-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P1Vk5htde7SCj61jWeq9BRGBvPywo6YGxn44z1I43ldH41HhMDfQleztRdxage6A dIf9clyQ8qTIGTzNufOEkw== 0000922359-03-000009.txt : 20030606 0000922359-03-000009.hdr.sgml : 20030606 20030606141601 ACCESSION NUMBER: 0000922359-03-000009 CONFORMED SUBMISSION TYPE: 10-12G/A PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 20030606 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FERRELLGAS L P CENTRAL INDEX KEY: 0000922359 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 431676206 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-12G/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-50182 FILM NUMBER: 03735656 BUSINESS ADDRESS: STREET 1: ONE LIBERTY PLAZA CITY: LIBERTY STATE: MO ZIP: 64068 BUSINESS PHONE: 8167921600 MAIL ADDRESS: STREET 1: ONE LIBERTY PLAZA CITY: LIBERTY STATE: MO ZIP: 64068 10-12G/A 1 olpform10a.txt FORM 10/A AMENDMENT NO. 1 As filed with the Securities and Exchange Commission on June 6, 2003 File No. 0-50182 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------------------- AMENDMENT NO. 1 TO FORM 10/A GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 -------------------------------------- Ferrellgas, L.P. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 43-1698481 - --------------------------------------- ------------------------------------ (State of incorporation or organization (I.R.S. Employer Identification No.) One Liberty Plaza, Liberty, Missouri 64068 - --------------------------------------- ------------------------------------ (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (816) 792-1600 Securities to be registered pursuant to Section 12(b) of the Act: None Securities to be registered pursuant to Section 12(g) of the Act: Limited Partner Interests ------------------------------------------------- (Title of Class) REDUCED DISCLOSURE FORMAT THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (I)(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS AMENDMENT NO. 1 TO FORM 10/A WITH THE REDUCED DISCLOSURE FORMAT. ================================================================================ EXPLANATORY NOTE Ferrellgas Partners, L.P. is our sole limited partner, holding an approximate 99% limited partner interest. This interest constitutes all of our issued and outstanding equity securities. Ferrellgas, Inc. is the general partner for both Ferrellgas Partners and us. We account for substantially all of the consolidated assets, sales and operating earnings of Ferrellgas Partners. Because of this structure, and other than as described in this registration statement, there are no other material differences between the description of our business, operations and financial condition and that of Ferrellgas Partners. Ferrellgas Partners is a reporting company under the Exchange Act and has filed all the material required to be filed pursuant to section 13, 14 or 15(d) thereof, as applicable. Those filings include its: o Annual Report on Form 10-K for the fiscal year ended July 31, 2002; o Amendment No. 1 to its Annual Report on Form 10-K/A for the fiscal year ended July 31, 2002; o Amendment No. 2 to its Annual Report on Form 10-K/A for the fiscal year ended July 31, 2002; o Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2002; o Quarterly Report on Form 10-Q for the quarterly period ended January 31, 2003; o Quarterly Report on Form 10-Q/A for the quarterly period ended January 31, 2003; o Current Report on Form 8-K furnished on September 13, 2002; o Current Report on Form 8-K filed on September 24, 2002; o Current Report on Form 8-K furnished on November 19, 2002; o Current Report on Form 8-K furnished on February 3, 2003; o Current Report on Form 8-K filed on February 18, 2003; o Current Report on Form 8-K furnished on February 19, 2003; o Current Report on Form 8-K filed on May 6, 2003; o Current Report on Form 8-K furnished on May 21, 2003; and o Current Report on Form 8-K furnished on May 29, 2003. Items 1, 2, 3, 6, 7, 7A and 14 of the Annual Report on Form 10-K are incorporated by reference into this registration statement and are filed as Exhibit 99.1. Amendment No. 1 and Amendment No. 2 to the Annual Report on Form 10-K/A, the Quarterly Reports on Form 10-Q and Form 10-Q/A and the Current Reports on Form 8-K including, as applicable, the exhibits thereto, are incorporated by reference into this registration statement in their entirety and are filed as Exhibits 99.2 through 99.15, respectively. Exhibits 99.1 through 99.15 are referred to collectively within this registration statement as the "periodic filings." ITEM 1. BUSINESS. Incorporated by reference from the periodic filings. ITEM 2. FINANCIAL INFORMATION. Please note that the following information represents particular differences between our financial information and that of Ferrellgas Partners. To the extent the financial information we have incorporated by reference into this registration statement differs from the financial information presented below, you should rely on the financial information below. 1 Selected Financial Data The following table presents our selected consolidated historical financial data: Ferrellgas, L.P. (in thousands) ---------------------------------------------------------------------------------------------- Six months ended Year Ended July 31, January 31, ------------------------------------------------------------------- ------------------------ 2002 2001 2000 1999 1998 2003 2002 ----------- ----------- ----------- ----------- ----------- ----------- ---------- Income Statement Data: Total revenues $ 1,034,796 $ 1,468,670 $ 959,023 $ 633,349 $ 623,775 $ 680,780 $ 600,981 Interest expense 43,972 47,686 43,251 31,107 33,615 22,442 22,466 Earnings (loss) before cumulative effect of change in accounting principles 76,359 82,032 16,069 17,690 20,671 81,365 63,174 Cash distributions declared 100,042 86,841 78,756 80,240 78,974 50,008 49,997 Balance Sheet Data at end of period: Working capital $ 9,099 $ 23,831 $ (4,640) $ (2,692) $ 2,632 $ 41,504 $ 63,247 Total assets 882,233 892,778 964,944 653,278 618,444 1,151,937 943,744 Long-term debt 543,858 544,782 558,118 423,840 347,222 682,577 565,223 Partners' capital: 182,272 198,771 201,118 89,664 149,523 274,495 216,901 Operating Data: Retail propane sales volumes (in gallons) 831,592 956,718 846,664 680,477 659,932 532,414 480,305 Capital expenditures Maintenance $ 9,576 $ 11,996 $ 8,917 $ 10,505 $ 10,569 $ 5,607 $ 8,520 Growth 4,826 3,152 11,838 15,238 10,060 1,902 1,420 Technology initiative 30,070 100 -- -- -- 9,039 6,100 Tank lease buyout -- -- -- -- -- 155,600 -- Acquisition 10,962 1,417 310,260 48,749 13,003 37,797 10,916 ----------- ----------- ----------- ----------- ----------- ----------- ---------- Total $ 55,434 $ 16,665 $ 331,015 $ 74,492 $ 33,632 $ 209,945 $ 26,956 =========== =========== =========== =========== =========== =========== ==========
Depreciation and amortization expense decreased significantly in the year ended July 31, 2002, due to the elimination of goodwill amortization and in the year ended July 31, 2001, due to a change in the estimated residual value of our customer and storage tanks. Our capital expenditures fall generally into four categories: o maintenance capital expenditures, which include capitalized expenditures for the replacement and betterment of property, plant and equipment. We capitalize replacement and betterments that (i) are greater than $1,000, (ii) upgrade or completely rebuild major mechanical components and (iii) extend the original book life of the equipment; o growth capital expenditures, which include expenditures for purchases of new propane tanks and other equipment to facilitate expansion of our customer base and operating capacity; o technology and process enhancement initiative capital expenditures, which include expenditures for purchase of computer hardware and software and the development of new software; and o acquisition capital expenditures, which include expenditures related to the acquisition of retail propane operations. Acquisition capital expenditures represent the total cost of acquisitions less working capital acquired. 2 Our fiscal 2001 capital expenditures do not include a $4.6 million adjustment made in the second fiscal quarter of fiscal 2001 to working capital related to a final valuation adjustment to record the acquisition of Thermogas in December 1999. We acquired Thermogas for a total acquisition cost, less working capital acquired, of approximately $307.0 million. The Thermogas acquisition contributed a significant increase in our total revenues, interest expense, net earnings, operating income, depreciation and amortization, in the year ended July 31, 2001 as compared to the year ended July 31, 2000. This acquisition also contributed to a significant increase in total assets, long-term debt and partners' capital as of July 31, 2000, as compared to July 31, 1999. We adopted Statement of Financial Standards No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" beginning in the year ended July 31, 2003. As a result the extraordinary loss on early extinguishments of debt recorded in the year ended July 31, 1999, is no longer classified as an extraordinary item. Instead this item has been reclassified as a nonoperating expense titled "early extinguishments of debt expense." Management's Discussion and Analysis of Financial Condition and Results of Operations Our management's discussion and analysis of financial condition and results of operations are incorporated by reference from the periodic filings. The only material differences between our expenses and those of Ferrellgas Partners are the following: o both we and Ferrellgas Partners have outstanding indebtedness, meaning our interest expense is different than that of Ferrellgas Partners; see pages F-3 and F-11 in our financial statements and pages F-20 and F-21 in the notes to our financial statements; o during fiscal 2001, Ferrellgas Partners incurred $3.3 million in other charges related to the modification of the terms of its senior units; and o during the first quarter of fiscal 2003, Ferrellgas Partners incurred $7.1 million in expenses related to the early extinguishment of particular debt of Ferrellgas Partners. Quantitative and Qualitative Disclosures about Market Risk Incorporated by reference from the periodic filings. ITEM 3. PROPERTIES. Incorporated by reference from the periodic filings. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Not required pursuant to reduced disclosure format. ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS. Not required pursuant to reduced disclosure format. ITEM 6. EXECUTIVE COMPENSATION. Not required pursuant to reduced disclosure format. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Not required pursuant to reduced disclosure format. 3 ITEM 8. LEGAL PROCEEDINGS. Incorporated by reference from the periodic filings. ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Ferrellgas Partners is our sole limited partner, with an approximate 99% limited partner interest. Our general partner, Ferrellgas, Inc., holds an approximate 1% general partner interest in us. There is no established public trading market for our limited partner interests. Pursuant to our partnership agreement, we distribute quarterly approximately 99% of all of our available cash to Ferrellgas Partners and approximately 1% to our general partner. Available cash is generally defined as consolidated cash receipts less consolidated cash disbursements and changes in cash reserves established by our general partner for future requirements. To the extent necessary, we will generally reserve cash inflows from the second and third fiscal quarters for distribution in the first and fourth fiscal quarters. Based upon our current financial condition and results of operations, our general partner currently believes that during our fiscal year 2003 we will be able to make quarterly cash distributions to Ferrellgas Partners and our general partner comparable to those quarterly distributions made during our last two fiscal years, however, no assurances can be given that such distributions will be made or the amount of such distributions. For restrictions on our ability to make distributions, please see the periodic reports. ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES. Pursuant to a Note Purchase Agreement dated as of February 28, 2000, we sold: o $21,000,000 aggregate principal amount of 8.68% Senior Notes, Series A, due August 1, 2006; o $70,000,000 aggregate principal amount of 8.78% Senior Notes, Series B, due August 1, 2007; and o $93,000,000 aggregate principal amount of 8.87% Senior Notes, Series C, due August 1, 2009. These sales were exempt from registration under Section 4(2) of the Securities Act, no public offering being involved. ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED. Ferrellgas Partners is our sole limited partner, with an approximate 99% limited partner interest. That limited partner interest entitles Ferrellgas Partners to participate in distributions and exercise the rights and privileges available to our sole limited partner under our partnership agreement. A copy of our partnership agreement is filed as an exhibit to this registration statement and incorporated by reference. That agreement should be consulted for a more detailed explanation of the rights and privileges of our sole limited partner. ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Ferrellgas, L.P. We have no employees, officers or directors. We are managed and operated by the employees, officers and directors of its general partner, Ferrellgas, Inc. Our partnership agreement provides that we, subject to any limitations expressly provided in our partnership agreement, will indemnify and hold harmless to the fullest extent permitted by current applicable law or as such law may hereafter be amended (but, in the case of any such amendment, only to the extent that the amendment permits either partnership to provide broader indemnification rights) particular persons (each, an "Indemnitee") from and against any and all losses, claims, damages, liabilities (joint or several), expenses (including, without limitation, legal fees and expenses), judgments, fines, penalties, interest, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, by reason of their status as: o our general partner, a former general partner, or any of their affiliates; o an officer, director, employee, partner, agent or trustee of ours, our general partner, any former general partner, or any of their affiliates; or o a person or entity serving at our request in another entity in a similar capacity. 4 This indemnity is available only if the Indemnitee acted in good faith, in a manner in which the Indemnitee believed to be in, or not opposed to, our best interests and, with respect to any criminal proceeding, had no reasonable cause to believe its conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo-contendere, or its equivalent, shall not of itself create a presumption that the Indemnitee acted in a manner contrary to that specified in the immediately preceding sentence. Any indemnification shall be made only out of our assets and our general partner shall not be personally liable for any indemnification and shall have no obligation to contribute or loan any money or property to us to enable us to effectuate any indemnification. In no event may an Indemnitee subject our limited partner to personal liability by reason of being entitled to indemnification. To the fullest extent permitted by current applicable law or as such law may hereafter be amended (but, in the case of such amendment, only to the extent that the amendment permits either partnership to provide broader indemnification rights), expenses (including, without limitation, legal fees and expenses) incurred by an Indemnitee in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by us prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by us of an undertaking by or on behalf of the Indemnitee to repay such amount if it shall ultimately be determined by a court of competent jurisdiction that the Indemnitee is not entitled to indemnification. We have, to the extent commercially reasonable, purchased and currently maintain (or reimburse our general partner or its affiliates for the cost of) insurance, on behalf of our general partner and such other persons or entities as our general partner has determined, including particular other Indemnitees, against any liability that may be asserted against or expenses that may be incurred by such person or entity in connection with our activities or in connection with such person's or entity's activities related to us in such person's or entity's professional capacity, regardless of whether we would have the power to indemnify such person or entity against such liability under the provisions of our partnership agreement. An Indemnitee shall not be denied indemnification by us, in whole or in part, because the Indemnitee had an interest in the transaction with respect to which the indemnification applies so long as the transaction was otherwise permitted by the terms of our partnership agreement. Notwithstanding anything to the contrary set forth in our partnership agreement, no Indemnitee shall be liable for monetary damages to us, our limited partner, its assignees or any other persons or entities who have acquired partnership interests in Ferrellgas Partners, for losses sustained or liabilities incurred as a result of any act or omission if such Indemnitee acted in good faith. Also, our general partner shall not be responsible for any misconduct or negligence on the part of any agent appointed by our general partner in good faith to exercise any of the powers granted to our general partner or to perform any of the duties imposed upon it pursuant to our partnership agreement. Ferrellgas, Inc. The Certificate of Incorporation, as amended, and bylaws of Ferrellgas, Inc. also provide for similar indemnification rights and benefits for its officers and directors from and against any and all losses, claims, damages, liabilities (joint or several), expenses (including, without limitation, legal fees and expenses), judgments, fines, penalties, interest, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, in which any officer or director of Ferrellgas, Inc. may be involved, or is threatened to be involved, as a party or otherwise; provided, however, the officers or directors must have acted in good faith, in a manner in which such person or entity believed to be in, or not opposed to, the best interests of Ferrellgas, Inc. and, with respect to any criminal proceeding, had no reasonable cause to believe its conduct was unlawful. Ferrellgas, Inc. is also under similar obligations to advance expenses to its officers and directors relating to indemnified claims and Ferrellgas, Inc. has, to the extent commercially reasonable, purchased and currently maintains insurance on behalf of its officers and directors. Furthermore, the directors of Ferrellgas, Inc. are not personally liable to Ferrellgas, Inc. or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability: o for any breach of the director's duty of loyalty to Ferrellgas, Inc. or its stockholders; o for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; o for unlawful payments of dividends or unlawful stock repurchases or redemptions under Section 174 of the General Corporation Law of the State of Delaware; or o for any transaction from which the director derived an improper personal benefit. 5 Ferrellgas, Inc. has also entered into employment agreements with some of its directors and officers. Pursuant to these employment agreements, Ferrellgas, Inc. has contractually agreed to indemnify these officers and directors generally in accordance with the indemnification terms and provisions set forth above. Some of these employment agreements also provide that Ferrellgas, Inc. shall indemnify such director or officer when they were or are a party or are threatened to be made a party to any threatened, pending or completed action or suit by or in the right of Ferrellgas, Inc. to procure a judgment in its favor by reason of the fact that such director or officer is or was a director or officer of Ferrellgas, Inc., or is or was serving at the request of Ferrellgas, Inc. as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by such director or officer in connection with the defense or settlement of such action or suit if such director or officer acted in good faith and in a manner that such director or officer reasonably believed to be in, or not opposed to, the best interests of Ferrellgas, Inc. and except that no indemnification pursuant to the employment agreements shall be made in respect of any claim, issue or matter as to which such director or officer shall have been adjudged to be liable to Ferrellgas, Inc. unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such directors or officers are fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Generally, any indemnification under these employment agreements (unless ordered by a court) shall be made by Ferrellgas, Inc. only as authorized in each specific case upon a determination, in accordance with the procedures set forth in the applicable employment agreement, that indemnification of such director or officer is proper in the circumstances because such director or officer has met the applicable standard of conduct set forth in their particular employment agreement. Such determination shall be made: o by a majority vote of the board of directors of Ferrellgas, Inc. who are not parties to such action, suit or proceeding, even though less than a quorum; o if there are no such directors or, if such directors so direct, by independent legal counsel in a written opinion; or o by the stockholders of Ferrellgas, Inc. Also, if such director or officer institutes any legal action to enforce such director's or officer's rights under their employment agreement, or to recover damages for breach of their employment agreement, such director or officer, if such director or officer prevails in whole or in part, shall be entitled to recover from Ferrellgas, Inc. all fees and expenses (including attorneys' fees) incurred by such director or officer in connection therewith. None of the indemnification rights described herein are exclusive of any other rights to which an Indemnitee, or other applicable person, may be entitled under any bylaw, agreement, vote of stockholders, unitholders or disinterested directors, as a matter of law or otherwise, both as to action in the Indemnitee's, or other applicable person's, official capacity with us or Ferrellgas, Inc. and as to action in another capacity while holding such office, and shall continue after the Indemnitee, or other applicable person, has ceased to be an officer or director of either us or Ferrellgas, Inc., and shall inure to the benefit of the heirs, executors and administrators of the Indemnitee, or other applicable person. ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See Item 15. Financial Statements and Exhibits. ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS. (a) 1. Financial Statements. --------------------- See Financial Statements beginning on page F-1. 2. Financial Statement Schedule. ----------------------------- See Financial Statement Schedule beginning on page S-1. (b) Exhibits. --------- The exhibits set forth under "Index to Exhibits" beginning on page E-1 are filed as part of this Amendment No. 1 to this registration statement on Form 10/A. Those exhibits required by Item 601 of Regulation S-K of the Securities Act, which are not set forth under Index to Exhibits, are not applicable. 6 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENTS Page - -------------------- ------ Ferrellgas, L.P. and Subsidiaries Consolidated Balance Sheets - January 31, 2003 (unaudited) and July 31, 2002...................................................... F-2 Consolidated Statements of Earnings - Three and six months ended January 31, 2003 and 2002 (unaudited)............................ F-3 Consolidated Statements of Partners' Capital - Six months ended January 31, 2003 (unaudited)..................................... F-4 Consolidated Statements of Cash Flows - Six months ended January 31, 2003 and 2002 (unaudited).................................. F-5 Notes to Consolidated Financial Statements - Six months ended January 31, 2003 (unaudited)..................................... F-6 Independent Auditors' Report.............................................. F-13 Consolidated Balance Sheets - July 31, 2002 and 2001.......................F-14 Consolidated Statements of Earnings - Years ended July 31, 2002, 2001, and 2000...........................................F-15 Consolidated Statements of Partners' Capital - Years ended July 31, 2002, 2001, and 2000...............................F-16 Consolidated Statements of Cash Flows - Years ended July 31, 2002, 2001, and 2000...............................F-17 Notes to Consolidated Financial Statements.................................F-18 FINANCIAL STATEMENT SCHEDULE - ---------------------------- Ferrellgas, L.P. and Subsidiaries Independent Auditors' Report on Schedule...................................S-1 Schedule II Valuation and Qualifying Accounts for the years ended July 31, 2002, 2001 and 2000......................................S-2 F-1 FERRELLGAS, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS January 31, 2003 July 31, 2002 - ---------------------------------------------- ------------------- ------------------- (unaudited) Current Assets: Cash and cash equivalents $ 26,165 $ 19,388 Accounts and notes receivable, net 113,101 74,274 Inventories 71,739 48,034 Prepaid expenses and other current assets 7,646 8,645 ------------------- ------------------- Total Current Assets 218,651 150,341 Property, plant and equipment, net 687,426 506,531 Goodwill 124,190 124,190 Intangible assets, net 103,130 98,170 Other assets, net 18,540 3,001 ------------------- ------------------- Total Assets $ 1,151,937 $ 882,233 =================== =================== LIABILITIES AND PARTNERS' CAPITAL - ---------------------------------------------- Current Liabilities: Accounts payable $ 100,348 $ 54,316 Other current liabilities 76,799 86,926 ------------------- ------------------- Total Current Liabilities 177,147 141,242 Long-term debt 682,577 543,858 Contingencies and commitments - - Other liabilities 17,718 14,861 Partners' Capital Limited partner 273,631 183,173 General partner 2,793 1,871 Accumulated other comprehensive loss (1,929) (2,772) ------------------- ------------------- Total Partners' Capital 274,495 182,272 ------------------- ------------------- Total Liabilities and Partners' Capital $ 1,151,937 $ 882,233 =================== ===================
See notes to consolidated financial statements. F-2 FERRELLGAS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per unit data) (unaudited) For the three months ended For the six months ended ------------------------------------------------------------------- January 31, January 31, January 31, January 31, 2003 2002 2003 2002 -------------- -------------- --------------- ------------- Revenues: Propane and other gas liquids sales $ 439,301 $ 331,129 $ 634,201 $ 555,414 Other 25,165 24,609 46,579 45,567 -------------- -------------- --------------- -------------- Total revenues 464,466 355,738 680,780 600,981 Cost of product sold (exclusive of depreciation, shown with amortization below) 254,718 176,591 378,390 326,538 -------------- -------------- --------------- -------------- Gross profit 209,748 179,147 302,390 274,443 Operating expense 79,406 70,373 147,834 137,500 Depreciation and amortization expense 10,261 10,765 20,156 22,219 General and administrative expense 7,759 6,632 14,661 13,457 Equipment lease expense 5,528 6,086 11,520 12,631 Employee stock ownership plan compensation charge 1,639 1,274 3,034 2,583 Loss on disposal of assets and other 1,125 432 1,796 1,278 -------------- -------------- --------------- -------------- Operating income 104,030 83,585 103,389 84,775 Interest expense (11,687) (11,318) (22,442) (22,466) Interest income 360 540 418 865 -------------- -------------- --------------- -------------- Earnings before cumulative effect of change in accounting principle 92,703 72,807 81,365 63,174 Cumulative effect of change in accounting principle - - (2,782) - -------------- -------------- --------------- -------------- Net earnings $92,703 $72,807 $78,583 $63,174 ============== ============== =============== ==============
See notes to consolidated financial statements. F-3 FERRELLGAS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (in thousands) (unaudited) Limited General Accumulated other Total partner partner comprehensive loss partners' capital ------------ ------------ ------------------- ----------------- August 1, 2002 $ 183,173 $ 1,871 $ (2,772) $ 182,272 Contribution in connection with ESOP compensation charge 3,004 30 - 3,034 Quarterly cash and accrued distributions (49,503) (505) - (50,008) Net assets contributed by Ferrellgas Partners and General Partner in connection with acquisitions 59,168 603 - 59,771 Comprehensive income: Net earnings 77,789 794 - 78,583 Other comprehensive income: Risk management fair value adjustment - - 843 843 Comprehensive income 79,426 ------------ ------------ ------------------- ----------------- January 31, 2003 $ 273,631 $ 2,793 $ (1,929) $ 274,495 ============ ============ =================== =================
See notes to consolidated financial statements. F-4 FERRELLGAS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) For the six months ended ----------------------------------- January 31, 2003 January 31, 2002 ---------------- ---------------- Cash Flows From Operating Activities: Earnings before cumulative effect of change in accounting principle $ 81,365 $ 63,174 Adjustments to reconcile earnings before cumulative effect of change in accounting principle to net cash provided by operating activities: Depreciation and amortization expense 20,156 22,219 Employee stock ownership plan compensation charge 3,034 2,583 Other 4,614 506 Changes in operating assets and liabilities net of effects from business acquisitions: Accounts and notes receivable (111,337) (58,063) Inventories (20,391) 13,812 Prepaid expenses and other current assets 1,285 615 Accounts payable 46,012 15,230 Other current liabilities (7,610) (10,246) Other liabilities (315) 436 Proceeds from new accounts receivable securitizations 60,000 10,000 Proceeds from collections reinvested in revolving period accounts receivable securitizations 303,837 307,827 Remittance of amounts collected as servicer on accounts receivable securitizations (303,837) (329,827) ---------------- ---------------- Net cash provided by operating activities 76,813 38,266 ---------------- ---------------- Cash Flows From Investing Activities: Business acquisitions, net of cash acquired (2,121) (6,489) Capital expenditures - tank lease buyout (155,600) - Capital expenditures - technology initiative (10,993) (6,100) Capital expenditures - other (7,509) (9,940) Other 1,511 7,975 ---------------- ---------------- Net cash used in investing activities (174,712) (14,554) ---------------- ---------------- Cash Flows From Financing Activities: Distributions (50,048) (49,997) Proceeds from issuance of debt 140,000 30,107 Principal payments on debt (1,559) (11,655) Net additions to short-term borrowings - 8,135 Cash paid for financing costs (1,896) - Cash contribution from partners 18,179 - ---------------- ---------------- Net cash provided by (used in) financing activities 104,676 (23,410) ---------------- ---------------- Increase in cash and cash equivalents $ 6,777 $ 302 Cash and cash equivalents - beginning of period 19,388 25,171 ---------------- ---------------- Cash and cash equivalents - end of period $ 26,165 $ 25,473 ================ ================
See notes to consolidated financial statements. F-5 FERRELLGAS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (unaudited) A. Principles of Consolidation The consolidated financial statements of Ferrellgas, L.P. and subsidiaries reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the interim periods presented. All adjustments to the consolidated financial statements were of a normal, recurring nature. The information included in this Quarterly Report should be read in conjunction with the financial statements and accompanying notes included in Ferrellgas' Annual Report for the year ended July 31, 2002. B. Accounting estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates. Significant estimates impacting the consolidated financial statements include accruals that have been established for product liability and other claims. C. Reclassifications Certain reclassifications have been made to the six months ended January 31, 2002 consolidated financial statements to conform to the six months ended January 31, 2003 consolidated financial statements presentation. D. Nature of operations Ferrellgas is engaged primarily in the retail distribution of propane and related equipment and supplies in the United States. The retail market is seasonal because propane is used primarily for heating in residential and commercial buildings. Therefore, the results of operations for the six months ended January 31, 2003 and 2002 are not necessarily indicative of the results to be expected for a full fiscal year. E. Supplemental Financial Statement Information: Inventories consist of: January 31, July 31, 2003 2002 --------------- --------------- Propane gas and related products $54,311 $29,169 Appliances, parts and supplies 17,428 18,865 --------------- --------------- $71,739 $48,034 =============== =============== In addition to inventories on hand, Ferrellgas enters into contracts to buy and sell product, primarily propane for supply procurement purposes. Nearly all of these contracts have terms of less than one year and most call for payment based on market prices at the date of delivery. All fixed price contracts have terms of less than one year. As of January 31, 2003, Ferrellgas had committed, for supply procurement purposes, to make net delivery of approximately 5.7 million gallons of propane at a fixed price. F-6 Property, plant and equipment, net consist of: January 31, July 31, 2003 2002 --------------- --------------- Property, plant and equipment $999,988 $810,416 Less: accumulated depreciation 312,562 303,885 --------------- --------------- $687,426 $506,531 =============== =============== On December 10, 2002, Ferrellgas purchased propane tanks and related assets for $155.6 million that were previously leased. See Note F for a discussion regarding the funding of this purchase. Intangible assets consist of: January 31, 2003 July 31, 2002 ------------------------------------------- -------------------------------------------- Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Net Amount Amortization Net ------------ ----------------- ------------ -------------- ---------------- ----------- Customer lists $217,465 $(129,112) $88,353 $208,662 $(124,860) $83,802 Non-compete agreements 65,354 (50,577) 14,777 62,893 (48,525) 14,368 ------------ ----------------- ------------ -------------- ---------------- ----------- Total $282,819 $(179,689) $103,130 $271,555 $(173,385) $98,170 ============ ================= ============ ============== ================ ===========
Aggregate Amortization Expense: 2003 2002 -------------- --------------- For the six months ended January 31, $6,304 $7,982 Estimated Amortization Expense: For the year ended July 31, 2003 $12,275 2004 11,742 2005 11,570 2006 10,691 2007 10,051 Other assets, net consist of: January 31, July 31, 2003 2002 --------------- --------------- Debt issue costs, net $3,261 $2,399 Investment in unconsolidated subsidiary 14,291 - Other 988 602 --------------- --------------- $18,540 $3,001 =============== =============== On December 10, 2002, Ferrellgas refinanced its $157.0 million bank credit facility with an amended $307.5 million bank credit facility, which will terminate on April 28, 2006, unless extended or renewed. Debt issue costs of $1.9 million, of which $1.3 million is classified as other assets, related to this refinancing, were capitalized and will be amortized to interest expense through 2006. During the six months ended January 31, 2003, Ferrellgas increased its investment in the subsidiary in connection with the increase in receivables transferred to Ferrellgas Receivables, LLC. F-7 Loss on disposal of assets and other consist of: For the three months ended For the six months ended -------------------------- --------------------------- January 31, January 31, January 31, January 31, 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Loss on disposal of assets $ 546 $ 290 $ 786 $ 569 Loss on transfer of accounts receivable related to the accounts receivable securitization 910 585 1,374 1,593 Service income related to the accounts receivable securitization (331) (443) (364) (884) ----------- ----------- ----------- ----------- $1,125 $ 432 $1,796 $1,278 =========== =========== =========== ===========
Shipping and handling expenses are classified in the following Statements of Earnings line items: For the three months ended For the six months ended -------------------------- --------------------------- January 31, January 31, January 31, January 31, 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Operating expenses $37,291 $33,527 $67,070 $64,121 Depreciation and amortization expense 1,505 1,721 3,177 3,289 Equipment lease expense 3,037 2,907 5,932 5,714 ------------- ----------- ----------- ----------- $41,833 $38,155 $76,179 $73,124 ============= =========== =========== ===========
F-8 F. Long-Term Debt Long-term debt consists of: January 31, July 31, 2003 2002 --------------- --------------- Senior Notes Fixed rate, 7.16%, due 2005-2013 $350,000 $350,000 Fixed rate, 8.8%, due 2006-2009 184,000 184,000 Credit agreement, variable interest rates, due 2006 140,000 - Notes payable, 7.4% and 7.6% weighted average interest rates, respectively, due 2003 to 2011 11,057 12,177 --------------- --------------- 685,057 546,177 Less: current portion, included in other current liabilities on the consolidated balance sheets 2,480 2,319 --------------- --------------- $682,577 $543,858 =============== ===============
On December 10, 2002, Ferrellgas refinanced its $157.0 million bank credit facility with a $307.5 million amended bank credit facility, using $156.8 million of the funds available to purchase propane tanks and related assets that were previously leased, plus a $1.2 million payment of related accrued lease expense. The remaining portion of the amended bank credit facility is available for working capital, acquisition, capital expenditure and general partnership purposes and will terminate on April 28, 2006, unless extended or renewed. As of January 31, 2003, Ferrellgas had borrowings of $140.0 million, at a weighted average interest rate of 3.64%, under this amended bank credit facility. All borrowings under the amended bank credit facility bear interest, at Ferrellgas' option, at a rate equal to either: o the base rate, which is defined as the higher of the federal funds rate plus 0.50% or Bank of America's prime rate (as of January 31, 2003, the federal funds rate and Bank of America's prime rate were 1.33% and 4.25%, respectively); or o the Eurodollar Rate plus a margin varying from 1.75% to 2.75% (as of January 31, 2003, the one-month Eurodollar Rate was 1.26%). The scheduled annual principal payments on long-term debt as of January 31, 2003 are as follows: Scheduled annual Fiscal year ending July 31, principal payments -------------------- Payments remaining in 2003....................................... $ 760 2004............................................................. 2,134 2005............................................................. 2,299 2006............................................................. 251,313 2007............................................................. 59,039 Thereafter....................................................... 369,512
G. Asset Retirement Obligations Statement of Financial Accounting Standard (SFAS) No. 143 provides accounting requirements for retirement obligations associated with tangible long-lived assets, including the requirement that a liability be recognized if there is a legal or financial obligation associated with the retirement of the assets. Ferrellgas adopted SFAS No. 143 beginning in the year ending July 31, 2003. This cumulative effect of a change in accounting principle resulted in a one-time charge to earnings of $2.8 million during the three months ended October 31, 2002, together with the recognition of a $3.1 million long-term liability and a $0.3 million long-term asset. Ferrellgas believes the implementation will not have a material ongoing effect on its financial position, results of operations and cash flows. These obligations relate primarily to the estimated future expenditures required to retire Ferrellgas' underground storage facilities. The remaining period until these facilities will require closure and remediation expenditures is approximately 50 years. The following table presents a reconciliation of the beginning and ending carrying amounts of the asset retirement obligation: F-9 Six months ended January 31, 2003 ---------------------- Asset retirement obligation as of August 1, 2002 $ 3,073 Add: Accretion 99 ---------------------- Asset retirement obligation as of January 31, 2003 $ 3,172 ======================
The related asset carried for the purpose of settling the asset retirement obligation is $0.3 million as of January 31, 2003, and is not a legally restricted asset. Assuming retroactive application of the change in accounting principle as of August 1, 2001, there would be no material change in the pro forma net earnings for the six months ended January 31, 2002. Other liabilities, assuming retroactive application of the change in accounting principle as of August 1, 2001 and July 31, 2002, would have increased $2.9 million and $3.1 million, respectively. H. Guarantees FASB Financial Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," expands the existing disclosure requirements for guarantees and requires recognition of a liability for the fair value of guarantees issued after December 31, 2002. As of January 31, 2003, the only material guarantees that Ferrellgas had outstanding were associated with residual value guarantees of operating leases. These operating leases are related to transportation equipment with remaining lease periods scheduled to expire over the next seven fiscal years. Upon completion of the lease period, Ferrellgas guarantees that the fair value of the equipment will equal or exceed the guaranteed amount, or Ferrellgas will pay the lessor the difference. The fair value of these residual value guarantees entered into after December 31, 2002 was $29.5 thousand as of January 31, 2003. Although the fair values at the end of the lease terms have historically exceeded these guaranteed amounts, the maximum potential amount of aggregate future payments Ferrellgas could be required to make under these leasing arrangements, assuming the equipment is worthless at the end of the lease term, is $16.6 million. I. Contingencies Ferrellgas is threatened with or named as a defendant in various lawsuits that, among other items, claim damages for product liability. It is not possible to determine the ultimate disposition of these matters; however, management is of the opinion that there are no known claims or contingent claims that would reasonably be expected to have a material adverse effect on the financial condition, results of operations and cash flows of Ferrellgas Currently, Ferrellgas is not a party to any legal proceedings other than various claims and lawsuits arising in the ordinary course of business. J. Distributions On September 13, 2002 and December 13, 2002, Ferrellgas paid cash distributions of $25.4 million and $24.7 million for the three months ended July 31, 2002 and October 31, 2002, respectively. On March 14, 2003, Ferrellgas paid cash distributions of $21.3 million for the three months ended January 31, 2003. K. Business Combinations During the six months ended January 31, 2003, Ferrellgas acquired the following retail propane businesses with an aggregate value at $43.6 million: o ProAm, Inc., based primarily in Georgia and Texas, acquired by Ferrellgas Partners and contributed to Ferrellgas, L.P. during December, 2002; o a branch of Cenex Propane Partners Co., based in Iowa, acquired November, 2002; and o Northstar Propane, based in Nevada, acquired November, 2002. These purchases were primarily funded by $2.1 million of cash payments and the issuance of $41.6 million in limited partner interests. F-10 The aggregate value of $43.6 million of these three retail propane businesses was preliminarily allocated as follows: $25.9 million for fixed assets such as customer tanks, buildings and land, $9.4 million for customer lists, $2.5 million for non-compete agreements and $5.8 million for net working capital. Net working capital was comprised of $7.8 million of current assets and $2.0 million of current liabilities. The estimated fair values and useful lives of assets acquired are based on a preliminary valuation and are subject to final valuation adjustments. Ferrellgas intends to continue its analysis of the net assets of these acquired businesses to determine the final allocation of the total purchase price to the various assets acquired. The weighted average amortization period for non-compete agreements and customer lists are five and 15 years, respectively. The results of operations of all acquisitions have been included in the consolidated financial statements from their dates of acquisition. The pro forma effect of these transactions was not material to the results of operations. L. Transactions with Related Parties On December 18, 2002, Ferrellgas Partners, the limited partner of Ferrellgas, L.P., contributed $17.6 million in cash to Ferrellgas, L.P. See Note K for a description of the Ferrellgas Partners, L.P. contribution of assets and liabilities to Ferrellgas, L.P. in connection with the acquisition of ProAm. As a result of Ferrellgas Partners' contributions to Ferrellgas, the general partner contributed $603 thousand to Ferrellgas to maintain its 1.0101% general partnership interest. M. Adoption of New Accounting Standards The Financial Accounting Standards Board recently issued SFAS No. 143 "Accounting for Asset Retirement Obligations", SFAS No. 144 "Accounting for the Impairment or Disposal of Long-lived Assets", SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections," SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities," SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure," FASB Financial Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" and FASB Financial Interpretation No. 46 "Consolidation of Variable Interest Entities." SFAS No. 143 requires the recognition of a liability if a company has a legal or contractual financial obligation in connection with the retirement of a tangible long-lived asset. Ferrellgas implemented SFAS No. 143 beginning in the year ending July 31, 2003. This cumulative effect of a change in accounting principle resulted in a one-time charge to earnings of $2.8 million during the three months ended October 31, 2002, together with the recognition of a $3.1 million long-term liability and a $0.3 million long-term asset. See Note G for further discussion of these obligations. Ferrellgas believes this implementation will not have a material ongoing effect on its financial position, results of operations and cash flows. SFAS No. 144 modifies the financial accounting and reporting for long-lived assets to be disposed of by sale and it broadens the presentation of discontinued operations to include more disposal transactions. Ferrellgas implemented SFAS No. 144 beginning in the year ending July 31, 2003, with no material effect on its financial position, results of operations and cash flows. SFAS No. 145 eliminates the requirement that material gains and losses resulting from the early extinguishment of debt be classified as an extraordinary item in the consolidated statements of earnings. Instead, companies must evaluate whether the transaction meets both the criteria of being unusual in nature and infrequent in occurrence. Other aspects of SFAS No. 145 relating to accounting for intangible assets of motor carriers and accounting for certain lease modifications do not currently apply to Ferrellgas. Ferrellgas will apply SFAS No. 145 to future early debt extinguishments beginning in the year ending July 31, 2003. SFAS No. 146 modifies the financial accounting and reporting for costs associated with exit or disposal activities. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Additionally, the statement requires the liability to be recognized and measured initially at fair value. Under previous rules, liabilities for exit costs were recognized at the date of the entity's commitment to an exit plan. Ferrellgas has adopted and implemented SFAS No. 146 for all exit or disposal activities initiated after July 31, 2002. Ferrellgas believes the implementation will not have a material effect on its financial position, results of operations and cash flows. F-11 SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation" to provide alternative methods of transition for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. This statement also amends SFAS 123 disclosure requirements for annual and interim financial statements to provide more prominent disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement is effective for the fiscal year ending July 31, 2003, with earlier application permitted. However, the interim disclosure requirements will be effective for the three months ending April 30, 2003. Ferrellgas is currently studying SFAS 148 and the related implications of SFAS 123. FASB Financial Interpretation No. 45 expands the existing disclosure requirements for guarantees and requires that companies recognize a liability for guarantees issued after December 31, 2002. Ferrellgas implemented this interpretation beginning in the three months ended January 31, 2003. The implementation resulted in the recognition of a liability of $29.8 thousand, and a related prepaid asset of $29.8 thousand, both of which will be amortized over the life of the guarantees. See Note H for further discussion about these guarantees. FASB Financial Interpretation No. 46 clarified Accounting Research Bulletin No. 51, "Consolidated Financial Statements." If certain conditions are met, this interpretation requires the primary beneficiary to consolidate certain variable interest entities in which equity investors lack the characteristics of a controlling financial interest or do not have sufficient equity investment at risk to permit the variable interest entity to finance its activities without additional subordinated financial support from other parties. This interpretation is effective immediately for variable interest entities created or obtained after January 31, 2003. For variable interest entities acquired before February 1, 2003, the interpretation is effective for the first fiscal year or interim period beginning after June 15, 2003. Ferrellgas currently does not have any variable interest entities that would be subject to this interpretation. F-12 INDEPENDENT AUDITORS' REPORT To the Partners of Ferrellgas, L.P. and Subsidiaries Liberty, Missouri We have audited the accompanying consolidated balance sheets of Ferrellgas, L.P. and subsidiaries (the "Partnership") as of July 31, 2002 and 2001, and the related consolidated statements of earnings, partners' capital and cash flows for each of the three years in the period ended July 31, 2002. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, L.P. and subsidiaries as of July 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2002, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note B (17), the Partnership adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets beginning in the first quarter of fiscal 2002. DELOITTE & TOUCHE LLP Kansas City, Missouri September 12, 2002 F-13 FERRELLGAS, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) July 31, ---------------------------------- ASSETS 2002 2001 - ------------------------------------------------- ---------------- ---------------- Current Assets: Cash and cash equivalents $ 19,388 $ 25,171 Accounts and notes receivable (net of allowance for doubtful accounts of $1,467 and $3,159 in 2002 and 2001, respectively) 74,274 56,772 Inventories 48,034 65,284 Prepaid expenses and other current assets 8,645 10,357 ---------------- ---------------- Total Current Assets 150,341 157,584 Property, plant and equipment, net 506,531 491,194 Goodwill 124,190 114,171 Intangible assets, net 98,170 116,747 Other assets 3,001 13,082 ---------------- ---------------- Total Assets $ 882,233 $ 892,778 ================ ================ LIABILITIES AND PARTNERS' CAPITAL - ------------------------------------------------- Current Liabilities: Accounts payable $ 54,316 $ 55,472 Other current liabilities 86,926 78,281 ---------------- ---------------- Total Current Liabilities 141,242 133,753 Long-term debt 543,858 544,782 Other liabilities 14,861 15,472 Contingencies and commitments (Note K) - - Partners' Capital Limited partner 183,173 199,118 General partner 1,871 2,034 Accumulated other comprehensive loss (2,772) (2,381) ---------------- ---------------- Total Partners' Capital 182,272 198,771 ---------------- ---------------- Total Liabilities and Partners' Capital $ 882,233 $ 892,778 ================ ================
See notes to consolidated financial statements. F-14 FERRELLGAS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (in thousands) For the year ended July 31, --------------------------------------------- 2002 2001 2000 ------------- ------------- ------------- Revenues: Propane and other gas liquid sales $ 953,117 $ 1,381,940 $ 879,380 Other 81,679 86,730 79,643 ------------- ------------- ------------- Total revenues 1,034,796 1,468,670 959,023 Cost of product sold (exclusive of depreciation, shown with amortization below) 533,437 930,117 530,979 ------------- ------------- ------------- Gross profit 501,359 538,553 428,044 Operating expense 279,622 288,258 255,838 Depreciation and amortization expense 41,937 56,523 61,633 General and administrative expense 27,157 25,508 24,587 Equipment lease expense 24,551 30,986 25,518 Employee stock ownership plan compensation charge 5,218 4,843 3,733 Loss (gain) on disposal of assets and other 3,957 5,744 (356) ------------- ------------- ------------- Operating income 118,917 126,691 57,091 Interest expense (43,972) (47,686) (43,251) Interest income 1,414 3,027 2,229 ------------- ------------- ------------- Net earnings $ 76,359 $ 82,032 $ 16,069 ============= ============= =============
See notes to consolidated financial statements. F-15 FERRELLGAS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (in thousands) Limited General Accumulated other Total partners' partner partner comprehensive loss capital ----------- ----------- ---------------------- ------------------- August 1, 1999 $ 89,555 $ 906 $ (797) $ 89,664 Net assets contributed by MLP and General Partner in connection with acquisitions 167,888 1,715 - 169,603 Contributions in connection with ESOP compensation charge 3,697 36 - 3,733 Quarterly distributions (77,961) (795) - (78,756) Comprehensive income: Net earnings 15,907 162 - 16,069 Pension liability adjustment - 8 797 805 ------------------- Comprehensive income 16,874 ----------- ----------- ---------------------- ------------------- July 31, 2000 199,086 2,032 - 201,118 Contributions in connection with ESOP compensation charge 4,793 50 - 4,843 Quarterly cash and accrued distributions (85,964) (877) - (86,841) Comprehensive income: Net earnings 81,203 829 - 82,032 Other comprehensive income (loss): Cumulative effect of accounting change - - 709 Risk management fair value adjustment - - (289) Reclassification adjustments - - (709) Pension liability adjustment - - (2,092) (2,381) ------------------- Comprehensive income 79,651 ----------- ----------- ---------------------- ------------------- July 31, 2001 199,118 2,034 (2,381) 198,771 Contributions in connection with ESOP compensation charge 5,165 53 - 5,218 Quarterly cash and accrued distributions (99,031) (1,011) - (100,042) Net assets contributed by MLP and General Partner in connection with acquisitions 2,333 24 - 2,357 Comprehensive income: Net earnings 75,588 771 - 76,359 Other comprehensive income (loss): Risk management fair value adjustment - - 136 Pension liability adjustment - - (527) (391) -------------------- Comprehensive income 75,968 ----------- ----------- ---------------------- ------------------- July 31, 2002 $ 183,173 $ 1,871 $ (2,772) $ 182,272 =========== =========== ====================== ===================
See notes to consolidated financial statements. F-16 FERRELLGAS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the year ended July 31, --------------------------------------------- 2002 2001 2000 ------------- ------------- ------------- Cash Flows From Operating Activities: Net earnings $ 76,359 $ 82,032 $ 16,069 Reconciliation of net earnings to net cash provided by operating activities: Depreciation and amortization 41,937 56,523 61,633 Employee stock ownership compensation charge 5,218 4,843 3,733 Other 3,705 6,906 3,049 Changes in operating assets and liabilities, net of effects from business acquisitions: Accounts and notes receivable 19,614 (9,121) (12,609) Inventories 17,318 11,333 (25,423) Prepaid expenses and other current assets 1,661 (2,071) (731) Accounts payable (1,385) (39,792) 10,418 Accrued interest expense (511) 1,009 6,777 Other current liabilities 1,915 2,233 7,140 Other liabilities 2,057 2,302 (1,981) Proceeds from new accounts receivable securitizations 30,000 115,000 - Proceeds from collections reinvested in revolving period accounts receivable securitizations 360,677 725,955 - Remittance of amounts collected as servicer of accounts receivable securitizations (421,677) (809,955) - ------------- ------------- ------------- Net cash provided by operating activities 136,888 147,197 68,075 ------------- ------------- ------------- Cash Flows From Investing Activities: Business acquisitions, net of cash acquired (6,294) (4,668) 47,656 Cash paid for acquisition transaction fees - - (15,893) Capital expenditures - technology initiative (23,114) (100) - Capital expenditures - other (14,402) (15,148) (20,755) Proceeds from sale leaseback transaction - - 25,000 Other 4,237 1,652 5,737 ------------- ------------- ------------- Net cash provided by (used in) investing activities (39,573) (18,264) 41,745 ------------- ------------- ------------- Cash Flows From Financing Activities: Distributions (100,062) (83,981) (78,756) Proceeds from issuance of debt - 9,843 226,490 Principal payments on debt (3,069) (26,205) (276,111) Net reductions to short-term borrowings - (18,342) (2,144) Cash paid for debt and lease financing costs - (56) (3,163) Contributions from partners 33 - 3,571 Advance to Ferrellgas Partners, L.P. - 142 (3) ------------- ------------- ------------- Net cash used in financing activities (103,098) (118,599) (130,116) ------------- ------------- ------------- Increase (decrease) in cash and cash equivalents (5,783) 10,334 (20,296) Cash and cash equivalents - beginning of period 25,171 14,837 35,133 ------------- ------------- ------------- Cash and cash equivalents - end of period $ 19,388 $ 25,171 $ 14,837 ============= ============= =============
See notes to consolidated financial statements. F-17 FERRELLGAS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. Partnership Organization and Formation Ferrellgas, L.P. (the "Partnership" or "Operating Partnership") was formed April 22, 1994, and is a Delaware limited partnership. The Operating Partnership was formed to acquire, own and operate the propane business and assets of Ferrellgas, Inc. (the "Company" or "General Partner"), a wholly-owned subsidiary of Ferrell Companies, Inc. ("Ferrell"). The Company holds a 1.0101% general partner interest in the Operating Partnership and performs all management functions required for the Partnership. Ferrellgas Partners, L.P. (the "MLP") is a publicly traded limited partnership and holds a 98.9899% interest in the Partnership as the sole limited partner. The MLP and the Operating Partnership are governed by partnership agreements that were made effective at the time of formation of the partnerships. These agreements contain specific provisions for the allocation of net earnings and loss to each of the partners for purposes of maintaining the partner capital accounts. On July 17, 1998, 100% of the outstanding common stock of Ferrell was purchased primarily from Mr. James E. Ferrell and his family by a newly established leveraged employee stock ownership trust ("ESOT") established pursuant to the Ferrell Companies, Inc. Employee Stock Ownership Plan ("ESOP"). The purpose of the ESOP is to provide employees of the Company an opportunity for ownership in Ferrell and indirectly in the Partnership. As contributions are made by Ferrell to the ESOP in the future, shares of Ferrell are allocated to the Company employees' ESOP accounts. On June 5, 2000, the Partnership's partnership agreement was amended to allow the General Partner to have an option in maintaining its 1.0101% general partner interest concurrent with the issuance of other additional equity. Prior to this amendment, the Company was required to make capital contributions to maintain its 1.0101% general partner interest with the issuance of any additional equity. B. Summary of Significant Accounting Policies (1) Nature of operations: The Partnership is engaged primarily in the retail distribution of propane and related equipment and supplies in the United States. The retail market is seasonal because propane is used primarily for heating in residential and commercial buildings. The Partnership serves more than 1,000,000 residential, industrial/commercial and agricultural customers. (2) Accounting estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates. Significant estimates impacting the consolidated financial statements include reserves that have been established for product liability and other claims. (3) Principles of consolidation: The accompanying consolidated financial statements include the Partnership's accounts and those of its wholly-owned subsidiary, Ferrellgas Finance Corp, after elimination of all material intercompany accounts and transactions. The accounts of this wholly-owned subsidiary are included based on the determination that the Partnership possesses a controlling financial interest through a direct ownership of a 100% voting interest and its ability to exert control over Ferrellgas Finance Corp. The wholly-owned subsidiary, Ferrellgas Receivables, LLC, is a qualifying special purpose entity and is accounted for using the equity method of accounting. (4) Cash and cash equivalents and non-cash activities: For purposes of the Consolidated Statements of Cash Flows, the Partnership considers cash equivalents to include all highly liquid debt instruments purchased with an original maturity of three months or less. Significant non-cash investing and financing activities are primarily related to the accounts receivables securitization and to business combinations and are disclosed in Footnote E and Footnote O, respectively. (5) Inventories: Inventories are stated at the lower of cost or market using average cost and actual cost methods. The Partnership enters into commodity derivative contracts involving propane and related products to hedge, reduce risk and anticipate market movements. The fair value of these derivative contracts is classified as inventory. F-18 (6) Accounts Receivable Securitization: Ferrellgas has agreements to transfer, on an ongoing basis, certain of its trade accounts receivable through an accounts receivables securitization facility and retains servicing responsibilities as well as a retained interest related to a portion of the transferred receivables. Ferrellgas accounts fo rhte securitization of accounts receivable in accordance with SFAS No. 140, "Accounting for Transfers and Sevicing of Financial Assets and Extinguishments of Liabilities." As a result receivables are removed from the Consolidated Balance Sheet and a retained interest is recorded for the amount of receivables sold in excess of cash received. Ferrellgas determines the fair value of its retained interests based on the present value of future expected cash flows using management's best estimates of various factors, including credit loss experience and discount rates commensurate with the risks involved. These assumptions are updated periodically based on actual results, thus the estimated credit loss and discount rates utilized are materially consistent with historical performance. Due to the short-term nature of Ferrellgas's trade receivables, variations in the credit and discount assumptions would not significantly impact the fair value of the retained interests. Costs associated with the sale of receivables are included in "Loss (gain) on disposal of assets and other" in the Consolidated Statements of Earnings. (7) Property, plant and equipment: Property, plant and equipment are stated at cost less accumulated depreciation. Expenditures for maintenance and routine repairs are expensed as incurred. Also, the Partnership capitalizes equipment replacement and betterment expenditures that are (i) greater than $1,000, (ii) upgrade or completely rebuild major mechanical components and (iii) extend the original book life of the equipment. Depreciation is calculated using the straight-line method based on the estimated useful lives of the assets ranging from two to 30 years. In the first quarter of fiscal 2001, the Partnership increased the estimate of the residual values of its existing customer and storage tanks. This change in accounting estimate resulted from a review by management of its tank values established through an independent tank valuation obtained in connection with a financing completed in December 1999. The Partnership, using its best estimates based on reasonable and supportable assumptions and projections, reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of its assets might not be recoverable. (8) Goodwill: Goodwill is not amortized and is tested annually for impairment. Beginning in the first quarter of fiscal 2002, the Partnership adopted SFAS No. 142 which modified the financial accounting and reporting for acquired goodwill and other intangible assets, including the requirement that goodwill and some intangible assets no longer be amortized. The Partnership tested goodwill for impairment at the time the statement was adopted and during the third quarter of fiscal 2002, and will continue to do so on an annual basis. The results of these impairment tests did not have a material effect on the Partnership's financial position, results of operations and cash flows. The Partnership did not recognize any impairment losses as a result of these tests. (9) Intangible assets: Intangible assets, consisting primarily of customer lists and noncompete notes, are stated at cost, net of amortization calculated using either straight-line or accelerated methods over periods ranging from two to 15 years. The Partnership reviews identifiable intangibles for impairment in a similar manner as with long-lived assets. The Partnership, using its best estimates based on reasonable and supportable assumptions and projections, reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of its assets might not be recoverable. (10) Accounting for derivative commodity contracts: The Partnership enters into commodity options involving propane and related products to specifically hedge certain product cost risk. Any changes in the fair value of these specific cash flow hedge positions are deferred and included in other comprehensive income and recognized as an adjustment to the overall purchase price of product in the month the purchase contract is settled. The Partnership also enters into other commodity forward and futures purchase/sale agreements and commodity swaps and options involving propane and related products, which are not specific hedges to a certain product cost risk, but are used for risk management purposes. To the extent such contracts are entered into at fixed prices and thereby subject the Partnership to market risk, the contracts are accounted for using the fair value method. Under this valuation method, derivatives are carried on the Consolidated Balance Sheets at fair value with changes in that value recognized in earnings. The Partnership classifies all gains and losses from these derivative commodity contracts entered into for product risk management purposes as cost of product sold in the Consolidated Statements of Earnings. F-19 (11) Revenue recognition: Sales of propane are recognized by the Partnership at the time product is delivered to its customers. Revenue from the sale of propane appliances and equipment is recognized at the time of delivery or installation. Revenues from repairs and maintenance are recognized upon completion of the service. The Partnership recognizes shipping and handling revenues and expenses for sales of propane, appliances and equipment at the time of delivery or installation. Shipping and handling revenues are included in the price of propane charged to customers, and thus are classified as revenue. Shipping and handling expenses related to delivery personnel, vehicle repair and maintenance and general liability expenses are classified within operating expenses on the statement of earnings. Depreciation expenses on delivery vehicles the Partnership owns are classified within depreciation and amortization expenses. Lease expenses on delivery vehicles the Partnership leases are classified within equipment lease expense. See Note D for the financial statement presentation of shipping and handling expenses. (12) Cost of Product Sold: Cost of product sold includes all costs to acquire propane, other gas liquids and non-gas items, including the results from all risk management activities and the costs of storing and transporting inventory to the Partnership's retail districts prior to delivery to its customers. (13) Operating Expenses: Operating expenses primarily include the personnel, vehicle, delivery, handling, plant, office, selling, marketing, credit and collections and other expenses related to the retail distribution of propane and related equipment and supplies. (14) Income taxes: The Partnership is a limited partnership. As a result, the Partnership's earnings or losses for Federal income tax purposes are included in the tax returns of the individual partners. Accordingly, no recognition has been given to income taxes in the accompanying Consolidated Financial Statements of the Partnership. Net earnings for financial statement purposes may differ significantly from taxable income reportable to partners as a result of differences between the tax basis and financial reporting basis of assets and liabilities and the taxable income allocation requirements under the Partnership Agreement. (15) Unit and stock-based compensation: The Partnership accounts for the General Partner's Unit Option Plan and the Ferrell Companies Incentive Compensation Plan using the intrinsic value method under the provisions of Accounting Principles Board (APB) No. 25, "Accounting for Stock Issued to Employees," and makes the fair value method pro forma disclosures required under the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." (16) Segment information: The Partnership is a single reportable operating segment engaging in the retail distribution of propane and related equipment and supplies. (17) Adoption of new accounting standards: The Financial Accounting Standards Board (FASB) recently issued SFAS No. 141 "Business Combinations", SFAS No. 142 "Goodwill and Other Intangible Assets", SFAS No. 143 "Accounting for Asset Retirement Obligations", SFAS No. 144 "Accounting for the Impairment or Disposal of Long-lived Assets", SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", and SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 141 requirements include, among other things, that all business combinations be accounted for by a single method - the purchase method. It applies to all business combinations initiated after June 30, 2001. The Partnership has historically accounted for business combinations using the purchase method; therefore, this new statement will not have a substantial impact on how the Partnership accounts for future combinations. SFAS No. 142 modified the financial accounting and reporting for acquired goodwill and other intangible assets, including the requirement that goodwill and some intangible assets no longer be amortized. The Partnership adopted SFAS No. 142 beginning in the first quarter of fiscal 2002. This adoption resulted in a reclassification to goodwill of both assembled workforce and other intangible assets. Although there was no cash flow effect, the Partnership's amortization expense decreased by $10,600,000 in fiscal 2002, compared to the amortization that would have been recorded had the new accounting statement not been issued. This new standard also required us to test goodwill for impairment at the time the standard was adopted and also on an annual basis. The results of these impairment tests did not have a material effect on the Partnership's financial position, results of operations and cash flows. The Partnership did not recognize any impairment losses as a result of these tests. SFAS No. 143 requires the recognition of a liability if a company has a legal or contractual financial obligation in connection with the retirement of a tangible long-lived asset. The Partnership will implement SFAS No. 143 beginning in the fiscal year ending July 31, 2003, and expects to record a one-time reduction to earnings during the first quarter of fiscal 2003, as a cumulative change in accounting principle, of approximately $2,800,000. The Partnership believes the implementation will not have a material ongoing effect on its financial position, results of operations and cash flows. SFAS No. 144 modifies the financial accounting and reporting for long-lived assets to be disposed of by sale and it broadens the presentation of discontinued operations to include more disposal transactions. The Partnership will implement SFAS No. 144 beginning in the fiscal year ending July 31, 2003, and believes the implementation will not have a material effect on its financial position, results of operations and cash flows. SFAS No. 145 eliminates the requirement that material gains and losses resulting from the early extinguishment of debt be classified as an extraordinary item in the results of operations. Instead, companies must evaluate whether the transaction meets both the criteria of being unusual in nature and infrequent in occurrence. Other aspects of SFAS No. 145 relating to accounting for intangibles assets of motor carriers and accounting for certain lease modifications do not currently apply to the Partnership. The Partnership will implement SFAS No. 145 beginning in the fiscal year ending July 31, 2003, and believes the implementation will not have a material effect on its financial position, results of operations and cash flows. SFAS No. 146 modifies the financial accounting and reporting for costs associated with exit or disposal activities. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Additionally, the statement requires the liability to be recognized and measured initially at fair value. Under previous rules, liabilities for exit costs were recognized at the date of the entity's commitment to an exit plan. The Partnership will adopt and implement SFAS No. 146 for any exit or disposal activities that are initiated after July 31, 2002. The Partnership believes the implementation will not have a material effect on its financial position, results of operations and cash flows F-20 (18) Reclassifications: Certain reclassifications have been made to the prior years' Consolidated Financial Statements to conform to the current year's Consolidated Financial Statements' presentation. C. Quarterly Distributions of Available Cash The Partnership makes quarterly cash distributions of all of its "available cash", generally defined as consolidated cash receipts less consolidated cash disbursements and net changes in reserves established by the General Partner for future requirements. Reserves are retained in order to provide for the proper conduct of the Partnership business, or to provide funds for distributions with respect to any one or more of the next four fiscal quarters. Distributions are made within 45 days after the end of each fiscal quarter ending January, April, July and October. Distributions by the Partnership in an amount equal to 100% of its available cash, as defined in its Partnership Agreement, will generally be made 98.9899% to the MLP and 1.0101% to the General Partner. D. Supplemental Financial Statement Information Inventories consist of: (in thousands) 2002 2001 -------------- -------------- Propane gas and related products........................................ $ 29,169 $ 45,966 Appliances, parts and supplies.......................................... 18,865 19,318 -------------- -------------- $ 48,034 $ 65,284 ============== ==============
In addition to inventories on hand, the Partnership enters into contracts to buy product for supply purposes. Nearly all of these contracts have terms of less than one year and most call for payment based on market prices at the date of delivery. All fixed price contracts have terms of less than one year. As of July 31, 2002, in addition to the inventory on hand, the Partnership had committed to make net delivery of approximately 7,061,000 gallons at a fixed price. Property, plant and equipment consist of: Estimated (in thousands) useful lives 2002 2001 -------------- ----------- ----------- Land and improvements........................... 2-20 $ 40,781 $ 41,191 Buildings and improvements...................... 20 54,453 54,384 Vehicles, including transport trailers.......... 8-20 77,226 76,611 Furniture and fixtures.......................... 5 8,730 9,523 Bulk equipment and district facilities.......... 5-30 93,816 90,930 Tanks and customer equipment.................... 5-30 473,324 472,593 Computer equipment and software................. 2-5 29,530 25,515 Computer software development in progress....... n/a 29,904 100 Other........................................... 2,652 3,281 ----------- ----------- 810,416 774,128 Less: accumulated depreciation................. 303,885 282,934 ----------- ----------- $506,531 $491,194 =========== ===========
In a non-cash transaction, the Partnership has recognized payables as of July 31, 2002, totaling $6,956,000 related to the development of new computer software. The Partnership capitalized $697,000 of interest expense related to the development of computer software for the year ended July 31, 2002. Depreciation expense totaled $27,915,000, $28,332,000, and $37,941,000 for the fiscal years ended July 31, 2002, 2001, and 2000, respectively. In the first quarter of fiscal 2001, the Partnership increased the estimate of the residual values of its existing customer and storage tanks. Due to this change in the tank residual values, depreciation expense decreased by approximately $12,000,000 in both fiscal 2002 and 2001, respectively, as compared to the depreciation that would have been recorded using the previously estimated residual values. F-21 Other current liabilities consist of: (in thousands) 2002 2001 ----------- ----------- Accrued interest................................ $ 20,465 $ 22,816 Accrued payroll................................. 24,068 20,236 Accrued insurance............................... 9,409 8,056 Other........................................... 32,984 27,173 ----------- ----------- $ 86,926 $ 78,281 =========== ===========
Loss (gain) on disposal of assets and other consist of: For the year ended July 31, ------------------------------- 2002 2001 2000 -------- -------- --------- Loss (gain) on disposal of assets $ 3,223 $ 1,459 $ (356) Loss on transfer of accounts receivable related to the accounts receivable securitization 2,019 5,611 - Service income related to the accounts receivable securitization (1,285) (1,326) - -------- --------- --------- Loss (gain) on disposal of assets and other $ 3,957 $ 5,744 $ (356) ======== ========= =========
Shipping and handling expenses are classified in the following Statement of Earnings line items: For the year ended July 31, ------------------------------- 2002 2001 2000 -------- -------- --------- Operating expenses $123,226 $132,349 $114,181 Depreciation and amortization expense 6,930 6,764 9,058 Equipment lease expense 11,479 11,578 10,963 -------- -------- --------- $141,635 $150,691 $134,202 ======== ======== =========
F-22 E. Accounts Receivable Securitization On September 26, 2000, the Partnership entered into an account receivable securitization facility with Bank One, NA. As part of this renewable 364-day facility, the Partnership transfers an interest in a pool of its trade accounts receivable to Ferrellgas Receivables, LLC, a wholly-owned, special purpose entity, which sells its interest to a commercial paper conduit of Banc One, NA. The Partnership does not provide any guarantee or similar support to the collectability of these receivables. The Partnership structured the facility using a wholly-owned, qualifying special purpose entity in order to facilitate the transaction as required by Banc One, N.A. and to comply with the Partnership's various debt covenants. The Partnership remits daily to this special purpose entity funds collected on the pool of trade receivables held by Ferrellgas Receivables. The Partnership renewed the facility effective September 25, 2001, for a 364-day commitment with Bank One, NA and intends to renew the facility for an additional 364-day commitment on September 24, 2002. The Partnership transfers certain of its trade accounts receivable to Ferrellgas Receivables, LLC and retains an interest in a portion of these transferred receivables. As these transferred receivables are subsequently collected and the funding from the accounts receivable securitization facility is reduced, the Partnership's retained interest in these receivables is reduced. The net non-cash activity is fiscal 2001 relating to this retained interest was $7,225,000. In fiscal 2002, as the transferred receivables were collected and the funding from the accounts receivables securitization facility was reduced to zero, the Partnership retained interest in the transferred receivables was also reduced. As of July 31, 2002 the balance of the retained interest was zero. These amounts reported in the Consolidated Statements of Earnings approximate the financing cost of issuing commercial paper backed by these accounts receivable plus an allowance for doubtful accounts associated with the outstanding receivables transferred to Ferrellgas Receivables. The weighted average discount rate used to value the retained interest in the transferred receivables was 3.61% and 6.48% during the fiscal years ended July 31, 2002 and 2001 respectively. Bad debt expense for these transferred receivables totaled $200,000 and $378,000 during the fiscal years ended July 31, 2002 and 2001, respectively. F-23 F. Goodwill SFAS No. 142 modified the financial accounting and reporting for acquired goodwill and other intangible assets, including the requirement that goodwill and some intangible assets no longer be amortized. The Partnership adopted SFAS No. 142 beginning in the first quarter of fiscal 2002. This adoption resulted in a reclassification to goodwill of both assembled workforce and other intangible assets classified as other assets with remaining book value of $10,019,000. The changes in the carrying amount of goodwill for the year ended July 31, 2002, are as follows: (in thousands) Intangible Other Goodwill Assets Assets -------------- -------------- ------------ Balance as of July 31, 2001, net of accumulated amortization............................................$ 114,171 $ 116,747 $ 13,082 Reclassified to goodwill................................... 10,019 (8,221) (1,798) Additions during the period................................ - 3,866 - Amortization expense....................................... - (14,022) - Reduction of investment in unconsolidated subsidiary (see Note E)................................. - - (7,225) Other changes ............................................. - (200) (1,058) -------------- -------------- ------------ Balance as of July 31, 2002................................$ 124,190 $ 98,170 $ 3,001 ============== ============== ============
The remaining intangible assets are subject to amortization. The following table discloses our net earnings for the fiscal years ended July 31, 2001 and 2000, adding back the amortization expense related to goodwill and some intangible assets that are no longer amortized. For the year ended July 31, ---------------------------- (in thousands) 2002 2001 2000 -------- -------- -------- Reported net earnings...................................... $ 76,359 $ 82,032 $ 16,069 Add back: Goodwill amortization............................ - 11,308 6,474 -------- -------- -------- Adjusted net earnings...................................... $ 76,359 $ 93,340 $ 22,543 ======== ======== ========
G. Intangible Assets, net Intangible assets, net consist of: July 31, 2002 July 31, 2001 ------------------------------------------- -------------------------------------------- Gross Gross Carrying Accumulated Carrying Accumulated (in thousands) Amount Amortization Net Amount Amortization Net -------------- -------------- -------------- -------------- -------------- -------------- Customer lists............... $ 208,662 $(124,860) $ 83,802 $ 207,667 $(114,679) $ 92,988 Non-compete agreements....... 62,893 (48,525) 14,368 60,222 (44,684) 15,538 Assembled workforce.......... - - - 9,600 (1,379) 8,221 -------------- -------------- -------------- -------------- -------------- -------------- Total...................... $ 271,555 $(173,385) $ 98,170 $ 277,489 $(160,742) $ 116,747 ============== ============== ============== ============== ============== ==============
F-24 Customer lists have estimated lives of 15 years, while non-compete agreements have estimated lives ranging from two to 10 years. (in thousands) Aggregate Amortization Expense: 2002 2001 2000 - ------------------------------- --------- --------- --------- For the year ended July 31, $ 14,022 $ 16,883 $ 17,218 (in thousands) Estimated Amortization Expense: -------------------------------- For the year ended July 31, 2003............................ $11,656 For the year ended July 31, 2004............................ 10,682 For the year ended July 31, 2005............................. 10,150 For the year ended July 31, 2006............................. 9,631 For the year ended July 31, 2007............................. 8,991 H. Long-Term Debt Long-term debt consists of: (in thousands) 2002 2001 ------------- ------------ Senior Notes Fixed rate, 7.16% due 2005-2013 (1).......................................$ 350,000 $ 350,000 Fixed rate, 8.8%, due 2006-2009 (2)....................................... 184,000 184,000 Notes payable, 7.6% and 7.9% weighted average interest rates, respectively, due 2002 to 2011............................................ 12,177 12,566 ------------- ------------ 546,177 546,566 Less: current portion, included in other current liabilities............... 2,319 1,784 ------------- ------------ $ 543,858 $ 544,782 ============= ============
(1) The fixed rate Senior Notes ("$350 million Senior Notes"), issued in August 1998, are general unsecured obligations of the Partnership and rank on an equal basis in right of payment with all senior indebtedness of the Partnership and senior to all subordinated indebtedness of the Partnership. The outstanding principal amount of the Series A, B, C, D and E Notes shall be due on August 1, 2005, 2006, 2008, 2010, and 2013, respectively. In general, the Partnership does not have the option to prepay the Notes prior to maturity without incurring prepayment penalties. (2) The fixed rate Senior Notes ("$184 million Senior Notes"), issued in February 2000, are general unsecured obligations of the Partnership and rank on an equal basis in right of payment with all senior indebtedness of the Partnership and senior to all subordinated indebtedness of the Partnership. The outstanding principal amount of the Series A, B and C Notes are due on August 1, 2006, 2007 and 2009, respectively. In general, the Partnership does not have the option to prepay the Notes prior to maturity without incurring prepayment penalties. At July 31, 2002, the unsecured $157,000,000 Credit Facility (the "Credit Facility"), expiring June 2003, consisted of a $117,000,000 unsecured working capital, general corporate and acquisition facility, including a letter of credit facility, and a $40,000,000 revolving working capital facility. This $40,000,000 facility is subject to an annual reduction in outstanding balances to zero for thirty consecutive days. All borrowings under the Credit Facility bear interest, at the borrower's option, at a rate equal to either a) LIBOR plus an applicable margin varying from 1.25 % to 2.25 % or, b) the bank's base rate plus an applicable margin varying from 0.25 % to 1.25 %. The bank's base rate at July 31, 2002 and 2001 was 4.75% and 6.75%, respectively. In addition, a commitment fee is payable on the daily unused portion of the credit facility (generally a per annum rate of 0.0375% at July 31, 2002). F-25 The Partnership had no short-term borrowings outstanding under the credit facility at July 31, 2002 and 2001. Letters of credit outstanding, used primarily to secure obligations under certain insurance arrangements, totaled $40,614,000 and $46,660,000, respectively. At July 31, 2002, the Partnership had $116,386,000 of funding available. The Partnership incurred commitment fees of $445,000 and $460,000 in fiscal 2002 and 2001, respectively. Effective July 16, 2001, the credit facility was amended to increase the letter of credit sub-facility availability from $60,000,000 to $80,000,000. On December 17, 1999, in connection with the purchase of Thermogas, LLC ("Thermogas acquisition") (see Note O), the Partnership assumed a $183,000,000 loan that was originally issued by Thermogas, LLC ("Thermogas") and had a maturity date of June 30, 2000. On February 28, 2000, the Partnership issued $184,000,000 of Senior Notes at an average interest rate of 8.8% in order to refinance the $183,000,000 loan. The additional $1,000,000 in borrowings was used to fund debt issuance costs. The $350 million and $184 million Senior Notes and the Credit Facility agreement contain various restrictive covenants applicable to the Partnership and its subsidiaries, the most restrictive relating to additional indebtedness. In addition, the Partnership is prohibited from making cash distributions if a default or event of default exists or would exist upon making such distribution, or if the Partnership fails to meet certain coverage tests. The Partnership is in compliance with all requirements, tests, limitations and covenants related to these debt agreements. The scheduled annual principal payments on long-term debt are to be $2,319,000 in 2003, $2,134,000 in 2004, $2,299,000 in 2005, $111,313,000 in 2006, $59,039,000 in 2007 and $369,073,000 thereafter. I. Derivatives SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 137 and SFAS No. 138, requires all derivatives (with certain exceptions), whether designated in hedging relationships or not, to be recorded on the Consolidated Balance Sheet at fair value. As a result of implementing SFAS No. 133 at the beginning of fiscal 2001, the Partnership recognized in its first quarter of fiscal 2001, gains totaling $709,000 and $299,000 in accumulated other comprehensive income and the Consolidated Statements of Earnings, respectively. In addition, beginning in the first quarter of fiscal 2001, the Partnership recorded subsequent changes in the fair value of positions qualifying as cash flow hedges in accumulated other comprehensive income and changes in the fair value of other positions in the Consolidated Statements of Earnings. The Partnership's overall objective for entering into derivative contracts for the purchase of product is related to hedging, risk reduction and to anticipate market movements. Other derivatives are entered into to reduce interest rate risk associated with long term debt and lease obligations. Fair value hedges are derivative financial instruments that hedge the exposure to changes in the fair value of an asset or a liability or an identified portion thereof attributable to a particular risk. Cash flow hedges are derivative financial instruments that hedge the exposure to variability in expected future cash flows attributable to a particular risk. The Partnership uses cash flow hedges to manage exposures to product purchase price risk and to manage exposure to interest rate risks. Fluctuations in the wholesale cost of propane expose the Partnership to purchase price risk. The Partnership purchases propane at various prices that are eventually sold to its customers, exposing the Partnership to future product price fluctuations. Also, certain forecasted transactions expose the Partnership to purchase price risk. The Partnership monitors its purchase price exposures and utilizes product hedges to mitigate the risk of future price fluctuations. Propane is the only product hedged with the use of product hedge positions. The Partnership uses derivative contracts to hedge a portion of its forecasted purchases for up to one year in the future. These derivatives are designated as cash flow hedging instruments. Because these derivatives are designated as cash flow hedges, the effective portions of changes in the fair value of the derivatives are recorded in other comprehensive income (FOCI) and are recognized in the Consolidated Statements of Earnings when the forecasted transaction impacts earnings. The $136,000 risk management fair value adjustment classified as other comprehensive income on the Consolidated Statements of Partners' Capital at July 31, 2002, will be recognized in the Consolidated Statements of Earnings during fiscal 2003. Changes in the fair value of cash flow hedges due to hedge ineffectiveness, if any, are recognized in cost of product sold on the Consolidated Statements of Earnings. During fiscal years ended July 31, 2002 and 2001 the Partnership did not recognize any gain or loss in earnings related to hedge ineffectiveness and did not exclude any component of the derivative contract gain or loss from the assessment of hedge effectiveness related to the cash flow hedges. The fair value of the derivatives related to purchase price risk is classified on the Consolidated Balance Sheets as inventories. F-26 Through its risk management trading activities, the Partnership also purchases and sells derivatives that are not designated as accounting hedges to manage other risks associated with commodity prices. Emerging Issues Task Force issue 98-10 "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" applies to these activities. The types of contracts utilized in these activities include energy commodity forward contracts, options and swaps traded on the over-the-counter financial markets, and futures and options traded on the New York Mercantile Exchange. The Partnership utilizes published settlement prices for exchange traded contracts, quotes provided by brokers and estimates of market prices based on daily contract activity to estimate the fair value of these contracts. The changes in fair value of these risk management trading activities are recognized as they occur in cost of product sold on the Consolidated Statements of Earnings. During fiscal years ended July 31, 2002, 2001 and 2000, the Partnership recognized risk management trading gains (losses) related to derivatives not designated as accounting hedges of $(6,148,000), $23,320,000, and $28,413,000, respectively. Estimates related to our risk management trading activities are sensitive to uncertainty and volatility inherent in the energy commodities markets and actual results could differ from these estimates. Assuming a hypothetical 10% adverse change in prices for the delivery month of all energy commodities, the potential loss in future earnings of such a change is estimated at $1,100,000 for risk management trading activities as of July 31, 2002. The preceding hypothetical analysis is limited because changes in prices may or may not equal 10%. The following table summarizes the change in the unrealized fair value of contracts from risk management trading activities for the fiscal years ended July 31, 2002 and 2001. This table summarizes the contracts where settlement has not yet occurred. Fiscal year ended (in thousands) July 31, ------------------------------- 2002 2001 ------------- -------------- Unrealized (losses) in fair value of contracts outstanding at beginning of year....................................................... $ (12,587) $ (359) Unrealized gains and (losses) recognized at inception...................... - - Unrealized gains and (losses) recognized as a result of changes in valuation techniques or assumptions.................................. - - Other unrealized gains and (losses) recognized............................. (6,148) 23,320 Less: realized gains and (losses) recognized.............................. (14,166) 35,548 ------------- -------------- Unrealized (losses) in fair value of contracts outstanding at end of year.. $ (4,569) $ (12,587) ============= ==============
The following table summarizes the maturity of these contracts for the valuation methodologies we utilize as of July 31, 2002 and 2001. This table summarizes the contracts where settlement has not yet occurred. (in thousands) Fair Value of Contracts at Period-End ------------------------------------ Maturity greater than 1 year Maturity less and less Source of Fair Value than 1 year than 18 months ---------------- ---------------- Prices actively quoted..................................................... $ (328) $ - Prices provided by other external sources.................................. (4,225) (16) Prices based on models and other valuation methods......................... - - ---------------- ---------------- Unrealized (losses) in fair value of contracts outstanding at July 31, 2002...................................................... $ (4,553) $ (16) ================ ================ Prices actively quoted..................................................... $ (2,535) $ - Prices provided by other external sources.................................. (4,061) (5,991) Prices based on models and other valuation methods......................... - - ---------------- ----------------- Unrealized (losses) in fair value of contracts outstanding at July 31, 2001...................................................... $ (6,596) $ (5,991) ================ =================
F-27 The following table summarizes the gross transaction volumes in barrels (one barrel equals 42 gallons) for risk management trading contracts that were physically settled for the years ended July 31, 2002, 2001 and 2000: (in thousands) Fiscal year ended July 31, 2002.................................. 11,162 Fiscal year ended July 31, 2001.................................. 18,539 Fiscal year ended July 31, 2000.................................. 42,284 The Partnership also uses forward contracts, not designated as accounting hedges under SFAS No. 133, to help reduce the price risk related to sales made to its propane customers. These forward contracts meet the requirement to qualify as normal purchases and sales as defined in SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, and thus are not adjusted to fair market value. As of July 31, 2002, the Partnership holds $546,177,000 in primarily fixed rate debt and $156,000,000 in variable rate operating leases. Fluctuations in interest rates subject the Partnership to interest rate risk. Decreases in interest rates increase the fair value of the Partnership's fixed rate debt, while increases in interest rates subject the Partnership to the risk of increased interest expense related to its variable rate debt and operating leases. The Partnership enters into cash flow hedges to help reduce its overall interest rate risk. Interest rate caps are used to hedge the risk associated with rising interest rates and their effect on forecasted transactions related to variable rate debt and lease obligations. These interest rate caps are designated as cash flow hedges and are outstanding at July 31, 2002. Thus, the effective portions of changes in the fair value of the hedges are recorded in OCI at interim periods and are recognized as interest expense in the Consolidated Statements of Earnings when the forecasted transaction impacts earnings. During the fiscal years ended July 31, 2002 and 2001 the Partnership did not recognize any gain or loss in earnings related to hedge ineffectiveness and did not exclude any component of the derivative contract gain or loss from the assessment of hedge effectiveness related to cash flow hedges. Cash flow hedges are assumed to hedge the risk of changes in cash flows of the hedged risk. J. Transactions with Related Parties The Partnership has no employees and is managed and controlled by the General Partner. Pursuant to the Partnership Agreement, the General Partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on behalf of the Partnership, and all other necessary or appropriate expenses allocable to the Partnership or otherwise reasonably incurred by the General Partner in connection with operating the Partnership's business. These costs, which totaled $197,863,000, $194,519,000, and $179,033,000 for the years ended July 31, 2002, 2001, and 2000, respectively, include compensation and benefits paid to officers and employees of the General Partner and general and administrative costs. Additionally the amount due to the MLP at July 31, 2002, and 2001, was $2,838,000 and $3,087,000, respectively, and included the funds to enable the MLP to pay its senior unit distribution on September 13, 2002. On December 12, 2001, the MLP issued 37,487 of its common units to Ferrell Propane, Inc., a subsidiary of the General Partner in connection with the acquisition of Blue Flame Bottle Gas (see Note O). The MLP common unit issuance compensated Ferrell Propane for its retention of $725,000 of certain tax liabilities of Blue Flame. During fiscal 2000, The Williams Companies, Inc. ("Williams") became a related party to the Partnership due to the MLP's issuance of its senior units to a subsidiary of Williams as part of the Thermogas acquisition (See Note O). In April 2001, Williams sold all its senior units to JEF Capital Management, Inc., an entity owned by James E. Ferrell, Chairman, Chief Executive Officer and President of the General Partner, and thereafter, ceased to be a related party of the Partnership. During fiscal 2001 and 2000, the Partnership recognized wholesale sales to Williams of $493,000 and $2,091,000, respectively. In connection with its normal purchasing and risk management activities, the Partnership entered into, with Williams as a counterparty, certain purchase, forward, futures, option and swap contracts. During fiscal 2001 and 2000 the Partnership recognized a net increase (decrease) to cost of sales of $(4,456,000) and $3,645,000, respectively, related to these activities. During fiscal 2000, Williams provided propane supply and general and administrative services to the Partnership to assist in the integration of the acquisition. The Partnership paid $67,547,000, $4,062,000 and $176,000 to Williams in fiscal 2000 and classified these costs to cost of product sold, general and administrative expenses and operating expenses, respectively. F-28 Ferrell International Limited, FI Trading, Inc. and Ferrell Resources, LLC are beneficially owned by James E. Ferrell and thus are affiliates of the Partnership. The Partnership enters into transactions with Ferrell International Limited and FI Trading in connection with its risk management activities and does so at market prices in accordance with an affiliate trading policy approved by the General Partner's Board of Directors. These transactions include forward, option and swap contracts and are all reviewed for compliance with the policy. During fiscal 2002, 2001 and 2000, the Partnership recognized net receipts (disbursements) from purchases, sales and commodity derivative transactions of $10,692,000, $(28,140,000), and $(8,508,000), respectively. These net purchases, sales and commodity derivative transactions with Ferrell International Limited and FI Trading, Inc. are classified as cost of product sold. Amounts due from Ferrell International Limited at July 31, 2002 and 2001 were $396,000 and $0, respectively. Amounts due to Ferrell International Limited at July 31, 2002 and 2001 were $266,000 and $0, respectively. During fiscal 2002, 2001 and 2000, Ferrell International Limited, FI Trading, Inc. and Ferrell Resources, LLC paid the Partnership a total of $40,000, $40,000, and $313,000, respectively, for accounting and administration services. The Partnership also leased propane tanks from Ferrell Propane, Inc., a subsidiary of the General Partner from October 1998 until February 2002, at which time, Ferrell Propane sold all its tanks to an unrelated entity. The Partnership recognized $300,000, $515,000, and $515,000 of lease expense during fiscal years 2002, 2001, and 2000. K. Contingencies and Commitments The Partnership is threatened with or named as a defendant in various lawsuits that, among other items, claim damages for product liability. It is not possible to determine the ultimate disposition of these matters; however, management is of the opinion that there are no known claims or contingent claims that will have a material adverse effect on the financial condition, results of operations or cash flows of the Partnership. Currently, the Partnership is not a party to any legal proceedings other than various claims and lawsuits arising in the ordinary course of business. On December 6, 1999, the Partnership entered into, with Banc of America Leasing & Capital LLC, a $25,000,000 operating lease involving the sale-leaseback of a portion of the Partnership's customer tanks. This operating lease has a term that expires June 30, 2003 and may be extended for two additional one-year periods at the option of the Partnership, if such extension is approved by the lessor. On December 17, 1999, immediately prior to the closing of the Thermogas acquisition (See Note O), Thermogas entered into, with Banc of America Leasing & Capital LLC, a $135,000,000 operating lease involving a portion of its customer tanks. In connection with the Thermogas acquisition, the Partnership assumed all obligations under the $135,000,000 operating lease, which has terms and conditions similar to the December 6, 1999, $25,000,000 operating lease discussed above. Prior to the end of these lease terms, the Partnership intends to secure additional financing in order to purchase the related customer tanks. No assurances can be given that such financing will be obtained or, if obtained, such financing will be on terms equally favorable to the Partnership. Effective June 2, 2000, the Partnership entered into an interest rate cap agreement ("Cap Agreement") with Bank of America, related to variable quarterly rent payments due pursuant to two operating tank lease agreements. The variable quarterly rent payments are determined based upon a floating LIBOR based interest rate. The Cap Agreement, which expires June 30, 2003, requires Bank of America to pay the Partnership at the end of each March, June, September and December the excess, if any, of the applicable three month floating LIBOR interest rate over 9.3%, the cap, applied to the total obligation due each quarter under the two operating tank lease agreements. The total obligation under these two operating tank lease agreements as of July 31, 2002 and 2001 was $156,000,000 and $157,600,000, respectively. Certain property and equipment is leased under noncancelable operating leases which require fixed monthly rental payments and which expire at various dates through 2020. Rental expense under these leases totaled $36,959,000, $42,420,000, and $35,292,000 for the years ended July 31, 2002, 2001, and 2000, respectively. Future minimum lease commitments for such leases in the next five years, including the aforementioned operating tank leases, are $26,986,000 in 2003, $13,478,000 in 2004, $10,223,000 in 2005, $8,228,000 in 2006 and $5,020,000 in 2007. In addition to the future minimum lease commitments, the Partnership plans to purchase vehicles and computers at the end of their lease terms totaling $158,577,000 in 2003, $4,738,000 in 2004, $4,105,000 in 2005, $2,076,000 in 2006 and $6,944,000 in 2007. The Partnership intends to renew other vehicle, tank and computer leases that would have had buyouts of $5,039,000 in 2003 and $311,000 in 2004. F-29 L. Employee Benefits The Partnership has no employees and is managed and controlled by the General Partner. The Partnership assumes all liabilities, which include specific liabilities related to the following employee benefit plans for the benefit of the officers and employees of the General Partner. Ferrell makes contributions to the ESOT, which causes a portion of the shares of Ferrell owned by the ESOT to be allocated to employees' accounts over time. The allocation of Ferrell shares to employee accounts causes a non-cash compensation charge to be incurred by the Partnership, equivalent to the fair value of such shares allocated. This non-cash compensation charge is reported separately in the Partnership's Consolidated Statements of Earnings and thus excluded from operating and general and administrative expenses. The non-cash compensation charge has increased from fiscal 2000 to fiscal 2001 primarily due to the effect of employees added to the company from the Thermogas acquisition (see Note O). This charge increased from fiscal 2001 to fiscal 2002 primarily due to the increase in the fair value of the Ferrell shares allocated to employees. The Partnership is not obligated to fund or make contributions to the ESOT. The General Partner and its parent, Ferrell, have a defined contribution profit-sharing plan which includes both profit sharing and matching contributions. The plan covers substantially all employees with more than one year of service. With the establishment of the ESOP in July 1998, the Company suspended future profit sharing contributions to the plan beginning with fiscal year 1998. The plan, which qualifies under section 401(k) of the Internal Revenue Code, also provides for matching contributions under a cash or deferred arrangement based upon participant salaries and employee contributions to the plan. Unlike the profit sharing contributions, these matching contributions were not eliminated with the establishment of the ESOP. Contributions for the years ended July 31, 2002, 2001, and 2000, were $2,773,000, $3,235,000, and $2,869,000, respectively, under the 401(k) provisions. The General Partner has a defined benefit plan that provides participants who were covered under a previously terminated plan with a guaranteed retirement benefit at least equal to the benefit they would have received under the terminated plan. Until July 31, 1999, benefits under the terminated plan were determined by years of credited service and salary levels. As of July 31, 1999, years of credited service and salary levels were frozen. The General Partner's funding policy for this plan is to contribute amounts deductible for Federal income tax purposes and invest the plan assets primarily in corporate stocks and bonds, U.S. Treasury bonds and short-term cash investments. As of July 31, 2002 and 2001, other comprehensive income was reduced and other liabilities were increased $527,000 and $2,092,000, respectively because the accumulated benefit obligation of this plan exceeded the fair value of plan assets. M. Unit Options of the Partnership and Stock Options of Ferrell Companies, Inc. Prior to April 19, 2001, the Second Amended and Restated Ferrellgas Unit Option Plan (the "unit option plan") authorized the issuance of options (the "unit options") covering up to 850,000 of the MLP's common units to employees of the General Partner or its affiliates. Effective April 19, 2001, the unit option plan was amended to authorize the issuance of options covering an additional 500,000 common units. The unit option plan is intended to meet the requirements of the New York Stock Exchange equity holder approval policy for option plans not approved by the equity holders of a company, and thus approval of the plan from the unitholders of the MLP was not required. The Board of Directors of the General Partner administers the unit option plan, authorizes grants of unit options thereunder and sets the unit option price and vesting terms of unit options in accordance with the terms of the unit option plan. No single officer or director of the General Partner may acquire more than 314,895 common units under the unit option plan. The unit options outstanding as of July 31, 2002, are exercisable at exercise prices ranging from $16.80 to $21.67 per unit, which was an estimate of the fair market value of the units at the time of the grant. In general, the options currently outstanding under the unit option plan vest over a five-year period, and expire on the tenth anniversary of the date of the grant. F-30 Number Weighted Weighted Of Average Average Units Exercise Price Fair Value ------------- -------------- -------------- Outstanding, August 1, 1999 .......................... 782,025 $ 18.23 Granted............................................... - - $ - Forfeited............................................. (60,500) 19.38 ------------- Outstanding, July 31, 2000............................ 721,525 18.13 Granted............................................... 651,000 17.90 2.56 Exercised............................................. (101,250) 16.80 Forfeited............................................. (42,075) 19.27 ------------- Outstanding, July 31, 2001............................ 1,229,200 18.08 Granted............................................... - - - Exercised............................................. (55,350) 16.80 Forfeited............................................. (98,450) 18.04 ------------- Outstanding, July 31, 2002............................ 1,075,400 18.15 ------------- Options exercisable, July 31, 2002.................... 594,725 18.25 =============
