-holders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA (S) 312(c).
Section 11.04. Certificate and Opinion as to Conditions Precedent.
- ------------- --------------------------------------------------
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 11.05) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 11.05) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been complied with.
Section 11.05. Statements Required in Certificate or Opinion.
- ------------- ---------------------------------------------
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA (S) 314(a)(4)) shall include:
62
<PAGE>
(1) a statement that the person making such certificate or opinion has
read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with.
Section 11.06. Rules by Trustee and Agents.
- ------------- ---------------------------
The Trustee may make reasonable rules for action by or at a meeting
of Security-holders. The Registrar or Paying Agent may make reasonable rules
and set reasonable requirements for its functions.
Section 11.07. Legal Holidays.
- ------------- --------------
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in The City of New York or at a place of payment are authorized
or obligated by law, regulation or executive order to remain closed. If a
payment date is a Legal Holiday at a place of payment, payment may be made at
that place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
Section 11.08. No Recourse Against Others.
- ------------- --------------------------
No director, officer, employee, agent, manager or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Securities or the Inden-ture or for any claim based on, in respect
of or by reason of such obligations or their creation. Each Security-holder by
accepting a security waives and releases all such liability.
Section 11.09. Duplicate Originals.
- ------------- -------------------
The parties may sign any number of copies of this Indenture. One
signed copy is enough to prove this Indenture.
Section 11.10. Governing Law.
- ------------- -------------
The internal law of the State of New York shall govern and be used
to construe this Indenture and the Securities.
63
<PAGE>
Section 11.11. No Adverse Interpretation of Other Agreements.
- ------------- ---------------------------------------------
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or its subsidi-aries. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
Section 11.12. Successors.
- ------------- ----------
All agreements of the Company in this Indenture and the Securities
shall bind their successors. All agreements of the Trustee in this Indenture
shall bind its successor.
Section 11.13. Severability.
- ------------- ------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 11.14. Counterpart Originals.
- ------------- ---------------------
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
Section 11.15. Table of Contents, Headings, etc.
- ------------- --------------------------------
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
64
<PAGE>
SIGNATURES
Dated as of December 1, 1991 FERRELLGAS, INC.
By: /s/ Geoffrey H. Ramsden
-----------------------
Vice President
Attest:
Assistant Secretary
Dated as of December 1, 1991 NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION,
By: /s/ Raymond S. Haverstock
-------------------------
65
<PAGE>
EXHIBIT A
(Face of Security)
11-5/8% SENIOR SUBORDINATED DEBENTURES
DUE DECEMBER 15, 2003
No. $_________
Ferrellgas, Inc.
promise to pay to ____________________
or registered assigns, the principal sum of _________________ Dollars on
December 15, 2003.
Interest Payment Dates: June 15 and December 15.
Record Dates: June 1 and December 1 (whether or not a Business Day).
Dated: December ___, 1991
Ferrellgas, Inc.
By:
-----------------------
By:
-----------------------
This is one of the Securities
referred to in the within-
mentioned Indenture:
Norwest Bank Minnesota, National Association
as Trustee
By
--------------------------
Authorized Signature
<PAGE>
(Back of Security)
11-5/8% SENIOR SUBORDINATED DEBENTURES
DUE DECEMBER 15, 2003
1. Interest. Ferrellgas, Inc., a Delaware corporation (the
--------
"Company"), promises to pay interest on the principal amount of this Security at
the rate and in the manner specified below.
The Company shall pay in cash interest on the principal amount of this
Security at the rate per annum of 11-5/8%. The Company will pay interest
semiannually on June 15 and December 15 of each year, or if any such day is not
a Business Day (as defined in the Indenture), on the next succeeding Business
Day (each an "Interest Payment Date").
Interest will be computed on the basis of a 360-day year consisting of
twelve 30-day months for the actual number of days elapsed. Interest shall
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of the original issuance of the
Securities. To the extent lawful, the Company shall pay interest on overdue
principal at the rate of 1% per annum in excess of the then applicable interest
rate on the Securities; it shall pay interest on overdue installments of
interest (without regard to any applicable grace periods) at the same rate to
the extent lawful.
2. Method of Payment. The Company will pay interest on the
-----------------
Securities (except defaulted interest) to the persons who are registered Holders
of Securities at the close of business on the record date next preceding the
Interest Payment Date, even if such securities are cancelled after such record
date and on or before such Interest Payment Date. The Holder must surrender
this Security to a Paying Agent to collect principal payments. The Company will
pay principal and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts. The Company,
however,, may pay principal and interest by check payable in such money. It may
mail an interest check to a Holder's registered address.
3. Paying Agent and Registrar. Initially, the Trustee will act as
--------------------------
Paying Agent and Registrar. The Company may change any Paying Agent, Registrar
or co-registrar without notice to any Security-holder. The Company or any of
its subsidiaries may act in any such capacity.
4. Indenture. The Company issued the securities under an Indenture
---------
dated as of December 1, 1991 (the "Indenture") among the Company and the
Trustee. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S. Code
A-2
<PAGE>
(S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture. The Securities
are subject to all such terms, and Security-holders are referred to the
Indenture and such Act for a statement of such terms. The terms of the
Indenture shall govern any inconsistencies between the Indenture and the
Securities. The Securities are unsecured general obligations of the Company
limited to $250 million in aggregate principal amount.
5. Optional Redemption. The Company may redeem all or any of the
-------------------
Securities at any time at 100% of the principal amount thereof, plus accrued
interest to the redemption date, if redeemed on or after December 15, 1998. The
Securities may not be so redeemed before December 15, 1998.
6. Mandatory Redemption. The Company shall have no mandatory
--------------------
redemption or sinking fund obligations with respect to the Securities. The
Company shall be required to make an offer to repurchase securities under
certain circumstances pursuant to Sections 4.10 and 4.16 of the Indenture.
7. Redemption or Repurchase at Option of Holder. (a) If there is a
--------------------------------------------
Change of Control (as defined in the Indenture), the Company will be required to
offer to purchase all Securities at 101% of the principal amount thereof, plus
accrued interest to the date of purchase. Holders of Securities that are
subject to an offer to purchase will receive an offer to purchase from the
Company prior to any related purchase date, and may elect to have such
securities purchased by completing the form entitled "Option of Holder to Elect
Purchase" appearing on the reverse side of this Security.
(b) If the Company consummates any Asset Sale (as defined in the
Indenture), the Company will be required to utilize 100% of the Net Proceeds (as
defined in the Indenture) received from such Asset Sale, first to prepay all
Indebtedness outstanding under Senior Indebtedness (as defined in the Indenture)
(or any Indebtedness which refunds or refinances the same), and second to offer
to purchase Securities at 100% of the principal amount thereof, plus accrued
interest to the date of purchase. Holders of Securities which are the subject
of an offer to purchase will receive an offer to purchase from the company prior
to any related purchase date, and may elect to have such Securities purchased by
completing the form entitled "Option of Holder to Elect Purchase" appearing on
the reverse side of this Security.
8. Notice of Redemption. Notice of redemption will be mailed at
--------------------
least 30 days but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at its registered address. Securities may
be redeemed in part but only in whole multiples of $1,000, unless all of the
Securities held by a Holder are to be redeemed. On and after the redemption
date, interest ceases to accrue on Securities or portions of them called
A-3
<PAGE>
for redemption.
9. Subordination. The Securities are subordinated to Senior
-------------
Indebtedness (as defined in the Indenture), which includes any Indebtedness
arising under or in connection with (a) Existing Indebtedness, (b) any Credit
Agreement (including Senior Bank Indebtedness) that is permitted by the terms of
the Indenture to be incurred, (c) the Senior Notes, and (d) all other
Indebtedness permitted by the Indenture to be thereafter created, incurred,
assumed or guaranteed by the Company which is not expressly pari passu with
---- -----
or subordinated to the Securities and all permitted renewals, extensions,
refundings and refinancings thereof. Indebtedness is any debt, whether or not
contingent, in respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereto), or representing the balance deferred and unpaid
of the purchase price of any property (including pursuant to capital leases),
except any such balance that constitutes an accrued expense or a trade payable,
if and to the extent any such Indebtedness would appear as a liability upon a
balance sheet of the Company prepared on a consolidated basis in accordance with
generally accepted accounting principles, and includes, to the extent not
otherwise included (without duplication), the guaranty of items that would be
included in the definition of Indebtedness. To the extent provided in the
Indenture, Senior Indebtedness must be paid before the Securities may be paid.
The Company agrees, and each Security-holder by accepting a Security consents
and agrees, to the subordination provided in the Indenture and authorizes the
Trustee to give it effect.
10. Denominations, Transfer, Exchange. The Securities are in
---------------------------------
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Securities may be registered and
Securities may be exchanged as provided in the Indenture. The Registrar and the
Trustee may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not exchange or register
the transfer of any Security or portion of a Security selected for redemption.
Also, it need not exchange or register the transfer of any Securities for a
period of 15 days before a selection of Securities to be redeemed, during the
period between a record date and the corresponding Interest Payment Date.
11. Persons Deemed Owners. Prior to due presentment to the Trustee
---------------------
for registration of the transfer of this Security, the Trustee, any Agent and
the Company may deem and treat the person in whose name this Security is
registered as its absolute owner for the purpose of receiving payment of
principal of and interest on this Security and for all other purposes
whatsoever, whether or not this Security is overdue, and neither the Trustee,
any Agent nor the Company shall be affected by notice to the contrary. The
A-4
<PAGE>
registered holder of a Security shall be treated as its owner for all purposes.
12. Amendments and Waivers. Subject to certain exceptions, the
----------------------
Indenture or the Securities may be amended with the consent of the Holders of at
least a majority in principal amount of the then outstanding Securities, and any
existing default (except a payment default) may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding
Securities. Without the consent of any Security-holder, the Indenture or the
securities may be amended to cure any ambiguity, defect or inconsistency, to
provide for assumption of Company obligations to Security-holders or to make any
change that does not adversely affect the rights of any Security-holder.
13. Defaults and Remedies. Events of Default include: default in
---------------------
payment of interest on the Securities for 30 days; default in payment of
principal on the Securities; failure by the Company to comply with certain
agreements in the Indenture or the securities; failure by the Company for 30
days after notice to it to comply with certain of its other agreements in the
Indenture or the Securities; certain defaults under and acceleration prior to
maturity of other Indebtedness; certain final judgments which remain
undischarged; and certain events of bankruptcy or insolvency. If an Event of
Default occurs and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the then outstanding Securities may declare all the
Securities to be due and payable immediately, except that in the case of an
Event of Default arising from certain events of bankruptcy or insolvency, all
outstanding Securities become due and payable immediately without further action
or notice and except that if any indebtedness is outstanding pursuant to the
Credit Agreement (as defined in the Indenture) or the Senior Notes (as defined
in the Indenture), all outstanding securities become due and payable upon the
earlier of (x) the day which is five Business Days after the provision to the
Company, the Credit Agent (as defined in the Indenture) and the Senior Note
Trustee (as defined in the Indenture) of such written notice of acceleration or
(y) the date of acceleration of any indebtedness under the Credit Agreement or
the Senior Notes. Security-holders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Securities.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Securities may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Security-holders notice of any
continuing default (except a default in payment of principal or interest) if it
determines that withholding notice is in their interests. The Company must
furnish an annual compliance certificate to the Trustee.