Options Outstanding at July 31, 2002 --------------------------- Range of option prices at end of year................. $16.80-$21.67 Weighted average remaining contractual life........... 6.2 Years The Ferrell Companies Incentive Compensation Plan (the "ICP") was established by Ferrell to allow upper-middle and senior level managers of the General Partner to participate in the equity growth of Ferrell. The shares underlying the stock options are common shares of Ferrell, therefore, there is no potential dilution of the Partnership. The Ferrell ICP stock options vest ratably in 5% to 10% increments over 12 years or 100% upon a change of control of Ferrell, or the death, disability or retirement at the age of 65 of the participant. Vested options are exercisable in increments based on the timing of the payoff of Ferrell debt, but in no event later than 20 years from the date of issuance. The Partnership accounts for stock-based compensation using the intrinsic value method prescribed in APB No. 25 and related Interpretations. Accordingly, no compensation cost has been recognized for the unit option plan, or for the ICP. Had compensation cost for these plans been determined based upon the fair value at the grant date for awards under these plans, consistent with the methodology prescribed under SFAS No. 123, the Partnership's net earnings would have been adjusted as noted in the table below: (in thousands) 2002 2001 2000 -------- -------- -------- Net earnings as reported............$76,359 $82,032 $16,069 Deduct: Total stock-based employee compensation determined under fair value based method for all awards...... (10) (498) (79) -------- -------- -------- Pro forma net earnings..............$76,349 $81,534 $15,990 ======== ======== ======== The fair value of the unit options granted during fiscal 2001 was determined using a binomial option valuation model with the following assumptions: a) distribution amount of $0.50 per unit per quarter, b) average common unit price volatility of 23.2%, c) the risk-free interest rate used was 4.4%, and d) the expected life of the option used was five years. The fair value of the Ferrell Companies, Inc. ICP stock options granted during the 2002, 2001 and 2000 fiscal years were determined using a binomial option valuation model with the following assumptions: a) no dividends, b) average stock price volatility of 19.2%, 13.2% and 10.1% used in 2002, 2001 and 2000, respectively, c) the risk-free interest rate used was 4.3%, 5.2% and 6.4% in 2002, 2001 and 2000, respectively and d) expected life of the options between five and 12 years. F-31 N. Disclosures About Fair Value of Financial Instruments The carrying amount of short-term financial instruments approximates fair value because of the short maturity of the instruments. The estimated fair value of the Partnership's long-term financial instruments was $545,428,000 and $544,004,000 as of July 31, 2002 and 2001, respectively. The fair value is estimated based on quoted market prices. Interest Rate Collar and Cap Agreements. The Partnership from time to time has entered into various interest rate collar and cap agreements involving, among others, the exchange of fixed and floating interest payment obligations without the exchange of the underlying principal amounts. During fiscal 2001, an interest rate collar agreement expired. As of July 31, 2002, an interest rate cap agreement with a counterparty who is a large financial institution remained in place. The fair value of this interest rate cap agreement at July 31, 2002 and 2001 was de minimis. O. Business Combinations During the year ended July 31, 2002, the Partnership acquired three retail propane businesses with an aggregate value at $10,790,000. o Blue Flame Bottle Gas, based in southern Arizona o Alabama Butane Co., based in central and south Alabama o Alma Farmers Union Co-op, based in western Wisconsin. These purchases were funded by $6,294,000 of cash payments and, in non-cash transactions, the issuance of 117,487 common units of the MLP valued at an aggregate of $2,325,000, and $2,171,000 of notes payable to the seller. The aggregate value was allocated as follows: $7,064,000 for fixed assets such as customer tanks, buildings and land, $2,671,000 for non-compete agreements, $1,195,000 for customer lists, $32,000 for other assets and $(172,000) for net working capital. Net working capital was comprised of $556,000 of current assets and $728,000 of current liabilities. The weighted average amortization period for non-compete agreements and customer lists are five and 15 years, respectively. During the year ended July 31, 2001, the Partnership made acquisitions of three businesses with an aggregate value of $418,000. The purchases were funded by $200,000 of cash payments and, in a non-cash transaction, the issuance of $218,000 of notes payable to the seller. Non-compete agreements and customer lists were assigned values of $228,000 and $4,000, respectively. On December 17, 1999, the MLP purchased Thermogas from a subsidiary of Williams. At closing the following noncash transactions occurred: a) the MLP issued $175,000,000 in MLP senior units to the seller, b) the Partnership assumed a $183,000,000 loan, (see Note H) and c) the Partnership assumed a $135,000,000 operating lease (see Note K). After the conclusion of these acquisition-related transactions, including the merger of the Partnership and Thermogas, the Partnership acquired $61,842,000 of cash, which remained on the Thermogas balance sheet at the acquisition date. The Partnership paid $17,146,000 in additional costs and fees related to the acquisition. As part of the Thermogas acquisition, the Partnership agreed to reimburse Williams for the value of working capital received by the Partnership in excess of $9,147,500. On June 6, 2000, the Partnership and Williams agreed upon the amount of working capital that was acquired by the Partnership on December 17, 1999. The Partnership reimbursed Williams $5,652,500 as final settlement of this working capital reimbursement obligation. In fiscal 2000, the Partnership had accrued $7,033,000 in involuntary employee termination benefits and exit costs, which it expected to incur within twelve months from the acquisition date as it implemented the integration of the Thermogas operations. This accrual included $5,870,000 of termination benefits and $1,163,000 of costs to exit Thermogas activities. The Partnership paid $2,788,000 and $1,306,000 for termination benefits and $491,000 and $890,000 for exit costs in fiscal years 2001 and 2000, respectively. The remaining liability for termination benefits and exit costs was reduced in fiscal 2001 by $1,558,000 as an adjustment to goodwill. F-32 Prior to the issuance of SFAS No. 141, "Business Combinations," the total assets contributed to the Partnership (at the Partnership's cost basis) were allocated as follows: (a) working capital of $16,870,000, (b) property, plant and equipment of $140,284,000, (c) $60,200,000 to customer list with an estimated useful life of 15 years, (d) $9,600,000 to assembled workforce with an estimated useful life of 15 years, (e) $3,071,000 to non-compete agreements with an estimated useful life ranging from one to seven years, and (f) $86,475,000 to goodwill at an estimated useful life of 15 years. The transaction was accounted for as a purchase and, accordingly, the results of operations of Thermogas have been included in the Consolidated Financial Statements from the date of acquisition. Pursuant to the implementation of SFAS No. 141, assembled workforce was considered an acquired intangible asset that did not meet the criteria for recognition apart from goodwill. Effective August 1, 2000, the $8,221,000 carrying value of assembled workforce was reclassified to goodwill. The following pro forma financial information assumes that the Thermogas acquisition occurred as of August 1, 1999 (unaudited): For the year ended (in thousands) July 31, 2000 ------------------- Total revenues ............................... $1,055,031 Net loss....................................... (3,594) During the fiscal year ended July 31, 2000, the Partnership made acquisitions of two other businesses with an aggregate value of $7,183,000, in addition to the Thermogas acquisition. These purchases were funded by $6,338,000 of cash payments and the following noncash transactions: the issuance of $601,000 of notes payable to the seller, $46,000 of common units of the MLP and $198,000 of other costs and consideration. Customer lists and non-compete agreements were assigned values of $2,056,000 and $601,000, respectively. All transactions were accounted for using the purchase method of accounting and, accordingly, the results of operations of all acquisitions have been included in the Consolidated Financial Statements from their dates of acquisition. The pro forma effect of these transactions, except those related to the Thermogas acquisition, was not material to the results of operations. F-33 INDEPENDENT AUDITORS' REPORT To the Partners of Ferrellgas, L.P. and Subsidiaries Liberty, Missouri We have audited the consolidated financial statements of Ferrellgas, L.P. and subsidiaries (the "Partnership") as of July 31, 2002 and 2001, and for each of the three years in the period ended July 31, 2002 and have issued our report thereon, which included an explanatory paragraph for a change in accounting principles, dated September 12, 2002. Our audit also included the financial statement schedules listed in Item 15. These financial statement schedules are the responsibility of the Partnership'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 set forth therein. DELOITTE & TOUCHE LLP Kansas City, Missouri September 12, 2002 S-1 FERRELLGAS, L.P. AND SUBSIDIARIES Schedule II VALUATION AND QUALIFYING ACCOUNTS (in thousands) Additions --------------------------- Balance at Deductions Description beginning of Charged to Other (amounts Balance at period cost/expenses additions charged-off) end of period - ------------------------------- ------------ ------------- ----------- ------------ ------------- Year ended July 31, 2002 Allowance for doubtful accounts $ 3,159 $ 1,604 $ 0 $ (3,296) $ 1,467 Year ended July 31, 2001 Allowance for doubtful accounts 2,388 3,029 0 (2,258 3,159 Year ended July 31, 2000 Allowance for doubtful accounts 1,296 2,349 0 (1,257) 2,388
S-2 SIGNATURE Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Liberty, State of Missouri, on June 6, 2003. FERRELLGAS, L.P. By: FERRELLGAS, INC., its general partner By: /s/ Kevin T. Kelly ------------------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer INDEX TO EXHIBITS Exhibit Number Description -------- ------------- 3.1 Second Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P. dated as of October 14, 1998. Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of Ferrellgas Partners, L.P. filed March 17, 1999. 3.2 First Amendment to the Second Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P. dated as of June 5, 2000. Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Ferrellgas Partners, L.P. filed June 14, 2000. 4.1 Ferrellgas, L.P., Note Purchase Agreement, dated as of July 1, 1998, relating to: $109,000,000 6.99% Senior Notes, Series A, due August 1, 2005, $37,000,000 7.08% Senior Notes, Series B, due August 1, 2006, $52,000,000 7.12% Senior Notes, Series C, due August 1, 2008, $82,000,000 7.24% Senior Notes, Series D, due August 1, 2010, and $70,000,000 7.42% Senior Notes, Series E, due August 1, 2013. Incorporated by reference to Exhibit 4.4 to the Annual Report on Form 10-K of Ferrellgas Partners, L.P. filed October 29, 1998. 4.2 Ferrellgas, L.P., Note Purchase Agreement, dated as of February 28, 2000, relating to: $21,000,000 8.68% Senior Notes, Series A, due August 1, 2006, $70,000,000 8.78% Senior Notes, Series B, due August 1, 2007, and $93,000,000 8.87% Senior Notes, Series C, due August 1, 2009. Incorporated by reference to Exhibit 4.2 to the Quarterly Report on Form 10-Q of Ferrellgas Partners, L.P. filed March 16, 2000. 10.1 Fourth Amended and Restated Credit Agreement, dated as of December 6, 2002, by and among Ferrellgas, L.P., Ferrellgas, Inc., Bank of America National Trust and Savings Association, as agent, and the other financial institutions party. Incorporated by reference to Exhibit 10 to the Quarterly Report on Form 10-Q of Ferrellgas Partners, L.P. filed December 11, 2002. 10.2 Receivable Interest Sale Agreement, dated as of September 26, 2000, by and between Ferrellgas, L.P., as originator, and Ferrellgas Receivables, L.L.C., as buyer. Incorporated by reference to Exhibit 10.17 to the Annual Report on Form 10-K of Ferrellgas Partners, L.P. filed October 26, 2000. 10.3 First Amendment to the Receivable Interest Sale Agreement dated as of January 17, 2001, by and between Ferrellgas, L.P., as originator, and Ferrellgas Receivables, L.L.C., as buyer. Incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q of Ferrellgas Partners, L.P. filed March 14, 2001. 10.4 Receivables Purchase Agreement, dated as of September 26, 2000, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Securitization Corporation, the financial institutions from time to time party hereto, and Bank One, NA, main office Chicago, as agent. Incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10-K of Ferrellgas Partners, L.P. filed October 26, 2000. 10.5 First Amendment to the Receivables Purchase Agreement, dated as of January 17, 2001, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Securitization Corporation, the financial institutions from time to time party hereto, and Bank One, N.A., main office Chicago, as agent. Incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q of Ferrellgas Partners, L.P. filed March 14, 2001. 10.6 Second Amendment to the Receivables Purchase Agreement dated as of September 25, 2001, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Securitization Corporation, the financial institutions from time to time party hereto, and Bank One, N.A., main office Chicago, as agent. Incorporated by reference to Exhibit 10.29 to the Annual Report on Form 10-K of Ferrellgas Partners, L.P. filed October 25, 2001. 10.7 Third Amendment to the Receivables Purchase Agreement, dated as of September 24, 2002, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Securitization Corporation, the financial institutions from time to time party hereto, and Bank One, NA, main office Chicago, as agent. Incorporated by reference to Exhibit 10 to the Quarterly Report on Form 10-Q of Ferrellgas Partners, L.P. filed October 23, 2002. E-1 # 10.8 Ferrell Companies, Inc. Supplemental Savings Plan, Restated January 1, 2000. Incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K of Ferrellgas Partners, L.P. filed February 18, 2003. # 10.9 Second Amended and Restated Ferrellgas Unit Option Plan. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Ferrellgas Partners, L.P. filed June 5, 2001. # 10.10 Ferrell Companies, Inc. 1998 Incentive Compensation Plan. Incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K of Ferrellgas Partners, L.P. filed October 29, 1998. # 10.12 Employment agreement between James E. Ferrell and Ferrellgas, Inc., dated July 31, 1998. Incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K of Ferrellgas Partners, L.P. filed October 29, 1998. # 10.13 Employment agreement between Patrick Chesterman and Ferrellgas, Inc. dated July 31, 2000. Incorporated by reference to Exhibit 10.19 to the Annual Report on Form 10-K of Ferrellgas Partners, L.P. filed October 26, 2000. # 10.14 Employment agreement between Kevin Kelly and Ferrellgas, Inc. dated July 31, 2000. Incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K of Ferrellgas Partners, L.P. filed October 26, 2000. ** 99.1 Items 1, 2, 3, 6, 7, 7A and 14 of the Annual Report on Form 10-K of Ferrellgas Partners for the fiscal year ended July 31, 2002. ** 99.2 Amendment No. 1 to the Annual Report on Form 10-K/A of Ferrellgas Partners for the fiscal year ended July 31, 2002, including the exhibits thereto. ** 99.3 Quarterly Report on Form 10-Q of Ferrellgas Partners for the quarterly period ended October 31, 2002, including (i)Exhibit 23.1 thereto and (ii) the consolidated balance sheets of Ferrellgas, Inc as of July 31, 2002, together with the report of Deloitte & Touche LLP with respect thereto filed as Exhibit 99.15 thereto. ** 99.4 Quarterly Report on Form 10-Q of Ferrellgas Partners for the quarterly period ended January 31, 2003. ** 99.5 Current Report on Form 8-K of Ferrellgas Partners filed as of May 6, 2003, including the consolidated balance sheets of Ferrellgas, Inc. as of January 31, 2003 and July 31, 2002, filed as Exhibit 99.15 thereto. * 99.6 Amendment No. 2 to the Annual Report on Form 10-K/A of Ferrellgas Partners for the fiscal year ended July 31, 2002, including the exhibits thereto. * 99.7 Quarterly Report on Form 10-Q/A of Ferrellgas Partners for the quarterly period ended January 31, 2003. * 99.8 Current Report on Form 8-K of Ferrellgas Partners furnished on September 13, 2002. * 99.9 Current Report on Form 8-K of Ferrellgas Partners filed on September 24, 2002, including the exhibits thereto. * 99.10 Current Report on Form 8-K of Ferrellgas Partners furnished on November 19, 2002. * 99.11 Current Report on Form 8-K of Ferrellgas Partners furnished on February 3, 2003. * 99.12 Current Report on Form 8-K of Ferrellgas Partners filed on February 18, 2003, including the exhibits thereto. * 99.13 Current Report on Form 8-K of Ferrellgas Partners furnished on February 19, 2003. * 99.14 Current Report on Form 8-K of Ferrellgas Partners furnished on May 21, 2003. * 99.15 Current Report on Form 8-K of Ferrellgas Partners furnished on May 29, 2003. ______________________________________________ * Filed herewith. ** Previously filed. # Management contracts or compensatory plans. E-2 EX-99.6 3 form10ka_120902.txt AMENDMENT NO. 2 FORM 10-K/A Exhibit 99.6 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A Amendment No. 2 [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended July 31, 2002 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ Commission file numbers 1-11331 and 333-06693 Ferrellgas Partners, L.P. Ferrellgas Partners Finance Corp. (Exact name of registrants as specified in their charters) Delaware 43-1698480 Delaware 43-1742520 - -------------------------------- ------------------------------------- (State or other jurisdictions of (I.R.S. Employer Identification Nos.) incorporation or organization) One Liberty Plaza, Liberty, Missouri 64068 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (816) 792-1600 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Units New York Stock Exchange - -------------------------------------------------------------------------------- Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value as of September 30, 2002, of the registrant's Common Units held by nonaffiliates of the registrant, based on the reported closing price of such units on the New York Stock Exchange on such date, was approximately $362,574,000. At September 30, 2002, Ferrellgas Partners, L.P. had outstanding 36,089,703 Common Units and 2,782,211 Senior Units. Documents Incorporated by Reference: None EXPLANATORY NOTE On October 23, 2002, we filed with the Securities and Exchange Commission (SEC) our Annual Report on Form 10-K for our fiscal year ended July 31, 2002. On December 10, 2002, we filed with the SEC Amendment No. 1 to our Annual Report on Form 10-K/A for the sole purpose of including an explanatory sentence to the unqualified Independent Auditors' Report of our independent auditor, Deloitte & Touche LLP. In the explanatory sentence, Deloitte & Touche LLP clarified for the reader that we changed our accounting in fiscal 2002 for goodwill and other intangible assets by virtue of the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." This Amendment No. 2 to our Annual Report on Form 10-K/A for our fiscal year ended July 31, 2002, is being filed to restate our consolidated statements of cash flows related to our accounts receivable securitization for July 31, 2002 and 2001. This information was previously shown in the consolidated statements of cash flows on a net basis in the section "Cash Flows from Investing Activities" and is now shown on a gross basis in the section "Cash Flows from Operating Activities" and includes a disaggregation for the proceeds from new accounts receivable securitizations to the amounts previously provided in Note E, as filed in Amendment No. 1 to our Annual Report on Form 10-K/A. The gross amounts related to the accounts receivable securitizations were previously reflected within Note E to the consolidated financial statements. This restatement necessitated amending Note E to our consolidated financial statements by moving the gross information to our consolidated statement of cash flows and the addition of a new Note R to our consolidated financial statements to explain the restatement. It is important to note that this amended filing has no effect on our aggregate "Increase (decrease) in cash and cash equivalents" for the 2002 and 2001 fiscal years, but merely affect the allocation of our cash flows. Our aggregate "Increase (decrease) in cash and cash equivalents" for the 2002 and 2001 fiscal years remain the same as initially disclosed in our Annual Report filed on October 23, 2002. Additionally, other than as stated above, this restatement has no impact on our previously reported consolidated financial statements and accompanying notes for our 2002, 2001 and 2000 fiscal years. The amendments being made pursuant to this Amendment No. 2 are as follows: o Item 6. "Selected Financial Data" has been restated to reflect the amendments made to Item 8; o Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" has been revised to reflect the restatement made to Item 8 as follows: o "Liquidity and Capital Resources - Operating activities" - the first paragraph from our initial 10-K has been modified and a new second paragraph has been added; and o "Liquidity and Capital Resources - Investing activities" - the fifth paragraph from our initial 10-K has been deleted; o Item 8. "Financial Statements and Supplementary Data" has been revised to restate our consolidated statements of cash flows. See "Consolidated Statement of Cash Flows" and Notes E and R of the accompanying consolidated financial statements; and o Item 15. "Exhibits, Financial Statement Schedules, and Reports on Form 8-K" has been revised to include an update to the Independent Auditor's Consent and the certifications required by Title 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. See Exhibits 23.1, 99.1 and 99.2. Except as described above, no other changes have been made to our Annual Report on Form 10-K or Amendment No. 1 to our Annual Report on Form 10-K/A. For the convenience of the reader and as required under SEC rules, this Amendment No. 2 sets forth the complete text of Items 6, 7, 8 and 15, rather than just the amended portions thereof. To preserve the nature and character of the disclosures set forth in these Items as originally filed, this Amendment No. 2 continues to speak as of October 23, 2002, and we have not updated the disclosures in this Amendment No. 2 to speak as of a later date or to reflect any events which occurred at a later date. For Items not modified herein, reference should be made to our Annual Report on Form 10-K as filed with the SEC on October 23, 2002. The filing of this Amendment No. 2 is not an admission that our initial Annual Report on Form 10-K or our Amendment No. 1 to our Annual Report on Form 10-K/A, when made, knowingly included any untrue statement of a material fact or omitted to state a material fact necessary to make a statement not misleading. FERRELLGAS PARTNERS, L.P. FERRELLGAS PARTNERS FINANCE CORP. 2002 FORM 10-K/A Amendment No. 2 ANNUAL REPORT Table of Contents Page ---- PART II ITEM 6. SELECTED FINANCIAL DATA...................................... 1 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 3 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................16 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K..........................................16 PART II --------- ITEM 6. SELECTED FINANCIAL DATA. The following table presents our selected consolidated historical financial data. (in thousands, except per unit data) Ferrellgas Partners, L.P. ------------------------------------------------------------------------- Year Ended July 31, ------------------------------------------------------------------------- 2002 2001 2000 1999 1998 ----------- ----------- ------------ ----------- ----------- Income Statement Data: Total revenues $1,034,796 $1,468,670 $959,023 $633,349 $623,775 Interest expense 59,608 61,544 58,298 46,621 49,129 Earnings before extraordinary loss 59,959 64,068 860 14,783 4,943 Basic and diluted earnings (loss) per common and subordinated unit- Earnings (loss) before extraordinary loss 1.34 1.43 (0.32) 0.47 0.16 Cash distributions declared per common and subordinated unit 2.00 2.00 2.00 2.00 2.00 Balance Sheet Data at end of period: Working capital $ 9,436 $ 22,062 $ (6,344) $(4,567) $ (443) Total assets 885,128 896,159 967,907 656,745 621,223 Long-term debt 703,858 704,782 718,118 583,840 507,222 Partners' capital: 21,161 37,987 40,344 (69,651) (11,083) Operating Data: Retail propane sales volumes (in 831,592 956,718 846,664 680,477 659,932 gallons) Capital expenditures Maintenance $ 9,576 $11,996 $ 8,917 $ 10,505 $ 10,569 Growth 4,826 3,152 11,838 15,238 10,060 Technology initiative 30,070 100 - - - Acquisition 10,962 1,417 310,260 48,749 13,003 ----------- ----------- ------------ ----------- ----------- Total $55,434 $16,665 $331,015 $ 74,492 $33,632 =========== =========== ============ =========== ===========
1 Ferrellgas Partners, L.P. ------------------------------------------------------------------------- Year Ended July 31, ------------------------------------------------------------------------- 2002 2001 (as (as restated*) restated*) 2000 1999 1998 ----------- ----------- ------------ ----------- ----------- Supplemental Data: Net cash provided by operating $121,925 $130,859 $53,352 $ 92,494 $74,337 activities Operating income 118,915 126,691 57,091 60,497 52,586 Add: Depreciation and amortization 41,937 56,523 61,633 47,257 45,009 ESOP compensation charge 5,218 4,843 3,733 3,295 350 Loss (gain) on disposal of assets and other 3,957 5,744 (356) 1,842 174 ----------- ----------- ------------ ----------- ----------- EBITDA $170,027 $193,801 $122,101 $112,891 $ 98,119 =========== =========== ============ =========== =========== * See Note R to the consolidated financial statements.
We define EBITDA as earnings before interest, income taxes, depreciation, amortization, other charges and non-cash items such as employee stock ownership plan compensation charge and gain or loss on disposal of assets and other. EBITDA provides additional information for evaluating our ability to make debt service obligations, capital expenditures and quarterly distributions and is presented solely as a supplemental measure. You should not consider EBITDA as an alternative to operating income, net cash provided by operating activities or any other measure of financial performance presented in accordance with generally accepted accounting principles. Our EBITDA may not be comparable to EBITDA or similarly titled measures of other entities as other entities may not calculate EBITDA in the same manner as we do. Depreciation and amortization expense decreased significantly in the year ended July 31, 2002, due to the elimination of goodwill amortization and in the year ended July 31, 2001, due to a change in the estimated residual value of our customer and storage tanks. See additional discussion about these changes in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Results of Operations" and in our Notes D and F to our Consolidated Financial Statements. Our capital expenditures fall generally into four categories: o maintenance capital expenditures, which include capitalized expenditures for repair and replacement of property, plant and equipment; o growth capital expenditures, which include expenditures for purchases of new propane tanks and other equipment to facilitate expansion of our customer base and operating capacity; o technology and process enhancement initiative capital expenditures, which include expenditures for purchase of computer hardware and software and the development of new software; and o acquisition capital expenditures, which include expenditures related to the acquisition of retail propane operations. Acquisition capital expenditures represent the total cost of acquisitions less working capital acquired. Our fiscal 2001 capital expenditures do not include a $4,638,000 adjustment made in the second fiscal quarter of fiscal 2001 to working capital related to a final valuation adjustment to record the Thermogas acquisition. We acquired Thermogas in December 1999 for a total acquisition cost, less working capital acquired, of approximately $307,000,000. The Thermogas acquisition contributed a significant increase in our total revenues, interest expense, earnings before extraordinary loss, operating income, depreciation and amortization, and EBITDA in the years ended July 31, 2001 and 2000. This acquisition also contributed to a significant increase in total assets, long-term debt and partners' capital as of July 31, 2000 as compared to July 31, 1999. 2 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following is a discussion of our historical financial condition and results of operations and should be read in conjunction with our historical Consolidated Financial Statements and accompanying Notes thereto included elsewhere in this Annual Report on Form 10-K. As discussed in Note R to the consolidated financial statements, the partnership has restated its consolidated statements of cash flows for the fiscal years 2002 and 2001. The Management Discussion and Analysis for Operating Activities and for Investing Activities give effect to this restatement. On January 22, 2002, the Securities and Exchange Commission issued cautionary advice recommending various disclosures. We have provided the recommended disclosures as follows: o liquidity and capital resources, including off-balance sheet arrangements; see discussion in "Liquidity and Capital Resources - Investing Activities", o trading activities; see discussion regarding the fair value of our risk management trading contracts in "Liquidity and Capital Resources - Disclosures about Risk Management Activities Accounted for at Fair Value", and o transactions with related and certain other parties; see discussion regarding the nature of these transactions in "Disclosures about Effects of Transactions with Related Parties." Forward-looking statements Statements included in this report include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act and Section 27A of the Securities Act. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as "anticipate," "believe," "intend," "plan," "projection," "forecast," "strategy," "position," "continue," "estimate," "expect," "may," "will," or the negative of those terms or other variations of them or comparable terminology. In particular, statements, express or implied, concerning future operating results, or the ability to generate sales, income or cash flow are forward-looking statements. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Our future results may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results are beyond our ability to control or predict. These statements include, but are not limited to, the following: o whether Ferrellgas, L.P. will have sufficient funds 1) to meet its obligations and to enable it to distribute to us sufficient funds to permit us to meet our obligations with respect to our $170,000,000 senior notes due 2012 and 2) assuming all quarterly financial tests required by various financing instruments are met, to pay the required distribution on our senior units and the minimum quarterly distribution of $0.50 per common unit; o whether or not we will continue to meet all of the quarterly financial tests required by the agreements governing our indebtedness; and o the expectation that future periods may not have the same percentage decrease in retail volumes, revenues and expenses as was experienced in fiscal 2002. You should not put undue reliance on any forward-looking statements. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by such statements. The risks and uncertainties and their effect on our operations include, but are not limited to, the following risks, which are more fully described in the our Securities Act filings: o the retail propane industry is a mature one; o the effect of weather conditions on demand for propane; o increases in propane prices may cause higher levels of conservation by our customers; o price, availability and inventory risk of propane supplies, including risk management activities; o the timing of collections of the our accounts receivable and increases in product costs and demand may decrease our working capital availability; 3 o the availability of capacity to transport propane to market areas; o competition from other energy sources and within the propane industry; o operating risks incidental to transporting, storing, and distributing propane, including the litigation risks which may not be covered by insurance; o we may not be successful in making acquisitions; o changes in interest rates, including the refinancing of long-term financing at favorable interest rates; o governmental legislation and regulations; o energy efficiency and technology trends may affect demand for propane; o the condition of the capital markets in the United States; o the political and economic stability of the oil producing nations; o we may sell additional limited partner interests, thus diluting existing interests of our unitholders; o the distribution priority to our common units owned by the public terminates no later than December 31, 2005; o the holder of our senior units may have the right in the future to convert the senior units into common units; o the holder of our senior units may be able to sell the senior units or convert into common units with special indemnification rights available to the holder from us; o a redemption of the senior units may be dilutive to our common unitholders; o the terms of the senior units limit our use of proceeds from sales of equity and the rights of our common unitholders; o the current holder of the senior units has a special voting exemption if the senior units convert into common units; and o the expectation that the remaining senior units will be redeemed in the future with proceeds from an offering of equity at a price satisfactory to us. Results of Operations Fiscal Year Ended July 31, 2002 versus Fiscal Year Ended July 31, 2001 Gas liquid and related product sales. Total gas liquids and related product sales decreased $240,126,000 due to a decrease in the average propane sales price per gallon and an additional $188,697,000 primarily due to a significant decrease in retail propane sales volume. The average propane sales price per gallon decreased due to the effect of a significant decrease in the wholesale cost of propane. In addition, retail sales volumes decreased 13.1% to 831,592,000 gallons in fiscal 2002 as compared to fiscal 2001, primarily due to the effects of the significantly warmer than normal weather and to a lesser extent the weak national economy. The heating season of fiscal 2002 (November through March) was the third warmest in recorded United States history, according to the National Oceanic and Atmospheric Administration (NOAA) data, with national average temperatures 12% warmer than normal compared to 6% colder than normal for the same period last year. During the peak winter heating season (December through February) average national temperatures were 14% warmer than normal. Other revenues. Other revenues decreased 5.8% in fiscal 2002 as compared to fiscal 2001, primarily due to lower appliance sales and service labor related to the effect of the weak national economy. Cost of product sold. Cost of product sold decreased $338,443,000 due to the significant decline in the wholesale cost of propane during fiscal 2002 and an additional $87,705,000 primarily due to the effect of the decline in retail sales volume compared to last year. The propane wholesale market price at one of the major supply points, Mt. Belvieu, Texas, averaged $0.37 per gallon during fiscal 2002 compared to an average of $0.58 per gallon for the prior year. Other major supply points in the United States also experienced significant declines in propane prices. However, cost of product sold increased $29,468,000 due to exceptional results from risk management trading activities recognized in fiscal 2001 that were not repeated in fiscal 2002. See additional discussion regarding risk management trading activities in "Quantitative and Qualitative Disclosures about Market Risk." 4 Gross profit. Gross profit decreased 6.9% primarily due to the effect of a significant decrease in retail propane volumes and to a lesser extent, the decrease in results from risk management trading activities. These factors were partially offset by an increase in retail margin per gallon. Operating expense. Operating expense decreased 3.0% primarily due to a $12,980,000 decrease in operating expenses incurred at our retail distribution outlets generally resulting from fewer gallons delivered to customers in fiscal 2002 as compared to fiscal 2001. General and administrative expense. General and administrative expense increased 6.5% primarily due to increased performance-based incentive compensation expense. Depreciation and amortization expense. Depreciation and amortization expense decreased 25.8% primarily due to the implementation of SFAS No. 142, which eliminated goodwill amortization. See further discussion of the implementation of SFAS No. 142 in Note B to the Consolidated Financial Statements. Equipment lease expense. Equipment lease expense decreased 20.8% due to the impact that significantly lower interest rates had on our variable rate operating leases as compared to fiscal 2001. See further discussion about these leases in "Liquidity and Capital Resources - Investing Activities" and "Financing Activities." Loss (gain) on disposal of assets and other. Loss on disposal of assets and other decreased $1,787,000 primarily due to a decrease in the activity related to the transfer of accounts receivables pursuant to the accounts receivable securitization facility. See further discussion about this facility in "Liquidity and Capital Resources - Investing Activities" and "Financing Activities." Interest expense. Interest expense decreased 3.1% primarily due to reduced borrowings and the impact that significantly lower interest rates had on our credit facility borrowings. This decrease was partially offset by the effect of the termination of an interest rate swap agreement in the fourth quarter of fiscal 2001. Forward looking statements. Our gross profit, operating income and net earnings each declined between 6% and 7% from fiscal 2001 to 2002. In fiscal 2002, we also recognized decreases in gas liquids and related product sales, cost of product sold, operating expenses, equipment lease expense, and depreciation and amortization expense. Warm winter weather, a significant decrease in interest rates and the elimination of goodwill amortization during fiscal 2002 largely contributed to these decreases. Assuming that the weather remains the same as in fiscal 2002 or becomes colder and that interest rates remain relatively stable, we do not anticipate similar decreases in revenue, gross profit, operating expenses and operating income as was recognized in fiscal 2002 versus fiscal 2001. We will implement SFAS No. 143 beginning in the fiscal year ending July 31, 2003, and expect to record a one-time reduction to earnings during the first quarter of fiscal 2003, as a cumulative change in accounting principle, of approximately $2,800,000. We believe the implementation will not have a material ongoing effect on our financial position, results of operations and cash flows. In addition, as a result of the redemption of our $160,000,000 senior secured notes in September 2002, we will reflect an approximate $7,100,000 charge to earnings related to the premium and other costs incurred to redeem the notes plus the write-off of financing costs related to the original issuance of the notes in 1996. See further discussion about this debt redemption in "Liquidity and Capital Resources - Financing Activities." Fiscal Year Ended July 31, 2001 versus Fiscal Year Ended July 31, 2000 Gas liquid and related product sales. Total gas liquids and related product sales increased $317,962,000 due to an increased average sales price per gallon and an additional $184,598,000 primarily due to increased retail sales volumes. The average sales price per gallon increased due to the effect of a significant increase in the wholesale cost of propane during fiscal 2001, which was significantly higher as compared to fiscal 2000. Retail sales volumes increased 13.0% to 956,718,000 gallons in fiscal 2001 as compared to 846,664,000 gallons for the prior year, primarily due to the acquisition of Thermogas completed in December 1999 and the effect of colder weather, partially offset by the impact of customer conservation caused by the higher product cost environment. During the heating season of fiscal 2001, temperatures as reported by NOAA were 6% colder than normal as compared to temperatures 16% warmer than normal during the same period in fiscal 2000. 5 Other revenues. Other revenues increased 8.9% in fiscal 2001 as compared to fiscal 2000, primarily due to the acquisition of Thermogas completed in December 1999. Cost of product sold. Cost of product sold increased $262,523,000 due to a significant increase in the wholesale cost of propane during fiscal 2001 and an additional $131,522,000 primarily due to the 13.0% increase in retail sales volumes delivered compared to fiscal 2000. The propane wholesale market price at one of the major supply points, Mt. Belvieu, Texas, averaged $0.58 per gallon during fiscal 2001 compared to an average of $0.45 per gallon for the prior year. Other major supply points in the United States also experienced significant increases in propane prices. Cost of product sold increased $5,093,000 due to lower gains from risk management trading activities in fiscal 2001 compared to the prior year's exceptional performance. Gross profit. Gross profit increased 25.8% primarily due to increased retail margins, the effect on sales related to the colder than normal weather and the acquired Thermogas operations, partially offset by lower gains from risk management trading activities. See additional discussion regarding risk management trading activities in "Quantitative and Qualitative Disclosures about Market Risk" and Note J to the Consolidated Financial Statements included elsewhere in this report. Operating expense. Operating expense increased 12.7% primarily due to operating expenses related to the acquired Thermogas operations and to a lesser extent the increased cost of incentives resulting from our improved financial performance. This increase was partially offset by favorable expense management related to the completed integration of the Thermogas acquisition and expense savings initiatives established late in fiscal year 2000. General and administrative expense. General and administrative expense increased 3.7% primarily due to incentives resulting from the improved financial performance of the company as compared to last year and due to expenses incurred related to business process reviews. Prior to the acquisition by us, Thermogas incurred in excess of $20,000,000 in general and administrative expenses per year. As a result of our acquisition of Thermogas and the complete integration of the general and administrative services into our operations, we were able to eliminate approximately 90% of these overhead costs, thus realizing the expected general and administrative cost reduction from the acquisition. Depreciation and amortization expense. Depreciation and amortization expense decreased 8.3% primarily due to the change in the estimated residual values of customer and storage tanks, partially offset by the depreciation and amortization expense from the addition of property, plant and equipment and intangible assets from the Thermogas acquisition. In the first quarter of fiscal 2001, we increased the estimate of the residual values of our existing customer and storage tanks. This increase in the residual values resulted from a review by our management of tank values established through an independent tank valuation obtained in connection with a financing completed in December 1999. Due to this change in the tank residual values, depreciation expense decreased by approximately $12,000,000, compared to the depreciation that would have been recorded using the previously estimated residual values. The change in estimated residual values will continue to affect future depreciation expense as compared to the depreciation that would have been recorded using the previously estimated residual values. Equipment lease expense. Equipment lease expense increased 21.4% due to the addition of the $160,000,000 operating leases in December 1999, and to a lesser extent to upgrades to our truck fleet. Loss (gain) on disposal of assets and other. Loss on disposal of assets and other increased $6,100,000 primarily due the loss on disposal of fixed assets and losses related to the transfer of accounts receivables pursuant to the accounts receivable securitization. See Note E to the Consolidated Financial Statements included elsewhere in this report for additional information regarding the accounts receivable securitization. 6 Interest expense. Interest expense increased 5.6% primarily due to the result of increased borrowings related to the Thermogas acquisition, partially offset by the effect of reduced credit facility borrowings during fiscal 2001 and interest rate savings resulting from an interest rate swap arrangement in effect during most of the fiscal year. In June 2001, the interest rate swap agreement was terminated by the counterparty. The reduced credit facility borrowings resulted primarily from the funds generated from the accounts receivable securitization facility. See discussion of the transactions between us and Ferrellgas Receivables in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - - Financing Activities." Other charges. On April 6, 2001, we announced a series of transactions that increased the cash distribution coverage to our public unitholders and modified the structure of our outstanding senior units. See additional discussion of this transaction in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Financing Activities." We incurred $3,277,000 in banking, legal and other fees related to these transactions. Liquidity and Capital Resources Our ability to satisfy our obligations is dependent upon future performance, which will be subject to prevailing economic, financial, business, and weather conditions and other factors, many of which are beyond our control. During fiscal 2002 the United States experienced unusually mild temperatures that were approximately 12% warmer than normal during the winter heating season (November through March) and 14% warmer than normal during the peak winter heating season (December through February). These temperatures rank as the third warmest winter heating season and fifth warmest peak winter heating season in the National Oceanic and Atmospheric Administration's 108-year history. Moreover, the weather has been significantly warmer than normal in four of the last five winter heating seasons. Despite these challenges, we paid the minimum quarterly distribution of $0.50 on all common units on September 13, 2002, which represents the thirty-second consecutive minimum quarterly distribution paid to our common unitholders dating back to October 1994. Due to the seasonality of the retail propane distribution business, a significant portion of our cash flow from operations is generated during the winter heating season which occurs during our second and third fiscal quarters. We generate significantly lower cash flows from operations in our first and fourth fiscal quarters as compared to the second and third quarters because fixed costs exceed gross profit during the non-peak heating season. Subject to meeting the financial tests discussed below, our general partner believes that Ferrellgas, L.P. will have sufficient funds available to meet its obligations, and to distribute to Ferrellgas Partners sufficient funds to permit Ferrellgas Partners to meet its obligations with respect to the $170,000,000 senior notes. In addition, our general partner believes that Ferrellgas, L.P. will have sufficient funds available to distribute to Ferrellgas Partners sufficient cash to pay the required quarterly distribution on the senior units and the minimum quarterly distribution on all common units during fiscal 2003. Our credit facilities, public debt, private debt, accounts receivable securitization facility and operating tank leases contain several financial tests and covenants restricting our ability to pay distributions, incur debt and engage in certain other business transactions. In general, these tests are based on our debt to cash flow ratio and cash flow to interest expense ratio. Our general partner believes that the most restrictive of these tests currently are debt incurrence limitations within the credit facility, operating tank leases and accounts receivable securitization facility and limitations on the payment of distributions within Ferrellgas Partners' senior notes. The credit facility, operating tank leases and accounts receivable securitization facility generally limit Ferrellgas, L.P.'s ability to incur debt if it exceeds prescribed ratios of either debt to cash flow or cash flow to interest expense. Ferrellgas Partners' senior notes restrict payments if a minimum ratio of cash flow to interest expense is not met, assuming certain exceptions to this ratio limit have previously been exhausted. This restriction places limitations on our ability to make restricted payments such as the payment of cash distributions to unitholders. The cash flow used to determine these financial tests generally is based upon our most recent cash flow performance giving pro forma effect for acquisitions and divestitures made during the test period. It should be noted that none of our credit facilities, public debt, private debt, accounts receivable securitization facility or operating tank leases contain repayment provisions related to a decline in our credit rating. 7 As of July 31, 2002, our general partner believes that we met all the required quarterly financial tests and covenants. Based upon current estimates of our cash flow, our general partner believes that we will be able to continue to meet all of the required quarterly financial tests and covenants. However, if we were to encounter unexpected downturns in business operations in the future, such as significantly warmer than normal weather, a volatile energy commodity cost environment or continued economic downturn, we may not meet the applicable financial tests in future quarters. This could have a materially adverse effect on our operating capacity and cash flows and could restrict our ability to incur debt or to make cash distributions to our unitholders, even if sufficient funds were available. Depending on the circumstances, we may consider alternatives to permit the incurrence of debt or the continued payment of the quarterly cash distribution to our unitholders. No assurances can be given, however, that such alternatives can or will be implemented with respect to any given quarter. Our future capital expenditures and working capital needs are expected to be provided by cash generated from future operations, existing cash balances, the credit facility or the accounts receivable securitization facility. To fund expansive capital projects and future acquisitions, we may borrow on our facilities, we may issue additional debt to the extent permitted under existing financing arrangements or we may issue additional equity securities, including, among others, common units. Toward this purpose, on February 5, 1999, we filed a shelf registration statement with the Securities and Exchange Commission for the periodic sale of equity and/or debt securities. The registered securities are available to us for sale in the future to fund acquisitions, to reduce indebtedness or to provide funds for general corporate purposes. On June 8, 2001, we issued $89,550,000 worth of equity common units and on September 24, 2002, we issued $170,000,000 worth of debt, both pursuant to this registration statement. We currently have approximately $40,000,000 remaining available under this registration statement for the sale of registered securities in the future. See further discussion about debt issuance in "Liquidity and Capital Resources - Financing Activities." We also maintain a shelf registration statement with the Securities and Exchange Commission for 2,010,484 common units. We may issue these common units in connection with our acquisition of other businesses, properties or securities in business combination transactions. Operating Activities. Cash provided by operating activities was $121,925,000 for fiscal 2002, compared to $130,859,000 for fiscal 2001. This decrease is primarily due to reduced net earnings and the decreased utilization of the accounts receivable facility. Accounts receivable securitization We utilize an accounts receivable securitization facility for the purpose of providing us with additional short-term working capital funding, especially during the winter heating months. As part of this 364-day facility, we transfer an interest in a pool of our trade accounts receivable to Ferrellgas Receivables, LLC, our wholly-owned, qualifying special purpose entity, which sells its interest to a commercial paper conduit of Banc One, NA. We do not provide any guarantee or similar support to the collectability of these receivables. We structured the facility using a wholly-owned, qualifying special purpose entity in order to facilitate the transaction as required by Banc One, N.A. and to comply with our various debt covenants. We remit daily to this special purpose entity funds collected on its pool of trade receivables. This unconsolidated entity, together with the accounts receivable securitization facility, provide us additional working capital liquidity at interest rates approximately one-half of one percent lower than borrowings from our credit facility, based on the most recent twelve-month period. The level of funding available from this facility is currently limited to the lesser of $60,000,000 or qualified trade accounts receivable. At July 31, 2002, there was no outstanding balance from this facility. During fiscal 2002, the funding outstanding from this facility was reduced by $31,000,000 to zero. This decrease in funding resulted from our reduced liquidity needs caused primarily by the significant decrease in the amount of account receivables outstanding and lower inventory levels related primarily to the lower wholesale propane cost environment experienced for most of this fiscal year as compared to last year. We renewed this facility effective September 24, 2002, for a 364-day commitment with Banc One, N.A. In accordance with SFAS No. 140, this transaction is reflected on our Consolidated Financial Statements as a sale of accounts receivable and an investment in an unconsolidated subsidiary. See Note E to the Consolidated Financial Statements for further discussion about this facility. 8 Investing Activities. During fiscal 2002, we made cash capital expenditures of $37,516,000 consisting primarily of the following: o technology and process enhancement initiative discussed in the following paragraph, o upgrading district plant facilities, o vehicle lease buyouts, and o additional propane storage tanks and cylinders. During fiscal 2001, we completed a review of our key business processes to identify areas where we could use technology to improve our operational efficiency. Specifically, we identified areas where we believe we can reduce operating expenses and improve customer satisfaction in the near future. These areas of opportunity include improvements to our routing and scheduling of customer deliveries, customer administration and operational workflow. During fiscal 2002, we allocated considerable resources toward these improvements, including the purchase of computer hardware and software and development of new software. The capital expenditures related to the technology and process enhancement initiative were funded primarily from excess cash generated from operations during our record financial performance in fiscal year 2001. These capital expenditures represent a substantial majority of the capital expenditures we expect to incur in connection with this initiative. We intend to fund any remaining capital requirements from cash generated from future operations or funds available from our credit facility or accounts receivable securitization facility. We incurred the following expenditures related to this initiative in fiscal 2002 and 2001. Capital Expenditures Expensed Items -------------------------- ------------------------ (in thousands) Fiscal Fiscal Fiscal Fiscal 2002 2001 2002 2001 ---- ---- ---- ---- Development of new computer software $25,847 $100 $ - $ - Purchased computer software and licenses 3,947 - - - Computer hardware and other equipment 276 - - - Operating expense - - 2,032 - General and administrative expenses - - - 1,703 ----------- ---------- ---------- ---------- Total incurred 30,070 100 2,032 1,703 Less: amounts payable to vendors 6,956 - - - ----------- ---------- ---------- ---------- Total cash used for technology initiative $23,114 $ 100 $2,032 $1,703 =========== ========== ========== ==========
Other than this initiative, our capital requirements for repair and maintenance of property, plant and equipment are expected to remain relatively low. We lease computers, light and medium duty trucks, tractors and trailers. We believe vehicle leasing is a cost-effective method for meeting our transportation and technology equipment needs. We purchased $860,000 of vehicles whose lease terms expired during fiscal 2002. 9 We continue to consider opportunities to expand our operations through strategic acquisitions of retail propane operations located throughout the United States. During the fiscal year ended July 31, 2002, we made total acquisition capital expenditures of approximately $10,962,000 pursuant to the acquisition of three retail propane companies. This amount was funded by approximately $6,294,000 of cash payments, the issuance of $2,325,000 in common units and $2,343,000 in notes and other consideration. Financing Activities. On September 24, 2002, we issued $170,000,000 of publicly-held senior notes at a fixed rate of 8.75% due 2012. Interest is payable semi-annually in arrears on June 15 and December 15, commencing on December 15, 2002. These new notes are unsecured and not redeemable before June 15, 2007, except under specific circumstances. We used the proceeds from the new senior note issuance to repurchase and redeem our $160,000,000 9.375% fixed rate senior secured notes due 2006, including related premiums, fees, accrued and unpaid interest and tender consent payments. We paid the required quarterly distribution on the senior units and the minimum quarterly distribution on all common units, as well as general partner interests, totaling $84,075,000 and $69,125,000 in fiscal 2002 and fiscal 2001, respectively. The increase in cash distributions from fiscal 2001 to fiscal 2002 is primarily due to: o a full year of cash distributions paid in fiscal 2002 on the 4,500,000 common units issued in June 2001; and o cash distributions paid on the senior units for a full year in fiscal 2002 as compared to in-kind distributions paid for two quarters in fiscal 2001. On September 13, 2002, we paid our fourth fiscal quarter cash distribution of $1.00 and $0.50 per senior and common unit, respectively. On June 8, 2001, we received $84,865,000, net of issuance costs, pursuant to the issuance of 4,500,000 common units to the public. We used these proceeds to redeem 2,048,697 senior units, to pay the related accrued senior unit distribution and to pay related common unit issuance fees. On April 6, 2001, we announced a series of transactions that increased the cash distribution coverage to our public common unitholders and modified the structure of our outstanding senior units. In addition, we announced that an entity owned by our general partner's Chairman, Chief Executive Officer and President, James E. Ferrell, purchased all the outstanding senior units from The Williams Companies for a purchase price of $195,529,000 plus accrued and unpaid distributions. We pay the senior units a quarterly cash distribution equivalent to 10 percent per annum of the liquidating value. We can redeem the senior units at any time, in whole or in part, upon payment in cash of the liquidating value of the senior units, currently $40 per unit, plus the amount of any accrued and unpaid distributions. The holder of the senior units has the right, subject to various events and conditions, to convert any outstanding senior units into common units at the earlier of December 31, 2005 or upon the occurrence of a material event as defined by our partnership agreement. Such conversion rights are contingent upon us not previously redeeming such securities. Also, Ferrell Companies granted us the option, until December 31, 2005, to defer future distributions on the common units held by it up to an aggregate outstanding amount of $36,000,000. As of July 31, 2002, we have not elected to defer any common unit distributions due Ferrell Companies. Our credit facility, which expires June 30, 2003, is an unsecured facility and consists of the following: o a $117,000,000 working capital, general corporate and acquisition facility, including a letter of credit sub-facility, and 10 o a $40,000,000 revolving working capital facility, which is subject to an annual reduction in outstanding balances to zero for thirty consecutive days. We intend to renew this facility before June 30, 2003, however, there are no assurances that the new facility will be renewed or on terms at least as favorable as the existing agreement. All borrowings under the credit facility bear interest, at the borrower's option, at a rate equal to either London Interbank Offered Rate plus an applicable margin, based upon our debt to cash flow ratio, varying from 1.25 percent to 2.25 percent or the bank's base rate plus an applicable margin varying from 0.25 percent to 1.25 percent. The bank's base rates at July 31, 2002 and July 31, 2001 were 4.75% and 6.75%, respectively. See "Investing Activities" for a discussion of additional cash availability related to the accounts receivable facility agreement. At July 31, 2002, $40,614,000 of letters of credit were outstanding under this credit facility. Letters of credit are currently used to cover obligations primarily relating to requirements for insurance coverage and, and to a lesser extent, risk management activities. Based on the pricing grid contained in the credit facility, the current borrowing rate for future borrowings under the credit facility is either the bank's base rate plus 0.75% or LIBOR plus 1.75%. Effective July 16, 2001, the credit facility was amended to increase the letter of credit sub-facility availability from $60,000,000 to $80,000,000. At July 31, 2002, we had a total of $176,386,000 of funding available under two facilities: o $116,386,000 available for general corporate, acquisition and working capital purposes under the credit facility, and o $60,000,000 of funding available from the accounts receivable securitization facility. We believe that the liquidity available from these facilities will be sufficient to meet our future working capital needs. However, if we were to experience an unexpected significant increase in working capital requirements, this need could exceed our immediately available resources. Events that could cause increases in working capital borrowings or letter of credit requirements include, but are not limited to the following: o a significant increase in the cost of propane, o a significant delay in the collections of accounts receivable, o increased volatility in energy commodity prices related to risk management activities, o increased liquidity requirements imposed by insurance providers, o a significant downgrade in our credit rating, or o decreased trade credit. If one or more of these events caused a significant use of available funding, we would consider alternatives to provide increased working capital funding. No assurances can be given, however, that such alternatives could be implemented. In December 1999, we entered into a $25,000,000 operating lease involving a portion of our customer tanks. Also in December 1999, we assumed a $135,000,000 operating lease involving a portion of the Thermogas acquisition related customer tanks. Both arrangements utilize a structure referred to as a synthetic operating lease, using a special purpose entity as lessor and Ferrellgas, L.P. as lessee; thus, the assets and liabilities of the special purpose entities are not included in our Consolidated Balance Sheet. We made $8,819,000 of rent payments related to these leases for the most recent twelve-month period. Both arrangements have terms that expire June 30, 2003, and may be extended for two additional one-year periods at the option of Ferrellgas, L.P., if such extension is approved by the lessor. Prior to the end of the lease terms, we intend to secure additional financing in order to either lease or purchase the related customer tanks. No assurances can be given that such financing will be obtained or, if obtained, such financing will be on terms equally favorable to us. See further discussion about these lease arrangements in "Investing Activities." 11 The following table summarizes our long-term debt obligations as of July 31, 2002: (in thousands) Principal Payments due by Pay Period ------------------------------------------------------------------------ Less than After Total 1 year 1-3 years 4-5 years 5 years ------------ ------------- ------------ ---------------- --------------- Long-term debt, including current portion of long-term debt $706,177 $2,319 $4,433 $330,352 $369,073
The following table summarizes our long-term debt obligations as of July 31, 2002, and after the September 24, 2002 issuance of the $170,000,000 fixed rate senior notes and related repurchase and redemption of the $160,000,000 fixed rate senior secured notes: (in thousands) Principal Payments due by Pay Period ------------------------------------------------------------------------ Less than After Total 1 year 1-3 years 4-5 years 5 years ------------ ------------- ------------ ---------------- --------------- Long-term debt, including current portion of long-term debt $716,177 $2,319 $4,433 $170,352 $539,073
In addition, we lease property, computer equipment, light and medium duty trucks, tractors and trailers. We account for these arrangements as operating leases. See further discussion about these leases in "Investing Activities." The following tables summarize our future minimum rental commitments under non-cancelable operating lease agreements as of July 31, 2002. The summary presents the future minimum rental payments and, should we elect to do so, the buyout amounts necessary to purchase the equipment at the end of the lease terms. (in thousands) Future Minimum Rental and Buyout Amounts ------------------------------------------------------------------- Less than After Total 1 year 1-3 years 4-5 years 5 years ------------- ------------ ------------- ------------ ------------- Operating leases rental payments $ 68,575 $ 26,986 $23,701 $13,248 $4,640 Operating leases buyouts $178,658 $158,577 $ 8,843 $ 9,020 $2,218
Historically, we have been successful in renewing some of our leases subject to buyouts. However, there is no assurance that we will be successful in the future. The large buyout amount in fiscal 2003 primarily relates to the previously discussed operating tank leases. These two leases have terms that expire June 30, 2003, and may be extended for two additional one-year periods at the option of Ferrellgas, L.P., if such extension is approved by the lessor. We intend to secure additional financing in order to either lease or purchase the related tanks. See Note L to the Consolidated Financial Statements included elsewhere in this report for additional information regarding these leases. At July 31, 2002, we had no borrowings outstanding on our credit facility. We had letters of credit outstanding in the amount of $40,614,000 used primarily to cover obligations relating to requirements for insurance coverage. At July 31, 2002, we did not have any funding from our accounts receivable securitization facility. As of July 31, 2002, in addition to the inventory on hand, we had committed to make delivery of approximately 7,061,000 gallons at a fixed price. Disclosures about Risk Management Activities Accounted for at Fair Value The following table summarizes the change in the unrealized fair value of contracts from risk management trading activities for the fiscal year ended July 31, 2002. This table summarizes the contracts where settlement has not yet occurred: (in thousands) Fiscal year ended July 31, 2002 --------------------- Unrealized (losses) in fair value of contracts outstanding at July 31, 2001 $(12,587) Other unrealized gains and (losses) recognized (6,148) Less: realized gains and (losses) recognized (14,166) --------------------- Unrealized (losses) in fair value of contracts outstanding at July 31, 2002 $ (4,569) =====================
12 The following table summarizes the maturity of these contracts for the valuation methodologies we utilize as of July 31, 2002. This table summarizes the contracts from risk management trading activities where settlement has not yet occurred: (in thousands) Fair Value of Contracts at Period-End --------------------------------------------- Maturity less Maturity greater than than 1 year and Source of Fair Value 1 year less than 18 months - ------------------------------------------------------------ --------------------- -------------------- Prices actively quoted $ (328) $ - Prices provided by other external sources (4,225) (16) Prices based on models and other valuation methods - - --------------------- -------------------- Unrealized (losses) in fair value of contracts outstanding at July 31, 2002 $(4,553) $(16) ===================== ====================
See additional discussion about market, counterparty credit and liquidity risks related to the our risk management trading activities and other risk management activities in "Quantitative and Qualitative Disclosures about Market Risk." Disclosures about Effects of Transactions with Related Parties We have no employees and are managed and controlled by our general partner. Pursuant to our partnership agreement, our general partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on our behalf, and all other necessary or appropriate expenses allocable to us or otherwise reasonably incurred by our general partner in connection with operating our business. These costs, which totaled $197,863,000 for the year ended July 31, 2002, include compensation and benefits paid to officers and employees of our general partner who perform services on our behalf and general and administrative costs. On December 12, 2001, we issued 37,487 common units to Ferrell Propane, Inc., a subsidiary of our general partner in connection with our acquisition of Blue Flame Bottle Gas (see Note P to the Consolidated Financial Statements.) The common unit issuance compensated Ferrell Propane for its retention of $725,000 of certain tax liabilities of Blue Flame. During fiscal 2002, we paid JEF Capital Management $776,445 to redeem a total of 19,411 senior units and $11,192,000 in senior unit distributions. In a noncash transaction, we accrued a senior unit distribution of $2,782,211 that we paid to JEF Capital Management on September 13, 2002. Ferrell International Limited and FI Trading, Inc. are beneficially owned by James E. Ferrell and thus are our affiliates. We enter into transactions with Ferrell International Limited and FI Trading in connection with our risk management activities and do so at market prices in accordance with our affiliate trading policy approved by our general partner's Board of Directors. These transactions include forward, option and swap contracts and are all reviewed for compliance with the policy. During fiscal 2002, we recognized net receipts from purchases, sales and commodity derivative transactions of $10,692,000. These net purchases, sales and commodity derivative transactions with Ferrell International Limited and FI Trading, Inc. are classified as cost of product sold. Amounts due from (to) Ferrell International Limited at July 31, 2002 were $396,000 and $(266,000), respectively. We believe these related party transactions were under terms that were no less favorable to us than those available with third parties. See both Item 13 "Certain relationships and related transactions" and Note K to the Consolidated Financial Statements for additional discussion. 13 Adoption of New Accounting Standards The Financial Accounting Standards Board recently issued SFAS No. 141 "Business Combinations", SFAS No. 142 "Goodwill and Other Intangible Assets", SFAS No. 143 "Accounting for Asset Retirement Obligations", SFAS No. 144 "Accounting for the Impairment or Disposal of Long-lived Assets", SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", and SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 141 requirements include, among other things, that all business combinations be accounted for by a single method - the purchase method. It applies to all business combinations initiated after June 30, 2001. We have historically accounted for business combinations using the purchase method, therefore, this new standard will not have a substantial impact on how we account for future business combinations. SFAS No. 142 modifies the financial accounting and reporting for acquired goodwill and other intangible assets, including the requirement that goodwill and some intangible assets no longer be amortized. Also some intangibles were reclassified to goodwill. We adopted SFAS No. 142 beginning in the first quarter of fiscal 2002. Although there was no cash flow effect, our amortization expense decreased by $10,600,000 in fiscal 2002, compared to the amortization that would have been recorded had the new accounting standard not been issued. This new standard also required us to test goodwill for impairment at the time the standard was adopted and also on an annual basis. The results of these impairment tests did not have a material effect on our financial position, results of operations and cash flows. We did not recognize any impairment losses as a result of these tests. SFAS No. 143 requires the recognition of a liability if a company has a legal or contractual financial obligation in connection with the retirement of a tangible long-lived asset. We will implement SFAS No. 143 beginning in the fiscal year ending July 31, 2003, and expect to record a one-time reduction to earnings during the first quarter of fiscal 2003, as a cumulative change in accounting principle, of approximately $2,800,000. This charge relates to the estimated expenditures that will be incurred by us in the future primarily to close our underground storage facilities. We believe the implementation will not have a material ongoing effect on our financial position, results of operations and cash flows. SFAS No. 144 modifies the financial accounting and reporting for long-lived assets to be disposed of by sale and it broadens the presentation of discontinued operations to include more disposal transactions. We will implement SFAS No. 144 beginning in the fiscal year ending July 31, 2003, and believe the implementation will not have a material effect on our financial position, results of operations and cash flows. SFAS No. 145 eliminates the requirement that material gains and losses resulting from the early extinguishment of debt be classified as an extraordinary item in the results of operations. Instead, companies must evaluate whether the transaction meets both the criteria of being unusual in nature and infrequent in occurrence. Other aspects of SFAS No. 145 relating to accounting for intangible assets of motor carriers and accounting for lease modifications do not currently apply to us. We will implement SFAS No. 145 beginning in the fiscal year ending July 31, 2003, and believe the implementation will not have a material effect on our financial position, results of operations and cash flows. SFAS No. 146 modifies the financial accounting and reporting for costs associated with exit or disposal activities. This standard requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Additionally, the statement requires the liability to be recognized and measured initially at fair value. Under previous rules, a liability for an exit cost was recognized at the date of the entity's commitment to an exit plan. We adopted and implemented SFAS No. 146 for any exit or disposal activities that are initiated after July 31, 2002. We believe the implementation will not have a material effect on our financial position, results of operations and cash flows. 14 New Federal Legislation The Public Company Accounting Reform and Investor Protection Act of 2002 was enacted by the United States Congress on July 30, 2002. This Act covers a wide variety of issues and its provisions will become effective at different times generally when implementing regulations become effective, at 30, 60, 180 or 360 days after enactment depending on the specific provision. It is important to note, however, that a number of the Act's provisions became effective on July 30, 2002. Highlights of this legislation as it applies to us include: o certification of the periodic reports by the chief executive officer and chief financial officer; o restrictions on insider trading of our partnership units and quicker reporting of insider trades in our partnership units; o prohibition of company loans to executives; o future periodic reports will contain an internal control assessment by management and the independent public accountants will attest to this assessment; o adoption of a code of ethics for senior financial officers; o the audit committee will establish procedures to handle complaints about accounting matters, including the confidential submission by employees; o independent public accountants are prohibited from providing certain non-audit related activities to audit clients; o all audit and non-audit services provided to the company by its independent public accountant will be pre-approved by the audit committee; and o increased communication between the audit committee and the independent public accountants. There are many other aspects of this Act which will not directly apply to our company and other aspects which will have only a minor effect. We will continue to review this Act and forthcoming regulations as they are published. Critical Accounting Policies and Estimates The preparation of financial statements in conformity with United States Generally Accepted Accounting Principles requires us to establish accounting policies and make estimates and assumptions that affect our reported amounts of assets and liabilities at the date of the Consolidated Financial Statements. We evaluate our policies and estimates on an on-going basis. Our Consolidated Financial Statements may differ based upon different estimates and assumptions. We discuss our significant accounting policies in Note B to the Consolidated Financial Statements. We believe the following are our critical accounting policies: Depreciation of Property, Plant and Equipment We calculate depreciation using the straight-line method based on the estimated useful lives of the assets ranging from two to 30 years. Changes in the estimated useful lives of our assets could have a material effect on results of operations. Amortization of Intangible Assets We calculate amortization using either straight-line or accelerated methods over periods ranging from two to 15 years. We use amortization methods and determine asset values based on our best estimates using reasonable and supportable assumptions and projections. Changes in the amortization methods or asset values could have a material effect on results of operations. 15 Fair Value of Derivative Commodity Contracts We enter into commodity forward, futures, swaps and options contracts involving propane and related products, which, in accordance with SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," are not accounting hedges, but are used for risk management trading purposes. To the extent such contracts are entered into at fixed prices and thereby subject us to market risk, the contracts are accounted for using the fair value method. Under this valuation method, derivatives are carried in the Consolidated Balance Sheets at fair value with changes in value recognized in earnings. We classify all gains and losses from these derivative contracts entered into for risk management trading purposes as cost of product sold in the Consolidated Statements of Earnings. We utilize published settlement prices for exchange-traded contracts, quotes provided by brokers and estimates of market prices based on daily contract activity to estimate the fair value of these contracts. Changes in the methods used to determine the fair value of these contracts could have a material effect on results of operations. For further discussion of derivative commodity contracts, see "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations", "Liquidity and Capital Resources - Disclosures about Risk Management Activities Accounted for at Fair Value" and "Quantitative and Qualitative Disclosures about Market Risk" and Note J to the Consolidated Financial Statements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Our Consolidated Financial Statements and the Independent Auditors' Reports thereon and the Supplementary Financial Information listed on the accompanying Index to Financial Statements and Financial Statement Schedules are hereby incorporated by reference. See Note S to the Consolidated Financial Statements for Selected Quarterly Financial Data. PART IV ------- ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. Financial Statements. See "Index to Financial Statements" set forth on page F-1. 2. Financial Statement Schedules. See "Index to Financial Statement Schedules" set forth on page S-1. 3. Exhibits. See "Index to Exhibits" set forth on page E-1. (b) Reports on Form 8-K. We furnished one Form 8-K during the quarter ended July 31, 2002. Items Date of Report Reported Financial Statements Filed - -------------- -------- -------------------------- May 20, 2002 9 None 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each Registrant has duly caused this Amendment to be signed on its behalf by the undersigned, thereunto duly authorized. FERRELLGAS PARTNERS, L.P. By Ferrellgas, Inc. (General Partner) Date: June 6, 2003 By /s/ Kevin T. Kelly ------------------------------------ Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Date: June 6, 2003 FERRELLGAS PARTNERS FINANCE CORP. By /s/ Kevin T. Kelly ------------------------------------ Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Certifications I, James E. Ferrell, certify that: 1. I have reviewed this annual report on Form 10-K/A of Ferrellgas Partners, L.P.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: June 6, 2003 /s/ James. E. Ferrell - ------------------------- James E. Ferrell Chairman, President and Chief Executive Officer I, Kevin T. Kelly, certify that: 1. I have reviewed this annual report on Form 10-K/A of Ferrellgas Partners, L.P.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: June 6, 2003 /s/ Kevin T. Kelly - -------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer Certifications I, James E. Ferrell, certify that: 1. I have reviewed this annual report on Form 10-K/A of Ferrellgas Partners Finance Corp.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: June 6, 2003 /s/ James. E. Ferrell - ------------------------- James E. Ferrell President and Chief Executive Officer I, Kevin T. Kelly, certify that: 1. I have reviewed this annual report on Form 10-K/A of Ferrellgas Partners Finance Corp.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report. Date: June 6, 2003 /s/ Kevin T. Kelly - -------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer INDEX TO EXHIBITS The exhibits listed below are filed as part of this Annual Report on Amendment No. 2 to Form 10-K/A. Exhibits required by Item 601 of Regulation S-K of the Securities Act, which are not listed, are not applicable. Exhibit Number Description - ------- ----------- 3.1 Third Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P., dated as of April 6, 2001. Incorporated by reference to the same numbered Exhibit to our Current Report on Form 8-K filed April 6, 2001. 3.2 Articles of Incorporation for Ferrellgas Partners Finance Corp. Incorporated by reference to the same numbered Exhibit to our Quarterly Report on Form 10-Q filed June 13, 1997. 3.3 Bylaws of Ferrellgas Partners Finance Corp. Incorporated by reference to the same numbered Exhibit to our Quarterly Report on Form 10-Q filed June 13, 1997. 4.1 Indenture, dated as of September 24, 2002, with Form of Note attached, by and among Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp., and U.S. Bank National Association, as trustee, relating to $170,000,000 aggregate principal amount of our 8 3/4% Senior Notes due 2012. Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed September 24, 2002. 4.2 Ferrellgas, L.P., Note Purchase Agreement, dated as of July 1, 1998, relating to: $109,000,000 6.99% Senior Notes, Series A, due August 1, 2005, $37,000,000 7.08% Senior Notes, Series B, due August 1, 2006, $52,000,000 7.12% Senior Notes, Series C, due August 1, 2008, $82,000,000 7.24% Senior Notes, Series D, due August 1, 2010, and $70,000,000 7.42% Senior Notes, Series E, due August 1, 2013. Incorporated by reference to Exhibit 4.4 to our Annual Report on Form 10-K filed October 29, 1998. 4.3 Ferrellgas, L.P., Note Purchase Agreement, dated as of February 28, 2000, relating to: $21,000,000 8.68% Senior Notes, Series A, due August 1, 2006, $70,000,000 8.78% Senior Notes, Series B, due August 1, 2007, and $93,000,000 8.87% Senior Notes, Series C, due August 1, 2009. Incorporated by reference to Exhibit 4.2 to our Quarterly Report on Form 10-Q filed March 16, 2000. 4.4 Registration Rights Agreement, dated as of December 17, 1999, by and between Ferrellgas Partners, L.P. and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed December 29, 2000. 4.5 First Amendment to the Registration Rights Agreement, dated as of March 14, 2000, by and between Ferrellgas Partners, L.P. and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 4.1 to our Quarterly Report on Form 10-Q filed March 16, 2000. E-1 Exhibit Number Description - ------- ----------- 4.6 Second Amendment to the Registration Rights Agreement, dated as of April 6, 2001, by and between Ferrellgas Partners, L.P. and The Williams Companies, Inc. Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed April 6, 2001. 4.7 Representations Agreement, dated as of December 17, 1999, by and among Ferrellgas Partners, L.P., Ferrellgas, Inc., Ferrellgas, L.P. and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 2.3 to our Current Report on Form 8-K filed December 29, 1999. 4.8 First Amendment to Representations Agreement, dated as of April 6, 2001, by and among Ferrellgas Partners, L.P., Ferrellgas, Inc., Ferrellgas, L.P. and The Williams Companies, Inc. Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed April 6, 2001. 10.1 Second Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P., dated as of October 14, 1998. Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed March 17, 1999. 10.2 First Amendment to the Second Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P. Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed June 14, 2000. 10.3 Third Amended and Restated Credit Agreement, dated as of April 18, 2000, by and among Ferrellgas, L.P., Ferrellgas, Inc., Bank of America National Trust and Savings Association, as agent, and the other financial institutions party thereto. Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed June 14, 2000. 10.4 First Amendment to the Third Amended and Restated Credit Agreement, dated as of January 17, 2001, by and among Ferrellgas, L.P., Ferrellgas, Inc., Bank of America National Trust and Savings Association, as agent, and the other financial institutions party thereto. Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed March 14, 2001. 10.5 Second Amendment to the Third Amended and Restated Credit Agreement, dated as of July 16, 2001, by and among Ferrellgas, L.P., Ferrellgas, Inc., Bank of America National Trust and Savings Association, as agent, and the other financial institutions party thereto. Incorporated by reference to Exhibit 10.28 to our Annual Report on Form 10-K filed October 25, 2001. 10.6 Receivable Interest Sale Agreement, dated as of September 26, 2000, by and between Ferrellgas, L.P., as originator, and Ferrellgas Receivables, L.L.C., as buyer. Incorporated by reference to Exhibit 10.17 to our Annual Report on Form 10-K filed October 26, 2000. E-2 Exhibit Number Description - ------- ----------- 10.7 First Amendment to the Receivable Interest Sale Agreement dated as of January 17, 2001, by and between Ferrellgas, L.P., as originator, and Ferrellgas Receivables, L.L.C., as buyer. Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q filed March 14, 2001. 10.8 Receivables Purchase Agreement, dated as of September 26, 2000, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Securitization Corporation, the financial institutions from time to time party hereto, and Bank One, NA, main office Chicago, as agent. Incorporated by reference to Exhibit 10.18 to our Annual Report on Form 10-K filed October 26, 2000. 10.9 First Amendment to the Receivables Purchase Agreement, dated as of January 17, 2001, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Securitization Corporation, the financial institutions from time to time party hereto, and Bank One, N.A., main office Chicago, as agent. Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q filed March 14, 2001. 10.10 Second Amendment to the Receivables Purchase Agreement dated as of September 25, 2001, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Securitization Corporation, the financial institutions from time to time party hereto, and Bank One, N.A., main office Chicago, as agent. Incorporated by reference to Exhibit 10.29 to our Annual Report on Form 10-K filed October 25, 2001. 10.11 Third Amendment to the Receivables Purchase Agreement, dated as of September 24, 2002, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Secruritization Corporation, the financial institutions from time to time party hereto, and Bank One, NA, main office Chicago, as agent. Incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10-K filed October 23, 2002. 10.12 Pledge and Security Agreement, dated as of April 26, 1996, by and among Ferrellgas Partners, L.P., Ferrellgas, Inc., and American Bank National Association, as collateral agent. Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed May 6, 1996. 10.13 Lease Intended as Security, dated as of December 1, 1999, by and between Ferrellgas, L.P., as lessee, and First Security Bank, National Association, solely as certificate trustee, as lessor. Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed December 13, 1999. 10.14 Lease Intended as Security, dated as of December 15, 1999, by and between Thermogas L.L.C. as lessee and First Security Bank, National Association, solely as certificate trustee, as lessor. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed December 29, 2000. 10.15 Participation Agreement, dated as of December 1, 1999, by and among Ferrellgas, L.P., as lessee, Ferrellgas, Inc., as general partner, First Security Bank, National Association, solely as certificate trustee, First Security Trust Company of Nevada, solely as agent, and purchasers and lenders named therein. Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed December 13, 1999. E-3 Exhibit Number Description - ------- ----------- 10.16 Participation Agreement, dated as of December 15, 1999, by and among Thermogas L.L.C., as lessee, The Williams Companies, Inc., First Security Bank, National Association, solely as certificate trustee, First Security Trust Company of Nevada, solely as agent, and the purchasers and lenders named therein. Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed December 29, 1999. 10.17 Assumption Agreement, dated as of December 17, 1999, executed by Ferrellgas, L.P. and Ferrellgas, Inc., for the benefit of the First Security Trust Company of Nevada as agent, First Security Bank, National Association solely as Certificate trustee and the purchasers and lenders named therein. Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed December 29, 2000. 10.18 Omnibus Amendment Agreement, dated as of February 4, 2000, in respect of the Ferrellgas, L.P. Trust No. 1999-A: Participation Agreement, Loan Agreement and Trust Agreement each dated as of December 1, 1999. Incorporated by reference to Exhibit 10.11 to our Annual Report of Form 10-K filed October 25, 2001. 10.19 Omnibus Amendment Agreement, dated as of February 4, 2000, in respect of the Thermogas Trust No. 1999-A: Participation Agreement, Loan Agreement and Trust Agreement each dated as of December 15, 1999. Incorporated by reference to Exhibit 10.12 to our Annual Report of Form 10-K filed October 25, 2001. 10.20 Omnibus Amendment Agreement No. 2, dated as of April 18, 2000, in respect of the Ferrellgas, L.P. Trust No. 1999-A: Participation Agreement, Lease Intended as Security and Loan Agreement each dated as of December 1, 1999. Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed June 14, 2000. 10.21 Omnibus Amendment Agreement No. 2, dated as of April 18, 2000, in respect of the Thermogas Trust No. 1999-A: Participation Agreement, Lease Intended as Security and Loan Agreement each dated as of December 15, 1999. Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q filed June 14, 2000. 10.22 Omnibus Amendment Agreement No. 3, dated as of December 28, 2000, in respect of the Ferrellgas, L.P. Trust No. 1999-A: Participation Agreement dated as of December 1, 1999. Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed March 14, 2001. 10.23 Omnibus Amendment Agreement No. 3, dated as of December 28, 2000, in respect of the Thermogas Trust No. 1999-A: Participation Agreement dated as of December 15, 1999. Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed March 14, 2001. E-4 Exhibit Number Description - ------- ----------- 10.24 Purchase Agreement, dated as of November 7, 1999, by and among Ferrellgas Partners, L.P., Ferrellgas, L.P and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed November 12, 1999. 10.25 First Amendment to Purchase Agreement, dated as of December 17, 1999, by and among Ferrellgas Partners, L.P., Ferrellgas, L.P., and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 2.2 to our Current Report on Form 8-K filed December 29, 1999. 10.26 Second Amendment to Purchase Agreement, dated as of March 14, 2000, by and among Ferrellgas Partners, L.P., Ferrellgas L.P., and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 2.1 to our Quarterly Report on Form 10-Q filed March 16, 2000. 10.27 Third Amendment to Purchase Agreement dated as of April 6, 2001, by and among Ferrellgas Partners, L.P., Ferrellgas L.P. and The Williams Companies, Inc. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed April 6, 2001. # 10.28 Ferrell Companies, Inc. Supplemental Savings Plan. Incorporated by reference to Exhibit 10.7 to our Annual Report on Form 10-K filed October 17, 1995. # 10.29 Second Amended and Restated Ferrellgas Unit Option Plan. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed June 5, 2001. # 10.30 Ferrell Companies, Inc. 1998 Incentive Compensation Plan - Incorporated by reference to Exhibit 10.12 to our Annual Report on Form 10-K filed October 29, 1998. # 10.31 Employment agreement between James E. Ferrell and Ferrellgas, Inc., dated July 31, 1998. Incorporated by reference to Exhibit 10.13 to our Annual Report on Form 10-K filed October 29, 1998. # 10.32 Employment agreement between Patrick Chesterman and Ferrellgas, Inc. dated July 31, 2000. Incorporated by reference to Exhibit 10.19 to our Annual Report on Form 10-K filed October 26, 2000. # 10.33 Employment agreement between Kevin Kelly and Ferrellgas, Inc. dated July 31, 2000. Incorporated by reference to Exhibit 10.22 to our Annual Report on Form 10-K filed October 26, 2000. * 21.1 List of subsidiaries. * 23.1 Consent of Deloitte & Touche, LLP, independent auditors. * 99.1 Certification of Ferrellgas Partners, L.P. Pursuant to U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * 99.2 Certification of Ferrellgas Partners Finance Corp. Pursuant to U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - -------------------------------------------------------------------------------- * Filed herewith # Management contracts or compensatory plans. E-5 INDEX TO FINANCIAL STATEMENTS Page ---- Ferrellgas Partners, L.P. and Subsidiaries Independent Auditors' Report.......................................F-2 Consolidated Balance Sheets - July 31, 2002 and 2001...............F-3 Consolidated Statements of Earnings - Years ended July 31, 2002, 2001 and 2000...................................F-4 Consolidated Statements of Partners' Capital - Years ended July 31, 2002, 2001 and 2000...................... F-5 Consolidated Statements of Cash Flows - Years ended July 31, 2002, (as restated) 2001 (as restated) and 2000....................................F-6 Notes to Consolidated Financial Statements.........................F-7 Ferrellgas Partners Finance Corp. Independent Auditors' Report.......................................F-29 Balance Sheets - July 31, 2002 and 2001............................F-30 Statements of Earnings - Years ended July 31, 2002, 2001 and 2000...................................F-31 Statements of Stockholder's Equity - Years ended July 31, 2002, 2001 and 2000.......................F-32 Statements of Cash Flows - Years ended July 31, 2002, 2001 and 2000...................................F-33 Notes to Financial Statements......................................F-34 F-1 INDEPENDENT AUDITORS' REPORT To the Partners of Ferrellgas Partners, L.P. and Subsidiaries Liberty, Missouri We have audited the accompanying consolidated balance sheets of Ferrellgas Partners, L.P. and subsidiaries (the "Partnership") as of July 31, 2002 and 2001, and the related consolidated statements of earnings, partners' capital and cash flows for each of the three years in the period ended July 31, 2002. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Ferrellgas Partners, L.P. and subsidiaries as of July 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended July 31, 2002, in conformity with accounting principles generally accepted in the United States of America. As discussed in Notes B(15) and F to the consolidated financial statements, the Partnership changed its method of accounting for goodwill and other intangible assets with the adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", in fiscal 2002. As discussed in Note R, the accompanying 2002 and 2001 consolidated statements of cash flows have been restated. DELOITTE & TOUCHE LLP Kansas City, Missouri September 12, 2002 (May 29, 2003 as to Notes E and R) F-2 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) July 31, ----------------------- ASSETS 2002 2001 - --------------------------------------------------- ---------- ---------- Current Assets: Cash and cash equivalents $ 19,781 $ 25,386 Accounts and notes receivable (net of allowance for doubtful accounts of $1,467 and $3,159 in 2002 and 2001, respectively) 74,274 56,772 Inventories 48,034 65,284 Prepaid expenses and other current assets 10,724 10,504 ---------- ---------- Total Current Assets 152,813 157,946 Property, plant and equipment, net 506,531 491,194 Goodwill 124,190 114,171 Intangible assets, net 98,170 116,747 Other assets 3,424 16,101 ---------- ---------- Total Assets $885,128 $896,159 ========== ========== LIABILITIES AND PARTNERS' CAPITAL - --------------------------------------------------- Current Liabilities: Accounts payable $54,316 $58,274 Other current liabilities 89,061 77,610 ---------- ---------- Total Current Liabilities 143,377 135,884 Long-term debt 703,858 704,782 Other liabilities 14,861 15,472 Contingencies and commitments (Note L) - - Minority interest 1,871 2,034 Partners' Capital: Senior unitholder (2,782,211 and 2,801,622 units outstanding at 2002 and 2001, respectively - liquidation preference $111,288 and $112,065, respectively) 111,288 112,065 Common unitholders (36,081,203 and 35,908,366 units outstanding in 2002 and 2001, respectively) (28,320) (12,959) General partner (392,556 and 391,010 units outstanding at 2002 and 2001, respectively) (59,035) (58,738) Accumulated other comprehensive loss (2,772) (2,381) ---------- ---------- Total Partners' Capital 21,161 37,987 ---------- ---------- Total Liabilities and Partners' Capital $885,128 $896,159 ========== ========== See notes to consolidated financial statements.