14. Trustee Dealings with Company. The Trustee under
-----------------------------
A-5
<PAGE>
the Indenture, in its individual or any other capacity, may make loans to,
accept deposits from, and perform services for the Company or their Affiliates,
and may otherwise deal with the Company or their Affiliates, as if it were not
Trustee.
15. No Recourse Against Others. No director, officer, employee,
--------------------------
agent, manager or stockholder, as such, of the Company or the Trustee, as the
case may be, shall have any liability for any obligations of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of such obliga-tions or their creation. Each Security-holder by
accepting a security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
16. Authentication. This Security shall not be valid until
--------------
authenticated by the manual signature of the Trustee or an authenticating agent.
17. Abbreviations. Customary abbreviations may be used in the name
-------------
of a Security-holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
-------------
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Securities and has directed the Trustee to
use CUSIP numbers in notices of redemption as a convenience to Security-holders.
No representation is made as to the accuracy of such numbers either as printed
on the Securities or as contained in any notice of redemption and reliance may
be placed only on the other identification numbers placed thereon.
The Company will furnish to any Security-holder upon written request
and without charge a copy of the Indenture. Request may be made to:
Ferrellgas, Inc.
One Liberty Plaza
Liberty, Missouri 64068
Attention: Geoffrey H. Ramsden
A-6
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to
- --------------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint _____________________________________
_____________________________ agent to transfer this Security on the books of
the Company. The agent may substitute another to act for him.
- --------------------------------------------------------------------------------
Date: ___________________
Your Signature:
-------------------------
(Sign exactly as your name appears
on the face of this Security)
Signature Guarantee.
A-7
<PAGE>
OPTION TO HOLDER TO ELECT PURCHASE
1. If you want to elect to have all or any part of this Security
purchased by the Company pursuant to Section 4.16 of the Indenture, state
the amount you elect to have purchased (if all, write "ALL"): $__________
2. If you want to elect to have this Security redeemed by the Company
pursuant to Section 3.09 of the Indenture (Redemption by Application of
Proceeds from Asset Sale), check the box [_]
Date: _________________
Your Signature:
-------------------------
(Sign exactly as your name appears on the
face of this Security)
Signature Guarantee.
B-1
<PAGE>
EXHIBIT 10.4
ASSIGNMENT AND AGREEMENT
THIS ASSIGNMENT AND AGREEMENT made as of the 1st day of January, 1989, by
and between BP OIL COMPANY, an Ohio corporation, hereinafter called "BP", and
FERRELL PETROLEUM INC., a Texas corporation, hereinafter called "Ferrell",
WITNESSETH THAT:
RECITALS
WHEREAS, BP has entered into the agreements listed on Exhibit A hereto (the
"Propane Sales Agreements") under which it has agreed to sell propane to certain
parties identified in those agreements, and
WHEREAS, pursuant to that certain Propane Sales Agreement BP has agreed to
sell all of the propane produced at its refineries at Lima, Ohio and Toledo,
Ohio, to Ferrell (subject to certain qualifications contained in that
agreement), and
WHEREAS, Ferrell desires BP to assign its interest in the Propane Sales
Agreements to Ferrell and BP is willing to do to in consideration of Ferrell's
undertaking to perform such contracts on the terms set forth herein.
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. BP hereby assigns to Ferrell all of its right, title and interest in
and to the Propane Sales Agreements.
2. Ferrell hereby accepts the foregoing assignment and assumes and agrees
to perform all of the obligations, terms, conditions, duties and
liabilities to be performed by BP under the Propane Sales Agreements
and agrees to indemnify and save BP harmless from all such obligations,
conditions, duties and liabilities arising or existing from and after
the effective date of this agreement; provided, however, BP shall be
responsible for all claims and causes of action accruing under any
Propane Sales Agreement prior to the effective date of this agreement.
regardless of when such claims or causes of action are actually filed,
and BP shall indemnify and save Ferrell harmless from said claims and
causes of action.
-1-
<PAGE>
3. If Ferrell shall fail to comply with the terms and conditions of any of
the Propane Sales Agreements is herein provided, BP shall have the
right to do so on Ferrell's behalf and Ferrell will reimburse BP for
BP's actual and reasonable cost and expense in doing so. If, in doing
so, BP is thereby rendered unable to fulfill its obligation to deliver
propane to Ferrell in the volumes agreed to in the aforesaid agreement
between BP and Ferrell, BP shall be excused from doing so to the extent
of the volumes required by BP to perform on Ferrell's behalf, without
liability or obligation to Ferrell.
4. Payments made by purchasers of propane under the Propane Sales
Agreements in payment for the purchase of propane delivered before
January 1, 1989, shall belong to BP and payments made for propane
delivered on or after January 1, 1989, shall belong to Ferrell. If such
payments are not properly made, BP and Ferrell shall reimburse one
another from such payments as necessary to accomplish the intended
result.
5. BP warrants that as of the effective date hereof, the Propane Sales
Agreements are in full force and effect, and that BP has not violated
or committed an act of default or breach with respect to any of such
agreements.
IN WITNESS WHEREOF, this instrument has been executed by the parties hereto
as of the day and year first above written.
FERRELL PETROLEUM, INC.
By /s/ John J. Sherman
-------------------
TITLE Vice President
BP OIL COMPANY
By /s/ B. Tobin
TITLE
-2-
<PAGE>
PROPANE SALES AGREEMENT
This agreement dated as of January 1, 1989 by and between BP Oil Company,
an Ohio Corporation, ("BP") and Ferrell Petroleum, Inc., a Texas
Corporation ("Ferrell").
In consideration of the mutual covenants and agreements herein contained,
the parties hereto agree as follows:
1.0 PURCHASE
Subject to the provisions of paragraphs 5.l, 5.2 and 23.0 below, BP agrees
to sell and Ferrell agrees to purchase 100% of the propane produced and
recovered at BP's refineries located at Lima, Ohio, and Toledo, Ohio. It
is estimated that the propane available to Ferrell in 1989 will be as
shown in Exhibit A, but BP has no obligation to provide Ferrell with any
minimum quantity of propane.
2.0 PRODUCT
The product to be sold and purchased hereunder is HD-5 Propane (sometimes
referred to herein as "product").
3.0 SPECIFICATIONS
All propane sold hereunder shall meet the Gas Processors Association
("GPA") specification for HD-5 propane in effect at the time of delivery.
In addition, odorant will be added as set forth in paragraph 11.O hereof.
HOWEVER SELLER DOES NOT WARRANT THAT THE PRODUCT SO SOLD SHALL BE
MERCHANTABLE OR FIT FOR ANY PARTICULAR USE.
-1-
<PAGE>
4.0 TERM
4.1 Minimum File Year Agreement
Subject to the provisions of paragraph 4.2 below, this agreement
shall be for a minimum of five (5) years commencing January 1, 1989
and extending through December 31, 1993. It shall then continue from
year-to-year thereafter and may be cancelled effective as of the end
of its initial term or the end of any such ensuing year by either
party upon prior written notice of not less than 180 days.
4.2 Termination By BP
In addition to any other rights of termination that BP may have in
this agreement, BP reserves the right to terminate this agreement at
any time upon prior written notice of 180 days should BP (i) elect to
engage in the retail marketing of propane in an area that will be
supplied with propane from the Lima and Toledo refineries, whether
such marketing is through the purchase of an existing company or
otherwise, or (ii) determine that sales between Ferrell and any of
its affiliated companies, such as Ferrellgas, do not conform to the
requirements of paragraph 9.3 (iii) hereof.
5.0 ALTERNATE USES
5.1 Burn Value
BP will provide Ferrell, at the intervals described in paragraph
16.0, with the value ("burn value") to BP of burning the propane at
each of its Lima and Toledo refineries and the volume of such propane
that can be burned at that value at each such refinery. Should this
burn value exceed Ferrell's expected price netted back to the
refinery gate, it is understood that such volume of propane
-2-
<PAGE>
will be burned at the refinery, provided, however, that Ferrell may
nevertheless elect to purchase all or any portion of such propane
rather than allow it to be burned, in which event it will pay BP
the burn value for the amount of such propane so purchased.
The formula for calculating the burn value of a liquid gallon of
propane is:
BP's price paid for refinery fuel gas at its Lima or Toledo
refinery, as applicable, expressed at the time such refinery fuel
is used in dollars per million BTU (Gross) multiplied by 0.0931
million BTU per liquid gallon.
5.2 Alternate Fuels
If alternate refinery fuels are unavailable to BP, BP reserves the
right to burn as much propane produced at its Lima or Toledo
refineries as may be necessary to maintain refinery operations. In
addition, BP shall have the right to withhold and divert as much
propane from sale to Ferrell under this agreement as may be necessary
to maintain sufficient quantities of alternate fuel in the propane
(burn) cavern at BP's Toledo refinery to provide adequate alternate
fuel to operate the refinery in the event that other sources of fuel
to that refinery are interrupted. The amount of such alternate fuel
is approximately 40,000 barrels. BP and Ferrell will consult with
each other as to the time when any such diversion should occur.
-3-
<PAGE>
6.0 DELIVERY
Deliveries shall be made within BP's usual business hours and at such
times as may be required by Ferrell, provided that BP may require
reasonable advance notice of each delivery to be given by Ferrell. At the
time of giving notice, Ferrell shall furnish BP necessary shipping
instructions. BP shall prepare and furnish Ferrell with copies of bills of
lading and other shipping papers.
6.1 Truck
Delivery into transport trucks shall be made F.O.B. the transport
trucks at the Lima and Toledo refinery loading racks.
6.2 Pipeline
Delivery into pipelines shall be made from the Lima refinery F.O.B. the
Texas Eastern Transmission Company's Todhunter terminal near Dayton,
Ohio (the "Todhunter Terminal") subject to mutual agreement by BP, the
pipeline companies used to ship the propane to the Todhunter Terminal
and the operator of the Todhunter Terminal, presently Texas Eastern
Transmission Company. In the event Ferrell is no longer given access to
the Todhunter Terminal as a distribution location for Lima production,
this will be deemed a fundamental change in the market and an event to
initiate negotiations as discussed in paragraph 20.0.
6.3 Tank Car
BP has tank car loading capability at its Lima refinery. Should Ferrell
require tank car loading for rail deliveries, BP will provide such tank
car loading on a best efforts basis. Deliveries
-4-
<PAGE>
into tank cars shall be made F.O.B. such tank cars at such loading
facilities at the Lima Refinery.
7.0 TITLE, LIABILITY, RISK OF LOSS
Liability of BP shall cease and title to and responsibility for the
product delivered hereunder, including risk of loss, shall pass to and
rest in Ferrell as follows:
7.1 Tank Truck
For deliver; into tank trucks, as the product is loaded into transport
trucks at the point of delivery, which shall be at BP's Lima or Toledo
refineries.
7.2 Pipeline
For delivery into pipelines, as the product passes the flange between
the pipeline that delivers the product and the Todhunter Terminal.
7.3 Tank Car
For delivery into tank cars, as the product is loaded into the tank car
at the point of delivery, which shall be at BP's Lima refinery.
8.0 MEASUREMENTS
The volume of propane obtained by measurement hereunder shall be adjusted
to a temperature of 60-F. using "GPA Standard Factors for Volume
Correction and Specific Gravity Conversion of Liquified Petroleum Gases,"
GPA Publication No. 2162 in effect on the date of delivery.
-5-
<PAGE>
8.1 Transport Truck
Transport truck delivery quantities will be determined: (i) by rotary
gauging devices (or such other method as the parties may hereafter
agree in writing) at BP's propane loading facility at BP's Lima
refinery and (ii) by weight at BP's Toledo refinery. Such quantities
will be the quantities shown on the transport bill of lading.
8.2 Tank Cars
Tank car delivery quantities will be determined by standard calibrated
tank car tables for the tank cars used.
8.3 Pipeline
Pipeline delivery quantities will be determined by calibrated meters,
or if calibrated meters are not available, by the measurement of the
delivery tanks before and after delivery on the basis of mutually
agreed upon gauge tables.
9.0 PRICE
9.1 Settlement Price
Except as otherwise provided in this agreement, Ferrell will pay BP the
"Settlement. Price". The Settlement Price shall consist of a "Minimum
Price" (as defined below) plus a sharing of revenue above the Minimum
Price as provided for in paragraph 9.1 (ii).
i.) The "Minimum Price" per gallon is equal to the average of all
-6-
<PAGE>
of the daily spot high/low average prices for Mont Belvieu T.E.T.
propane as published in O.P.I.S. Petroscan for each term, plus an
additional $0.0275 per gallon. Each term will be consecutive and
will be six months in duration beginning January 1, 1989.
ii.) In the first and second terms, Ferrell will keep the first $.0028
per gallon of Ferrell's average sales price for each such term
netted back to the refinery gate, in excess of the Minimum Price.
BP and Ferrell will then share equally the difference between
Ferrell's average sales price netted back to the refinery gate and
the Minimum Price plus $0.0028 per gallon for all product sold
during such term.
In the third and fourth terms, Ferrell will keep the first $0.0016
per gallon of Ferrell's average sales price for each such term
netted back to the refinery gate, in excess of the Minimum Price.
BP and Ferrell will then share equally the difference between
Ferrell's average sales price netted back to the refinery gate and
the Minimum Price plus $0.0014 per gallon for all product sold
during such term.
In the fifth term and thereafter, BP and Ferrell will share
equally the difference between Ferrell's average sales price
netted back to the refinery gate and the Minimum Price for all
product sold during such term.
-7-
<PAGE>
An example showing how the Settlement Price would be calculated in
the first term is show in Exhibit B.
Any product sold by Ferrell pursuant to paragraphs 5.1 above and 18.0
below will not be included when calculating Ferrell's average sales
price for the term.
9.2 Invoicing
i.) For invoicing purposes during the first six month term of this
agreement, Ferrell will pay BP a formula price equal to 96% of
Ferrell's selling price netted back to the refinery rate for each
gallon sold by truck or tank car at Lima and Toledo, Ohio. Payment
of any difference between the Settlement Price and the invoice
price will be made between BP and Ferrell at the end of the first
term and each succeeding six month term. At the end of each six
month term, the actual percentage price that Ferrell should have
paid BP for the term must ended will be calculated, based on actual
sales, netback and revenue figures. This percentage will then be
used for invoicing purposes for the next six month term.
ii.) Invoices for pipeline sales will be generated upon completion of
arrival of propane at the Todhunter Terminal at a price equal to
the daily spot high/low average price for Mont Belvieu T.E.T.
propane as published ln O.P.I.S. Petroscan on the date such product
first begins to be delivered into the
-8-
<PAGE>
Todhunter Terminal plus $0.01 per gallon minus the cost for
transporting the propane from Lima to the Todhunter Terminal.
Ferrell will also be separately invoiced at this time for the
applicable pipeline charges incurred by BP to transport the product
to the Todhunter Terminal. This pipeline charge is currently
$0.0044 per gallon. BP will keep Ferrell informed of any changes in
these pipeline charges.
9.3 Determination Of Price Netted Back To The Refinery Gate
i.) For all propane sold into tank trucks and tank cars F.O.B. the Lima
and Toledo refinery loading sacks, the price netted back to the
refinery gate will be defined as the price at which the product is
sold by Ferrell.
ii.) For all product sold by Ferrell other than F.O.B. the Lima and
Toledo refineries, the price netted back to the refinery gate will
be defined is the price at which the product is sold by Ferrell
minus the applicable transportation costs and charges incurred in
delivering the product to the point of sale by Ferrell. These
charges may include, but are not limited to:
. Actual truck fees charged to Ferrell if a third party trucking
company is used. If Ferrell-owned transport trucks are used, the
truck fee will be determined using common carrier truck rates in
effect at the time of
-9-
<PAGE>
delivery for familiar deliveries in the area in which the
delivery was made. An example of a common carrier trucking
company is Propane Transport Incorporated (PTI) in Ohio.
. Actual pipeline tariffs charged to Ferrell.
. Actual railroad tariffs charged to Ferrell.
iii.) The price netted back to the refinery gate for sales made on a
delivered basis by Ferrell to any affiliate of Ferrell, such as
Ferrell's retail marketing company (Ferrellgas) will be determined
as if such sale were made on an arms length basis to any of
Ferrell's other customers, and shall be based on the alternative
purchase economics report generated by Ferrellgas, a copy of which
is attached hereto as Exhibit C. Ferrell will cause Ferrellgas to
provide alternate purchase economics upon request as part of the
auditing process. Should BP determine that sales were made by
Ferrell to in affiliate at a price less than that described above,
BP will be refunded the difference. ln addition, if it is
determined that such sales are deliberately made it much lesser
price, BP shall thereupon have the right to terminate this contract
as provided in paragraph 4.2 above.
9.4 Sales Data From Ferrell
Ferrell will provide to BP, on a daily basis within four (4) days of
date of delivery, by facsimile means or overnight mail, a summary of
their sales data which will include, but not be limited to: shipping
-10-
<PAGE>
date, bill of lading number, quantity, Ferrell invoice price to its
customer(s), applicable transportation charges, Ferrell price netted back
to the refinery gate, and total value of sale.
10.0 AUDITING
10.1 General Provisions
BP shall have the right, during and after any termination of this
Agreement, upon 5 business days' advance notice, to audit the books
and all records of Ferrell relating to the delivery of propane and to
place personnel in Ferrell's office for such purpose, except that if
BP reasonably believes that a shorter notice period is necessary due
to deliberate falsification of documents or deliberate violation of
the agreement to enable it to conduct an accurate audit, it shall have
the right to do so on no less than 24 hours notice. Ferrell shall
maintain such books and records for 42 months after the date of each
invoice under this Agreement. Ferrell shall incorporate BP's right to
audit into any assignments of this contract.
BP shall have the right to assess interest on any net underpayment at
the end of each six-month term that was the result of Ferrell
providing inaccurate sales date to BP as discussed in Section 9, at
the then-current thirty day U.S. Treasury bill rate plus two (2)
percent, as such rate may change from time to time, during the period
from the date of underpayment to the date of full reimbursement. For
unresolved claims of interest or underpayment, BP reserves the right
to submit the claim(s) to binding arbitration, with the cost shared
equally by BP and Ferrell.
-11-
<PAGE>
10.2 Records Retention
Ferrell shall maintain adequate books and records on its premises in
Liberty, Missouri, and/or Houston, Texas, as may be necessary for BP
to audit propane sales so as to determine Ferrell's average sales
price netted back to the refinery gate.
10.3 Right Of Customer Inquiries
BP shall have the right to contact Ferrell's customers to verify the
sales data provided, pursuant to paragraph 9.4, but only if BP has
reason to believe that such data has been deliberately falsified.
10.4 Right Of Ferrellgas Supplier Inquiries
BP shall have the right to contact suppliers of propane to Ferrellgas
to verify alternate purchase economics as referred to in item 9.3
(iii) above.
11.0 ODORIZATION
Unless otherwise advised in writing by Ferrell, BP will furnish and add
odorant to propane loaded into transport tank trucks at the rate of one and
one-half (1.5) pounds of ethyl mercaptan (or other suitable odorant as may
be agreed upon in writing by both parties) per 10,000 gallons of propane.
Propane delivered into tank cars and by pipeline will not have odorant
added to it. Presently, BP cannot odorize propane loaded into tank cars.
When and if this capability is added, the contract will be amended
accordingly.
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<PAGE>
12.0 DEMURRAGE
Demurrage shall be paid per running hour at the rate charged by the
carrier/owner for the time that loading exceeds allowed laytime. The
parties hereto shall not be liable for demurrage caused by stoppage or
restraint of labor of carrier. Carrier/owner policy shall apply as to the
allowable laytime and demurrage rate. The party causing said excess loading
time shall be liable for payment of demurrage charges to the carrier/owner.
13.0 TERMS OF PAYMENT
For all tank car and tank truck loadings, Ferrell will pay BP by wire
transfer twice monthly, on the twenty first (21st) of the month for all
product lifted from the first (1st) through the fifteenth (15th) of the
month; and on the seventh (7th) of the succeeding month, for all product
lifted from the sixteenth (16th) through the end of the month. All product
delivered by pipeline will be paid for by wire transfer within two (2) days
of receipt of invoice and documentation. Once the difference between the
invoice price and settlement price has been determined at the end of a six
(6) month term, and if money is owed BP, payment will be due by wire
transfer within two (2) days of receipt of invoice and documentation. If
money is owed Ferrell, Ferrell's account with BP will be credited BP shall
have the right to change payment terms extended to Ferrell should Ferrell
change the payment terms it extends to its customers for sales of propane
covered by this agreement. BP shall have the right to charge and collect
from Ferrell a reasonable service charge on past due amounts at the rate
and on the terms
-13-
<PAGE>
established from time to time by BP. If during the life of this agreement,
the financial responsibility of Ferrell becomes impaired to the extent that
BP, in its reasonable judgement has cause to believe Ferrell may be unable
to comply with the terms of payment set forth in this agreement, it is
understood and agreed that BP shall have the right to reduce Ferrell's
current credit limit and cash on delivery or cash deposit or other
satisfactory security may be required before any further deliveries are
made. Failure of Ferrell to comply substantially with terms of payment, or
failure to maintain financial responsibility satisfactory to BP as
described in the preceding sentence, or failure to comply with BP's demand
for cash on delivery or cash deposits or other security, shall be cause for
BP to suspend further shipments and deliveries under this agreement or to
terminate this agreement without liability for any damages occasioned by
such suspension or termination.