F-3 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per unit data) For the year ended July 31, ------------------------------------ 2002 2001 2000 ----------- ----------- ----------- Revenues: Gas liquids and related product sales $ 953,117 $1,381,940 $ 879,380 Other 81,679 86,730 79,643 ----------- ----------- ----------- Total revenues 1,034,796 1,468,670 959,023 Cost of product sold (exclusive of depreciation, shown separately below) 533,437 930,117 530,979 ----------- ----------- ----------- Gross profit 501,359 538,553 428,044 Operating expense 279,624 288,258 255,838 Depreciation and amortization expense 41,937 56,523 61,633 General and administrative expense 27,157 25,508 24,587 Equipment lease expense 24,551 30,986 25,518 Employee stock ownership plan compensation charge 5,218 4,843 3,733 Loss (gain) on disposal of assets and other 3,957 5,744 (356) ----------- ----------- ----------- Operating income 118,915 126,691 57,091 Interest expense (59,608) (61,544) (58,298) Interest income 1,423 3,027 2,229 Other charges - (3,277) - ----------- ----------- ----------- Earnings before minority interest 60,730 64,897 1,022 Minority interest 771 829 162 ----------- ----------- ----------- Net earnings 59,959 64,068 860 Distribution to senior unitholder 11,172 18,013 11,108 Net earnings (loss) available to general partner 488 461 (102) ----------- ----------- ----------- Net earnings (loss) available to common unitholders $ 48,299 $ 45,594 ($10,146) =========== =========== =========== Basic and diluted earnings (loss) per common unit $ 1.34 $ 1.43 $ (0.32) =========== =========== =========== See notes to consolidated financial statements.
F-4 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (in thousands) Accum- Number of units ulated -------------------------------------------- other Sub- General Sub- General compre- Total Senior Common ordinate partner Senior Common ordinate partner hensive partners' unitholder unitholders unitholder unitholder unitholder unitholder unitholder unitholder income capital ---------- ----------- ---------- ---------- ---------- ---------- ---------- ---------- -------- --------- August 1, 1999 - 14,710.8 16,593.7 - $ - $ 1,215 $(10,516) $(59,553) $(797) $(69,651) Conversion of subordinated units into common units - 16,593.7 (16,593.7) - - (10,516) 10,516 - - - Units issued in connection with acquisitions: Common units - 2.6 - - - 45 - - - 45 Senior units 4,375.0 - - - 175,000 - - 1,768 - 176,768 Fees paid to issue senior units - - - - (8,925) - - - - (8,925) General partner interest conversion to general partner units - - - 360.4 - - - - - - Accretion of discount on senior units - - - - 2,603 (2,575) - (28) - - Contribution in connection with ESOP compensation charge - - - - - 3,661 - 36 - 3,697 Quarterly cash distributions - - - - - (62,615) - (632) - (63,247) Senior unit paid in kind distributions 277.7 - - 2.8 11,108 (10,997) - (111) - - Comprehensive income: Net earnings - - - - - 851 - 9 - 860 Pension liability adjustment - - - - - - - - 797 797 ------- Comprehensive income 1,657 ---------- ----------- ---------- ---------- ---------- ---------- ---------- ---------- -------- --------- July 31, 2000 4,652.7 31,307.1 - 363.2 179,786 (80,931) - (58,511) - 40,344 Accretion of discount on senior units - - - - 6,321 (6,258) - (63) - - Contribution in connection with ESOP compensation charge - - - - - 4,745 - 48 - 4,793 Common unit cash distributions - - - - - (62,645) - (632) - (63,277) Senior unit paid in kind distributions 235.5 - - 2.4 9,422 (9,328) - (94) - - Senior unit cash and accrued distributions - - - - - (8,535) - (144) - (8,679) Common unit options exercised - 101.3 - 1 - 1,701 - 17 - 1,718 Common unit offering, net - 4,500.0 - 45.5 - 84,865 - - - 84,865 Redemption of senior units (2,086.6) - - (21.1) (83,464) - - - - (83,464) Comprehensive income: Net earnings - - - - - 63,427 - 641 - 64,068 Other comprehensive income: Cumulative effect of accounting change - - - - - - - - 709 Risk management fair value adjustment - - - - - - - - (289) Reclassification adjustments - - - - - - - - (709) Pension liability adjustment - - - - - - - - (2,092) (2,381) ------- Comprehensive income 61,687 ---------- ----------- ---------- ---------- ---------- ---------- ---------- ---------- -------- --------- July 31, 2001 2,801.6 35,908.4 - 391.0 112,065 (12,959) - (58,738) (2,381) 37,987 Contribution in connection with ESOP compensation charge - - - - - 5,114 - 51 - 5,165 Common unit cash distributions - - - - - (72,044) - (727) - (72,771) Senior unit cash and accrued distributions - - - - - (11,030) - (253) - (11,283) Redemption of senior units (19.4) - - (0.2) (777) - - - - (777) Common unit options exercised - 55.4 - 0.6 - 930 - 9 - 939 Common units issued in connection with acquisitions - 117.5 - 1.2 - 2,310 - 23 - 2,333 Comprehensive income: Net earnings - - - - - 59,359 - 600 - 59,959 Other comprehensive income: Risk management fair value adjustment - - - - - - - - 136 Pension liability adjustment - - - - - - - - (527) (391) ------- Comprehensive income 59,568 ---------- ----------- ---------- ---------- ---------- ---------- ---------- ---------- -------- --------- July 31, 2002 2,782.2 36,081.3 - 392.6 $111,288 $ (28,320) $ - $(59,035) $(2,772) $21,161 ========== =========== ========== ========== ========== ========== ========== ========== ======== =========
See notes to consolidated financial statements. F-5 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the year ended July 31, --------------------------------- 2002 2001 2000 (as (as restated*) restated*) ---------- ---------- ---------- Cash Flows From Operating Activities: Net earnings $59,959 $64,068 $ 860 Reconciliation of net earnings to net cash provided by operating activities Depreciation and amortization 41,937 56,523 61,633 Employee stock ownership plan compensation charge 5,218 4,843 3,733 Minority interest 771 829 162 Other 4,295 7,555 2,759 Changes in operating assets and liabilities, net of effects from business acquisitions: Accounts and notes receivable, net of securitization 19,614 (9,121) (12,609) Inventories 17,318 11,333 (25,423) Prepaid expenses and other current assets 1,661 (2,071) (731) Accounts payable (1,386) (39,792) 10,418 Accrued interest expense (434) 1,157 6,594 Other current liabilities 1,915 2,233 7,140 Other liabilities 2,057 2,302 (1,184) Accounts receivable securitization: Proceeds from new accounts receivable securitizations 30,000 115,000 - Proceeds from collections reinvested in revolving period accounts receivable securitizations 360,677 725,955 - Remittances of amounts collected as server of accounts receivable securitizations (421,677) (809,955) - ---------- ---------- ---------- Net cash provided by operating activities 121,925 130,859 53,352 ---------- ---------- ---------- Cash Flows From Investing Activities: Business acquisitions, net of cash acquired (6,294) (4,668) 47,656 Cash paid for acquisition transaction fees - - (15,893) Capital expenditures - technology initiative (23,114) (100) - Capital expenditures - other (14,402) (15,148) (20,755) Proceeds from sale leaseback transaction - - 25,000 Other 4,240 1,652 5,743 ---------- ---------- ---------- Net cash provided by (used in) investing activities (39,570) (18,264) 41,751 ---------- ---------- ---------- Cash Flows From Financing Activities: Distributions (84,075) (69,125) (63,247) Issuance of common units, net of issuance costs - 84,865 - Redemption of senior units (777) (83,464) - Proceeds from issuance of debt - 9,843 226,490 Principal payments on debt (3,069) (26,205) (276,111) Net reductions to short-term borrowings - (18,342) (2,144) Cash paid for debt and lease financing costs - (56) (3,163) Minority interest activity (994) (848) 1,008 Proceeds from exercise of common unit options 939 1,718 - Cash contribution from general partner 16 - 1,768 Other - (433) - ---------- ---------- ---------- Net cash used in financing activities (87,960) (102,047) (115,399) ---------- ---------- ---------- Increase (decrease) in cash and cash equivalents (5,605) 10,548 (20,296) Cash and cash equivalents - beginning of year 25,386 14,838 35,134 ---------- ---------- ---------- Cash and cash equivalents - end of year $19,781 $25,386 $14,838 ========== ========== ========== Cash paid for interest $57,732 $57,893 $49,176 ========== ========== ========== * See Note R to these consolidated financial statements.
See notes to consolidated financial statements. F-6 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. Partnership Organization and Formation Ferrellgas Partners, L.P. (the "Master Limited Partnership" or "MLP") was formed April 19, 1994, and is a publicly traded limited partnership, owning a 99% limited partner interest in Ferrellgas, L.P. (the "Operating Partnership" or "OLP"). The MLP and the OLP (collectively referred to as the "Partnership") are both Delaware limited partnerships. Both the MLP and the OLP are governed by partnership agreements that were made effective at the time of formation of the partnerships. Ferrellgas Partners, L.P. was formed to acquire and hold a limited partner interest in the Operating Partnership. The Operating Partnership was formed to acquire, own and operate the propane business and assets of Ferrellgas, Inc. (the "Company" or "General Partner"), a wholly-owned subsidiary of Ferrell Companies, Inc. ("Ferrell"). Ferrell owns 17,855,087 of the outstanding MLP common units. The Company has retained a 1% general partner interest in Ferrellgas Partners, L.P. and also holds a 1.0101% general partner interest in the Operating Partnership, representing an effective 2% general partner interest in the Partnership on a combined basis. As General Partner of the Partnership, the Company performs all management functions required for the Partnership. On July 17, 1998, 100% of the outstanding common stock of Ferrell was purchased primarily from Mr. James E. Ferrell and his family by a newly established leveraged employee stock ownership trust ("ESOT") established pursuant to the Ferrell Companies, Inc. Employee Stock Ownership Plan ("ESOP"). The purpose of the ESOP is to provide employees of the Company an opportunity for ownership in Ferrell and indirectly in the MLP. As contributions are made by Ferrell to the ESOP in the future, shares of Ferrell are allocated to the Company employees' ESOP accounts. On December 17, 1999, the MLP's Partnership Agreement was amended to allow for the issuance of a newly created senior unit, in connection with an acquisition. Generally, these senior units were to be paid quarterly distributions in additional senior units equal to 10% per annum. Also, the senior units were structured to allow for a redemption by the MLP at any time, in whole or in part, upon payment in cash of the liquidating value of the senior units, currently $40 per unit, plus the amount of any accrued and unpaid distributions. The holder of the senior units also had the right, at dates in the future and subject to certain events and conditions, to convert any outstanding senior units into common units. On June 5, 2000, the MLP's Partnership Agreement was amended to allow the General Partner to have an option in maintaining its 1% general partner interest concurrent with the issuance of other additional equity. Prior to this amendment, the General Partner was required to make capital contributions to maintain its 1% general partner interest concurrent with the issuance of any additional MLP equity. Also as part of this amendment, the General Partner's interest in the MLP's Common Units was converted from a General Partner interest to General Partner units. On April 6, 2001, the MLP's Partnership Agreement was amended to reflect modifications made to the senior units, previously issued on December 17, 1999, and the common units owned by Ferrell. The senior units are to be paid quarterly distributions in cash equivalent to 10% per annum or $4 per senior unit. The amendment also granted the holder of the senior units the right, subject to certain events and conditions, to convert any outstanding senior units into common units at the earlier of December 31, 2005 or upon the occurrence of a material event as defined by the Partnership Agreement. Also as part of the amendment, Ferrell granted the Partnership the ability, until December 31, 2005, to defer future distributions on the common units held by it, up to an aggregate outstanding amount of $36,000,000. F-7 B. Summary of Significant Accounting Policies (1) Nature of operations: The Partnership is engaged primarily in the retail distribution of propane and related equipment and supplies in the United States. The retail market is seasonal because propane is used primarily for heating in residential and commercial buildings. The Partnership serves more than 1,000,000 residential, industrial/commercial and agricultural customers. (2) Accounting estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates. Significant estimates impacting the consolidated financial statements include reserves that have been established for product liability and other claims. (3) Principles of consolidation: The accompanying consolidated financial statements present the consolidated financial position, results of operations and cash flows of the Partnership and its wholly-owned subsidiary, Ferrellgas Partners Finance Corp. The Company's 1.0101% General Partner interest in Ferrellgas, L.P. is accounted for as a minority interest. The wholly-owned subsidiary of the OLP, Ferrellgas Receivables, LLC, is accounted for using the equity method of accounting. All material intercompany profits, transactions and balances have been eliminated. (4) Cash and cash equivalents: For purposes of the Consolidated Statements of Cash Flows, the Partnership considers cash equivalents to include all highly liquid debt instruments purchased with an original maturity of three months or less. (5) Inventories: Inventories are stated at the lower of cost or market using average cost and actual cost methods. The Partnership enters into commodity derivative contracts involving propane and related products to hedge, reduce risk and anticipate market movements. The fair value of these derivative contracts is classified as inventory. (6) Property, plant and equipment: Property, plant and equipment are stated at cost less accumulated depreciation. Expenditures for maintenance and routine repairs are expensed as incurred. Depreciation is calculated using the straight-line method based on the estimated useful lives of the assets ranging from two to 30 years. In the first quarter of fiscal 2001, the Partnership increased the estimate of the residual values of its existing customer and storage tanks. This change in accounting estimate resulted from a review by management of its tank values established through an independent tank valuation obtained in connection with a financing completed in December 1999. The Partnership, using its best estimates based on reasonable and supportable assumptions and projections, reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of its assets might not be recoverable. (7) Goodwill: Goodwill is not amortized and is tested annually for impairment. Beginning in the first quarter of fiscal 2002, the Partnership adopted Statement of Financial Accounting Standards (SFAS) No. 142 which modified the financial accounting and reporting for acquired goodwill and other intangible assets, including the requirement that goodwill and some intangible assets no longer be amortized. The Partnership tested goodwill for impairment at the time the statement was adopted and during the third quarter of fiscal 2002, and will continue to do so on an annual basis. The results of these impairment tests did not have a material effect on the Partnership's financial position, results of operations and cash flows. The Partnership did not recognize any impairment losses as a result of these tests. F-8 (8) Intangible assets: Intangible assets, consisting primarily of customer lists and noncompete notes, are stated at cost, net of amortization calculated using either straight-line or accelerated methods over periods ranging from two to 15 years. The Partnership reviews identifiable intangibles for impairment in a similar manner as with long-lived assets. The Partnership, using its best estimates based on reasonable and supportable assumptions and projections, reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of its assets might not be recoverable. (9) Accounting for derivative commodity contracts: The Partnership enters into commodity options involving propane and related products to specifically hedge certain product cost risk. Any changes in the fair value of these specific cash flow hedge positions are deferred and included in other comprehensive income and recognized as an adjustment to the overall purchase price of product in the month the purchase contract is settled. The Partnership also enters into other commodity forward and futures purchase/sale agreements and commodity swaps and options involving propane and related products, which are not specific hedges to a certain product cost risk, but are used for risk management purposes. To the extent such contracts are entered into at fixed prices and thereby subject the Partnership to market risk, the contracts are accounted for using the fair value method. Under this valuation method, derivatives are carried on the Consolidated Balance Sheets at fair value with changes in that value recognized in earnings. The Partnership classifies all gains and losses from these derivative commodity contracts entered into for product risk management purposes as cost of product sold on the Consolidated Statements of Earnings. (10) Revenue recognition: Sales of propane are recognized by the Partnership at the time product is delivered to its customers. Revenue from the sale of propane appliances and equipment is recognized at the time of delivery or installation. Revenues from repairs and maintenance are recognized upon completion of the service. (11) Income taxes: The MLP is a limited partnership. As a result, the MLP's earnings or losses for Federal income tax purposes are included in the tax returns of the individual partners, the MLP unitholders. Accordingly, no recognition has been given to income taxes in the accompanying Consolidated Financial Statements of the Partnership. Net earnings for financial statement purposes may differ significantly from taxable income reportable to MLP unitholders as a result of differences between the tax basis and financial reporting basis of assets and liabilities and the taxable income allocation requirements under the Partnership Agreement. (12) Net earnings per common unit: Net earnings (loss) per common unit is computed by dividing net earnings, after deducting the General Partner's 1% interest and accrued and paid senior unit distributions, by the weighted average number of outstanding common units and the dilutive effect, if any, of outstanding unit options. There was a less than $0.01 effect on the dilutive earnings per unit calculation when making the assumption that all outstanding unit options were exercised into common units. (13) Unit and stock-based compensation: The Partnership accounts for its Unit Option Plan and the Ferrell Companies Incentive Compensation Plan using the intrinsic value method under the provisions of Accounting Principles Board (APB) No. 25, "Accounting for Stock Issued to Employees," and makes the fair value method pro forma disclosures required under the provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." (14) Segment information: The Partnership is a single reportable operating segment engaging in the retail distribution of propane and related equipment and supplies. F-9 (15) Adoption of new accounting standards: The Financial Accounting Standards Board (FASB) recently issued SFAS No. 141 "Business Combinations", SFAS No. 142 "Goodwill and Other Intangible Assets", SFAS No. 143 "Accounting for Asset Retirement Obligations", SFAS No. 144 "Accounting for the Impairment or Disposal of Long-lived Assets", SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", and SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 141 requirements include, among other things, that all business combinations be accounted for by a single method - the purchase method. It applies to all business combinations initiated after June 30, 2001. The Partnership has historically accounted for business combinations using the purchase method; therefore, this new statement will not have a substantial impact on how the Partnership accounts for future combinations. SFAS No. 142 modified the financial accounting and reporting for acquired goodwill and other intangible assets, including the requirement that goodwill and some intangible assets no longer be amortized. The Partnership adopted SFAS No. 142 beginning in the first quarter of fiscal 2002. This adoption resulted in a reclassification to goodwill of both assembled workforce and other intangible assets. Although there was no cash flow effect, the Partnership's amortization expense decreased by $10,600,000 in fiscal 2002, compared to the amortization that would have been recorded had the new accounting statement not been issued. This new standard also required us to test goodwill for impairment at the time the standard was adopted and also on an annual basis. The results of these impairment tests did not have a material effect on the Partnership's financial position, results of operations and cash flows. The Partnership did not recognize any impairment losses as a result of these tests. SFAS No. 143 requires the recognition of a liability if a company has a legal or contractual financial obligation in connection with the retirement of a tangible long-lived asset. The Partnership will implement SFAS No. 143 beginning in the fiscal year ending July 31, 2003, and expects to record a one-time reduction to earnings during the first quarter of fiscal 2003, as a cumulative change in accounting principle, of approximately $2,800,000. The Partnership believes the implementation will not have a material ongoing effect on its financial position, results of operations and cash flows. SFAS No. 144 modifies the financial accounting and reporting for long-lived assets to be disposed of by sale and it broadens the presentation of discontinued operations to include more disposal transactions. The Partnership will implement SFAS No. 144 beginning in the fiscal year ending July 31, 2003, and believes the implementation will not have a material effect on its financial position, results of operations and cash flows. SFAS No. 145 eliminates the requirement that material gains and losses resulting from the early extinguishment of debt be classified as an extraordinary item in the results of operations. Instead, companies must evaluate whether the transaction meets both the criteria of being unusual in nature and infrequent in occurrence. Other aspects of SFAS No. 145 relating to accounting for intangibles assets of motor carriers and accounting for certain lease modifications do not currently apply to the Partnership. The Partnership will implement SFAS No. 145 beginning in the fiscal year ending July 31, 2003, and believes the implementation will not have a material effect on its financial position, results of operations and cash flows. SFAS No. 146 modifies the financial accounting and reporting for costs associated with exit or disposal activities. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Additionally, the statement requires the liability to be recognized and measured initially at fair value. Under previous rules, liabilities for exit costs were recognized at the date of the entity's commitment to an exit plan. The Partnership will adopt and implement SFAS No. 146 for any exit or disposal activities that are initiated after July 31, 2002. The Partnership believes the implementation will not have a material effect on its financial position, results of operations and cash flows. F-10 (16) Reclassifications: Certain reclassifications have been made to the prior years' Consolidated Financial Statements to conform to the current year's Consolidated Financial Statements' presentation. C. Quarterly Distributions of Available Cash The Partnership makes quarterly cash distributions of all of its "available cash", generally defined as consolidated cash receipts less consolidated cash disbursements and net changes in reserves established by the General Partner for future requirements. Reserves are retained in order to provide for the proper conduct of the Partnership business, or to provide funds for distributions with respect to any one or more of the next four fiscal quarters. Distributions are made within 45 days after the end of each fiscal quarter ending January, April, July and October to holders of record on the applicable record date. Distributions by the MLP in an amount equal to 100% of its available cash, as defined in its Partnership Agreement, will be made to the senior and common unitholders and the general partner. Additionally, the payment of incentive distributions to the holders of incentive distribution rights will be made to the extent that certain target levels of cash distributions are achieved. The senior units have certain distribution and preference rights over the common units. The publicly held common units have certain distribution preference rights over the common units held by Ferrell Companies. On April 6, 2001, the Partnership modified the structure of its outstanding senior units and increased the cash distribution coverage to its publicly held common unitholders. Among other changes, the senior units were modified to allow the holder to be paid a quarterly distribution in cash instead of in additional senior unit distributions. See Note A for additional information about the modifications to the senior units. In addition, Ferrell Companies, Inc., the beneficial owner of 17,855,087 common units, granted the Partnership the ability to defer future distributions on the common units held by it up to an aggregate outstanding amount of $36,000,000. The ability to defer distributions to Ferrell provides the MLP's public common unitholders distribution support until December 31, 2005. This new distribution support is available if the Partnership's available cash for any fiscal quarter is insufficient to pay all of the common unitholders their quarterly distribution. The MLP will first pay a distribution to the senior units and then will pay a distribution out of the remaining available cash to the publicly-held common units. Any remaining available cash will then be used to pay a distribution on the common units held by Ferrell. Any quarterly distribution paid per unit to the publicly-held common units that is not able to be paid on the Ferrell-owned common units will be deferred, within certain limits, and paid to Ferrell in future quarters when available cash is sufficient. If insufficient available cash should exist for a particular quarter or any previous deferred distributions to Ferrell remain outstanding, the distribution declared per common unit may not be more than the highest quarterly distribution paid on the common units for any of the immediately preceding four fiscal quarters. If the cumulative amount of deferred quarterly distributions to Ferrell were to reach $36,000,000, the common units held by Ferrell will then be paid in the same priority as the publicly-held common units. After payment of all required distributions for any subsequent period, the MLP will use any remaining available cash to reduce any amount previously deferred on the common units held by Ferrell. Reductions in amounts previously deferred will then again be available for future deferrals to Ferrell through December 31, 2005. In connection with these transactions, during fiscal 2001 the MLP incurred $3,277,000 in banking, legal and other professional fees that are classified as other charges in the Consolidated Statements of Earnings. F-11 D. Supplemental Balance Sheet Information Inventories consist of: (in thousands) 2002 2001 -------- -------- Propane gas and related products $29,169 $45,966 Appliances, parts and supplies 18,865 19,318 -------- -------- $48,034 $65,284 ======== ========
In addition to inventories on hand, the Partnership enters into contracts to buy product for supply purposes. Nearly all of these contracts have terms of less than one year and most call for payment based on market prices at the date of delivery. All fixed price contracts have terms of less than one year. As of July 31, 2002, in addition to the inventory on hand, the Partnership had committed to make net delivery of approximately 7,061,000 gallons at a fixed price. Property, plant and equipment consist of: Estimated (in thousands) useful lives 2002 2001 ------------ --------- --------- Land and improvements 2-20 $ 40,781 $ 41,191 Buildings and improvements 20 54,453 54,384 Vehicles, including transport trailers 8-20 77,226 76,611 Furniture and fixtures 5 8,730 9,523 Bulk equipment and district facilities 5-30 93,816 90,930 Tanks and customer equipment 5-30 473,324 472,593 Computer equipment and software 2-5 29,530 25,515 Computer software development in progress n/a 29,904 100 Other 2,652 3,281 --------- --------- 810,416 774,128 Less: accumulated depreciation 303,885 282,934 --------- --------- $506,531 $491,194 ========= =========
In a non-cash transaction, the Partnership has recognized payables as of July 31, 2002, totaling $6,956,000 related to the development of new computer software. The Partnership capitalized $697,000 of interest expense related to the development of computer software for the year ended July 31, 2002. Depreciation expense totaled $27,915,000, $28,332,000, and $37,941,000 for the fiscal years ended July 31, 2002, 2001, and 2000, respectively. In the first quarter of fiscal 2001, the Partnership increased the estimate of the residual values of its existing customer and storage tanks. Due to this change in the tank residual values, depreciation expense decreased by approximately $12,000,000 in both fiscal 2002 and 2001 or $0.33 and $0.38 per common unit, respectively, as compared to the depreciation that would have been recorded using the previously estimated residual values. F-12 Other current liabilities consist of: (in thousands) 2002 2001 -------- -------- Accrued interest $22,382 $22,816 Accrued payroll 24,068 20,236 Accrued insurance 9,409 8,056 Other 33,202 26,502 -------- -------- $89,061 $77,610 ======== ========
E. Accounts Receivable Securitization On September 26, 2000, the OLP entered into an account receivable securitization facility with Bank One, NA. As part of this renewable 364-day facility, the OLP transfers an interest in a pool of its trade accounts receivable to Ferrellgas Receivables, LLC, a wholly-owned, special purpose entity, which sells its interest to a commercial paper conduit of Banc One, NA. The OLP does not provide any guarantee or similar support to the collectability of these receivables. The OLP structured the facility using a wholly-owned, qualifying special purpose entity in order to facilitate the transaction as required by Banc One, N.A. and to comply with the Partnership's various debt covenants. The OLP remits daily to this special purpose entity funds collected on the pool of trade receivables held by Ferrellgas Receivables. The Partnership renewed the facility effective September 25, 2001, for a 364-day commitment with Bank One, NA and intends to renew the facility for an additional 364-day commitment on September 24, 2002. The level of funding available from this facility is currently limited to $60,000,000. In accordance with SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," this transaction is reflected on the Partnership's Consolidated Financial Statements as a sale of accounts receivable and an investment in an unconsolidated subsidiary. The OLP retained servicing rights and the right to collect finance charges, however, the assets related to these retained interests at July 31, 2002 and 2001, had no material effect on the Consolidated Balance Sheet. The following table provides amounts recorded on the Partnership's statement of earnings and balance sheet. (in thousands) 2002 2001 -------- -------- Statement of earnings information Loss on sale of receivables $ 3,862 $ 7,816 Equity in earnings of unconsolidated subsidiary (1,843) 2,205 Service income (1,285) (1,326) -------- -------- Amount included in "Loss (gain) on disposal of assets and other" $ 734 $ 8,695 ======== ======== Balance sheet information Investment in unconsolidated subsidiary, included in "other assets" $ - $ 7,225 ======== ========
F-13 These amounts reported in the Consolidated Statements of Earnings approximate the financing cost of issuing commercial paper backed by these accounts receivable plus an allowance for doubtful accounts associated with the outstanding receivables transferred to Ferrellgas Receivables. F. Goodwill SFAS No. 142 modified the financial accounting and reporting for acquired goodwill and other intangible assets, including the requirement that goodwill and some intangible assets no longer be amortized. The Partnership adopted SFAS No. 142 beginning in the first quarter of fiscal 2002. This adoption resulted in a reclassification to goodwill of both assembled workforce and other intangible assets classified as other assets with remaining book value of $10,019,000. The changes in the carrying amount of goodwill for the year ended July 31, 2002, are as follows: (in thousands) Intangible Other Goodwill Assets Assets --------- ---------- -------- Balance as of July 31, 2001, net of accumulated amortization $114,171 $116,747 $16,101 Reclassified to goodwill 10,019 (8,221) (1,798) Additions during the period - 3,866 - Amortization expense - (14,022) - Reduction of investment in unconsolidated subsidiary (see Note E) - - (7,225) Other changes - (200) (3,654) --------- ---------- -------- Balance as of July 31, 2002 $124,190 $ 98,170 $ 3,424 ========= ========== ========
The remaining intangible assets are subject to amortization. The following table discloses our net earnings for the fiscal years ended July 31, 2001 and 2000, adding back the amortization expense related to goodwill and some intangible assets that are no longer amortized. For the year ended July 31, ------------------------------- (in thousands) 2002 2001 2000 -------- -------- -------- Reported net earnings $59,959 $64,068 $ 860 Add back: Goodwill amortization - 11,308 6,474 -------- -------- -------- Adjusted net earnings $59,959 $75,376 $7,334 ======== ======== ========
Basic and diluted earnings per common unit: For the year ended July 31, ------------------------------ 2002 2001 2000 -------- -------- -------- Reported net earnings (loss) available to common unitholders $1.34 $1.43 $(0.32) Goodwill amortization - 0.32 0.23 -------- -------- -------- Adjusted net earnings (loss) available to common unitholders $1.34 $1.75 $(0.09) ======== ======== ========
F-14 G. Intangible Assets, net Intangible assets, net consist of: July 31, 2002 July 31, 2001 ------------------------------------------- -------------------------------------------- Gross Gross Carrying Accumulated Carrying Accumulated (in thousands) Amount Amortization Net Amount Amortization Net --------- ------------- --------- --------- ------------- --------- Customer lists $208,662 $(124,860) $83,802 $207,667 $(114,679) $92,988 Non-compete agreements 62,893 (48,525) 14,368 60,222 (44,684) 15,538 Assembled workforce - - - 9,600 (1,379) 8,221 --------- ------------- --------- --------- ------------- --------- Total $271,555 $(173,385) $98,170 $277,489 $(160,742) $116,747 ========= ============= ========= ========= ============= =========
Customer lists have estimated lives of 15 years, while non-compete agreements have estimated lives ranging from two to 10 years. (in thousands) Aggregate Amortization Expense: 2002 2001 2000 -------- -------- -------- For the year ended July 31, $14,022 $16,883 $17,218
(in thousands) Estimated Amortization Expense: For the year ended July 31, 2003 $11,656 For the year ended July 31, 2004 10,682 For the year ended July 31, 2005 10,150 For the year ended July 31, 2006 9,631 For the year ended July 31, 2007 8,991
H. Long-Term Debt Long-term debt consists of: (in thousands) 2002 2001 -------- -------- Senior Notes Fixed rate, 7.16% due 2005-2013 (1) $350,000 $350,000 Fixed rate, 9.375%, due 2006 (2) 160,000 160,000 Fixed rate, 8.8%, due 2006-2009 (3) 184,000 184,000 Notes payable, 7.6% and 7.9% weighted average interest rates, respectively, due 2002 to 2011 12,177 12,566 -------- -------- 706,177 706,566 Less: current portion, included in other current liabilities 2,319 1,784 -------- -------- $703,858 $704,782 ======== ======== F-15 (1) The OLP fixed rate Senior Notes ("$350 million Senior Notes"), issued in August 1998, are general unsecured obligations of the OLP and rank on an equal basis in right of payment with all senior indebtedness of the OLP and senior to all subordinated indebtedness of the OLP. The outstanding principal amount of the Series A, B, C, D and E Notes shall be due on August 1, 2005, 2006, 2008, 2010, and 2013, respectively. In general, the OLP does not have the option to prepay the Notes prior to maturity without incurring prepayment penalties. (2) The Partnership has a commitment to redeem on September 24, 2002, the MLP fixed rate Senior Secured Notes ("MLP Senior Secured Notes"), issued in April 1996, with the proceeds expected from $170,000,000 of MLP fixed rate Senior Notes. The Partnership anticipates that it will recognize an approximate $7,100,000 charge to earnings related to the premium and other costs incurred to redeem the notes plus the write-off of financing costs related to the original issuance of the MLP Senior Secured Notes. The MLP Senior Secured Notes are secured by the MLP's partnership interest in the OLP. The MLP Senior Secured Notes bear interest from the date of issuance, payable semi-annually in arrears on June 15 and December 15 of each year. (3) The OLP fixed rate Senior Notes ("$184 million Senior Notes"), issued in February 2000, are general unsecured obligations of the OLP and rank on an equal basis in right of payment with all senior indebtedness of the OLP and senior to all subordinated indebtedness of the OLP. The outstanding principal amount of the Series A, B and C Notes are due on August 1, 2006, 2007 and 2009, respectively. In general, the OLP does not have the option to prepay the Notes prior to maturity without incurring prepayment penalties.
At July 31, 2002, the unsecured $157,000,000 Credit Facility (the "Credit Facility"), expiring June 2003, consisted of a $117,000,000 unsecured working capital, general corporate and acquisition facility, including a letter of credit facility, and a $40,000,000 revolving working capital facility. This $40,000,000 facility is subject to an annual reduction in outstanding balances to zero for thirty consecutive days. All borrowings under the Credit Facility bear interest, at the borrower's option, at a rate equal to either a) LIBOR plus an applicable margin varying from 1.25% to 2.25% or, b) the bank's base rate plus an applicable margin varying from 0.25% to 1.25%. The bank's base rate at July 31, 2002 and 2001 was 4.75% and 6.75%, respectively. In addition, a commitment fee is payable on the daily unused portion of the credit facility (generally a per annum rate of 0.0375% at July 31, 2002). The Partnership had no short-term borrowings outstanding under the credit facility at July 31, 2002 and 2001. Letters of credit outstanding, used primarily to secure obligations under certain insurance arrangements, totaled $40,614,000 and $46,660,000, respectively. At July 31, 2002, the Partnership had $116,386,000 of funding available. The Partnership incurred commitment fees of $445,000 and $460,000 in fiscal 2002 and 2001, respectively. Effective July 16, 2001, the credit facility was amended to increase the letter of credit sub-facility availability from $60,000,000 to $80,000,000. Effective April 27, 2000, the MLP entered into an interest rate swap agreement with Bank of America, related to the semi-annual interest payment due on the MLP Senior Secured notes. The swap agreement, which was terminated at the option of the counterparty on June 15, 2001, required the counterparty to pay the stated fixed interest rate every six months. In exchange, the MLP was required to make quarterly floating interest rate payments based on an annual interest rate equal to the three month LIBOR interest rate plus 1.655% applied to the same notional amount of $160,000,000. The Partnership resumed paying the stated fixed interest rate effective after June 15, 2001. F-16 On December 17, 1999, in connection with the purchase of Thermogas, LLC ("Thermogas acquisition") (see Note P), the OLP assumed a $183,000,000 loan that was originally issued by Thermogas, LLC ("Thermogas") and had a maturity date of June 30, 2000. On February 28, 2000, the OLP issued $184,000,000 of Senior Notes at an average interest rate of 8.8% in order to refinance the $183,000,000 loan. The additional $1,000,000 in borrowings was used to fund debt issuance costs. The MLP Senior Secured Notes, the $350 million and $184 million Senior Notes and the Credit Facility agreement contain various restrictive covenants applicable to the MLP and OLP and its subsidiaries, the most restrictive relating to additional indebtedness. In addition, the Partnership is prohibited from making cash distributions of the Minimum Quarterly Distribution if a default or event of default exists or would exist upon making such distribution, or if the Partnership fails to meet certain coverage tests. The Partnership is in compliance with all requirements, tests, limitations and covenants related to these debt agreements. The scheduled annual principal payments on long-term debt are to be $2,319,000 in 2003, $2,134,000 in 2004, $2,299,000 in 2005, $271,313,000 in 2006, $59,039,000 in 2007 and $369,073,000 thereafter. I. Partners' Capital On July 31, 2002, the Partnership's capital consisted of 2,782,211 senior units, 36,081,203 common units, and 392,556 general partner units which equal a 1% General Partner interest. The Partnership Agreement contains specific provisions for the allocation of net earnings and loss to each of the partners for purposes of maintaining the partner capital accounts. In connection with the Thermogas acquisition on December 17, 1999 (See Note P) , the Partnership issued 4,375,000 senior units to a subsidiary of The Williams Companies, Inc. ("Williams"). Ferrellgas, Inc. contributed $1,768,000 to Ferrellgas Partners, L.P. and $1,803,000 to Ferrellgas, L.P. in order to maintain its 1% and 1.0101% general partner interest in each respective entity. On April 6, 2001, an entity owned by James E. Ferrell, the Chairman, Chief Executive Officer and President of the General Partner, purchased all senior units held by Williams, who prior to the transaction agreed to certain modifications to the senior units. See Note A for more information on the modifications to the senior units. The Partnership maintains shelf registration statements for common units representing limited partner interests in the Partnership. One of the shelf registration statements allows for common units to be issued from time to time by the Partnership in connection with the Partnership's acquisition of other businesses, properties or securities in business combination transactions. The Partnership also maintains another shelf registration statement for the issuance of common units, deferred participation units, warrants and debt securities. The Partnership Agreement allows the General Partner to issue an unlimited number of additional Partnership general and limited interests and other equity securities of the Partnership for such consideration and on such terms and conditions as shall be established by the General Partner without the approval of any unitholders. On June 8, 2001, the Partnership received $84,865,000 net of issuance costs pursuant to the issuance of 4,500,000 common units to the public. The Partnership then used these proceeds to redeem 2,048,697 senior units and related accrued but unpaid distributions. These common units issued to the public on June 8, 2001, were entitled to the same distribution to be paid to the already outstanding publicly held common units for the quarter ended July 31, 2001. The Partnership also made redemptions of 37,915 senior units in July 2001 and 19,411 in February 2002. The Partnership issued 55,350 and 101,250 common units during the fiscal year ended July 31, 2002 and 2001, respectively, pursuant to the unit option plan (see Note N). The Partnership issued 117,487 common units as part of the purchase price of acquisitions during the fiscal year ended July 31, 2002. F-17 During 1994, the Partnership issued subordinated units, all of which were held by Ferrell for which there was no established public trading market. Effective August 1, 1999, the subordinated units were converted to common units because certain financial tests, which were primarily related to making the minimum quarterly distribution on all units, were satisfied for each of the three consecutive four quarter periods ended July 31, 1999. J. Derivatives SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities", as amended by SFAS No. 137 and SFAS No. 138, requires all derivatives (with certain exceptions), whether designated in hedging relationships or not, to be recorded on the Consolidated Balance Sheet at fair value. As a result of implementing SFAS No. 133 at the beginning of fiscal 2001, the Partnership recognized in its first quarter of fiscal 2001, gains totaling $709,000 and $299,000 in accumulated other comprehensive income and the Consolidated Statements of Earnings, respectively. In addition, beginning in the first quarter of fiscal 2001, the Partnership recorded subsequent changes in the fair value of positions qualifying as cash flow hedges in accumulated other comprehensive income and changes in the fair value of other positions in the Consolidated Statements of Earnings. The Partnership's overall objective for entering into derivative contracts for the purchase of product is related to hedging, risk reduction and to anticipate market movements. Other derivatives are entered into to reduce interest rate risk associated with long term debt and lease obligations. Fair value hedges are derivative financial instruments that hedge the exposure to changes in the fair value of an asset or a liability or an identified portion thereof attributable to a particular risk. Cash flow hedges are derivative financial instruments that hedge the exposure to variability in expected future cash flows attributable to a particular risk. The Partnership uses cash flow hedges to manage exposures to product purchase price risk and uses both fair value and cash flow hedges to manage exposure to interest rate risks. Fluctuations in the wholesale cost of propane expose the Partnership to purchase price risk. The Partnership purchases propane at various prices that are eventually sold to its customers, exposing the Partnership to future product price fluctuations. Also, certain forecasted transactions expose the Partnership to purchase price risk. The Partnership monitors its purchase price exposures and utilizes product hedges to mitigate the risk of future price fluctuations. Propane is the only product hedged with the use of product hedge positions. The Partnership uses derivative contracts to hedge a portion of its forecasted purchases for up to one year in the future. These derivatives are designated as cash flow hedging instruments. Because these derivatives are designated as cash flow hedges, the effective portions of changes in the fair value of the derivatives are recorded in other comprehensive income (OCI) and are recognized in the Consolidated Statements of Earnings when the forecasted transaction impacts earnings. The $136,000 risk management fair value adjustment classified as other comprehensive income in the Consolidated Statements of Partners' Capital at July 31, 2002, will be recognized in the Consolidated Statements of Earnings during fiscal 2003. Changes in the fair value of cash flow hedges due to hedge ineffectiveness, if any, are recognized in cost of product sold on the Consolidated Statements of Earnings. The fair value of the derivatives related to purchase price risk are classified on the Consolidated Balance Sheets as inventories. Through its risk management trading activities, the Partnership also purchases and sells derivatives that are not designated as accounting hedges to manage other risks associated with commodity prices. Emerging Issues Task Force issue 98-10 "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" applies to these activities. The types of contracts utilized in these activities include energy commodity forward contracts, options and swaps traded on the over-the-counter financial markets, and futures and options traded on the New York Mercantile Exchange. The Partnership utilizes published settlement prices F-18 for exchange traded contracts, quotes provided by brokers and estimates of market prices based on daily contract activity to estimate the fair value of these contracts. The changes in fair value of these risk management trading activities are recognized as they occur in cost of product sold in the Consolidated Statements of Earnings. During fiscal years ended July 31, 2002, 2001 and 2000, the Partnership recognized risk management trading gains (losses) related to derivatives not designated as accounting hedges of $(6,148,000), $23,320,000, and $28,413,000, respectively. Estimates related to our risk management trading activities are sensitive to uncertainty and volatility inherent in the energy commodities markets and actual results could differ from these estimates. Assuming a hypothetical 10% adverse change in prices for the delivery month of all energy commodities, the potential loss in future earnings of such a change is estimated at $1,100,000 for risk management trading activities as of July 31, 2002. The preceding hypothetical analysis is limited because changes in prices may or may not equal 10%. The following table summarizes the change in the unrealized fair value of contracts from risk management trading activities for the fiscal years ended July 31, 2002 and 2001. This table summarizes the contracts where settlement has not yet occurred. Fiscal year ended (in thousands) July 31, -------------------------- 2002 2001 ---------- ---------- Unrealized (losses) in fair value of contracts outstanding at beginning of year $(12,587) $ (359) Unrealized gains and (losses) recognized at inception - - Unrealized gains and (losses) recognized as a result of changes in valuation techniques or assumptions - - Other unrealized gains and (losses) recognized (6,148) 23,320 Less: realized gains and (losses) recognized (14,166) 35,548 ---------- ---------- Unrealized (losses) in fair value of contracts outstanding at end of year $ (4,569) $ (12,587) ========== ==========
The following table summarizes the maturity of these contracts for the valuation methodologies we utilize as of July 31, 2002 and 2001. This table summarizes the contracts where settlement has not yet occurred. (in thousands) Fair Value of Contracts at Period-End --------------------------------- Maturity greater than 1 Maturity year less than and less than Source of Fair Value 1 year 18 months ------------------------------------------------------------- ---------- -------------- Prices actively quoted $ (328) $ - Prices provided by other external sources (4,225) (16) Prices based on models and other valuation methods - - ---------- -------------- Unrealized (losses) in fair value of contracts outstanding at July 31, 2002 $(4,553) $ (16) ========== ============== Prices actively quoted $(2,535) $ - Prices provided by other external sources (4,061) (5,991) Prices based on models and other valuation methods - - ---------- -------------- Unrealized (losses) in fair value of contracts outstanding at July 31, 2001 $(6,596) $(5,991) ========== ==============
F-19 The following table summarizes the gross transaction volumes in barrels (one barrel equals 42 gallons) for risk management trading contracts that were physically settled for the years ended July 31, 2002, 2001 and 2000: (in thousands) Fiscal year ended July 31, 2002 11,162 Fiscal year ended July 31, 2001 18,539 Fiscal year ended July 31, 2000 42,284
The Partnership also uses forward contracts, not designated as accounting hedges under SFAS No. 133, to help reduce the price risk related to sales made to its propane customers. These forward contracts meet the requirement to qualify as normal purchases and sales as defined in SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, and thus are not adjusted to fair market value. As of July 31, 2002, the Partnership holds $706,177,000 in primarily fixed rate debt and $156,000,000 in variable rate operating leases. Fluctuations in interest rates subject the Partnership to interest rate risk. Decreases in interest rates increase the fair value of the Partnership's fixed rate debt, while increases in interest rates subject the Partnership to the risk of increased interest expense related to its variable rate debt and operating leases. The Partnership enters into fair value and cash flow hedges to help reduce its overall interest rate risk. Interest rate swaps were used to hedge the exposure to changes in the fair value of fixed rate debt due to changes in interest rates. The fair value of interest rate derivatives that are considered fair value or cash flow hedges are classified either as other current or long-term assets or as other current or long-term liabilities on the Consolidated Balance Sheets. Changes in the fair value of the fixed rate debt and any related fair value hedges are recognized as they occur in interest expense in the Consolidated Statements of Earnings. There were no such fair value hedges outstanding at July 31, 2002. Interest rate caps are used to hedge the risk associated with rising interest rates and their effect on forecasted transactions related to variable rate debt and lease obligations. These interest rate caps are designated as cash flow hedges and are outstanding at July 31, 2002. Thus, the effective portions of changes in the fair value of the hedges are recorded in OCI at interim periods and are recognized as interest expense in the Consolidated Statements of Earnings when the forecasted transaction impacts earnings. Cash flow hedges are assumed to hedge the risk of changes in cash flows of the hedged risk. K. Transactions with Related Parties The Partnership has no employees and is managed and controlled by the General Partner. Pursuant to the Partnership Agreement, the General Partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on behalf of the Partnership, and all other necessary or appropriate expenses allocable to the Partnership or otherwise reasonably incurred by the General Partner in connection with operating the Partnership's business. These costs, which totaled $197,863,000, $194,519,000, and $179,033,000 for the years ended July 31, 2002, 2001, and 2000, respectively, include compensation and benefits paid to officers and employees of the General Partner and general and administrative costs. On December 12, 2001, the Partnership issued 37,487 common units to Ferrell Propane, Inc., a subsidiary of the General Partner in connection with the acquisition of Blue Flame Bottle Gas (see Note P). The common unit issuance compensated Ferrell Propane for its retention of $725,000 of certain tax liabilities of Blue Flame. F-20 During fiscal 2000, Williams became a related party to the Partnership due to the Partnership's issuance of 4,375,000 senior units to a subsidiary of Williams as part of the Thermogas acquisition (See Notes I and P). In a noncash transaction, during fiscal 2001 and 2000, the Partnership paid quarterly senior unit distributions to Williams of $11,108,000 and $9,422,000, respectively, using additional senior units. In April 2001, Williams sold all its senior units to JEF Capital Management, Inc., an entity owned by James E. Ferrell, Chairman, Chief Executive Officer and President of the General Partner, and thereafter, ceased to be a related party of the Partnership. During fiscal 2001 and 2000, the Partnership recognized wholesale sales to Williams of $493,000 and $2,091,000, respectively. In connection with its normal purchasing and risk management activities, the Partnership entered into, with Williams as a counterparty, certain purchase, forward, futures, option and swap contracts. During fiscal 2001 and 2000 the Partnership recognized a net increase (decrease) to cost of sales of $(4,456,000) and $3,645,000, respectively, related to these activities. During fiscal 2000, Williams provided propane supply and general and administrative services to the Partnership to assist in the integration of the acquisition. The Partnership paid $67,547,000, $4,062,000 and $176,000 to Williams in fiscal 2000 and classified these costs to cost of product sold, general and administrative expenses and operating expenses, respectively. On April 6, 2001, Williams approved amendments to the MLP partnership agreement related to certain terms of the senior units. Williams then sold all of the senior units for a purchase price of $195,529,000 plus accrued and unpaid distributions to JEF Capital Management. The senior units currently have all the same terms and preference rights in distributions and liquidation as when the units were owned by Williams. During fiscal 2001, the Partnership paid to JEF Capital Management $83,464,000 to redeem a total of 2,086,612 senior units and $5,750,000 in senior unit distributions. During fiscal 2002, the Partnership paid JEF Capital Management $776,445 to redeem a total of 19,411 senior units and $11,192,000 in senior unit distributions. In a noncash transaction, the Partnership accrued a senior unit distribution of $2,782,211 that will be paid to JEF Capital Management on September 13, 2002. Ferrell International Limited, FI Trading, Inc. and Ferrell Resources, LLC are beneficially owned by James E. Ferrell and thus are affiliates of the Partnership. The Partnership enters into transactions with Ferrell International Limited and FI Trading in connection with its risk management activities and does so at market prices in accordance with an affiliate trading policy approved by the General Partner's Board of Directors. These transactions include forward, option and swap contracts and are all reviewed for compliance with the policy. During fiscal 2002, 2001 and 2000, the Partnership recognized net receipts (disbursements) from purchases, sales and commodity derivative transactions of $10,692,000, $(28,140,000), and $(8,508,000), respectively. These net purchases, sales and commodity derivative transactions with Ferrell International Limited and FI Trading, Inc. are classified as cost of product sold. Amounts due from Ferrell International Limited at July 31, 2002 and 2001 were $396,000 and $0, respectively. Amounts due to Ferrell International Limited at July 31, 2002 and 2001 were $266,000 and $0, respectively. During fiscal 2002, 2001 and 2000, Ferrell International Limited, FI Trading, Inc. and Ferrell Resources, LLC paid the Partnership a total of $40,000, $40,000, and $313,000, respectively, for accounting and administration services. The Partnership also leased propane tanks from Ferrell Propane, Inc., a subsidiary of the General Partner from October 1998 until February 2002, at which time, Ferrell Propane sold all its tanks to an unrelated entity. The Partnership recognized $300,000, $515,000, and $515,000 of lease expense during fiscal years 2002, 2001, and 2000. F-21 L. Contingencies and Commitments The Partnership is threatened with or named as a defendant in various lawsuits that, among other items, claim damages for product liability. It is not possible to determine the ultimate disposition of these matters; however, management is of the opinion that there are no known claims or contingent claims that will have a material adverse effect on the financial condition, results of operations or cash flows of the Partnership. Currently, the Partnership is not a party to any legal proceedings other than various claims and lawsuits arising in the ordinary course of business. On December 6, 1999, the OLP entered into, with Banc of America Leasing & Capital LLC, a $25,000,000 operating lease involving the sale-leaseback of a portion of the OLP's customer tanks. This operating lease has a term that expires June 30, 2003 and may be extended for two additional one-year periods at the option of the OLP, if such extension is approved by the lessor. On December 17, 1999, immediately prior to the closing of the Thermogas acquisition (See Note P), Thermogas entered into, with Banc of America Leasing & Capital LLC, a $135,000,000 operating lease involving a portion of its customer tanks. In connection with the Thermogas acquisition, the OLP assumed all obligations under the $135,000,000 operating lease, which has terms and conditions similar to the December 6, 1999, $25,000,000 operating lease discussed above. Prior to the end of these lease terms, the Partnership intends to secure additional financing in order to purchase the related customer tanks. No assurances can be given that such financing will be obtained or, if obtained, such financing will be on terms equally favorable to the Partnership. Effective June 2, 2000, the OLP entered into an interest rate cap agreement ("Cap Agreement") with Bank of America, related to variable quarterly rent payments due pursuant to two operating tank lease agreements. The variable quarterly rent payments are determined based upon a floating LIBOR based interest rate. The Cap Agreement, which expires June 30, 2003, requires Bank of America to pay the OLP at the end of each March, June, September and December the excess, if any, of the applicable three month floating LIBOR interest rate over 9.3%, the cap, applied to the total obligation due each quarter under the two operating tank lease agreements. The total obligation under these two operating tank lease agreements as of July 31, 2002 and 2001 was $156,000,000 and $157,600,000, respectively. The 2,782,211 senior units outstanding as of July 31, 2002 have a liquidating value of $40 per unit or $111,288,000. The senior units are redeemable by the Partnership at any time, in whole or in part, upon payment in cash of the liquidating value of the senior units, currently $40 per unit, plus the amount of any accrued and unpaid distributions. The holder of the senior units has the right, subject to certain events and conditions, to convert any outstanding senior units into common units at the earlier of December 31, 2005 or upon the occurrence of a material event as defined by the Partnership Agreement. Such conversion rights are contingent upon the Partnership not previously redeeming such securities. Certain property and equipment is leased under noncancelable operating leases which require fixed monthly rental payments and which expire at various dates through 2020. Rental expense under these leases totaled $36,959,000, $42,420,000, and $35,292,000 for the years ended July 31, 2002, 2001, and 2000, respectively. Future minimum lease commitments for such leases in the next five years, including the aforementioned operating tank leases, are $26,986,000 in 2003, $13,478,000 in 2004, $10,223,000 in 2005, $8,228,000 in 2006 and $5,020,000 in 2007. In addition to the future minimum lease commitments, the Partnership plans to purchase vehicles and computers at the end of their lease terms totaling $158,577,000 in 2003, $4,738,000 in 2004, $4,105,000 in 2005, $2,076,000 in 2006 and $6,944,000 in 2007. The Partnership intends to renew other vehicle, tank and computer leases that would have had buyouts of $5,039,000 in 2003 and $311,000 in 2004. F-22 M. Employee Benefits The Partnership has no employees and is managed and controlled by the General Partner. The Partnership assumes all liabilities, which include specific liabilities related to the following employee benefit plans for the benefit of the officers and employees of the General Partner. Ferrell makes contributions to the ESOT which causes a portion of the shares of Ferrell owned by the ESOT to be allocated to employees' accounts over time. The allocation of Ferrell shares to employee accounts causes a non-cash compensation charge to be incurred by the Partnership, equivalent to the fair value of such shares allocated. This non-cash compensation charge is reported separately in the Partnership's Consolidated Statements of Earnings and thus excluded from operating and general and administrative expenses. The non-cash compensation charge has increased from fiscal 2000 to fiscal 2001 primarily due to the effect of employees added to the company from the Thermogas acquisition (see Note P). This charge increased from fiscal 2001 to fiscal 2002 primarily due to the increase in the fair value of the Ferrell shares allocated to employees. The Partnership is not obligated to fund or make contributions to the ESOT. The General Partner and its parent, Ferrell, have a defined contribution profit-sharing plan which includes both profit sharing and matching contributions. The plan covers substantially all employees with more than one year of service. With the establishment of the ESOP in July 1998, the Company suspended future profit sharing contributions to the plan beginning with fiscal year 1998. The plan, which qualifies under section 401(k) of the Internal Revenue Code, also provides for matching contributions under a cash or deferred arrangement based upon participant salaries and employee contributions to the plan. Unlike the profit sharing contributions, these matching contributions were not eliminated with the establishment of the ESOP. Contributions for the years ended July 31, 2002, 2001, and 2000, were $2,773,000, $3,235,000, and $2,869,000, respectively, under the 401(k) provisions. The General Partner has a defined benefit plan that provides participants who were covered under a previously terminated plan with a guaranteed retirement benefit at least equal to the benefit they would have received under the terminated plan. Until July 31, 1999, benefits under the terminated plan were determined by years of credited service and salary levels. As of July 31, 1999, years of credited service and salary levels were frozen. The General Partner's funding policy for this plan is to contribute amounts deductible for Federal income tax purposes and invest the plan assets primarily in corporate stocks and bonds, U.S. Treasury bonds and short-term cash investments. As of July 31, 2002 and 2001, other comprehensive income was reduced and other liabilities were increased $527,000 and $2,092,000, respectively because the accumulated benefit obligation of this plan exceeded the fair value of plan assets. N. Unit Options of the Partnership and Stock Options of Ferrell Companies, Inc. Prior to April 19, 2001, the Second Amended and Restated Ferrellgas Unit Option Plan (the "unit option plan") authorized the issuance of options (the "unit options") covering up to 850,000 of the MLP's common units to employees of the General Partner or its affiliates. Effective April 19, 2001, the unit option plan was amended to authorize the issuance of options covering an additional 500,000 common units. The unit option plan is intended to meet the requirements of the New York Stock Exchange equity holder approval policy for option plans not approved by the equity holders of a company, and thus approval of the plan from the unitholders of the MLP was not required. The Board of Directors of the General Partner administers the unit option plan, authorizes grants of unit options thereunder and sets F-23 the unit option price and vesting terms of unit options in accordance with the terms of the unit option plan. No single officer or director of the General Partner may acquire more than 314,895 common units under the unit option plan. The unit options outstanding as of July 31, 2002, are exercisable at exercise prices ranging from $16.80 to $21.67 per unit, which was an estimate of the fair market value of the units at the time of the grant. In general, the options currently outstanding under the unit option plan vest over a five-year period, and expire on the tenth anniversary of the date of the grant. Number Weighted Weighted Of Average Average Units Exercise Price Fair Value ----------- -------------- ---------- Outstanding, August 1, 1999 782,025 $18.23 Granted - - $ - Forfeited (60,500) 19.38 ----------- Outstanding, July 31, 2000 721,525 18.13 Granted 651,000 17.90 2.56 Exercised (101,250) 16.80 Forfeited (42,075) 19.27 ----------- Outstanding, July 31, 2001 1,229,200 18.08 Granted - - - Exercised (55,350) 16.80 Forfeited (98,450) 18.04 ----------- Outstanding, July 31, 2002 1,075,400 18.15 ----------- Options exercisable, July 31, 2002 594,725 18.25 -----------
Options Outstanding at July 31, 2002 ------------------------------------ Range of option prices at end of year $16.80-$21.67 Weighted average remaining contractual life 6.2 Years
The Ferrell Companies Incentive Compensation Plan (the "ICP") was established by Ferrell to allow upper middle and senior level managers of the General Partner to participate in the equity growth of Ferrell. The shares underlying the stock options are common shares of Ferrell, therefore, there is no potential dilution of the Partnership. The Ferrell ICP stock options vest ratably in 5% to 10% increments over 12 years or 100% upon a change of control of Ferrell, or the death, disability or retirement at the age of 65 of the participant. Vested options are exercisable in increments based on the timing of the payoff of Ferrell debt, but in no event later than 20 years from the date of issuance. The Partnership accounts for stock-based compensation using the intrinsic value method prescribed in APB No. 25 and related Interpretations. Accordingly, no compensation cost has been recognized for the unit option plan, or for the ICP. Had compensation cost for these plans been determined based upon the fair value at the grant date for awards under these plans, consistent with the methodology prescribed under SFAS No. 123, the Partnership's net income (loss) and earnings (loss) per unit would have been adjusted as noted in the table below: F-24 (in thousands, except per unit amounts) 2002 2001 2000 -------- -------- -------- Net earnings (loss) available to common unitholders as reported $48,299 $45,594 $(10,146) Pro forma adjustment (10) (498) (79) -------- -------- --------- Net earnings (loss) available to common unitholders as adjusted $48,289 $45,096 $(10,225) ======== ======== ========= Pro forma basic and diluted net earnings (loss) per common unit $1.34 $ 1.41 $ (0.32) ======== ======== =========
The fair value of the unit options granted during fiscal 2001 was determined using a binomial option valuation model with the following assumptions: a) distribution amount of $0.50 per unit per quarter, b) average common unit price volatility of 23.2%, c) the risk-free interest rate used was 4.4%, and d) the expected life of the option used was five years. The fair value of the Ferrell Companies, Inc. ICP stock options granted during the 2002, 2001 and 2000 fiscal years were determined using a binomial option valuation model with the following assumptions: a) no dividends, b) average stock price volatility of 19.2%, 13.2% and 10.1% used in 2002, 2001 and 2000, respectively, c) the risk-free interest rate used was 4.3%, 5.2% and 6.4% in 2002, 2001 and 2000, respectively and d) expected life of the options between five and 12 years. O. Disclosures About Fair Value of Financial Instruments The carrying amount of short-term financial instruments approximates fair value because of the short maturity of the instruments. The estimated fair value of the Partnership's long-term financial instruments was $710,228,000 and $681,060,000 as of July 31, 2002 and 2001, respectively. The fair value is estimated based on quoted market prices. Interest Rate Collar, Cap and Swap Agreements. The Partnership from time to time has entered into various interest rate collar, cap and swap agreements involving, among others, the exchange of fixed and floating interest payment obligations without the exchange of the underlying principal amounts. During fiscal 2001, an interest rate collar agreement expired and a swap agreement was terminated by a counterparty. As of July 31, 2002, an interest rate cap agreement with a counterparty who is a large financial institution remained in place. The fair value of this interest rate cap agreement at July 31, 2002 and 2001 was de minimis. P. Business Combinations During the year ended July 31, 2002, the Partnership acquired three retail propane businesses with an aggregate value at $10,790,000. o Blue Flame Bottle Gas, based in southern Arizona o Alabama Butane Co., based in central and south Alabama o Alma Farmers Union Co-op, based in western Wisconsin F-25 These purchases were funded by $6,294,000 of cash payments and, in noncash transactions, the issuance of 117,487 common units valued at an aggregate of $2,325,000, and $2,171,000 of notes payable to the seller. The aggregate value was allocated as follows: $7,064,000 for fixed assets such as customer tanks, buildings and land, $2,671,000 for non-compete agreements, $1,195,000 for customer lists, $32,000 for other assets and $(172,000) for net working capital. Net working capital was comprised of $556,000 of current assets and $728,000 of current liabilities. The weighted average amortization period for non-compete agreements and customer lists are five and 15 years, respectively. During the year ended July 31, 2001, the Partnership made acquisitions of three businesses with an aggregate value at $418,000. The purchases were funded by $200,000 of cash payments and, in a non-cash transaction, the issuance of $218,000 of notes payable to the seller. Non-compete agreements and customer lists were assigned values of $228,000 and $4,000, respectively. On December 17, 1999, the Partnership purchased Thermogas from a subsidiary of Williams. At closing the Partnership entered into the following noncash transactions: a) issued $175,000,000 in senior units to the seller, b) assumed a $183,000,000 loan, (see Note H) and c) assumed a $135,000,000 operating lease (see Note L). After the conclusion of these acquisition-related transactions, including the merger of the OLP and Thermogas, the Partnership acquired $61,842,000 of cash, which remained on the Thermogas balance sheet at the acquisition date. The Partnership paid $17,146,000 in additional costs and fees related to the acquisition. As part of the Thermogas acquisition, the OLP agreed to reimburse Williams for the value of working capital received by the Partnership in excess of $9,147,500. On June 6, 2000, the OLP and Williams agreed upon the amount of working capital that was acquired by the Partnership on December 17, 1999. The OLP reimbursed Williams $5,652,500 as final settlement of this working capital reimbursement obligation. In fiscal 2000, the Partnership had accrued $7,033,000 in involuntary employee termination benefits and exit costs, which it expected to incur within twelve months from the acquisition date as it implemented the integration of the Thermogas operations. This accrual included $5,870,000 of termination benefits and $1,163,000 of costs to exit Thermogas activities. The Partnership paid $2,788,000 and $1,306,000 for termination benefits and $491,000 and $890,000 for exit costs in fiscal years 2001 and 2000, respectively. The remaining liability for termination benefits and exit costs was reduced in fiscal 2001 by $1,558,000 as an adjustment to goodwill. Prior to the issuance of SFAS No. 141, "Business Combinations," the total assets contributed to the OLP (at the Partnership's cost basis) were allocated as follows: (a) working capital of $16,870,000, (b) property, plant and equipment of $140,284,000, (c) $60,200,000 to customer list with an estimated useful life of 15 years, (d) $9,600,000 to assembled workforce with an estimated useful life of 15 years, (e) $3,071,000 to non-compete agreements with an estimated useful life ranging from one to seven years, and (f) $86,475,000 to goodwill at an estimated useful life of 15 years. The transaction was accounted for as a purchase and, accordingly, the results of operations of Thermogas have been included in the Consolidated Financial Statements from the date of acquisition. Pursuant to the implementation of SFAS No. 141, assembled workforce was considered an acquired intangible asset that did not meet the criteria for recognition apart from goodwill. Effective August 1, 2000, the $8,221,000 carrying value of assembled workforce was reclassified to goodwill. F-26 The following pro forma financial information assumes that the Thermogas acquisition occurred as of August 1, 1999 (unaudited): For the year ended July 31, (in thousands, except per unit amounts) 2000 ------------ Total revenues $1,055,031 Net loss (18,609) Common unitholders' interest in net loss (18,423) Basic and diluted loss per common unit $ (0.59)
During the fiscal year ended July 31, 2000, the Partnership made acquisitions of two other businesses with an aggregate value of $7,183,000, in addition to the Thermogas acquisition. These purchases were funded by $6,338,000 of cash payments and the following noncash transactions: the issuance of $601,000 of notes payable to the seller, $46,000 of common units and $198,000 of other costs and consideration. Customer lists and non-compete agreements were assigned values of $2,056,000 and $601,000, respectively. All transactions were accounted for using the purchase method of accounting and, accordingly, the results of operations of all acquisitions have been included in the Consolidated Financial Statements from their dates of acquisition. The pro forma effect of these transactions, except those related to the Thermogas acquisition, was not material to the results of operations. Q. Earnings Per Common Unit In fiscal 2002, 71,253 unit options were considered dilutive, however, these additional units caused less than a $0.01 change between the basic and dilutive earnings per unit. In fiscal 2001 and 2000, the unit options were antidilutive. Below is a calculation of the basic and diluted earnings per unit on the Consolidated Statements of Earnings. For diluted earnings per unit purposes, the senior units were excluded as they are considered contingently issuable common units for which all necessary conditions for their issuance have not been satisfied as of the end of the reporting period. In order to compute the basic and diluted earnings per common unit, the distributions on senior units are subtracted from net earnings to compute net earnings available to common unitholders. (in thousands, except per unit data) For the year ended July 31, ----------------------------------- 2002 2001 2000 --------- --------- --------- Net earnings (loss) available to common unitholders $48,299 $45,594 $(10,146) --------- --------- --------- Weighted average common units outstanding 36,022.3 31,987.3 31,306.7 Basic and diluted earnings (loss) per common unit $ 1.34 $ 1.43 $ (0.32) ========= ========= =========
F-27 R. Restatement of Consolidated Statements of Cash Flows Subsequent to the issuance of the Partnership's consolidated financial statements for the year ended July 31, 2002, management of the Partnership determined that the Partnership's cash flows from the accounts receivable securitizations should be reflected gross in its consolidated statements of cash flows and be included within operating activities rather than a net presentation within investing activities. The Partnership had previously disclosed the gross activity within the notes to the consolidated financial statements. As a result, the Partnership's consolidated statement of cash flows for the years ended July 31, 2002 and 2001 have been restated to present the gross cash flow activities from the accounts receivable securitizations and within the correct cash flow activity. A summary of the significant effects of the restatement is as follows: For the year ended July 31, ------------------------------------ (in thousands) 2002 2001 -------------- -------------- Cash Flows From Operating Activities Net cash provided by operating activities, as previously reported $152,925 $99,859 Adjustment of cash flows related to accounts receivable securitizations Proceeds from new accounts receivable securitizations 30,000 115,000 Proceeds from collections reinvested in revolving period accounts receivable securitizations 360,677 725,955 Remittances of amounts collected as servicer of accounts receivable securitizations (421,677) (809,955) -------------- -------------- Net cash provided by operating activities, as restated $121,925 $130,859 ============== ============== Cash Flows From Investing Activities Net cash provided by (used in) investing activities, as previously reported $(70,570) $12,736 Adjustment of cash flows related to accounts receivable securitizations 31,000 (31,000) -------------- -------------- Net cash (used in) investing activities, as restated $(39,570) $(18,264) ============== ==============
S. Quarterly Data (unaudited) The following summarized unaudited quarterly data includes all adjustments (consisting only of normal recurring adjustments) which we consider necessary for a fair presentation. Due to the seasonality of the retail distribution of propane, first and fourth quarter revenues, gross profit and net earnings are consistently less than the second and third quarter results. Other factors affecting the results of operations include competitive conditions, demand for product, timing of acquisitions, variations in the weather and fluctuations in propane prices. The sum of net earnings (loss) per common unit by quarter may not equal the net earnings (loss) per common unit for the year due to variations in the weighted average units outstanding used in computing such amounts. (in thousands, except per unit data) Fiscal year ended July 31, 2002 First Quarter Second Quarter Third Quarter Fourth Quarter ------------- -------------- ------------- -------------- Revenues $245,243 $355,738 $287,161 $146,654 Gross profit 95,296 179,147 152,521 74,395 Net earnings (loss) (13,502) 68,188 36,635 (31,362) Net earnings (loss) per common unit - basic (0.45) 1.80 0.93 (0.94) Net earnings (loss) per common unit - diluted (0.45) 1.80 0.93 (0.93) Fiscal year ended July 31, 2001 First Quarter Second Quarter Third Quarter Fourth Quarter ------------- -------------- ------------- -------------- Revenues $288,461 $641,817 $384,393 $153,999 Gross profit 92,141 234,150 152,801 59,461 Net earnings (loss) (17,565) 94,948 30,402 (43,717) Net earnings (loss) per common unit - basic and diluted (0.70) 2.85 0.81 (1.38)
F-28 INDEPENDENT AUDITORS' REPORT Board of Directors Ferrellgas Partners Finance Corp. Liberty, Missouri We have audited the accompanying balance sheets of Ferrellgas Partners Finance Corp. (a wholly-owned subsidiary of Ferrellgas Partners, L.P.), as of July 31, 2002, and 2001, and the related statements of earnings, stockholder's equity and cash flows for each of the three years in the period ended July 31, 2002. These financial statements are the responsibility of the Ferrellgas Partners Finance Corp.'s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 financial statements present fairly, in all material respects, the financial position of Ferrellgas Partners Finance Corp. as of July 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended July 31, 2002 in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Kansas City, Missouri September 12, 2002 F-29 FERRELLGAS PARTNERS FINANCE CORP. (a wholly-owned subsidiary of Ferrellgas Partners, L.P.) BALANCE SHEETS July 31, -------------------- ASSETS 2002 2001 ---------------------------------------------------------------- --------- --------- Cash $1,000 $1,000 --------- --------- Total Assets $1,000 $1,000 ========= ========= STOCKHOLDER'S EQUITY ---------------------------------------------------------------- Common stock, $1.00 par value; 2,000 shares authorized; 1,000 shares issued and outstanding $1,000 $1,000 Additional paid in capital 2,061 1,662 Accumulated deficit (2,061) (1,662) --------- --------- Total Stockholder's Equity $1,000 $1,000 ========= =========
See notes to financial statements. F-30 FERRELLGAS PARTNERS FINANCE CORP. (a wholly-owned subsidiary of Ferrellgas Partners, L.P.) STATEMENTS OF EARNINGS For the year ended July 31, ----------------------------------- 2002 2001 2000 ---------- ---------- ---------- Revenues $ - $ - $ - General and administrative expense 399 425 463 ---------- ---------- ---------- Net loss $ (399) $ (425) $ (463) ========== ========== ==========
See notes to financial statements. F-31 FERRELLGAS PARTNERS FINANCE CORP. (a wholly-owned subsidiary of Ferrellgas Partners, L.P.) STATEMENTS OF STOCKHOLDER'S EQUITY Common stock Additional Accum- Total ---------------------- paid in ulated stockholder's Shares Dollars capital deficit equity ----------- ---------- ----------- ------------ ----------------- August 1, 1999 1,000 $1,000 $774 $ (774) $1,000 Capital contribution - - 463 - 463 Net loss - - - (463) (463) ----------- ---------- ----------- ------------ ----------------- July 31, 2000 1,000 1,000 1,237 (1,237) 1,000 Capital contribution - - 425 - 425 Net loss - - - (425) (425) ----------- ---------- ----------- ------------ ----------------- July 31, 2001 1,000 1,000 1,662 (1,662) 1,000 Capital contribution - - 399 - 399 Net loss - - - (399) (399) ----------- ---------- ----------- ------------ ----------------- July 31, 2002 1,000 $1,000 $2,061 $(2,061) $1,000 =========== ========== =========== ============ =================
See notes to financial statements. F-32 FERRELLGAS PARTNERS FINANCE CORP. (a wholly-owned subsidiary of Ferrellgas Partners, L.P.) STATEMENTS OF CASH FLOWS For the year ended July 31, ----------------------------------- 2002 2001 2000 ----------- ---------- ---------- Cash Flows From Operating Activities: Net loss $ (399) $ (425) $ (463) ----------- ---------- ---------- Cash used by operating activities (399) (425) (463) ----------- ---------- ---------- Cash Flows From Financing Activities: Capital contribution 399 425 463 ----------- ---------- ---------- Cash provided by financing activities 399 425 463 ----------- ---------- ---------- Change in cash - - - Cash - beginning of year 1,000 1,000 1,000 ----------- ---------- ---------- Cash - end of year $1,000 $1,000 $1,000 =========== ========== ==========
See notes to financial statements. F-33 FERRELLGAS PARTNERS FINANCE CORP. (a wholly-owned subsidiary of Ferrellgas Partners, L.P.) NOTES TO FINANCIAL STATEMENTS A. Formation Ferrellgas Partners Finance Corp. (the "Finance Corp."), a Delaware corporation, was formed on March 28, 1996 and is a wholly-owned subsidiary of Ferrellgas Partners, L.P. (the "Partnership"). The Partnership contributed $1,000 to the Finance Corp. on April 8, 1996 in exchange for 1,000 shares of common stock. B. Commitment On April 26, 1996, the Partnership issued $160,000,000 of 9 3/8% Senior Secured Notes due 2006 (the "Senior Notes"). The Senior Notes became redeemable at the option of the Partnership, in whole or in part, at any time on or after June 15, 2001. On September 24, 2002, the Partnership has a commitment to redeem the Senior Notes, with the proceeds from $170,000,000 of newly issued fixed rate senior notes. Effective April 27, 2000, the Partnership entered into an interest rate swap agreement ("Swap Agreement") with Bank of America, related to the semi-annual interest payment due on the Senior Notes. The Swap Agreement, which was terminated by Bank of America on June 15, 2001, required Bank of America to pay the stated fixed interest rate (annual rate 9 3/8%) pursuant to the Senior Notes equaling $7,500,000 every six months due on each June 15 and December 15. In exchange, the Partnership was required to make quarterly floating interest rate payments on the 15th of March, June, September and December based on an annual interest rate equal to the 3 month LIBOR interest rate plus 1.655% applied to the same notional amount of $160,000,000. The Partnership resumed paying the stated fixed interest rate effective June 16, 2001. The Finance Corp. serves as a co-obligor for the Senior Notes. C. Income Taxes Income taxes have been computed as though the Company files its own income tax return. Deferred income taxes are provided as a result of temporary differences between financial and tax reporting using the asset/liability method. Deferred income taxes are recognized for the tax consequences of temporary differences between the financial statement carrying amounts and tax basis of existing assets and liabilities. Due to the inability of the Company to utilize the deferred tax benefit of $821 associated with the current year net operating loss carryforward of $2,110, which expire at various dates through July 31, 2022, a valuation allowance has been provided on the full amount of the deferred tax asset. Accordingly, there is no net deferred tax benefit for the years ended July 31, 2002, 2001 or 2000, and there is no net deferred tax asset as of July 31, 2002 and 2001. F-34 INDEX TO FINANCIAL STATEMENT SCHEDULES Page Ferrellgas Partners, L.P. and Subsidiaries Independent Auditors' Report on Schedules..................................S-2 Schedule I Parent Company Only Balance Sheets as of July 31, 2002 and 2001 and Statements of Earnings and Cash Flows for the years ended July 31, 2002, 2001 and 2000............................................S-3 Schedule II Valuation and Qualifying Accounts for the years ended July 31, 2002, 2001 and 2000.................S-6 S-1 INDEPENDENT AUDITORS' REPORT To the Partners of Ferrellgas Partners, L.P. and Subsidiaries Liberty, Missouri We have audited the consolidated financial statements of Ferrellgas Partners, L.P. and subsidiaries (the "Partnership") as of July 31, 2002 and 2001, and for each of the three years in the period ended July 31, 2002 and have issued our report thereon, which included two explanatory paragraphs relating to a change in accounting principle and to the restatement described in Note R, dated September 12, 2002 (May 29, 2003 as to Notes E and R). Our audit also included the financial statement schedules listed in Item 15. These financial statement schedules are the responsibility of the Partnership'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 set forth therein. DELOITTE & TOUCHE LLP Kansas City, Missouri September 12, 2002 S-2 Schedule I FERRELLGAS PARTNERS, L.P. PARENT ONLY BALANCE SHEETS (in thousands) July 31, ------------------- ASSETS 2002 2001 - --------------------------------------------------- --------- --------- Cash and cash equivalents $ 393 $ 215 Prepaid expenses and other current assets 2,079 147 Investment in Ferrellgas, L.P. 180,401 196,737 Other assets, net 423 3,019 --------- --------- Total Assets $183,296 $200,118 ========= ========= LIABILITIES AND PARTNERS' CAPITAL - --------------------------------------------------- Other current liabilities $ 2,135 $ 2,131 Long term debt 160,000 160,000 Partners' Capital Senior unitholder 111,288 112,065 Common unitholders (28,320) (12,959) General partner (59,035) (58,738) Accumulated other comprehensive income (2,772) (2,381) --------- --------- Total Partners' Capital 21,161 37,987 --------- --------- Total Liabilities and Partners' Capital $183,296 $200,118 ========= =========
S-3 Schedule I FERRELLGAS PARTNERS, L.P. PARENT ONLY STATEMENT OF EARNINGS (in thousands) For the year ended July 31, -------------------------------- 2002 2001 2000 --------- --------- --------- Equity in earnings of Ferrellgas, L.P. $ 75,588 $ 81,203 $ 15,907 Operating expense 2 - - Interest expense 15,583 13,858 15,047 Other charges 44 3,277 - --------- --------- --------- Net earnings $ 59,959 $ 64,068 $ 860 ========= ========= =========
S-4 Schedule I FERRELLGAS PARTNERS, L.P. PARENT ONLY STATEMENTS OF CASH FLOWS (in thousands) For the year ended July 31, ------------------------------- 2002 2001 2000 ---------- --------- --------- Cash Flows From Operating Activities: Net earnings $59,959 $64,068 $ 860 Reconciliation of net earnings to net cash used in operating activities: Amortization of capitalized financing costs 515 523 515 Other 192 48 - Equity in earnings of Ferrellgas, L.P. (75,588) (81,203) (15,907) Increase (decrease) in other current liabilities (73) 289 - Increase (decrease) in accrued interest expense 77 148 (183) ---------- --------- --------- Net cash used in operating activities (14,918) (16,127) (14,715) ---------- --------- --------- Cash Flows From Investing Activities: Distributions received from Ferrellgas, L.P. 99,051 83,133 77,962 ---------- --------- --------- Net cash provided by investing activities 99,051 83,133 77,962 ---------- --------- --------- Cash Flows From Financing Activities: Distributions to partners (84,075) (69,125) (63,247) Issuance of common units, net of issuance costs - 84,865 - Redemption of senior units (777) (83,464) - Proceeds from exercise of common unit options 939 1,718 - Other 16 (774) - Net advance from (to) affiliate (58) (12) - ---------- --------- --------- Net cash used by financing activities (83,955) (66,792) (63,247) ---------- --------- --------- Increase in cash and cash equivalents 178 214 - Cash and cash equivalents - beginning of year 215 1 1 ---------- --------- --------- Cash and cash equivalents - end of year $ 393 $ 215 $ 1 ========== ========= =========
S-5 Schedule II FERRELLGAS PARTNERS, L.P. AND SUBSIDIARY VALUATION AND QUALIFYING ACCOUNTS (in thousands) Balance at Charged to Deductions Balance beginning cost/ Other (amounts at end Description of period expenses Additions charged-off) of period - ---------------------------------- ----------- ----------- --------- ------------ --------- Year ended July 31, 2002 - ------------------------ Allowance for doubtful accounts $3,159 $1,604 $0 $(3,296) $1,467 Year ended July 31, 2001 - ------------------------ Allowance for doubtful accounts 2,388 3,029 0 (2,258) 3,159 Year ended July 31, 2000 - ------------------------ Allowance for doubtful accounts 1,296 2,349 0 (1,257) 2,388
S-6 Exhibit 21.1 SUBSIDIARIES OF FERRELLGAS PARTNERS, L.P. Ferrellgas, L.P., a Delaware limited partnership Ferrellgas Partners Finance Corp., a Delaware Corporation SUBSIDIARIES OF FERRELLGAS, L.P. bluebuzz.com, Inc., a Delaware Corporation Ferrellgas Receivables, LLC, a Delaware limited liability company Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Post-Effective Amendment No. 1 to Registration Statement No. 33-55185 of Ferrellgas Partners, L.P. on Form S-4 to Form S-1, in Amendment No. 1 to Registration Statement No. 333-71111 of Ferrellgas Partners, L.P. and Ferrellgas Partners Finance Corp. on Form S-3, and in Registration Statements No. 333-87633 and No. 333-84344 of Ferrellgas Partners, L.P. on Form S-8 of our reports dated September 12, 2002, (which report relative to Ferrellgas Partners, L.P. expresses an unqualified opinion and includes two explanatory paragraphs relating to a change in accounting principle and to the restatement described in Note R) appearing in this Form 10-K/A Amendment No. 2 of Ferrellgas Partners, L. P. and Ferrellgas Partners Finance Corp. for the year ended July 31, 2002. DELOITTE & TOUCHE LLP Kansas City, Missouri June 6, 2003 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Annual Report on Form 10-K/A of Ferrellgas Partners, L.P. (the "Partnership") for the fiscal year ended July 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership at the dates and for the periods indicated. The foregoing certification is made solely for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is subject to the "knowledge" and "willfulness" qualifications contained in 18 U.S.C. Section 1350(c). This certification is being furnished to the SEC in accordance with SEC Release Nos. 33-8212 and 34-47551, dated March 21, 2003. It is not to be deemed "filed" with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of Section 18. In addition, this certification is not to be incorporated by reference into any registration statement of the undersigned or other filing of the undersigned made pursuant to the Exchange Act or Securities Act, unless specifically identified as being incorporated therein by reference. Dated: June 6, 2003 /s/ James E. Ferrell -------------------------------------------------- James E. Ferrell Chairman, President and Chief Executive Officer of Ferrellgas, Inc., the registrant's general partner *A signed original of this written statement required by Section 906 has been provided to Ferrellgas Partners, L.P. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Annual Report on Form 10-K/A of Ferrellgas Partners, L.P. (the "Partnership") for the fiscal year ended July 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership at the dates and for the periods indicated. The foregoing certification is made solely for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is subject to the "knowledge" and "willfulness" qualifications contained in 18 U.S.C. Section 1350(c). This certification is being furnished to the SEC in accordance with SEC Release Nos. 33-8212 and 34-47551, dated March 21, 2003. It is not to be deemed "filed" with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of Section 18. In addition, this certification is not to be incorporated by reference into any registration statement of the undersigned or other filing of the undersigned made pursuant to the Exchange Act or Securities Act, unless specifically identified as being incorporated therein by reference. Dated: June 6, 2003 /s/ Kevin T. Kelly -------------------------------------------- Kevin T. Kelly Vice President and Chief Financial Officer of Ferrellgas, Inc., the registrant's general partner *A signed original of this written statement required by Section 906 has been provided to Ferrellgas Partners, L.P. Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Annual Report on Form 10-K/A of Ferrellgas Partners Finance Corp. for the fiscal year ended July 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company at the dates and for the periods indicated. The foregoing certification is made solely for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is subject to the "knowledge" and "willfulness" qualifications contained in 18 U.S.C. Section 1350(c). This certification is being furnished to the SEC in accordance with SEC Release Nos. 33-8212 and 34-47551, dated March 21, 2003. It is not to be deemed "filed" with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of Section 18. In addition, this certification is not to be incorporated by reference into any registration statement of the undersigned or other filing of the undersigned made pursuant to the Exchange Act or Securities Act, unless specifically identified as being incorporated therein by reference. Dated: June 6, 2003 /s/ James E. Ferrell -------------------------------------------------- James E. Ferrell President and Chief Executive Officer *A signed original of this written statement required by Section 906 has been provided to Ferrellgas Partners Finance Corp. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Annual Report on Form 10-K/A of Ferrellgas Partners Finance Corp. for the fiscal year ended July 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company at the dates and for the periods indicated. The foregoing certification is made solely for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is subject to the "knowledge" and "willfulness" qualifications contained in 18 U.S.C. Section 1350(c). This certification is being furnished to the SEC in accordance with SEC Release Nos. 33-8212 and 34-47551, dated March 21, 2003. It is not to be deemed "filed" with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of Section 18. In addition, this certification is not to be incorporated by reference into any registration statement of the undersigned or other filing of the undersigned made pursuant to the Exchange Act or Securities Act, unless specifically identified as being incorporated therein by reference. Dated: June 6, 2003 /s/ Kevin T. Kelly -------------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer *A signed original of this written statement required by Section 906 has been provided to Ferrellgas Partners Finance Corp. EX-99.7 4 form10qa.txt QUARTERLY REPORT ON FORM 10-Q/A Exhibit 99.7 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q/A [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended January 31, 2003 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ Commission file numbers: 001-11331 333-06693 Ferrellgas Partners, L.P. Ferrellgas Partners Finance Corp. (Exact name of registrants as specified in their charters) Delaware 43-1698480 Delaware 43-1742520 ------------------ -------------------- (States or other jurisdictions of (I.R.S. Employer incorporation or organization) Identification Nos.) One Liberty Plaza, Liberty, Missouri 64068 (Address of principal executive offices) (Zip Code) Registrants' telephone number, including area code: (816) 792-1600 Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ X ] No [ ] At February 28, 2003, the registrants had units or shares outstanding as follows: Ferrellgas Partners, L.P. 36,189,053 Common Units Ferrellgas Partners Finance Corp. 1,000 Common Stock EXPLANATORY NOTE On March 12, 2003, we filed with the Securities and Exchange Commission (SEC) our Quarterly Report on Form 10-Q for the quarterly period ended January 31, 2003. This Quarterly Report on Form 10-Q/A for the quarterly period ended January 31, 2003, is being filed to restate our condensed consolidated statements of cash flows related to our accounts receivable securitizations. This information was previously shown in the consolidated statements of cash flows on a net basis in the section "Cash Flows from Investing Activities" and is now shown on a gross basis in the section "Cash Flows from Operating Activities." This restatement necessitated the addition of a new Note N to our condensed consolidated financial statements to explain the restatement. It is important to note that this restated filing has no effect on our aggregate "Increase in cash and cash equivalents" for the six-months ended January 31, 2003 and 2002, but merely affect the allocation of our cash flows. Our aggregate "Increase in cash and cash equivalents" for the six-months ended January 31, 2003 and 2002 remain the same as initially disclosed in our Quarterly Report filed on March 12, 2003. Additionally, other than as stated above, this restatement has no impact on our previously reported condensed consolidated financial statements and accompanying notes for the six-months ended January 31, 2003 and 2002. The amendments being made pursuant to this Form 10-Q/A are as follows: o Item 1. "Financial Statements" has been revised to restate our condensed consolidated statements of cash flows.. See "Condensed Consolidated Statement of Cash Flows" and Note N of the accompanying condensed consolidated financial statements; and; o Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" has been revised to reflect the amendments made to Item 1 as follows: o "Liquidity and Capital Resources" - the first paragraph from our initial 10-Q has been modified; o "Liquidity and Capital Resources - Operating Activities" - the first paragraph from our initial 10-Q has been modified and a new second paragraph has been added; o "Liquidity and Capital Resources - Investing Activities" - the forth paragraph from our initial 10-Q has been deleted; and o Item 6. "Exhibits and Reports on Form 8-K" has been revised to include the certifications required by Title 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. See Exhibits 99.1, 99.2, 99.3 and 99.4 hereto. Except as described above, no other changes have been made to our Quarterly Report on Form 10-Q. For the convenience of the reader and as required under SEC rules, this Form 10-Q/A sets forth the complete text of Items 1, 2 and 6, rather than just the amended portions thereof. To preserve the nature and character of the disclosures set forth in these Items as originally filed, this Form 10-Q/A continues to speak as of March 12, 2002, and we have not updated the disclosures in this Form 10-Q/A to speak as of a later date or to reflect any events which occurred at a later date. For Items not modified herein, reference should be made to our Quarterly Report on Form 10-Q as filed with the SEC on March 12, 2003. The filing of this Form 10-Q/A is not an admission that our Quarterly Report on Form 10-Q, when made, knowingly included any untrue statement of a material fact or omitted to state a material fact necessary to make a statement not misleading. FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES FERRELLGAS PARTNERS FINANCE CORP. Form 10-Q/A Table of Contents Page PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Ferrellgas Partners, L.P. and Subsidiaries ------------------------------------------ Condensed Consolidated Balance Sheets - January 31, 2003 and July 31, 2002 (unaudited) 1 Condensed Consolidated Statements of Earnings - Three and six months ended January 31, 2003 and 2002 (unaudited) 2 Condensed Consolidated Statement of Partners' Capital - Six months ended January 31, 2003 (unaudited) 3 Condensed Consolidated Statements of Cash Flows - Six months (restated)ended January 31, 2003 and 2002 (unaudited) 4 Notes to Condensed Consolidated Financial Statements (unaudited) 5 Ferrellgas Partners Finance Corp. --------------------------------- Condensed Balance Sheets - January 31, 2003 and July 31, 2002 (unaudited) 13 Condensed Statements of Earnings - Three and six months ended January 31, 2003 and 2002 (unaudited) 13 Condensed Statements of Cash Flows - Six months ended January 31, 2003 and 2002 (unaudited) 14 Notes to Condensed Financial Statements (unaudited) 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 24 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) (unaudited) January 31, July 31, ASSETS 2003 2002 - --------------------------------------------------------------------- --------------- --------------- Current Assets: Cash and cash equivalents $ 26,245 $ 19,781 Accounts and notes receivable, net 113,199 74,274 Inventories 71,739 48,034 Prepaid expenses and other current assets 8,321 10,724 --------------- --------------- Total Current Assets 219,504 152,813 Property, plant and equipment, net 687,426 506,531 Goodwill 124,190 124,190 Intangible assets, net 103,130 98,170 Other assets, net 23,354 3,424 --------------- --------------- Total Assets $ 1,157,604 $ 885,128 =============== =============== LIABILITIES AND PARTNERS' CAPITAL - --------------------------------------------------------------------- Current Liabilities: Accounts payable $ 100,408 $ 54,316 Other current liabilities 89,270 89,061 -------------- --------------- Total Current Liabilities 189,678 143,377 Long-term debt 902,235 703,858 Other liabilities 17,718 14,861 Contingencies and commitments (Note I) - - Minority interest 2,793 1,871 Partners' Capital: Senior unitholder (2,743,020 and 2,782,211 units outstanding at January 31, 2003 and July 31, 2002, respectively - liquidation preference $109,721 and $111,288 at January 31, 2003 and July 31, 2002, respectively) 109,721 111,288 Common unitholders (36,180,553 and 36,081,203 units outstanding at January 31, 2003 and July 31, 2002, respectively) (3,769) (28,320) General partner unitholder (393,167 and 392,556 units outstanding at January 31, 2003 and July 31, 2002, respectively) (58,843) (59,035) Accumulated other comprehensive loss (1,929) (2,772) -------------- --------------- Total Partners' Capital 45,180 21,161 --------------- --------------- Total Liabilities and Partners' Capital $ 1,157,604 $ 885,128 =============== ===============