It is the responsibility of Ferrell promptly to provide BP with any
federal, state, or local gallonage or sales tax exemptions. Ferrell
otherwise will be billed for such tax liabilities which will become due
immediately upon receipt of notification.
All payments shall be credited against the earliest dated invoices.
14.0 EVENTS OF DEFAULT
In addition to, and not in limitation of, any other provision of this
agreement or of applicable law, if any one or more of the following Events
of Default shall happen, then this agreement may be terminated at the
option of the party not in default, although such termination shall not be
deemed an election of remedies:
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<PAGE>
i.) If either party shall file a voluntary petition in bankruptcy, or
shall be adjudicated a bankrupt or insolvent, or shall file any
petition or answer seeking any reorganization, composition,
readjustment, liquidation or similar relief for itself under any
present or future statutes, law or regulation of the United States,
or shall seek or consent to or acquiesce in the appointment of any
trustee, or shall make any general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts
generally as they become due; or
ii.) If a petition shall be filed against either party seeking any
reorganization, composition, readjustment, liquidation or similar
relief under any present or future statute, law or regulation of the
United States and such petition shall remain undismissed or unstayed
for an aggregate of sixty (60) days (whether or not consecutive).
15.0 DAMAGES
BP and Ferrell expressly agree that neither party shall be liable for
indirect, special or consequential damages, except for said damages as may
arise from BP's failure to make available to Ferrell the quantities of
propane required to be made available under the terms and provisions of
this agreement.
16.0 INFORMATION
BP agrees to provide to Ferrell, a minimum of once per month, production,
inventory and propane burn capability information. This information will
include, but is not limited to, propane production forecasts, propane burn
values, propane burn volume forecasts, propane burn capability, Lima
propane cavern inventory, and prior month production rates.
-15-
<PAGE>
17.0 STORAGE
Ferrell will have access to 200,000 barrels of storage at BP's Lima
refinery for strategic inventory management. Of this amount, it is
understood that 40,000 is unable to be retrieved from the cavern because it
is below the minimum suction height for the pump in service. At the Toledo
refinery, Ferrell will have access to a minimum of five (5) and a maximum
of ten (10) 600 - barrel propane storage bullets. The total number of
bullets available is dependent upon whether BP is burning propane and/or
moving other gas liquid products out of the Toledo refinery through these
bullets.
18.0 TAKE OR PAY
Except to the extent that Ferrell may be excused by force majeure, as
provided in paragraph 23.0 hereof, if Ferrell fails to take delivery of any
of the product meeting the paragraph 3.0 specifications above, in the
quantities, at the times and under the conditions herein provided, BP shall
have the right, after full utilization of the storage facilities BP is
making available to Ferrell for the product not so taken, to dispose of any
quantities of any of said product not so taken either by sale to third
parties in good faith and in a commercially reasonable manner, or by
burning as refinery fuel and/or flaring such product. In such event,
Ferrell shall pay BP for the quantity of product so disposed of at the
price specified below. Ferrell will pay BP the difference between the daily
spot high/low average price for Mont Belvieu T.E.I. propane as published in
O.P.I.S. Petroscan plus $0.040 per gallon on the day the product is
disposed of by BP and the value BP received in disposing of the product.
Should Ferrell find it necessary to move product to outside storage,
Ferrell will pay for such product the daily spot high/low average price for
Mont Belvieu T.E.T. propane plus $0.0275 per gallon on the date of delivery
of such product by BP to Ferrell.
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<PAGE>
19.0 MUTUAL INTENTION AS TO TERMINATION
The parties hereby agree that under any "freeze" of supplier/purchaser
relationships imposed under Department of Energy Regulations or any other
federal, state, or local governmental statute or regulation that may be
promulgated, which requires the consent of either or both parties to the
termination of such relationships, such consent shall be given by either
party at the request of the other should this agreement terminate or be
terminated in whole or in part in accordance with the provisions hereof.
The parties agree to execute such documentation as may be necessary from
time to time to effectuate such termination.
20.0 MARKET INFLUENCES
BP and Ferrell realize that there may be influences on this propane market,
which, over time, may affect the spirit of this agreement. A key influence
is the Sarnia propane market's relationship to the Mt. Belvieu propane
market, which historically has typically ranged 0.0 to 2.0 cents per gallon
above Mont Belvieu prices. The local market itself or the elimination of
the Todhunter Terminal as a distribution location as discussed in paragraph
6.2 may significantly alter the economic benefit the parties hereto expect
to receive under this agreement. Should significant market changes occur,
which affect the spirit of this agreement or the expected economic benefits
to either party hereunder, the parties hereto agree promptly to negotiate
in good faith to add, change or delete the terms and conditions of this
agreement, including without limitation, adjustment of the Settlement
Price, as may be reasonably necessary to preserve the spirit of this
agreement and the expected economic benefit hereunder. In addition to any
other rights of
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<PAGE>
termination either party hereto may have in this agreement, if the parties
are unable to negotiate mutually satisfactory additions, changes, or
deletions as provided above, each party hereto shall have the right to
terminate this agreement upon 180 days prior written notice to the other
party, which notice may be given at any time after the occurrence of the
aforesaid significant market change. This is expected to be an exceptional
occurrence; fundamentals in this market do not change frequently.
21.0 OWNERSHIP OF OPERATION OF REFINERIES
Nothing in this agreement shall be deemed to require BP to continue to own
or operate its Toledo or Lima refineries if, in its sole discretion, BP
elects not to do so; provided, however, that BP shall cause each transferee
of the Toledo or Lima refineries, or both, as the case may be, to assume
this agreement and agree to perform all of the obligations, terms,
conditions, duties and liabilities to be performed by BP hereunder for not
less than one calendar year after such transfer.
22.0 CLAIMS
Claims on account of quantity or quality of product, except claims caused
by a failure by BP to add odorant as required by paragraph 11 hereof, shall
be waived unless made in writing within sixty (60) days after delivery.
Ferrell will notify BP within fifteen (15) days of any claims against
Ferrell relating to propane delivered by BP hereunder that arises out of an
alleged failure to add odorant as required by paragraph 11 hereof.
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23.0 FORCE MAJEURE
Except for payments due hereunder, each party shall be excused from
performance under this agreement when and to the extent that such
performance is delayed or prevented by reason of any cause beyond the
control of the party, including, but not limited to, acts of God; acts of
enemies of the United States; perils of navigation; floods; storms; fire;
strikes; lockouts; labor disturbances; riots; civic commotion; hostilities;
war (declared or undeclared); governmental restrictions and prohibitions;
compliance (voluntary or involuntary) with any order or request of any
governmental agency or authority; accidents; breakdown, slowdown or
stoppage of refining or transportation or delivery facilities; and
shortages of supply of fuel, crude oil, other raw materials or petroleum
products. In addition, planned slowdowns or shutdowns of refinery
facilities for periodic or unforeseen maintenance shall excuse BP from
performance hereunder. Notwithstanding the foregoing, settlement of strikes
or differences with workers shall be entirely within the discretion of the
party having such difficulty. Any party excused from performance pursuant
to this paragraph shall be excused only to the extent such performance is
delayed or prevented by the Force Majeure, and promptly after the cessation
of the Force Majeure this agreement shall continue in full force and
effect.
24.0 TAXES
In addition to the prices for propane specified ln this agreement, Ferrell
agrees to pay BP the amount of any taxes, fees, duties, or other charges
not already included in the price which may be imposed directly or
indirectly by any municipal, state or Federal law or governmental
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<PAGE>
authority upon the sale, use, storage, delivery or handling of propane
purchased hereunder or otherwise resulting from or measured by the purchase
of propane hereunder if BP is required to pay or collect such amounts.
25.0 FERRELL'S BUSINESS - INDEMNITY
The business conducted by Ferrell in marketing products purchased hereunder
is the independent business of Ferrell, and this agreement shall not be
construed as reserving to or conferring upon BP any right to direct or
control any of Ferrell's employees or the manner in which the business
operations of Ferrell shall be conducted. Ferrell agrees to comply with all
federal, state and local laws, ordinances, rules, orders and regulations
relating to Ferrell's business and the sale, handling and distribution of
propane Ferrell agrees to indemnify and hold BP, its agents and employees,
harmless from and against any and all expense, liability, claims, and
causes of action except as may be attributed to the negligent acts or
omissions of BP, its agents or employees, directly or indirectly resulting
from, arising out of or connected with any accident or anything whatever
occurring from any cause in connection with the operation or conduct of
Ferrell's business.
26.0 EXISTING CONTRACTS
Ferrell acknowledges that BP has existing propane supply contract
obligations pursuant to the contracts listed on Exhibit D, copies of which
have previously been forwarded to Ferrell. Ferrell and BP agree that
notwithstanding the effective date of this agreement, this agreement shall
not take effect until the form of assignment and Agreement attached hereto
as Exhibit E has been executed by both parties.
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27.0 ASSIGNMENT
This agreement shall inure to the benefit of and be binding upon each of
the parties and their respective successors and assigns, but neither the
rights nor the duties of Ferrell under this agreement may be voluntarily
assigned or delegated without the prior written consent of BP, which shall
not be unreasonably withheld. Notwithstanding the foregoing sentence to the
contrary, the prior written consent of BP shall not be required for the
assignment or delegation by Ferrell to any individual or entity who now or
hereafter controls, is controlled by, or under common control with Ferrell,
including without limitation, the parent company of Ferrell, any subsidiary
of Ferrell, an affiliate of Ferrell, or any subsidiary of said parent,
provided that any such assignment or delegation shall not relieve Ferrell
of its obligation under this agreement in the event that such assignee or
delegee fails to perform such obligations.
28.0 SECTION HEADINGS AND CAPTIONS
All section headings 2nd captions used ln this agreement are for
convenience of reference and shall not affect the interpretation of this
agreement.
29.0 EXHIBITS
All exhibits described ln this agreement shall be deemed to be incorporated
in and made a part of this agreement, except that if there is any
inconsistency between this agreement and the provisions of any exhibit, the
provisions of this agreement shall control.
30.0 AMENDMENTS
Except AS otherwise provided, this agreement shall not be modified except
by written agreement signed on behalf of BP and Ferrell by their respective
authorized representatives.
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31.0 NO WAIVER
The failure of either party any time to require performance by the other of
any provision of this agreement shall in no way affect that party's right
to enforce such provision, or shall the waiver by either party of any
breach of any provision of this agreement be taken or held to be a waiver
of any further breach of the same or any other provision.
32.0 AFFILIATE DEFINED
For purposes of this agreement, an "affiliate" of Ferrell shall be defined
as any person, company or other entity that owns a majority of all classes
of the stock of Ferrell or of which Ferrell owns a majority of all classes
of the stock (or other equity interest) or a majority of all classes of the
stock or other equity interest of which is under common ownership with a
majority of all classes of the stock of Ferrell.
33.0 NOTICES
All notices, approvals, requests, consents and other communications given
pursuant to this agreement shall be in writing and shall be deemed
effective when received if hand-delivered, sent by telex, or by United
States certified or registered mail, addressed as follows:
If to BP:
BP Oil Company
ATTN: Light Ends Trader
200 Public Square, 23-2456-K
Cleveland, Ohio 44114-2375
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If to Ferrell:
Ferrell Petroleum, Inc.
Vice President of Marketing
One Liberty Plaza
Liberty, MO 64068
34.0 ENTIRETY
This Agreement constitutes the entire agreement and understanding between
Sohio and Ferrell concerning the subject matter hereof, merging and
superseding all prior agreements and understandings, whether oral, written,
expressed or implied between Ferrell and BP. All prior agreements between
Ferrell and BP concerning the subject matter hereof are hereby terminated.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
FERRELL PETROLEUM, INC.
BY: /s/ John J. Sherman
___________________________________________
TITLE: Vice President
________________________________________
BP OIL COMPANY
BY: /s/ B. Tobin
___________________________________________
TITLE:
________________________________________
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EXHIBIT A
1989 LIMA/TOLEDO BUDGET
PRODUCTION VOLUMES
MBD
LIMA TOLEDO TOTAL
---- ------ -----
JANUARY 4.6 1.1 5.7
FEBRUARY 5.4 1.1 6.5
MARCH 5.4 1.2 6.6
APRIL 5.4 1.2 6.6
MAY 5.4 1.1 6.5
JUNE 5.4 1.1 6.5
JULY 5.4 1.1 6.5
AUGUST 4.2 1.1 5.3
SEPTEMBER 3.4 1.1 4.5
OCTOBER 5.0 1.2 6.2
NOVEMBER 5.5 1.0 6.5
DECEMBER 5.5 1.0 6.5
---- ------ -----
AVERAGE 5.0 1.1 6.1
TOTAL (MILLION GAL) 76.7 16.9 93.6
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EXHIBIT B
EXAMPLE OF SETTLEMENT PRICE CALCULATION - TERM ONE
ASSUMPTIONS
Average of Mont Belvieu TET Propane 22.000
Daily Spot High/Low Average Prices (c/Gal)
Ferrell Average Sales Price 27.000
Netted Back To The Refinery Gate (c/Gal)
CALCULATION
Minimum Price (c/Gal) = 22.000 + 2.750 = 24.750
Netback Sharing (c/Gal) = 27.000 - (24.75O + 0.28) = 0.985
------------------------
2
Settlement Price (c/Gal) = 24.750 + 0.985 = 25.735
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FERRELLGAS LOCATIONS
<TABLE>
<CAPTION>
ASHLAND ASHLAND MARKWEST TET TET SOHIO SOHIO
CATLETTSBURG CANTON SILOAM TODHUNTER COSCHOCTON TOLEDO LIMA
0.0 0.0 0.0 0.0 0.0 0.0 0.0
COST COST COST COST COST COST COST
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PRICE ADJUSTMENT
CHILLICOTHE OH 3.5 0.0 0.0 0.0 0.0 0.0 4.8
DAYTON OH 5.9 0.0 4.8 2.0 5.5 5.5 3.1
GREENFIELD OH 4.2 0.0 0.0 0.0 0.0 0.0 4.5
GROVE CITY OH 4.8 0.0 3.7 3.9 3.1 5.2 3.9
HEBRON OH 5.2 0.0 4.2 4.5 2.4 5.9 4.5
LEBANON OH 5.9 0.0 0.0 0.0 0.0 0.0 4.2
LOGAN OH 3.5 0.0 0.0 0.0 0.0 0.0 5.2
MANSFIELD OH 7.0 0.0 5.9 5.5 3.1 3.6 3.5
MILFORD OH 5.2 0.0 0.0 0.0 0.0 0.0 4.8
NORWALK OH 0.0 0.0 0.0 6.3 3.9 2.3 3.7
ONTARIO OH 7.3 0.0 5.9 5.5 3.3 3.1 3.3
RADNOR OH 5.9 0.0 4.8 4.2 3.5 3.9 2.9
SPRINGFIELD OH 5.9 0.0 4.5 2.6 4.5 4.8 2.9
BARNESVILLE OH 0.0 3.1 6.7 0.0 3.1 0.0 0.0
DOVER OH 0.0 1.7 7.0 0.0 0.0 5.5 5.5
NEWTON FALLS 0H 0.0 2.3 0.0 0.0 0.0 5.0 7.0
WINCHESTER OH 0.0 0.0 0.0 0.0 0.0 0.0 5.5
MASSILON OH 0.0 0.0 0.0 0.0 0.0 0.0 5.5
---- ---- ---- ---- ---- ---- ----
</TABLE>
<TABLE>
<CAPTION>
AMOCO AMOCO AMOCO MARATHON SUN SUN AMOCO
G SPRINGS MILFORD HUNTINGTON WOODHAVEN INSKTER TOLEDO ST CLAIR
0.0 0.0 0.0 0.0 0.0 0.0 0.0
COST COST COST COST COST COST COST
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PRICE ADJUSTMENT
CHILLICOTHE OH 0.0 0.0 0.0 0.0 0.0 0.0 0.0
DAYTON OH 0.0 0.0 0.0 0.0 0.0 5.5 0.0
GREENFIELD OH 0.0 0.0 0.0 0.0 0.0 0.0 0.0
GROVE CITY OH 4.2 0.0 0.0 0.0 0.0 5.2 0.0
HEBRON OH 4.5 0.0 0.0 0.0 0.0 5.9 0.0
LEBANON OH 0.0 0.0 0.0 0.0 0.0 0.0 0.0
LOGAN OH 0.0 0.0 0.0 0.0 0.0 0.0 0.0
MANSFIELD OH 2.6 0.0 0.0 0.0 0.0 3.6 7.0
MILFORD OH 0.0 0.0 0.0 0.0 0.0 0.0 0.0
NORWALK OH 0.0 0.0 0.0 0.0 0.0 2.3 5.0
ONTARIO OH 2.6 0.0 0.0 0.0 0.0 3.1 6.0
RADNOR OH 0.0 0.0 0.0 0.0 0.0 3.0 0.0
SPRINGFIELD OH 0.0 0.0 0.0 0.0 0.0 4.8 0.0
BARNESVILLE OH 0.0 0.0 0.0 0.0 0.0 0.0 0.0
DOVER OH 0.0 0.0 0.0 0.0 0.0 5.5 0.0
NEWTON FALLS OH 0.0 0.0 0.0 0.0 0.0 5.9 0.0
WINCHESTER OH 0.0 0.0 0.0 0.0 0.0 0.0 0.0
MASSILON OH 0.0 0.0 0.0 0.0 0.0 0.0 0.0
---- ---- ---- ---- ---- ---- ----
</TABLE>
-27-
<PAGE>
EXHIBIT D
EXISTING PROPANE CONTRACT CUSTOMERS
<TABLE>
<CAPTION>
TOTAL
VOLUME
BUYER TERM OF CONTRACT (THOUSAND GAL)
<S> <C> <C>
CAL GAS INTERNATIONAL CORPORATION JUNE 1, 1988 - MARCH 31, 1989 3840
BLUE FLAME GAS CORPORATION JUNE 1, 1988 - MAY 31, 1989 1447
COMMONWEALTH PETROLEUM CO. JUNE 1, 1988 - MAY 31, 1989 7100
DOMEX, INC. JUNE 1, 1988 - MAY 31, 1989 3765
FRANGER GAS COMPANY, INC. JUNE 1, 1988 - MAY 31, 1989 435
MAPCO GAS PRODUCTS, INC. JUNE 1, 1988 - MAY 31, 1989 1809
PETROLANE GAS SERVICES JUNE 1, 1988 - HAY 31, 1989 8030
LIMITED PARTNERSHIP
UNION OIL OF CALIFORNIA JUNE 1, 1988 - MAY 31, 1989 570
</TABLE>
-28-
<PAGE>
EXHIBIT E
ASSIGNMENT AND AGREEMENT
THIS ASSIGNMENT AND AGREEMENT made as of the 1st day of January,
1989, by and between BP OIL COMPANY, an Ohio corporation, hereinafter called
"BP", and FERRELL PETROLEUM, INC , a Texas corporation, hereinafter called
"Ferrell",
WITNESSETH THAT:
RECITALS
WHEREAS, BP has entered into the agreements listed on Exhibit A
hereto (the "Propane Sales Agreements") under which it has agreed to sell
propane to certain parties identified in those agreements, and
WHEREAS, pursuant to that certain Propane Sales Agreement BP has
agreed to sell all of the propane produced at its refineries at Lima, Ohio and
Toledo, Ohio, to Ferrell (subject to certain qualifications contained in that
agreement), and
WHEREAS, Ferrell desires BP to assign its interest ln the Propane
Sales Agreements to Ferrell and BP is willing to do so in consideration of
Ferrell's undertaking to perform such contracts on the terms set forth herein.
NOW THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
l. BP hereby assigns to Ferrell all of its right, title and interest in
and to the Propane Sales Agreements.
2. Ferrell hereby accepts the foregoing assignment and assumes and agrees
to perform all of the obligations, terms, conditions, duties and
liabilities to be performed by BP under the Propane Sales Agreements and
agrees to indemnify and save BP harmless from all such obligations,
conditions, duties and liabilities arising or existing from and after
the effective date of this agreement; provided, however, BP shall be
responsible for all claims and causes of action accruing under any
Propane Sales Agreement prior to the effective date of this agreement,
regardless of when such claims or causes of action are actually filed,
and BP shall indemnify and save Ferrell harmless from said claims and
causes of action.