See notes to these condensed consolidated financial statements. 1 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per unit data) (unaudited) For the three months ended For the six months ended ------------------------------------ ------------------------------------ January 31, 2003 January 31, 2002 January 31, 2003 January 31, 2002 ---------------- ---------------- ---------------- ---------------- Revenues: Propane and other gas liquids sales $ 439,301 $ 331,129 $ 634,201 $ 555,414 Other 25,165 24,609 46,579 45,567 ---------------- ---------------- ---------------- ---------------- Total revenues 464,466 355,738 680,780 600,981 Cost of product sold (exclusive of depreciation, shown with amortization below) 254,718 176,591 378,390 326,538 ---------------- ---------------- ---------------- ---------------- Gross profit 209,748 179,147 302,390 274,443 Operating expense 79,677 70,373 148,105 137,500 Depreciation and amortization expense 10,261 10,765 20,156 22,219 General and administrative expense 7,759 6,632 14,661 13,457 Equipment lease expense 5,528 6,086 11,520 12,631 Employee stock ownership plan compensation charge 1,639 1,274 3,034 2,583 Loss on disposal of assets and other 1,125 431 1,796 1,278 ---------------- ---------------- ---------------- ---------------- Operating income 103,759 83,586 103,118 84,775 Interest expense (16,084) (15,208) (30,780) (30,322) Interest income 364 545 426 871 Early extinguishment of debt expense - (7,052) ---------------- ---------------- ---------------- ---------------- Earnings before minority interest and cumulative effect of change in accounting principle 88,039 68,923 65,712 55,324 Minority interest 937 735 822 638 ---------------- ---------------- ---------------- ---------------- Earnings before cumulative effect of change in accounting principle 87,102 68,188 64,890 54,686 Cumulative effect of change in accounting principle, net of minority interest of $28 - - (2,754) - ---------------- ---------------- ---------------- ---------------- Net earnings 87,102 68,188 62,136 54,686 Distribution to senior unitholder 2,743 2,802 5,525 5,604 Net earnings available to general partner unitholder 843 654 566 491 ---------------- ---------------- ---------------- ---------------- Net earnings available to common unitholders $83,516 $64,732 $56,045 $48,591 ================ ================ ================ ================ Basic earnings per common unit: Net earnings available to common unitholders before cumulative effect of change in accounting principle $ 2.31 $ 1.80 $ 1.62 $ 1.35 Cumulative effect of change in accounting principle - - (0.07) - ---------------- ---------------- ---------------- ---------------- Net earnings available to common unitholders $ 2.31 $ 1.80 $ 1.55 $ 1.35 ================ ================ ================ ================ Diluted earnings per common unit: Net earnings available to common unitholders before cumulative effect of change in accounting principle $ 2.30 $ 1.79 $ 1.62 $ 1.35 Cumulative effect of change in accounting principle - - (0.07) - ---------------- ---------------- ---------------- ---------------- Net earnings available to common unitholders $ 2.30 $ 1.79 $ 1.55 $ 1.35 ================ ================ ================ ================
See notes to these condensed consolidated financial statements. 2 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (in thousands) (unaudited) Number of units Accumulated ----------------------------------- other General General compre- Total Senior Common partner Senior Common partner hensive partners' unitholder unitholders unitholder unitholder unitholders unitholder loss capital ---------- ----------- ---------- ---------- ----------- ---------- -------- --------- August 1, 2002 2,782.2 36,081.2 392.6 $111,288 $ (28,320) $ (59,035) $ (2,772) $ 21,161 Contribution in connection with ESOP compensation charge - - - - 2,974 30 - 3,004 Common unit cash distribution - - - - (36,110) (365) - (36,475) Senior unit cash and accrued distribution - - - - (5,502) (111) - (5,613) Redemption of senior units (39.2) - (0.4) (1,567) - - - (1,567) Common unit options exercised - 99.4 1.0 - 1,674 17 - 1,691 Comprehensive income: Net earnings - - - - 61,515 621 - 62,136 Other comprehensive income: Risk management fair value adjustment - - - - - - 843 843 --------- Comprehensive income 62,979 ---------- ----------- -------- ---------- ----------- ---------- -------- --------- January 31, 2003 2,743.0 36,180.6 393.2 $109,721 $ (3,769) $ (58,843) $ (1,929) $45,180 ========== =========== ======== ========== =========== ========== ======== =========
See notes to these condensed consolidated financial statements 3 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) For the six months ended ------------------------------------- January 31, 2003 January 31, 2002 (as restated*) (as restated*) ---------------- ---------------- Cash Flows From Operating Activities: Earnings before cumulative effect of change in accounting principle $64,890 $54,686 Adjustments to reconcile earnings before cumulative effect of change in accounting principle to net cash provided by operating activities: Early extinguishment of debt expense 1,854 - Depreciation and amortization expense 20,156 22,219 Employee stock ownership plan compensation charge 3,034 2,583 Minority interest 822 638 Other 4,968 757 Changes in operating assets and liabilities, net of effects from business acquisitions: Accounts and notes receivable, net (111,337) (52,176) Inventories (20,391) 13,812 Prepaid expenses and other current assets 1,285 615 Accounts payable 46,012 15,317 Other current liabilities (6,940) (10,169) Other liabilities (315) 436 Accounts receivable securitization: Proceeds from new accounts receivable securitizations 60,000 10,000 Proceeds from collections reinvested in revolving period accounts receivable securitizations 303,837 307,827 Remittances of amounts collected as servicer of accounts receivable securitizations (303,837) (329,827) ---------------- ---------------- Net cash provided by operating activities 64,038 36,718 ---------------- ---------------- Cash Flows From Investing Activities: Business acquisitions, net of cash acquired (34,120) (6,536) Capital expenditures - tank lease buyout (155,600) - Capital expenditures - technology initiative (10,993) (6,100) Capital expenditures - other (7,509) (9,940) Other 1,516 2,088 ---------------- ---------------- Net cash used in investing activities (206,706) (20,488) ---------------- ---------------- Cash Flows From Financing Activities: Distributions (42,129) (41,992) Proceeds from issuance of debt 359,715 30,107 Principal payments on debt (161,559) (11,655) Net additions to short-term borrowings - 8,135 Cash paid for financing costs (7,001) - Minority interest activity 97 (481) Proceeds from exercise of common unit options 1,576 649 Redemption of senior units (1,567) - Cash contribution from general partner - 23 ---------------- ---------------- Net cash provided by (used in) financing activities 149,132 (15,214) ---------------- ---------------- Increase in cash and cash equivalents $ 6,464 $ 1,016 Cash and cash equivalents - beginning of period 19,781 25,386 ---------------- ---------------- Cash and cash equivalents - end of period $26,245 $26,402 =============== ================ Cash paid for interest $28,551 $29,038 =============== ================
* See Note N to these condensed consolidated financial statements. See notes to these condensed consolidated financial statements. 4 FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 2003 (Dollars in thousands, except per unit data) (unaudited) A. Organization Ferrellgas Partners, L.P.'s activities are primarily conducted through its subsidiary Ferrellgas, L.P. Ferrellgas Partners is the sole limited partner of Ferrellgas, L.P. with an approximate 99% limited partner interest. Ferrellgas Partners and its subsidiaries, including Ferrellgas, L.P., are together referred to as Ferrellgas. The general partner of both Ferrellgas Partners and Ferrellgas, L.P. is Ferrellgas, Inc., which owns an effective 2% general partner interest in Ferrellgas on a combined basis. The condensed consolidated financial statements of Ferrellgas Partners and subsidiaries reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the interim periods presented. All adjustments to the condensed consolidated financial statements were of a normal, recurring nature. The information included in this Quarterly Report on Form 10-Q/A should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations, and the consolidated financial statements and accompanying notes included in Ferrellgas Partners' Annual Report on Form 10-K/A Amendment No. 2 for the fiscal year ended July 31, 2002. B. Accounting estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from these estimates. Significant estimates impacting the condensed consolidated financial statements include accruals that have been established for product liability and other claims. C. Reclassifications Certain reclassifications have been made to the three and six months ended January 31, 2002 condensed consolidated financial statements to conform to the six months ended January 31, 2003 condensed consolidated financial statements presentation. D. Nature of operations Ferrellgas is engaged primarily in the retail distribution of propane and related equipment and supplies in the United States. The retail market is seasonal because propane is used primarily for heating in residential and commercial buildings. Therefore, the results of operations for the three and six months ended January 31, 2003 and 2002 are not necessarily indicative of the results to be expected for a full fiscal year. 5 E. Supplemental Balance Sheet and Statement of Earnings Information: Inventories consist of: January 31, July 31, 2003 2002 --------------- --------------- Propane gas and related products $54,311 $29,169 Appliances, parts and supplies 17,428 18,865 --------------- --------------- $71,739 $48,034 =============== =============== In addition to inventories on hand, Ferrellgas enters into contracts to buy and sell product, primarily propane for supply procurement purposes. Nearly all of these contracts have terms of less than one year and most call for payment based on market prices at the date of delivery. All fixed price contracts have terms of less than one year. As of January 31, 2003, Ferrellgas had committed, for supply procurement purposes, to make net delivery of approximately 5.7 million gallons of propane at a fixed price. Property, plant and equipment, net consist of: January 31, July 31, 2003 2002 --------------- --------------- Property, plant and equipment $999,988 $810,416 Less: accumulated depreciation 312,562 303,885 --------------- --------------- $687,426 $506,531 =============== =============== On December 10, 2002, Ferrellgas purchased propane tanks and related assets for $155.6 million that were previously leased. See Note F for a discussion regarding the funding of this purchase. Intangible assets consist of: January 31, 2003 July 31, 2002 ------------------------------------------- ------------------------------------------- Gross Gross Carrying Accumulated Carrying Accumulated Amount Amortization Net Amount Amortization Net ---------- ------------ --------- ---------- ------------ --------- Customer lists $217,465 $(129,112) $88,353 $208,662 $(124,860) $83,802 Non-compete agreements 65,354 (50,577) 14,777 62,893 (48,525) 14,368 ---------- ------------ --------- ---------- ------------ --------- Total $282,819 $(179,689) $103,130 $271,555 $(173,385) $98,170 ========== ============ ========= ========== ============ =========
Aggregate Amortization Expense: 2003 2002 ---------- ---------- For the six months ended January 31 $6,304 $7,982
Estimated Amortization Expense: For the year ended July 31 2003 $12,275 2004 11,742 2005 11,570 2006 10,691 2007 10,051
6 Other assets, net consist of: January 31, July 31, 2003 2002 -------------- -------------- Debt issue costs $7,722 $2,399 Investment in unconsolidated subsidiary 14,291 - Other 1,341 1,025 -------------- -------------- $23,354 $3,424 ============== ============== On September 24, 2002, Ferrellgas issued $170.0 million of 8.75% senior notes due 2012, the proceeds of which were used to repurchase and redeem the $160.0 million of 9.375% senior secured notes due 2006. Debt issue costs of $4.8 million, of which $4.3 million is classified as other assets, related to the $170.0 million senior note issuance, were capitalized and will be amortized to interest expense through fiscal 2012. On December 10, 2002, Ferrellgas refinanced its $157.0 million bank credit facility with an amended $307.5 million bank credit facility, which will terminate on April 28, 2006, unless extended or renewed. Debt issue costs of $1.9 million, of which $1.3 million is classified as other assets, related to this refinancing, were capitalized and will be amortized to interest expense through 2006. The investment in unconsolidated subsidiary represents Ferrellgas' investment in Ferrellgas Receivables, LLC and is accounted for using the equity method. During the six months ended January 31, 2003, Ferrellgas increased its investment in the subsidiary. F. Long-Term Debt Long-term debt consists of: January 31, July 31, 2003 2002 --------------- --------------- Senior notes Fixed rate, 7.16%, due 2005-2013 $350,000 $350,000 Fixed rate, 8.75%, due 2012 219,658 - Fixed rate, 9.375%, due 2006 - 160,000 Fixed rate, 8.8%, due 2006-2009 184,000 184,000 Credit agreement, variable interest rates, due 2006 140,000 - Notes payable, 7.4% and 7.6% weighted average interest rates, respectively, due 2003 to 2011 11,057 12,177 --------------- --------------- 904,715 706,177 Less: current portion, included in other current liabilities on the condensed consolidated balance sheets 2,480 2,319 --------------- --------------- $902,235 $703,858 =============== ===============
On September 24, 2002, Ferrellgas issued $170.0 million of 8.75% senior notes due 2012, the proceeds of which were used to repurchase and redeem its $160.0 million of 9.375% senior secured notes due 2006. During the three months ended October 31, 2002, Ferrellgas recognized $7.1 million of early extinguishment of debt expense related to the $5.2 million of premium and other costs incurred to repurchase and redeem its $160.0 million senior secured notes and the write-off of $1.9 million of unamortized debt issue costs. 7 On December 18, 2002, Ferrellgas issued $48.0 million of 8.75% senior notes due 2012, the proceeds of which were used to reduce borrowings under the bank credit facility to provide increased availability of funds for working capital, acquisition, capital expenditure and general corporate purposes. The $48.0 million senior notes were issued with a debt premium of $1.7 million that will be amortized to interest expense through 2012. Interest on the 8.75% senior notes due 2012 is payable semi-annually in arrears on June 15 and December 15. Interest on the $170.0 million 8.75% senior notes commenced on December 15, 2002 and interest on the $48.0 million 8.75% senior notes will commence on June 15, 2003. These notes are unsecured and are not redeemable before June 15, 2007, except in specific circumstances. On December 10, 2002, Ferrellgas refinanced its $157.0 million bank credit facility with a $307.5 million amended bank credit facility, using $155.6 million of the funds available to purchase propane tanks and related assets that were previously leased, plus a $1.2 million payment of related accrued lease expense. The remaining portion of the amended bank credit facility is available for working capital, acquisition, capital expenditure and general partnership purposes and will terminate on April 28, 2006, unless extended or renewed. As of January 31, 2003, Ferrellgas had borrowings of $140.0 million, at a weighted average interest rate of 3.64%, under this amended bank credit facility. As of January 31, 2003, Ferrellgas believes that it has met all the required quarterly financial tests and covenants. All borrowings under the amended bank credit facility bear interest, at Ferrellgas' option, at a rate equal to either: o the base rate, which is defined as the higher of the federal funds rate plus 0.50% or Bank of America's prime rate (as of January 31, 2003, the federal funds rate and Bank of America's prime rate were 1.33% and 4.25%, respectively); or o the Eurodollar Rate plus a margin varying from 1.75% to 2.75% (as of January 31, 2003, the one-month Eurodollar Rate was 1.26%). The scheduled annual principal payments on long-term debt as of January 31, 2003, are as follows: Scheduled annual Fiscal year ending July 31, principal payments --------------------------- -------------------- Payments remaining in 2003 $ 760 2004 2,134 2005 2,299 2006 251,313 2007 59,039 Thereafter 587,512 G. Asset Retirement Obligations Statement of Financial Accounting Standard (SFAS) No. 143 provides accounting requirements for retirement obligations associated with tangible long-lived assets, including the requirement that a liability be recognized if there is a legal or financial obligation associated with the retirement of the assets. Ferrellgas adopted SFAS No. 143 beginning in the year ending July 31, 2003. This cumulative effect of a change in accounting principle resulted in a one-time charge to earnings of $2.8 million during the three months ended October 31, 2002, together with the recognition of a $3.1 million long-term liability and a $0.3 million long-term asset. Ferrellgas believes the implementation will not have a material ongoing effect on its financial position, results of operations and cash flows. These obligations relate primarily to the estimated future expenditures required to retire Ferrellgas' underground storage facilities. These facilities will likely require closure and remediation expenditures in approximately 50 years. The following table presents a reconciliation of the beginning and ending carrying amounts of the asset retirement obligation: 8 Six months ended January 31, 2003 --------------- Asset retirement obligation as of August 1, 2002 $3,073 Add: Accretion 99 --------------- Asset retirement obligation as of January 31, 2003 $3,172 =============== The related asset carried for the purpose of settling the asset retirement obligation is $0.3 million as of January 31, 2003, and is not a legally restricted asset. Assuming retroactive application of the change in accounting principle as of August 1, 2001, there would be no material change in the pro forma net earnings for the six months ended January 31, 2002. Other liabilities, assuming retroactive application of the change in accounting principle as of August 1, 2001 and July 31, 2002, would have increased $2.9 million and $3.1 million, respectively. H. Guarantees Financial Accounting Standards Board (FASB) Financial Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," expands the existing disclosure requirements for guarantees and requires recognition of a liability for the fair value of guarantees issued after December 31, 2002. As of January 31, 2003, the only material guarantees that Ferrellgas had outstanding were associated with residual value guarantees of operating leases. These operating leases are related to transportation equipment with remaining lease periods scheduled to expire over the next seven fiscal years. Upon completion of the lease period, Ferrellgas guarantees that the fair value of the equipment will equal or exceed the guaranteed amount, or Ferrellgas will pay the lessor the difference. The fair value of these residual value guarantees entered into after December 31, 2002 was $30 thousand as of January 31, 2003. Although the fair values at the end of the lease terms have historically exceeded these guaranteed amounts, the maximum potential amount of aggregate future payments Ferrellgas could be required to make under these leasing arrangements, assuming the equipment is worthless at the end of the lease term, is $16.6 million. I. Contingencies Ferrellgas is threatened with or named as a defendant in various lawsuits that, among other items, claim damages for product liability. It is not possible to determine the ultimate disposition of these matters; however, management is of the opinion that there are no known claims or contingent claims that would reasonably be expected to have a material adverse effect on the financial condition, results of operations and cash flows of Ferrellgas. Currently, Ferrellgas is not a party to any legal proceedings other than various claims and lawsuits arising in the ordinary course of business. J. Distributions On September 13, 2002 and December 13, 2002, Ferrellgas paid cash distributions of $1.00 and $0.50 per senior and common unit, respectively, for the three months ended July 31, 2002 and October 31, 2002. On February 17, 2003, Ferrellgas declared cash distributions of $1.00 and $0.50 per senior and common unit, respectively, for the three months ended January 31, 2003, that will be paid on March 14, 2003. 9 K. Earnings Per Common Unit Below is a calculation of the basic and diluted earnings per common unit in the condensed consolidated statements of earnings for the periods indicated. For diluted earnings per common unit purposes, the senior units were excluded as they are considered contingently issuable common units for which all necessary conditions for their issuance have not been satisfied as of the end of the reporting period. In order to compute the basic and diluted earnings per common unit, the distributions on senior units are subtracted from net earnings to compute net earnings available to common unitholders. Three months ended Six months ended ------------------------------ ------------------------------ January 31 January 31 January 31 January 31 2003 2002 2003 2002 ------------- --------------- ------------- --------------- Net earnings available to common unitholders before cumulative effect of change in accounting principle $83,516 $64,732 $58,771 $48,591 Cumulative effect of change in accounting principle, net of minority interest and general partner interest of $56 - - (2,726) - ------------- --------------- ------------- --------------- Net earnings available to common unitholders $83,516 $64,732 $56,045 $48,591 ============= =============== ============= =============== ----------------------------------------------------------------------------------------------------------------- Weighted average common units outstanding 36,144.0 36,022.7 36,116.0 35,970.9 Dilutive securities 92.7 64.3 84.3 32.9 ------------- --------------- ------------- --------------- Weighted average common units outstanding plus dilutive securities 36,236.7 36,087.0 36,200.3 36,003.8 ----------------------------------------------------------------------------------------------------------------- Basic earnings per common unit: ------------------------------- Net earnings available to common unitholders before cumulative effect of change in accounting principle $2.31 $1.80 $1.62 $1.35 Cumulative effect of change in accounting principle, net of minority interest and general partner interest of $56 - - (0.07) - ------------- --------------- ------------- --------------- Net earnings available to common unitholders $2.31 $1.80 $1.55 $1.35 ============= =============== ============= =============== ----------------------------------------------------------------------------------------------------------------- Diluted earnings per common unit: -------------------------------- Net earnings available to common unitholders before cumulative effect of change in accounting principle $2.30 $1.79 $1.62 $1.35 Cumulative effect of change in accounting principle - - (0.07) - ------------- --------------- ------------- --------------- Net earnings available to common unitholders $2.30 $1.79 $1.55 $1.35 ============= =============== ============= ===============
10 L. Business Combinations During the six months ended January 31, 2003, Ferrellgas acquired the following retail propane businesses with an aggregate value at $43.6 million: o ProAm, Inc., based primarily in Georgia and Texas, acquired December, 2002; o a branch of Cenex Propane Partners Co., based in Iowa, acquired November, 2002; and o Northstar Propane, based in Nevada, acquired November, 2002. These purchases were primarily funded by $34.1 million of cash payments and the issuance of a $10.0 million non-interest bearing note due in December 2003. The aggregate value of $43.6 million of these three retail propane businesses was preliminarily allocated as follows: $25.9 million for fixed assets such as customer tanks, buildings and land, $9.4 million for customer lists, $2.5 million for non-compete agreements and $5.8 million for net working capital. Net working capital was comprised of $7.8 million of current assets and $2.0 million of current liabilities. The estimated fair values and useful lives of assets acquired are based on a preliminary valuation and are subject to final valuation adjustments. Ferrellgas intends to continue its analysis of the net assets of these acquired businesses to determine the final allocation of the total purchase price to the various assets acquired. The weighted average amortization period for non-compete agreements and customer lists are five and 15 years, respectively. The results of operations of all acquisitions have been included in the condensed consolidated financial statements from their dates of acquisition. The pro forma effect of these transactions was not material to the results of operations. M. Adoption of New Accounting Standards The Financial Accounting Standards Board recently issued SFAS No. 143 "Accounting for Asset Retirement Obligations", SFAS No. 144 "Accounting for the Impairment or Disposal of Long-lived Assets", SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections," SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities," SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and Disclosure," FASB Financial Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" and FASB Financial Interpretation No. 46 "Consolidation of Variable Interest Entities." SFAS No. 143 requires the recognition of a liability if a company has a legal or contractual financial obligation in connection with the retirement of a tangible long-lived asset. Ferrellgas implemented SFAS No. 143 beginning in the year ending July 31, 2003. This cumulative effect of a change in accounting principle resulted in a one-time charge to earnings of $2.8 million during the three months ended October 31, 2002, together with the recognition of a $3.1 million long-term liability and a $0.3 million long-term asset. See Note G for further discussion of these obligations. Ferrellgas believes this implementation will not have a material ongoing effect on its financial position, results of operations and cash flows. SFAS No. 144 modifies the financial accounting and reporting for long-lived assets to be disposed of by sale and it broadens the presentation of discontinued operations to include more disposal transactions. Ferrellgas implemented SFAS No. 144 beginning in the year ending July 31, 2003, with no material effect on its financial position, results of operations and cash flows. 11 SFAS No. 145 eliminates the requirement that material gains and losses resulting from the early extinguishment of debt be classified as an extraordinary item in the consolidated statements of earnings. Instead, companies must evaluate whether the transaction meets both the criteria of being unusual in nature and infrequent in occurrence. Other aspects of SFAS No. 145 relating to accounting for intangible assets of motor carriers and accounting for certain lease modifications do not currently apply to Ferrellgas. Ferrellgas implemented SFAS No. 145 beginning in the year ending July 31, 2003, and began reporting expenses associated with early extinguishment of debt in income from continuing operations. For the three months ended October 31, 2002, Ferrellgas recognized $7.1 million of expenses associated with the early extinguishment of the $160.0 million senior secured notes. Prior to the adoption of SFAS No. 145, Ferrellgas would have classified this type of expense as an extraordinary item. SFAS No. 146 modifies the financial accounting and reporting for costs associated with exit or disposal activities. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Additionally, the statement requires the liability to be recognized and measured initially at fair value. Under previous rules, liabilities for exit costs were recognized at the date of the entity's commitment to an exit plan. Ferrellgas has adopted and implemented SFAS No. 146 for all exit or disposal activities initiated after July 31, 2002. Ferrellgas believes the implementation will not have a material effect on its financial position, results of operations and cash flows. SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation" to provide alternative methods of transition for a voluntary change to the fair-value based method of accounting for stock-based employee compensation. This statement also amends SFAS 123 disclosure requirements for annual and interim financial statements to provide more prominent disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement is effective for the fiscal year ending July 31, 2003, with earlier application permitted. However, the interim disclosure requirements will be effective for the three months ending April 30, 2003. Ferrellgas is currently studying SFAS 148 and the related implications of SFAS 123. FASB Financial Interpretation No. 45 expands the existing disclosure requirements for guarantees and requires that companies recognize a liability for guarantees issued after December 31, 2002. Ferrellgas implemented this interpretation beginning in the three months ended January 31, 2003. The implementation resulted in the recognition of a liability of $30 thousand, and a related prepaid asset of $30 thousand, both of which will be amortized over the life of the guarantees. See Note H for further discussion about these guarantees. FASB Financial Interpretation No. 46 clarified Accounting Research Bulletin No. 51, "Consolidated Financial Statements." If certain conditions are met, this interpretation requires the primary beneficiary to consolidate certain variable interest entities in which equity investors lack the characteristics of a controlling financial interest or do not have sufficient equity investment at risk to permit the variable interest entity to finance its activities without additional subordinated financial support from other parties. This interpretation is effective immediately for variable interest entities created or obtained after January 31, 2003. For variable interest entities acquired before February 1, 2003, the interpretation is effective for the first fiscal year or interim period beginning after June 15, 2003. Ferrellgas currently does not have any variable interest entities that would be subject to this interpretation. 12 N. Restatement of Condensed Consolidated Statements of Cash Flows Subsequent to the issuance of the Partnership's condensed consolidated financial statements for the six months ended January 31, 2003, management of the Partnership determined that the cash flows from the partnership's accounts receivable securitizations should be reflected gross in its consolidated statements of cash flows and be included within operating activities rather than a net presentation within investing activities. As a result, the Partnership's condensed consolidated statements of cash flows for the six months ended January 31, 2003 and 2002 have been restated to present the gross cash flow activities from the accounts receivable securitizations and within the correct cash flow activity. A summary of the significant effects of the restatement is as follows: For the six months ended -------------------------------------- January 31, January 31, 2003 2002 ----------------- ---------------- Cash Flows From Operating Activities Net cash provided by operating activities, as previously reported $4,038 $48,718 Adjustment of cash flows related to accounts receivable securitizations: Proceeds from new accounts receivable securitizations 60,000 10,000 Proceeds from collections reinvested in revolving period accounts receivable securitizations 303,837 307,827 Remittances of amounts collected as servicer of accounts receivable securitizations (303,837) (329,827) ----------------- ---------------- Net cash provided by operating activities, as restated $64,038 $36,718 ================= ================ Cash Flows From Investing Activities Net cash used in investing activities, as previously reported $(146,706) $(32,488) Adjustment of cash flows related to accounts receivable securitizations: (60,000) 12,000 ----------------- ---------------- Net cash used in investing activities, as restated $(206,706) $(20,488) ================= ================
FERRELLGAS PARTNERS FINANCE CORP. (a wholly-owned subsidiary of Ferrellgas Partners, L.P.) CONDENSED BALANCE SHEETS (Amounts in dollars) (unaudited) January 31, July 31, ASSETS 2003 2002 - ----------------------------------------------- ------------------ ------------------- Cash $1,000 $1,000 ------------------ ------------------- Total Assets $1,000 $1,000 ================== =================== STOCKHOLDER'S EQUITY - ----------------------------------------------- Common stock, $1.00 par value; 2,000 shares authorized; 1,000 shares issued and outstanding $1,000 $1,000 Additional paid in capital 2,061 2,061 Accumulated deficit (2,061) (2,061) ------------------ ------------------- Total Stockholder's Equity $1,000 $1,000 ================== ===================
CONDENSED STATEMENTS OF EARNINGS (unaudited) Three Months Ended Six Months Ended ----------------------------------- ----------------------------------- January 31, January 31, January 31, January 31, 2003 2002 2003 2002 --------------- --------------- --------------- --------------- General and administrative expense $ - $ 50 $ - $ 95 --------------- --------------- --------------- --------------- Net loss $ - $ (50) $ - $(95) =============== =============== =============== ===============
See notes to these condensed financial statements. 13 FERRELLGAS PARTNERS FINANCE CORP. (A wholly-owned subsidiary of Ferrellgas Partners, L.P.) CONDENSED STATEMENTS OF CASH FLOWS (unaudited) (Amounts in dollars) For the six months ended -------------------------------------------- January 31, January 31, 2003 2002 ------------------ ------------------- Cash Flows From Operating Activities: Net loss $ - $ (95) ------------------ ------------------ Cash used in operating activities $ - (95) ------------------ ------------------- Cash Flows From Financing Activities: Capital contribution - 95 ------------------ ------------------- Cash provided by financing activities - 95 ------------------ ------------------- Change in cash - - Cash - beginning of period 1,000 1,000 ------------------ ------------------- Cash - end of period $1,000 $1,000 ================== ===================
See notes to these financial statements. NOTES TO CONDENSED FINANCIAL STATEMENTS JANUARY 31, 2003 (unaudited) A. Ferrellgas Partners Finance Corp., a Delaware corporation, was formed on March 28, 1996, and is a wholly-owned subsidiary of Ferrellgas Partners, L.P. 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. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Ferrellgas Partners, L.P. is a Delaware limited partnership. Our common units are listed on the New York Stock Exchange and our activities are primarily conducted through our operating partnership Ferrellgas, L.P., a Delaware limited partnership. We are the sole limited partner of Ferrellgas, L.P. with an approximate 99% limited partner interest. In this report, unless the context indicates otherwise, the terms "our," "we" and "its" are used sometimes as abbreviated references to Ferrellgas Partners, L.P. and its consolidated subsidiaries, including Ferrellgas, L.P. The following is a discussion of our historical financial condition and results of operations and should be read in conjunction with our historical condensed consolidated financial statements and accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q. As discussed in Note N to the condensed consolidated financial statements, we have restated our condensed consolidated statements of cash flows for the six months ended January 31, 2003 and 2002. The Management Discussion and Analysis for Operating Activities and for Investing Activities give effect to this restatement. Forward-looking statements Statements included in this report include forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. They use words such as "anticipate," "believe," "intend," "plan," "projection," "forecast," "strategy," "position," "continue," "estimate," "expect," "may," "will," or the negative of those terms or other variations of them or comparable terminology. In particular, statements, express or implied, concerning future operating results, or the ability to generate sales, income or cash flow are forward-looking statements. Forward-looking statements are not guarantees of future performance. You should not put undue reliance on any forward-looking statements. All forward-looking statements are subject to risks, uncertainties and assumptions that could cause our actual results to differ materially from those expressed in or implied by these forward-looking statements. Many of the factors that will affect our future results are beyond our ability to control or predict. Some of our forward-looking statements include the following: o whether Ferrellgas, L.P. will have sufficient funds to meet its obligations, including its obligations under its debt securities, and enable it to distribute to Ferrellgas Partners sufficient funds to permit Ferrellgas Partners to meet its obligations with respect to its existing securities; o whether we will continue to meet all of the quarterly financial tests required by the agreements governing our indebtedness; and o the expectation that propane and other gas liquids sales and cost of product sold in the second half of fiscal 2003 will exceed the second half of fiscal 2002 amounts. For a more detailed description of these particular forward-looking statements and for risk factors that may affect any forward-looking statements, see the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of our Annual Report on Form 10-K filed October 23, 2002. Results of Operations Due to the seasonality of the retail distribution of propane, results of our operations for the six months ended January 31, 2003 and 2002 are not necessarily indicative of the results to be expected for a full fiscal year. Other factors affecting the results of our operations include competitive conditions, demand for product, timing of acquisitions, general economic conditions in the United States, variations in the weather and fluctuations in commodity prices. 15 As we have grown through acquisitions, fixed costs such as personnel costs, equipment leases, depreciation and interest expense have increased. Historically, due to the seasonality of our business, these fixed costs have caused net losses in the first and fourth fiscal quarters. Three Months Ended January 31, 2003 vs. January 31, 2002 PROPANE AND OTHER GAS LIQUIDS SALES. Propane and other gas liquids sales increased $74.6 million primarily due to an increase in retail propane sales volume and an additional $33.6 million primarily due to an increase in the average propane sales price per gallon. Retail sales volumes increased 70.0 million gallons compared to the prior year period primarily due to colder winter temperatures, and to a lesser extent, acquisitions. In addition, the average propane sales price per gallon increased due to the effect of the increase in our weighted average cost of propane inventory. For the three months ended January 31, 2003, national temperatures as reported by the National Oceanic and Atmospheric Administration, were 2% warmer than normal as compared to 16% warmer than normal in the prior year period. The prior year quarter was the warmest November through January period in recorded history, according to the National Oceanic and Atmospheric Administration. The average sales price per gallon of propane increased due to the effect of a significant increase in the wholesale cost of propane during fiscal 2003. The wholesale cost of propane for the second quarter of fiscal 2003 was significantly higher than the prior year period. The wholesale market price at one of the major supply points, Mt. Belvieu, Texas, averaged $0.54 per gallon, and reached a high of $0.78 during the second quarter of fiscal 2003, compared to an average of $0.31 per gallon in the prior year period. Other major supply points in the United States also experienced significant increases. COST OF PRODUCT SOLD. Cost of product sold increased $38.8 million primarily due to an increase in our weighted average cost of propane inventory. Additionally, our cost of product sold increased $44.6 million primarily due to the effect of a 24.1% increase in our retail propane sales volume compared to the prior year period. Improved results from our risk management trading activities caused a decrease of $5.3 million in our cost of product sold compared to the prior year period. GROSS PROFIT. Gross profit increased 17.1% primarily due to the effect of the increase in our retail propane volumes. Improved results from our risk management trading activities were partially offset by retail margins that were better than expected for the quarter but less than the prior year period. Retail margins in the prior year period were temporarily increased to partially offset the impact of significantly warmer winter temperatures. See additional discussion regarding risk management trading activities in Item 3 "Quantitative and Qualitative Disclosures about Market Risk." OPERATING EXPENSE. Operating expense increased 13.2% primarily due to increased sales volume and performance-based variable expenses. GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased 17.0% primarily due to performance-based incentives. DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense decreased 4.7% primarily due to the effect of an intangible asset completing its amortizable life in December 2001. EQUIPMENT LEASE EXPENSE. Equipment lease expense decreased 9.2% primarily due to the effect of the December 2002 buyout of our operating tank leases. See further discussion about the buyout of these leases in "Liquidity and Capital Resources - Investing Activities." INTEREST EXPENSE. Interest expense increased 5.8% due to increased borrowings to buyout our previously leased propane tanks in December 2002 and acquisitions, partially offset by capitalized interest and the effect of refinancing fixed-rate debt and lower interest rates on credit facility borrowings. See further discussion about increased borrowings to buyout these leases in "Liquidity and Capital Resources - Financing Activities." 16 NET EARNINGS. Net earnings increased 27.7% primarily due to the effect of an increase in delivered retail propane volumes, partially offset by the increased operating expenses incurred to deliver the increased retail propane volumes. Six Months Ended January 31, 2003 vs. January 31, 2002 PROPANE AND OTHER GAS LIQUIDS SALES. Propane and other gas liquids sales increased $52.2 million primarily due to an increase in retail propane sales volume and an additional $26.6 million primarily due to an increase in the average propane sales price per gallon. Retail sales volumes increased 52.1 million gallons compared to the prior year period, primarily due to colder winter temperatures, and to a lesser extent, acquisitions. In addition, the average propane sales price per gallon increased due to the effect of the increase in our weighted average cost of propane inventory. For the six months ended January 31, 2003, temperatures as reported by the National Oceanic and Atmospheric Administration, were 1% warmer than normal as compared to 14% warmer than normal in the prior year period. The prior year period was the second warmest August through January period in recorded United States history, according to National Oceanic and Atmospheric Administration data. The average sales price per gallon increased due to the effect of a significant increase in the wholesale cost of propane during fiscal 2003. The wholesale cost of propane for the first half of fiscal 2003 was significantly higher than the first half of fiscal 2002. The wholesale market price at one of the major supply points, Mt. Belvieu, Texas, averaged $0.49 per gallon during the first half of fiscal 2003, and reached a high of $0.78, compared to an average of $0.36 per gallon in the prior year period. Other major supply points in the United States also experienced significant increases. COST OF PRODUCT SOLD. Cost of product sold increased $32.4 million primarily due to an increase in our weighted average cost of propane inventory. Additionally, our cost of product sold increased $31.8 million primarily due to the effect of a 10.8% increase in our retail sales volume compared to the prior year period. This increase was offset by improved results from risk management trading activities that caused a decrease of $12.3 million in our cost of product sold compared to the prior year period. GROSS PROFIT. Gross profit increased 10.2% primarily due to the effect of the increase in our retail propane volumes. Improved results from our risk management trading activities were largely offset by retail margins that were better than expected but less than the prior year period. Retail margins in the prior year period were temporarily increased to partially offset the impact of significantly warmer winter temperatures. See additional discussion regarding risk management trading activities in Item 3 "Quantitative and Qualitative Disclosures about Market Risk." OPERATING EXPENSE. Operating expense increased 7.7% primarily due to increased sales volume, increased expenses related to our operational improvement initiative and increased self-insurance costs. GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense increased 8.9% due to increased information technology and other expenses. DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense decreased 9.3% primarily due to the effect of an intangible asset completing its amortizable life in December 2001. 17 EQUIPMENT LEASE EXPENSE. Equipment lease expense decreased 8.8% due to effect of the December 2002 buyout of our operating tank leases. See further discussion about the buyout of these leases in "Liquidity and Capital Resources - - Investing Activities." INTEREST EXPENSE. Interest expense increased 1.5% due to increased borrowings to buyout previously leased propane tanks in December 2002 and acquisitions, partially offset by capitalized interest, the effect of refinancing fixed-rate debt and lower interest rates on credit facility borrowings. See further discussion about the increased borrowings to buyout these leases in "Liquidity and Capital Resources - Financing Activities." NET EARNINGS. Net earnings increased 13.6% primarily due to the effect of an increase in retail propane volumes, partially offset by the increased operating expenses incurred to deliver the increased retail propane volumes, a $7.1 million early extinguishment of debt expense related to the repurchase and redemption of our $160.0 million senior secured notes and the $2.8 million cumulative effect of a change in accounting principle related to the adoption of Statement of Financial Accounting Standard (SFAS) No. 143, "Accounting for Asset Retirement Obligations." Forward-looking statements Our propane and other gas liquids sales, cost of product sold, gross profit, operating expenses, general and administrative expenses and net earnings increased between eight and 16% in the six months ended January 31, 2003 as compared to the same period last year. Assuming that the wholesale cost of propane remains at relatively higher levels, we expect propane and other gas liquids sales and cost of product sold in the second half of fiscal 2003 to exceed the second half of fiscal 2002 amounts. Liquidity and Capital Resources Our ability to satisfy our obligations is dependent upon future performance, which will be subject to prevailing economic, financial, business, and weather conditions and other factors, many of which are beyond our control. Due to the seasonality of the retail propane distribution business, a significant portion of our cash flow from operations is typically generated during the winter heating season, which occurs during our second and third fiscal quarters. Typically, we generate significantly lower cash flows from operations in our first and fourth fiscal quarters as compared to the second and third fiscal quarters because our fixed costs generally exceed gross profit during the non-peak heating season. Subject to meeting the financial tests discussed below, our general partner believes that Ferrellgas, L.P. will have sufficient funds available to meet its obligations, and to distribute to Ferrellgas Partners sufficient funds to permit Ferrellgas Partners to meet its obligations with respect to its 8.75% senior notes due 2012. In addition, our general partner believes that Ferrellgas, L.P. will have sufficient funds available to distribute to Ferrellgas Partners sufficient cash to pay the required quarterly distribution on its senior units and the minimum quarterly distribution on all of its common units during the fiscal year ending July 31, 2003. The minimum quarterly distribution of $0.50 to be paid on all common units on March 14, 2003, represents the thirty-fourth consecutive minimum quarterly distribution paid to our common unitholders dating back to October 1994. 18 Our bank credit facility, public debt, private debt and accounts receivable securitization facility contain several financial tests and covenants restricting our ability to pay distributions, incur debt and engage in certain other business transactions. In general, these tests are based on our debt to cash flow ratio and cash flow to interest expense ratio. Our general partner currently believes that the most restrictive of these tests are debt incurrence limitations under the terms of our bank credit and accounts receivable securitization facilities and limitations on the payment of distributions within our 8.75% senior notes. The bank credit and accounts receivable securitization facilities generally limit Ferrellgas, L.P.'s ability to incur debt if it exceeds prescribed ratios of either debt to cash flow or cash flow to interest expense. Our 8.75% senior notes restrict payments if a minimum ratio of cash flow to interest expense is not met, assuming certain exceptions to this ratio limit have previously been exhausted. This restriction places limitations on our ability to make restricted payments such as the payment of cash distributions to our unitholders. The cash flow used to determine these financial tests generally is based upon our most recent cash flow performance giving pro forma effect for acquisitions and divestitures made during the test period. It should be noted that our bank credit facility, public debt, private debt and accounts receivable securitization facility do not contain repayment provisions related to a decline in our credit rating. As of January 31, 2003, our general partner believes that we met all the required quarterly financial tests and covenants. Based upon current estimates of our cash flow, our general partner believes that we will be able to continue to meet all of the required quarterly financial tests and covenants for the remainder of the year ending July 31, 2003. However, if we were to encounter unexpected downturns in business operations in the future, such as significantly warmer than normal winter temperatures, a volatile energy commodity cost environment or continued economic downturn, we may not meet the applicable financial tests in future quarters. This could have a materially adverse effect on our operating capacity and cash flows and could restrict our ability to incur debt or to make cash distributions to our unitholders, even if sufficient funds were available. Depending on the circumstances, we may consider alternatives to permit the incurrence of debt or the continued payment of the quarterly cash distribution to our unitholders. No assurances can be given, however, that such alternatives can or will be implemented with respect to any given quarter. Our future capital expenditures and working capital needs are expected to be provided by cash generated from future operations, existing cash balances, the bank credit facility or the accounts receivable securitization facility. To fund expansive capital projects and future acquisitions, we may obtain funds from our facilities, we may issue additional debt to the extent permitted under existing financing arrangements or we may issue additional equity securities, including, among others, common units. Toward this purpose, on February 18, 2003, we filed a shelf registration statement with the Securities and Exchange Commission for the periodic sale of $500 million of equity and/or debt securities. Upon effectiveness of the registration statement, the registered securities will be available to us for sale in the future to fund acquisitions, to reduce indebtedness, to redeem senior units or to provide funds for general partnership purposes. We also maintain a shelf registration statement with the Securities and Exchange Commission for approximately 2.0 million common units. We may issue these common units in connection with our acquisition of other businesses, properties or securities in business combination transactions. Operating Activities Cash provided by operating activities was $64.0 million for the six months ended January 31, 2003, compared to cash provided by operating activities of $36.7 million for the prior fiscal year period. This increase in cash provided by operating activities is primarily increased utilization of the accounts receivable securitization facility, partially offset by the effect of higher wholesale cost of product, the timing of collections of accounts receivable and the timing of purchases of inventory. Accounts Receivable Securitization At January 31, 2003, $60.0 million had been funded from our accounts receivable securitization facility. This funding resulted from our increased liquidity needs caused primarily by the seasonal increase in accounts receivable outstanding and in propane inventory levels. We renewed this facility effective September 24, 2002, for a 364-day commitment with Banc One, N.A. In accordance with SFAS No. 140, this transaction is reflected on our condensed consolidated financial statements as a sale of accounts receivable and an investment in an unconsolidated subsidiary. See Note E to our consolidated financial statements for further discussion about this facility. 19 Investing Activities CAPITAL EXPENDITURES During the six months ended January 31, 2003, we made cash capital expenditures of $11.0 million related to our technology initiative and $7.5 million primarily for the following: o upgrading district plant facilities; o purchase of vehicles at the end of the lease terms; and o purchase of additional propane storage tanks and cylinders. Our capital requirements for repair and maintenance of property, plant and equipment are expected to remain relatively low. We lease property, computer equipment, propane tanks, light and medium duty trucks, tractors and trailers. We believe leasing is a cost-effective method for meeting our equipment needs. On December 10, 2003, we purchased $155.6 million of equipment whose lease terms would have expired in June 2003. See "Financing Activities" and Note F to our condensed consolidated financial statements for discussions about the financing of the equipment lease buyouts. BUSINESS ACQUISITIONS We continue to consider opportunities to expand our operations through strategic acquisitions of retail propane operations located throughout the United States. During the six months ended January 31, 2003, we made total acquisition capital expenditures of $43.6 million for three retail propane companies, which included the acquisition of $5.8 million of working capital. These expenditures were funded by $34.1 million in cash payments and the issuance of a $10.0 million non-interest bearing note due in December 2003. Financing Activities CREDIT FACILITY On December 10, 2002, we refinanced our $157.0 million bank credit facility with a $307.5 million amended bank credit facility. This amended bank credit facility will terminate on April 28, 2006, unless extended or renewed. This $307.5 million amended bank credit facility consists of the following: o a $151.5 million revolving working capital facility, general corporate and acquisition facility, including an $80.0 million letter of credit sub-facility; and o a $156.0 million revolving facility, which was used on December 10, 2002, to purchase propane tanks and related assets that we previously leased. 20 All borrowings under the amended bank credit facility bear interest, at our option, at a rate equal to either: o a base rate, which is defined as the higher of the federal funds rate plus 0.50% or Bank of America's prime rate (as of January 31, 2003, the federal funds rate and Bank of America's prime rate were 1.33% and 4.25%, respectively); or o the Eurodollar Rate plus a margin varying from 1.75% to 2.75% (as of January 31, 2003, the one-month Eurodollar Rate was 1.26%). At January 31, 2003, $140.0 million of borrowings and $50.6 million of letters of credit were outstanding under the amended bank credit facility. Letters of credit are currently used to cover obligations primarily relating to requirements for our insurance coverage and, and to a lesser extent, our risk management activities. At January 31, 2003, we had $116.9 million available for working capital, acquisition, capital expenditure and general partnership purposes under the amended bank credit facility. We believe that the liquidity available from the amended bank credit facility and the accounts receivable securitization facility will be sufficient to meet our future working capital needs for the year ending July 31, 2003. See "Investing Activities." However, if we were to experience an unexpected significant increase in working capital requirements, our working capital needs could exceed our immediately available resources. Events that could cause increases in working capital borrowings or letter of credit requirements include, but are not limited to the following: o a significant increase in the wholesale cost of propane; o a significant delay in the collections of accounts receivable; o increased volatility in energy commodity prices related to risk management activities; o increased liquidity requirements imposed by insurance providers; o a significant downgrade in our credit rating; or o decreased trade credit. If one or more of these or other events caused a significant use of available funding, we would consider alternatives to provide increased working capital funding. No assurances can be given, however, that such alternatives could, or would, be implemented. LONG-TERM DEBT On September 24, 2002, we issued, in a public offering, $170.0 million of 8.75% senior notes due 2012. Interest is payable semi-annually in arrears on June 15 and December 15, commencing on December 15, 2002. These senior notes are unsecured and not redeemable before June 15, 2007, except under specific circumstances. We used the proceeds from the $170.0 million senior note issuance to repurchase and redeem our $160.0 million 9.375% senior secured notes due 2006 and fund related premiums, fees, accrued and unpaid interest and tender consent payments On December 18, 2002, we issued, in a public offering, $48.0 million of 8.75% senior notes with the same terms as those on the $170.0 million 8.75% senior notes. We used the proceeds from the $48.0 million senior note issuance to reduce borrowings under the amended bank credit facility and to provide increased availability of funds for working capital, acquisition, capital expenditure and general partnership purposes. The $48.0 million senior notes were issued with a debt premium of $1.7 million that will be amortized to interest expense through fiscal 2012. 21 The following table summarizes our long-term debt obligations as of January 31, 2003: Principal Payments due by Fiscal Year -------------------------------------------------------------------------------- Remainder 2007 and of 2003 2004 2005 2006 Thereafter Total ------------- ---------- ---------- ---------- ------------ ----------- Long-term debt, including current portion $760 $2,134 $2,299 $251,313 $646,551 $903,057
See Note F in the footnotes to our condensed consolidated financial statements for further discussion of the maturity dates and interest rates related to our long-term debt. DISTRIBUTIONS During the six months ended January 31, 2003, we declared and paid the required quarterly distribution on our senior units and the minimum quarterly distribution on all common units for the three months ended July 31, 2002 and the three months ended October 31, 2002. The required quarterly distribution on the senior units and the minimum quarterly distribution on all common units for the three months ended January 31, 2003 will be paid on March 14, 2003 to holders of record on February 28, 2003. Disclosures about Risk Management Activities Accounted for at Fair Value The following table summarizes the change in the unrealized fair value of contracts from our risk management trading activities for the three and six months ended January 31, 2003. This table summarizes the contracts where settlement has not yet occurred: Three months Six months ended ended January 31, 2003 January 31, 2003 ---------------- ---------------- Unrealized losses in fair value of contracts outstanding at beginning of period $(3,816) $(4,569) Other unrealized gains recognized 6,611 9,473 Less: realized gains recognized 1,213 3,322 ---------------- ---------------- Unrealized gains in fair value of contracts outstanding at January 31, 2003 $1,582 $1,582 ================ ================
The following table summarizes the maturity of contracts from our risk management trading activities for the valuation methodologies we utilized as of January 31, 2003. This table summarizes the contracts where settlement has not yet occurred: Fair Value of Contracts at Period-End ------------------------------------- Maturity greater than 1 Maturity less year and less Source of Fair Value than 1 year than 18 months - ------------------------------------------- ---------------- ---------------- Prices actively quoted $ 824 $ - Prices provided by other external sources 758 - Prices based on models and other valuation methods - - ---------------- ---------------- Unrealized gains in fair value of contracts outstanding at January 31, 2003 $1,582 $ - ================ ================
22 See additional discussion about market, counterparty credit and liquidity risks related to our risk management trading activities and other risk management activities in Item 3 "Quantitative and Qualitative Disclosures about Market Risk." Disclosures about Effects of Transactions with Related Parties We have no employees and are managed and controlled by our general partner. Pursuant to our partnership agreement, our general partner is entitled to reimbursement for all direct and indirect expenses incurred or payments it makes on our behalf, and all other necessary or appropriate expenses allocable to us or otherwise reasonably incurred by our general partner in connection with operating our business. These reimbursable costs, which totaled $99.3 million for the six months ended January 31, 2003, include compensation and benefits paid to employees of our general partner who perform services on our behalf, as well as related general and administrative costs. We paid senior unit distributions of $2.8 million to JEF Capital Management on both September 13, 2002 and December 14, 2002. On January 31, 2003, in a noncash transaction, we accrued a senior unit distribution of $2.7 million that we will pay to JEF Capital Management on March 14, 2003. JEF Capital Management is beneficially owned by James E. Ferrell, the Chairman, President and CEO of our general partner, and thus is an affiliate. On January 15, 2003, we redeemed 39.2 thousand senior units held by JEF Capital Management with a cash payment of $1.6 million. Ferrell International Limited is beneficially owned by James E. Ferrell and thus is an affiliate. We enter into transactions with Ferrell International Limited in connection with our risk management activities and do so at market prices in accordance with our affiliate trading policy approved by our general partner's Board of Directors. These transactions include forward, option and swap contracts and are all reviewed for compliance with the policy. During the six months ended January 31, 2003, we recognized net receipts from purchases, sales and commodity derivative transactions of $0.2 million. These net purchases, sales and commodity derivative transactions with Ferrell International Limited are classified as cost of product sold on our condensed consolidated statements of earnings. There were no amounts due from or due to Ferrell International Limited at January 31, 2003. We believe these related party transactions were conducted in the ordinary course of business and under terms that were no less favorable to us than those available with third parties. Off-Balance Sheet Arrangements Our off-balance sheet arrangements include the leasing of transportation equipment, property, computer equipment and propane tanks. We account for these arrangements as operating leases. We believe these arrangements are a cost-effective method for financing our equipment needs. These off-balance sheet arrangements enable us to lease equipment from third parties rather than, among other options, purchasing the equipment using on-balance sheet financing. See further discussion about these leases in "Investing Activities." Most of the operating leases involving our transportation equipment contain residual value guarantees. These transportation equipment lease arrangements are scheduled to expire over the next seven years. Most of these arrangements provide that the fair value of the equipment will equal or exceed a guaranteed amount, or we will be required to pay the lessor the difference. Although the fair values at the end of the lease terms have historically exceeded these guaranteed amounts, the maximum potential amount of aggregate future payments we could be required to make under these leasing arrangements, assuming the equipment is worthless at the end of the lease term, is $16.6 million. We do not know of any event, demand, commitment, trend or uncertainty that would result in a material change to these arrangements. See Note H to our condensed consolidated financial statements for further discussion of Financial Accounting Standards Board Financial Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." 23 The following table summarizes our future minimum rental payments as of January 31, 2003: Future Minimum Rental and Buyout Amounts by Fiscal Year ------------------------------------------------------------------------------ Remainder 2007 and of 2003 2004 2005 2006 Thereafter Total ------------- ---------- ---------- ---------- ------------ ----------- Operating lease rental payments $7,543 $13,478 $10,222 $8,228 $9,661 $49,132 Operating lease buyouts 3,237 4,738 4,105 2,076 9,162 23,318
Historically, we have been successful in renewing certain leases that are subject to buyouts. However, there is no assurance that we will be successful in the future. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits The exhibits listed below are filed as part of this Quarterly Report on Form 10-Q/A. Exhibits required by Item 601 of Regulation S-K of the Securities Act, which are not listed, are not applicable. Exhibit Number Description ------- ----------- 3.1 Fourth Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P., dated as of February 18, 2003. Incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K filed February 18, 2003. 3.2 Articles of Incorporation for Ferrellgas Partners Finance Corp. Incorporated by reference to the same numbered Exhibit to our Quarterly Report on Form 10-Q filed June 13, 1997. 3.3 Bylaws of Ferrellgas Partners Finance Corp. Incorporated by reference to the same numbered Exhibit to our Quarterly Report on Form 10-Q filed June 13, 1997. 4.1 Indenture, dated as of September 24, 2002, with Form of Note attached, by and among Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp., and U.S. Bank National Association, as trustee, relating to $170,000,000 aggregate principal amount of our 8 3/4% Senior Notes due 2012. Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed September 24, 2002. 4.2 Ferrellgas, L.P., Note Purchase Agreement, dated as of July 1, 1998, relating to: $109,000,000 6.99% Senior Notes, Series A, due August 1, 2005, $37,000,000 7.08% Senior Notes, Series B, due August 1, 2006, $52,000,000 7.12% Senior Notes, Series C, due August 1, 2008, $82,000,000 7.24% Senior Notes, Series D, due August 1, 2010, and $70,000,000 7.42% Senior Notes, Series E, due August 1, 2013. Incorporated by reference to Exhibit 4.4 to our Annual Report on Form 10-K filed October 29, 1998. 4.3 Ferrellgas, L.P., Note Purchase Agreement, dated as of February 28, 2000, relating to: $21,000,000 8.68% Senior Notes, Series A, due August 1, 2006, $70,000,000 8.78% Senior Notes, Series B, due August 1, 2007, and $93,000,000 8.87% Senior Notes, Series C, due August 1, 2009. Incorporated by reference to Exhibit 4.2 to our Quarterly Report on Form 10-Q filed March 16, 2000. 4.4 Registration Rights Agreement, dated as of December 17, 1999, by and between Ferrellgas Partners, L.P. and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed December 29, 2000. 24 Exhibit Number Description ------- ----------- 4.5 First Amendment to the Registration Rights Agreement, dated as of March 14, 2000, by and between Ferrellgas Partners, L.P. and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 4.1 to our Quarterly Report on Form 10-Q filed March 16, 2000. 4.6 Second Amendment to the Registration Rights Agreement, dated as of April 6, 2001, by and between Ferrellgas Partners, L.P. and The Williams Companies, Inc. Incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed April 6, 2001. 4.7 Representations Agreement, dated as of December 17, 1999, by and among Ferrellgas Partners, L.P., Ferrellgas, Inc., Ferrellgas, L.P. and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 2.3 to our Current Report on Form 8-K filed December 29, 1999. 4.8 First Amendment to Representations Agreement, dated as of April 6, 2001, by and among Ferrellgas Partners, L.P., Ferrellgas, Inc., Ferrellgas, L.P. and The Williams Companies, Inc. Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed April 6, 2001. 10.1 Second Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P., dated as of October 14, 1998. Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q filed March 17, 1999. 10.2 First Amendment to the Second Amended and Restated Agreement of Limited Partnership of Ferrellgas, L.P. Incorporated by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed June 14, 2000. 10.3 Certificate of Incorporation of Ferrellgas Finance Corp. filed with the Delaware Secretary of State on January 16, 2003. Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed February 18, 2003. 10.4 Bylaws of Ferrellgas Finance Corp. adopted as of January 16, 2003. Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed February 18, 2003. 10.5 Fourth Amended and Restated Credit Agreement, dated as of December 10, 2002, by and among Ferrellgas, L.P., Ferrellgas, Inc., Bank of America National Trust and Savings Association, as agent, and the other financial institutions party. Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed December 11, 2002. 10.6 Receivable Interest Sale Agreement, dated as of September 26, 2000, by and between Ferrellgas, L.P., as originator, and Ferrellgas Receivables, L.L.C., as buyer. Incorporated by reference to Exhibit 10.17 to our Annual Report on Form 10-K filed October 26, 2000. 10.7 First Amendment to the Receivable Interest Sale Agreement dated as of January 17, 2001, by and between Ferrellgas, L.P., as originator, and Ferrellgas Receivables, L.L.C., as buyer. Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q filed March 14, 2001. 25 Exhibit Number Description ------- ----------- 10.8 Receivables Purchase Agreement, dated as of September 26, 2000, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Securitization Corporation, the financial institutions from time to time party hereto, and Bank One, NA, main office Chicago, as agent. Incorporated by reference to Exhibit 10.18 to our Annual Report on Form 10-K filed October 26, 2000. 10.9 First Amendment to the Receivables Purchase Agreement, dated as of January 17, 2001, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Securitization Corporation, the financial institutions from time to time party hereto, and Bank One, N.A., main office Chicago, as agent. Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q filed March 14, 2001. 10.10 Second Amendment to the Receivables Purchase Agreement dated as of September 25, 2001, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Securitization Corporation, the financial institutions from time to time party hereto, and Bank One, N.A., main office Chicago, as agent. Incorporated by reference to Exhibit 10.29 to our Annual Report on Form 10-K filed October 25, 2001. 10.11 Third Amendment to the Receivables Purchase Agreement, dated as of September 24, 2002, by and among Ferrellgas Receivables, L.L.C., as seller, Ferrellgas, L.P., as servicer, Jupiter Secruritization Corporation, the financial institutions from time to time party hereto, and Bank One, NA, main office Chicago, as agent. 10.12 Purchase Agreement, dated as of November 7, 1999, by and among Ferrellgas Partners, L.P., Ferrellgas, L.P and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K filed November 12, 1999. 10.13 First Amendment to Purchase Agreement, dated as of December 17, 1999, by and among Ferrellgas Partners, L.P., Ferrellgas, L.P., and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 2.2 to our Current Report on Form 8-K filed December 29, 1999. 10.14 Second Amendment to Purchase Agreement, dated as of March 14, 2000, by and among Ferrellgas Partners, L.P., Ferrellgas L.P., and Williams Natural Gas Liquids, Inc. Incorporated by reference to Exhibit 2.1 to our Quarterly Report on Form 10-Q filed March 16, 2000. 10.15 Third Amendment to Purchase Agreement dated as of April 6, 2001, by and among Ferrellgas Partners, L.P., Ferrellgas L.P. and The Williams Companies, Inc. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed April 6, 2001. # 10.16 Ferrell Companies, Inc. Supplemental Savings Plan, restated January 1, 2000. Incorporated by reference to Exhibit 99.1 to our Current Report on Form 8-K filed February 18, 2003. 26 Exhibit Number Description ------- ----------- # 10.17 Second Amended and Restated Ferrellgas Unit Option Plan. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed June 5, 2001. # 10.18 Ferrell Companies, Inc. 1998 Incentive Compensation Plan - Incorporated by reference to Exhibit 10.12 to our Annual Report on Form 10-K filed October 29, 1998. # 10.19 Employment agreement between James E. Ferrell and Ferrellgas, Inc., dated July 31, 1998. Incorporated by reference to Exhibit 10.13 to our Annual Report on Form 10-K filed October 29, 1998. # 10.20 Employment agreement between Patrick Chesterman and Ferrellgas, Inc. dated July 31, 2000. Incorporated by reference to Exhibit 10.19 to our Annual Report on Form 10-K filed October 26, 2000. # 10.21 Employment agreement between Kevin Kelly and Ferrellgas, Inc. dated July 31, 2000. Incorporated by reference to Exhibit 10.22 to our Annual Report on Form 10-K filed October 26, 2000. * 99.1 Certification of Ferrellgas Partners, L.P. Pursuant to U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * 99.2 Certification of Ferrellgas Partners Finance Corp. Pursuant to U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - --------------- * Filed herewith # Management contracts or compensatory plans. (b) Reports on Form 8-K The Partnership filed no Form 8-K's during the three months ended January 31, 2003. The Partnership furnished one Form 8-K during the three months ended January 31, 2003. Items Date of Report Reported Financial Statements Furnished - --------------------------- -------- ------------------------------ Furnished November 19, 2003 9 None 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FERRELLGAS PARTNERS, L.P. By Ferrellgas, Inc. (General Partner) Date: June 6, 2003 By /s/ Kevin T. Kelly ----------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) FERRELLGAS PARTNERS FINANCE CORP. Date: June 6, 2003 By /s/ Kevin T. Kelly ----------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) CERTIFICATIONS FERRELLGAS PARTNERS, L.P. I, James E. Ferrell, certify that: 1. I have reviewed this quarterly report on Form 10-Q/A of Ferrellgas Partners, L.P.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons forming the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 6, 2003 /s/ James E. Ferrell ------------------------------------------- James E. Ferrell Chairman, President and Chief Executive Officer of Ferrellgas, Inc., the registrant's general partner CERTIFICATIONS FERRELLGAS PARTNERS, L.P. I, Kevin T. Kelly, certify that: 1. I have reviewed this quarterly report on Form 10-Q/A of Ferrellgas Partners, L.P.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons forming the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 6, 2003 /s/ Kevin T. Kelly ----------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer of Ferrellgas, Inc., the registrant's general partner CERTIFICATIONS FERRELLGAS PARTNERS FINANCE CORP. I, James E. Ferrell, certify that: 1. I have reviewed this quarterly report on Form 10-Q/A of Ferrellgas Partners Finance Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons forming the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 6, 2003 /s/ James E. Ferrell ------------------------------------- James E. Ferrell President and Chief Executive Officer CERTIFICATIONS FERRELLGAS PARTNERS FINANCE CORP. I, Kevin T. Kelly, certify that: 1. I have reviewed this quarterly report on Form 10-Q/A of Ferrellgas Partners Finance Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons forming the equivalent function): d. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and e. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: June 6, 2003 /s/ Kevin T. Kelly ------------------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Quarterly Report on Form 10-Q/A of Ferrellgas Partners, L.P. (the "Partnership") for the three months ended January 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership at the dates and for the periods indicated. The foregoing certification is made solely for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is subject to the "knowledge" and "willfulness" qualifications contained in 18 U.S.C. Section 1350(c). This certification is being furnished to the SEC in accordance with SEC Release Nos. 33-8212 and 34-47551, dated March 21, 2003. It is not to be deemed "filed" with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of Section 18. In addition, this certification is not to be incorporated by reference into any registration statement of the undersigned or other filing of the undersigned made pursuant to the Exchange Act or Securities Act, unless specifically identified as being incorporated therein by reference. Dated: June 6, 2003 /s/ James E. Ferrell --------------------------------------------------- James E. Ferrell Chairman, President and Chief Executive Officer of Ferrellgas, Inc., the registrant's general partner *A signed original of this written statement required by Section 906 has been provided to Ferrellgas Partners, L.P. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Quarterly Report on Form 10-Q/A of Ferrellgas Partners, L.P. (the "Partnership") for the three months ended January 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership at the dates and for the periods indicated. The foregoing certification is made solely for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is subject to the "knowledge" and "willfulness" qualifications contained in 18 U.S.C. Section 1350(c). This certification is being furnished to the SEC in accordance with SEC Release Nos. 33-8212 and 34-47551, dated March 21, 2003. It is not to be deemed "filed" with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of Section 18. In addition, this certification is not to be incorporated by reference into any registration statement of the undersigned or other filing of the undersigned made pursuant to the Exchange Act or Securities Act, unless specifically identified as being incorporated therein by reference. Dated: June 6, 2003 /s/ Kevin T. Kelly ---------------------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer of Ferrellgas, Inc., the registrant's general partner *A signed original of this written statement required by Section 906 has been provided to Ferrellgas Partners, L.P. Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Quarterly Report on Form 10-Q/A of Ferrellgas Partners Finance Corp. for the three months ended January 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership at the dates and for the periods indicated. The foregoing certification is made solely for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is subject to the "knowledge" and "willfulness" qualifications contained in 18 U.S.C. Section 1350(c). This certification is being furnished to the SEC in accordance with SEC Release Nos. 33-8212 and 34-47551, dated March 21, 2003. It is not to be deemed "filed" with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of Section 18. In addition, this certification is not to be incorporated by reference into any registration statement of the undersigned or other filing of the undersigned made pursuant to the Exchange Act or Securities Act, unless specifically identified as being incorporated therein by reference. Dated: June 6, 2003 /s/ James E. Ferrell ------------------------------------- James E. Ferrell President and Chief Executive Officer *A signed original of this written statement required by Section 906 has been provided to Ferrellgas Partners Finance Corp. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the accompanying Quarterly Report on Form 10-Q/A of Ferrellgas Partners Finance Corp. for the three months ended January 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership at the dates and for the periods indicated. The foregoing certification is made solely for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and is subject to the "knowledge" and "willfulness" qualifications contained in 18 U.S.C. Section 1350(c). This certification is being furnished to the SEC in accordance with SEC Release Nos. 33-8212 and 34-47551, dated March 21, 2003. It is not to be deemed "filed" with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of Section 18. In addition, this certification is not to be incorporated by reference into any registration statement of the undersigned or other filing of the undersigned made pursuant to the Exchange Act or Securities Act, unless specifically identified as being incorporated therein by reference. Dated: June 6, 2003 /s/ Kevin T. Kelly --------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer *A signed original of this written statement required by Section 906 has been provided to Ferrellgas Partners Finance Corp. EX-99.8 5 form8k91302.txt FORM 8K SEPTEMBER 13, 2002 Exhibit 99.8 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Earliest Event Reported: September 13, 2002 Date of Report: September 13, 2002 Ferrellgas Partners, L.P. Ferrellgas Partners Finance Corp. ----------------------------------------------- (Exact name of registrants as specified in their charters) Delaware 1-111331 43-1698480 Delaware 333-06693 43-1742520 ----------------------- ----------------- --------------------- (States or other Commission file (I.R.S. Employer jurisdictions of numbers Identification Nos.) incorporation or organization) One Liberty Plaza, Liberty, Missouri 64068 (Address of principal executive offices) (Zip Code) Registrants' telephone number, including area code: (816) 792-1600 ITEM 9. REGULATION FD DISCLOSURE On Thursday, September 26, 2002, Ferrellgas Partners, L.P. will report earnings for the fourth quarter and fiscal year ended July 31, 2002. James E. Ferrell, Chairman, Chief Executive Officer, and President, will conduct a live teleconference on the Internet at http://www.firstcallevents.com/service/ajwz365456403gf12.html. The live webcast of the teleconference will begin at 3:00 p.m. Eastern Time. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FERRELLGAS PARTNERS, L.P. By Ferrellgas, Inc. (General Partner) Date: September 13, 2002 By /s/ Kevin T. Kelly ----------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) FERRELLGAS PARTNERS FINANCE CORP. Date: September 13, 2002 By /s/ Kevin T. Kelly ----------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) EX-99.9 6 form8k_092402.txt FORM 8K SEPTEMBER 24, 2002 Exhibit 99.9 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Earliest Event Reported: September 10, 2002 Date of Report: September 24, 2002 Ferrellgas Partners, L.P. Ferrellgas Partners Finance Corp. (Exact name of registrants as specified in their charters) Delaware 1-111331 43-1698480 Delaware 333-06693 43-1742520 - ----------------------- ----------------- ------------------------------ (States or other Commission file (I.R.S. Employer Identification jurisdictions of numbers Nos.) incorporation or organization) One Liberty Plaza, Liberty, Missouri 64068 ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrants' telephone number, including area code: (816) 792-1600 ITEM 5. OTHER EVENTS Ferrellgas Partners, L.P. announced today that it has successfully completed the sale of $170 million of senior notes. The new notes, which mature on June 15, 2012, bear interest at 8 3/4% per annum, payable semi-annually in arrears on June 15 and December 15, commencing December 15, 2002. The new notes are unsecured and will rank (a) effectively junior to all of Ferrellgas' existing and future senior secured indebtedness and all liabilities of Ferrellgas' operating partnership, Ferrellgas, L.P., including any borrowing under the operating partnership's credit facility, (b) equally with all of Ferrellgas' senior indebtedness, including trade payables, and (c) senior to any of Ferrellgas' future indebtedness that expressly provides that it is subordinated to the new notes. The new notes are not redeemable before June 15, 2007, except under specific circumstances. The new notes were issued in a registered offering pursuant to a final prospectus supplement that was filed with the Securities and Exchange Commission on September 11, 2002. The new notes will not be listed on any securities exchange. As previously announced, Ferrellgas also received consents on July 16, 2002, from holders of a majority of the aggregate principal amount of the outstanding notes to amend the indenture under which the 9 3/8% notes were issued. The amendments to that indenture became effective today upon the execution by Ferrellgas of a supplemental indenture which eliminates certain obligations, covenants and events of default under that indenture, and decreases the notice period for Ferrellgas' optional redemption of the remaining 9 3/8% notes not tendered, from 30 days to three days. As of the end of the tender offer, $159,950,000 aggregate principal amount of 9 3/8% notes, representing approximately 99% of the $160 million 9 3/8% notes outstanding, had been tendered and not withdrawn at a price of $1,032.50 per $1,000 principal amount, which includes a consent payment of $1.25 per $1,000 principal amount for those 9 3/8% notes tendered within the consent period ended July 16, 2002, plus accrued and unpaid interest up to, but not including, the date of payment. All notes tendered have been accepted for payment. Approximately $50,000 in aggregate principal amount of the 9 3/8% notes remain outstanding. Ferrellgas intends to redeem those remaining notes immediately pursuant to the terms of the supplemental indenture. Holders of those notes will, upon redemption, receive $1,031.25 per $1,000 principal amount, plus accrued and unpaid interest up to, but not including, the date of redemption. The holders of these notes will not receive the consent payment. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial statements of businesses acquired. Not applicable. (b) Pro forma financial information. Not applicable. (c) Exhibits. The Exhibit listed in the Index to Exhibits is filed as part of this Current Report on Form 8-K. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FERRELLGAS PARTNERS, L.P. By Ferrellgas, Inc. (General Partner) Date: September 24, 2002 By /s/ Kevin T. Kelly ---------------------------------- Kevin T. Kelly Chief Financial Officer (Principal Financial and Accounting Officer) FERRELLGAS PARTNERS FINANCE CORP. Date: September 24, 2002 By /s/ Kevin T. Kelly ----------------------------------- Kevin T. Kelly Chief Financial Officer (Principal Financial and Accounting Officer) INDEX TO EXHIBITS ----------------- Exhibit No. Description of Exhibit ----------- 1 Underwriting Agreement, dated as of September 10, 2002, relating to $170,000,000 aggregate principal amount of the Registrants' 8 3/4% Senior Notes due 2012. 4.1 Indenture, dated as of September 24, 2002, with Form of Note attached, among Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp., and U.S. Bank National Association, as trustee, relating to $170,000,000 aggregate principal amount of the Registrants' 8 3/4% Senior Notes due 2012. 4.2 Supplemental Indenture, dated as of September 24, 2002, to Indenture, dated as of April 26, 1996, among Ferrellgas Partners, L.P., Ferrellgas Partners Finance Corp., Ferrellgas, L.P., and U.S. Bank National Association, as trustee, relating to $160,000,000 aggregate principal amount of the Registrants' 9 3/8% Senior Secured Notes due 2006. 25 Form T-1 Statement of Eligibility, dated as of September 20, 2002, under the Trust Indenture Act of 1939, as amended, of U.S. Bank National Association pertaining to the Registrants' $170,000,000 aggregate principal amount of 8 3/4% Senior Notes due 2012. 99.1 Text of press release issued by Ferrellgas Partners, L.P. on September 24, 2002. EX-1 7 exhibit_1.txt EXHIBIT 1 TO FORM 8K 9-24-02 Exhibit 99.9 Exhibit 1 September 10, 2002 Ferrellgas Partners, L.P. Ferrellgas Partners Finance Corp. Debt Securities UNDERWRITING AGREEMENT 1. Introductory. Ferrellgas Partners, L.P., a Delaware limited partnership ("Ferrellgas Partners"), and Ferrellgas Partners Finance Corp., a Delaware corporation ("Ferrellgas Finance" and, together with Ferrellgas Partners, "Issuers"), propose to issue and sell from time to time certain of their unsecured debt securities, common units ("Common Stock"), deferred participation units and warrants registered under the registration statement referred to in Section 2(a) ("Registered Securities"). The Registered Securities constituting debt securities will be issued under an indenture, dated as of the Closing Date (as defined below) ("Indenture"), among the Issuers and U.S. Bank, N.A., as trustee ("Trustee"), in one or more series, which series may vary as to interest rates, maturities, redemption provisions, selling prices and other terms. Particular series or offerings of the Registered Securities will be sold pursuant to a Terms Agreement referred to in Section 3, for resale in accordance with the terms of offering determined at the time of sale. The Registered Securities involved in any such offering are hereinafter referred to as the "Offered Securities." The firm or firms which agree to purchase the Offered Securities are hereinafter referred to as the "Underwriters" of such securities, and the representative or representatives of the Underwriters, if any, specified in a Terms Agreement referred to in Section 3 are hereinafter referred to as the "Representatives"; provided, however, that if the Terms Agreement does not specify any representative of the Underwriters, the term "Representatives," as used in this Agreement (other than in Sections 2(b) and 6 and the second sentence of Section 3), shall mean the Underwriters. 2. Representations and Warranties of the Issuers. Each of the Issuers, as of the date of each Terms Agreement referred to in Section 3, severally and jointly, represents and warrants to, and agrees with, each Underwriter that: (a) A registration statement (No. 333-71111), including a prospectus, relating to the Registered Securities has been filed with the Securities and Exchange Commission ("Commission") and has become effective. Such registration statement, as amended at the time of any Terms Agreement referred to in Section 3, is hereinafter referred to as the "Registration Statement," and the prospectus included in such Registration Statement, as supplemented as contemplated by Section 3 to reflect the terms of the Offered Securities and the terms of offering thereof, as first filed with the Commission after the date and time this Agreement is executed and delivered by the parties hereto pursuant to and in accordance with Rule 424(b) ("Rule 424(b)") under the Securities Act of 1933, as amended ("Act"), including all material incorporated by reference therein, is hereinafter referred to as the "Prospectus." No document has been or will be prepared or distributed in reliance on Rule 434 under the Act. 1 (b) On the effective date of the registration statement relating to the Registered Securities, such registration statement conformed in all material respects to the requirements of the Act, the Trust Indenture Act of 1939, as amended ("Trust Indenture Act") and the rules and regulations of the Commission ("Rules and Regulations") and did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and on the date of each Terms Agreement referred to in Section 3, the Registration Statement and the Prospectus will conform in all material respects to the requirements of the Act, the Trust Indenture Act and the Rules and Regulations, and neither of such documents will include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, in the light of the circumstances under which they were made, except that the foregoing does not and shall not apply to statements in or omissions from any of such documents based upon written information furnished to the Issuers by any Underwriter through the Representatives, if any, specifically for use therein. (c) Each of the Issuers has been duly incorporated or formed, as the case may be, and is an existing corporation or limited partnership, as the case may be, in good standing under the laws of the State of Delaware, with power and authority (corporate or partnership, as the case may be) to own its properties and conduct its business as described in the Prospectus; and each of the Issuers is duly qualified to do business as a foreign corporation or limited partnership, as the case may be, in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except to the extent that the failure to be so qualified or to be in good standing, considering all such cases in the aggregate, would not reasonably be expected to have a material adverse effect on the business, properties, condition (financial or otherwise) or results of operations of the Issuers and all of their subsidiaries and affiliates taken as a whole (a "Material Adverse Effect"). (d) Ferrellgas Partners is the sole limited partner of Ferrellgas, L.P., a Delaware limited partnership (the "Operating Partnership"), with a limited partner interest of 98.9899%; such limited partner interest has been duly authorized by the Second Amended and Restated Agreement of Limited Partnership of the Operating Partnership dated as of October 14, 1998, as amended, and was validly issued and is fully paid and non-assessable (except as non-assessability may be affected by certain provisions of the Delaware Revised Uniform Limited Partnership Act); Ferrellgas Partners owns such limited partner interest in the Operating Partnership free from liens and encumbrances (except for such liens and encumbrances as are not, individually or in the aggregate, material to the ownership, use or value thereof or as disclosed in the Registration Statement and the Prospectus). 2 (e) The Indenture has been duly authorized and has been duly qualified under the Trust Indenture Act; the Offered Securities have been duly authorized; and when the Offered Securities are delivered and paid for pursuant to the Terms Agreement on the Closing Date (as defined below), the Indenture will have been duly executed and delivered, such Offered Securities will have been duly executed, authenticated, issued and delivered and will conform to the description thereof contained in the Prospectus, and the Indenture and such Offered Securities will constitute valid and legally binding obligations of each of the Issuers (assuming in the case of the Indenture, the due authorization, execution and delivery thereof by the Trustee), enforceable in accordance with their terms, except that the enforceability thereof may be limited by (i) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws now or hereafter in effect relating to or affecting creditors' rights generally, (ii) limitations under Federal or state securities laws with respect to the rights of indemnification or contribution thereunder and (iii) general principles of equity. (f) Except as disclosed in the Prospectus, no consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by the Terms Agreement (including the provisions of this Agreement) in connection with the issuance and sale of the Offered Securities by the Issuers, except such (i) as have been obtained, (ii) to be made under the Act and the Trust Indenture Act, (iii) as may be required under state securities laws, or (iv) as the failure to obtain or make would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of the Issuers to execute, deliver and perform the transactions contemplated by the Terms Agreement in accordance with its terms. (g) The execution, delivery and performance of the Indenture and the Terms Agreement (including the provisions of this Agreement) and the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof will not (i) conflict with or result in a violation of any of the provisions of the certificate of incorporation, certificate or agreement of limited partnership, articles of formation or by-laws, as the case may be, of the Issuers, (ii) conflict with or violate in any material respect any law, rule, regulation, order, judgment or decree applicable to any of the Issuers or their subsidiaries or by which any property or asset of any of the Issuers or their subsidiaries is or may be bound or (iii) result in a breach of any of the material terms or provisions of, or constitute a default (with or without due notice and/or lapse of time) under, any loan or credit agreement, indenture, mortgage, note or other agreement or instrument to which any of the Issuers or their subsidiaries is a party or by which any of them or any of their respective properties or assets is or may be bound, except, in the case of clauses (ii) or (iii) where such conflict, violation, breach or default will not prevent the consummation of the transactions contemplated herein or would not reasonably be expected to have a Material Adverse Effect. (h) Each of the Issuers has full power and authority (corporate or partnership, as the case may be) to authorize, issue and sell the Offered Securities as contemplated by the Terms Agreement (including the provisions of this Agreement). The Terms Agreement (including the provisions of this Agreement) has been duly authorized, executed and delivered by each of the Issuers. 