-29-
<PAGE>
3. If Ferrell shall fail to comply with the terms and conditions of any
of the Propane Sales Agreements as herein provided, BP shall have the
right to do so on Ferrell's behalf and Ferrell will reimburse BP for
BP's actual and reasonable cost and expense in doing so. If, in doing
so, BP is thereby rendered unable to fulfill its obligation to deliver
propane to Ferrell in the volumes agreed to in the aforesaid agreement
between BP and Ferrell, BP shall be excused from doing so to the
extent of the volumes required by BP to perform on Ferrell's behalf,
without liability or obligation to Ferrell.
4. Payments made by purchasers of propane under the Propane Sales
Agreements in payment for the purchase of propane delivered before
January 1, 1989, shall belong to BP and payments made for propane
delivered on or after January 1, 1989, shall belong to Ferrell. If
such payments are not properly made, BP and Ferrell shall reimburse
one another from such payments as necessary to accomplish the intended
result.
5. BP warrants that as of the effective date hereof, the Propane Sales
Agreements are in full force and effect, and that BP has not violated
or committed an act of default or breach with respect to any of such
agreements.
IN WITNESS THEREOF, this instrument has been executed by the parties
hereto as of the day and year first above written.
FERRELL PETROLEUM, INC.
BY_________________________
TITLE______________________
BP OIL COMPANY
BY_________________________
TITLE______________________
-30-
<PAGE>
October 15, 1992
Mr. John Hinsey
Ferrell North America
16800 Greenspoint Park Drive
Suite 225 - South Atrium
Houston, TX 77210
Dear John:
As follow up to our recent discussions BP would like to formally propose the
following changes to the pricing formulas in our Propane Sales Agreement dated
January 1, 1989:
1) With effect from July 1, 1992, the Minimum Price will be calculated as
fifty percent (50%) of the average of all of the daily spot high/low
average prices for Mont Belvieu TET propane plus fifty per cent (50%)
of the average of all of the daily spot high/low average prices for
Conway/Group 140 propane as published in O.P.I.S. Petroscan, for each
term, plus $0.040 per gallon.
2) With effect from July 1, 1992, each term will be shortened to 3 months
in duration.
3) If the Minimum Price, as calculated in item 1 above, exceeds the daily
spot high/low average price for Mont Belvieu TET propane plus $0.0293
per gallon for any term, then the Minimum Price will be calculated as
the daily spot high/low averages for Mont Belvieu TET propane as
published in O.P.I.S. Petroscan for that particular term plus $0.0293
per gallon.
If this letter correctly sets forth your understanding of our agreement,
please sign in the space provided below and return one copy of this letter to
us for our files.
Best regards,
/s/ J. P. Laubacher
-------------------
J. P. Laubacher
Agreed to and accepted this __________ day of___________, 1992.
Ferrell North America, Inc.
By: /s/ John Hinsey
---------------
Title:_____________________
JPL-097/saj
Enclosures
<PAGE>
March 9, 1993
Mr. John Hinsey
FERRELL NORTH AMERICA
16800 Greenspoint Park Drive
Suite 225-South Atrium
Houston TX 77210
Dear John:
As follow up to our recent discussions BP would like to formally propose the
following change to the term of our Propane Sales Agreement dated January 1,
1989. Effective upon your signature of this letter, paragraph 4.1 Minimum Five
Year Agreement, will read as follows:
Subject to the provisions of paragraph 4.2 below, this agreement shall
be for a minimum of five (5) years commencing January 1, 1989 and
extending through March 31, 1994. It shall then continue from
year-to-year thereafter and may be cancelled effective as of the end
of its initial term or the end of any such ensuing year by either
party upon prior written notice of not less than 180 days.
This change effectively extends the original cancellation date of this
agreement from December 31, 1993 to March 31, 1994.
If this letter correctly sets forth your understanding of our agreement,
please sign in the space provided below and return one copy of this letter to
us for our files.
Best regards,
/s/ J.P. Laubacher
- ------------------
J.P. Laubacher
Manager Specialty Products Trading
Agreed to and accepted this 12th day of March, 1993.
Ferrell North America, Inc.
By: /s/ John Hinsey
---------------
Title: Director, LPG Trading
JPL-014
<PAGE>
EXHIBIT 10.5
FERRELL COMPANIES, INC.
LONG-TERM INCENTIVE PLAN
1. PURPOSE
The purpose of the Ferrell Companies, Inc. Long-Term Incentive Plan (the
"Plan") is to further the consolidated growth of Ferrell Companies, Inc. (the
"Company"). The Plan provides long-term incentives in the form of units (called
"Equity Units") for issuance to those officers and key executives who make
substantial contributions to the Company by their ability, dedication, and
loyalty. The Equity Units are subject to purchase by the Company from their
holders at prices related to the value of the Company's Common Stock, as
determined pursuant to the Plan. In this manner, the Company intends that the
Plan will thereby facilitate securing, retaining and motivating management
employees of high caliber and good potential. The Plan has been adopted by the
Board of Directors of the Company.
2. ADMINISTRATION
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company. The Committee members who
hold an award under the Plan shall be ineligible to vote on matters relating to
the Plan which are considered by the Committee. The Committee shall have full
and final authority in its discretion to conclusively interpret the provisions
of the Plan and to decide all questions of fact arising on its application; to
determine the employees to whom awards shall be made under the Plan; to
determine the amount, size and terms of each such award; to determine the time
when awards will be granted; and to make all other determinations necessary or
advisable for the administration of this Plan.
3. PARTICIPANTS
Persons eligible to participate shall be limited to those officers and
other key employees of the Company or its subsidiaries selected by the Committee
who are or will be in positions in which their decisions, actions and counsel
significantly impact upon the profitability of the Company or its subsidiaries.
4. AWARDS UNDER THE PLAN
Awards under the Plan shall be in the form of units ("Equity Units"). The
cash amount to be paid to a participant in respect
<PAGE>
of each Equity Unit shall be measured by and shall be equivalent to the value of
one share of common stock of the Company, as determined in accordance with the
terms of this Plan.
5. EQUITY UNITS
Equity Units, when issued, shall be evidenced by Equity Unit agreements in
such form not inconsistent with this Plan as the Committee shall approve from
time to time, which agreements shall contain in substance (or incorporate in
their entirety) the following terms and conditions:
(a) Holding Period. Subject to the right of each participant to
request and/or receive, in the manner hereinafter specified, accelerated payment
for each Equity Unit, the maximum holding period for an Equity Unit shall be a
period of ten years beginning as of July 31, 1986.
(b) Eligibility. Eligibility and number of Equity Units awarded shall
be based upon the participant's position and its impact on the long-term success
of the Company, as determined by the Committee. Equity Units may, in the
absolute discretion of the Committee, also be granted to new hires on such terms
(including, without limitation, vesting, valuation and payment terms differing
from those provided herein) as may be determined by the Committee. Otherwise,
Equity Units shall be awarded by the Committee to each participant as of August
1, 1986. Additional Equity Units may be granted by the Committee in its sole
discretion.
(c) Vesting of Equity Units. Payments under Subparagraph (e) below by
the Company to participants for Equity Units shall be made only in respect of
Equity Units for which a participant has become vested under this Subparagraph
(c).
(i) Normal Vesting. Provided a participant has been continuously
employed by the Company or one or more of its subsidiaries from and after
December ll, 1986, and continuing through each date set forth below, then that
portion of his or her Equity Units indicated opposite each such date shall
become vested:
CONTINUOUSLY EMPLOYED PORTION OF EQUITY UNITS
THROUGH JULY 31, VESTED
--------------------- -----------------------
1987 5%
1988 10%
1989 15%
1990 30%
1991 50%
1992 75%
1993 100%
-2-
<PAGE>
(ii) Early Vesting. Provided the participant has been
continuously employed by the Company or one or more of its subsidiaries from and
after December 11, 1986, and continuing through the date of occurrence of any
one of the events described below, all of such participant's Equity Units shall
become vested as of the date of such occurrence:
(A) The date on which the first distribution to the
Company's shareholders occurs in furtherance of a plan of liquidation adopted by
the Company in connection with a sale of substantially all of its assets; or
(B) The date a participant dies or becomes "totally and
permanently disabled" (as defined in Subparagraph (e)(ii) below) or retires with
the consent of the Company; or
(C) The date James E. Ferrell and members of his family and
their representatives, together, cease to own a majority of the outstanding
voting securities of the Company; or
(D) The date, if on or after August 1, 1988, a participant's
employment is terminated by the Company or applicable subsidiary without "cause"
(for purposes hereof "cause" shall mean: failure by a participant to perform his
or her duties in a diligent and competent manner, as determined by the Company's
Board of Directors; gross insubordination; or commission of any felony or
commission of a misdemeanor involving an act of moral turpitude); or
(E) The date the Company directly or through another
subsidiary ceases to own a majority of the outstanding voting securities of a
subsidiary employing a participant.
(iii) Termination of Employment. In the event that: a participant
voluntarily terminates his or her employment with the Company or a subsidiary;
or a participant's employment is terminated for "cause" (and the "cause" is the
participant's failure to perform his or her duties in a diligent and competent
manner); or a participant's employment is terminated without cause prior to
August 1, 1988; then the participant may retain (for payment under Subparagraph
(e) below) those Equity Units which are vested prior to the date of such
termination and any of such participant's Equity Units not then vested under
this Subparagraph (c) shall not be subject to further vesting and shall expire
immediately following payment to such participant for
-3-
<PAGE>
his or her Equity Units which were vested at the date of termination of his or
her employment. In the event a participant's employment is terminated for
"cause" (and the "cause" is his or her gross insubordination or the commission
by him or her of any felony or a misdemeanor involving an act of moral
turpitude), then all Equity Units held by such participant, vested and unvested,
shall be forfeited immediately upon the occurrence of such insubordination,
felony or misdemeanor and no further payments shall be made as to such Equity
Units.
(d) Valuation of Equity Units. The Company shall be obligated to cause
a determination of the value of the Equity Units to be made at such times
hereunder as the same may be required in connection with any cash payment to be
made hereunder to participants for his or her Equity Units (excluding dividends,
as set forth in Subparagraph (e)(iv) below). In addition, such a determination
of value shall be required to be made no later than as of July 31, 1991 ("First
Appraisal") and as of July 31, l996 ("Second Appraisal"). The Company shall
cause all such determinations of value to commence immediately following the
availability of the Company's annual audited consolidated financial statements
for the year preceding the time of payment and each such determination of value
shall conclude no later than 180 days thereafter. In order to obtain the value
of each Equity Unit at any time hereunder, first: the aggregate value of all the
common equity of the Company shall be determined under Subparagraph (i), (ii) or
(iii) below; second: there shall be subtracted from such amount the sum of $85
million (which sum is deemed to be the value of all the common equity of the
Company as of the initial date of grant of Equity Units under the Plan); and
third: the difference shall be divided by the sum of the total outstanding
shares of common equity of the Company (computed on a fully diluted basis
inclusive, without limitation, of an aggregate of up to 321,708 shares of the
Company's common stock to be issued to James E. Ferrell or members of his
family) together with the total number of Equity Units outstanding under the
Plan. The aggregate value of all the common equity of the Company shall be
determined under the following Subparagraphs (i), (ii) or (iii). The First
Appraisal and Second Appraisal shall be prepared in the manner described in
Subparagraph (i) unless the method described in Subparagraph (ii) is available.
(i) The Company may cause an appraisal to be made by a nationally
recognized investment banking firm of the value of the entire common equity of
the Company, as an ongoing business as if all the common equity of the Company
had equal voting rights and as if the Company were a company with respect to
which no less
-4-
<PAGE>
than 90 percent of the common equity were public (i.e., freely tradeable without
registration under the Securities Act of 1933 or compliance with Rule 144 under
such Act) and held by non-affiliates.
(ii) If a class of common stock of the Company is publicly traded
(that is, listed on a national securities exchange or the National Association
of Securities Dealers Automated Quotation System) then the mean between the
closing bid and asked prices hereof on such exchange or system shall be
determined as of the date the value of the Equity Units is determined. Such per
share price shall be multiplied by the number of shares of such class of stock
outstanding. Such amount shall constitute the aggregate value of all the common
equity of the Company. This method of determining the value of the entire common
equity of the Company shall, if available and notwithstanding anything to the
contrary set forth in the Plan, be utilized in each and every instance where
such determination is required to be made under the Plan. Notwithstanding
anything else to the contrary set forth in the Plan calling for such
determination of value to be made as of the end of any of the Company's fiscal
years, in cases where such determination can be made under this Subparagraph
(ii), such determination shall be made as of the nearest practicable date
preceding the date of payment by the Company for Equity Units.
(iii) Under the circumstances specified in Subparagraph (e) below
(except where the public market described in Subparagraph (ii) above exists), or
in the event the appraisals described in Subparagraph (i) above are more than 90
days old, or in the absence of the public market described in Subparagraph (ii)
above or in cases where the Plan provides that the Committee may otherwise make
a determination of value, the Committee shall, in good faith, determine (or
cause an independent determination to be made of) the entire common equity of
the Company, as an ongoing business as if all the common equity of the Company
had equal voting rights and as if the Company were a company with respect to
which no less than 90 percent of the common equity were public (i.e., freely
tradeable without registration under or compliance with Rule 144 under the
Securities Act of 1933) and held by non-affiliates. The Committee may consider
the criteria or methodology employed in the First or Second Appraisal and apply
the same in making its valuation hereunder.
(e) Payment for Equity Units. Whenever, under the terms of this Plan,
the Company is required to pay a
-5-
<PAGE>
participant for his or her Equity Units, such payment shall be made only for and
with respect to such participant's Equity Units which have become vested under
Subparagraph (c)(i), (c)(ii) or (c)(iii) above. The obligation to make payments
hereunder to participants for Equity Units shall the sole and exclusive
obligation of the Company particular subsidiary thereof for which the
participant employed at the time of payment. The normal payment date for Equity
Units shall be promptly following the availability of the valuation of the
Equity Units under Subparagraph (d) above as of the Company's fiscal year ending
July 31, 1996, at which time but no later than February 1, 1997, payment for all
vested Equity Units outstanding under the Plan on July 31,1996, shall be made
and all such Equity Units shall then terminate. Earlier payment for (and
termination of) Equity Units may occur under the following Subparagraphs (i)
through (iii) below.
(i) Immediately following the availability of the valuation of
the Equity Units under Subparagraph (d) above as of the Company's fiscal year
ending July 31, 1991, and during each of the two following twelve-month periods,
participants may request and receive payment for up to 25 percent of the value
of his or her Equity Units that are vested at the time of each such request. The
price paid shall be the value thereof determined as of July 31, 1991 and set
forth in the First Appraisal, except that from and after August 1, 1992, the
Company may request that the Committee determine the value thereof under
Subparagraph (d)(iii) above as of the immediately preceding fiscal year end. A
participant may withdraw a request for early payment within ten days following
receipt of such valuation as determined by the Committee. No requests for
payment under this Subparagraph (e)(i) may be made by a participant whose
employment with the Company or a subsidiary has terminated or by a participant
who is employed by a subsidiary which is sold, as described in Subparagraph
(c)(ii)(E) above. On or before each of May 31, 1991, 1992 and 1993, a
participant may, by delivery of written notice to the Company, irrevocably
terminate for a period of 12 months or longer, his or her right to request and
receive payments under this Subparagraph (e)(i) and, notwithstanding any other
provisions of the Plan, such termination shall be conclusive, final and binding
on the Company and such participant.
(ii) In the event of the death or "total and permanent
disability" of a participant or if a participant retires with the consent of the
Company, the value of his or her Equity Units shall be under Subparagraph (d)
above as of the
-6-
<PAGE>
fiscal year ended immediately prior to his or her death, disability or
retirement, and such amount shall thereafter be promptly paid to such
participant or, if such participant dies, then to his or her estate, or as
otherwise designated by the participant. The Company (or applicable subsidiary)
may elect to make payments under this Subparagraph (e)(ii) by delivery of its
unsecured promissory note payable in equal annual payments (not to exceed five
years) and bearing interest at an annual rate equal to the prime rate charged by
Bankers Trust Company (New York City) to its most credit-worthy commercial
borrowers. For purposes of this Plan, the term "total and permanent disability"
shall have the meaning given thereto in such Company employee benefit plan as
may be maintained by the Company or in current Company policy selected by the
Committee.
(iii) In the event that: a participant's employment with the
Company (or subsidiary thereof) is terminated (except as a result of death); or
a participant voluntarily terminates his or her employment with the Company; or
a participant employed by a Company subsidiary which is sold becomes subject to
early vesting as described in Subparagraph (c)(ii)(E) above; then, in each such
case, the value of his or her Equity Units which remain vested under
Subparagraph (c)(iii) above will be the lower of: the value determined under
Subparagraph (d)(iii) above as of the end of the month during which such
termination occurs; or the value determined in accordance with the First or
Second Appraisal (whichever next follows any such termination). Payment for such
vested Equity Units shall be made promptly following the date of completion of
the First Appraisal or Second Appraisal, whichever next occurs following such
termination.
(iv) In the event the Company declares and pays any cash
dividends to the holders of its common equity securities, the same per share
dividend shall be paid to each participant with respect to each of his or her
Equity Units which are vested at the time such dividend is declared.
(f) Adjustments to Number of Equity Units. In the event that: the
Company declares and pays a stock dividend on its common stock; or the Company
effects a stock split as respects its common stock; or the shares issuable to
James E. Ferrell or his family, referred to in Subparagraph (d) above, are
issued as a result of option exercises at $l.00 per share; or the Company
repurchases shares of its "Class B" common stock at $1.00 per share; then, in
each such
-7-
<PAGE>
case, an appropriate pro rata adjustment shall be made to the Equity Units
outstanding under this Plan.
6. RIGHTS TO TERMINATE EMPLOYMENT
Nothing in the Plan or in any agreement entered into pursuant to the Plan
shall confer upon any participant the right to continue in the employment of the
Company or any subsidiary thereof or affect any right which the Company may have
to terminate the employment of such participant.
7. WITHHOLDING
Payments to be made under the Plan in cash shall be net of an amount
sufficient to satisfy any federal, state and/or local withholding tax
requirements.
8. NON-ASSIGNABILITY
No award under the Plan shall be assignable or transferable by the
recipient thereof. In the event of the death of a participant, his or her legal
representative designated by will or by the laws of descent and distribution
shall receive any payments due to such participant under the terms of this Plan.
During the life of the recipient, such award shall be paid only to such person.
9. NON-UNIFORM DETERMINATIONS
The Committee's determinations under the Plan (including without limitation
determinations of the persons to receive awards, the form, amount and timing of
awards and payments, the terms and provisions of such awards and payments and
the agreements evidencing same, and the establishment of values and performance
targets) need not be uniform and may be made by it selectively among persons who
receive, or are eligible to receive, awards under the Plan, whether or not such
persons are similarly situated and for whatever reason including, without
limitation, the hardship of a participant.
10. AMENDMENT; OTHER PLANS
The Committee may terminate or amend the Plan at any time, except that
without the approval of the Company's Board of Directors, the Committee may not
extend the period during which any award may be exercised or extend the term of
the Plan. The termination or any modification or amendment of the Plan shall
not, without the consent of a participant, affect his rights under any award
previously granted. The adoption by the Company's Board of Directors of this
Plan shall not, in any manner, preclude the Company or any of its subsidiaries
from adopting and implementing any other plans or programs providing incentive
compensation in any form to any of its or their employees.
-8-
<PAGE>
11. DURATION OF THE PLAN
Subject to the provisions of Paragraph 10 above, the Plan shall remain in
effect until all awards under the Plan have been satisfied by the payment of
cash.
12. PAYMENTS UNFUNDED
The Company shall have no obligation to reserve or otherwise fund in
advance any amounts which are or may in the future become payable under this
Plan. Any funds which the Company, acting in its sole discretion, determines to
reserve for future payments under this Plan may be commingled with other funds
of the Company and need not in any way be segregated from other assets or funds
held by the Company.
-9-
<PAGE>
EXHIBIT 10.6
FERRELL COMPANIES, INC.
1992 KEY EMPLOYEE STOCK OPTION PLAN
FERRELL COMPANIES, INC., a corporation organized and existing under the laws
of the State of Kansas (the "Company"), hereby formulates and adopts, by action
of the holders of a majority of the shares of common stock of the Company and
its Board of Directors, the 1992 Key Employee Stock Option Plan (the "Plan") for
certain key employees of the Company, as follows:
1. Purpose. The purpose of this Plan is to encourage key employees to acquire
a proprietary interest in the Company, thereby creating an additional incentive
to such employees to promote the Company's best interests and to continue in the
employ of the Company, and further to provide an additional inducement for the
acquisition of the services of outstanding persons expected to become key
employees and, generally, to implement the growth and development of the
Company.
2. Definitions.
a. "Stock Option" means the right to purchase, upon exercise of the option
granted under this Plan, shares of the Company's Class M common stock, $.01 par
value ("M Stock").
b. "Incentive Stock Option" means a Stock Option which meets all of the
requirements of an "incentive stock option" as defined in Section 422A(b) of the
Internal Revenue Code of 1986, as now in effect or hereafter amended.
c. "Nonstatutory Stock Option" means a Stock Option which does not qualify as
an Incentive Stock Option under the Internal Revenue Code.
3. Eligibility. Stock Options may only be granted to persons selected by the
Board as key employees of the Company or any subsidiary of the Company.