3 (i) Except as described in the Prospectus, each of the Issuers and their subsidiaries have good and valid title to all real properties and good title to all personal properties and assets described in the Prospectus as being owned by them, in each case free from liens, claims, security interests or other encumbrances that would reasonably be expected to materially affect the value thereof or materially interfere with the use made or to be made thereof by them, taken as a whole, including liens, claims, security interests and other encumbrances pursuant to mortgage and/or security agreements given as security for certain non-compete agreements with the prior owners of certain businesses previously acquired by the Issuers and their subsidiaries; and except as disclosed in the Prospectus, each of the Issuers and their subsidiaries hold any leased real property or buildings under valid and enforceable leases with no exceptions that would reasonably be expected to materially interfere with the use made by them, taken as a whole. (j) Except as described in the Prospectus, each of the Issuers and their subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them, except for those which the failure to obtain, would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Issuers or any of their subsidiaries, would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (k) No labor dispute with the employees of either of the Issuers or any subsidiary exists or, to the knowledge of either of the Issuers, is imminent that would reasonably be expected to have a Material Adverse Effect. (l) Each of the Issuers and their subsidiaries own, possess or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, "intellectual property rights") necessary to conduct the business now operated by them, or presently employed by them, and have not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to the Issuers or any of their subsidiaries, would individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (m) Except as disclosed in the Prospectus, neither of the Issuers nor any of their subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "environmental laws"), owns or operates any real property contaminated such that the clean-up or remediation is required by applicable environmental laws, is liable for any off-site disposal or contamination pursuant to any environmental laws, or is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; and neither of the Issuers is aware of any pending investigation which would reasonably be expected to lead to such a claim. 4 (n) Except as disclosed in the Prospectus, there are no actions, suits or proceedings pending, or to the knowledge of the Issuers, threatened, against or affecting either of the Issuers, any of their subsidiaries or any of their respective properties that, if determined adversely to the Issuers or any of their subsidiaries, would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, or would materially and adversely affect the ability of the Issuers to perform their obligations under the Indenture or the Terms Agreement (including the provisions of this Agreement). (o) The financial statements included in the Registration Statement and Prospectus present fairly in all material respects the financial position, results of operations and cash flows of the entities purported to be shown thereby, at the dates and for the periods indicated, and such financial statements have been prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis throughout the periods indicated, except as disclosed therein; and any schedules included in the Registration Statement present fairly in all material respects the information required to be stated therein. (p) Except as disclosed in the Prospectus, since the date of the latest audited financial statements included in the Prospectus, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of Ferrellgas Partners and its subsidiaries taken as a whole, and, except as disclosed in or contemplated by the Prospectus or for the regular quarterly distributions on the common units, senior units and general partner units of Ferrellgas Partners and the regular quarterly distributions on the general partner and limited partner interests of the Operating Partnership, there has been no dividend or distribution of any kind declared, paid or made by either of the Issuers on any class of their equity interests. (q) Each of the Issuers is subject to the reporting requirements of either Section 13 or Section 15(d) of the Securities Exchange Act of 1934 and files reports with the Commission on the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. (r) Each of the Issuers is, and after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Prospectus, will be exempt from regulation as an "investment company" as such term is defined in the Investment Company Act of 1940, as amended. 5 3. Purchase and Offering of Offered Securities. The obligation of the Underwriters to purchase the Offered Securities will be evidenced by an agreement or exchange of other written communications ("Terms Agreement") at the time the Issuers determine to sell the Offered Securities. The Terms Agreement will incorporate by reference the provisions of this Agreement, except as otherwise provided therein, and will specify the firm or firms which will be Underwriters, the names of any Representatives, the principal amount to be purchased by each Underwriter, the purchase price to be paid by the Underwriters and the terms of the Offered Securities not already specified in the Indenture, including, but not limited to, interest rate, maturity, any redemption provisions and any sinking fund requirements. The Terms Agreement will also specify the time and date of delivery and payment (such time and date, or such other time not later than ten full business days thereafter as Credit Suisse First Boston Corp. ("CSFBC") and the Issuers agree as the time for payment and delivery, being herein and in the Terms Agreement referred to as the "Closing Date"), the place of delivery and payment and any details of the terms of offering that should be reflected in the prospectus supplement relating to the offering of the Offered Securities. For purposes of Rule 15c6-1 under the Securities Exchange Act of 1934, the Closing Date (if later than the otherwise applicable settlement date) shall be the date for payment of funds and delivery of securities for all the Offered Securities sold pursuant to the offering. The obligations of the Underwriters to purchase the Offered Securities will be several and not joint. It is understood that the Underwriters propose to offer the Offered Securities for sale as set forth in the Prospectus. If the Terms Agreement specifies "Book-Entry Only" settlement or otherwise states that the provisions of this paragraph shall apply, the Issuers will deliver against payment of the purchase price the Offered Securities in the form of one or more permanent global securities in definitive form (the "Global Securities") deposited with the Trustee as custodian for The Depository Trust Company ("DTC") and registered in the name of Cede & Co., as nominee for DTC. Interests in any permanent global securities will be held only in book-entry form through DTC, except in the limited circumstances described in the Prospectus. Payment for the Offered Securities shall be made by the Underwriters in Federal (same day) funds by official check or checks or wire transfer to an account previously designated by Ferrellgas Partners at a bank acceptable to CSFBC, in each case drawn to the order of Ferrellgas Partners, or as Ferrellgas Partners may direct, at the place of payment specified in the Terms Agreement on the Closing Date, against delivery to the Trustee as custodian for DTC of the Global Securities representing all of the Offered Securities. Under Rule 15c6-1 under the Securities Exchange Act of 1934, the parties hereto agree that trades in the secondary market may settle in a period in excess of three business days, which period is currently contemplated to extend until September 24, 2002. 4. Certain Agreements of the Issuers. Each of the Issuers agrees with the several Underwriters that in connection with each offering of Offered Securities: (a) The Issuers will file the Prospectus with the Commission pursuant to and in accordance with Rule 424(b)(2) (or, if applicable and if consented to by CSFBC, subparagraph (5)) not later than the second business day following the execution and delivery of the Terms Agreement. (b) The Issuers will advise CSFBC promptly of any proposal to amend or supplement the Registration Statement or the Prospectus and will afford CSFBC a reasonable opportunity to comment on any such proposed amendment or supplement; and the Issuers will also advise CSFBC promptly of the filing of any such amendment or supplement and of the institution by the Commission of any stop order proceedings in respect of the Registration Statement or of any part thereof and will use every reasonable effort to prevent the issuance of any such stop order and to obtain as soon as possible its lifting, if issued. 6 (c) If, at any time when a prospectus relating to the Offered Securities is required to be delivered under the Act in connection with sales by any Underwriter or dealer, any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Issuers promptly will notify CSFBC of such event and will promptly prepare and file with the Commission, at their own expense, an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance. Neither CSFBC's consent to, nor the Underwriters' delivery of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 5 hereof. (d) As soon as practicable, but not later than 18 months, after the date of each Terms Agreement, each of the Issuers will make generally available to their securityholders an earnings statement of Ferrellgas Partners (which need not be audited) covering a period of at least 12 months beginning after the "effective date of the Registration Statement" (as defined in Rule 158(c) of the Act), which will satisfy the provisions of Section 11(a) of the Act. (e) The Issuers will furnish to CSFBC copies of the Registration Statement, including all exhibits, any related preliminary prospectus, any related preliminary prospectus supplement, the Prospectus and all amendments and supplements to such documents, in each case as soon as available and in such quantities as CSFBC reasonably requests. Each of the Issuers, jointly and severally, will pay the expenses of printing and distributing to the Underwriters all such documents. (f) The Issuers will cooperate with the Underwriters and counsel thereto in connection with the qualification of the Offered Securities for sale and the determination of their eligibility for investment under the laws of such jurisdictions as CSFBC designates and the continuation of such qualifications in effect so long as required for the distribution of the Offered Securities. Notwithstanding the foregoing, the Issuers shall not be required to qualify as a foreign corporation or partnership, as the case may be, in any jurisdiction in which they are not so qualified or subject themselves to taxation in excess of a nominal dollar amount in any such jurisdiction where they are not then so subject (except service of process with respect to the offering and sale of the Offered Securities). (g) Each of the Issuers, jointly and severally, will pay for (i) all expenses incident to the performance of their obligations under the Terms Agreement (including the provisions of this Agreement), (ii) any filing fees or other expenses (including fees and disbursements of counsel) in connection with qualification of the Registered Securities for sale and any determination of their eligibility for investment under the laws of such jurisdictions as CSFBC may designate and the printing of memoranda relating thereto, (iii) any fees charged by investment rating agencies for the rating of the Offered Securities, (iv) any applicable filing fee incident to, the review by the National Association of Securities Dealers, Inc. of the Registered Securities, (v) any travel expenses of the Issuers' officers and employees and any other expenses of the Issuers in connection with attending or hosting meetings with prospective purchasers of Registered Securities and (vi) expenses incurred in distributing the Prospectus, any preliminary prospectuses, any preliminary prospectus supplements or any other amendments or supplements to the Prospectus to the Underwriters. 7 (h) Neither of the Issuers will offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, nor file with the Commission a registration statement under the Act relating to United States dollar-denominated debt securities issued or guaranteed by the Issuers and having a maturity of more than one year from the date of issue, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of CSFBC for a period beginning at the time of execution of the Terms Agreement and ending the number of days after the Closing Date specified under "Blackout" in the Terms Agreement. 5. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Offered Securities will be subject to the accuracy of the representations and warranties on the part of the each of the Issuers herein, to the accuracy of the statements of officers of each of the Issuers made pursuant to the provisions hereof, to the performance by each of the Issuers of their obligations hereunder and to the following additional conditions precedent: (a) On or prior to the date of the Terms Agreement, the Representatives shall have received a letter, dated the date of delivery thereof, of Deloitte & Touche LLP confirming that they are independent public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating to the effect that: (i) in their opinion, the financial statements and any schedules examined by them and included in the Prospectus comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; (ii) they have performed the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in Statement of Auditing Standards No. 71, Interim Financial Information, on any unaudited financial statements included in the Registration Statement; (iii) on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial statements of each of the Issuers, inquiries of officials of each of the Issuers who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that: 8 (A) the unaudited financial statements, if any, included in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations or any material modifications should be made to such unaudited financial statements and summary of earnings for them to be in conformity with generally accepted accounting principles; (B) at the date of the latest available balance sheet read by such accountants, or at a subsequent specified date not more than three business days prior to the date of the such letter, there was any change in the capital stock or any increase in short-term indebtedness or long-term debt of the either of the Issuers and their consolidated subsidiaries or, at the date of the latest available balance sheet read by such accountants, there was any decrease in consolidated net current assets or net assets, as compared with amounts shown on the latest balance sheet included in the Prospectus; or (C) for the period from the closing date of the latest income statement included in the Prospectus to the closing date of the latest available income statement read by such accountants, there were any decreases, as compared with the corresponding period of the previous year and with the period of corresponding length ended the date of the latest income statement included in the Prospectus, in consolidated net sales or net operating income; except in all cases set forth in clauses (B) and (C) above for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (iv) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Prospectus (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of each of the Issuers and their subsidiaries subject to the internal controls of the Issuers' accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter. All financial statements and schedules included in material incorporated by reference into the Prospectus shall be deemed included in the Prospectus for purposes of this subsection. 9 (b) The Prospectus shall have been filed with the Commission in accordance with the Rules and Regulations and Section 4(a) of this Agreement. No stop order suspending the effectiveness of the Registration Statement or of any part thereof shall have been issued and no proceedings for that purpose shall have been instituted or, to the knowledge of either of the Issuers or any Underwriter, shall be contemplated by the Commission. (c) Subsequent to the execution of the Terms Agreement, there shall not have occurred (i) any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of either of the Issuers and their subsidiaries, taken as one enterprise, which, in the judgment of CSFBC, is so material and adverse as to make it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities; (ii) any downgrading in the rating of any debt securities of either of the Issuers by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of either of the Issuers (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating) or any announcement that either of the Issuers has been placed on negative outlook; (iii) any change in U.S. or international financial, political or economic conditions or currency exchange rates or exchange controls as would, in the judgment of CSFBC, be likely to prejudice materially the success of the proposed issue, sale or disposition of the Offered Securities, whether in the primary market or in respect of dealings in the secondary market; (iv) any material suspension or material limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of either of the Issuers on any exchange or in the over-the-counter market; (v) any banking moratorium declared by U.S. Federal or New York authorities; (vi) any major disruption of settlements of securities or clearance services in the United States; or (vii) any attack on, outbreak or escalation of hostilities or act of terrorism involving the United States, any declaration of war by Congress or any other national or international calamity or emergency if, in the judgment of CSFBC, the effect of any such attack, outbreak, escalation, act, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities. (d)(i) The Representatives shall have received an opinion, dated the Closing Date, of Mayer, Brown, Rowe & Maw, counsel for the Issuers, to the effect that: (A) Each of the Issuers has been duly incorporated or formed, as the case may be, and is an existing corporation or limited partnership, as the case may be, in good standing under the laws of the State of Delaware, with corporate or partnership power, as the case may be, and authority to own its properties and conduct its business as described in the Prospectus; and each of the Issuers is in good standing in the State of Missouri; each of the Issuers has full power and authority (corporate or partnership, as the case may be) to authorize, issue and sell the Offered Securities as contemplated by the Terms Agreement (including the provisions of this Agreement); 10 (B) The Operating Partnership has been duly formed and is an existing limited partnership in good standing under the laws of the State of Delaware with partnership power and authority to own its properties and conduct its business as described in the Prospectus; and the Operating Partnership is in good standing in the State of Missouri; (C) Each of the Issuers is, and after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Prospectus (assuming such proceeds are applied as described in the Prospectus), will be exempt from regulation as an "investment company" as such term is defined in the Investment Company Act of 1940, as amended; (D) Except as disclosed in the Prospectus, no consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by the Terms Agreement (including the provisions of this Agreement) in connection with the issuance and sale of the Offered Securities by the Issuers, except such (i) as have been obtained, (ii) to be made under the Act and the Trust Indenture Act, (iii) as may be required under state securities laws, or (iv) as the failure to obtain or make would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of the Issuers to execute, deliver and perform the transactions contemplated by the Terms Agreement in accordance with its terms; (E) The execution, delivery and performance of the Indenture and the Terms Agreement (including the provisions of this Agreement) and the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof will not (i) conflict with or result in a violation of any of the provisions of the certificate of incorporation, certificate or agreement of limited partnership, articles of formation, or by-laws, as the case may be, in effect on the date hereof of the Issuers, (ii) solely with respect to the Terms Agreement and to the knowledge of such counsel, conflict with or violate in any material respect any law, rule, regulation, order, judgment or decree applicable to the Issuers or by which any property or asset of any of the Issuers is or may be bound or (iii) result in a breach of any of the material terms or provisions of, or constitute a default (with or without due notice and/or lapse of time) under, any loan or credit agreement, indenture, mortgage, note or other agreement or instrument identified in any exhibit list to the filings of the Issuers incorporated by reference in the Prospectus as of the date hereof, except, in the case of clause (ii) or (iii) where such conflict, violation, breach or default will not prevent the consummation of the transactions contemplated herein and would not reasonably be expected to have a Material Adverse Effect; provided, however, that for the purposes of this paragraph (E), no opinion is expressed with respect to antifraud laws and fraudulent transfer laws; 11 (F) The Registration Statement has become effective under the Act, the Prospectus was filed with the Commission pursuant to the subparagraph of Rule 424(b) specified in such opinion on the date specified therein, and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement or any part thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Act; the Registration Statement and the Prospectus, as of the date of the Terms Agreement, and any amendment or supplement thereto, as of its date, (other than the financial information contained or incorporated by reference therein, as to which such counsel expresses no opinion) appear on their face to comply as to form in all material respects with the requirements of the Act and the Rules and Regulations; (G) The statements set forth in the Prospectus under the caption "Tax Considerations," insofar as such statements purport to constitute a summary of the material United States federal income tax consequences to holders of Offered Securities, are accurate in all material respects; (H) Ferrellgas Partners is properly classified as a partnership for United States federal income tax purposes and not as an association (or a publicly traded partnership) taxable as a corporation; and (I) The Terms Agreement (including the provisions of this Agreement) has been duly authorized, executed and delivered by each of the Issuers. Such counsel shall also advise that they have participated in conferences with officers and other representatives of the Issuers, representatives of the independent public accountants of the Issuers and representatives and counsel of the Underwriters at which the contents of the Registration Statement and the Prospectus were discussed and, based on such participation and review, although such counsel is not passing upon and does not assume responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and the Prospectus and such counsel has made no independent check or verification thereof, on the basis of the foregoing, no facts have come to such counsel's attention that have caused them to believe that the Registration Statement, as of the date of the Terms Agreement or as of the Closing Date, or any amendment thereto, as of its date or as of the Closing Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus, as of the date of the Terms Agreement or as of the Closing Date, or any amendment or supplement thereto, as of its date or as of the Closing Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no opinion with respect to the financial information contained in or incorporated by reference in the Registration Statement and Prospectus). 12 (ii) The Representatives shall have received an opinion, dated the Closing Date, of Bracewell & Patterson, L.L.P., counsel for the Issuers, to the effect that: (A) The Indenture has been duly authorized, executed and delivered by each of the Issuers and has been qualified under the Trust Indenture Act; the Offered Securities have been duly authorized and executed by each of the Issuers; the Indenture constitutes and, when authenticated by the Trustee and issued and delivered in the manner provided in the Indenture against payment of the consideration therefore pursuant to the Terms Agreement, the Offered Securities will constitute valid and legally binding obligations of each of the Issuers enforceable in accordance with their terms, except that the enforceability thereof may be limited by (i) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws now or hereafter in effect relating to or affecting creditors' rights generally, (ii) limitations imposed by public policy, applicable law relating to fiduciary duties and the judicial imposition of an implied covenant of good faith and fair dealing, (iii) limitations under Federal or state securities laws with respect to the rights of indemnification or contribution thereunder and (iv) general principles of equity; (B) The Offered Securities conform in all material respects to the description thereof under the caption "Description of Debt Securities" in the Prospectus, as supplemented by the description thereof under the caption "Description of Notes" in the Prospectus; (C) The statements set forth in the Prospectus under the caption "Description of Other Indebtedness and Other Financial Obligations," insofar as such statements purport to summarize provisions of contracts or other instruments referred to therein, fairly summarize such provisions in all material respects; (D) The execution, delivery and performance of the Indenture and compliance with the terms and provisions thereof will not (i) to the knowledge of such counsel, conflict with or violate in any material respect any law, rule, regulation, order, judgment or decree applicable to the Issuers or by which any property or asset of any of the Issuers is or may be bound or (iii) result in a breach of any of the material terms or provisions of, or constitute a default (with or without due notice and/or lapse of time) under, any loan or credit agreement, indenture, mortgage, note or other agreement or instrument identified in any exhibit list to the filings of the Issuers incorporated by reference in the Prospectus as of the date hereof, except, in the case of clause (i) or (ii) where such conflict, violation, breach or default will not prevent the consummation of the transactions contemplated herein and would not reasonably be expected to have a Material Adverse Effect; provided, however, that for the purposes of this paragraph (D), no opinion is expressed with respect to antifraud laws and fraudulent transfer laws; and 13 (E) The Registration Statement and the Prospectus, as of the date of the Terms Agreement, and any amendment or supplement thereto, as of its date, (other than the financial information contained or incorporated by reference therein or omitted therefrom and the Trustee's Statement of Eligibility on Form T-1, as to which such counsel expresses no opinion) appear on their face to comply as to form in all material respects with the requirements of the Trust Indenture Act. (e) The Representatives shall have received from Latham & Watkins, counsel for the underwriters, an opinion, dated the Closing Date, with respect to the incorporation or formation, as the case may be, of each of the Issuers, the validity of the Offered Securities, the Registration Statement, the Prospectus and other related matters as the Representatives may require, and the Issuers shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters. (f) The Representatives shall have received a certificate, dated the Closing Date, of the President or any Vice President and a principal financial or accounting officer of each of the Issuers in which such officers, to their knowledge after reasonable investigation, shall state that the representations and warranties of the Issuers in this Agreement are true and correct, that the Issuers have complied with all agreements and satisfied all conditions on their part to be performed or satisfied hereunder at or prior to the Closing Date, that no stop order suspending the effectiveness of the Registration Statement or of any part thereof has been issued and no proceedings for that purpose have been instituted or are contemplated by the Commission and that, subsequent to the date of the most recent financial statements in the Prospectus, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of Ferrellgas Partners and its subsidiaries taken as a whole except as set forth in or contemplated by the Prospectus or as described in such certificate. (g) The Representatives shall have received a letter, dated the Closing Date, of Deloitte & Touche LLP which meets the requirements of subsection (a) of this Section 5, except that the specified date referred to in such subsection will be a date not more than three days prior to the Closing Date for the purposes of this subsection. Each of the Issuers will furnish the Representatives with such conformed copies of such opinions, certificates, letters and documents as the Representatives reasonably request. CSFBC may in its sole discretion waive on behalf of the Underwriters compliance with any conditions to the obligations of the Underwriters under this Agreement and the Terms Agreement. (h) The tender offer for the Issuers' 9?% Senior Secured Notes due 2006 shall have been completed and the Issuers shall have fulfilled all their obligations under the Dealer Manager and Consent Solicitation Agreement, dated as of July 1, 2002, by and among the Issuers and CSFBC. 14 6. Indemnification and Contribution. (a) Each of the Issuers will, jointly and severally, indemnify and hold harmless each Underwriter, its partners, directors and officers and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Act, against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus or preliminary prospectus supplement, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 6(a) with respect to any preliminary prospectus supplement (or any amendment or supplement thereto) shall not inure to the benefit of any Underwriter, its partners, officers or directors (or to the benefit of any person controlling such Underwriter) from whom the person asserting any such loss, damage, expense, liability or claim purchased the Offered Securities that are the subject thereof if the final prospectus supplement corrected any such alleged untrue statement or omission and if such Underwriter, its partners, officers or directors, failed to send or give a copy of the final prospectus supplement to such person at or prior to the written confirmation of the sale of such Offered Securities to such person, unless the failure is the result of non-compliance by the Issuers with paragraph (c) of Section 4 hereof; and provided, further that the Issuers will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Issuers by any Underwriter through the Representatives, if any, specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in the Terms Agreement. (b) Each Underwriter will severally and not jointly indemnify and hold harmless each of the Issuers, their partners, directors and officers and each person, if any, who controls the Issuers within the meaning of Section 15 of the Act, against any losses, claims, damages or liabilities to which the Issuers may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus or preliminary prospectus supplement, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Issuers by such Underwriter through the Representatives, if any, specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Issuers in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in the Terms Agreement. 15 (c) Promptly after receipt by an indemnified party under this Section 6 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 6 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act by or behalf of an indemnified party. (d) If the indemnification provided for in this Section 6 is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by each of the Issuers, on the one hand, and the Underwriters, on the other, from the offering of the Offered Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of each of the Issuers, on the one hand, and the Underwriters, on the other, in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by each of the Issuers, on the one hand, and the Underwriters, on the other, shall be deemed to be in the same proportion as the total net proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by each of the Issuers bear to the total underwriting discounts and commissions received by the Underwriters. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by each of the Issuers or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Offered Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. 16 (e) The obligations of each of the Issuers under this Section 6 shall be in addition to any liability which the Issuers may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 6 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each director of the Issuers, to each officer of the Issuers who has signed the Registration Statement and to each person, if any, who controls the Issuers within the meaning of the Act. 7. Default of Underwriters. If any Underwriter or Underwriters default in their obligations to purchase Offered Securities under the Terms Agreement and the aggregate principal amount of Offered Securities that such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of the total principal amount of Offered Securities, CSFBC may make arrangements satisfactory to the Issuers for the purchase of such Offered Securities by other persons, including any of the Underwriters, but if no such arrangements are made by the Closing Date, the non-defaulting Underwriters shall be obligated severally, in proportion to their respective commitments under the Terms Agreement (including the provisions of this Agreement), to purchase the Offered Securities that such defaulting Underwriters agreed but failed to purchase. If any Underwriter or Underwriters so default and the aggregate principal amount of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total principal amount of Offered Securities and arrangements satisfactory to CSFBC and the Issuers for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, the Terms Agreement will terminate without liability on the part of any non-defaulting Underwriter or Issuer, except as provided in Section 8. As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section 7. Nothing herein will relieve a defaulting Underwriter from liability for its default. 8. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties and other statements of each of the Issuers and of the several Underwriters set forth in the Terms Agreement (including the provisions of this Agreement) will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter, either of the Issuers or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If the Terms Agreement is terminated pursuant to Section 7 or if for any reason the purchase of the Offered Securities by the Underwriters is not consummated, each of the Issuers shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 4 and the respective obligations of each of the Issuers and the Underwriters pursuant to Section 6 shall remain in effect. If the purchase of the Offered Securities by the Underwriters is not consummated for any reason other than solely because of the termination of the Terms Agreement pursuant to Section 7 or the occurrence of any event specified in clause (iii), (iv), (v), (vi) or (vii) of Section 5(c), each of the Issuers, jointly and severally, will reimburse the Underwriters for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities. 17 9. Notices. All communications hereunder will be in writing and, if sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed to them at Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, NY 10010, Attention: Marc Warm or, if sent to the Issuers, will be mailed, delivered or telegraphed and confirmed to them at Ferrellgas Partners L.P., One Liberty Plaza, Liberty, MO 64068, Attention: Kevin T. Kelly. 10. Successors. The Terms Agreement (including the provisions of this Agreement) will inure to the benefit of and be binding upon each of the Issuers and such Underwriters as are identified in the Terms Agreement and their respective successors and the officers and directors and controlling persons referred to in Section 6, and no other person will have any right or obligation hereunder. 11. Representation of Underwriters. Any Representatives will act for the several Underwriters in connection with the financing described in the Terms Agreement, and any action under such Terms Agreement (including the provisions of this Agreement) taken by the Representatives jointly or by CSFBC will be binding upon all the Underwriters. 12. Counterparts. The Terms Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement. 13. Applicable Law. This Agreement and the Terms Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws. The Issuers hereby submit to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to the Terms Agreement (including the provisions of this Agreement) or the transactions contemplated thereby. 18 Ferrellgas Partners, L.P. Ferrellgas Partners Finance Corp. (collectively, the "Issuers") Debt Securities TERMS AGREEMENT September 10, 2002 To: The Representatives of the Underwriters identified herein Dear Ladies and Gentlemen: The undersigned agrees to sell to the several Underwriters named in Schedule A hereto for their respective accounts, on and subject to the terms and conditions of the Underwriting Agreement filed as an exhibit to the registration statement of the Issuers on Form S-3 (No. 333-71111) ("Underwriting Agreement"), the following securities ("Offered Securities") on the following terms: Title: 8 3/4% Senior Notes due 2012. Principal Amount: $170,000,000. Interest: 8 3/4% per annum, from September 24, 2002, payable semiannually on June 15 and December 15, commencing December 15, 2002, to holders of record on the preceding June 1 or December 1, as the case may be. Maturity: June 15, 2012. Optional Redemption: On or after June 15, 2007. Sinking Fund: None. Listing: None. Purchase Price: 97.50% of principal amount, plus accrued interest, if any, from September 24, 2002. Expected Reoffering Price: 100% of principal amount, subject to change by CSFBC. Closing: 9:00 A.M. on September 24, 2002 at the offices of Latham & Watkins, New York, New York, in Federal (same day) funds. Settlement and Trading: Book-Entry Only via DTC. 1 Name and Address of the Underwriters: Credit Suisse First Boston Corp. Eleven Madison Ave. New York, New York 10010 Banc of America Securities LLC 9 West 57th St. New York, New York 10019 The respective principal amounts of the Offered Securities to be purchased by each of the Underwriters are set forth opposite their names in Schedule A hereto. The provisions of the Underwriting Agreement are incorporated herein by reference. The Offered Securities will be made available for checking and packaging at the offices of Latham & Watkins at least 24 hours prior to the Closing Date. For purposes of Section 6 of the Underwriting Agreement, the only information furnished to the Issuers by any Underwriter for use in the Prospectus consists of the following information in the Prospectus furnished on behalf of each Underwriter: (i) the list of Underwriters and their respective participation in the sale of the Offered Securities in the preliminary and final prospectus supplement; (ii) the concession and reallowance sentences appearing in the third paragraph under the caption "Underwriting" in the preliminary prospectus supplement; and (iii) the information contained in the (a) fourth and sixth paragraphs in the preliminary prospectus supplement and (b) third and fifth paragraphs in the final prospectus supplement, under the caption "Underwriting." [signature page to follow] 2 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to the Issuers one of the counterparts hereof, whereupon it will become a binding agreement among the Issuers and the several Underwriters in accordance with its terms. Very truly yours, FERRELLGAS PARTNERS, L.P. By: Ferrellgas, Inc., its General Partner By:/s/ Kevin T. Kelly ----------------------------------------- Name: Kevin T. Kelly Title: Chief Financial Officer FERRELLGAS PARTNERS FINANCE CORP. By: /s/ Kevin T. Kelly ----------------------------------------- Name: Kevin T. Kelly Title: Chief Financial Officer The foregoing Terms Agreement is hereby confirmed and accepted as of the date first above written. CREDIT SUISSE FIRST BOSTON CORPORATION By: /s/ Robert J. McMullan -------------------------------------------- Name: Robert J. McMullan Title: Managing Director Acting on behalf of itself and as the Representative of the several Underwriters. 3 SCHEDULE A Principal Underwriter Amount ----------- --------- Credit Suisse First Boston Corporation...................... $86,700,000 Banc of America Securities LLC ............................. 57,800,000 Banc One Capital Markets, Inc............................... 8,500,000 BNP Paribas Securities Corp................................. 8,500,000 Wells Fargo Brokerage Services, LLC......................... 8,500,000 ----------- Total............................................... $170,000,000 4 EX-4 8 indenture.txt EXHIBIT 2 TO FORM 8K 9-24-02 Exhibit 99.9 Exhibit 2 - -------------------------------------------------------------------------------- FERRELLGAS PARTNERS, L.P. FERRELLGAS PARTNERS FINANCE CORP. 8 3/4% SENIOR NOTES DUE 2012 --------------------------------------------------------------------------- INDENTURE Dated as of September 24, 2002 --------------------------------------------------------------------------- U.S. Bank, N.A. --------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CROSS-REFERENCE TABLE* Trust Indenture Act Section Indenture Section 310(a)(1).............................................. 7.10 (a)(2).............................................. 7.10 (a)(3).............................................. N.A. (a)(4).............................................. N.A. (a)(5).............................................. 7.10 (b)................................................. 7.10 (c)................................................. N.A. 311(a)................................................. 7.11 (b)................................................. 7.11 (c)................................................. N.A. 312(a)................................................. 2.05 (b)................................................. 11.03 (c)................................................. 11.03 313(a)................................................. 7.06 (b)(1).............................................. N.A. (b)(2).............................................. 7.06; 7.07 (c)................................................. 7.06; 11.02 (d)................................................. 7.06 314(a)................................................. 4.03;11.02; 11.05 (b)................................................. N.A. (c)(1).............................................. 11.04 (c)(2).............................................. 11.04 (c)(3).............................................. N.A. (d)................................................. N.A. (e)................................................. 11.05 (f)................................................. N.A. 315(a)................................................. 7.01 (b)................................................. 7.05, 11.02 (c)................................................. 7.01 (d)................................................. 7.01 (e)................................................. 6.11 316(a) (last sentence)................................. 2.09 (a)(1)(A)........................................... 6.05 (a)(1)(B)........................................... 6.04 (a)(2).............................................. N.A. (b)................................................. 6.07 (c)................................................. 2.12 317(a)(1).............................................. 6.08 (a)(2).............................................. 6.09 (b)................................................. 2.04 318(a)................................................. 11.01 (b)................................................. N.A. (c)................................................. 11.01 N.A. means not applicable. * This Cross Reference Table is not part of the Indenture. TABLE OF CONTENTS Page ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions..............................................1 Section 1.02 Other Definitions.......................................22 Section 1.03 Incorporation by Reference of Trust Indenture Act.......22 Section 1.04 Rules of Construction...................................22 ARTICLE 2. THE NOTES Section 2.01 Form and Dating.........................................23 Section 2.02 Execution and Authentication............................23 Section 2.03 Registrar and Paying Agent..............................24 Section 2.04 Paying Agent to Hold Money in Trust.....................24 Section 2.05 Holder Lists............................................24 Section 2.06 Transfer and Exchange...................................25 Section 2.07 Replacement Notes.......................................28 Section 2.08 Outstanding Notes.......................................29 Section 2.09 Treasury Notes..........................................29 Section 2.10 Temporary Notes.........................................29 Section 2.11 Cancellation............................................29 Section 2.12 Defaulted Interest......................................30 ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01 Notices to Trustee......................................30 Section 3.02 Selection of Notes to Be Redeemed or Purchased..........30 Section 3.03 Notice of Redemption....................................31 Section 3.04 Effect of Notice of Redemption..........................31 Section 3.05 Deposit of Redemption or Purchase Price.................32 Section 3.06 Notes Redeemed or Purchased in Part.....................32 Section 3.07 Optional Redemption.....................................32 Section 3.08 Mandatory Redemption....................................33 Section 3.09 Offer to Purchase by Application of Excess Proceeds.....33 ARTICLE 4. COVENANTS Section 4.01 Payment of Notes........................................34 Section 4.02 Maintenance of Office or Agency.........................35 Section 4.03 Reports.................................................35 Section 4.04 Compliance Certificate..................................36 Section 4.05 Taxes...................................................36 Section 4.06 Stay, Extension and Usury Laws..........................36 Section 4.07 Restricted Payments.....................................37 Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries................................38 Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock.......................................39 i Section 4.10 Asset Sales.............................................41 Section 4.11 Transactions with Affiliates............................43 Section 4.12 Liens...................................................43 Section 4.13 Corporate Existence.....................................44 Section 4.14 Offer to Repurchase Upon Change of Control..............44 Section 4.15 Limitation on Sale and Leaseback Transactions...........45 Section 4.16 Limitation on Finance Corp..............................46 ARTICLE 5. SUCCESSORS Section 5.01 Merger, Consolidation, or Sale of Assets................46 Section 5.02 Successor Corporation Substituted.......................46 ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01 Events of Default.......................................47 Section 6.02 Acceleration............................................48 Section 6.03 Other Remedies..........................................49 Section 6.04 Waiver of Past Defaults.................................49 Section 6.05 Control by Majority.....................................49 Section 6.06 Limitation on Suits.....................................49 Section 6.07 Rights of Holders of Notes to Receive Payment...........50 Section 6.08 Collection Suit by Trustee..............................50 Section 6.09 Trustee May File Proofs of Claim........................50 Section 6.10 Priorities..............................................50 Section 6.11 Undertaking for Costs...................................51 ARTICLE 7. TRUSTEE Section 7.01 Duties of Trustee.......................................51 Section 7.02 Rights of Trustee.......................................52 Section 7.03 Individual Rights of Trustee............................53 Section 7.04 Trustee's Disclaimer....................................53 Section 7.05 Notice of Defaults......................................53 Section 7.06 Reports by Trustee to Holders of the Notes..............53 Section 7.07 Compensation and Indemnity..............................54 Section 7.08 Replacement of Trustee..................................54 Section 7.09 Successor Trustee by Merger, etc........................55 Section 7.10 Eligibility; Disqualification...........................55 Section 7.11 Preferential Collection of Claims Against the Issuers...56 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance...................................56 Section 8.02 Legal Defeasance and Discharge..........................56 Section 8.03 Covenant Defeasance.....................................56 Section 8.04 Conditions to Legal or Covenant Defeasance..............57 Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions.........58 Section 8.06 Repayment to the Issuers................................58 Section 8.07 Reinstatement...........................................59 ii ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01 Without Consent of Holders of Notes.....................59 Section 9.02 With Consent of Holders of Notes........................60 Section 9.03 Compliance with Trust Indenture Act.....................61 Section 9.04 Revocation and Effect of Consents.......................61 Section 9.05 Notation on or Exchange of Notes........................61 Section 9.06 Trustee to Sign Amendments, etc.........................61 ARTICLE 10. satisfaction and discharge Section 10.01 Satisfaction and Discharge..............................61 Section 10.02 Application of Trust Money..............................62 ARTICLE 11. MISCELLANEOUS Section 11.01 Trust Indenture Act Controls............................63 Section 11.02 Notices.................................................63 Section 11.03 Communication by Holders of Notes with Other Holders of Notes................................64 Section 11.04 Certificate and Opinion as to Conditions Precedent......64 Section 11.05 Statements Required in Certificate or Opinion...........64 Section 11.06 Rules by Trustee and Agents.............................65 Section 11.07 Non-Recourse............................................65 Section 11.08 No Personal Liability of Directors, Officers, Employees and Stockholders............................65 Section 11.09 Governing Law...........................................65 Section 11.10 Successors..............................................65 Section 11.11 Severability............................................65 Section 11.12 Counterpart Originals...................................65 Section 11.13 Table of Contents, Headings, etc........................65 EXHIBIT Exhibit A FORM OF NOTE iii INDENTURE dated as of September 24, 2002 among Ferrellgas Partners, L.P., a Delaware limited partnership (the "Partnership"), Ferrellgas Partners Finance Corp., a Delaware corporation the "Finance Corp." and, together with the Partnership, the "Issuers") and U.S. Bank, N.A., as trustee (the "Trustee"). The Issuers and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders (as defined below) of the 8 3/4% Senior Notes due 2012 (the "Notes"): ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions. "Accounts Receivable Securitization" means a financing arrangement involving the transfer or sale of accounts receivable of the Partnership and its Restricted Subsidiaries in the ordinary course of business through one or more SPEs, the terms of which arrangement do not impose (a) any recourse or repurchase obligations upon the Partnership and its Restricted Subsidiaries or any Affiliate of the Partnership and its Restricted Subsidiaries (other than any such SPE) except to the extent of the breach of a representation or warranty by the Partnership and its Restricted Subsidiaries in connection therewith or (b) any negative pledge or Lien on any accounts receivable not actually transferred to any such SPE in connection with such arrangement. "Additional Notes" means additional notes (other than the Initial Notes) issued from time to time under this Indenture in accordance with Sections 2.02 and 4.09 hereof, as part of the same series as the Initial Notes. "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," as used with respect to any Person, will 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 that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" will have correlative meanings. "Agent" means any Registrar, co-registrar, Paying Agent or additional paying agent. "Applicable Procedures" means, with respect to any transfer or exchange of, or for beneficial interests in, any Global Note, the rules and procedures of the Depositary that apply to such transfer or exchange. "Asset Acquisition" means the following (in all cases, including assets acquired through a Flow-Through Acquisition): (1) an Investment by the Partnership or any Restricted Subsidiary of the Partnership in any other Person pursuant to which the Person shall become a Restricted Subsidiary of the Partnership, or shall be merged with or into the Partnership or any Restricted Subsidiary of the Partnership; 1 (2) the acquisition by the Partnership or any Restricted Subsidiary of the Partnership of the assets of any Person, other than a Restricted Subsidiary of the Partnership, which constitute all or substantially all of the assets of such Person; or (3) the acquisition by the Partnership or any Restricted Subsidiary of the Partnership of any division or line of business of any Person, other than a Restricted Subsidiary of the Partnership. "Asset Sale" means either of the following, whether in a single transaction or a series of related transactions: (1) the sale, lease, conveyance or other disposition of any assets other than (a) sales, leases or transfers of assets in the ordinary course of business (including but not limited to the sales of inventory in the ordinary course of business), and (b) sales of accounts receivable under any Accounts Receivable Securitization; or (2) the issuance or sale of Capital Stock of any direct Subsidiary. Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale: (1) any sale, lease or transfer of assets or Capital Stock by the Partnership or any of its Restricted Subsidiaries to the Issuers, the Operating Partnership or a Restricted Subsidiary; (2) any sale or transfer of assets or Capital Stock by the Partnership or any of its Restricted Subsidiaries to any entity in exchange for other assets used in a related business and/or cash (provided, that such cash portion is at least 75% of the difference between the value of the assets being transferred and the value of the assets being received) and having a fair market value, as determined in good faith by an authorized financial officer of the General Partner, reasonably equivalent to the fair market value of the assets so transferred; (3) any sale, lease or transfer of assets in accordance with Permitted Investments; (4) the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Partnership; provided, that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Partnership will be governed by Section 4.14 hereof and/or Section 5.01 hereof and not Section 4.10 hereof; (5) the transfer or disposition of assets that are permitted Restricted Payments; (6) any sale, lease or transfer of assets pursuant to a Synthetic Lease or a Sale and Leaseback Transaction otherwise permitted by this Indenture; and (7) sales or transfers of accounts receivable under an Accounts Receivable Securitization. "Attributable Debt" means, with respect to any Sale and Leaseback Transactions not involving a Capital Lease, as of any date of determination, the total obligation, discounted to present value at the rate of interest implicit in the lease included in the transaction, of the lessee for rental payments during the remaining portion of the term of the lease, including extensions which are at the sole option of the lessor, of the lease included in the transaction. For purposes of this definition, the rental payments shall not include amounts required to be paid on account of property taxes, maintenance, repairs, insurance, assessments, utilities, operating and labor costs and other items which do not constitute payments for property rights. In the case of any lease which is terminable by the lessee upon the payment of a penalty, the rental obligation shall also include the amount of the penalty, but no rent shall be considered as required to be paid under such lease subsequent to the first date upon which it may be so terminated. 2 "Available Cash" means as to any quarter means: (1) the sum of: (a) all cash receipts of the Partnership during such quarter from all sources (including, without limitation, distributions of cash received from the Operating Partnership and cash proceeds from Interim Capital Transactions, but excluding cash proceeds from Termination Capital Transactions); and (b) any reduction with respect to such quarter in a cash reserve previously established pursuant to clause (2)(b) below (either by reversal or utilization) from the level of such reserve at the end of the prior quarter; (2) less the sum of: (a) all cash disbursements of the Partnership during such quarter, including, without limitation, disbursements for operating expenses, taxes, if any, debt service (including, without limitation, the payment of principal, premium and interest), redemption of Capital Stock of the Partnership (including Common Units or Senior Units), capital expenditures, contributions, if any, to the Operating Partnership and cash distributions to partners of the Partnership (but only to the extent that such cash distributions to partners exceed Available Cash for the immediately preceding quarter); and (b) any cash reserves established with respect to such quarter, and any increase with respect to such quarter in a cash reserve previously established pursuant to this clause (2)(b) from the level of such reserve at the end of the prior quarter, in such amounts as the General Partner determines in its reasonable discretion to be necessary or appropriate (i) to provide for the proper conduct of the business of the Partnership or the Operating Partnership (including, without limitation, reserves for future capital expenditures), (ii) to provide funds for distributions with respect to Capital Stock of the Partnership in respect of any one or more of the next four quarters or (iii) because the distribution of such amounts would be prohibited by applicable law or by any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which the Partnership or the Operating Partnership is a party or by which any of them is bound or its assets are subject; (3) plus the lesser of (a) an amount as calculated in accordance with clauses (1) and (2) above for the Partnership or its Restricted Subsidiaries for the first 45 days of the quarter during which such Restricted Payment is made (rather than the quarter for which clauses (1) and (2) were calculated) and (b) an amount of working capital Indebtedness that the Partnership or its Restricted Subsidiaries could have incurred on or before the 45th day after the last day of the quarter used to calculate clauses (1) and (2) above; provided, however, that Available Cash attributable to any Restricted Subsidiary of the Partnership will be excluded to the extent dividends or distributions of Available Cash by the Restricted Subsidiary are not at the date of determination permitted by the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or other regulation. 3 Notwithstanding the foregoing, "Available Cash" shall not include any cash receipts or reductions in reserves or take into account any disbursements made or reserves established in each case after the date of liquidation of the Partnership. Taxes paid by the Partnership on behalf of, or amounts withheld with respect to, all or less than all of the partners shall not be considered cash disbursements of the Partnership that reduce Available Cash, but the payment or withholding thereof shall be deemed to be a distribution of Available Cash to the partners other than the limited partners holding Senior Units. Alternatively, in the discretion of the General Partner, such taxes (if pertaining to all partners) may be considered to be cash disbursements of the Partnership which reduce Available Cash, but the payment or withholding thereof shall not be deemed to be a distribution of Available Cash to such partners. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "Person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "Person" will be deemed to have beneficial ownership of all securities that such "Person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning. "Board of Directors" means: (1) with respect to a corporation, the board of directors of the corporation; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; and (3) with respect to any other Person, the board or committee of such Person serving a similar function. "Borrowing Base" means, as of any date, an amount equal to: (1) 80% of the face amount of all accounts receivable owned by the Partnership and its Subsidiaries as of the end of the most recent month preceding such date that were not more than 90 days past due; plus (2) 70% of the value of all inventory owned by the Partnership and its Subsidiaries as of the end of the most recent month preceding such date, in each case, calculated on a consolidated basis and in accordance with GAAP. "Business Day" means any day other than a Legal Holiday. "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 required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means of any Person any capital stock, partnership interest, membership interest, or equity interest of any kind. 4 "Change of Control" means (1) the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Partnership or the Operating Partnership to any entity other than to a Related Party; (2) the liquidation or dissolution of the Partnership or the General Partner, or a successor to the General Partner; or (3) any transaction or series of transactions that results in a Person other than a Related Party beneficially owning in the aggregate, directly or indirectly, more than 35% of the voting stock of the General Partner or a successor to the General Partner and such percentage is more than the percentage of voting stock that is owned by the Related Party or a successor to the Related Party. "Common Units" means the units representing limited partner interests of the Partnership, having the rights and obligations specified with respect to common units of the Partnership. "Consolidated Cash Flow Available for Fixed Charges" means, with respect to the Partnership and its Restricted Subsidiaries, for any period, the sum of, without duplication, the amounts for the period, taken as single accounting, of: (1) Consolidated Net Income; (2) Consolidated Non-cash Charges; (3) Consolidated Interest Expense; and (4) Consolidated Income Tax Expense. "Consolidated Fixed Charge Coverage Ratio" means, with respect to the Partnership and its Restricted Subsidiaries, the ratio of (y) the aggregate amount of Consolidated Cash Flow Available for Fixed Charges of the Person for the four full fiscal quarters immediately preceding the date of the transaction (the "Transaction Date") giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Four Quarter Period"), to (z) the aggregate amount of Consolidated Fixed Charges of the Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Consolidated Cash Flow Available for Fixed Charges" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of the calculation to, without duplication: (1) the incurrence or repayment of any Indebtedness, excluding revolving credit borrowings and repayments of revolving credit borrowings (other than any revolving credit borrowings the proceeds of which are used for Asset Acquisitions or Growth Related Capital Expenditures of the Partnership or any of its Restricted Subsidiaries and in the case of any incurrence, the application of the net proceeds thereof) during the period commencing on the first day of the Four Quarter Period to and including the Transaction Date (the "Reference Period"), including, without limitation, the incurrence of the Indebtedness giving rise to the need to make the calculation (and the application of the net proceeds thereof), as if the incurrence (and application) occurred on the first day of the Reference Period; and (2) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make the calculation as a result of the Partnership or one of its Restricted Subsidiaries, including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition, incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the Reference Period, as if the Asset Sale or Asset Acquisition occurred on the first day of the Reference Period; provided, however, that: 5 (a) Consolidated Fixed Charges will be reduced by amounts attributable to businesses or assets that are so disposed of or discontinued only to the extent that the obligations giving rise to such Consolidated Fixed Charges would no longer be obligations contributing to the Consolidated Fixed Charges subsequent to the date of determination of the Consolidated Fixed Charge Coverage Ratio; (b) Consolidated Cash Flow Available for Fixed Charges generated by an acquired business or asset shall be determined by the actual gross profit, which is equal to revenues minus cost of goods sold, of the acquired business or asset during the immediately available preceding four full fiscal quarters occurring in the Reference Period, minus the pro forma expenses that would have been incurred by the Partnership and its Restricted Subsidiaries in the operation of the acquired business or asset during the period computed on the basis of personnel expenses for employees retained or to be retained by the Partnership and its Restricted Subsidiaries in the operation of the acquired business or asset and non-personnel costs and expenses incurred by or to be incurred by the Partnership and its Restricted Subsidiaries based upon the operation of the Partnership's business, all as determined in good faith by an authorized financial officer of the General Partner; and (c) Consolidated Cash Flow Available for Fixed Charges shall not include the impact of any non-recurring cash charges incurred in connection with a restructuring, reorganization or other similar transaction, as determined in good faith by an authorized financial officer of the General Partner. Furthermore, subject to the following paragraph, in calculating "Consolidated Fixed Charges" for purposes of determining the "Consolidated Fixed Charge Coverage Ratio": (1) interest on outstanding Indebtedness, other than Indebtedness referred to in the point below, determined on a fluctuating basis as of the last day of the Four Quarter Period and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on that date; (2) only actual interest payments associated with Indebtedness incurred in accordance with clauses (4) of the definition of Permitted Indebtedness and all Permitted Refinancing Indebtedness in respect thereof, during the Four Quarter Period shall be included in the calculation; and (3) if interest on any Indebtedness actually incurred on the date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency interbank offered rate, or other rates, then the interest rate in effect on the last day of the Four Quarter Period will be deemed to have been in effect during the period. "Consolidated Fixed Charges" means, with respect to the Partnership and its Restricted Subsidiaries for any period, the sum of, without duplication: 6 (1) the amounts for such period of Consolidated Interest Expense; and (2) the product of: (a) the aggregate amount of dividends and other distributions paid or accrued during the period in respect of Preferred Stock and Redeemable Capital Stock of the Partnership and its Restricted Subsidiaries on a consolidated basis; and (b) a fraction, the numerator of which is one and the denominator of which is one less the then applicable current combined federal, state and local statutory tax rate, expressed as a percentage. "Consolidated Income Tax Expense" means, with respect to the Partnership and its Restricted Subsidiaries for any period, the provision for federal, state, local and foreign income taxes of the Partnership and its Restricted Subsidiaries for the period as determined on a consolidated basis in accordance with GAAP. "Consolidated Interest Expense" means, with respect to the Partnership and its Restricted Subsidiaries, for any period, without duplication, the sum of: (1) the interest expense of the Partnership and its Restricted Subsidiaries for the period as determined on a consolidated basis in accordance with GAAP, including, without limitation: (2) any amortization of debt discount; (3) the net cost under Interest Rate Agreements; (4) the interest portion of any deferred payment obligation; (5) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; (6) all accrued interest for all instruments evidencing Indebtedness; and (7) the interest component of Capital Leases paid or accrued or scheduled to be paid or accrued by the Partnership and its Restricted Subsidiaries during the period as determined on a consolidated basis in accordance with GAAP. "Consolidated Net Income" means the net income of the Partnership and its Restricted Subsidiaries, as determined on a consolidated basis in accordance with GAAP and as adjusted to exclude: (1) net after-tax extraordinary gains or losses; (2) net after-tax gains or losses attributable to Asset Sales or sales of receivables under any Accounts Receivable Securitization; (3) the net income or loss of any Person which is not a Restricted Subsidiary and which is accounted for by the equity method of accounting; provided, that Consolidated Net Income shall include the amount of dividends or distributions actually paid to the Partnership or any Restricted Subsidiary; (4) the net income or loss prior to the date of acquisition of any Person combined with the Partnership or any Restricted Subsidiary in a pooling of interest; 7 (5) the net income of any Restricted Subsidiary to the extent that dividends or distributions of that net income are not at the date of determination permitted by the terms of its charter or any judgment, decree, order, statute, rule or other regulation; and (6) the cumulative effect of any changes in accounting principles. "Consolidated Non-Cash Charges" means, with respect to the Partnership and its Restricted Subsidiaries for any period, the aggregate (1) depreciation, (2) amortization, (3) non-cash employee compensation expenses of the Partnership or its Restricted Subsidiaries for such period, and (4) any non-cash charges resulting from writedowns of non-current assets, in each case which reduces the Consolidated Net Income of the Partnership and its Restricted Subsidiaries for the period, as determined on a consolidated basis in accordance with GAAP. "Corporate Trust Office of the Trustee" will be at the address of the Trustee specified in Section 11.02 hereof or such other address as to which the Trustee may give notice to the Issuers. "Credit Agreement" means that Third Amended and Restated Credit Agreement, dated as of April 18, 2000, among the Operating Partnership, the General Partner, Bank of America N.A. (formerly known as Bank of America National Trust and Savings Association), as agent, and the other financial institutions party thereto. "Credit Facilities" means, one or more debt facilities (including, without limitation, the facilities evidenced by the Credit Agreement) or commercial paper facilities, in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Default" means any event that is, or after notice or with the passage of time or both would be, an Event of Default. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, substantially in the form of Exhibit A hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. 8 "Designation Amount" means, with respect to the designation of a Restricted Subsidiary or a newly acquired or formed Subsidiary as an Unrestricted Subsidiary, an amount equal to the sum of: (1) the net book value of all assets of the Subsidiary at the time of the designation in the case of a Restricted Subsidiary; and (2) the cost of acquisition or formation in the case of a newly acquired or formed Subsidiary. "Equity Offering" means a public offering or private placement of partnership interests (other than interests that are mandatorily redeemable) of: (1) any entity that directly or indirectly owns equity interests in the Partnership, to the extent the net proceeds are contributed to the Partnership; (2) any Subsidiary of the Partnership to the extent the net proceeds are distributed, paid, lent or otherwise transferred to the Partnership that results in the net proceeds to the Partnership of at least $20 million; or (3) the Partnership. A private placement of partnership interests will not be deemed an Equity Offering unless net proceeds of at least $20 million are received. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Notes" means the Operating Partnership's (1) $109,000,000 principal amount of 6.99% Senior Notes, Series A, due August 1, 2005, (2) $37,000,000 principal amount of 7.08% Senior Notes, Series B, due August 1, 2006, (3) $52,000,000 principal amount of 7.12% Senior Notes, Series C, due August 1, 2008, (4) $82,000,000 principal amount of 7.24% Senior Notes, Series D, due August 1, 2010, (5) $70,000,000 principal amount of 7.42% Senior Notes, Series E, due August 1, 2013, (6) $21,000,000 principal amount of 8.68% Senior Notes, Series A, due August 1, 2006, (7) $90,000,000 principal amount of 8.78% Senior Notes, Series B, due August 1, 2007, and (8) $73,000,000 principal amount of 8.87% Senior Notes, Series C, due August 1, 2009. "Flow-Through Acquisition" means an acquisition by the General Partner or its parent from a Person that is not an Affiliate of the General Partner, its parent or the Partnership, of property (real or personal), assets or equipment (whether through the direct purchase of assets or the Capital Stock of the Person owning such assets) in a permitted line of business, which is promptly sold, transferred or contributed by the General Partner or its parent to the Partnership or one of its Subsidiaries. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, in each case, which are in effect on the date of this Indenture. "General Partner" means Ferrellgas, Inc. "Global Notes" means the Unrestricted Global Notes, substantially in the form of Exhibit A hereto issued in accordance with Section 2.01 hereof. "Global Note Legend" means the legend set forth in Section 2.06(f), which is required to be placed on all Global Notes issued under this Indenture. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit. 9 "Growth Related Capital Expenditures" means, with respect to any Person, all capital expenditures by such Person made to improve or enhance the existing capital assets or to increase the customer base of such Person or to acquire or construct new capital assets (but excluding capital expenditures made to maintain, up to the level thereof that existed at the time of such expenditure, the operating capacity of the capital assets of such Person as such assets existed at the time of such expenditure). "Holder" means a Person in whose name a Note is registered. "Indebtedness" means, as applied to any Person, without duplication: (1) (a) any indebtedness for borrowed money and (b) all obligations evidenced by any (i) bond, note, debenture or other similar instrument or (ii) letter of credit, or reimbursement agreements in respect thereof, but only for any drawings that are not reimbursed within five Business Days after the date of such drawings, which in each case the Person has, directly or indirectly, created, incurred or assumed; (2) any indebtedness for borrowed money and all obligations evidenced by any bond, note, debenture or other similar instrument secured by any Lien in respect of property owned by the Person, whether or not the Person has assumed or become liable for the payment of the indebtedness; provided, that the amount of the indebtedness, if the Person has not assumed the same or become liable therefor, shall in no event be deemed to be greater than the fair market value from time to time, as determined in good faith by the Person of the property subject to the Lien; (3) any indebtedness, whether or not for borrowed money (excluding trade payables and accrued expenses arising in the ordinary course of business) with respect to which the Person has become directly or indirectly liable and which represents the deferred purchase price, or a portion thereof, or has been incurred to finance the purchase price, or a portion thereof, of any property or business acquired by, or service performed on behalf of, the Person, whether by purchase, consolidation, merger or otherwise; (4) the principal component of any obligations under Capital Leases to the extent the obligations would, in accordance with GAAP, appear on the balance sheet of the Person; (5) all Attributable Debt of the Person in respect of Sale and Leaseback Transactions not involving a Capital Lease; (6) any indebtedness of any other Person of the character referred to in the foregoing clauses (1)-(5) of this definition with respect to which the Person whose indebtedness is being determined has become liable by way of a guarantee; and (7) all Redeemable Capital Stock of the Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends. 10 For purposes hereof, the "maximum fixed repurchase price" of any Redeemable Capital Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of the Redeemable Capital Stock as if it were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Indenture and if the price is based upon, or measured by, the fair market value of the Redeemable Capital Stock, the fair market value shall be determined in good faith by the Board of Directors of the issuer of the Redeemable Capital Stock. For purposes hereof, the term "Indebtedness" shall not include (x) accrual of interest, the accretion of accreted value and the payment of interest or any other similar incurrence by the Partnership or its Restricted Subsidiaries related to Indebtedness otherwise permitted in this Indenture, (y) Indebtedness under any hedging arrangement which provides for the right or obligation to purchase, sell or deliver any currency, commodity or security at a future date for a specified price entered into to protect such Person from fluctuations in prices or rates, including currencies, interest rates, commodity prices, and securities prices, including without limitation indebtedness under any interest rate or commodity price swap agreement, interest rate cap agreement, interest rate collar agreement or any forward sales arrangements, calls, options, swaps, or other similar transactions or any combination thereof, including, or (z) any Accounts Receivable Securitization. "Indenture" means this Indenture, as amended or supplemented from time to time. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Initial Notes" means the first $170,000,000 aggregate principal amount of Notes issued under this Indenture on the date hereof. "Initial Purchasers" means Credit Suisse First Boston Corporation, Banc of America Securities LLC, Banc One Capital Markets, Inc., BNP Paribas Securities Corp. and Wells Fargo Brokerage Services, LLC. "Interim Capital Transactions" means (1) borrowings, refinancings or refundings of Indebtedness and sales of debt securities (other than for working capital purposes and other than for items purchased on open account in the ordinary course of business) by the Partnership or the Operating Partnership, (2) sales of Capital Stock of the Partnership by the Partnership or the Operating Partnership and (3) sales or other voluntary or involuntary dispositions of any assets of the Partnership or the Operating Partnership (other than (x) sales or other dispositions of inventory in the ordinary course of business, (y) sales or other dispositions of other current assets including, without limitation, receivables and accounts and (z) sales or other dispositions of assets as a part of normal retirements or replacements), in each case prior to the commencement of the dissolution and liquidation of the Partnership. "Investment" means as applied to any Person: (1) any direct or indirect purchase or other acquisition by the Person of stock or other securities of any other Person; or (2) any direct or indirect loan, advance or capital contribution by the Person to any other Person and any other item which would be classified as an "investment" on a balance sheet of the Person prepared in accordance with GAAP, including without limitation any direct or indirect contribution by the Person of property or assets to a joint venture, partnership or other business entity in which the Person retains an interest, it being understood that a direct or indirect purchase or other acquisition by the Person of assets of any other Person, other than stock or other securities, shall not constitute an "Investment" for purposes of this Indenture. 11 The amount classified as Investments made during any period will be the aggregate cost to the Partnership and its Restricted Subsidiaries of all the Investments made during the period, determined in accordance with GAAP, but without regard to unrealized increases or decreases in value, or write-ups, write-downs or write-offs, of the Investments and without regard to the existence of any undistributed earnings or accrued interest with respect thereto accrued after the respective dates on which the Investments were made, less any net return of capital realized during the period upon the sale, repayment or other liquidation of the Investments, determined in accordance with GAAP, but without regard to any amounts received during the period as earnings (in the form of dividends not constituting a return of capital, interest or otherwise) on the Investments or as loans from any Person in whom the Investments have been made. "Issuers" means the Partnership and Finance Corp., and any and all successors to either of them as permitted by Article 5 hereof. "Legal Holiday" means 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 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 on such payment for the intervening period. "Lien" means, with respect to any asset, any mortgage, lien (statutory or otherwise), pledge, charge, security interest, hypothecation, assignment for security or other encumbrance of any kind in respect of such asset. A Person shall be deemed to own subject to a Lien any asset which such Person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement. "Net Amount of Unrestricted Investment" means, without duplication, the sum of: (1) the aggregate amount of all Investments made after the date of this Indenture pursuant to clause (3) of the definition of Permitted Investment hereto, computed as provided in the last sentence of the definition of Investments hereto; and (2) the aggregate of all Designation Amounts in connection with the designation of Unrestricted Subsidiaries, less all Designation Amounts in respect of Unrestricted Subsidiaries which have been designated as Restricted Subsidiaries and otherwise reduced in a manner consistent with the provisions of the last sentence of the definition of Investment hereto. "Net Proceeds" means, with respect to any asset sale or sale of Capital Stock, the proceeds therefrom in the form of cash or cash equivalents including payments in respect of deferred payment obligations when received in the form of cash or cash equivalents, except to the extent that the deferred payment obligations are financed or sold with recourse to the Partnership or any of its Restricted Subsidiaries, net of: (1) brokerage commissions and other fees and expenses related to the Asset Sale, including, without limitation, fees and expenses of legal counsel and accountants and fees, expenses, discounts or commissions of underwriters, placement agents and investment bankers; (2) provisions for all taxes payable as a result of the Asset Sale; (3) amounts required to be paid to any Person, other than the Partnership or any Restricted Subsidiary of the Partnership, owning a beneficial interest in the assets subject to the Asset Sale; (4) appropriate amounts to be provided by the Partnership or any Restricted Subsidiary of the Partnership, as the case may be, as a reserve required in accordance with GAAP against any liabilities associated with the Asset Sale and retained by the Partnership or any Restricted Subsidiary of the Partnership, as the case may be, after the Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with the Asset Sale; and 12 (5) amounts applied to the repayment of Indebtedness in connection with the asset or assets acquired in the Asset Sale, including any transaction costs and expenses associated therewith and any make-whole or other premium owed in connection with such repayment. "Notes" has the meaning assigned to it in the preamble to this Indenture. The Initial Notes and the Additional Notes shall be treated as a single class for all purposes under this Indenture, and unless the context otherwise requires, all references to the Notes shall include the Initial Notes and any Additional Notes. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Issuers by two Officers of the Issuers, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Issuers, that meets the requirements of Section 11.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 11.05 hereof. The counsel may be an employee of or counsel to the Issuers, any Subsidiary of the Issuers or the Trustee. "Operating Partnership" means Ferrellgas, L.P. "Participant" means, with respect to the Depositary, a Person who has an account with the Depositary. "Partnership" means Ferrellgas Partners, L.P. "Permitted Investments" means any of the following: (1) Investments made or owned by the Partnership or any Restricted Subsidiary in: (a) marketable obligations issued or unconditionally guaranteed by the United States, or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing one year or less from the date of acquisition thereof; (b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and having as at such date the highest rating obtainable from either Standard & Poor's Ratings Group ("S&P") and its successors or Moody's Investors Service, Inc. ("Moody's") and its successors; (c) commercial paper maturing no more than 270 days from the date of creation thereof and having as at the date of acquisition thereof one of the two highest ratings obtainable from either S&P or Moody's; 13 (d) certificates of deposit maturing one year or less from the date of acquisition thereof issued by commercial banks incorporated under the laws of the United States or any state thereof or the District of Columbia or Canada; (A) the commercial paper or other short term unsecured debt obligations of which are as at such date rated either "A-2" or better (or comparably if the rating system is changed) by S&P or "Prime-2" or better (or comparably if the rating system is changed) by Moody's; (B) the long-term debt obligations of which are, as at such date, rated either "A" or better (or comparably if the rating system is changed) by either S&P or Moody's ("Permitted Banks"); (e) eurodollar time deposits having a maturity of less than 270 days from the date of acquisition thereof purchased directly from any Permitted Bank; (f) bankers' acceptances eligible for rediscount under requirements of the Board of Governors of the Federal Reserve System and accepted by Permitted Banks; and (g) obligations of the type described in clauses (a) through (e) above purchased from a securities dealer designated as a "primary dealer" by the Federal Reserve Bank of New York or from a Permitted Bank as counterparty to a written repurchase agreement obligating such counterparty to repurchase such obligations not later than 14 days after the purchase thereof and which provides that the obligations which are the subject thereof are held for the benefit of the Partnership or a Restricted Subsidiary by a custodian which is a Permitted Bank and which is not a counterparty to the repurchase agreement in question; (2) the acquisition by the Partnership or any Restricted Subsidiary of Capital Stock or other ownership interests, whether in a single transaction or in a series of related transactions, of a Person located in the United States, Mexico or Canada and engaged in substantially the same business as the Partnership such that, upon the completion of such transaction or series of transactions, the Person becomes a Restricted Subsidiary; (3) the making or ownership by the Partnership or any Restricted Subsidiary of Investments (in addition to any other Permitted Investments) in any Person incorporated or otherwise formed pursuant to the laws of the United States, Mexico or Canada or any state thereof which is engaged in the United States, Mexico or Canada; provided, that the aggregate amount of all such Investments made by the Partnership and its Restricted Subsidiaries following the date of this Indenture and outstanding pursuant to this third clause shall not at any date of determination exceed 7.5% of Total Assets; (4) the making or ownership by the Partnership or any Restricted Subsidiary of Investments: (a) arising out of loans and advances to employees incurred in the ordinary course of business; (b) arising out of extensions of trade credit or advances to third parties in the ordinary course of business; or 14 (c) acquired by reason of the exercise of customary creditors' rights upon default or pursuant to the bankruptcy, insolvency or reorganization of a debtor; (5) the creation or incurrence of liability by the Partnership or any Restricted Subsidiary, with respect to any guarantee constituting an obligation, warranty or indemnity, not guaranteeing Indebtedness of any Person, which is undertaken or made in the ordinary course of business; (6) the creation or incurrence of liability by the Partnership or any Restricted Subsidiary with respect to any hedging agreements or arrangements; (7) the making by any Restricted Subsidiary of Investments in the Partnership or another Restricted Subsidiary and the making by the Partnership of Investments in any Restricted Subsidiary; (8) the making or ownership by the Partnership or any Restricted Subsidiary of Investments in the Operating Partnership; (9) the present value, determined on the basis of the implicit interest rate, of all basic rental obligations under all Synthetic Leases of the Partnership or any Restricted Subsidiary; and (10) the creation or incurrence of liability by the Partnership or any Restricted Subsidiary or the making or ownership by the Partnership or any Restricted Subsidiary of Investments in any Person with respect to any Accounts Receivable Securitization. "Permitted Liens" means any of the following: (1) Liens for taxes, assessments or other governmental charges, the payment of which is not yet due or the payment of which is being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and as to which reserves or other appropriate provision, if any, as shall be required by GAAP, shall have been made therefor and be adequate in the good faith judgment of the obligor; (2) Liens of lessors, landlords and carriers, vendors, warehousemen, mechanics, materialmen, repairmen and other like Liens incurred in the ordinary course of business for sums not yet due or the payment of which is being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and as to which reserves or other appropriate provisions, if any, as shall be required by GAAP, shall have been made therefor and be adequate in the good faith judgment of the obligor, in each case: (a) not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; or (b) incurred in the ordinary course of business securing the unpaid purchase price of property or services constituting current accounts payable; 15 (3) Liens, other than any Lien imposed by the Employee Retirement Income Security Act of 1974, as may be amended from time to time, incurred or deposits made in the ordinary course of business: (a) in connection with workers' compensation, unemployment insurance and other types of social security; or (b) to secure or to obtain letters of credit that secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money; (4) other deposits made to secure liability to insurance carriers under insurance or self-insurance arrangements; (5) Liens securing reimbursement obligations under letters of credit, provided in each case that such Liens cover only the title documents and related goods and any proceeds thereof covered by the related letter of credit; (6) any attachment or judgment Lien, unless the judgment it secures shall not, within 60 days after the entry thereof, have been discharged or execution thereof stayed pending appeal or review, or shall not have been discharged within 60 days after expiration of any such stay; (7) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, which, in each case either are granted, entered into or created in the ordinary course of the business of the Partnership or any Restricted Subsidiary or do not materially impair the value or intended use of the property covered thereby; (8) Liens on property or assets of any Restricted Subsidiary securing Indebtedness of the Restricted Subsidiary owing to the Partnership or a Restricted Subsidiary; (9) Liens on assets of the Partnership or any Restricted Subsidiary existing on the date of this Indenture; (10) Liens on personal property leased under leases entered into by the Partnership or its Restricted Subsidiaries which are accounted for as operating leases in accordance with GAAP; (11) Liens securing Indebtedness arising under an Accounts Receivable Securitization (including the filing of any related financing statements naming the Partnership or any Restricted Subsidiary as the debtor thereunder in connection with the sale of accounts receivable by the Partnership, the Operating Partnership or any Restricted Subsidiary to an SPE in connection with any such permitted Accounts Receivable Securitization); (12) Liens securing Indebtedness incurred in accordance with: (a) clauses (4), (5) and (7) of the definition of Permitted Indebtedness; and (b) Indebtedness otherwise permitted to be incurred under Section 4.09 hereof to the extent incurred: (A) to finance the making of expenditures for the improvement or repair (to the extent the improvements and repairs may be capitalized on the books of the Partnership and the Restricted Subsidiaries in accordance with GAAP) of, or additions including additions by way of acquisitions of businesses and related assets to, the assets and property of the Partnership and its Restricted Subsidiaries; or 16 (B) by assumption in connection with additions including additions by way of acquisition or capital contributions of businesses and related assets to the property and assets of the Partnership and its Restricted Subsidiaries; provided, that, in the case of Indebtedness incurred in accordance with clauses (b) and (c) above, the principal amount of the Indebtedness does not exceed the lesser of the cost to the Partnership and its Restricted Subsidiaries of the additional property or assets and the fair market value of the additional property or assets at the time of the acquisition thereof, as determined in good faith by an authorized financial officer of the General Partner; (13) Liens existing on any property of any Person at the time it becomes a Subsidiary of the Partnership, or existing at the time of acquisition upon any property acquired by the Partnership or any Subsidiary through purchase, merger or consolidation or otherwise, whether or not assumed by the Partnership or the Subsidiary, or created to secure Indebtedness incurred to pay all or any part of the purchase price (a "Purchase Money Lien") of property including, without limitation, Capital Stock and other securities acquired by the Partnership or a Restricted Subsidiary; provided, that: (a) the Lien shall be confined solely to the item or items of property and, if required by the terms of the instrument originally creating the Lien, other property which is an improvement to or is acquired for use specifically in connection with the acquired property; (b) in the case of a Purchase Money Lien, the principal amount of the Indebtedness secured by the Purchase Money Lien shall at no time exceed an amount equal to the lesser of: (A) the cost to the Partnership and the Restricted Subsidiaries of the property; and (B) the fair market value of the property at the time of the acquisition thereof as determined in good faith by an authorized financial officer of the General Partner; (c) the Purchase Money Lien shall be created not later than 360 days after the acquisition of the property; and (d) the Lien, other than a Purchase Money Lien, shall not have been created or assumed in contemplation of the Person's becoming a Subsidiary of the Partnership or the acquisition of property by the Partnership or any Subsidiary; (14) easements, exceptions or reservations in any property of the Partnership or any Restricted Subsidiary granted or reserved for the purpose of pipelines, roads, the removal of oil, gas, coal or other minerals, and other like purposes, or for the joint or common use of real property, facilities and equipment, which are incidental to, and do not materially interfere with, the ordinary conduct of the business of the Partnership or any Restricted Subsidiary; (15) Liens arising from or constituting permitted encumbrances under the agreements and instruments securing the obligations under the Operating Partnership's Existing Notes and the Credit Agreement; 17 (16) Liens securing any Indebtedness of the Operating Partnership; and (17) any Lien renewing or extending any Lien permitted by clauses (9) through (13), (15) and (16) above; provided, that, the principal amount of the Indebtedness secured by any such Lien shall not exceed the principal amount of the Indebtedness outstanding immediately prior to the renewal or extension of the Lien, and no assets encumbered by the Lien other than the assets encumbered immediately prior to the renewal or extension shall be encumbered thereby. "Permitted Refinancing Indebtedness" means Indebtedness incurred by the Partnership or any Restricted Subsidiary to substantially and concurrently (excluding any notice period on redemptions) repay, refund, renew, replace, extend or refinance, in whole or in part, any Permitted Indebtedness of the Partnership or any Restricted Subsidiary or any other Indebtedness incurred by the Partnership or any Restricted Subsidiary pursuant to Section 4.09, to the extent: (1) the principal amount of the Permitted Refinancing Indebtedness does not exceed the principal or accreted amount plus the amount of accrued and unpaid interest of the Indebtedness so repaid, refunded, renewed, replaced, extended or refinanced (plus the amount of all expenses and premiums incurred in connection therewith); (2) with respect to the repayment, refunding, renewal, replacement, extension or refinancing of the Issuers' Indebtedness, the Permitted Refinancing Indebtedness ranks no more favorably in right of payment with respect to the Notes than the Indebtedness so repaid, refunded, renewed, replaced, extended or refinanced; and (3) with respect to the repayment, refunding, renewal, replacement, extension or refinancing of the Issuer's Indebtedness, the Permitted Refinancing Indebtedness has a Weighted Average Life to Stated Maturity and stated maturity equal to, or greater than, and has no fixed mandatory redemption or sinking fund requirement in an amount greater than or at a time prior to the amounts set forth in, the Indebtedness so repaid, refunded, renewed, replaced, extended or refinanced; provided, however, that Permitted Refinancing Indebtedness shall not include Indebtedness incurred by a Restricted Subsidiary to repay, refund, renew, replace, extend or refinance Indebtedness of the Partnership. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Preferred Stock," as applied to the Capital Stock of any Person, means Capital Stock (other than the Common Units and Senior Units) of any class or classes (however designated), which is preferred as to the payment of distributions, dividends, or upon any voluntary or involuntary liquidation or dissolution of such Person, over shares or units of Capital Stock of any other class of such Person; provided, that any limited partnership interest of the Partnership will not be considered Preferred Stock. "Principal" means James E. Ferrell. "Redeemable Capital Stock" means any shares of any class or series of Capital Stock (excluding, but not limited to, the Senior Units and Common Units issued by the Partnership), that, either by the terms thereof, by the terms of any security into which it is convertible or exchangeable or by contract or otherwise, is or upon the happening of an event or passage of time would be, required to be redeemed prior to the stated maturity of the principal of the Notes or is redeemable at the option of the holder thereof at any time prior to the stated maturity of the principal of the Notes, or is convertible into or exchangeable for debt securities at any time prior to the stated maturity of the principal of the Notes. 18 "Related Party" means any of the following: (1) any immediate family member or lineal descendant of the Principal; (2) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding an 80% or more controlling interest of which consist of any one or more Principals and/or such other Persons referred to in the immediately preceding clause (1); (3) the Ferrell Companies, Inc. Employee Stock Ownership Trust ("FCI ESOT"); (4) any participant in the FCI ESOT whose account has been allocated shares of Ferrell Companies, Inc.; (5) Ferrell Companies, Inc.; or (6) any Subsidiary of Ferrell Companies, Inc. "Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Subsidiary" means a Subsidiary of the Partnership, which, as of the date of determination, is not an Unrestricted Subsidiary of the Partnership. "Sale and Leaseback Transaction" means any arrangement (other than between the Partnership and a Restricted Subsidiary or between Restricted Subsidiaries) whereby property has been or will be disposed of by a transferor to another entity with the intent of taking back a lease on the property pursuant to which the rental payments are calculated to amortize the purchase price of the property over its life. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Units" means the units representing limited partner interests of the Partnership, having the rights and obligations specified with respect to Senior Units of the Partnership. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of this Indenture. "SPE" means any special purpose Unrestricted Subsidiary established in connection with any Accounts Receivable Securitization. 19 "Subsidiary" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof). "Synthetic Lease" means any lease (i) which is accounted for by the lessee as an operating lease and (ii) under which the lessee is intended to be the "owner" of the leased property for federal income tax purposes. "Termination Capital Transactions" means any sale, transfer or other disposition of property of the Partnership or the Operating Partnership occurring upon or incident to the liquidation and winding up of the Partnership and the Operating Partnership. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss. 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Total Assets" means, as of any date of determination, the consolidated total assets of the Partnership and the Restricted Subsidiaries as would be shown on a consolidated balance sheet of the Partnership and the Restricted Subsidiaries prepared in accordance with GAAP as of that date. "Trustee" means the party named as such in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Global Note" means a permanent global Note substantially in the form of Exhibit A attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary. "Unrestricted Definitive Note" means one or more Definitive Notes. "Unrestricted Subsidiary" means (y) Ferrellgas Receivables, LLC, and (z) any other Person (other than the Operating Partnership or Finance Corp.) that is designated as such by the General Partner; provided, that no portion of the Indebtedness of such Person: (1) is guaranteed by the Partnership or any Restricted Subsidiary; (2) is recourse to or obligates the Partnership or any Restricted Subsidiary in any way; or (3) subjects any property or assets of the Partnership or any Restricted Subsidiary, directly or indirectly, contingently or otherwise, to the satisfaction thereof. Notwithstanding the foregoing, the Partnership or a Restricted Subsidiary may guarantee or agree to provide funds for the payment or maintenance of, or otherwise become liable with respect to Indebtedness of an Unrestricted Subsidiary, but only to the extent that the Partnership or a Restricted Subsidiary would be permitted to: 20 (1) make an Investment in the Unrestricted Subsidiary pursuant to the third clause of the definition of Permitted Investments; and (2) incur the Indebtedness represented by the guarantee or agreement pursuant to Section 4.09(a) hereto. The Board of Directors may designate an Unrestricted Subsidiary to be a Restricted Subsidiary; provided, that immediately after giving effect to the designation there exists no Event of Default or event which after notice or lapse or time or both would become an Event of Default, and if the Unrestricted Subsidiary has, as of the date of the designation, outstanding Indebtedness other than Permitted Indebtedness, the Partnership could incur at least $1.00 of Indebtedness other than Permitted Indebtedness. Notwithstanding the foregoing, no Subsidiary may be designated an Unrestricted Subsidiary if the Subsidiary, directly or indirectly, holds Capital Stock of a Restricted Subsidiary. "U.S. Person" means a U.S. Person as defined in Rule 902(o) under the Securities Act. "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Stated Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying: (a) 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 (b) the number of years, calculated to the nearest one-twelfth, that will elapse between such date and the making of such payment, by (2) the then outstanding principal amount of such Indebtedness; provided, however, that with respect to any revolving Indebtedness, the foregoing calculation of Weighted Average Life to Stated Maturity shall be determined based upon the total available commitments and the required reductions of commitments in lieu of the outstanding principal amount and the required payments of principal, respectively. 21 Section 1.02 Other Definitions. Defined in Term Section ---- ------- "Affiliate Transaction".............................. 4.11 "Asset Sale Offer"................................... 3.09 "Authentication Order"............................... 2.02 "Change of Control Offer"............................ 4.14 "Change of Control Payment".......................... 4.14 "Change of Control Payment Date"..................... 4.14 "Covenant Defeasance"................................ 8.03 "Event of Default"................................... 6.01 "Excess Proceeds".................................... 4.10 "incur".............................................. 4.09 "Legal Defeasance"................................... 8.02 "Offer Amount"....................................... 3.09 "Offer Period"....................................... 3.09 "Paying Agent"....................................... 2.03 "Permitted Indebtedness"............................. 4.09 "Purchase Date"...................................... 3.09 "Registrar".......................................... 2.03 "Restricted Payments"................................ 4.07 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 Notes; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes means the Issuers and any successor obligor upon the Notes. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined 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 GAAP; 22 (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) "will" shall be interpreted to express a command; (6) provisions apply to successive events and transactions; and (7) references to sections of or rules under the Securities Act will be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2. THE NOTES Section 2.01 Form and Dating. (a) General. The Notes and the Trustee's certificate of authentication will be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note will be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes will constitute, and are hereby expressly made, a part of this Indenture and the Issuers and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes issued in global form will be substantially in the form of Exhibit A attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form will be substantially in the form of Exhibit A attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note will represent such of the outstanding Notes as will be specified therein and each shall provide that it represents the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby will be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. Section 2.02 Execution and Authentication. An Officer must sign the Notes for the Issuers by manual or facsimile signature. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note will nevertheless be valid. A Note will not be valid until authenticated by the manual signature of the Trustee. The signature will be conclusive evidence that the Note has been authenticated under this Indenture. 23 On the date of this Indenture, the Trustee shall, upon a written order of the Issuers signed by an Officer (an "Authentication Order"), authenticate the Initial Notes for original issue up to $170,000,000 in aggregate principal amount and, upon delivery of any Authentication Order at any time and from time to time thereafter, the Trustee shall authenticate Additional Notes for original issue in an aggregate principal amount specified in such Authentication Order. The Trustee may appoint an authenticating agent acceptable to the Issuers to authenticate Notes. An authenticating agent may authenticate Notes 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 Holders or an Affiliate of the Issuers. Section 2.03 Registrar and Paying Agent. The Issuers will maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar will keep a register of the Notes and of their transfer and exchange. The Issuers may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Issuers may change any Paying Agent or Registrar without notice to any Holder. The Issuers will notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Issuers fail to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Partnership or any of its Subsidiaries may act as Paying Agent or Registrar. The Issuers initially appoint The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Issuers initially appoint the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes. Section 2.04 Paying Agent to Hold Money in Trust. The Issuers will require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium or interest on the Notes, and will notify the Trustee of any default by the Issuers 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 Issuers 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 Issuers or a Subsidiary) will have no further liability for the money. If the Partnership or a Subsidiary acts as Paying Agent, it will segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Issuers, the Trustee will serve as Paying Agent for the Notes. Section 2.05 Holder Lists. The Trustee will preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is not the Registrar, the Issuers will 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 the Holders of Notes and the Issuers shall otherwise comply with TIA ss. 312(a). 24 Section 2.06 Transfer and Exchange. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Issuers for Definitive Notes if: (1) the Issuers deliver to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Issuers within 120 days after the date of such notice from the Depositary; or (2) the Issuers in their sole discretion determine that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee. Upon the occurrence of either of the preceding events in (1) or (2) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b) or (c) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes will be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Transfers of beneficial interests in the Global Notes also will require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (1) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(1). (2) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(1) above, the transferor of such beneficial interest must deliver to the Registrar either: (A) both: (i) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged; and 25 (ii) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase; or (B) both: (i) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged; and (ii) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(g) hereof. (c) Transfer or Exchange of Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(2) hereof, the Trustee will cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(g) hereof, and the Issuers will execute and the Trustee will authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c) will be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest requests through instructions to the Registrar from or through the Depositary and the Participant or Indirect Participant. (d) Transfer and Exchange of Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee will cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. (e) Transfer and Exchange of Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar will register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder must present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder must provide any additional certifications, documents and information, as applicable, required pursuant to this Section 2.06(e). 26 (f) Global Note Legend. Each Global Note will bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN." (g) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note will be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note will be reduced accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note will be increased accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (h) General Provisions Relating to Transfers and Exchanges. (1) To permit registrations of transfers and exchanges, the Issuers will execute and the Trustee will authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 or at the Registrar's request. (2) No service charge will be made to a Holder of a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Issuers may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.14 and 9.05 hereof). 27 (3) The Registrar will not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (4) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes will be the valid obligations of the Issuers, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (5) The Issuers will not be required: (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection; (B) to register the transfer of or to exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date. (6) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Issuers may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Issuers shall be affected by notice to the contrary. (7) The Trustee will authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (8) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. Section 2.07 Replacement Notes. If any mutilated Note is surrendered to the Trustee or the Issuers and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Issuers will issue and the Trustee, upon receipt of an Authentication Order, will authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Issuers, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Issuers to protect the Issuers, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Issuers may charge for their expenses in replacing a Note. Every replacement Note is an additional obligation of the Issuers and will be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. 28 Section 2.08 Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Issuers or an Affiliate of the Issuers holds the Note; however, Notes held by the Issuers or a Subsidiary of the Issuers shall not be deemed to be outstanding for purposes of Section 3.07(b) hereof. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Issuers, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes will be deemed to be no longer outstanding and will cease to accrue interest. Section 2.09 Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Issuers, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuers, will be considered as though not outstanding, except that for the purposes of determining whether the Trustee will be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned will be so disregarded. Section 2.10 Temporary Notes. Until certificates representing Notes are ready for delivery, the Issuers may prepare and the Trustee, upon receipt of an Authentication Order, will authenticate temporary Notes. Temporary Notes will be substantially in the form of certificated Notes but may have variations that the Issuers consider appropriate for temporary Notes and as may be reasonably acceptable to the Trustee. Without unreasonable delay, the Issuers will prepare and the Trustee will authenticate definitive Notes in exchange for temporary Notes. Holders of temporary Notes will be entitled to all of the benefits of this Indenture. Section 2.11 Cancellation. The Issuers at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent will forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else will cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and will destroy canceled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes will be delivered to the Issuers. The Issuers may not issue new Notes to replace Notes that they have paid or that have been delivered to the Trustee for cancellation. 29 Section 2.12 Defaulted Interest. If the Issuers default in a payment of interest on the Notes, they will pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Issuers will notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Issuers will fix or cause to be fixed each such special record date and payment date, provided that no such special record date may be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Issuers (or, upon the written request of the Issuers, the Trustee in the name and at the expense of the Issuers) will mail or cause to be mailed to 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 AND PREPAYMENT Section 3.01 Notices to Trustee. If the Issuers elect to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, they must furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth: (1) the clause of this Indenture pursuant to which the redemption shall occur; (2) the redemption date; (3) the principal amount of Notes to be redeemed; and (4) the redemption price. Section 3.02 Selection of Notes to Be Redeemed or Purchased. If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee will select Notes for redemption or purchase as follows: (1) if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or (2) if the Notes are not listed on any national securities exchange, on a pro rata basis, by lot or in accordance with a method which the Trustee shall deem fair and appropriate. In the event of partial redemption or purchase by lot, the particular Notes to be redeemed or purchased will be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption or purchase date by the Trustee from the outstanding Notes not previously called for redemption or purchase. The Trustee will promptly notify the Issuers in writing of the Notes selected for redemption or purchase and, in the case of any Note selected for partial redemption or purchase, the principal amount thereof to be redeemed or purchased. Notes and portions of Notes selected will be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed or purchased, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption or purchase also apply to portions of Notes called for redemption or purchase. 30 Section 3.03 Notice of Redemption. Subject to the provisions of Section 3.09 hereof, at least 10 days but not more than 60 days before a redemption date, the Issuers will mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of this Indenture pursuant to Articles 8 or 10 of this Indenture. The notice will identify the Notes to be redeemed and will state: (1) the redemption date; (2) the redemption price; (3) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion will be issued upon cancellation of the original Note; (4) the name and address of the Paying Agent; (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that, unless the Issuers default in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (7) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes 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 Notes. At the Issuers' request, the Trustee will give the notice of redemption in the Issuers' name and at their expense; provided, however, that the Issuers have delivered 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 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. 31 Section 3.05 Deposit of Redemption or Purchase Price. One Business Day prior to or on the redemption or purchase price date, the Issuers will deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption or purchase price of and accrued interest on all Notes to be redeemed or purchased on that date. The Trustee or the Paying Agent will promptly return to the Issuers any money deposited with the Trustee or the Paying Agent by the Issuers in excess of the amounts necessary to pay the redemption or purchase price of, and accrued interest on, all Notes to be redeemed or purchased. If the Issuers comply with the provisions of the preceding paragraph, on and after the redemption or purchase date, interest will cease to accrue on the Notes or the portions of Notes called for redemption or purchase. If a Note is redeemed or purchased on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption or purchase is not so paid upon surrender for redemption or purchase because of the failure of the Issuers to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption or purchase 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 Notes and in Section 4.01 hereof. Section 3.06 Notes Redeemed or Purchased in Part. Upon surrender of a Note that is redeemed or purchased in part, the Issuers will issue and, upon receipt of an Authentication Order, the Trustee will authenticate for the Holder at the expense of the Issuers a new Note equal in principal amount to the unredeemed or unpurchased portion of the Note surrendered. Section 3.07 Optional Redemption. (a) At any time on or before June 15, 2005, the Partnership may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes issued under this Indenture at a redemption price of 108.75% of the principal amount thereof, plus accrued and unpaid interest to the applicable redemption date, with the net cash proceeds of one or more Equity Offerings completed by the Partnership; provided that: (1) at least 65% of the aggregate principal amount of Notes already issued, together with the Notes and any Additional Notes sold under this Indenture, are outstanding immediately following the redemption; and (2) the redemption must occur within 90 days of the closing of such Equity Offering. (b) Except pursuant to the preceding paragraph, the Notes are not redeemable at the Issuers' option prior to June 15, 2007. (c) On and after June 15, 2007, the Issuers may redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed in percentages of principal amount) listed in the table below, plus accrued and unpaid interest on the Notes to the applicable redemption date, if redeemed during the twelve-month period beginning on June 15 of the years indicated below: 32 Year Percentage ---- ---------- 2007.................................... 104.375% 2008.................................... 102.917% 2009.................................... 101.458% 2010 and thereafter..................... 100.000% (d) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. Section 3.08 Mandatory Redemption. The Issuers are not required to make any mandatory redemption or sinking fund payments with respect to the Notes. The Issuers may at any time and from time to time purchase Notes in the open market or otherwise. Section 3.09 Offer to Purchase by Application of Excess Proceeds. In the event that, pursuant to Section 4.10 hereof, the Issuers are required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), they will follow the procedures specified below. The Asset Sale Offer shall be made to all Holders and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales and assets. The Asset Sale Offer will remain open for a period of at least 20 Business Days following its commencement and not more than 30 Business Days, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than three Business Days after the termination of the Offer Period (the "Purchase Date"), the Issuers will apply all Excess Proceeds (the "Offer Amount") to the purchase of Notes and such other pari passu Indebtedness (on a pro rata basis, if applicable) or, if less than the Offer Amount has been tendered, all Notes and other Indebtedness tendered in response to the Asset Sale Offer. Payment for any Notes so purchased will be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest will be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest will be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Issuers will send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice will contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The notice, which will govern the terms of the Asset Sale Offer, will state: (1) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer will remain open; (2) the Offer Amount, the purchase price and the Purchase Date; (3) that any Note not tendered or accepted for payment will continue to accrue interest; (4) that, unless the Issuers default in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer will cease to accrue interest after the Purchase Date; 33 (5) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in integral multiples of $1,000 only; (6) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Issuers, a Depositary, if appointed by the Issuers, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (7) that Holders will be entitled to withdraw their election if the Issuers, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (8) that, if the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by Holders exceeds the Offer Amount, the Issuers will select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of Notes and such other pari passu Indebtedness surrendered (with such adjustments as may be deemed appropriate by the Issuers so that only Notes in denominations of $1,000, or integral multiples thereof, will be purchased); and (9) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Issuers will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and will deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Issuers in accordance with the terms of this Section 3.09. The Issuers, the Depositary or the Paying Agent, as the case may be, will promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Issuers for purchase, and the Issuers will promptly issue a new Note, and the Trustee, upon written request from the Issuers will authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Issuers to the Holder thereof. The Issuers will publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase 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 Notes. The Issuers will pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest will be considered paid on the date due if the Paying Agent, if other than the Issuers or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Issuers in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. 34 The Issuers will 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 Notes to the extent lawful; they will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of 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 Issuers will maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Issuers in respect of the Notes and this Indenture may be served. The Issuers 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 Issuers fail to maintain any such required office or agency or fails 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 Issuers may also from time to time designate one or more other offices or agencies where the Notes 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 will in any manner relieve the Issuers of their obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Issuers 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 Issuers hereby designate the Corporate Trust Office of the Trustee as one such office or agency of the Issuers in accordance with Section 2.03 hereof. Section 4.03 Reports. (a) Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Issuers will furnish to the Holders of Notes, within the time periods specified in the SEC's rules and regulations: (1) all quarterly and annual financial information that would be required to be contained in a filing with the SEC 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 financial information only, a report thereon by the Issuers' certified independent accountants; and (2) all current reports that would be required to be filed with the SEC 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 SEC, the Issuers will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to investors who request it in writing. The Issuers will promptly furnish to Holders of Notes notices of (a) any Payment Default under any instrument evidencing Indebtedness for borrowed money, and (b) any acceleration of such Indebtedness prior to its express maturity. The Issuers will at all times comply with TIA ss. 314(a). 35 Section 4.04 Compliance Certificate. (a) The Issuers shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Issuers and their Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Issuers has kept, observed, performed and fulfilled their obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that, to the best of his or her knowledge, the Issuers have kept, observed, performed and fulfilled each and every covenant contained in this Indenture and are not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Issuers are taking or propose to take with respect thereto) and that, to the best of his or her 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 Notes is prohibited or if such event has occurred, a description of the event and what action the Issuers are taking or propose 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(a) above shall be accompanied by a written statement of the Issuers' independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Issuers have violated any provisions of Article 4 or Article 5 hereof 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) So long as any of the Notes are outstanding, the Issuers will deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Issuers are taking or propose to take with respect thereto. Section 4.05 Taxes. The Issuers will pay, and will cause each of their Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. Section 4.06 Stay, Extension and Usury Laws. The Issuers covenant (to the extent that they may lawfully do so) that they 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, that may affect the covenants or the performance of this Indenture; and the Issuers (to the extent that they may lawfully do so) hereby expressly waive all benefit or advantage of any such law, and covenant that they will not, by resort 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. 36 Section 4.07 Restricted Payments. (a) The Partnership will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, to (all such payments and other actions set forth in these clauses (1) through (4) below being collectively referred to as a "Restricted Payment"): (1) declare or pay any dividend or any other distribution or payment on or with respect to Capital Stock of the Partnership or any of its Restricted Subsidiaries or any payment made to the direct or indirect holders, in their capacities as such, of Capital Stock of the Partnership or any of its Restricted Subsidiaries other than (a) dividends or distributions payable solely in Capital Stock of the Partnership (including Common Units or Senior Units, but excluding Redeemable Capital Stock), or in options, warrants or other rights to purchase Capital Stock of the Partnership (including Common Units or Senior Units, but excluding Redeemable Capital Stock); (b) dividends or other distributions to the extent declared or paid to the Partnership or any Restricted Subsidiary of the Partnership; or (c) dividends or other distributions by any Restricted Subsidiary of the Partnership to all holders of Capital Stock of that Restricted Subsidiary on a pro rata basis, including, in the case of the Operating Partnership, to the General Partner; (2) purchase, redeem, defease or otherwise acquire or retire for value any Capital Stock of the Partnership or any of its Restricted Subsidiaries, other than any Capital Stock owned by a Restricted Subsidiary of the Partnership; (3) make any principal payment on, or purchase, defease, repurchase, redeem or otherwise acquire or retire for value, prior to any scheduled maturity, scheduled repayment, scheduled sinking fund payment or other stated maturity, any subordinated Indebtedness, other than any such Indebtedness owned by the Partnership or a Restricted Subsidiary of the Partnership; or (4) make any investment, other than a Permitted Investment, in any entity, unless, at the time of and after giving effect to such Restricted Payment: (1) no Default or Event of Default has occurred and is continuing; and (2) the Restricted Payment, together with the aggregate of all other Restricted Payments made by the Partnership and its Restricted Subsidiaries during the fiscal quarter during which the Restricted Payment is made will not exceed: (A) if the Consolidated Fixed Charge Coverage Ratio of the Partnership is greater than 1.75 to 1.00, an amount equal to Available Cash for the immediately preceding fiscal quarter; or (B) if the Consolidated Fixed Charge Coverage Ratio of the Partnership is equal to or less than 1.75 to 1.00, an amount equal to the sum of $25 million, less the aggregate amount of all Restricted Payments made by the Partnership and its Restricted Subsidiaries in accordance with this clause during the period ending on the last day of the fiscal quarter of the Partnership immediately preceding the date of the Restricted Payment and beginning on the first day of the sixteenth full fiscal quarter immediately preceding the date of the Restricted Payment plus the aggregate net cash proceeds of capital contributions to the Partnership from any Person other than a Restricted Subsidiary of the Partnership, or issuance and sale of shares of Capital Stock, other than Redeemable Capital Stock, of the Partnership to any entity other than to a Restricted Subsidiary of the Partnership, in any case made during the period ending on the last day of the fiscal quarter of the Partnership immediately preceding the date of the Restricted Payment and beginning on the first day of the sixteenth full fiscal quarter immediately preceding the date of the Restricted Payment. 37 (b) The provisions of Section 4.07(a) will not prohibit: (1) the payment of any dividend or distribution within 60 days after the date of its declaration if, at the date of declaration, the payment would be permitted as stated above; (2) the redemption, repurchase or other acquisition or retirement of any shares of any class of Capital Stock of the Partnership or any Restricted Subsidiary of the Partnership in exchange for, or out of the net cash proceeds of, a substantially concurrent capital contribution to the Partnership from any entity other than a Restricted Subsidiary of the Partnership; or issuance and sale of other Capital Stock, other than Redeemable Capital Stock, of the Partnership to any entity other than to a Restricted Subsidiary of the Partnership; provided, however, that the amount of any net cash proceeds that are utilized for any redemption, repurchase or other acquisition or retirement will be excluded from the calculation of Available Cash; (3) the repurchase of any Common Units or the payment of any dividend or distribution under any employment agreement, stock or unit option agreement, or restricted stock agreement not to exceed $1 million in any calendar year and not to exceed $5 million in the aggregate amount since the date of this Indenture; or (4) any redemption, repurchase or other acquisition or retirement of subordinated Indebtedness in exchange for, or out of the net cash proceeds of, a substantially concurrent capital contribution to the Partnership from any entity other than a Restricted Subsidiary of the Partnership; or issuance and sale of Indebtedness of the Partnership issued to any entity other than a Restricted Subsidiary or the Partnership, so long as the Indebtedness is Permitted Refinancing Indebtedness; provided, however, that the amount of any net cash proceeds that are utilized for any redemption, repurchase or other acquisition or retirement will be excluded from the calculation of Available Cash. In computing the amount of Restricted Payments in Section 4.07(a) above, the Restricted Payments permitted by clauses (1) and (3) of this paragraph (b) will be included and the Restricted Payments permitted by clauses (2) and (4) of this paragraph (b) will not be included. The amount of all Restricted Payments (other than cash) will be the fair market value on the date of the Restricted Payment of the assets proposed to be transferred by the Partnership or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets that are required to be valued by this Section 4.07 will be determined in good faith by an authorized financial officer of the General Partner on the date of the Restricted Payment of the assets proposed to be transferred. Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries. (a) The Partnership will not, and will not permit any of its Restricted Subsidiaries to, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary to: 38 (1) pay dividends, in cash or otherwise, or make any other distributions on or with respect to its Capital Stock or any other interest or participation in, or measured by, its profits; (2) pay any Indebtedness owed to the Partnership or any other Restricted Subsidiary; (3) make loans or advances to, or any investment in, the Partnership or any other Restricted Subsidiary; (4) transfer any of its properties or assets to the Partnership or any other Restricted Subsidiary; or (5) guarantee any Indebtedness of the Partnership or any other Restricted Subsidiary. All such restrictions and other actions set forth in these clauses (1) through (5) above being collectively referred to as "Payment Restrictions." (b) The provisions of Section 4.08(a) will not apply to (and therefore the following are permitted) encumbrances or restrictions existing under or by reason of: (1) applicable law; (2) any agreement in effect at or entered into on the date of this Indenture, including the Operating Partnership's Existing Notes outstanding on and the Credit Facilities in effect on that date, or any agreement relating to any Indebtedness permitted to be incurred under this Indenture (including agreements or instruments evidencing Indebtedness incurred after the date of this Indenture); provided, however, that the encumbrances and restrictions contained in the agreements governing such permitted Indebtedness are no more restrictive with respect to the Payment Restrictions than those set forth in the agreements governing the Operating Partnership's Existing Notes and the Credit Facilities as in effect on the date of this Indenture; (3) customary non-assignment provisions of any contract or any lease governing a leasehold interest of the Partnership or any Restricted Subsidiary; (4) specific purchase money obligations or Capital Leases for property subject to such obligations; (5) any agreement of an entity (or any it its Restricted Subsidiaries) acquired by the Partnership or any Restricted Subsidiary, in existence at the time of the acquisition but not created in contemplation of the acquisition, which encumbrance or restriction is not applicable to any third party other than the entity; or (6) provisions contained in instruments relating to Indebtedness which prohibit the transfer of all or substantially all of the assets of the obligor of the Indebtedness unless the transferee shall assume the obligations of the obligor under the agreement or instrument. Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock. (a) The Partnership will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or in any manner become directly or indirectly liable, contingently or otherwise, for the payment, in each case, to "incur," any Indebtedness, unless at the time of the incurrence and after giving pro forma effect to the receipt and application of the proceeds of the Indebtedness, the Consolidated Fixed Charge Coverage Ratio of the Partnership is greater than 2.00 to 1.00. 39 (b) The provisions of Section 4.09(a) will not prohibit the incurrence by the Partnership and its Restricted Subsidiary of any of the following items of Indebtedness (collectively, "Permitted Indebtedness"): (1) Indebtedness evidenced by the Notes; (2) Indebtedness outstanding as of the date of this Indenture; (3) Indebtedness of the Partnership or a Restricted Subsidiary incurred for the making of expenditures for the improvement or repair, to the extent the improvements or repairs may be capitalized in accordance with GAAP, or additions, including by way of acquisitions of businesses and related assets, to the property and assets of the Partnership and its Restricted Subsidiaries, including, without limitation, the acquisition of assets subject to operating leases, Indebtedness incurred under the Credit Facilities, or incurred by assumption in connection with additions, including additions by way of acquisitions or capital contributions of businesses and related assets, to the property and assets of the Partnership and its Restricted Subsidiaries; provided, that the aggregate principal amount of this Indebtedness outstanding at any time may not exceed $75 million; (4) Indebtedness of the Partnership or a Restricted Subsidiary incurred for any purpose permitted under the Credit Facilities, provided, that the aggregate principal amount of this Indebtedness outstanding under this clause at any time may not exceed an amount equal to the sum of (a) $ 175 million plus (b) the amount, if any, by which the Borrowing Base as of the date of calculation exceeds the amount of the Borrowing Base as of July 31, 2002; (5) Indebtedness of the Partnership owed to the General Partner or an Affiliate of the General Partner that is unsecured and that is subordinated in right of payment to the Notes; provided, that the aggregate principal amount of this Indebtedness outstanding at any time under this clause may not exceed $50 million and this Indebtedness has a final maturity date later than the final maturity date of the Notes; (6) Indebtedness (a) owed by the Partnership or any Restricted Subsidiary to the Operating Partnership or any Restricted Subsidiary or (b) owed by the Operating Partnership or any Restricted Subsidiary to the Partnership or to any other Restricted Subsidiary; (7) Permitted Refinancing Indebtedness (including, for the avoidance of doubt, Indebtedness incurred as permitted under the Consolidated Fixed Charge Coverage Ratio set forth in Section 4.09(a) above); (8) the incurrence by the Partnership or a Restricted 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 businesses, consisting of reinsurance agreements and indemnification agreements, and guarantees of the foregoing, secured by letters of credit; provided, that any Consolidated Fixed Charges associated with the Indebtedness evidenced by the reinsurance agreements, indemnification agreements, guarantees and letters of credit will be included, without duplication, in any determination of the Consolidated Fixed Charge Coverage Ratio test set forth in Section 4.09(a) above; 40 (9) Indebtedness of the Partnership and its Restricted Subsidiaries in respect of Capital Leases, meaning, generally, any lease of any property which would be required to be classified and accounted for as a capital lease on a balance sheet of the lessor; provided, that the aggregate amount of this Indebtedness outstanding at any time may not exceed $15 million; (10) Indebtedness of the Partnership and its Restricted Subsidiaries represented by letters of credit supporting (a) obligations under workmen's compensation laws, (b) obligations to suppliers of propane or energy commodity derivative providers in the ordinary course of business consistent with past practices not to exceed $10 million at any one time outstanding and (c) the Indebtedness permitted to be incurred under this Indenture; (11) 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; (12) Indebtedness of the Partnership or its Restricted Subsidiaries incurred in connection with acquisitions of retail propane businesses in favor of the sellers of such businesses in an aggregate principal amount not to exceed $15 million in any fiscal year and not to exceed $60 million at any one time outstanding; 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, to the extent issued by the Partnership, such Indebtedness is expressly subordinated to the Notes; and (13) Indebtedness of the Partnership or its Restricted Subsidiaries owing in respect of any Accounts Receivable Securitization, operating lease, Synthetic Lease, or other off-balance sheet obligation existing on the date of this Indenture that arises because, after the date of this Indenture, such off-balance sheet obligations are refinanced with Indebtedness, not to exceed $160 million at any one time outstanding. For purposes of determining compliance with this Section 4.09, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness described in clauses (1) through (13) above or is entitled to be incurred in compliance with the Consolidated Fixed Charge Coverage Ratio pursuant to Section 4.09(a) above, the Partnership, may, in its sole discretion, classify (or later reclassify) in whole or in part such items of Indebtedness in any manner that complies with this Section 4.09, and such item of Indebtedness or a portion thereof may be classified (or later reclassified) in whole or in part as having been incurred under more than one of the applicable clauses of Permitted Indebtedness or in compliance with the Consolidated Fixed Charge Coverage Ratio set forth in Section 4.09(a) above. Section 4.10 Asset Sales. The Partnership will not, and will not permit any of its Restricted Subsidiaries to, complete an Asset Sale unless: (1) the Partnership or its Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value, as determined in good faith by an authorized financial officer of the General Partner, of the assets sold or otherwise disposed of; and (2) at least 75% of the consideration therefor received by the Partnership or such Restricted Subsidiary is in the form of cash. 41 For purposes of determining the amount of cash received in an Asset Sale, each of the following shall be deemed to be cash: (1) the amount of any liabilities on the Partnership's or any Restricted Subsidiary's balance sheet that are assumed by the transferee of the assets; and (2) the amount of any notes or other obligations received by the Partnership or the Restricted Subsidiary from the transferee that is converted within 180 days by the Partnership or the Restricted Subsidiary into cash, to the extent of the cash received. Furthermore, the 75% limitation will not apply to any Asset Sale in which the cash portion of the consideration received is equal to or greater than the after-tax proceeds would have been had the Asset Sale complied with the 75% limitation. If the Partnership or any of its Restricted Subsidiaries receives Net Proceeds exceeding $10 million from one or more Asset Sales in any fiscal year, then within 360 days after the date the aggregate amount of Net Proceeds exceeds $10 million, the Partnership must apply the amount of such Net Proceeds either: (1) to reduce Indebtedness of the Partnership or any of its Restricted Subsidiaries, with a permanent reduction of availability in the case of revolving Indebtedness; or (2) to make an investment in assets or capital expenditures useful to the Partnership's or any of its Subsidiaries' business as in effect on the date of this Indenture or business related or ancillary thereto. Pending the final application of any such Net Proceeds, the Partnership or any Restricted Subsidiary may temporarily reduce borrowings under the Credit Facilities or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided above will be considered "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10 million, within 15 days thereof, the Issuers will make an Asset Sale Offer to all Holders of Notes and all holders of other Indebtedness outstanding that is pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets in accordance with Section 3.09 hereof to purchase for cash the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of principal amount plus accrued and unpaid interest to the date of purchase. To the extent that the aggregate amount of Notes tendered in response to our purchase offer is less than the Excess Proceeds, the Partnership or any Restricted Subsidiary may use such deficiency for general business purposes. If the aggregate principal amount of Notes and such other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and such other pari passu Indebtedness to be purchased on pro rata basis in proportion to the aggregate principal amount of Notes and such other pari passu Indebtedness tendered. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of Sections 3.09 or 4.10 of this Indenture, the Issuers will comply with the applicable securities laws and regulations and will not be deemed to have breached their obligations under those provisions of this Indenture by virtue of such conflict. 42 Section 4.11 Transactions with Affiliates. (a) The Partnership will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions, including the sale, transfer, disposition, purchase, exchange or lease of assets, property or services, other than as provided for in the Issuers' partnership agreement or other organizational documents, as applicable, or in the Operating Partnership's partnership agreement and the other agreements entered into between the Partnership or the Operating Partnership and any of their Affiliates, with, or for the benefit of, any Affiliates of the Partnership (each an "Affiliate Transaction"), unless: (1) the transaction or series of related transactions are between the Partnership and its Restricted Subsidiaries or between two Restricted Subsidiaries; or (2) the transaction or series of related transactions are on terms that are no less favorable to the Partnership or the Restricted Subsidiary, as the case may be, than those which would have been obtained in a comparable transaction at such time from an entity that is not an Affiliate of the Partnership or Restricted Subsidiary, and, with respect to transaction(s) involving aggregate payments or value equal to or greater than $20 million, the Partnership delivers an Officers' Certificate to the Trustee certifying that the transaction(s) is on terms that are no less favorable to the Partnership or the Restricted Subsidiary than those which would have been obtained from an entity that is not an Affiliate of the Partnership or Restricted Subsidiary and has been approved by a majority of the Board of Directors of the General Partner, including a majority of the disinterested directors. (b) The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of Section 4.11(a) or otherwise be restricted by this Indenture or the Notes: (1) any employment agreement, stock option agreement, restricted stock agreement, employee stock ownership plan related agreements, or similar agreement and arrangements, or Synthetic Leases, in the ordinary course of business; (2) transactions permitted by Section 4.07 hereof; (3) transactions 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 business operated by the Partnership, its Subsidiaries and Affiliates; (4) any Accounts Receivable Securitization; (5) any affiliate trading transactions done in the ordinary course of business; and (6) any transaction that is a Flow-Through Acquisition. 43 Section 4.12 Liens. The Partnership will not, and will not permit any of its Restricted Subsidiaries to incur any Liens or other encumbrance, unless the Lien is a Permitted Lien or the Notes are directly secured equally and ratably with the obligation or liability secured by such Lien. Section 4.13 Corporate Existence. Subject to Article 5 hereof, the Partnership shall do or cause to be done all things necessary to preserve and keep in full force and effect: (1) its partnership existence, and the corporate, partnership or other existence of each of its Restricted Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Partnership or any such Restricted Subsidiary; and (2) the rights (charter and statutory), licenses and franchises of the Partnership and its Restricted Subsidiaries; provided, however, that the Partnership shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Restricted Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Partnership and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.14 Offer to Repurchase Upon Change of Control. (a) Upon the occurrence of a Change of Control, the Issuers will make an offer (a "Change of Control Offer") to each Holder to repurchase, in cash, all or any part (equal to $1,000 or an integral multiple of $1,000) of that Holder's Notes at a purchase price equal to 101% of the aggregate principal amount of the Notes or portion of Notes validly tendered for payment thereof plus accrued and unpaid interest on the Notes repurchased, if any, to the date of purchase (the "Change of Control Payment"). Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and stating: (1) that the Change of Control Offer is being made pursuant to this Section 4.14 and that all Notes tendered will be accepted for payment; (2) the purchase price and the purchase date, which shall be no later than 30 Business Days from the date such notice is mailed (the "Change of Control Payment Date"); (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Issuers defaults in the payment of the Change of Control Payment, all 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 Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the 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; 44 (6) that Holders will be entitled to withdraw any election to have their Notes purchased 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 Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the 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 thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change in Control. To the extent that the provisions of any securities laws or regulations conflict with the provisions of Sections 3.09 or 4.14 of this Indenture, the Issuers will comply with the applicable securities laws and regulations and will not be deemed to have breached their obligations under Section 3.09 or this Section 4.14 by virtue of such conflict. (b) On the Change of Control Payment Date, the Issuers will, to the extent lawful: (1) accept for payment all Notes or portions thereof properly tendered in accordance with the Change of Control Offer; (2) deposit an amount equal to the Change of Control Payment for the Notes with the Paying Agent in respect of all Notes or portions of Notes properly tendered; and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions of Notes being tendered to the Issuers. The Paying Agent will promptly mail to each Holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each new 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. (c) Notwithstanding anything to the contrary in this Section 4.14, the Issuers will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 4.14 and Section 3.09 hereof and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer. Section 4.15 Limitation on Sale and Leaseback Transactions. The Partnership will not, and will not permit any of its Restricted Subsidiaries to, enter into any Sale and Leaseback Transaction with respect to their properties unless the Partnership or the Restricted Subsidiary is permitted under this Indenture to incur Indebtedness secured by a Lien on the property in an amount equal to the Attributable Debt with respect to the Sale and Leaseback Transaction. 45 Section 4.16 Limitation on Finance Corp. In addition to the restrictions set forth under Section 4.09 hereof, Finance Corp. will not incur any Indebtedness unless: (1) the Partnership is a co-obligor or guarantor of the Indebtedness; or (2) the net proceeds of the Indebtedness are either 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 limitation of this Section 4.16. Finance Corp. will not engage in any business not related, directly or indirectly, to obtaining money or arranging financing for the Partnership. ARTICLE 5. SUCCESSORS Section 5.01 Merger, Consolidation, or Sale of Assets. The Partnership shall not consolidate or merge with or into, 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 entity unless: (1) the Partnership is the surviving entity or the entity formed by or surviving the transaction, if other than the Partnership, or the entity to which the sale was made is a corporation or partnership organized or existing under the laws of the United States, any state thereof or the District of Columbia; (2) the entity formed by or surviving the transaction, if other than the Partnership, or the entity to which the sale was made assumes all the obligations of the Partnership in accordance with a supplemental indenture in a form reasonably satisfactory to the Trustee, under the Notes and this Indenture; (3) immediately after the transaction, no Default or Event of Default exists; and (4) at the time of the transaction and after giving pro forma effect to it as if the transaction had occurred at the beginning of the applicable four-quarter period, the Partnership or such other entity or survivor is permitted to incur at least $1.00 of additional Indebtedness in accordance with the Consolidated Fixed Charge Coverage Ratio described in Section 4.09(a) hereof. This Section 5.01 will not apply to a sale, assignment, transfer, conveyance or other disposition of assets between or among the Partnership and any of its Restricted Subsidiaries. Finance Corp. will not consolidate or merge with or into, whether or not it is the surviving entity, 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 entity except under conditions similar to those described in the paragraph above. 46 Section 5.02 Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Partnership or Finance Corp. in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Partnership or Finance Corp., as applicable, is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Partnership" or "Finance Corp.," as applicable, shall refer instead to the successor corporation and not to Partnership or Finance Corp., as applicable), and may exercise every right and power of the Partnership or Finance Corp., as applicable, under this Indenture with the same effect as if such successor Person had been named as the Partnership or Finance Corp., as applicable, herein; provided, however, that Partnership or Finance Corp., as applicable, shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of assets of the Partnership or Finance Corp., as applicable, in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof. ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01 Events of Default. Each of the following is an "Event of Default": (1) default in the payment of the principal of or premium, if any, on any Note when the same becomes due and payable, upon stated maturity, acceleration, optional redemption, required purchase, scheduled principal payment or otherwise; (2) default in the payment of an installment of interest on any of the Notes, when the same becomes due and payable, which default continues for a period of 30 days; (3) failure to perform or observe any other term, covenant or agreement contained in the Notes or this Indenture, other than a default specified in either Section 6.01(1) or (2) above, and the default continues for a period of 45 days after written notice of the default requiring the Issuers to remedy the same will have been given to the Partnership by the Trustee or to the Issuers and the Trustee by Holders of at least 25% in aggregate principal amount of the Notes then outstanding; (4) default or defaults under one or more agreements, instruments, mortgages, bonds, debentures or other evidences of Indebtedness under which the Partnership or any Restricted Subsidiary of the Partnership then has outstanding Indebtedness in excess of $10 million, if the default: (a) is caused by a failure to pay principal of or premium, if any, or interest on to such Indebtedness within the applicable grace period, if any, provided with respect to such Indebtedness; or (b) results in the acceleration of such Indebtedness prior to its stated maturity; (5) a final judgment or judgments, which is or are non-appealable and nonreviewable or which has or have not been stayed pending appeal or review or as to which all rights to appeal or review have expired or been exhausted, shall be rendered against the Partnership, any Restricted Subsidiary, or the General Partner provided such judgment or judgments requires or require the payment of money in excess of $10 million in the aggregate and is not covered by insurance or discharged or stayed pending appeal or review within 60 days after entry of such judgment; in the event of a stay, the judgment shall not be discharged within 30 days after the stay expires; or 47 (6) the Issuers or any of their Significant Subsidiaries pursuant to or within the meaning of Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (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, or (E) generally is not paying its debts as they become due; or (7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Issuers or any of their Significant Subsidiaries in an involuntary case; (B) appoints a custodian of the Issuers or any of their Significant Subsidiaries or for all or substantially all of the property of the Issuers or any of their Significant Subsidiaries; or (C) orders the liquidation of the Issuers or any of their Significant Subsidiaries; and the order or decree remains unstayed and in effect for 60 consecutive days. Section 6.02 Acceleration. In the case of an Event of Default specified in clause (6) or (7) of Section 6.01 hereof, with respect to the Partnership, Finance Corp. or any Significant Subsidiary, all outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the applicable series of Notes then outstanding may declare all the Notes of that series to be due and payable immediately. Upon any such declaration, the Notes shall become due and payable immediately. The Holders of a majority in aggregate principal amount of a series of Notes issued under this Indenture and then outstanding by notice to the Trustee may on behalf of all of the Holders of that series 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, interest or premium that has become due solely because of the acceleration) have been cured or waived. If an Event of Default by reason of any action (or inaction) taken (or not taken) by or on behalf of the Issuers with the willful intention of avoiding payment of the premium that the Issuers would have had to pay if the Issuers then had elected to redeem the Notes pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an equivalent premium shall also become and be immediately due and payable, to the extent permitted by law, anything in this Indenture or in the Notes to the contrary notwithstanding. 48 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, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note 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 not less than a majority in aggregate principal amount of a series of Notes issued under this Indenture and then outstanding by notice to the Trustee for those Notes may on behalf of the Holders of the Notes of that series waive any existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on, the Notes; provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration. 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. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee of that series of Notes 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 Holders of Notes or that may subject the Trustee to personal liability. Section 6.06 Limitation on Suits. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (1) the Holder of a Note 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 Notes make a written request to the Trustee to pursue the remedy; (3) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (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 49 (5) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.07 Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), 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 such 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 Issuers for the whole amount of principal of, premium, if any, and interest remaining unpaid on the Notes 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. 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 Holders of the Notes allowed in any judicial proceedings relative to the Issuers (or any other obligor upon the Notes), their creditors or their 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 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 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 that the Holders 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 Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 50 Section 6.10 Priorities. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any and interest, respectively; and Third: to the Issuers 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 Holders of Notes pursuant to this Section 6.10. 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 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7. TRUSTEE Section 7.01 Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee will exercise such of the rights and powers vested in it by this Indenture, and, in the exercise of its power, use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (1) the duties of the Trustee will 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; and (2) 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 will examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. 51 (c) 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: (1) this paragraph does not limit the effect of paragraph (b) of this Section 7.01; (2) the Trustee will not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee will 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 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section 7.01. (e) No provision of this Indenture will require the Trustee to expend or risk its own funds or incur any liability. The Trustee will be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee will not be liable for interest on any money received by it except as the Trustee may agree in writing with the Issuers. 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. (a) 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. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee will 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 counsel and the written advice of such counsel or any Opinion of Counsel will 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. (c) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of Indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation. (d) Except with respect to Section 4.01 hereof, the Trustee shall have no duty to inquire as to the performance of the Issuers' covenants in Article 4 hereof. In addition, the Trustee shall not be deemed to have knowledge of any Default or Event of Default except (i) any Event of Default occurring pursuant to Sections 6.01(1), 6.01(2) and 4.01 hereof or (ii) any Default or Event of Default of which the Trustee shall have received written notification in the manner set forth in this Indenture or an Officer in the Corporate Trust Office of the Trustee shall have obtained actual knowledge. Delivery of reports, information and documents to the Trustee under Section 4.03 is for informational purposes only and the Trustee's receipt of the foregoing shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuers' compliance with any of their covenants thereunder (as to which the Trustee is entitled to rely exclusively on an Officers' Certificate.) 52 (e) The Trustee may act through its attorneys and agents and will not be responsible for the misconduct or negligence of any agent appointed with due care. (f) The Trustee will not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (g) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Issuers will be sufficient if signed by an Officer of the Issuers. (h) The Trustee will be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. Section 7.03 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuers or any Affiliate of the Issuers with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.04 Trustee's Disclaimer. The Trustee will not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Issuers' use of the proceeds from the Notes or any money paid to the Issuers or upon the Issuers' direction under any provision of this Indenture, it will not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it will not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes 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 will mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if the Trustee determines in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.06 Reports by Trustee to Holders of the Notes. (a) Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee will mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA ss. 313(a) (but if no event described in TIA ss. 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also will comply with TIA ss. 313(b)(2). The Trustee will also transmit by mail all reports as required by TIA ss. 313(c). 53 (b) A copy of each report at the time of its mailing to the Holders of Notes will be mailed by the Trustee to the Issuers and filed by the Trustee with the SEC and each stock exchange on which the Notes are listed in accordance with TIA ss. 313(d). The Issuers will promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.07 Compensation and Indemnity. (a) The Issuers will pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation will not be limited by any law on compensation of a trustee of an express trust. The Issuers will 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 will include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. (b) The Issuers will 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, including the costs and expenses of enforcing this Indenture against the Issuers (including this Section 7.07) and defending itself against any claim (whether asserted by the Issuers or any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee will notify the Issuers promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Issuers will not relieve the Issuers of their obligations hereunder. The Issuers will defend the claim and the Trustee will cooperate in the defense. The Trustee may have separate counsel and the Issuers will pay the reasonable fees and expenses of such counsel. The Issuers need not pay for any settlement made without its consent, which consent will not be unreasonably withheld. (c) The obligations of the Issuers under this Section 7.07 will survive the satisfaction and discharge of this Indenture. (d) To secure the Issuers' payment obligations in this Section 7.07, the Trustee will have a claim prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such claim will survive the satisfaction and discharge of this Indenture. (e) When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(6) or (7) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. (f) The Trustee will comply with the provisions of TIAss. 313(b)(2) to the extent applicable. Section 7.08 Replacement of Trustee. (a) A resignation or removal of the Trustee and appointment of a successor Trustee will become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. 54 (b) The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Issuers. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Issuers in writing. The Issuers may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10 hereof; (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. (c) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Issuers will 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 Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Issuers. (d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Issuers, or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. (e) If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (f) A successor Trustee will deliver a written acceptance of its appointment to the retiring Trustee and to the Issuers. Thereupon, the resignation or removal of the retiring Trustee will become effective, and the successor Trustee will have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee will mail a notice of its succession to Holders. The retiring Trustee will 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 claim provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Issuers' obligations under Section 7.07 hereof will 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 will be the successor Trustee. Section 7.10 Eligibility; Disqualification. There will at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition. This Indenture will always have a Trustee who satisfies the requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA ss. 310(b). 55 Section 7.11 Preferential Collection of Claims Against the Issuers. The Trustee is subject to TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance. The Issuers may, at the option of the Board of Directors of the General Partner, on the Issuers' behalf, and the Board of Directors of Finance Corp., and at any time, elect to have Section 8.02 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. The Issuers may, at their option and at any time, elect to have Section 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. Section 8.02 Legal Defeasance and Discharge. Upon the Issuers' exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Issuers will, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Issuers will be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which will thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in clauses (1) and (2) below, and to have satisfied all their other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Issuers, shall execute proper instruments acknowledging the same), except for the following provisions which will survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium, if any, on such Notes when such payments are due from the trust referred to in Section 8.04 hereof; (2) the Issuers' obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes or mutilated, destroyed, lost or stolen Notes under Article 2; (3) the Issuers' obligation to maintain an office or agency for payment under Section 4.02 hereof and money for security payments held in trust; (4) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Issuers' obligations in connection therewith; and (5) the legal defeasance and covenant defeasance provisions of this Article 8. Subject to compliance with this Article 8, the Issuers may exercise their option under this Section 8.02 notwithstanding the prior exercise of their option under Section 8.03 hereof. 56 Section 8.03 Covenant Defeasance. Upon the Issuers' exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Issuers will, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from each of their obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.14, 4.15 and 4.16 hereof and clause (4) of Section 5.01 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 hereof are satisfied (hereinafter, "Covenant Defeasance"), and the Notes will thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but will continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes will not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Issuers may omit to comply with and will have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply will not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes will be unaffected thereby. In addition, upon the Issuers' exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(3) through 6.01(4) hereof will not constitute Events of Default. Section 8.04 Conditions to Legal or Covenant Defeasance. In order to exercise either Legal Defeasance or Covenant Defeasance under either Section 8.02 or 8.03 hereof: (1) the Issuers must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated maturity date for payment thereof or on the applicable redemption date, as the case may be; (2) the Issuers will deliver to the Trustee an Opinion of Counsel stating that: (a) 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, and all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with and confirming other matters; (b) in the case of an election under Section 8.02 hereof, that the Issuers have received from, or there has been published by, the Internal Revenue Service a ruling, or since the date of this Indenture, there shall have been a change in the applicable federal income tax law, in either case to the effect that, and based thereon, the Holders of the outstanding 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; and (c) in the case of an election under Section 8.03 hereof, that the Holders of the outstanding 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; 57 (3) the Issuers must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Issuers with the intent of preferring the Holders of Notes over the other creditors of the Issuers or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Issuers; (4) no Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Events of Default described in Section 6.01(6) or (7) hereof are concerned, at any time in the period ending on the 91st day after the date of deposit; and (5) such Legal Defeasance or Covenant Defeasance will not result in a breach, violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Issuers or any of their Restricted Subsidiaries is a party or by which the Issuers or any of their Restricted Subsidiaries is bound. Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes will be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Issuers or any of their Restricted Subsidiaries acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Issuers will pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Notwithstanding anything in this Article 8 to the contrary, the Trustee will deliver or pay to the Issuers from time to time upon the request of the Issuers any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(1) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.06 Repayment to the Issuers. Any money deposited with the Trustee or any Paying Agent, or then held by the Issuers, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, premium, if any, or interest has become due and payable shall be paid to the Issuers on their request or (if then held by the Issuers) will be discharged from such trust; and the Holder of such Note will thereafter be permitted to look only to the Issuers for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Issuers as trustee thereof, will thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Issuers cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which will not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Issuers. 58 Section 8.07 Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Issuers' obligations under this Indenture and the Notes will be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Issuers make any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Issuers will be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01 Without Consent of Holders of Notes. Notwithstanding Section 9.02 of this Indenture, the Issuers and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note to: (1) cure any ambiguity, defect or inconsistency; (2) provide for uncertificated Notes in addition to or in place of certificated Notes; (3) provide for the assumption of our obligations to Holders of Notes in the case of a merger or consolidation; (4) make any change that could provide any additional rights or benefits to the Holders of Notes that does not adversely affect the legal rights under this Indenture of any such Holder; (5) comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; or (6) to provide security for or add guarantees with respect to the Notes. Upon the request of the Partnership accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee will join with the Issuers in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee will not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. 59 Section 9.02 With Consent of Holders of Notes. Except as provided below in this Section 9.02, the Issuers and the Trustee may amend or supplement this Indenture (including, without limitation, Sections 3.09, 4.10 and 4.14 hereof) and the Notes with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including, without limitation, consents obtained in connection with a tender offer or exchange offer for the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) may be waived for all Holders of Notes of a series and its consequences under this Indenture with the consent of the Holders of a majority in aggregate principal amount of that series of Notes (including Additional Notes, if any) issued under this Indenture and then outstanding (including, without limitation, consents obtained in connection with a tender offer or exchange offer for the Notes), by notice to the Trustee. Section 2.08 hereof shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02. Upon the request of the Partnership accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee will join with the Issuers in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but will not be obligated to, enter into such amended or supplemental Indenture. It is not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it is sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Issuers will mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Issuers to mail such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, with the consent of the Holders of a majority in principal amount of the Notes (including, without limitation, Additional Notes, if any) then outstanding (including consents obtained in connection with a tender offer or exchange offer for Notes) may waive any existing default or compliance with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes other than as provided above with respect to Sections 3.09, 4.10 and 4.14 hereof; (3) reduce the rate of or change the time for payment of interest on any Note; (4) waive a Default in the payment of principal or interest on the Notes; 60 (5) make any Note payable in money other than that stated in the Notes; (6) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal, premium, if any, or interest on the Notes; or (7) make any change in the foregoing amendment and waiver provisions. Section 9.03 Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes will be set forth in an amended or supplemental Indenture that complies with the TIA as then in effect. Section 9.04 Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.05 Notation on or Exchange of Notes. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Issuers in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note will not affect the validity and effect of such amendment, supplement or waiver. Section 9.06 Trustee to Sign Amendments, etc. The Trustee will sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Partnership may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee will be entitled to receive and (subject to Section 7.01 hereof) will be fully protected in relying upon, in addition to the documents required by Section 11.04 hereof, an Officers' Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental Indenture is authorized or permitted by this Indenture. 61 ARTICLE 10. SATISFACTION AND DISCHARGE Section 10.01 Satisfaction and Discharge. This Indenture will be discharged and will cease to be of further effect as to all Notes issued hereunder, when: (1) either: (a) all Notes that have been authenticated (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Issuers) have been delivered to the Trustee for cancellation; or (b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or will become due and payable within one year and the Issuers has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; (2) no Default or Event of Default has occurred and is continuing on the date of such deposit or will occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Issuers are a party or by which the Issuers are bound; (3) the Issuers have paid or caused to be paid all sums payable by them under this Indenture; and (4) the Issuers have delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of the Notes at maturity or the redemption date, as the case may be. In addition, the Issuers must deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. Notwithstanding the satisfaction and discharge of this Indenture, if money has been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section, the provisions of Section 10.02 and Section 8.06 will survive. In addition, nothing in this Section 10.01 will be deemed to discharge those provisions of Section 7.07 hereof, that, by their terms, survive the satisfaction and discharge of this Indenture. Section 10.02 Application of Trust Money. Subject to the provisions of Section 8.06, all money deposited with the Trustee pursuant to Section 10.01 shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Issuers acting as their own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. If the Trustee or Paying Agent is unable to apply any money or Government Securities in accordance with Section 10.01 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 Issuers' obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 10.01; provided that if the Issuers has made any payment of principal of, premium, if any, or interest on any Notes because of the reinstatement of their obligations, the Issuers shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or Government Securities held by the Trustee or Paying Agent. 62 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 ss.318(c), the imposed duties will control. Section 11.02 Notices. Any notice or communication by the Issuers or the 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 others' address: If to the Issuers: Ferrellgas Partners, L.P. One Liberty Plaza Liberty, MO 64068 Telecopier No.: (816) 792-6979 Attention: Kevin T. Kelly With a copy to: Bracewell & Patterson, LLP 711 Louisiana Street South Tower Pennzoil Place, Suite 2900 Houston, TX 77002 Telecopier No.: (713) 221-2121 Attention: Dewey J. Gonsoulin, Jr., Esq. If to the Trustee: U.S. Bank, N.A. Corporate Trust Services 180 E. 5th Street St. Paul, MN 55101 Telecopier No.: (651) 244-0711 Attention: Frank Leslie The Issuers or the 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 Holders) will 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. 63 Any notice or communication to a Holder will be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication will also be so mailed to any Person described in TIA ss. 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it will not affect its sufficiency with respect to other 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. If the Issuers mails a notice or communication to Holders, they will mail a copy to the Trustee and each Agent at the same time. Section 11.03 Communication by Holders of Notes with Other Holders of Notes. Holders may communicate pursuant to TIA ss. 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Issuers, the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c). Section 11.04 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Issuers to the Trustee to take any action under this Indenture, the Issuers shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 11.05 hereof) 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 satisfied; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 11.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. 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 ss. 314(a)(4)) must comply with the provisions of TIA ss. 314(e) and must include: (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 or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. 64 Section 11.06 Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 11.07 Non-Recourse. The obligations of the Issuers under this Indenture are recourse to the General Partner and non-recourse to the Operating Partnership, and their respective Affiliates, other than the Issuers, and are payable only out of the Issuers' cash flow and assets. The Trustee agrees, and each Holder of a Note, by accepting a Note, agrees in this Indenture that the Operating Partnership and their Affiliates will not be liable for any of the Issuers' obligations under this Indenture or the Notes. Section 11.08 No Personal Liability of 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, will have any liability for any obligations of the Issuers under the Notes or this Indenture or any claim based on, in respect of, or by reason of, such obligations. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such waiver is against public policy. Section 11.09 Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Section 11.10 Successors. All agreements of the Issuers in this Indenture and the Notes will bind their successors. All agreements of the Trustee in this Indenture will bind its successors. Section 11.11 Severability. In case any provision in this Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby. Section 11.12 Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy will be an original, but all of them together represent the same agreement. 65 Section 11.13 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 of this Indenture and will in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 66 SIGNATURES Dated as of September 24, 2002 FERRELLGAS PARTNERS, L.P. By: Ferrellgas, Inc., its General Partner By:/s/ Kevin T. Kelly ----------------------------------------- Name: Kevin T. Kelly Title: Chief Financial Officer FERRELLGAS PARTNERS FINANCE CORP. By:/s/ Kevin T. Kelly ----------------------------------------- Name: Kevin T. Kelly Title: Chief Financial Officer U.S. BANK, N.A. By: ------------------------------- Name: Frank P. Leslie III Title: Vice President 67 EXHIBIT A [Face of Note] - -------------------------------------------------------------------------------- CUSIP ---------------------- 8 3/4% Senior Notes due 2012 No. ___ $____________ FERRELLGAS PARTNERS, L.P. FERRELLGAS PARTNERS FINANCE CORP. promises to pay to CEDE & CO. ---------- or registered assigns, the principal sum of ----------------------------------------------------------- Dollars on June 15, 2012. Interest Payment Dates: June 15 and December 15 Record Dates: June 1 and December 1 Dated: September 24, 2002 FERRELLGAS PARTNERS, L.P. By: Ferrellgas, Inc., its General Partner By: -------------------------------------------- Name: Kevin T. Kelly Title: Senior Vice President and Chief Financial Officer FERRELLGAS PARTNERS FINANCE CORP. By: -------------------------------------------- Name: Kevin T. Kelly Title: Senior Vice President and Chief Financial Officer This is one of the Notes referred to in the within-mentioned Indenture: U.S. BANK, N.A., as Trustee By: -------------------------------------------- Authorized Signatory - -------------------------------------------------------------------------------- A-1 [Back of Note] 8 3/4% Senior Notes due 2012 [Insert the Global Note Legend, if applicable pursuant to the provisions of the Indenture] Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. (1) INTEREST. Ferrellgas Partners, L.P., a Delaware limited partnership (the "Partnership"), and Ferrellgas Partners Finance Corp., a Delaware corporation ("Finance Corp." and, together with the Partnership, the "Issuers"), promise to pay interest on the principal amount of this Note at 8 3/4% per annum from September 24, 2002 until maturity. The Issuers will pay interest semi-annually in arrears on June 15 and December 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the 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 issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be December 15, 2002. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; they will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. (2) METHOD OF PAYMENT. The Issuers will pay interest on the Notes to the Persons who are registered Holders of Notes at the close of business on the June 1 or December 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium, if any, 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 at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium on, all Global Notes the Holders of which will have provided wire transfer instructions to the Issuers or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. (3) PAYING AGENT AND REGISTRAR. Initially, U.S. Bank, N.A., the Trustee under the Indenture, will act as Paying Agent and Registrar. The Issuers may change any Paying Agent or Registrar without notice to any Holder. The Issuers or any of their Subsidiaries may act in any such capacity. (4) INDENTURE. The Issuers issued the Notes under an Indenture dated as of September 24, 2002 (the "Indenture") among the Issuers and the Trustee. The terms of the 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 (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are unsecured obligations of the Issuers. A-2 (5) Optional Redemption. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Issuers will not have the option to redeem the Notes prior to June 15, 2007. Thereafter, the Issuers will have the option to redeem the Notes, 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 twelve-month period beginning on June 15 of the years indicated below: Year Percentage ---- ---------- 2007................................ 104.375% 2008................................ 102.917% 2009................................ 101.458% 2010 and thereafter........... ...... 100.000% (b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time on or prior to June 15, 2005, the Issuers may redeem Notes with the net proceeds of one or more Equity Offerings at a redemption price equal to 108.75% of the aggregate principal amount thereof, plus accrued and unpaid interest to the applicable redemption date; provided that at least 65% in aggregate principal amount of the Notes already issued, together with the Notes and any Additional Notes sold under the Indenture, remain outstanding immediately after the occurrence of such redemption and that such redemption occurs within 90 days of the date of the closing of such Equity Offering. (6) Mandatory Redemption. The Issuers will not be required to make mandatory redemption payments or sinking fund payments with respect to the Notes. (7) Repurchase at Option of Holder. (a) If there is a Change of Control, the Issuers will be required to make an offer (a "Change of Control Offer") to repurchase, in cash, all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of purchase ( the "Change of Control Payment"). Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Partnership or any of its Restricted Subsidiary consummates any Asset Sales, within 15 days of each date on which the aggregate amount of Excess Proceeds exceeds $10 million, the Issuers will commence an offer to all Holders of Notes and all holders of other Indebtedness that are pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes and other pari passu Indebtedness 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 thereon, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes and other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Partnership or any Restricted Subsidiary may use such deficiency for general business purposes. If the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Issuers prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. A-3 (8) NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 10 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. (9) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes 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 the Issuers may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Issuers need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Issuers need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. (10) PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. (11) AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes (including, consents obtained in connection with a tender offer or exchange offer for Notes), and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes (including, consents obtained in connection with a tender offer or exchange offer for Notes). Without the consent of any Holder of a Note, the Indenture or the Notes may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Issuers' obligations to Holders of the Notes in case of a merger or consolidation, to make any change that could provide any additional rights or benefits to the Holders of the Notes that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act, or to provide for security for or add guarantees with respect to the Notes. A-4 (12) DEFAULTS AND REMEDIES. Events of Default include: Each of the following is an "Event of Default": (i) default in the payment of the principal of or premium, if any, on any Note when the same becomes due and payable, upon stated maturity, acceleration, optional redemption, required purchase, scheduled principal payment or otherwise; (ii) default in the payment of an installment of interest on any of the Notes, when the same becomes due and payable, which default continues for a period of 30 days; (iii) failure of the Issuers to perform or observe any other term, covenant or agreement contained in the Notes or the Indenture, other than a default specified in either (i) or (ii) above, and the default continues for a period of 45 days after written notice of the default requiring the Issuers to remedy the same has been given to the Partnership by the Trustee or to the Issuers and the Trustee by Holders of at least 25% in aggregate principal amount of the Notes then outstanding; (iv) default or defaults under certain other agreements, instruments, mortgages, bonds, debentures or other evidences of Indebtedness under which the Partnership or any Restricted Subsidiary of the Partnership has outstanding Indebtedness in excess of $10 million if the default (x) is caused by a failure to pay principal of or premium, if any, or interest on to such Indebtedness within the applicable grace period, if any, provided with respect to such Indebtedness or (y) results in the acceleration of such Indebtedness prior to its stated maturity; (v) certain final judgment or judgments, which is or are non-appealable and nonreviewable or which has or have not been stayed pending appeal or review or as to which all rights to appeal or review have expired or been exhausted, shall have been rendered against the Partnership, any Restricted Subsidiary or the General Partner provided such judgment or judgments requires or require the payment of money in excess of $10 million in the aggregate and is not covered by insurance or discharged or stayed pending appeal or review within 60 days after entry of such judgment or in the event of a stay, within 30 days after the stay expires; or (vi) specified events of bankruptcy, insolvency, or reorganization with respect to the Issuers or any of their Significant Subsidiaries as more fully set forth in the Indenture. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the applicable series of Notes then outstanding Notes may declare all the Notes of that series to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to the Partnership, Finance Corp. or any Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of a series of then outstanding Notes may direct the Trustee of that series of Notes in its exercise of any trust or power. The Trustee may withhold from Holders of the 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 in good faith that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of a series of Notes then outstanding by notice to the Trustee for those Notes may on behalf of all Holders of Notes of that series 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 interest on, or the principal of, the 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. (13) TRUSTEE DEALINGS WITH ISSUERS. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Issuers or their Affiliates, and may otherwise deal with the Issuers or their Affiliates, as if it were not the Trustee. (14) NO RECOURSE AGAINST OTHERS. A limited partner of the Partnership or director, officer, employee, incorporator or stockholder, of the General Partner or Finance Corp., as such, will not have any liability for any obligations of the Issuers under the Notes or the Indenture or for any claim based on, in respect of, or by reason of, such obligations. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. A-5 (15) AUTHENTICATION. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. (16) ABBREVIATIONS. Customary abbreviations may be used in the name of a 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). (17) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuers have caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. The Issuers will furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Ferrellgas Partners, L.P. One Liberty Plaza Liberty, Missouri 64068 Attention: Investor Relations 816) 792-0203 A-6 EXHIBIT A ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to: --------------------------------- (Insert assignee's legal name) - -------------------------------------------------------------------------------- (Insert assignee's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) and irrevocably appoint -------------------------------------------------------- to transfer this Note on the books of the Issuers. The agent may substitute another to act for him. Date: _______________ Your Signature: ------------------------------------ (Sign exactly as your name appears on the face of this Note) Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-1 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Issuers pursuant to Section 4.10 or 4.14 of the Indenture, check the appropriate box below: ---Section 4.10 ---Section 4.14 If you want to elect to have only part of the Note purchased by the Issuers pursuant to Section 4.10 or Section 4.14 of the Indenture, state the amount you elect to have purchased: $ --------------- Date: _______________ Your Signature: ---------------------------------- (Sign exactly as your name appears on the face of this Note) Tax Identification No.: -------------------------- Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A-8 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made: Principal Amount Amount of decrease of this Global Note Signature of in Principal Amount Amount of increase in following such authorized officer of Principal Amount of decrease of Trustee or Date of Exchange this Global Note this Global Note (or increase) Custodian ---------------- ---------------- ---------------- ------------- ---------