Incentive Stock Options may only be granted to key employees who are eligible to
receive them under Section 422A of the Internal Revenue Code and who do not own
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company.
4. Administration of the Plan. (a) The Plan shall be administered by the Board
of Directors (or committee
<PAGE>
thereof) of the Company (the "Board"). The Board is hereby authorized, in its
discretion, at any time and from time to time during the continuance of the
Plan, (i) to determine which key employees shall be granted Stock Options under
the Plan, and (ii) to grant to any key employee so selected a Stock Option or
Stock Options to purchase M Stock.
(b) The Board shall have full power and authority to construe, interpret and
administer the Plan and, subject to the provisions of this Plan, to make
determinations which shall be final, conclusive and binding upon all persons,
including (without limitation) the Company, its shareholders, the Board of
Directors, the key employees and any persons having any interest in any Stock
Options which may be granted under the Plan. The Board shall impose such
additional conditions upon the grant and exercise of Stock Options under this
Plan as may from time to time be deemed necessary or advisable, in the opinion
of counsel to the Company, to comply with applicable laws and regulations. The
Board may, from time to time, adopt rules and regulations for carrying out the
Plan.
5. Stock Subject to the Plan. The total number of shares of M Stock of the
Company issuable under this Plan may not at any time exceed 100,000 shares.
Shares of M Stock to be delivered or purchased under the plan may be either
shares of authorized but unissued M Stock of the Company or shares of the
Company's M Stock which have been purchased by the Company from any source
whatever. If a Stock Option granted under the Plan shall be surrendered or shall
for any reason expire or terminate unexercised, the shares of M Stock which were
subject thereto shall again be available for Stock Options thereafter granted
under the Plan.
6. Stock Option Price. The purchase price per share of M Stock under each
Stock Option shall be determined by the Board, but shall not be less than the
fair market value (as determined by the Board) of one share of M Stock on the
date the Stock Option is granted.
7. Period and Exercise of Option.
a. Each Stock Option shall expire as to all of the shares subject thereto on
such date as may be selected by the Committee, but no later than ten years from
the date of grant and, except as provided in Section 8 regarding death,
disability or retirement of the optionee, shall terminate when the key employee
ceases to be an employee of the Company. Except as provided in Section 8, no
option may be exercised unless the optionee is at the time of such exercise in
the employ of the Company and has been continuously so employed since the grant
of his or her
-2-
<PAGE>
option. Absence on leave approved by the Company shall not be considered an
interruption of employment under this Plan.
b. The exercise of any Stock Option will be contingent upon receipt from the
optionee (or the purchaser acting under Section 8) of written notice specifying
the number of shares to be purchased accompanied by the full purchase price for
such shares. No optionee and no legal representative, legatee or distributee (as
the case may be) will be, or will be deemed to be, a holder of any shares
subject to a Stock Option unless and until certificates for such shares are
issued to the optionee under the terms of the Plan.
8. Termination of Employment. If any optionee shall cease to be an employee of
the Company because of death, total and permanent disability (as defined in any
Company disability plan or in written Company policy) or retirement (with the
consent of the Company), his or her option shall continue and shall terminate 90
days after the date of such event. "Retirement" shall mean permanent cessation
of employment by (and with the consent of) the Company. Such Stock Option may be
exercised as provided in this Section 8, but only to the extent that the
optionee was entitled to exercise the Stock Option at the date of his or her
death, disability or retirement, as the case may be. No Stock Option shall, in
any event, be exercisable later than ten years from the date of grant. In the
event of the death of the optionee while in the employ of the Company, his or
her Stock Option shall be exercisable only by the person or persons to whom the
optionee's rights under the option shall pass by the optionee's will or by the
laws of descent and distribution.
9. Qualification or Registration of Stock. Each Stock Option shall be subject
to the requirement that if at any time the Board and Company counsel shall
determine, in their discretion, that qualification or registration under any
state or federal securities laws of the shares of M Stock or the Stock Options,
or consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of or in connection with the granting of such Stock
Option or the purchase of shares thereunder, the Stock Option may not be
exercised in whole or in part unless and until such qualification, registration,
consent or approval shall have been effected or obtained free of any conditions
the Board and such counsel, in their discretion, deem unacceptable.
-3-
<PAGE>
10. Payment of Shares.
a. Full payment of the aggregate option price for shares purchased shall be
made at the time of exercising the Stock Option in whole or in part. Full
payment shall be made in cash or by certified or bank cashier's check.
b. The aggregate option price shall be the product of (i) the per share option
price determined pursuant to Section 6, and (ii) the number of shares purchased.
11. Employment Status. No Stock Option or agreement shall be construed as
imposing upon the Company the obligation to continue the employment of the
optionee.
12. Assignability. A Stock Option granted pursuant to the Plan shall not be
transferable or assignable by the optionee other than by will or the laws of
descent and distribution, and during the lifetime of the optionee, the Stock
Option shall be exercisable only by him or her.
13. Dilution or Other Adjustments. In the event of any changes in the capital
structure of the Company, including but not limited to a change resulting from a
stock dividend or split-up, or combination or reclassification of shares, the
Board shall make such adjustments with respect to Stock Options or any
provisions of this Plan (including changes in the aggregate number of shares for
which Stock Options may be granted under the Plan) as it deems equitable to
prevent dilution or enlargement of option rights or of the shares subject to
Stock Options. No such adjustments shall be required as to any issuances by the
Company of shares of its M Stock upon the exercise of Stock Options or upon any
other sale by the Company of its equity securities.
14. Merger, Consolidation, Reorganization, Liquidation, Etc. If the Company
shall become a party to any corporate merger, consolidation or reorganization,
the Board shall make such arrangements as it deems advisable with respect to
outstanding Stock Options, which shall be binding upon the optionees, including,
but not limited to, requiring the optionees to exercise such Stock Options
within a time period determined by the Board.
15. Interpretation and Regulations. The Board shall have the power to
interpret the Plan and to provide regulations for its administration, or to make
any changes in such regulations as from time to time the Board deems necessary.
The Board shall have the sole power to determine the date of the circumstances
which shall constitute a cessation of employment and to determine whether such
cessation is the result of retirement, disability, death or
-4-
<PAGE>
any other reason. The Board shall have the power to specify the form of option
agreement to be granted from time to time pursuant to and in accordance with the
provisions of the Plan, and such agreement shall be final, conclusive and
binding upon the Company, the shareholders of the Company, and the optionees. No
optionee shall have or acquire any option rights under the Plan except such as
are evidenced by a duly executed agreement in the form thus specified.
16. Amendment and Discontinuance. The Board shall have the right at any time
during the continuance of the Plan to amend, modify, supplement, suspend or
terminate the Plan, provided that in the absence of the approval of the holders
of a majority of the shares of M Stock of the Company present in person or by
proxy at a duly constituted meeting of shareholders of the Company, no such
amendment, modification or supplement shall (i) increase the aggregate number of
shares which may be issued under the Plan, unless such increase is by reason of
any change in capital structure referred to in Section 13 hereof, or (ii) change
the termination date of the Plan provided in Section 17; and provided further,
that no amendment, modification, or termination of the Plan shall in any manner
affect any Stock Option theretofore granted under the Plan without the consent
of the optionee unless such amendment, modification or termination is by reason
of any change in capital structure referred to in Section 13 hereof.
17. Termination. The Committee may grant Stock Options at any time prior to
January 1, 1997, on which date this Plan will terminate except as to Stock
Options then outstanding hereunder, which Stock Options shall remain in effect
until they have been exercised or have expired.
18. Approval. This Plan has been approved by the stockholders of the Company.
-5-
<PAGE>
EXHIBIT 12.1
FERRELLGAS, L.P.
COMPUTATION OF RATIO OF NET EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIO OF EARNINGS TO FIXED CHARGES)
<TABLE>
<CAPTION>
HISTORICAL PARTNERSHIP PRO FORMA (4)
------------------------------------------------------------------ ---------------------------
SIX MONTHS SIX MONTHS PRO FORMA (4) PRO FORMA (4)
YEAR ENDED JULY 31, ENDED ENDED YEAR ENDED YEAR ENDED
------------------------------------------ JANUARY 31, JANUARY 31, JULY 31, JANUARY 31,
1989 1990 1991 1992 1993 1993 1994 1993 1994
------- ------- ------- ------- ------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Earnings (loss) before
income taxes and
extraordinary loss ... $(2,364) $ (112) $ 3,537 $(2,369) $ 595 $13,809 $22,896 $28,808 $36,568
Add fixed charges (see
below)................ 57,143 57,903 64,142 65,230 64,317 32,332 31,883 33,143 16,628
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings, as
adjusted(1)........... 54,779 57,791 67,679 62,861 64,912 46,141 54,779 61,951 53,186
FIXED CHARGES:
Interest expense,
including amortization
of financing costs.... 54,572 55,095 60,507 61,219 60,071 30,089 29,824 28,897 14,569
Add interest factor of
rent expense(3)....... 2,571 2,808 3,635 4,011 4,246 2,243 2,059 4,246 2,059
------- ------- ------- ------- ------- ------- ------- ------- -------
Fixed charges........... $57,143 $57,903 $64,142 $65,230 $64,317 $32,332 $31,883 $33,143 $16,628
======= ======= ======= ======= ======= ======= ======= ======= =======
Ratio of earnings to
fixed charges.......... 1.06 1.01 1.43 1.72 1.87 3.20
Deficiency(2)........... $(2,364) $ (112) $(2,369)
</TABLE>
- --------------------
(1) In computing the ratio of earnings to fixed charges: (A) earnings have been
based on earnings (loss) from continuing operations before income taxes and
fixed charges and (B) fixed charges consist of interest expense and
amortization of debt issuance costs.
(2) The deficiency is the amount by which earnings are inadequate to cover
fixed charges.
(3) The interest factor of rent expense is assumed to be 46% of vehicle lease
rent expense and one-third of all other operating lease rent expense.
(4) See the pro forma financial statements and related notes included elsewhere
in the Registration Statement.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of $250,000,000
aggregate principal amount of 9.75% senior notes of Ferrellgas, L.P., and
Ferrellgas Finance Corp. on Form S-1 of our report dated November 5, 1993, on
Ferrellgas Inc. (which expressed an unqualified opinion and included
explanatory paragraphs concerning an uncertainty involving an income tax matter
and the change in the Company's method of accounting for income taxes),
appearing in the Prospectus, which is part of this Registration Statement, and
of our report dated November 5, 1993 relating to the financial statement
schedules appearing elsewhere in this Registration Statement.
We also consent to the reference to us under the headings "Selected
Historical and Pro Forma Consolidated Financial and Operating Data" and
"Experts" in such Prospectus.
DELOITTE & TOUCHE
Kansas City, Missouri
April 27, 1994