A-9 EX-4 9 supp_indenture.txt EXHIBIT 3 TO FORM 8K 9-24-02 Exhibit 99.9 Exhibit 3 ================================================================================ SUPPLEMENTAL INDENTURE Dated as of September 24, 2002 to INDENTURE Dated as of April 26, 1996 among FERRELLGAS PARTNERS, L.P. FERRELLGAS PARTNERS FINANCE CORP. Obligors FERRELLGAS, L.P. Guarantor and U.S. BANK, N.A. Trustee ================================================================================ SUPPLEMENTAL INDENTURE dated as of September 24, 2002 (this "Supplemental Indenture") to the Indenture dated as of April 26, 1996 (the "Indenture") among Ferrellgas Partners, L.P., a Delaware limited partnership (the "Partnership"), Ferrellgas Partners Finance Corp., a Delaware corporation ("Finance Corp." and, together with the Partnership, the "Issuers"), Ferrellgas, L.P., a Delaware limited partnership (the "Operating Partnership"), and U.S. Bank, N.A. (formerly American Bank National Association), as trustee (the "Trustee"). Capitalized terms used in this Supplemental Indenture, but not defined herein, shall have the respective meanings given to such terms in the Indenture. WITNESSETH: WHEREAS, Section 9.02 of the Indenture provides, among other things, that the Issuers, the Guarantor and the Trustee may amend or supplement the Indenture or the Senior Notes with the written 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 the Senior Notes); and WHEREAS, the Issuers have solicited the written consent of the Holders to certain amendments to the Indenture and the Senior Notes described in the Offer to Purchase and Consent Solicitation Statement dated July 1, 2002 (the "Offer to Purchase") and which have been reflected herein (the "Amendments"); and WHEREAS, the Issuers have received and filed with the Trustee, in the manner contemplated by the Indenture, evidence of the written consent of the Holders of at least a majority of the outstanding Senior Notes, consenting to the Amendments to be effected in the form of this Supplemental Indenture; and WHEREAS, the Issuers have commenced a tender offer to purchase for cash any and all outstanding Senior Notes pursuant to the terms of the Offer to Purchase. NOW, THEREFORE, in consideration of the mutual agreements herein set forth, the parties hereto agree as follows: 1. Amendments to the Indenture. --------------------------- The following amendments are made to the Indenture effective as of the date specified in Section 3 below: (a) Section 1.01 is amended by the deletion therefrom of the definitions of the following terms: "Acquired Debt," "Attributable Debt," "Available Cash," "Change of Control," "Consolidated Cash Flow," "Consolidated Net Income," "Consolidated Net Worth," "Disqualified Interests," "Existing Indebtedness," "Fixed Charge Coverage Ratio," "Fixed Charges," "Flow-Through Acquisition," "Investments," "Net Income," "Net Proceeds," "Permitted Investments," "Permitted Liens," "Permitted Refinancing Indebtedness" and "Weighted Average Life to Maturity." 1 (b) Section 1.02 is amended by the deletion of the following terms and their corresponding section references from the listing of definitions in such section: "Affiliate Transaction," "Asset Sale," "Asset Sale Offer," "Change of Control Offer," "Change of Control Payment," "Change of Control Payment Date," "Commencement Date," "Covenant Defeasance," "Excess Proceeds," "incur," "Incurrence Date," "Offer Amount," "Offer Period," "Purchase Date" and "Restricted Payments." (c) Section 2.06(i)(ii) is amended by the deletion of ", 4.10, 4.14" therefrom. (d) The first paragraph of Section 3.01 is amended by the deletion of the number "30" and the insertion of the number "3" in place thereof. (e) The second paragraph of Section 3.01 is deleted in its entirety. (f) The third paragraph of Section 3.02 is deleted in its entirety. (g) The fifth paragraph of Section 3.02 is deleted in its entirety. (h) The first paragraph of Section 3.03 is amended by the deletion of the number "30" and the insertion of the number "3" in place thereof. (i) The final paragraph of Section 3.03 is amended by the deletion of the number "45" and the insertion of the number "3" in place thereof. (j) Section 3.08 is amended by the deletion of "Except as set forth in Sections 4.10 and 4.14 hereof," therefrom, and by the replacement of the word "the" following such deletion with "The." (k) Sections 3.09 is amended to read in its entirety as follows: "Section 3.09. [Reserved]." (l) Section 4.03 is amended to read in its entirety as follows: "Section 4.03. [Reserved]." (m) Section 4.04 is amended to read in its entirety as follows: "Section 4.04. [Reserved]." (n) Section 4.05 is amended to read in its entirety as follows: "Section 4.05. [Reserved]." (o) Section 4.07 is amended to read in its entirety as follows: "Section 4.07. [Reserved]." (p) Section 4.08 is amended to read in its entirety as follows: "Section 4.08. [Reserved]." 2 (q) Section 4.09 is amended to read in its entirety as follows: "Section 4.09. [Reserved]." (r) Section 4.10 is amended to read in its entirety as follows: "Section 4.10. [Reserved]." (s) Section 4.11 is amended to read in its entirety as follows: "Section 4.11. [Reserved]." (t) Section 4.12 is amended to read in its entirety as follows: "Section 4.12. [Reserved]." (u) Section 4.13 is amended to read in its entirety as follows: "Section 4.13. [Reserved]." (v) Section 4.14 is amended to read in its entirety as follows: "Section 4.14. [Reserved]." (w) Section 4.15 is amended to read in its entirety as follows: "Section 4.15. [Reserved]." (x) Section 4.16 is amended to read in its entirety as follows: "Section 4.16. [Reserved]." (y) Section 4.17 is amended to read in its entirety as follows: "Section 4.17. [Reserved]." (z) Section 4.18 is amended to read in its entirety as follows: "Section 4.18. [Reserved]." (aa) Article 5 is amended to read in its entirety as follows: "ARTICLE 5 [RESERVED]" (bb) Section 6.01(c) is amended to read in its entirety as follows: "(c) [Reserved];". (cc) Section 6.01(e) is amended to read in its entirety as follows: "(e) [Reserved];". (dd) Section 6.01(f) is amended to read in its entirety as follows"(f) [Reserved];". (ee) Section 6.07 is amended by the deletion of "(including in connection with an Asset Sale Offer or a Change of Control Offer)" therefrom. 3 (ff) Section 7.02(g) is amended by the deletion of "and 4.04" therefrom and by the deletion of "6.01(1), 6.01(2) or 6.01(3)" and the insertion of "6.01(a) or 6.01(b)" in place thereof. (gg) The heading of Article 8 is amended by the deletion of "AND COVENANT DEFEASANCE" therefrom. (hh) The heading of Section 8.01 is amended by the deletion of "or Covenant Defeasance" therefrom. (ii) Section 8.01 is amended by the deletion of "or 8.03" therefrom. (jj) Section 8.02 is amended by the deletion therefrom of the last sentence of such Section. (kk) Section 8.03 is amended to read in its entirety as follows: "Section 8.03 [Reserved]." (ll) The heading of Section 8.04 is amended by the deletion of "or Covenant Defeasance" therefrom. (mm) Section 8.04 is amended by the deletion of "or 8.03" from the first sentence of such Section and by the deletion of "or Covenant Defeasance" from the clause immediately preceding paragraph (a) of such Section. (nn) Paragraph (c) of Section 8.04 is amended to read in its entirety as follows: "(c) [Reserved];". (oo) Paragraph (e) of Section 8.04 is amended by the deletion of "or Covenant Defeasance" therefrom. (pp) Paragraph (h) of Section 8.04 is amended by the deletion of "or the Covenant Defeasance" therefrom. (qq) Section 8.07 is amended by the deletion of "or 8.03" therefrom in each of the three places it appears. (rr) Section 9.02(b) is amended by the deletion of "(other than provisions of Section 4.10 and Section 4.14 hereof)" therefrom. (ss) Section 9.02(g) is amended by the deletion of "(other than a payment required by Section 4.10 or Section 4.14 hereof)" therefrom. (tt) Section 12.03 is amended to read in its entirety as follows: "Section 12.03 [Reserved]." 4 (uu) Section 12.04 is amended by the deletion of "; provided that the Net Proceeds of such sale or other disposition are applied in accordance with Section 4.10 hereof" and by the deletion of "including without limitation Section 4.10," therefrom. 2. Amendments to Senior Notes. -------------------------- The following amendments are made effective as of the date specified in Section 3 below to the form of Senior Note attached as Exhibit A to the Indenture and to all Senior Notes that remain outstanding after such amendments become effective: (a) Section 4 of the back of the Senior Notes is amended by inserting ", as amended and supplemented from time to time," immediately after "April 26, 1996." (b) Section 5 of the back of the Senior Notes is amended by the deletion of the number "30" and the insertion of the number "3" in place thereof. (c) Section 7 of the back of the Senior Notes is amended to read in its entirety as follows: "7. [Reserved]." (d) Section 8 of the back of the Senior Notes is amended by the deletion of the number "30" and the insertion of the number "3" in place thereof. (e) Section 12 of the back of the Senior Notes is amended by the deletion therefrom of "failure for 20 days by the Issuers to comply with Sections 4.07, 4.09, 4.10, 4.14 or 5.01 of the Indenture;" and by the deletion therefrom of "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; 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 for a period of 60 days;". (f) The Senior Notes are amended by the deletion therefrom of the form entitled "Option of Holder to Elect Purchase." 5 3. Effectiveness of Amendments. --------------------------- The Amendments shall become effective on the Acceptance Date (as defined in the Offer to Purchase). 4. Ratification of Indenture. ------------------------- The Indenture, as supplemented and amended by this Supplemental Indenture, is in all respects ratified and confirmed, and this Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided. 5. Trustee Not Responsible for Recitals. ------------------------------------ The recitals herein contained are made by the Issuers and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture. 6. Governing Law. ------------- THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN THIS SUPPLEMENTAL INDENTURE. 7. Separability. ------------ In case any one or more of the provisions contained in this Supplemental Indenture shall for any reason be held to be invalid, illegal or unenforceable in any respect, then, to the extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provisions of this Supplemental Indenture, but this Supplemental Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. 8. Counterparts. ------------ This Supplemental Indenture may be executed in any number of counterparts each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. 6 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed by their respective officers thereunto duly authorized, as of the day and year first above written. FERRELLGAS PARTNERS, L.P. By: Ferrellgas, Inc. General Partner By: /s/ Kevin T. Kelly ----------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer FERRELLGAS PARTNERS FINANCE CORP. By: /s/ Kevin T. Kelly ----------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer FERRELLGAS, L.P. By: Ferrellgas, Inc. General Partner By: /s/ Kevin T. Kelly ----------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer U.S. BANK, N.A., TRUSTEE By: /s/ Frank P. Leslie -------------------------------------- Frank P. Leslie Vice President EX-25 10 exhibit_25.txt EXHIBIT 4 TO FORM 8K 9-24-02 Exhibit 99.9 Exhibit 4 =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b)(2) ------------------------------------------------------- U.S. BANK NATIONAL ASSOCIATION (Exact name of Trustee as specified in its charter) 31-0841368 I.R.S. Employer Identification No. 180 East Fifth Street St. Paul, Minnesota 55101 - --------------------------------------- ------------------------ (Address of principal executive offices) (Zip Code) Frank Leslie U.S. Bank National Association 180 East Fifth Street St. Paul, MN 55101 (651) 244-8677 (Name, address and telephone number of agent for service) Ferrellgas Partners L.P. Ferrellgas Partners Finance Corp. (Issuer with respect to the Securities) Delaware 43-1698480 Delaware 43-1742520 -------------------------------- ---------------------------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) One Liberty Plaza Liberty, Missouri 64068 - --------------------------------------- ------------------------ (Address of principal executive offices) (Zip Code) Debt Securities (Title of the Indenture Securities) ------------------------------------------------------------------------------- FORM T-1 -------- Item 1. GENERAL INFORMATION. Furnish the following information as to the Trustee. a) Name and address of each examining or supervising authority to which it is subject. Comptroller of the Currency Washington, D.C. b) Whether it is authorized to exercise corporate trust powers. Yes Item 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the Trustee, describe each such affiliation. None Items3-15 Items 3-15 are not applicable because to the best of the Trustee's knowledge, the obligor is not in default under any Indenture for which the Trustee acts as Trustee. Item 16. LIST OF EXHIBITS: List below all exhibits filed as a part of this statement of eligibility and qualification. 1. A copy of the Articles of Association of the Trustee.* 2. A copy of the certificate of authority of the Trustee to commence business.* 3. A copy of the certificate of authority of the Trustee to exercise corporate trust powers.* 4. A copy of the existing bylaws of the Trustee.* 5. A copy of each Indenture referred to in Item 4. Not applicable. 6. The consent of the Trustee required by Section 321(b) of the Trust Indenture Act of 1939, attached as Exhibit 6. 7. Report of Condition of the Trustee as of December 31, 2001, published pursuant to law or the requirements of its supervising or examining authority, attached as Exhibit 7. * Incorporated by reference to Registration Number 333-67188. 2 NOTE The answers to this statement insofar as such answers relate to what persons have been underwriters for any securities of the obligors within three years prior to the date of filing this statement, or what persons are owners of 10% or more of the voting securities of the obligors, or affiliates, are based upon information furnished to the Trustee by the obligors. While the Trustee has no reason to doubt the accuracy of any such information, it cannot accept any responsibility therefor. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the Trustee, U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of St. Paul, State of Minnesota on the 20th day of September, 2002. U.S. BANK NATIONAL ASSOCIATION By: /s/ Frank P. Leslie III -------------------------------------- Frank P. Leslie III Vice President By: /s/ Lori-Anne Rosenberg ----------------------------------- Lori-Anne Rosenberg Assistant Vice President 3 Exhibit 6 ----------- CONSENT In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned, U.S. BANK NATIONAL ASSOCIATION hereby consents that reports of examination of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Dated: September 20, 2002 U.S. BANK NATIONAL ASSOCIATION By: /s/ Frank P. Leslie III -------------------------------- Frank P. Leslie III Vice President By: /s/ Lori-Anne Rosenberg ----------------------------------- Lori-Anne Rosenberg Assistant Vice President 4 Exhibit 7 --------- U.S. Bank National Association Statement of Financial Condition As of 6/30/2002 ($000's) 6/30/2002 --------- Assets Cash and Due From Depository Institutions $7,701,764 Federal Reserve Stock 0 Securities 30,378,793 Federal Funds 894,653 Loans & Lease Financing Receivables 11,796,073 Fixed Assets 1,645,483 Intangible Assets 8,367,221 Other Assets 6,633,874 ---------- Total Assets $167,417,861 Liabilities Deposits $109,744,434 Fed Funds 2,967,542 Treasury Demand Notes 0 Trading Liabilities 205,636 Other Borrowed Money 25,663,586 Acceptances 164,926 Subordinated Notes and Debentures 5,332,594 Other Liabilities 4,131,747 ----------- Total Liabilities $148,210,465 Equity Minority Interest in Subsidiaries $989,046 Common and Preferred Stock 18,200 Surplus 11,310,529 Undivided Profits 6,889,621 ----------- Total Equity Capital $19,207,396 Total Liabilities and Equity Capital $167,417,861
- -------------------------------------------------------------------------------- To the best of the undersigned's determination, as of the date hereof, the above financial information is true and correct. U.S. Bank National Association By: /s/ Frank P. Leslie III ---------------------------------- Vice President Date: September 20, 2002 EX-99 11 exhibit_99.txt EXHIBIT 5 TO FORM 8K 9-24-02 Exhibit 99.9 Exhibit 5 For immediate release Contact: Ryan VanWinkle, Investor Relations, 816-792-7998 Ferrellgas Partners, L.P. Announces Completion of $170 Million Senior Debt Refinancing Liberty, MO (September 24, 2002) - Ferrellgas Partners, L.P. (NYSE: FGP), the nation's second-largest retail marketer of propane, announced today it had successfully completed the sale of $170 million of 8 3/4% senior notes due 2012. Ferrellgas' sale of these senior notes satisfied the funding condition related to the previously announced tender offer of all its 9 3/8% senior secured notes due 2006. The tender offer expired today at 9:00 a.m., Eastern Daylight Time. The net proceeds from the sale will be used to tender or redeem the $160 million of Ferrellgas' outstanding 9 3/8% senior secured notes, including related call premiums, fees, accrued and unpaid interest and consent payments. "We are very pleased by the market's favorable reception to our debt offering," said Kevin T. Kelly, Senior Vice President and Chief Financial Officer of Ferrellgas. "Our recent financial performance and strong reputation in the capital markets allowed us to capitalize on the favorable interest rate environment, securing replacement financing well into the future at a lower interest rate." As of the expiration of the tender offer, $159,950,000 aggregate principal amount of the tendered notes, which represents approximately 99% of the 9 3/8% senior secured notes, were tendered at a price of $1,032.50 per $1,000 principal amount, which includes a consent payment of $1.25 per $1,000 principal amount for those notes tendered within the consent period. All notes tendered have been accepted for payment. Ferrellgas intends to immediately redeem, pursuant to the terms of a supplemental indenture, the remaining $50,000 of 9 3/8% senior secured notes not tendered in the offer. Credit Suisse First Boston acted as Dealer Manager in connection with the tender offer and consent solicitation, and co-led the underwriting group together with Banc of America Securities LLC in connection with the sale of the 8 3/4% senior notes. Ferrellgas Partners, L.P., through its operating partnership, Ferrellgas, L.P., serves more than one million customers in 45 states. Its employees indirectly own more than 17 million common units of Ferrellgas through an employee stock ownership plan. Its common units trade on the New York Stock Exchange under the ticker symbol FGP. Statements in this release concerning expectations for the future are forward-looking statements. A variety of known and unknown risks, uncertainties and other factors could cause actual results, performance and expectations to differ materially from anticipated results, performance or expectations. These risks, uncertainties and other factors are discussed in the partnership's annual report on Form 10-K for fiscal 2001 dated July 31, 2001, as filed with the Securities and Exchange Commission on October 25, 2001, and other documents filed from time to time with the Securities and Exchange Commission. EX-99.10 12 currentreport111902.txt FORM 8K NOVEMBER 19, 2002 Exhibit 99.10 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Earliest Event Reported: November 19, 2002 Date of Report: November 19, 2002 Ferrellgas Partners, L.P. Ferrellgas Partners Finance Corp. --------------------------------------- (Exact name of registrants as specified in their charters) Delaware 1-11331 43-1698480 Delaware 333-06693 43-1742520 ------------ ------------- -------------- (States or other Commission file (I.R.S. Employer jurisdictions of numbers Identification incorporation or Nos.) organization) One Liberty Plaza, Liberty, Missouri 64068 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrants' telephone number, including area code: (816) 792-1600 1 ITEM 9. REGULATION FD DISCLOSURE On Tuesday, November 26, 2002, Ferrellgas Partners, L.P. will report earnings for the first quarter ended October 31, 2002. James E. Ferrell, Chairman, President and Chief Executive Officer, will conduct a live teleconference on the Internet at http://www.firstcallevents.com/service/ajwz370021103gf12.html. The live webcast of the teleconference will begin at 2:00 p.m. Eastern Time. 2 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FERRELLGAS PARTNERS, L.P. By Ferrellgas, Inc. (General Partner) Date: November 19, 2002 By /s/ Kevin T. Kelly ---------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) FERRELLGAS PARTNERS FINANCE CORP. Date: November 19, 2002 By /s/ Kevin T. Kelly ---------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 3 EX-99.11 13 form8k_020303.txt FORM 8K FEBRUARY 3, 2003 Exhibit 99.11 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Earliest Event Reported: January 27, 2003 Date of Report: February 3, 2003 Ferrellgas Partners, L.P. Ferrellgas Partners Finance Corp. ------------------------------------- (Exact name of registrants as specified in their charters) Delaware 1-11331 43-1698480 Delaware 333-06693 43-1742520 ------------- ------------- -------------- (States or other Commission file (I.R.S. Employer jurisdictions of numbers Identification Nos.) incorporation or organization) One Liberty Plaza, Liberty, Missouri 64068 ---------------------------------------------- (Address of principal executive offices) (Zip Code) Registrants' telephone number, including area code: (816) 792-1600 ITEM 5. OTHER EVENTS On January 16, 2002, the board of directors of Ferrellgas, Inc., the general partner of Ferrellgas Partners, L.P., elected to increase its number of director positions from four to six members. Additionally, the board of directors of Ferrellgas, Inc. elected Mr. William K. Hoskins and Mr. John R. Lowden to serve in these newly appointed positions, contingent upon, among other things, their acceptance of such position. Effective January 27, 2003, both Mr. Hoskins and Mr. Lowden serve as Directors of Ferrellgas, Inc. Mr. Hoskins received a B.A. from Yale University and subsequently graduated from Harvard Law School. Mr. Hoskins is the Managing Partner of Resolution Counsel, LLP, a Portland, Oregon-based law firm that serves as resolution counsel for companies or parties involved in large disputes. He is also the President of Hoskins & Associates, a pharmaceutical and biotech consulting firm with special emphasis on European operations; as well as, the Managing Partner of Hoskins Group, LP, a private fund. Previously, Mr. Hoskins served as Vice President, Secretary and General Counsel of Hoechst Marion Roussel, Inc. and its predecessors Marion Laboratories, Inc. and Marion Merrell Dow, Inc. Mr. Hoskins has served as an officer and/or a director of numerous public and private corporations and industry associations. Current directorships include American Arbitration Association, Isotechnika, Inc. (TSX: ISA) and Sequella, Inc. Mr. Lowden received a B.S. in Business and an MBA from Wake Forest University. Mr. Lowden is the President of NewCastle Partners, LLC, a Greenwich, Connecticut-based private investment firm. Prior to founding NewCastle Partners, LLC, Mr. Lowden was the Managing Director of The Jordan Company, a New York City-based private equity firm, as well as, an investment banker with Ferris & Company in Washington, DC. Mr. Lowden has served as an officer and/or a director of numerous public and private corporations and industry associations. Current directorships include Apparel Ventures, Inc., Nielsen & Bainbridge LLC and Professional Paint, Inc. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FERRELLGAS PARTNERS, L.P. By Ferrellgas, Inc. (General Partner) Date: February 3, 2003 By /s/ Kevin T. Kelly ----------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) FERRELLGAS PARTNERS FINANCE CORP. Date: February 3, 2003 By /s/ Kevin T. Kelly ----------------------------------------- Kevin T. Kelly Senior Vice President, Chief Financial Officer and sole director (Principal Financial and Accounting Officer) EX-99.12 14 form8k_021803.txt FORM 8K FEB. 18, 2003 Exhibit 99.12 As filed with the Securities and Exchange Commission on February 18, 2003 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------------------------------- Date of earliest reported event: January 16, 2003 Date of report: February 18, 2003 Ferrellgas Partners, L.P. Ferrellgas Partners Finance Corp. ---------------------------------------------------------- (Exact name of registrants as specified in their charters) Delaware 1-11331 43-1698480 Delaware 333-06693-02 43-1742520 ----------------------------- ---------------- -------------------- (States or Other Jurisdictions (Commission File (I.R.S. Employer of Incorporation) Numbers) Identification Nos.) One Liberty Plaza, Liberty, Missouri 64068 ---------------------------------------- --------- (Address of Principal Executive Offices) (Zip code) Registrant's telephone number, including area code: (816) 792-1600 ================================================================================ ITEM 5. OTHER EVENTS. Creation of Ferrellgas Finance Corp. On January 16, 2003, we formed Ferrellgas Finance Corp. as a Delaware corporation and wholly-owned subsidiary of Ferrellgas, L.P., our operating partnership. Ferrellgas Finance Corp. has nominal assets and does not, and will not in the future, conduct any operations or have any employees. Its sole purpose is to potentially act as co-obligor of future issuances of debt securities by our operating partnership so as to allow investment in those debt securities by institutional investors that may not otherwise be able to make such an investment by reason of our operating partnership's structure and the legal investment laws of their states of organization or their charters. We have attached to this report a copy of the Certificate of Incorporation and the Bylaws of Ferrellgas Finance Corp. Amendment of our Partnership Agreement In connection with our preparation and filing of a registration statement to be filed immediately after the filing of this Current Report on Form 8-K, we discovered that an unintentional alteration occurred when we amended our partnership agreement in June of 2000, with respect to the economic terms of our general partner units. At that time, we amended our partnership agreement to create general partner units to represent our general partner's general partner interest in us, among other amendments. Those amendments attempted to simplify provisions of our partnership agreement in the context of the creation of those units. Unfortunately, this simplification resulted in the unintentional minor reduction of potential future distributions to be received by our general partner, Ferrellgas, Inc., if and when our quarterly distributions per common unit were to exceed $0.55. Our distributions to our general partner have not yet been affected by this unintentional alteration since our quarterly distributions have remained at $0.50 per common unit. In accordance with the terms of our partnership agreement, our general partner is authorized to make amendments to our partnership agreement without the consent of any of our common unitholders or other limited partners to reflect a change that: o in the sole discretion of our general partner, does not adversely affect our limited partners in any material respect; or o is required to effect the intent of the provisions of our partnership agreement or is otherwise contemplated by our partnership agreement. On February 18, 2003, the board of directors of our general partner unanimously approved amendments to our Third Amended and Restated Partnership Agreement: o to correct this unintentional prior alteration to the economic terms of our general partner units in our partnership agreement; and o to restore the original intent of our partnership agreement. These amendments to our partnership agreement are reflected in our Fourth Amended and Restated Agreement of Limited Partnership, a copy of which is attached as an exhibit to this report. The amendments provide that our general partner will generally receive, as it had prior to our attempt to simplify our partnership agreement language in June of 2000, a total of 1% of the aggregate quarterly distributions we make to our limited partners. In addition, the amendments correct some typographical errors and references to tax regulations that have recently been enacted. The amendments include the following: o the inclusion in the recitals of references to the new amended and restated partnership agreement; o the change of the defined term "Agreement" to refer to the new amended and restated partnership agreement; o the deletion of the defined term "Special Pro Rata," which term created the unintentional change in economic interests; 1 o the addition of the defined term "Third Amended and Restated Agreement;" o changes to correctly refer to "Capital Contributions" rather than "Capital Accounts" in the first sentence of Section 4.3(c)(ii); o changes to correctly refer to "Initial Closing Date" rather than "Closing Date" in the defined term "Restricted Activities" and Sections 5.1(d)(iii), 6.5(a), 6.5(b), and 13.1(b); o corrections to section cross-references in the proviso of Section 5.4(b); o changes to comply with the deletion of the term "Special Pro Rata" in Sections 5.1(c)(i)(E)-(G), 5.4(a)(ii)-(vi), 5.4(b)(ii)-(iv), 5.4(c)(ii)-(iii) and 5.4(d)(iv)-(vi); o changes to reflect the current tax regulations in Section 5.2(b)(iii); and o changes to the form of certificate for common units and senior units to reference the new amended and restated partnership agreement. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial statements of businesses acquired. Not applicable. (b) Pro forma financial information. Not applicable. (c) Exhibits. The exhibits listed in the Index to Exhibits are filed as part of this Current Report on Form 8-K. 2 Pursuant to the requirements of the Securities Exchange Act of 1934, each of the registrants have duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. FERRELLGAS PARTNERS, L.P. By: Ferrellgas, Inc., its general partner By: /s/ Kevin T. Kelly -------------------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer FERRELLGAS PARTNERS FINANCE CORP. By: /s/ Kevin T. Kelly -------------------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer Date: February 18, 2003 E - 1 INDEX TO EXHIBITS Exhibit No. Description of Exhibit ------------ ---------------------- 4.1 Certificate of Incorporation of Ferrellgas Finance Corp. filed with the Delaware Secretary of State on January 16, 2003. 4.2 Bylaws of Ferrellgas Finance Corp. adopted as of January 16, 2003. 4.3 Fourth Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P. dated February 18, 2003. # 99.1 Ferrell Companies, Inc. Supplemental Savings Plan, Restated January 1, 2000. - ----------------------------------------------- # Management contracts or compensatory plans. EX-4 15 certofincorp.txt EXHIBIT 1 OF FORM 8K 2-18-03 Exhibit 99.12 Exhibit 1 CERTIFICATION OF INCORPORATION OF Ferrellgas Finance Corp., Inc. The undersigned, for the purpose of incorporating and organizing a corporation under the General Corporation Law of the State of Delaware, hereby adopts the following Articles of Incorporation: FIRST: The name of the corporation is FERRELLGAS FINANCE CORP. SECOND: The address of the corporation's initial registered office in the State of Delaware is 1209 Orange Street, in the city of Wilmington, County of New Castle, Delaware 19801. The name of the corporation's initial registered agent at such address is The Corporation Trust Company. THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The corporation shall have authority to issue 2000 shares of Common Stock having a par value of $1.00 per share. FIFTH: The name and mailing address of the incorporator is Trenton D. Hampton, One Liberty Plaza, Liberty, Missouri 64068. SIXTH: The name of the person who is to serve as the sole director until the first annual meeting of stockholders, or until his successor is elected and shall qualify, is James E. Ferrell, whose mailing address is One Liberty Plaza, Liberty, Missouri 64068. SEVENTH: The duration of the corporation is perpetual. EIGHTH: 1. ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS. A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is amended subsequent to the date hereof to authorize corporate action further limiting or eliminating the personal liability of directors, then the liability of a director of the corporation shall be limited or eliminated to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. Any repeal or modification of the foregoing paragraph by the stockholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. 1 2. INDEMNIFICATION AND INSURANCE. (a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer, of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators: provided, however, that except as provided in paragraph (b) hereof, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the board of directors of the corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition: provided, however, that, if the General Corporation Law of the State of Delaware requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers. 2 (b) Right of Claimant to Bring Suit. If a claim under paragraph (a) of this Section is not paid in full by the corporation within thirty days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard or conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. (c) Non-Exclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. (d) Insurance. The corporation may at its option maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. NINTH: The Board of Directors of the corporation is authorized and empowered to make, alter, amend or repeal any or all of the Bylaws of the corporation, subject to the power of the stockholders of the corporation to make, alter, amend or repeal any or all of the Bylaws of the corporation. TENTH: The Corporation reserves the right at any time and from time to time to amend, alter, change, or repeal any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by law; and all rights conferred upon stockholders, directors, or any other persons whomsoever by and pursuant to these Articles of Incorporation in their present form or as hereafter amended are granted subject to this reservation. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 16th day of January, 2003. /s/ Trenton D. Hampton, Incorporator ---------------------------------------------- Trenton D. Hampton, Incorporator EX-4 16 financecorpbylaws.txt EXHIBIT 2 TO FORM 8K 2-18-03 Exhibit 99.12 Exhibit 2 BYLAWS OF Ferrellgas Finance Corp., Inc. Offices 1. Registered Office and Registered Agent. The location of the registered office and the name of the registered agent of the corporation in the State of Delaware shall be such as shall be determined from time to time by the board of directors and on file in the appropriate public offices of the State of Delaware pursuant to applicable provisions of law. 2. Corporate Offices. The corporation may have such other corporate offices and places of business anywhere within or without the State of Delaware as the board of directors may from time to time designate or the business of the corporation may require. Seal 3. Corporate Seal. The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Delaware". The corporate seal may be used by causing it or a facsimile thereof to be impressed, affixed, reproduced or otherwise. Meeting of Stockholders 4. Place of Meetings. All meetings of the stockholders shall be held at the offices of the corporation or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. 5. Annual Meeting. An annual meeting of the stockholders of the corporation shall be held on the 4th Wednesday in December of each year, commencing in 2003, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 a.m., or at such other date and time as shall be determined from time to time by the board of directors and stated in the notice of the meeting. At the annual meeting the stockholders shall elect directors to serve until the next annual meeting of the stockholders and until their successors are elected and qualified, or until their earlier resignation or removal, and shall transact such other business as may properly be brought before the meeting. The stockholders may transact such other business as may be desired, whether or not the same was specified in the notice of the meeting, unless the consideration of such other business without its having been specified in the notice of the meeting as one of the purposes thereof is prohibited by law. 6. Special Meetings. Special meetings of the stockholders may be held for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, and may be called by any officer, by the board of directors, or by the holders of, or by any officer or stockholder upon the written request of the holders of, not less than 25 percent of the outstanding stock entitled to vote at such meeting, and shall be called by any officer directed to do so by the board of directors or requested to do so in written request which shall state the purpose or purposes of the proposed meeting. The "call" and the "notice" of any such meeting shall be deemed to be synonymous. 7. Voting. At all meetings of stockholders, every stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to said meeting, unless said instrument shall provide for a longer period. Unless otherwise provided by the certificate of incorporation, each stockholder shall have one vote for each share of stock entitled to vote at such meeting registered in his name on the books of the corporation. At all meetings of stockholders, the voting may be by voice vote, expect that, unless otherwise provided by the certificate of incorporation, any qualified voter may demand a vote by ballot on any matter, in which event such vote shall be taken by ballot. 8. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of any business, except as otherwise provided by law, by the certificate of incorporation or by these bylaws. Every decision of a majority in the amount of stock of such quorum shall be valid as a corporate act, except in those specific instances in which a larger vote is required by law or by the certificate of incorporation of these bylaws. At any meeting at which a quorum shall not be present, the holders of a majority of the stock present in person or by proxy at such meeting shall have power successively to adjourn the meeting from time to time to a specified time and place, without notice to anyone other than announcement at the meeting, until a quorum shall be present in person or by proxy. At such adjourned meeting at which a quorum shall be present in person or by proxy, any business may be transacted which might have been transacted at the original meeting which was adjourned. If the adjournment is for more than 30 days, or if after adjournment a new record a date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 9. Stock Ledger. The original or duplicate stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list required under Section 10 of these bylaws or the books of the corporation, or to vote in person or by proxy at any meeting of the stockholders. 10. Stockholders List. The secretary or assistant secretary, who shall have charge of the stock ledger, shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting during ordinary business hours for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 11. Notice. Written or printed notice of each meeting of the stockholders, whether annual or special, stating the place, date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes thereof, shall be given, either personally or by mail, to each stockholder of record of the corporation entitled to vote at such meeting not less than 10 days nor more than 60 days prior to the meeting. The board of directors may fix in advance a date, which shall not be more than 60 nor less than 10 days preceding the date of any meeting of the stockholders, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof; provided, however, that the board of directors may fix a new record date for any adjourned meeting. 12. Action by Stockholders Without Meeting. Any action required by law to be taken at any annual or special meeting of stockholders of the corporation, or any other action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote, if a consent in writing setting forth the action so taken shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of any taking of corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Board of Directors 13. Powers; Number; Term; Qualification. The management of all the affairs, property, and business of the corporation shall be vested in a board of directors. Unless required by the certificate of incorporation, directors need not be stockholders. In addition to the powers and authorities conferred upon the board of directors by these bylaws and which the certificate of incorporation have expressly conferred upon it, the board of directors may exercise all such powers of the corporation, and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these bylaws directed or required to be exercised or done by the stockholders. The number of directors shall be as provided from time to time by resolution duly adopted by the holders of a majority of the outstanding shares entitled to vote thereon or by a majority of the whole board of directors. Each director shall hold office until his successor shall have been elected and qualified or until his earlier resignation and removal. Each director, upon his election, shall be deemed to have qualified by filing with the corporation his written acceptance of such office, which shall be placed in the minute book, or by his attendance at, or consent to action in lieu of, any regular or special meeting of directors. Any director may resign at any time by filing a written resignation with the secretary of the corporation and, unless a later date is fixed by its terms, said resignation shall be effective from the filing thereof. 14. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, unless it is otherwise provided in the certificate of incorporation or bylaws, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. 15. Meetings of the Newly Elected Board. The first meeting of the members of each newly elected board of directors shall be held (i) at such time and place either within or without the State of Delaware as shall be suggested or provided by resolution of the stockholders at the meeting at which such newly elected board was elected, and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present; or (ii) if not so suggested or provided for by resolution of the stockholders or if a quorum shall not be present, at such time and place as shall be consented to in writing by a majority of the newly elected board of directors, provided that written or printed notice of such meeting shall be given to each of the other directors in the same manner as provided in Section 17 of these bylaws with respect to the giving of notice for special meetings of the board, except that it shall not be necessary to state the purpose of the meeting in such notice; or (iii) regardless of whether the time and place of such meeting shall be suggested or provided for by resolution of the stockholders, at such time and place as shall be consented to in writing by all of the newly elected directors. 16. Regular Meeting. Regular meetings of the board of directors may be held without notice at such times and places either within or without the State of Delaware as shall from time to time be fixed by resolution adopted by the full board of directors. Any business may be transacted at a regular meeting. 17. Special Meeting. Special meetings of the board of directors may be called at any time by the president, any vice president, or the secretary, or by any two or more of the directors. The place may be within or without the State of Delaware as designated in the notice. 18. Notice of Special Meeting. Written or printed notice of each special meeting of the board of directors, stating the place, day, and hour of the meeting and the purpose or purposes thereof, shall be mailed to each director addressed to him at his residence or usual place of business at least two days before the day on which the meeting is to be held, or shall be sent to him by telegram, or delivered personally, at least one day before the day on which the meeting is to be held. The notice may be given by any officer having authority to call the meeting. "Notice" and "call" with respect to such meetings shall be deemed to be synonymous. Any meeting of the board of directors shall be a legal meeting without any notice thereof having been given if all directors shall be present thereat. 19. Quorum. Unless otherwise required by law, the certificate of incorporation or these bylaws, a majority of the total number of directors shall be necessary at all meetings to constitute a quorum for the transaction of business, and except as may be otherwise provided by law, the certificate of incorporation or these bylaws, the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors. If at least one-third of the whole board of directors is present at any meeting at which a quorum is not present, a majority of the directors present at such meeting shall have power successively to adjourn the meeting from time to time to a subsequent date, without notice to any director other than announcement at the meeting. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting which was adjourned. 20. Attendance by Telephone. Unless otherwise restricted by the certificate of incorporation, members of the board of directors, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this provision shall constitute presence in person at such meeting. 21. Committee. The board of directors may, by resolution or resolutions passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more directors of the corporation. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in said resolution or resolutions or in these bylaws, shall have and may exercise all of the powers of the board of directors in the management of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting are not disqualified from voting, whether he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have a name or names as may be determined from time to time by resolution adopted by the board of directors. All committees so appointed shall, unless otherwise provided by the board of directors, keep regular minutes of the transactions of their meetings and shall cause them to be recorded in books kept for that purpose in the office of the corporation and shall report the same to the board of directors at its next meeting. The secretary or an assistant secretary of the corporation may act as secretary of the committee if the committee so requests. 22. Compensation. The board of directors may, by resolution, fix a sum to be paid directors for serving as directors of this corporation and may, by resolution, fix a sum which shall be allowed and paid for attendance at each meeting of the board of directors and in each case may provide for reimbursement of expenses incurred by directors in attending each meeting; provided that nothing herein contained shall be construed to preclude any director from serving this corporation in any other capacity and receiving his regular compensation therefor, Members of special or standing committees may be allowed like compensation for attending committee meetings. 23. Resignation. Any director may resign at any time by giving a written notice to the chairman of the board of directors, the president, or the secretary of the corporation. Such resignation shall take effect at the time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 24. Indemnification of Directors and Officers. Each 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 (including the heirs, successors, executors or administrators, or estate of such persons) shall be indemnified by the corporation as of right to the full extent permitted or authorized by the laws of the State of Delaware, as now in effect and has hereafter amended, against any liability, judgment, fine, amount paid in settlement, cost, and expense (including attorneys' fees) asserted or threatened against and incurred by such person in his capacity as or arising out of his status as a director or officer of the corporation or, if serving at the request of the corporation, as a director or officer of another corporation. The indemnification provided by this bylaw provision shall not be exclusive of any other rights to which those indemnified may be entitled under any other bylaws or under any agreement, vote of stockholders or disinterested directors or otherwise, and shall not limit in any way any right which the corporation may have to make different or further indemnification with respect to the same or different persons or classes of persons. 25. Action by Directors without Meeting. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors or any committee thereof may be taken without a meeting if all members of the board of directors or of such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Officers 26. (a) Officers - Who Shall Constitute. The officers of the corporation shall consist of a chairman of the board of directors, a president, one or more vice presidents, a secretary, and a treasurer, each of whom shall be elected by the board of directors at their first meeting after the annual meeting of the stockholders. The board of directors may also designate additional assistant secretaries and assistant treasurers. In the discretion of the board of directors, the office of chairman of the board of directors may remain unfilled. The chairman of the board of directors (if any) shall at all times be, and other officers may be, members of the board of directors. Any number of offices may be held by the same person. An officer shall be deemed qualified when he enters upon the duties of the office to which he has been elected or appointed and furnishes any bond required by the board; but the board may also require of such person his written acceptance and promise faithfully to discharge the duties of such office. (b) Term. Each officer of the corporation shall hold his office at the pleasure of the board of directors or for such other period as the board may specify at the time of his election or appointment, or until his death, resignation, or removal by the board, whichever first occurs. In any event, each officer of the corporation who is not re-elected or re-appointed at the annual meeting of the board of directors next succeeding his election or appointment and at which any officer of the corporation is elected or appointed shall be deemed to have been removed by the board, unless the board provides otherwise at the time of his election or appointment. (c) Other Officers and Agents. The board of directors from time to time may also appoint such other officers and agents for the corporation as it shall deem necessary or advisable, each of whom shall serve at the pleasure of the board or for such period as the board may specify, and shall exercise such powers, have such titles, and perform such duties as shall be determined from time to time by the board or by an officer empowered by the board to make such determinations. 27. President. The president shall be the chief executive officer of the corporation with such general executive powers and duties of supervision and management as are usually vested in the office of the chief executive officer of a corporation and he shall carry into effect all directions and resolutions of the board of directors. The president shall preside at all meetings of the stockholders and directors. The president may execute all bonds, notes, debentures, mortgages, and other instruments for and in the name of the corporation, and may cause the corporate seal to be affixed thereto. Unless the board of directors otherwise provides, the president, or any person designated in writing by him, shall have full power and authority on behalf of this corporation (i) to attend and to vote or take action at any meeting of the holders of securities of corporations in which this corporation may hold securities, and at such meetings shall possess and may exercise any and all rights and powers incident to being a holder of such securities and which as the holder thereof this corporation may have possessed and exercised if present, and (ii) to execute and deliver waivers of notice and proxies for and in the name of the corporation with respect to any such securities held by this corporation. He shall, unless the board of directors otherwise provides, be ex officio a member of all standing committees. He shall have such other or further duties and authority as may be prescribed elsewhere in these bylaws or from time to time by the board of directors. 28. Vice President. In the absence of the president or in the event of his disability, inability, or refusal to act, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated by the board, or in the absence of any designation, then in the order of their election) shall perform the duties and exercise the powers of the president, and shall perform such other duties as the board of directors may from time to time prescribe. 29. Secretary and Assistant Secretaries. The secretary may attend all sessions of the board of directors and all meetings of the stockholders, and shall record or cause to be recorded all votes taken and the minutes of all proceedings in a minute book of the corporation to be kept for that purpose. He shall perform like duties for committees when requested to do so by the board of directors or any such committee. It shall be the principal responsibility of the secretary to give, or cause to be given, notice of all meetings of the stockholders and of the board of directors, but this shall not lessen the authority of others to give such notice as is authorized elsewhere in these bylaws. The secretary shall see that all books, records, lists, and information, or duplicates, required to be maintained in the State of Delaware or elsewhere, are so maintained. The secretary shall keep in safe custody the seal of the corporation and shall have the authority to affix the seal to any instrument requiring it, and when so affixed, he shall attest the seal by his signature. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. The secretary shall perform such other duties and have such other authority as may be prescribed elsewhere in these bylaws or from time to time by the board of directors or the chief executive officer of the corporation, under whose direct supervision he shall be. In the absence of the secretary or in the event of his disability, inability, or refusal to act, the assistant secretary (or in the event there be more than one assistant secretary, the assistant secretaries in the order designated by the board of directors, or in the absence of any designation, then in the order of their election) may perform the duties and exercise the powers of the secretary, and shall perform such other duties as the board of directors may from time to time prescribe. 30. Treasurer and Assistant Treasurer. The treasurer shall have responsibility for the safekeeping of the funds and securities of the corporation, shall keep or cause to be kept full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall keep, or cause to be kept, all other books of account and accounting records of the corporation. He shall deposit or cause to be deposited all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors or by any officer of the corporation to whom such authority has been granted by the board of directors. He shall disburse, or permit to be disbursed, the funds of the corporation as may be ordered, or authorized generally, by the board of directors, and shall render to the CEO of the corporation and the directors whenever they may require it, an account of all his transactions as treasurer and of those under his jurisdiction, and of the financial condition of the corporation. He shall perform such other duties and shall have such other responsibility and authority as may be prescribed elsewhere in these bylaws or from time to time by the board of directors. He shall have the general duties, powers, and responsibilities of a treasurer of a corporation. If required by the board of directors, he shall give the corporation a bond in a sum and with one or more sureties satisfactory to the board, for the faithful performance of the duties of his office, and for the restoration to the corporation, in the case of his death, resignation, retirement, or removal from office, of all books, papers, vouchers, money, and other property of whatever kind in his possession or under his control which belong to the corporation. In the absence of the treasurer or in the event of his disability, inability, or refusal to act, the assistant treasurer (or in the event there be more than one assistant treasurer, the assistant treasurers in the order designated by the board of directors, or in the absence of any designation, then in the order of their election) may perform the duties and exercise the powers of the treasurer, and shall perform such other duties as the board of directors may from time to time prescribe. 31. Duties of Officers May be Delegated. If any officer of the corporation be absent or unable to act, or for any other reason that the board of directors may deem sufficient, the board may delegate for the time being some or all of the functions, duties, powers, and responsibilities of any officer to any other officer, or to any other agent or employee of the corporation or other responsible person, provided a majority of the whole board of directors concurs therein. 32. Removal. Any officer or agent elected or appointed by the board of directors, and any employee, may be removed or discharged, with or without cause, at any time by the affirmative vote of a majority of the board of directors, but such removal or discharge shall be without prejudice to the contract rights, if any, of the person so removed or discharged. 33. Salaries. Salaries and other compensation of all elected officers of the corporation shall be fixed, increased or decreased by the board of directors, but this power, except as to the salary or compensation of the president, may unless prohibited by law, be delegated by the board to the president, or may be delegated to a committee. Salaries and compensation of all other appointed officers, agents, and employees of the corporation may be fixed, increased or decreased by the board of directors, but until action is taken with respect thereto by the board of directors, the same may be fixed, increased or decreased by the president or such other officer or officers as may be designated by the board of directors to do so. 34. Delegation of Authority. The board of directors from time to time may delegate to the president or other officer or executive employee of the corporation, authority to hire, discharge, fix, and modify the duties, salary, or other compensation of employees of the corporation under their jurisdiction, and the board may delegate to such officer or executive employee similar authority with respect to obtaining and retaining for the corporation the services of attorneys, accountants, and other experts. Stock 35. Certificates. Certificates of stock shall be issued in numerical order, and each stockholder shall be entitled to a certificate signed by the president or a vice president, and by the treasurer or an assistant treasurer or the secretary or an assistant secretary, certifying to the number of shares owned by the stockholder. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, such certificate may nevertheless be issued by the corporation with the same effect as if such officer, transfer agent, or registrar who signed such certificate, or whose facsimile signature shall have been placed thereon, had not ceased to be such officer, transfer agent, or registrar of the corporation. 36. Transfer. Transfers of stock shall be made only upon the transfer books of the corporation, kept at the office of the corporation or respective transfer agents designated to transfer the several classes of stock, and before a new certificate is issued the old certificate shall be surrendered for cancellation. Until and unless the board of directors appoints some other person, firm, or corporation as its transfer agent or transfer clerk (and upon the revocation of any such appointment, thereafter until a new appointment is similarly made) the secretary of the corporation shall be the transfer agent or transfer clerk of the corporation without the necessity of any formal action of the board, and the secretary, or any person designated by him, shall perform all of the duties thereof. 37. Registered Stockholders. Registered stockholders only shall be entitled to be treated by the corporation as the holders and owners in fact of the shares standing in their respective names and the corporation shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided by the laws of the State of Delaware. 38. Lost Certificates. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation, alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate or certificates to be lost, stolen, or destroyed. When authorizing the issuance of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to give the corporation and its transfer agents and registrars, if any, a bond in such sum as it may direct to indemnify it against any claim that may be made against it with respect to the certificate or certificates alleged to have been lost, stolen, or destroyed. 39. Regulations. The board of directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer, conversion, and registration of certificates for shares of the capital stock of the corporation, not inconsistent with the laws of the State of Delaware, the certificate of incorporation of the corporation and these bylaws. 40. Fixing Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting except that the board of directors may fix a new record date for the adjourned meeting. Dividends and Finance 41. Dividends. Dividends upon the outstanding shares of the corporation, subject to the provisions of the certificate of incorporation and of any applicable law and of these bylaws, may be declared by the board of directors at any meeting. Subject to such provisions, dividends may be paid in cash, in property, or in shares of the capital stock of the corporation. 42. Moneys. The moneys of the corporation shall be deposited in the name of the corporation in such bank or banks or trust company or trust companies as the board of directors shall designate, and shall be drawn out only by check signed by persons designated by resolution adopted by the board of directors, except that the board of directors may delegate said powers in the manner hereinafter provided in this Section 42 of these bylaws. The board of directors may by resolution authorize an officer or officers of the corporation to designate any bank or banks or trust company or trust companies in which moneys of the corporation may be deposited, and to designate the person or persons who may sign checks drawn on any particular bank account or bank accounts of the corporation, whether created by direct designation of the board of directors or by an authorized officer or officers as aforesaid. 43. Fiscal Year. The board of directors shall have power to fix and from time to time change the fiscal year of the corporation. In the absence of action by the board of directors, however, the fiscal year of the corporation shall end each year at the date which the corporation treated as the close of its first fiscal year, until such time, if any, as the fiscal year shall be changed by the board of directors. Books and Records 44. Books, Accounts, and Records. The books, accounts, and records of the corporation, except as may be otherwise required by the laws of the State of Delaware, may be kept outside the State of Delaware, at such place or places as the board of directors from time to time determine. The board of directors shall determine whether, to what extent and the conditions upon which the accounts and books of the corporation, or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any account or book or document of the corporation, except as conferred by law or by resolution of the stockholders. Notice 45. Provisions. Whenever the provisions of the statutes of the State of Delaware or the certificate of incorporation or these bylaws require notice to be given to any director, officer, or stockholder, they shall not be construed to require actual personal notice. Notice by mail may be given in writing by depositing the same in a post office or letter box, in a post paid, sealed wrapper, addressed to such director, officer, or stockholder at his or her address as the same appears in the books of the corporation, and the time when the same shall be mailed shall be deemed to be the time of the giving of such notice. If notice be given by telegraph, such notice shall be deemed to be given when the same is delivered by the telegraph company. 46. Waiver. Whenever any notice is required to be given under the provisions of the statutes of the State of Delaware or of the certificate of incorporation or of these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting need be specified in any written waiver of notice unless so required by the certificate of incorporation or the bylaws. Amendments 47. Amendments. These bylaws may be altered, amended or repealed by the affirmative vote of a majority of the shares of stock issued and outstanding and entitled to vote thereon, or, if the certificate of incorporation so provides, by the board of directors at any meeting thereof. Duly adopted by the stockholder of said corporation on this 16th day of January, 2003. EX-4 17 partnership_agreement.txt EXHIBIT 3 TO FORM 8K 2-18-03 Exhibit 99.12 Exhibit 3 FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF FERRELLGAS PARTNERS, L.P. FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF FERRELLGAS PARTNERS, L.P. THIS FOURTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF FERRELLGAS PARTNERS, L.P., dated as of February 18, 2003, is entered into by and among Ferrellgas, Inc., a Delaware corporation, as the General Partner, the Persons who are Limited Partners in the Partnership as of the date hereof and those Persons who become Partners in the Partnership or parties hereto as provided herein. In consideration of the covenants, conditions and agreements contained herein, the parties hereto hereby agree as follows: RECITALS: WHEREAS, the General Partner and the organizational Limited Partner organized the Partnership as a Delaware limited partnership pursuant to an Agreement of Limited Partnership dated as of July 5, 1994 (the "Original Agreement"); WHEREAS, the Partnership, the Operating Partnership and Williams Natural Gas Liquids, Inc., a Delaware corporation, entered into a Purchase Agreement dated November 7, 1999, relating to the sale of Thermogas, L.L.C. to the Partnership in consideration, in part, for the issuance of Senior Units, as defined below; WHEREAS, to effect the transactions contemplated by the WNGL Purchase Agreement and other matters, the Original Agreement was amended and restated (the "Amended and Restated Agreement"); WHEREAS, on May 14, 2000, the General Partner made certain amendments to the Amended and Restated Agreement with the consent of the holder of all of the Senior Units, as allowed by the Amended and Restated Agreement; WHEREAS, on June 5, 2000, the holders of Common Units approved a proposal at a special meeting of such holders to amend the definition of "Outstanding" under the Amended and Restated Agreement; and WHEREAS, on June 5, 2000, the General Partner amended and restated the Amended and Restated Agreement (the "Second Amended and Restated Agreement") to convert the General Partner's percentage interest in the partnership into General Partner Units (as defined below) and make related amendments, which amendment and restatement was made pursuant to Section 15.1 of the Amended and Restated Agreement that provides that the General Partner may amend the Amended and Restated Agreement without the consent of any Limited Partner to reflect a change that, in the sole discretion of the General Partner, does not adversely affect the Limited Partners in any material respect; WHEREAS, on April 6, 2001, the Second Amended and Restated Agreement was amended and restated (the "Third Amended and Restated Agreement") to reflect (a) certain amendments to the Second Amended and Restated Agreement made with the consent in writing of the holder of all of the Senior Units, as allowed by the Second Amended and Restated Agreement, (b) certain amendments made pursuant to Section 15.1 of the Second Amended and Restated Agreement that provides that the General Partner may amend the Second Amended and Restated Agreement without the consent of any Limited Partner to reflect a change that, in the sole discretion of the General Partner, does not adversely affect the Limited Partners in any material respect, and (c) the addition of Sections 5.4(a), (b) and (c) proposed by the General Partner to allow the Common Units held by FCI, as defined below, to defer specified payments of Available Cash, as defined below, which amendments were consented to in writing by the Limited Partners owning not less than the minimum percentage of the Outstanding Units that were necessary to authorize or take such action at a meeting at which all the Limited Partners entitled to vote thereon were present and voted in accordance with Section 15.11 of the Second Amended and Restated Agreement, and, which addition of Sections 5.4(a), (b) and (c) became effective as of the end of the Information Statement Period, as defined below. NOW, THEREFORE, the Third Amended and Restated Agreement is hereby amended to reflect certain amendments made pursuant to Section 15.1 of the Third Amended and Restated Agreement that provides that the General Partner may amend the Third Amended and Restated Agreement without the consent of any Limited Partner to reflect a change that: (a) in the sole discretion of the General Partner, does not adversely affect the Limited Partners in any material respect; or (b) is required to effect the intent of the provisions of the Third Amended and Restated Agreement or are otherwise contemplated by the Third Amended and Restated Agreement, which amendments, among other things, are intended to correct an unintentional alteration of the economic terms of the Second Amended and Restated Agreement, which alteration changed the distributions to be made to the General Partner (as the holder of the General Partner Units) in certain circumstances, and, as so amended, is restated in its entirety as follows: 2 ARTICLE I ORGANIZATIONAL MATTERS -------------------------- Section 1.1 Formation and Continuation. -------------------------- (a) The General Partner and the organizational Limited Partner previously formed the Partnership as a limited partnership pursuant to the provisions of the Delaware Act. The General Partner hereby amends and restates the Second Amended and Restated Agreement in its entirety to continue the Partnership as a limited partnership pursuant to the provisions of the Delaware Act and to set forth the rights and obligations of the Partners and certain matters related thereto. This amendment and restatement shall become effective on the date of this Agreement. Except as expressly provided to the contrary in this Agreement, the rights and obligations of the Partners and the administration, dissolution and termination of the Partnership shall be governed by the Delaware Act. All Partnership Interests shall constitute personal property of the owner thereof for all purposes. (b) In connection with the formation of the Partnership, Ferrellgas was admitted as a general partner of the Partnership, and the organizational Limited Partner was admitted as a limited partner of the Partnership. As of the Initial Closing Date, the interest in the Partnership of the organizational Limited Partner was terminated and the organizational Limited Partner withdrew as a limited partner of the Partnership. Section 1.2 Name. The name of the Partnership is "Ferrellgas Partners, L.P." The Partnership's business may be conducted under any other name or names deemed necessary or appropriate by the General Partner, including, without limitation, the name of the General Partner. The words "Limited Partnership," "L.P.," "Ltd." or similar words or letters shall be included in the Partnership's name where necessary for the purposes of complying with the laws of any jurisdiction that so requires. The General Partner in its sole discretion may change the name of the Partnership at any time and from time to time and shall notify the Limited Partners of such change in the next regular communication to the Limited Partners. Section 1.3 Registered Office; Principal Office. Unless and until changed by the General Partner, the registered office of the Partnership in the State of Delaware shall be located at The Corporation Trust Center, 1209 Orange Street, New Castle County, Wilmington, Delaware 19801, and the registered agent for service of process on the Partnership in the State of Delaware at such registered office shall be The Corporation Trust Company. The principal office of the Partnership shall be located at, and the address of the General Partner shall be, One Liberty Plaza, Liberty, Missouri 64068, or such other place as the General Partner may from time to time designate by notice to the Limited Partners. The Partnership may maintain offices at such other place or places within or outside the State of Delaware as the General Partner deems necessary or appropriate. 3 Section 1.4 Power of Attorney. ----------------- (a) Each Limited Partner and each Assignee hereby constitutes and appoints each of the General Partner and, if a Liquidator shall have been selected pursuant to Section 14.3, the Liquidator severally (and any successor to either thereof by merger, transfer, assignment, election or otherwise) and each of their authorized officers and attorneys-in-fact, with full power of substitution, as his true and lawful agent and attorney-in-fact, with full power and authority in his name, place and stead, to: (i) execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (A) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate of Limited Partnership and all amendments or restatements thereof) that the General Partner or the Liquidator deems necessary or appropriate to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) in the State of Delaware and in all other jurisdictions in which the Partnership may conduct business or own property; (B) all certificates, documents and other instruments that the General Partner or the Liquidator deems necessary or appropriate to reflect, in accordance with its terms, any amendment, change, modification or restatement of this Agreement; (C) all certificates, documents and other instruments (including, without limitation, conveyances and a certificate of cancellation) that the General Partner or the Liquidator deems necessary or appropriate to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement; (D) all certificates, documents and other instruments relating to the admission, withdrawal, removal or substitution of any Partner pursuant to, or other events described in, Article XI, XII, XIII or XIV or the Capital Contribution of any Partner; (E) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges of any class or series of Units or other Partnership Securities issued pursuant to Section 4.2; and (F) all certificates, documents and other instruments (including, without limitation, agreements and a certificate of merger) relating to a merger or consolidation of the Partnership pursuant to Article XVI; and (ii) execute, swear to, acknowledge, deliver, file and record all ballots, consents, approvals, waivers, certificates, documents and other instruments necessary or appropriate, in the sole discretion of the General Partner or the Liquidator, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action that is made or given by the Partners hereunder or is consistent with the terms of this Agreement or is necessary or appropriate, in the sole discretion of the General Partner or the Liquidator, to effectuate the terms or intent of this Agreement; provided, that when required by Section 15.3 or any other provision of this Agreement that establishes a percentage of the Limited Partners or of the Limited Partners of any class or series required to take any action, the General Partner or the Liquidator may exercise the power of attorney made in this Section 1.4(a)(ii) only after the necessary vote, consent or approval of the Limited Partners or of the Limited Partners of such class or series, as applicable. Nothing contained in this Section 1.4(a) shall be construed as authorizing the General Partner to amend this Agreement except in accordance with Article XV or as may be otherwise expressly provided for in this Agreement. 4 (b) The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, and it shall survive and not be affected by the subsequent death, incompetency, disability, incapacity, dissolution, bankruptcy or termination of any Limited Partner or Assignee and the transfer of all or any portion of such Limited Partner's or Assignee's Partnership Interest and shall extend to such Limited Partner's or Assignee's heirs, successors, assigns and personal representatives. Each such Limited Partner or Assignee hereby agrees to be bound by any representation made by the General Partner or the Liquidator acting in good faith pursuant to such power of attorney; and each such Limited Partner or Assignee hereby waives any and all defenses that may be available to contest, negate or disaffirm the action of the General Partner or the Liquidator taken in good faith under such power of attorney. Each Limited Partner or Assignee shall execute and deliver to the General Partner or the Liquidator, within 15 days after receipt of the General Partner's or the Liquidator's request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidator deems necessary to effectuate this Agreement and the purposes of the Partnership. Section 1.5 Term. The Partnership commenced upon the filing of the Certificate of Limited Partnership in accordance with the Delaware Act and shall continue in existence until the close of Partnership business on July 31, 2084, or until the earlier dissolution of the Partnership in accordance with the provisions of Article XIV. Section 1.6 Possible Restrictions on Transfer. Notwithstanding anything to the contrary contained in this Agreement, in the event of (a) the enactment (or imminent enactment) of any legislation, (b) the publication of any temporary or final regulation by the Treasury Department, (c) any ruling by the Internal Revenue Service or (d) any judicial decision, that, in any such case, in the Opinion of Counsel, would result in the taxation of the Partnership as an association taxable as a corporation or would otherwise result in the Partnership's being taxed as an entity for federal income tax purposes, then, the General Partner may impose such restrictions on the transfer of Units or Partnership Interests as may be required, in the Opinion of Counsel, to prevent the Partnership from being taxed as an association taxable as a corporation or otherwise as an entity for federal income tax purposes, including, without limitation, making such amendments to this Agreement as the General Partner in its sole discretion may determine to be necessary or appropriate to impose such restrictions, provided, that any such amendment to this Agreement that would result in the delisting or suspension of trading of any class of Units on any National Securities Exchange on which such class of Units is then traded must be approved by the holders of at least two-thirds of the Outstanding Units of such class (excluding the vote in respect of Units held by the General Partner and its Affiliates). ARTICLE II DEFINITIONS --------------- The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement. "Acquisition" means any transaction in which the Partnership or the Operating Partnership acquires (through an asset acquisition, merger, stock acquisition or other form of investment) control over all or a portion of the assets, properties or business of another Person for the purpose of increasing the operating capacity of the Partnership and the Operating Partnership, taken as a whole, from the operating capacity of the Partnership and the Operating Partnership, taken as a whole, existing immediately prior to such transaction. 5 "Additional Limited Partner" means a Person admitted to the Partnership as a Limited Partner pursuant to Section 12.4 and who is shown as such on the books and records of the Partnership. "Additional Senior Units" has the meaning assigned to such term in Section 5.4. "Adjusted Capital Account" means the Capital Account maintained for each Partner as of the end of each fiscal year of the Partnership, (a) increased by any amounts that such Partner is obligated to restore under the standards set by Treasury Regulation Section 1.704-1(b)(2)(ii)(c) (or is deemed obligated to restore under Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5)) and (b) decreased by (i) the amount of all losses and deductions that, as of the end of such fiscal year, are reasonably expected to be allocated to such Partner in subsequent years under Sections 704(e)(2) and 706(d) of the Code and Treasury Regulation Section 1.751-1(b)(2)(ii), and (ii) the amount of all distributions that, as of the end of such fiscal year, are reasonably expected to be made to such Partner in subsequent years in accordance with the terms of this Agreement or otherwise to the extent they exceed offsetting increases to such Partner's Capital Account that are reasonably expected to occur during (or prior to) the year in which such distributions are reasonably expected to be made (other than increases as a result of a minimum gain chargeback pursuant to Section 5.1(d)(i) or 5.1(d)(ii)). The foregoing definition of Adjusted Capital Account is intended to comply with the provisions of Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. The "Adjusted Capital Account" in respect of a Common Unit, a General Partner Unit, a Senior Unit, an IDR or any other specified interest in the Partnership shall be the amount which such Adjusted Capital Account would be if such Common Unit, General Partner Unit, Senior Unit or IDR or other interest in the Partnership were the only interest in the Partnership held by a Partner. "Adjusted Property" means any property the Carrying Value of which has been adjusted pursuant to Section 4.5(d)(i) or 4.5(d)(ii). "Affiliate" means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by or is under common control with, the Person in question. As used herein, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. "Agreed Allocation" means any allocation, other than a Required Allocation, of an item of income, gain, loss or deduction pursuant to the provisions of Section 5.1, including, without limitation, a Curative Allocation (if appropriate to the context in which the term "Agreed Allocation" is used). 6 "Agreed Value" of any Contributed Property means the fair market value of such property or other consideration at the time of contribution as determined by the General Partner using such reasonable method of valuation as it may adopt. The General Partner shall, in its sole discretion, use such method as it deems reasonable and appropriate to allocate the aggregate Agreed Value of Contributed Properties contributed to the Partnership in a single or integrated transaction among each separate property on a basis proportional to the fair market value of each Contributed Property. "Amended and Restated Agreement" has the meaning assigned to such term in the recitals hereto. "Agreement" means this Fourth Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P., as it may be amended, supplemented or restated from time to time. "Amended and Restated Agreement" has the meaning assigned to such term in the recitals hereto. "Arrearage" means as to each Quarter within the Arrearage Period, the excess, if any, of (a) the sum of all Available Cash distributed pursuant to Sections 5.4(a)(ii) through 5.4(a)(vi) or 5.4(b)(ii), as applicable, over (b) the sum of all Available Cash distributed pursuant to Section 5.4(a)(vii) or Section 5.4(b)(iii), as applicable, and categorized by Unit or Special Limited Partner for each Quarter according to the amount of the excess accrued for that Unit or Special Limited Partner pursuant to each clause of Section 5.4(a) or Section 5.4(b), as applicable. Upon payment of any amount of the Arrearage pursuant to Section 5.4(b)(iv) or Section 5.4(c)(iii), that amount shall no longer be considered an Arrearage. "Arrearage Period" means the period commencing at the end of the Information Statement Period, and ending on the earlier of (a) December 31, 2005, (b) a Change of Control, (c) upon the occurrence of an event that causes the dissolution of the Partnership in accordance with Section 14.1, or (d) the date on which FCI no longer beneficially owns any FCI Common Units. "Assignee" means a Non-citizen Assignee or a Person to whom one or more Units have been transferred in a manner permitted under this Agreement and who has executed and delivered a Transfer Application as required by this Agreement, but who has not become a Substituted Limited Partner. "Associate" means, when used to indicate a relationship with any Person, (i) any corporation or organization of which such Person is a director, officer or partner or is, directly or indirectly, the owner of 20% or more of any class of voting stock or other voting interest of such corporation or organization; (ii) any trust or other estate in which such Person has at least a 20% beneficial interest or as to which such Person serves as trustee or in a similar fiduciary capacity; and (iii) any relative or spouse of such Person, or any relative of such spouse, who has the same residence as such Person. 7 "Audit Committee" means a committee of the Board of Directors of the General Partner composed entirely of two or more directors who are neither officers nor employees of the General Partner or any of its Affiliates. "Available Cash" means, with respect to any Quarter and without duplication: (a) the sum of: (i) all cash receipts of the Partnership during such Quarter from all sources (including, without limitation, distributions of cash received from the Operating Partnership and cash proceeds from Interim Capital Transactions, but excluding cash proceeds from Termination Capital Transactions), plus, in the case of the Quarter ending October 31, 1994, the cash balance of the Partnership as of the close of business on the Initial Closing Date; and (ii) any reduction with respect to such Quarter in a cash reserve previously established pursuant to clause (b)(ii) below (either by reversal or utilization) from the level of such reserve at the end of the prior Quarter; (b) less the sum of: (i) all cash disbursements of the Partnership during such Quarter, including, without limitation, disbursements for operating expenses, taxes, if any, debt service (including, without limitation, the payment of principal, premium and interest), redemption of Partnership Interests, capital expenditures, contributions, if any, to the Operating Partnership and cash distributions to Partners (but only to the extent that such cash distributions to Partners exceed Available Cash for the immediately preceding Quarter); and (ii) any cash reserves established with respect to such Quarter, and any increase with respect to such Quarter in a cash reserve previously established pursuant to this clause (b)(ii) from the level of such reserve at the end of the prior Quarter, in such amounts as the General Partner determines in its reasonable discretion to be necessary or appropriate (A) to provide for the proper conduct of the business of the Partnership or the Operating Partnership (including, without limitation, reserves for future capital expenditures), (B) to provide funds for distributions with respect to Units in respect of any one or more of the next four Quarters provided, however, that for so long as any Senior Units are Outstanding, the General Partner may not establish cash reserves for distributions pursuant to Sections 5.4(a)(ii) through (a)(vii), 5.4(b)(ii) through (b)(iv), 5.4(c)(ii), 5.4(c)(iii) or 5.4(d)(ii) through (d)(vi) unless the General Partner has determined that in its judgment the establishment of such reserves will not prevent the Partnership from making distributions pursuant to Sections 5.4(a)(i), 5.4(b)(i), 5.4(c)(i) or 5.4(d)(i), as applicable, with respect to the four Quarters next following the date on which such cash reserves are to be so established or (C) because the distribution of such amounts would be prohibited by applicable law or by any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which the Partnership or the Operating Partnership is a party or by which any of them is bound or its assets are subject; provided, however, that for purposes of determining Available Cash for the Quarter ending October 31, 1994, such Quarter shall be deemed to have commenced on the Initial Closing Date. 8 Notwithstanding the foregoing, "Available Cash" with respect to any Quarter shall not include any cash receipts or reductions in reserves or take into account any disbursements made or reserves established in each case after the Liquidation Date. Taxes paid by the Partnership on behalf of, or amounts withheld with respect to, all or less than all of the Partners shall not be considered cash disbursements of the Partnership that reduce Available Cash, but the payment or withholding thereof shall be deemed to be a distribution of Available Cash to the Partners other than the Limited Partners holding Senior Units. Alternatively, in the discretion of the General Partner, such taxes (if pertaining to all Partners) may be considered to be cash disbursements of the Partnership which reduce Available Cash, but the payment or withholding thereof shall not be deemed to be a distribution of Available Cash to such Partners. Notwithstanding the foregoing, the payment of taxes by the Partnership on behalf of Limited Partners holding Senior Units will not satisfy the obligation of the Partnership to pay the Senior Unit Distribution. "Book-Tax Disparity" means with respect to any item of Contributed Property or Adjusted Property, as of the date of any determination, the difference between the Carrying Value of such Contributed Property or Adjusted Property and the adjusted basis thereof for federal income tax purposes as of such date. A Partner's share of the Partnership's Book-Tax Disparities in all of its Contributed Property and Adjusted Property will be reflected by the difference between such Partner's Capital Account balance as maintained pursuant to Section 4.5 and the hypothetical balance of such Partner's Capital Account computed as if it had been maintained strictly in accordance with federal income tax accounting principles. "Business Day" means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States or the states of New York or Missouri shall not be regarded as a Business Day. "Capital Account" means the capital account maintained for a Partner pursuant to Section 4.5. "Capital Additions and Improvements" means (a) additions or improvements to the capital assets owned by the Partnership or the Operating Partnership or (b) the acquisition of existing or the construction of new capital assets (including, without limitation, retail distribution outlets, propane tanks, pipeline systems, storage facilities and related assets), made to increase the operating capacity of the Partnership and the Operating Partnership, taken as a whole, from the operating capacity of the Partnership and the Operating Partnership, taken as a whole, existing immediately prior to such addition, improvement, acquisition or construction. 9 "Capital Contribution" means any cash, cash equivalents or the Net Agreed Value of Contributed Property that a Partner contributes to the Partnership pursuant to the Contribution Agreement or Sections 4.1, 4.2, 4.3, 13.3(c) or 14.8. "Capital Interests" means, with respect to any corporation, any and all shares, participations, rights or other equivalent interests in the capital of the corporation, and with respect to any partnership, any and all partnership interests (whether general or limited) and any other interests or participations that confer on a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership. "Carrying Value" means (a) with respect to a Contributed Property, the Agreed Value of such property reduced (but not below zero) by all depreciation, amortization and cost recovery deductions charged to the Partners' and Assignees' Capital Accounts in respect of such Contributed Property, and (b) with respect to any other Partnership property, the adjusted basis of such property for federal income tax purposes, all as of the time of determination. The Carrying Value of any property shall be adjusted from time to time in accordance with Sections 4.5(d)(i) and 4.5(d)(ii) and to reflect changes, additions or other adjustments to the Carrying Value for dispositions and acquisitions of Partnership properties, as deemed appropriate by the General Partner. "Cash from Interim Capital Transactions" means, at any date, such amounts of Available Cash as are deemed to be Cash from Interim Capital Transactions pursuant to Section 5.3. "Cash from Operations" means, at the close of any Quarter but prior to the Liquidation Date, on a cumulative basis and without duplication, (a) the sum of all cash receipts of the Partnership and the Operating Partnership during the period since the Initial Closing Date through such date (including, without limitation, the cash balance of the Partnership as of the close of business on the Initial Closing Date, plus an initial balance of $25 million, excluding any cash proceeds from any Interim Capital Transactions (except to the extent specified in Section 5.3) and Termination Capital Transactions), (b) less the sum of: (i) all cash operating expenditures of the Partnership and the Operating Partnership during such period, including, without limitation, taxes, if any, and amounts owed to the General Partner as reimbursement pursuant to Section 6.4, (ii) all cash debt service payments of the Partnership and the Operating Partnership during such period (other than payments or prepayments of principal and premium (A) required by reason of loan agreements (including, without limitation, covenants and default provisions therein) or by lenders, in each case in connection with sales or other dispositions of assets or (B) made in connection with refinancings or refundings of indebtedness with the proceeds from new indebtedness or from the sale of equity interests, provided, that any payment or prepayment of principal and premium, whether or not then due, shall be deemed, at the election and in the discretion of the General Partner, to be refunded or refinanced by any indebtedness incurred or to be incurred by the Partnership or the Operating Partnership simultaneously with or within 180 days prior to or after such payment or prepayment to the extent of the principal amount of such indebtedness so incurred), 10 (iii) all cash capital expenditures of the Partnership and the Operating Partnership during such period, including, without limitation, cash capital expenditures made in respect of Maintenance Capital Expenditures, but excluding (A) cash capital expenditures made in respect of Acquisitions and Capital Additions and Improvements and (B) cash expenditures made in payment of transaction expenses relating to Interim Capital Transactions, (iv) any cash reserves of the Partnership or the Operating Partnership outstanding as of such date that the General Partner deems in its reasonable discretion to be necessary or appropriate to provide for the future cash payment of items of the type referred to in clauses (i) through (iii) of this sentence, and (v) any cash reserves of the Partnership or the Operating Partnership outstanding as of such date that the General Partner deems in its reasonable discretion to be necessary or appropriate to provide funds for distributions with respect to Units in respect of any one or more of the next four Quarters, all as determined on a consolidated basis and after taking into account the General Partner's interest therein attributable to its general partner interest in the Operating Partnership. Where cash capital expenditures are made in part in respect of Acquisitions or Capital Additions and Improvements and in part for other purposes, the General Partner's good faith allocation thereof between the portion made for Acquisitions or Capital Additions and Improvements and the portion made for other purposes shall be conclusive. Taxes paid by the Partnership on behalf of, or amounts withheld with respect to, all or less than all of the Partners shall not be considered cash operating expenditures of the Partnership that reduce Cash from Operations, but the payment or withholding thereof shall be deemed to be a distribution of Available Cash to such Partners. Alternatively, in the discretion of the General Partner, such taxes (if pertaining to all Partners) may be considered to be cash operating expenditures of the Partnership which reduce Cash from Operations, but the payment or withholding thereof shall not be deemed to be a distribution of Available Cash to such Partners. "Cause" means a court of competent jurisdiction has entered a final, non-appealable judgment finding the General Partner liable for actual fraud, gross negligence or willful or wanton misconduct in its capacity as general partner of the Partnership. 11 "Ceiling Quarterly Distribution" means the highest distribution per Quarter made for any of the immediately preceding four Quarters per Common Unit (other than an FCI Common Unit) pursuant to Section 5.4, or if the Cumulative FCI Common Unit Arrearage is equal to zero (determined after giving the effect to the application of Section 5.4 for the current Quarter), then the distribution to be made for the current Quarter per Common Unit as declared by the General Partner; provided, however, that in no case may the Ceiling Quarterly Distribution be less than the Minimum Quarterly Distribution. "Certificate" means a certificate (a) substantially in the form of Exhibit A to this Agreement with respect to the Common Units, (b) substantially in the form of Exhibit B to this Agreement with respect to the Senior Units, (c) issued in global or book-entry form in accordance with the rules and regulations of the Depository, or (d) in such other form as may be adopted by the General Partner in its sole discretion, issued by the Partnership evidencing ownership of one or more Common Units or Senior Units, as the case may be, or a certificate, in such form as may be adopted by the General Partner in its sole discretion, issued by the Partnership evidencing ownership of one or more other Units. "Certificate of Limited Partnership" means the Certificate of Limited Partnership filed with the Secretary of State of the State of Delaware as referenced in Section 6.2, as such Certificate of Limited Partnership may be amended, supplemented or restated from time to time. "Change of Control" means (a) the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Partnership or the Operating Partnership to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act) other than James E. Ferrell, the Related Parties and any Person of which James E. Ferrell and the Related Parties beneficially own in the aggregate 51% or more of the outstanding voting stock (or if such Person is a partnership, 51% or more of the general partner interests), (b) the liquidation or dissolution of the Partnership, the Operating Partnership or the General Partner, (c) 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 outstanding voting stock entitled to vote for the election of directors of the General Partner and (d) the occurrence of any transaction, the result of which is that the General Partner is no longer the sole general partner of the Partnership or the Operating Partnership. "Citizenship Certification" means a properly completed certificate in such form as may be specified by the General Partner by which an Assignee or a Limited Partner certifies that he (and if he is a nominee holding for the account of another Person, that to the best of his knowledge such other Person) is an Eligible Citizen. "Closing Price" for any day means the last sale price on such day, regular way, or in case no such sale takes place on such day, the average of the closing bid and asked prices on such day, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal National Securities Exchange on which the Units of such class are listed or admitted to trading or, if the Units of such class are not listed or admitted to trading on any National Securities Exchange, the last quoted price on such day or, if not so quoted, the average of the high bid and low asked prices on such day in the over the counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or such other system then in use, or if on any such day the Units of such class are not quoted by any such organization, the average of the closing bid and asked prices on such day as furnished by a professional market maker making a market in the Units of such class selected by the Board of Directors of the General Partner, or if on any such day no market maker is making a market in the Units of such class, the fair value of such Units on such day as determined reasonably and in good faith by the Board of Directors of the General Partner. 12 "Code" means the Internal Revenue Code of 1986, as amended and in effect from time to time, as interpreted by the applicable regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law. "Combined Interest" has the meaning assigned to such term in Section 13.3(a). "Commission" means the Securities and Exchange Commission. "Common Unit" means a Unit representing a fractional part of the Partnership Interests of all Limited Partners and Assignees and having the rights and obligations specified with respect to Common Units in this Agreement. The term "Common Unit" shall specifically include all FCI Common Units and, except with respect to certain allocations and distributions to the extent specified in Article V or pursuant to Section 15.14(a), the FCI Common Units shall not be treated as a separate class or series of Units or Partnership Securities from other Common Units under any provision of this Agreement, specifically including, but not limited to, any voting purpose, right or privilege. "Contributed Property" means each property or other asset, in such form as may be permitted by the Delaware Act, but excluding cash, contributed to the Partnership. Once the Carrying Value of a Contributed Property is adjusted pursuant to Section 4.5(d), such property shall no longer constitute a Contributed Property, but shall be deemed an Adjusted Property. "Contribution Agreement" means that certain Contribution, Conveyance and Assumption Agreement, dated as of the Initial Closing Date, between Ferrellgas, the Partnership and the Operating Partnership, together with the additional conveyance documents and instruments contemplated or referenced thereunder. "Cumulative FCI Common Unit Arrearage" means, with respect to all FCI Common Units, whenever issued, and as of the end of any Quarter, the excess, if any, of (a) the sum resulting from adding together the FCI Common Unit Arrearage as to all FCI Common Units for each of the Quarters within the Arrearage Period including the current Quarter over (b) the sum of any distributions theretofore made pursuant to Sections 5.4(b)(iv) and 5.4(c)(iii) with respect to such FCI Common Units (determined after giving effect to any distributions to be made in the current Quarter). 13 "Curative Allocation" means any allocation of an item of income, gain, deduction, loss or credit pursuant to the provisions of Section 5.1(d)(xi). "Current Market Price" as of any date of any class of Units listed or admitted to trading on any National Securities Exchange means the average of the daily Closing Prices per Unit of such class for the 20 consecutive Trading Days immediately prior to such date. "Delaware Act" means the Delaware Revised Uniform Limited Partnership Act, 6 Del C.ss. 17-101, et seq., as amended, supplemented or restated from time to time, and any successor to such statute. "Departing Partner" means a former General Partner from and after the effective date of any withdrawal or removal of such former General Partner pursuant to Section 13.1 or 13.2. "Depositary" means with respect to any Units issued in global or book-entry form, The Depository Trust Company and its successors and permitted assigns. "Economic Risk of Loss" has the meaning set forth in Treasury Regulation Section 1.752-2(a). "Eligible Citizen" means a Person qualified to own interests in real property in jurisdictions in which the Partnership or the Operating Partnership does business or proposes to do business from time to time, and whose status as a Limited Partner or Assignee does not or would not subject the Partnership or the Operating Partnership to a substantial risk of cancellation or forfeiture of any of its properties or any interest therein. "Event of Withdrawal" has the meaning assigned to such term in Section 13.1(a). "FCI" means Ferrell Companies, Inc., a Kansas corporation. "FCI Common Unit" means any Common Units beneficially owned by FCI or the last FCI Common Unit owned by another holder specified in Section 4.5(c). Any FCI Common Unit Outstanding and no longer beneficially owned by FCI (other than the last FCI Common Unit specified in Section 4.5(c)) shall have, as a substantive manner in the hands of a subsequent holder like intrinsic economic and federal income tax characteristics in all material respects, to the intrinsic economic and federal income tax characteristics of a Common Unit then Outstanding. "FCI Common Unit Arrearage" means, with respect to any FCI Common Unit and as to each Quarter within the Arrearage Period, the excess, if any, of (a) the sum of all Available Cash distributed for that Quarter with respect to a Common Unit (other than an FCI Common Unit) then Outstanding pursuant to Sections 5.4(a)(ii) through 5.4(a)(vi) or Section 5.4(b)(ii), as applicable, over (b) the sum of all Available Cash distributed for that Quarter with respect to an FCI Common Unit pursuant to Section 5.4(a)(vii) or Section 5.4(b)(iii), as applicable. 14 "FCI ESOT" means the employee stock ownership trust related to the employee stock ownership plan of FCI organized under Section 4975(e)(7) of the Code. "Ferrellgas" means Ferrellgas, Inc., a Delaware corporation and a wholly owned subsidiary of FCI. "First Liquidation Target Amount" has the meaning assigned to such term in Section 5.1(c)(i)(D). "First Target Distribution" means $0.55 per Unit (or, with respect to the period commencing on the Initial Closing Date and ending on October 31, 1994, the product of $0.55 multiplied by a fraction of which the numerator is the number of days in such period and of which the denominator is 92), subject to adjustment in accordance with Sections 5.6(b) and (c) and Section 9.6. "General Partner" means Ferrellgas, and its successors as general partner of the Partnership. "General Partner Interest" means the ownership interest of the General Partner in the Partnership (in its capacity as a general partner without reference to any other Partnership Interests in the Partnership held by it) which is evidenced by General Partner Units and includes any and all benefits to which the General Partner is entitled as provided in this Agreement, together with all obligations of the General Partner to comply with the terms and provisions of this Agreement. "General Partner Unit" means a Unit representing a fractional part of the General Partner Interest and having the rights and obligations specified with respect to the General Partner Units in this Agreement. "Group" means a Person that with or through any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except voting pursuant to a revocable proxy or consent given to such Person in response to a proxy or consent solicitation made to 10 or more Persons) or disposing of any Partnership Securities with any other Person that beneficially owns, or whose Affiliates or Associates beneficially own, directly or indirectly, Partnership Interests. "Holder" has the meaning assigned to such term in Section 6.13(a). "IDR" means a Partnership Interest issued to Ferrellgas in connection with the transfer of its assets to the Partnership pursuant to Section 4.2, which Partnership Interest shall confer upon the holder thereof only the rights and obligations specifically provided in this Agreement with respect to IDRs (and no other rights otherwise available to holders of a Partnership Interest). 15 "Incentive Distribution" means any amount of cash distributed to the Special Limited Partners, pursuant to Section 5.4. "Indemnified Persons" has the meaning assigned to such term in Section 6.13(c). "Indemnitee" means the General Partner, any Departing Partner, any Person who is or was an Affiliate of the General Partner or any Departing Partner, any Person who is or was an officer, director, employee, partner, agent or trustee of the General Partner or any Departing Partner or any such Affiliate, or any Person who is or was serving at the request of the General Partner or any Departing Partner or any such Affiliate as a director, officer, employee, partner, agent or trustee of another Person. "Information Statement Period" means the period that commences on the mailing of an Information Statement to the holders of the Common Units (other than the FCI Common Units) that informs those holders of FCI's consent to the addition of Sections 5.4(a), (b) and (c), which period ends twenty (20) days after the commencement of the mailing. "Initial Closing Date" means July 5, 1994. "Initial Limited Partners" means Ferrellgas (with respect to the Common Units it owned) and the Underwriters. "Initial Offering" means the initial offering and sale of Common Units to the public, as described in the Registration Statement. "Initial Unit Price" means (a) with respect to the Common Units, $21.00 or (b) with respect to any other class or series of Units, the price per Unit at which such class or series of Units is initially sold by the Partnership, as determined by the General Partner, in each case adjusted as the General Partner determines to be appropriate to give effect to any distribution, subdivision or combination of Units. "Interim Capital Transactions" means (a) borrowings, refinancings or refundings of indebtedness and sales of debt securities (other than for working capital purposes and other than for items purchased on open account in the ordinary course of business) by the Partnership or the Operating Partnership, (b) sales of equity interests (including Common Units sold to the Underwriters pursuant to the exercise of the Overallotment Option) by the Partnership or the Operating Partnership and (c) sales or other voluntary or involuntary dispositions of any assets of the Partnership or the Operating Partnership (other than (x) sales or other dispositions of inventory in the ordinary course of business, (y) sales or other dispositions of other current assets including, without limitation, receivables and accounts and (z) sales or other dispositions of assets as a part of normal retirements or replacements), in each case prior to the commencement of the dissolution and liquidation of the Partnership. "Issue Price" means the price at which a Unit is purchased from the Partnership, less any sales commission or underwriting discount charged to the Partnership. 16 "Limited Partner" means, unless the context otherwise requires, (a) each Initial Limited Partner, each Substituted Limited Partner, each Additional Limited Partner and any Departing Partner upon the change of its status from General Partner to Limited Partner pursuant to Section 13.3, subject to the provisions of Section 5.7, (b) solely for the purposes of Section 1.4 and Articles VI and VII, each Special Limited Partner and (c) solely for purposes of Articles IV, V and VI and Sections 14.3 and 14.4, each Assignee. "Liquidation Date" means (a) in the case of an event giving rise to the dissolution of the Partnership of the type described in clauses (a) and (b) of the first sentence of Section 14.2, the date on which the applicable time period during which the holders of Outstanding Units have the right to elect to reconstitute the Partnership and continue its business has expired without such an election being made, and (b) in the case of any other event giving rise to the dissolution of the Partnership, the date on which such event occurs. "Liquidator" means the General Partner or other Person approved pursuant to Section 14.3 who performs the functions described therein. "Maintenance Capital Expenditures" means cash capital expenditures made to maintain, up to the level thereof that existed at the time of such expenditure, the operating capacity of the capital assets of the Partnership and the Operating Partnership, taken as a whole, as such assets existed at the time of such expenditure and shall, therefore, not include cash capital expenditures made in respect of Acquisitions and Capital Additions and Improvements. Where cash capital expenditures are made in part to maintain the operating capacity level referred to in the immediately preceding sentence and in part for other purposes, the General Partner's good faith allocation thereof between the portion used to maintain such operating capacity level and the portion used for other purposes shall be conclusive. "Material Event" means the occurrence of any of the following events while any Senior Units are owned by The Williams Companies, Inc. or owned directly or indirectly by James E. Ferrell or any Related Party: (a) a Change of Control; (b) the Partnership or the Operating Partnership is treated as an association taxable as a corporation for federal income tax purposes or is otherwise subject to taxation as an entity for federal income tax purposes; (c) the Partnership issues any Partnership Interests for cash prior to December 31, 2005 (other than issuances pursuant to the Ferrellgas, Inc. Unit Option Plan) and the first $40 million of the aggregate proceeds of such issuances are not used to redeem the Senior Units; (d) the Partnership issues any Partnership Interests for cash prior to December 31, 2005, and the aggregate proceeds of such issuances above the amount specified in clause (c) are not used to redeem the Senior Units (other than (i) issuances pursuant to the Ferrellgas, Inc. Unit Option Plan and (ii) up to $20 million of the aggregate proceeds of such issuances used to reduce indebtedness or other off-balance sheet credit facilities of the Partnership or the Operating Partnership); or (e) the Partnership fails to pay the Senior Unit Distribution in full for any Quarter. "Merger Agreement" has the meaning assigned to such term in Section 16.1. 17 "Minimum Quarterly Distribution" means $0.50 per Common Unit per Quarter (or, with respect to the period commencing on the Initial Closing Date and ending on October 31, 1994, the product of $0.55 multiplied by a fraction of which the numerator is the number of days in such period and of which the denominator is 92), subject to adjustment in accordance with Sections 5.6(b) and (c) and Section 9.6. "National Securities Exchange" means an exchange registered with the Securities and Exchange Commission under Section 6(a) of the Securities Exchange Act of 1934, as amended, supplemented or restated from time to time, and any successor to such statute. "Net Agreed Value" means, (a) in the case of any Contributed Property, the Agreed Value of such property reduced by any liabilities either assumed by the Partnership upon such contribution or to which such property is subject when contributed, and (b) in the case of any property distributed to a Partner or Assignee by the Partnership, the Partnership's Carrying Value of such property (as adjusted pursuant to Section 4.5(d)(ii)) at the time such property is distributed, reduced by any indebtedness either assumed by such Partner or Assignee upon such distribution or to which such property is subject at the time of distribution, in either case, as determined under Section 752 of the Code. "Net Income" means, for any taxable period, the excess, if any, of the Partnership's items of income and gain (other than those items attributable to dispositions constituting Termination Capital Transactions) for such taxable period over the Partnership's items of loss and deduction (other than those items attributable to dispositions constituting Termination Capital Transactions) for such taxable period. The items included in the calculation of Net Income shall be determined in accordance with Section 4.5(b) and shall not include any items specially allocated under Section 5.1(d). Once an item of income, gain, loss or deduction that has been included in the initial computation of Net Income is subjected to a Required Allocation or a Curative Allocation, Net Income or Net Loss, whichever the case may be, shall be recomputed without regard to such item. "Net Loss" means, for any taxable period, the excess, if any, of the Partnership's items of loss and deduction (other than those items attributable to dispositions constituting Termination Capital Transactions) for such taxable period over the Partnership's items of income and gain (other than those items attributable to dispositions constituting Termination Capital Transactions) for such taxable period. The items included in the calculation of Net Loss shall be determined in accordance with Section 4.5(b) and shall not include any items specially allocated under Section 5.1(d). Once an item of income, gain, loss or deduction that has been included in the initial computation of Net Loss is subjected to a Required Allocation or a Curative Allocation, Net Income, or Net Loss, whichever the case may be, shall be recomputed without regard to such item. "Net Termination Gain" means, for any taxable period, the sum, if positive, of all items of income, gain, loss or deduction recognized by the Partnership (including, without limitation, such amounts recognized through the Operating Partnership) from Termination Capital Transactions occurring in such taxable period. The items included in the determination of Net Termination Gain shall be determined in accordance with Section 4.5(b) and shall not include any items of income, gain or loss specially allocated under Section 5.1(d). Once an item of income, gain or loss that has been included in the initial computation of Net Termination Gain is subjected to a Required Allocation or a Curative Allocation, Net Termination Gain or Net Termination Loss, whichever the case may be, shall be recomputed without regard to such item. 18 "Net Termination Loss" means, for any taxable period, the sum, if negative, of all items of income, gain, loss or deduction recognized by the Partnership (including, without limitation, such amounts recognized through the Operating Partnership) from Termination Capital Transactions occurring in such taxable period. The items included in the determination of Net Termination Loss shall be determined in accordance with Section 4.5(b) and shall not include any items of income, gain or loss specially allocated under Section 5.1(d). Once an item of gain or loss that has been included in the initial computation of Net Termination Loss is subjected to a Required Allocation or a Curative Allocation, Net Termination Gain or Net Termination Loss, whichever the case may be, shall be recomputed without regard to such item. "Non-citizen Assignee" means a Person who the General Partner has determined in its sole discretion does not constitute an Eligible Citizen and as to whose Partnership Interest the General Partner has become the Substituted Limited Partner, pursuant to Section 11.5. "Nonrecourse Built-in Gain" means with respect to any Contributed Properties or Adjusted Properties that are subject to a mortgage or pledge securing a Nonrecourse Liability, the amount of any taxable gain that would be allocated to the Partners pursuant to Sections 5.2(b)(i)(A), 5.2(b)(ii)(A) or 5.2(b)(iii) if such properties were disposed of in a taxable transaction in full satisfaction of such liabilities and for no other consideration. "Nonrecourse Deductions" means any and all items of loss, deduction or expenditures (described in Section 705(a)(2)(B) of the Code) that, in accordance with the principles of Treasury Regulation Section 1.704-2(b), are attributable to a Nonrecourse Liability. "Nonrecourse Liability" has the meaning set forth in Treasury Regulation Section 1.752-1(a)(2). "Notice of Election to Purchase" has the meaning assigned to such term in Section 17.1(b). "Operating Partnership" means Ferrellgas, L.P., a Delaware limited partnership. "Operating Partnership Agreement" means the Agreement of Limited Partnership of the Operating Partnership, as it may be amended, supplemented or restated from time to time. 19 "Opinion of Counsel" means a written opinion of counsel (who may be regular counsel to Ferrellgas, any Affiliate of Ferrellgas, the Partnership or the General Partner) acceptable to the General Partner. "Original Agreement" has the meaning assigned to such term in the recitals hereto. "Outstanding" means, with respect to the Units or other Partnership Securities, all Units or other Partnership Securities that are issued by the Partnership and reflected as outstanding on the Partnership's books and records as of the date of determination; provided that, if at any time any Person or Group (other than Ferrellgas, its Affiliates and except as provided below) owns beneficially 20% or more of all Common Units, such Common Units so owned shall not be voted on any matter and shall not be considered to be Outstanding when sending notices of a meeting of Limited Partners (unless otherwise required by law), calculating required votes, determining the presence of a quorum or for other similar purposes under this Agreement, except that such Common Units shall be considered to be Outstanding for purposes of Section 13.1(b)(iv) (such Common Units shall not, however, be treated as a separate class or series of Partnership Securities for purposes of this Agreement). Notwithstanding the above, the Common Units issued upon conversion of the Senior Units, so long as such Common Units are held by WNGL, its successors, directly or indirectly by The Williams Companies, Inc. or directly or indirectly by James E. Ferrell or any Related Party (1) shall at all times be considered Outstanding for purposes of this Agreement and have all rights specified with respect to Common Units in this Agreement and (2) shall be included with any other Common Units in determining whether WNGL, its successors, The Williams Companies, Inc., James E. Ferrell or any Related Party own beneficially 20% or more of all Common Units with respect to those other Common Units that were not converted from Senior Units. "Overallotment Option" means the overallotment option granted to the Underwriters by the Partnership pursuant to the Underwriting Agreement. "Partners" means the General Partner, the Limited Partners and the Special Limited Partners. "Partner Nonrecourse Debt" has the meaning set forth in Treasury Regulation Section 1.704-2(b)(4). "Partner Nonrecourse Debt Minimum Gain" has the meaning set forth in Treasury Regulation Section 1.704-2(i)(2). "Partner Nonrecourse Deductions" means any and all items of loss, deduction or expenditure (including, without limitation, any expenditure described in Section 705(a)(2)(B) of the Code) that, in accordance with the principles of Treasury Regulation Section 1.704-2(i), are attributable to a Partner Nonrecourse Debt. 20 "Partnership" means Ferrellgas Partners, L.P., a Delaware limited partnership established by the Certificate of Limited Partnership, and any successors thereto. "Partnership Interest" means an interest in the Partnership, which shall include General Partner Units, Senior Units, Common Units, IDRs or other Partnership Securities, or a combination thereof or interest therein, as the case may be. "Partnership Minimum Gain" means that amount determined in accordance with the principles of Treasury Regulation Section 1.704-2(d). "Partnership Securities" has the meaning assigned to such term in Section 4.3(a). "Per Unit Capital Amount" means, as of any date of determination, the Capital Account, stated on a per Unit basis, underlying any Unit held by a Person. "Percentage Interest" means as of the date of such determination (a) as to any Partner or Assignee holding Units, the product of (i) 100% less the percentage applicable to clause (b) multiplied by (ii) the quotient of the number of Units held by such Partner or Assignee divided by the total number of all Outstanding Units (other than Senior Units), and (b) as to the holders of additional Partnership Securities issued by the Partnership in accordance with Section 4.3, the percentage established as a part of such issuance. The Senior Units have not been allocated a Percentage Interest. "Person" means an individual or a corporation, partnership, trust, unincorporated organization, association or other entity. "Pro Rata" means (a) when modifying Units or any class thereof, apportioned equally among all designated Units or class thereof in accordance with their relative Percentage Interests, (b) when modifying Partners and Assignees, apportioned among all Partners and Assignees in accordance with their relative Percentage Interests, and (c) when modifying holders of IDRs, apportioned equally among all holders of IDRs in accordance with the relative number of IDRs held by such holder. "Purchase Date" means the date determined by the General Partner as the date for purchase of all Outstanding Units (other than Units owned by the General Partner and its Affiliates) pursuant to Article XVII. "Quarter" means, unless the context requires otherwise, a three month period of time ending on October 31, January 31, April 30, or July 31; provided, however, that the General Partner, in its sole discretion, may amend such period as it deems necessary or appropriate in connection with a change in the fiscal year of the Partnership. "Recapture Income" means any gain recognized by the Partnership (computed without regard to any adjustment required by Sections 734 or 743 of the Code) upon the disposition of any property or asset of the Partnership, which gain is characterized as ordinary income because it represents the recapture of deductions previously taken with respect to such property or asset. 21 "Record Date" means the date established by the General Partner for determining (a) the identity of the Record Holder entitled to notice of, or to vote at, any meeting of Limited Partners or entitled to vote by ballot or give approval of Partnership action in writing without a meeting or entitled to exercise rights in respect of any lawful action of Limited Partners or (b) the identity of Record Holders entitled to receive any report or distribution. "Record Holder" means the Person in whose name a Unit is registered on the books of the Transfer Agent as of the opening of business on a particular Business Day, or with respect to a holder of a General Partner Unit or an IDR, the Person in whose name such General Partner Unit or IDR is registered on the books which the General Partner has caused to be kept as of the opening of business on such Business Day. "Redeemable Units" means any Units for which a redemption notice has been given, and has not been withdrawn, under Section 11.6. "Registration Statement" means the Registration Statement on Form S-1 (Registration No. 33-53383), as it has been or as it may be amended or supplemented from time to time, filed by the Partnership with the Commission under the Securities Act to register the offering and sale of the Common Units in the Initial Offering. "Related Party" means (a) the spouse or any lineal descendant of James E. Ferrell, (b) any trust for his benefit or for the benefit of his spouse or any such lineal descendants, (c) any corporation, partnership or other entity in which James E. Ferrell and/or such other Persons referred to in the foregoing clauses (a) and (b) are the direct record and beneficial owners of all of the voting and nonvoting securities, (d) the FCI ESOT and (e) any participant in the FCI ESOT whose ESOT account has been allocated shares of FCI. "Required Allocations" means any allocation (or limitation imposed on any allocation) of an item of income, gain, deduction or loss pursuant to (a) Section 5.1(b)(ii) or (b) Sections 5.1(d)(i), 5.1(d)(ii), 5.1(d)(iv), 5.1(d)(v), 5.1(d)(vi), 5.1(d)(vii) and 5.1(d)(ix), such allocations (or limitations thereon) being directly or indirectly required by the Treasury Regulations promulgated under Section 704(b) of the Code. "Residual Gain" or "Residual Loss" means any item of gain or loss, as the case may be, of the Partnership recognized for federal income tax purposes resulting from a sale, exchange or other disposition of a Contributed Property or Adjusted Property, to the extent such item of gain or loss is not allocated pursuant to Sections 5.2(b)(i)(A) or 5.2(b)(ii)(A), respectively, to eliminate Book-Tax Disparities. "Restricted Activities" means the retail sale of propane to end users within the continental United States in the manner engaged in by Ferrellgas immediately prior to the Initial Closing Date. "Second Amended and Restated Agreement" has the meaning assigned to such term in the recitals hereto. 22 "Second Liquidation Target Amount" has the meaning assigned to such term in Section 5.1(c)(i)(E). "Second Target Distribution" means $0.63 per Unit (or, with respect to the period commencing on the Initial Closing Date and ending on October 31, 1994, the product of $0.55 multiplied by a fraction of which the numerator is the number of days in such period and of which the denominator is 92), subject to adjustment in accordance with Sections 5.6(b) and (c) and Section 9.6. "Securities Act" means the Securities Act of 1933, as amended, supplemented or restated from time to time and any successor to such statute. "Senior Unit" means a Unit representing a fractional part of the Partnership Interests of all Limited Partners and Assignees having the rights and obligations specified with respect to Senior Units in this Agreement. The term "Senior Unit" includes all Additional Senior Units. "Senior Unit Distribution" means distributions that are required to be paid on the Senior Units (including Additional Senior Units) at a quarterly rate equal to the sum of (a) $1.00 per Senior Unit per Quarter (or part thereof or, with respect to the period commencing with the WNGL Closing Date and ending on January 31, 2000, the product of $1.00 multiplied by a fraction of which the numerator is the number of days in such period and of which the denominator is 92), plus (b) an additional $0.50 per Senior Unit per Quarter (or part thereof) if the Partnership fails to pay in full the Senior Unit Redemption Price on or prior to the Senior Unit Redemption Date, in each case accumulating from and including the date of such failure or default in clause (b) until the date such failure or default has been cured by the Partnership. Each of the amounts set forth in clauses (a) and (b) are subject to adjustment in accordance with Section 5.6(a). All Senior Unit Distributions shall be cumulative, whether or not declared and whether or not there is sufficient Available Cash for the payment thereof, on a daily basis from the WNGL Closing Date and shall be payable quarterly in arrears on each distribution payment date pursuant to Section 5.3(a), commencing on the first distribution payment date after the WNGL Closing Date. Any unpaid or undistributed Senior Unit Distributions will compound on a quarterly basis at a rate equal to the then applicable distribution rate, calculated in accordance with the first sentence of this definition. If any Senior Unit Distributions are payable through the issuance of Additional Senior Units pursuant to Section 5.4 and are so paid by such issuance, such Senior Unit Distributions shall be deemed paid in full. Any Additional Senior Units that are required to be issued and distributed, but which are not issued and distributed as required, will be entitled to the Senior Unit Distribution as if they were issued and distributed as required. "Senior Unit Liquidation Preference" means $40.00 per Senior Unit, subject to adjustment in accordance with Section 5.6(a). "Senior Unit Redemption Date" means the date the Partnership shall pay the Senior Unit Redemption Price to the holders of Senior Units pursuant to Section 17.2(b). 23 "Senior Unit Redemption Notice" means a written notice from the Partnership to the holder or holders of Senior Units setting forth: (a) the Senior Unit Redemption Price; (b) whether all or less than all of the Outstanding Senior Units are to be redeemed and the total number of Senior Units being redeemed; (c) the Senior Unit Redemption Date; (d) that the holder is to surrender to the Partnership, in the manner, at the place or places and at the price designated, his certificate or certificates representing the Senior Units to be redeemed; and (e) that distributions on the Senior Units to be redeemed shall cease to accumulate on such Senior Unit Redemption Date unless the Partnership defaults in the payment of the redemption price. "Senior Unit Redemption Price" means, with respect to each Senior Unit called for redemption in accordance with the Senior Unit Redemption Notice pursuant to Section 17.2(b), an amount in cash equal to the Senior Unit Liquidation Preference, plus an amount equal to any accumulated and unpaid Senior Unit Distributions on such Senior Units to the Senior Unit Redemption Date. "Special Approval" means approval by the Audit Committee. "Special Limited Partner" means each holder of an IDR. "Special Limited Partners Book Capital" means, as of any date of determination, the amount equal to the sum of the balances of the Capital Accounts of all the Special Limited Partners, determined pursuant to Section 4.5 (prior to any adjustment pursuant to Section 4.5(d) arising upon the present event requiring a valuation of the Partnership's assets). "Subordinated Unit" means a Unit representing a fractional part of the Partnership Interests of all Limited Partners and Assignees and having the rights and obligations specified with respect to Subordinated Units in the Original Agreement. Each Outstanding Subordinated Unit converted into a Common Unit on a one-for-one basis as of August 1, 1999. "Subordination Period" means the period which commenced on the Initial Closing Date and ended on August 1, 1999. "Subsidiary" means, with respect to any Person, (i) a corporation of which more than 50% of the voting power of shares of Capital Interests entitled (without regard to the occurrence of any contingency) to vote in the election of directors or other governing body of such corporation is owned, directly or indirectly, by such Person, by one or more Subsidiaries of such Person, or a combination thereof, (ii) a partnership (whether general or limited) in which such Person or a Subsidiary of such Person is, at the date of determination, a general or limited partner of such partnership, but only if more than 50% of the Capital Interests of such partnership (considering all of the Capital Interests of the partnership as a single class) is owned or controlled, directly or indirectly, by such Person, by one or more Subsidiaries of such Person, or a combination thereof, or (iii) any other Person (other than a corporation or a partnership) in which such Person, directly or indirectly, at the date of determination, has (x) at least a majority ownership interest or (y) the power to elect or direct the election of a majority of the directors or other governing body of such Person. 24 "Substituted Limited Partner" means a Person who is admitted as a Limited Partner to the Partnership pursuant to Section 12.2 in place of and with all the rights of a Limited Partner and who is shown as a Limited Partner on the books and records of the Partnership. "Surviving Business Entity" has the meaning assigned to such term in Section 16.2(b). "Termination Capital Transactions" means any sale, transfer or other disposition of property of the Partnership or the Operating Partnership occurring upon or incident to the liquidation and winding up of the Partnership and the Operating Partnership pursuant to Article XIV. "Third Amended and Restated Agreement" has the meaning assigned to such term in the recitals hereto. "Third Target Distribution" means $0.82 per Unit (or, with respect to the period commencing on the Initial Closing Date and ending on October 31, 1994, the product of $0.55 multiplied by a fraction of which the numerator is the number of days in such period and of which the denominator is 92), subject to adjustment in accordance with Sections 5.6(b) and (c) and Section 9.6. "Trading Day" means a day on which the principal National Securities Exchange on which the Units of any class are listed or admitted to trading is open for the transaction of business or, if Units of a class are not listed or admitted to trading on any National Securities Exchange, a day on which banking institutions in New York City generally are open. "Transaction" has the meaning assigned to such term in Section 5.7(g). "Transfer" has the meaning assigned to such term in Section 11.1(a). "Transfer Agent" means such bank, trust company or other Person (including, without limitation, the General Partner or one of its Affiliates) as shall be appointed from time to time by the Partnership to act as registrar and transfer agent for the Units. "Transfer Application" means an application and agreement for transfer of Units in the form set forth on the back of a Certificate or in a form substantially to the same effect in a separate instrument. 25 "Underwriter" means each Person named as an underwriter in Schedule I to the Underwriting Agreement who purchased Common Units pursuant thereto. "Underwriting Agreement" means the Underwriting Agreement dated June 27, 1994, among the Underwriters, the Partnership, the General Partner and FCI providing for the purchase of Common Units by such Underwriters. "Unit" means a Partnership Interest of a Partner or Assignee in the Partnership representing a fractional part of the Partnership Interests of all Partners and Assignees and shall include, without limitation, General Partner Units, Senior Units and Common Units; provided, that each General Partner Unit at any time Outstanding shall represent the same fractional part of the Partnership Interests of all Partners and Assignees holding General Partner Units as each other General Partner Unit, each Senior Unit at any time Outstanding shall represent the same fractional part of the Partnership Interests of all Partners and Assignees holding Senior Units as each other Senior Unit, and each Common Unit at any time Outstanding shall represent the same fractional part of the Partnership Interests of all Partners and Assignees holding Common Units as each other Common Unit. "Unitholders" means the holders of Common Units and General Partner Units but shall not include holders of Senior Units. "Unpaid MQD" has the meaning assigned to such term in Section 5.1(c)(i)(C). "Unrealized Gain" attributable to any item of Partnership property means, as of any date of determination, the excess, if any, of (a) the fair market value of such property as of such date (as determined under Section 4.5(d)) over (b) the Carrying Value of such property as of such date (prior to any adjustment to be made pursuant to Section 4.5(d) as of such date). "Unrealized Loss" attributable to any item of Partnership property means, as of any date of determination, the excess, if any, of (a) the Carrying Value of such property as of such date (prior to any adjustment to be made pursuant to Section 4.5(d) as of such date) over (b) the fair market value of such property as of such date (as determined under Section 4.5(d)). "Unrecovered Initial Unit Price" means, at any time, with respect to a class or series of Units (other than Senior Units and General Partner Units), the price per Unit at which such class or series of Units was initially offered to the public for sale by the underwriters in respect of such offering, as determined by the General Partner, less the sum of all distributions theretofore made in respect of a Unit of such class or series that was sold in the initial offering of Units of said class or series constituting Cash from Interim Capital Transactions and any distributions of cash (or the Net Agreed Value of any distributions in kind) in connection with the dissolution and liquidation of the Partnership theretofore made in respect of a Unit of such class or series that was sold in the initial offering of Units of such class or series, adjusted as the General Partner determines to be appropriate to give effect to any distribution, subdivision or combination of Units. 26 "Withdrawal Opinion of Counsel" has the meaning assigned to such term in Section 13.1(b). "WNGL" means Williams Natural Gas Liquids, Inc., a Delaware corporation "WNGL Closing Date" means the closing date of the transactions contemplated by the WNGL Purchase Agreement. "WNGL Purchase Agreement" means that certain Purchase Agreement, dated as of November 7, 1999, as amended, by and among the Partnership, the Operating Partnership and WNGL. "WNGL Registration Rights Agreement" means that certain Registration Rights Agreement, dated the WNGL Closing Date, as amended, between the Partnership and WNGL. ARTICLE III PURPOSE ----------- Section 3.1 Purpose and Business. The purpose and nature of the business to be conducted by the Partnership shall be (a) to serve as a limited partner in the Operating Partnership and, in connection therewith, to exercise all of the rights and powers conferred upon the Partnership as a limited partner in the Operating Partnership pursuant to the Operating Partnership Agreement or otherwise, (b) to engage directly in, or to enter into or form any corporation, partnership, joint venture, limited liability company or other arrangement to engage in, any business activity that the Operating Partnership is permitted to engage in by the Operating Partnership Agreement and, in connection therewith, to exercise all of the rights and powers conferred upon the Partnership pursuant to the agreements relating to such business activity, (c) to engage directly in, or to enter into or form any corporation, partnership, joint venture, limited liability company or other arrangement to engage in, any business activity that is approved by the General Partner and which lawfully may be conducted by a limited partnership organized pursuant to the Delaware Act and, in connection therewith, to exercise all of the rights and powers conferred upon the Partnership pursuant to the agreements relating to such business activity, and (d) to do anything necessary or appropriate to the foregoing, including, without limitation, the making of capital contributions or loans to the Operating Partnership. The General Partner has no obligation or duty to the Partnership, the Limited Partners, the Special Limited Partners or the Assignees to propose or approve, and in its sole discretion may decline to propose or approve, the conduct by the Partnership of any business. Section 3.2 Powers. The Partnership shall be empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described in Section 3.1 and for the protection and benefit of the Partnership. 27 ARTICLE IV CAPITAL CONTRIBUTIONS Section 4.1 Initial Contributions. In connection with the formation of the Partnership under the Delaware Act, the General Partner made an initial Capital Contribution to the Partnership and was admitted as the general partner of the Partnership, and the organizational Limited Partner made a Capital Contribution to the Partnership and was admitted as a limited partner of the Partnership. Section 4.2 Contributions by the General Partner and the Initial Limited Partners; Contributions on the WNGL Closing Date and issuance of General Partner Units. (a) On the Initial Closing Date, the General Partner contributed and delivered to the Partnership, as a Capital Contribution, a limited partner interest in the Operating Partnership which, together with the Partnership Interest (as defined in the Operating Partnership Agreement) previously held by the Partnership, represented a 98.9899% Percentage Interest (as defined in the Operating Partnership Agreement) in the Operating Partnership, in exchange for (i) the continuation of its Partnership Interest as general partner in the Partnership, subject to all of the rights, privileges and duties of the General Partner under this Agreement, (ii) 1,000,000 Common Units and 16,593,721 Subordinated Units and (iii) the IDRs. (b) On the Initial Closing Date, each Underwriter contributed and delivered to the Partnership cash in an amount equal to the Issue Price per Common Unit, multiplied by the number of Common Units specified in the Underwriting Agreement to be purchased by such Underwriter. In exchange for such Capital Contribution by the Underwriters, the Partnership issued Common Units to each Underwriter on whose behalf such Capital Contribution was made in an amount equal to the quotient obtained by dividing (x) the cash contribution to the Partnership by or on behalf of such Underwriter by (y) the Issue Price per Common Unit. Immediately after these contributions, the Initial Capital Contribution of the General Partner and the organizational Limited Partner were refunded, the interest of the organizational Limited Partner was terminated and the organizational Limited Partner ceased to be a Limited Partner. (c) To the extent that the Underwriters' Overallotment Option was exercised, each Underwriter contributed and delivered to the Partnership cash in an amount equal to the Issue Price per Common Unit multiplied by the number of Common Units purchased by such Underwriter pursuant to the Overallotment Option. In exchange for such Capital Contribution, the Partnership issued Common Units to each Underwriter on whose behalf such Capital Contribution was made in an amount equal to the quotient obtained by dividing (x) the cash contribution to the Partnership by or on behalf of such Underwriter by (y) the Issue Price per Common Unit. (d) On the WNGL Closing Date, pursuant to the WNGL Purchase Agreement, WNGL contributed all of its interests in Thermogas L.L.C., a Delaware limited liability company (previously Thermogas Company, a Delaware corporation), to the Partnership in exchange for 4,375,000 Senior Units. 28 (e) On June 5, 2000, the Partnership issued 316,233 General Partner Units to represent the General Partner Interest as of that date, which number is equal to one percent of the quotient of the number of Common Units then Outstanding divided by ninety-nine percent rounded down to the nearest whole number of General Partner Units. (f) Immediately upon the conversion of Senior Units into Common Units as provided in Section 5.7(b), the Partnership will issue to the General Partner (for no consideration) that number of General Partner Units which will cause the Percentage Interest of its General Partner Interest immediately after such conversion to be equal to the Percentage Interest of its General Partner Interest immediately prior to such conversion. (g) If the Partnership issues additional Common Units and uses the proceeds from that issuance to redeem any of the Senior Units pursuant to the terms of this Agreement, the Partnership will issue to the General Partner (for no consideration) that number of General Partner Units equal to the $1,767,677 Capital Contribution made by the General Partner to the Partnership at the time of the issuance of the Senior Units divided by the issuance price of such Common Units. This clause (g) shall not obviate the provisions of Section 4.3 to the extent those provisions otherwise apply to that issuance of Common Units. Section 4.3 Issuances of Additional Units and Other Securities. (a) Subject to Section 4.3(c), the General Partner is hereby authorized to cause the Partnership to issue, in addition to the Partnership Interests and Units issued pursuant to Sections 4.1 and 4.2, such additional Units (other than General Partner Units), or classes or series thereof, or options, rights, warrants or appreciation rights relating thereto, or any other type of equity security that the Partnership may lawfully issue, any unsecured or secured debt obligations of the Partnership convertible into any class or series of equity securities of the Partnership (collectively, "Partnership Securities"), for any Partnership purpose, at any time or from time to time, to the Partners or to other Persons for such consideration and on such terms and conditions as shall be established by the General Partner in its sole discretion, all without the approval of any Limited Partners. The General Partner shall have sole discretion, subject to the guidelines set forth in this Section 4.3 and the requirements of the Delaware Act, in determining the consideration and terms and conditions with respect to any future issuance of Partnership Securities. (b) Additional Partnership Securities to be issued by the Partnership pursuant to this Section 4.3 shall be issuable from time to time in one or more classes, or one or more series of any of such classes, with such designations, preferences and relative, participating, optional or other special rights, powers and duties, including, without limitation, rights, powers and duties senior to existing classes and series of Partnership Securities (except as provided in Section 4.3(c)), all as shall be fixed by the General Partner in the exercise of its sole discretion, subject to Delaware law and Section 4.3(c), including, without limitation, (i) the allocations of items of Partnership income, gain, loss, deduction and credit to each such class or series of Partnership Securities; (ii) the right of each such class or series of Partnership Securities to share in Partnership distributions; (iii) the rights of each such class or series of Partnership Securities upon dissolution and liquidation of the Partnership; (iv) whether such class or series of additional Partnership Securities is redeemable by the Partnership and, if so, the price at which, and the terms and conditions upon which, such class or series of additional Partnership Securities may be redeemed by the Partnership; (v) whether such class or series of additional Partnership Securities is issued with the privilege of conversion and, if so, the rate at which, and the terms and conditions upon which, such class or series of Partnership Securities may be converted into any other class or series of Partnership Securities or other property; (vi) the terms and conditions upon which each such class or series of Partnership Securities will be issued, evidenced by certificates and assigned or transferred; and (vii) the right, if any, of each such class or series of Partnership Securities to vote on Partnership matters, including, without limitation, matters relating to the relative rights, preferences and privileges of each such class or series. 29 (c) Notwithstanding the terms of Sections 4.3(a) and 4.3(b), the issuance by the Partnership of any Partnership Securities pursuant to this Section 4.3 shall be subject to the following restrictions and limitations: (i) Except for the issuance of Additional Senior Units pursuant to Section 5.4, for so long as any Senior Units are Outstanding, the Partnership shall not create, authorize or issue additional Partnership Securities (or securities convertible into Partnership Securities) having distribution rights or liquidation rights ranking prior or senior to, or on a parity with, the Senior Units, without the prior approval of the holders of at least a majority of the Outstanding Senior Units; and (ii) The General Partner may, at any time, make a Capital Contribution to the Partnership so that the General Partner will have made aggregate Capital Contributions equal to at least 1.0% of the aggregate Capital Contributions of all Partners. Upon the issuance of any Common Units by the Partnership to any Person, the General Partner, in its sole discretion, may simultaneously purchase (or may purchase at any time thereafter as specified below) a number of General Partner Units only to the extent necessary such that after taking into account the additional Common Units issued to such Person and the General Partner Units to be issued to the General Partner pursuant to this Section 4.3(c)(ii), the General Partner will have a Percentage Interest of no more than 1.0%. The consideration for the General Partner Units to be issued to the General Partner shall be the higher of the price at which the Common Units were issued or, only if the purchase is not made simultaneously with the issuance of the Common Units, the Closing Price of the Common Units on the day prior to the proposed issuance of such General Partner Units; (d) The General Partner is hereby authorized and directed to take all actions that it deems necessary or appropriate in connection with each issuance of Units, IDRs or other Partnership Securities pursuant to Section 4.3(a) and to amend this Agreement in any manner that it deems necessary or appropriate to provide for each such issuance, to admit Additional Limited Partners in connection therewith and to specify the relative rights, powers and duties of the holders of the Units, IDRs or other Partnership Securities being so issued. (e) The General Partner shall do all things necessary to comply with the Delaware Act and is authorized and directed to do all things it deems to be necessary or advisable in connection with any future issuance of Partnership Securities, including, without limitation, compliance with any statute, rule, regulation or guideline of any federal, state or other governmental agency or any National Securities Exchange on which the Units or other Partnership Securities are listed for trading. 30 Section 4.4 Limited Preemptive Rights. Except as provided in this Section 4.4 and Section 4.3, no Person shall have any preemptive, preferential or other similar right with respect to (a) additional Capital Contributions; (b) issuance or sale of any class or series of Units, IDRs or other Partnership Securities, whether unissued, held in the treasury or hereafter created; (c) issuance of any obligations, evidences of indebtedness or other securities of the Partnership convertible into or exchangeable for, or carrying or accompanied by any rights to receive, purchase or subscribe to, any such Units, IDRs or other Partnership Securities; (d) issuance of any right of subscription to or right to receive, or any warrant or option for the purchase of, any such Units, IDRs or other Partnership Securities; or (e) issuance or sale of any other securities that may be issued or sold by the Partnership. The General Partner shall have the right, which it may from time to time assign in whole or in part to any of its Affiliates, to purchase Units, IDRs or other Partnership Securities from the Partnership whenever, and on the same terms that, the Partnership issues Units, IDRs or other Partnership Securities to Persons other than the General Partner and its Affiliates, to the extent necessary to maintain the Percentage Interests of the General Partner and its Affiliates equal to that which existed immediately prior to the issuance of such Units, IDRs or other Partnership Securities. Notwithstanding the type of Partnership Securities issued by the Partnership to Persons other than the General Partner and its Affiliates, the right of the General Partner and its Affiliates to purchase Units, IDRs or other Partnership Securities pursuant to the immediately preceding sentence may be exercised through the purchase of General Partner Units (based on a value which is proportionate to the price for which the Partnership Securities are issued to such Persons) in an amount necessary to maintain the Percentage Interest of the General Partner and its Affiliates with respect to the General Partner Interest equal to that which existed immediately prior to the issuance of Units, IDRs or other Partnership Securities. Section 4.5 Capital Accounts. (a) The Partnership shall maintain for each Partner (or a beneficial owner of a Partnership Interest held by a nominee in any case in which the nominee has furnished the identity of such owner to the Partnership in accordance with Section 6031(c) of the Code or any other method acceptable to the General Partner in its sole discretion) owning a Partnership Interest a separate Capital Account with respect to such Partnership Interest in accordance with the rules of Treasury Regulation Section 1.704-1(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of all Capital Contributions made to the Partnership with respect to such Partnership Interest pursuant to this Agreement and (ii) all items of Partnership income and gain (including, without limitation, income and gain exempt from tax) computed in accordance with Section 4.5(b) and allocated with respect to such Partnership Interest pursuant to Section 5.1, and decreased by (x) the amount of cash or Net Agreed Value of all actual and deemed distributions of cash or property made with respect to such Partnership Interest pursuant to this Agreement and (y) all items of Partnership deduction and loss computed in accordance with Section 4.5(b) and allocated with respect to such Partnership Interest pursuant to Section 5.1. 31 (b) For purposes of computing the amount of any item of income, gain, loss or deduction to be reflected in the Partners' Capital Accounts, the determination, recognition and classification of any such item shall be the same as its determination, recognition and classification for federal income tax purposes (including, without limitation, any method of depreciation, cost recovery or amortization used for that purpose), provided, that: (i) Solely for purposes of this Section 4.5, the Partnership shall be treated as owning directly its proportionate share (as determined by the General Partner based upon the provisions of the Operating Partnership Agreements) of all property owned by the Operating Partnership. (ii) All fees and other expenses incurred by the Partnership to promote the sale of (or to sell) a Partnership Interest that can neither be deducted nor amortized under Section 709 of the Code, if any, shall, for purposes of Capital Account maintenance, be treated as an item of deduction at the time such fees and other expenses are incurred and shall be allocated among the Partners pursuant to Section 5.1. (iii) Except as otherwise provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss and deduction shall be made without regard to any election under Section 754 of the Code which may be made by the Partnership and, as to those items described in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without regard to the fact that such items are not includable in gross income or are neither currently deductible nor capitalized for federal income tax purposes. (iv) Any income, gain or loss attributable to the taxable disposition of any Partnership property shall be determined as if the adjusted basis of such property as of such date of disposition were equal in amount to the Partnership's Carrying Value with respect to such property as of such date. (v) In accordance with the requirements of Section 704(b) of the Code, any deductions for depreciation, cost recovery or amortization attributable to any Contributed Property shall be determined as if the adjusted basis of such property on the date it was acquired by the Partnership were equal to the Agreed Value of such property. Upon an adjustment pursuant to Section 4.5(d) to the Carrying Value of any Partnership property subject to depreciation, cost recovery or amortization, any further deductions for such depreciation, cost recovery or amortization attributable to such property shall be determined (A) as if the adjusted basis of such property were equal to the Carrying Value of such property immediately following such adjustment and (B) using a rate of depreciation, cost recovery or amortization derived from the same method and useful life (or, if applicable, the remaining useful life) as is applied for federal income tax purposes; provided, however, that, if the asset has a zero adjusted basis for federal income tax purposes, depreciation, cost recovery or amortization deductions shall be determined using any reasonable method that the General Partner may adopt. (vi) If the Partnership's adjusted basis in a depreciable or cost recovery property is reduced for federal income tax purposes pursuant to Section 48(q)(1) or 48(q)(3) of the Code, the amount of such reduction shall, solely for purposes hereof, be deemed to be an additional depreciation or cost recovery deduction in the year such property is placed in service and shall be allocated among the Partners pursuant to Section 5.1. Any restoration of such basis pursuant to Section 48(q)(2) of the Code shall, to the extent possible, be allocated in the same manner to the Partners to whom such deemed deduction was allocated. 32 (c) Subject to the next sentence, a transferee of a Partnership Interest shall succeed to a pro rata portion of the Capital Account of the transferor relating to the Partnership Interest so transferred. Upon the sale, exchange or other disposition of an FCI Common Unit (other than the last FCI Common Unit sold, exchanged or otherwise disposed of by FCI) such that the FCI Common Unit is not beneficially owned by FCI, the Capital Account maintained for FCI shall (i) first, be allocated to the FCI Common Units to be transferred, as the case may be, in an amount equal to the product of (x) the number of such FCI Common Units to be transferred, as the case may be, and (y) the Per Unit Capital Amount for a Common Unit, and (ii) second, any remaining balance in such Capital Account will be retained by FCI in its retained Units. With respect to the last FCI Common Unit to be sold, exchanged or otherwise disposed of by FCI, that FCI Common Unit shall remain an FCI Common Unit and shall retain the balance of the applicable Capital Account regardless of the holder thereof. (d) (i) Consistent with the provisions of Treasury Regulation Section 1.704-1(b)(2)(iv)(f), on an issuance of additional Units for cash or Contributed Property, the conversion of Senior Units into Common Units pursuant to Section 5.7, or the conversion of the General Partner's Combined Interest to Common Units pursuant to Section 13.3(b), the Capital Account of all Partners and the Carrying Value of each Partnership property immediately prior to such issuance shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Partnership property, as if such Unrealized Gain or Unrealized Loss had been recognized on an actual sale of each such property immediately prior to such issuance and had been allocated to the Partners at such time pursuant to Sections 5.1(a) and 5.1(b). In determining such Unrealized Gain or Unrealized Loss, the aggregate cash amount and fair market value of all Partnership assets (including, without limitation, cash or cash equivalents) immediately prior to the issuance of additional Units shall be determined by the General Partner using such reasonable method of valuation as it may adopt; provided, however, the General Partner, in arriving at such valuation, must take fully into account the fair market value of the Partnership Interests of all Partners at such time. The General Partner shall allocate such aggregate value among the assets of the Partnership (in such manner as it determines in its sole discretion to be reasonable) to arrive at a fair market value for individual properties. (ii) In accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed distribution to a Partner of any Partnership property (other than a distribution of cash that is not in redemption or retirement of a Partnership Interest), the Capital Accounts of all Partners and the Carrying Value of all Partnership property shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Partnership property, as if such Unrealized Gain or Unrealized Loss had been recognized in a sale of such property immediately prior to such distribution for an amount equal to its fair market value, and had been allocated to the Partners, at such time, pursuant to Section 5.1. Any Unrealized Gain or Unrealized Loss attributable to such property shall be allocated in the same manner as Net Termination Gain or Net Termination Loss pursuant to Section 5.1(c); provided, however, that, in making any such allocation, Net Termination Gain or Net Termination Loss actually realized shall be allocated first. In determining such Unrealized Gain or Unrealized Loss the aggregate cash amount and fair market value of all Partnership assets (including, without limitation, cash or cash equivalents) immediately prior to a distribution shall be determined and allocated by the Liquidator using such reasonable method of valuation as it may adopt. 33 Section 4.6 Interest. No interest shall be paid by the Partnership on Capital Contributions or on balances in Partners' Capital Accounts. Section 4.7 No Withdrawal. No Partner shall be entitled to withdraw any part of its Capital Contributions or its Capital Account or to receive any distribution from the Partnership, except as provided in Section 4.1, and Articles V, VII, XIII and XIV. Section 4.8 Loans from Partners. Loans by a Partner to the Partnership shall not constitute Capital Contributions. If any Partner shall advance funds to the Partnership in excess of the amounts required hereunder to be contributed by it to the capital of the Partnership, the making of such excess advances shall not result in any increase in the amount of the Capital Account of such Partner. The amount of any such excess advances shall be a debt obligation of the Partnership to such Partner and shall be payable or collectible only out of the Partnership assets in accordance with the terms and conditions upon which such advances are made. Section 4.9 No Fractional Units. Except for fractional Senior Units issued pursuant to Section 5.4 and Section 4.10(d), no fractional Units shall be issued by the Partnership. Section 4.10 Splits and Combinations. (a) Subject to Section 4.3(c) and 4.10(d), the General Partner may make a Pro Rata distribution of Units or other Partnership Securities to all Record Holders or may effect a subdivision or combination of Units or other Partnership Securities; provided, however, that, after any such distribution, subdivision or combination, each Partner shall have the same Percentage Interest in the Partnership as before such distribution, subdivision or combination. (b) Whenever such a distribution, subdivision or combination of Units or other Partnership Securities is declared, the General Partner shall select a Record Date as of which the distribution, subdivision or combination shall be effective and shall send notice of the distribution, subdivision or combination at least 20 days prior to such Record Date to each Record Holder as of the date not less than 10 days prior to the date of such notice. The General Partner also may cause a firm of independent public accountants selected by it to calculate the number of Units to be held by each Record Holder after giving effect to such distribution, subdivision or combination. The General Partner shall be entitled to rely on any certificate provided by such firm as conclusive evidence of the accuracy of such calculation. 34 (c) Promptly following any such distribution, subdivision or combination, the General Partner may cause Certificates to be issued to the Record Holders of Units as of the applicable Record Date representing the new number of Units held by such Record Holders, or the General Partner may adopt such other procedures as it may deem appropriate to reflect such distribution, subdivision or combination; provided, however, if any such distribution, subdivision or combination results in a smaller total number of Units Outstanding, the General Partner shall require, as a condition to the delivery to a Record Holder of such new Certificate, the surrender of any Certificate held by such Record Holder immediately prior to such Record Date. (d) Except with respect to Senior Units, the Partnership shall not issue fractional Units upon any distribution, subdivision or combination of Units. If a distribution, subdivision or combination of Common Units would result in the issuance of fractional Common Units but for the provisions of Section 4.9 and this Section 4.10(d), each fractional Common Unit shall be rounded to the nearest whole Common Unit (and a 0.5 Common Unit shall be rounded to the next higher Common Unit). ARTICLE V ALLOCATIONS AND DISTRIBUTIONS --------------------------------- Section 5.1 Allocations for Capital Account Purposes. For purposes of maintaining the Capital Accounts and in determining the rights of the Partners among themselves, the Partnership's items of income, gain, loss and deduction (computed in accordance with Section 4.5(b)) shall be allocated among the Partners in each taxable year (or portion thereof) as provided hereinbelow. (a) Net Income. After giving effect to the special allocations set forth in Section 5.1(d), Net Income for each taxable period and all items of income, gain, loss and deduction taken into account in computing Net Income for such taxable period shall be allocated as follows: (i) First, to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest and to the Limited Partners holding Senior Units, Pro Rata, in an amount equal to 100% less the Percentage Interest of the General Partner Interest, until the aggregate Net Income allocated to such Partners pursuant to this Section 5.1(a)(i) for the current and all previous taxable years is equal to the aggregate Net Losses allocated to such Partners pursuant to Section 5.1(b)(iii) for all previous taxable years; (ii) Second, 100% to the General Partner until the aggregate Net Income allocated to the General Partner pursuant to this Section 5.1(a)(ii) for the current taxable year and all previous taxable years is equal to the aggregate Net Losses allocated to the General Partner pursuant to Section 5.1(b)(iv) for all previous taxable years; (iii) Third, to the Unitholders, Pro Rata, until the aggregate Net Income allocated to such Partners pursuant to this Section 5.1(a)(iii) for the current taxable year and all previous taxable years is equal to the aggregate Net Losses allocated to such Partners pursuant to Section 5.1(b)(ii) for all previous taxable years; and (iv) Fourth, the balance, if any, to the Unitholders, Pro Rata. 35 (b) Net Losses. After giving effect to the special allocations set forth in Section 5.1(d), Net Losses for each taxable period and all items of income, gain, loss and deduction taken into account in computing Net Losses for such taxable period shall be allocated as follows: (i) First, to the Unitholders, Pro Rata, until the aggregate Net Losses allocated to such Partners pursuant to this Section 5.1(b)(i) for the current taxable year and all previous taxable years is equal to the aggregate Net Income allocated to such Partners pursuant to Section 5.1(a)(iv) for all previous taxable years; (ii) Second, to the Unitholders, Pro Rata; provided, that Net Losses shall not be allocated to such Partners pursuant to this Section 5.1(b)(ii) to the extent that such allocation would cause any Limited Partner holding Common Units to have a deficit balance in its Adjusted Capital Account at the end of such taxable year (or increase any existing deficit balance in its Adjusted Capital Account); (iii) Third, to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest and to the Limited Partners holding Senior Units, Pro Rata, in an amount equal to 100% less the Percentage Interest of the General Partner Interest; provided, that Net Losses shall not be allocated to such Partners pursuant to this Section 5.1(b)(iii) to the extent such allocation would cause any Limited Partner holding Senior Units to have a deficit balance in its Adjusted Capital Account at the end of such taxable year (or increase any existing deficit balance in its Adjusted Capital Account); and (iv) Fourth, the balance, if any, 100% to the General Partner. (c) Net Termination Gains and Losses. After giving effect to the special allocations set forth in Section 5.1(d), all items of income gain, loss and deduction taken into account in computing Net Termination Gain or Net Termination Loss for such taxable period shall be allocated in the same manner as such Net Termination Gain or Net Termination Loss is allocated hereunder. All allocations under this Section 5.1(c) shall be made after Capital Account balances have been adjusted by all other allocations provided under this Section 5.1 and after all distributions of Available Cash provided under Section 5.4 have been made with respect to the taxable period ending on the date of the Partnership's liquidation pursuant to Section 14.3. (i) If a Net Termination Gain is recognized (or deemed recognized pursuant to Section 4.5(d)) from Termination Capital Transactions, such Net Termination Gain shall be allocated among the Partners in the following manner (and the Adjusted Capital Accounts of the Partners shall be increased by the amount so allocated in each of the following subclauses, in the order listed, before an allocation is made pursuant to the next succeeding subclause): (A) First, to each Partner having a deficit balance in its Adjusted Capital Account, in the proportion that such deficit balance bears to the total deficit balances in the Adjusted Capital Accounts of all Partners, until each such Partner has been allocated Net Termination Gain equal to any such deficit balance in its Adjusted Capital Account; 36 (B) Second, to the Limited Partners holding Senior Units, Pro Rata, in an amount equal to 100% less the Percentage Interest of the General Partner Interest, and to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, until the Adjusted Capital Account in respect of each Senior Unit then Outstanding is equal to the sum of (i) the Senior Unit Liquidation Preference (or fraction thereof) plus (ii) any accumulated and unpaid Senior Unit Distributions. (C) Third, to the Unitholders, Pro Rata, until the Adjusted Capital Account in respect of each Common Unit then Outstanding (without taking into account any Arrearage that makes up a part of the applicable Adjusted Capital Account) is equal to the sum of (1) its Unrecovered Initial Unit Price plus (2) the Minimum Quarterly Distribution for the Quarter during which such Net Termination Gain is recognized, reduced by any distribution made pursuant to Section 5.4 or Arrearage accrued with respect to a Common Unit in an amount equal to the Minimum Quarterly Distribution paid during such Quarter (the amount determined pursuant to this clause (2) is hereinafter defined as the "Unpaid MQD"); (D) Fourth, to the Unitholders, Pro Rata, until the Adjusted Capital Account in respect of each Common Unit then Outstanding (without taking into account any Arrearage that makes up a part of the applicable Adjusted Capital Account) is equal to the sum of (1) its Unrecovered Initial Unit Price, plus (2) the Unpaid MQD, if any, for such Common Unit with respect to the Quarter during which such Net Termination Gain is recognized, plus (3) the excess of (aa) the First Target Distribution less the Minimum Quarterly Distribution for each Quarter of the Partnership's existence over (bb) the amount of any distributions of Cash from Operations that was distributed or Arrearage that was accrued pursuant to: (v) Section 5.4(a)(iii) hereof, (w) Section 5.4(d)(iii) hereof, (x) solely with respect to the distribution referenced in Section 5.4(a)(iii) pursuant to Sections 5.4(a)(vii), 5.4(b)(ii), 5.4(b)(iii), 5.4(c)(ii) and 5.4(c)(iii) hereof, (y) Section 5.4(c) of the Amended and Restated Agreement and the Second Amended and Restated Agreement, and (z) Sections 5.4(a)(iv) or 5.4(b)(ii) of the Original Agreement, (the sum of (1) plus (2) plus (3) is hereinafter defined as the "First Liquidation Target Amount"); 37 (E) Fifth, to the Limited Partners holding Common Units (including holders of the FCI Common Units), Pro Rata, in an amount equal to 86.8673% less the Percentage Interest of the General Partner Interest, to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, and 13.1327% to the Special Limited Partners, Pro Rata, until the Adjusted Capital Account in respect of each Common Unit then Outstanding (without taking into account any Arrearage that makes up a part of the applicable Adjusted Capital Account) is equal to the sum of (1) the First Liquidation Target Amount, plus (2) the excess of (aa) the Second Target Distribution less the First Target Distribution for each Quarter of the Partnership's existence over (bb) the amount of any distributions of Cash from Operations that was distributed or Arrearage that was accrued pursuant to: (v) Section 5.4(a)(iv) hereof, (w) Section 5.4(d)(iv) hereof, (x) solely with respect to the distribution referenced in Section 5.4(a)(iv) pursuant to Sections 5.4(a)(vii), 5.4(b)(ii), 5.4(b)(iii), 5.4(c)(ii) and 5.4(c)(iii) hereof, (y) Section 5.4(d) of the Amended and Restated Agreement and the Second Amended and Restated Agreement, and (z) Sections 5.4(a)(v) or 5.4(b)(iii) of the Original Agreement, (the sum of (1) plus (2) is hereinafter defined as the "Second Liquidation Target Amount"); (F) Sixth, to the Limited Partners holding Common Units (including holders of the FCI Common Units), Pro Rata, in an amount equal to 76.7653% less the Percentage Interest of the General Partner Interest, to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, and 23.2347% to the Special Limited Partners, Pro Rata, until the Adjusted Capital Account in respect of each Common Unit then Outstanding (without taking into account any Arrearage that makes up a part of the applicable Adjusted Capital Account) is equal to the sum of (1) the Second Liquidation Target Amount, plus (2) the excess of (aa) the Third Target Distribution less the Second Target Distribution for each Quarter of the Partnership's existence over (bb) the amount of any distributions of Cash from Operations that was distributed or Arrearage that was accrued pursuant to: (v) Section 5.4(a)(v) hereof, (w) Section 5.4(d)(v) hereof, 38 (x) solely with respect to the distribution referenced in Section 5.4(a)(v) pursuant to Sections 5.4(a)(vii), 5.4(b)(ii), 5.4(b)(iii), 5.4(c)(ii) and 5.4(c)(iii) hereof, (y) Section 5.4(e) of the Amended and Restated Agreement and the Second Amended and Restated Agreement, and (z) Sections 5.4(a)(vi) or 5.4(b)(iv) of the Original Agreement; and (G) Thereafter, any remaining amount to the Limited Partners holding Common Units (including holders of the FCI Common Units), Pro Rata, in an amount equal to 51.5102% less the Percentage Interest of the General Partner Interest, to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, and 48.4898% to the Special Limited Partners, Pro Rata. (ii) If a Net Termination Loss is recognized (or deemed recognized pursuant to Section 4.5(d)) from Termination Capital Transactions, such Net Termination Loss shall be allocated to the Partners in the following manner: (A) First, to the Unitholders, Pro Rata, until the Adjusted Capital Account in respect of each Common Unit then Outstanding (without taking into account any Arrearage that makes up a part of the applicable Adjusted Capital Account) has been reduced to zero; (B) Second, to the holders of the FCI Common Units until the Adjusted Capital Account in respect of each FCI Common Unit then Outstanding has been reduced to zero; (C) Third, to the Limited Partners holding Senior Units, Pro Rata, in an amount equal to 100% less the Percentage Interest of the General Partner Interest, and to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, until the Adjusted Capital Account in respect of each Senior Unit then Outstanding has been reduced to zero; and (D) Thereafter, the balance, if any, 100% to the General Partner. (d) Special Allocations. Notwithstanding any other provision of this Section 5.1, the following special allocations shall be made for such taxable period: (i) Partnership Minimum Gain Chargeback. Notwithstanding any other provision of this Section 5.1, if there is a net decrease in Partnership Minimum Gain during any Partnership taxable period, each Partner shall be allocated items of Partnership income and gain for such period (and, if necessary, subsequent periods) in the manner and amounts provided in Treasury Regulation Sections 1.704-2(f)(6), 1.704-2(g)(2) and 1.704-2(j)(2)(i), or any successor provision. For purposes of this Section 5.1(d), each Partner's Adjusted Capital Account balance shall be determined, and the allocation of income or gain required hereunder shall be effected, prior to the application of any other allocations pursuant to this Section 5.1(d) with respect to such taxable period (other than an allocation pursuant to Sections 5.1(d)(vi) and 5.1(d)(vii)). This Section 5.1(d)(i) is intended to comply with the Partnership Minimum Gain chargeback requirement in Treasury Regulation Section 1.704-2(f) and shall be interpreted consistently therewith. 39 (ii) Chargeback of Partner Nonrecourse Debt Minimum Gain. Notwithstanding the other provisions of this Section 5.1 (other than Section 5.1(d)(i)), except as provided in Treasury Regulation Section 1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt Minimum Gain during any Partnership taxable period, any Partner with a share of Partner Nonrecourse Debt Minimum Gain at the beginning of such taxable period shall be allocated items of Partnership income and gain for such period (and, if necessary, subsequent periods) in the manner and amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii), or any successor provisions. For purposes of this Section 5.1(d), each Partner's Adjusted Capital Account balance shall be determined, and the allocation of income or gain required hereunder shall be effected, prior to the application of any other allocations pursuant to this Section 5.1(d), other than Section 5.1(d)(i) and other than an allocation pursuant to Sections 5.1(d)(vi) and 5.1(d)(vii), with respect to such taxable period. This Section 5.1(d)(ii) is intended to comply with the chargeback of items of income and gain requirement in Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted consistently therewith. (iii) Priority Allocations. First, if the amount of cash or the Net Agreed Value of any property distributed (except cash or property distributed pursuant to Section 14.3 or 14.4) to any Limited Partner holding Common Units with respect to a taxable year is greater (on a per Unit basis) than the amount of cash or the Net Agreed Value of property distributed to the other Limited Partners holding Common Units (on a per Unit basis), then (1) each Limited Partner holding Common Units receiving such greater cash or property distribution shall be allocated gross income in an amount equal to the product of (aa) the amount by which the distribution (on a per Unit basis) to such Limited Partners holding Common Units exceeds the distribution (on a per Unit basis) to the Limited Partner holding Common Units receiving the smallest distribution and (bb) the number of Units owned by the Limited Partners holding Common Units receiving the greater distribution; and (2) the General Partner shall be allocated gross income in an aggregate amount equal to the sum of the amounts allocated in clause (1) above multiplied by the Percentage Interest of its General Partner Interest, divided by 100% less the Percentage Interest of the General Partner Interest. Second, gross income for the taxable period shall be allocated 100% to the Limited Partners holding Senior Units, Pro Rata, until the aggregate amount of such items allocated to the Limited Partners holding Senior Units, Pro Rata, under this paragraph (iii) for the current taxable period and all previous taxable periods is equal to the cumulative amount of cash distributed to the Limited Partners holding Senior Units, Pro Rata, pursuant to Sections 5.4 and 5.5(a) for the current and all previous taxable periods. All or a portion of the remaining items of Partnership gross income or gain for the taxable period, if any, shall be allocated 100% to the Special Limited Partners, Pro Rata, until the aggregate amount of such items allocated to the Special Limited Partners, Pro Rata, under this paragraph (iii) for the current taxable period and all previous taxable periods is equal to the cumulative amount of cash distributed to the Special Limited Partners, Pro Rata, from the Initial Closing Date through the end of such taxable period. 40 (iv) Qualified Income Offset. In the event any Partner unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be specifically allocated to such Partner in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations promulgated under Section 704(b) of the Code, the deficit balance, if any, in its Adjusted Capital Account created by such adjustments, allocations or distributions as quickly as possible unless such deficit balance is otherwise eliminated pursuant to Section 5.1(d)(i) or (ii). (v) Gross Income Allocations. In the event any Partner has a deficit balance in its Adjusted Capital Account at the end of any Partnership taxable period, such Partner shall be specially allocated items of Partnership gross income and gain in the amount of such excess as quickly as possible; provided, that an allocation pursuant to this Section 5.1(d)(v) shall be made only if and to the extent that such Partner would have a deficit balance in its Adjusted Capital Account after all other allocations provided for in this Section 5.1 have been tentatively made as if this Section 5.1(d)(v) were not in this Agreement. (vi) Nonrecourse Deductions. Nonrecourse Deductions for any taxable period shall be allocated to the Partners in accordance with their respective Percentage Interests. If the General Partner determines in its good faith discretion that the Partnership's Nonrecourse Deductions must be allocated in a different ratio to satisfy the safe harbor requirements of the Treasury Regulations promulgated under Section 704(b) of the Code, the General Partner is authorized, upon notice to the Limited Partners, to revise the prescribed ratio to the numerically closest ratio that does satisfy such requirements. (vii) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions for any taxable period shall be allocated 100% to the Partner that bears the Economic Risk of Loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Treasury Regulation Section 1.704-2(i). If more than one Partner bears the Economic Risk of Loss with respect to a Partner Nonrecourse Debt, such Partner Nonrecourse Deductions attributable thereto shall be allocated between or among such Partners in accordance with the ratios in which they share such Economic Risk of Loss. (viii) Nonrecourse Liabilities. For purposes of Treasury Regulation Section 1.752-3(a)(3), the Partners agree that Nonrecourse Liabilities of the Partnership in excess of the sum of (A) the amount of Partnership Minimum Gain and (B) the total amount of Nonrecourse Built-in Gain shall be allocated among the Partners in accordance with their respective Percentage Interests. 41 (ix) Code Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such item of gain or loss shall be specially allocated to the Partners in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the Treasury regulations. (x) Economic Uniformity. (A) Immediately prior to a sale, exchange or other disposition of all or any portion of the Senior Units, the holders disposing of Senior Units may elect that the Partnership allocate items of Partnership gross income or gain 100% to the Limited Partners disposing of Senior Units until the Limited Partners disposing of Senior Units have been allocated an amount of gross income or gain which causes the Capital Accounts maintained with respect to each of the Senior Units to be equal. Immediately prior to the conversion of all or any portion of the Senior Units into Common Units, the Limited Partners converting such Senior Units may elect that the Partnership allocate items of Partnership gross income or gain until the Limited Partners converting such Senior Units have been allocated an amount of gross income or gain which causes the Capital Account maintained with respect to each of the Senior Units to be converted to be equal to the product of (x) the number of Common Units into which the Senior Units will be converted and (y) the Per Unit Capital Account for a Common Unit. (B) If at the time of the sale, exchange or other disposition of Senior Units, the Senior Units are publicly traded or will become publicly traded as a result of the sale, exchange or disposition, the General Partner may cause the Partnership to allocate items of gross income or gain 100% to the Limited Partners disposing of Senior Units until the Limited Partners disposing of Senior Units have been allocated an amount of gross income or gain which causes the Capital Accounts maintained with respect to each of the Senior Units that will be publicly traded after the disposition to be equal. Immediately prior to the sale, exchange or other disposition in the public marketplace of Common Units into which Senior Units have been converted, the General Partner may cause the Partnership to allocate items of gross income or gain 100% to the Limited Partners disposing of such Common Units until the Limited Partners disposing of such Common Units have been allocated an amount of gross income or gain which causes the Capital Account maintained with respect to all Common Units that are publicly traded after the disposition to be equal. 42 (xi) Curative Allocation. (A) Notwithstanding any other provision of this Section 5.1, other than the Required Allocations, the Required Allocations shall be taken into account in making the Agreed Allocations so that, to the extent possible, the net amount of items of income, gain, loss and deduction allocated to each Partner pursuant to the Required Allocations and the Agreed Allocations, together, shall be equal to the net amount of such items that would have been allocated to each such Partner under the Agreed Allocations had the Required Allocations and the related Curative Allocation not otherwise been provided in this Section 5.1. Notwithstanding the preceding sentence, Required Allocations relating to (1) Nonrecourse Deductions shall not be taken into account except to the extent that there has been a decrease in Partnership Minimum Gain and (2) Partner Nonrecourse Deductions shall not be taken into account except to the extent that there has been a decrease in Partner Nonrecourse Debt Minimum Gain. Allocations pursuant to this Section 5.1(d)(xi)(A) shall only be made with respect to Required Allocations to the extent the General Partner reasonably determines that such allocations will otherwise be inconsistent with the economic agreement among the Partners. Further, allocations pursuant to this Section 5.1(d)(xi)(A) shall be deferred with respect to allocations pursuant to clauses (1) and (2) hereof to the extent the General Partner reasonably determines that such allocations are likely to be offset by subsequent Required Allocations. (B) The General Partner shall have reasonable discretion, with respect to each taxable period, to (1) apply the provisions of Section 5.1(d)(xi)(A) in whatever order is most likely to minimize the economic distortions that might otherwise result from the Required Allocations, and (2) divide all allocations pursuant to Section 5.1(d)(xi)(A) among the Partners in a manner that is likely to minimize such economic distortions. (xii) Retirement of Assumed Indebtedness. All losses or deductions attributable to premiums, consent fees, or other expenditures incurred by the Partnership to retire indebtedness assumed from the General Partner pursuant to the Contribution Agreement shall be allocated to the General Partner. Section 5.2 Allocations for Tax Purposes. (a) Except as otherwise provided herein, for federal income tax purposes, each item of income, gain, loss and deduction shall be allocated among the Partners in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to Section 5.1. (b) In an attempt to eliminate Book-Tax Disparities attributable to a Contributed Property or Adjusted Property, items of income, gain, loss, depreciation, amortization and cost recovery deductions shall be allocated for federal income tax purposes among the Partners as follows: 43 (i) (A) In the case of a Contributed Property, such items attributable thereto shall be allocated among the Partners in the manner provided under Section 704(c) of the Code that takes into account the variation between the Agreed Value of such property and its adjusted basis at the time of contribution; and (B) except as otherwise provided in Section 5.2(b)(iii), any item of Residual Gain or Residual Loss attributable to a Contributed Property shall be allocated among the Partners in the same manner as its correlative item of "book" gain or loss is allocated pursuant to Section 5.1. (ii) (A) In the case of an Adjusted Property, such items shall (1) first, be allocated among the Partners in a manner consistent with the principles of Section 704(c) of the Code to take into account the Unrealized Gain or Unrealized Loss attributable to such property and the allocations thereof pursuant to Section 4.5(d)(i) or (ii), and (2) second, in the event such property was originally a Contributed Property, be allocated among the Partners in a manner consistent with Section 5.2(b)(i)(A); and (B) except as otherwise provided in Section 5.2(b)(iii), any item of Residual Gain or Residual Loss attributable to an Adjusted Property shall be allocated among the Partners in the same manner as its correlative item of "book" gain or loss is allocated pursuant to Section 5.1. (iii) The General Partner shall apply the principles of Treasury Regulation Section 1.704-3(d) to eliminate Book-Tax Disparities. (c) For the proper administration of the Partnership and for the preservation of uniformity of the Units (or any class or classes thereof), the General Partner shall have sole discretion to (i) adopt such conventions as it deems appropriate in determining the amount of depreciation, amortization and cost recovery deductions; (ii) make special allocations for federal income tax purposes of income (including, without limitation, gross income) or deductions; and (iii) amend the provisions of this Agreement as appropriate (x) to reflect the proposal or promulgation of Treasury Regulations under Section 704(b) or Section 704(c) of the Code or (y) otherwise to preserve or achieve uniformity of the Units (or any class or classes thereof). The General Partner may adopt such conventions, make such allocations and make such amendments to this Agreement as provided in this Section 5.2(c) only if such conventions, allocations or amendments would not have a material adverse effect on the Partners, the holders of any class or classes of Units issued and Outstanding or the Partnership, and if such allocations are consistent with the principles of Section 704 of the Code. (d) The General Partner in its sole discretion may determine to depreciate or amortize the portion of an adjustment under Section 743(b) of the Code attributable to unrealized appreciation in any Adjusted Property (to the extent of the unamortized Book-Tax Disparity) using a predetermined rate derived from the depreciation or amortization method and useful life applied to the Partnership's common basis of such property, despite the inconsistency of such approach with Treasury Regulation Section 1.167(c)-1(a)(6) and Proposed Treasury Regulation 1.197-2(g)(3) or any successor regulations thereto. If the General Partner determines that such reporting position cannot reasonably be taken, the General Partner may adopt depreciation and amortization conventions under which all purchasers acquiring Units in the same month would receive depreciation and amortization deductions, based upon the same applicable rate as if they had purchased a direct interest in the Partnership's property. If the General Partner chooses not to utilize such aggregate method, the General Partner may use any other reasonable depreciation and amortization conventions to preserve the uniformity of the intrinsic tax characteristics of any Units that would not have a material adverse effect on the Limited Partners or the Record Holders of any class or classes of Units. 44 (e) Any gain allocated to the Partners upon the sale or other taxable disposition of any Partnership asset shall, to the extent possible, after taking into account other required allocations of gain pursuant to this Section 5.2, be characterized as Recapture Income in the same proportions and to the same extent as such Partners (or their predecessors in interest) have been allocated any deductions directly or indirectly giving rise to the treatment of such gains as Recapture Income. (f) All items of income, gain, loss, deduction and credit recognized by the Partnership for federal income tax purposes and allocated to the Partners in accordance with the provisions hereof shall be determined without regard to any election under Section 754 of the Code which may be made by the Partnership; provided, however, that such allocations, once made, shall be adjusted as necessary or appropriate to take into account those adjustments permitted or required by Sections 734 and 743 of the Code. (g) Each item of Partnership income, gain, loss and deduction attributable to transferred Units shall, for federal income tax purposes, be determined on an annual basis and prorated on a monthly basis and shall be allocated to the Partners as of the opening of the New York Stock Exchange on the first Business Day of each month; provided, however, that gain or loss on a sale or other disposition of any assets of the Partnership other than in the ordinary course of business shall be allocated to the Partners as of the opening of the New York Stock Exchange on the first Business Day of the month in which such gain or loss is recognized for federal income tax purposes. The General Partner may revise, alter or otherwise modify such methods of allocation as it determines necessary, to the extent permitted or required by Section 706 of the Code and the regulations or rulings promulgated thereunder. (h) Allocations that would otherwise be made to a Limited Partner under the provisions of this Article V shall instead be made to the beneficial owner of Units held by a nominee in any case in which the nominee has furnished the identity of such owner to the Partnership in accordance with Section 6031(c) of the Code or any other method acceptable to the General Partner in its sole discretion. Section 5.3 Requirement and Characterization of Distributions. (a) Within 45 days following the end of (i) the period beginning on the Initial Closing Date and ending on October 31, 1994 and (ii) each Quarter commencing with the Quarter beginning on November 1, 1994, an amount equal to 100% of Available Cash with respect to such Quarter shall be distributed in accordance with this Article V by the Partnership to the Partners, as of the Record Date selected by the General Partner in its reasonable discretion. All amounts of Available Cash distributed by the Partnership on any date from any source shall be deemed to be Cash from Operations until the sum of all amounts of Available Cash theretofore distributed by the Partnership to the Partners pursuant to Section 5.4 equals the aggregate amount of all Cash from Operations generated by the Partnership since the Initial Closing Date through the close of the immediately preceding Quarter. Any remaining amounts of Available Cash distributed by the Partnership on such date shall, except as otherwise provided in Section 5.5, be deemed to be Cash from Interim Capital Transactions. 45 (b) Notwithstanding the definitions of Available Cash and Cash from Operations contained herein, disbursements (including, without limitation, contributions to the Operating Partnership or disbursements on behalf of the Operating Partnership) made or cash reserves established, increased or reduced after the end of any Quarter but on or before the date on which the Partnership makes its distribution of Available Cash in respect of such Quarter as required by Section 5.3(a) shall be deemed to have been made, established, increased or reduced for purposes of determining Available Cash and Cash from Operations, within such Quarter if the General Partner so determines. Notwithstanding the foregoing, in the event of the dissolution and liquidation of the Partnership, all proceeds of such liquidation shall be applied and distributed in accordance with, and subject to the terms and conditions of, Sections 14.3 and 14.4. Section 5.4 Distributions of Cash from Operations and Additional Senior Units. Subject to Section 17-607 of the Delaware Act, Available Cash with respect to any Quarter that is deemed to be Cash from Operations pursuant to the provisions of Section 5.3 or 5.5 shall be distributed as follows, except as otherwise required by Section 4.3(b) in respect of additional Partnership Securities issued pursuant thereto and except that clauses (a), (b) and (c) of this Section 5.4 shall not be effective until the end of the Information Statement Period: (a) if during the Arrearage Period and if the Cumulative FCI Common Unit Arrearage is equal to zero immediately prior to making such distribution: (i) First, to the Limited Partners holding Senior Units, Pro Rata, in an amount equal to 100% less the Percentage Interest of the General Partner Interest, and to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, until there has been distributed in respect of each Senior Unit then Outstanding an amount equal to the Senior Unit Distribution and any accumulated and unpaid Senior Unit Distributions through the last day of the preceding Quarter; (ii) Second, to the Limited Partners holding Common Units (other than the holders of the FCI Common Units), Pro Rata, in an amount equal to 100% less the Percentage Interest of the General Partner Interest, and to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, until there has been distributed in respect of each Common Unit (other than any FCI Common Unit) then Outstanding an amount equal to the Minimum Quarterly Distribution; (iii) Third, to the Limited Partners holding Common Units (other than the holders of the FCI Common Units), Pro Rata, in an amount equal to 100% less the Percentage Interest of the General Partner Interest, and to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, until there has been distributed in respect of each Common Unit (other than any FCI Common Unit) then Outstanding an amount equal to the excess of the Ceiling Quarterly Distribution or the First Target Distribution (whichever is less) over the Minimum Quarterly Distribution; provided, that if the Ceiling Quarterly Distribution is used in this calculation, clauses (iv), (v) and (vi) of this Section 5.4(a) shall not be operative and the distribution shall proceed to Section 5.4(a)(vii); 46 (iv) Fourth, to the Limited Partners holding Common Units (other than the holders of the FCI Common Units), Pro Rata, in an amount equal to 86.8673%% less the Percentage Interest of the General Partner Interest, to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, and 13.1327% to the Special Limited Partners, Pro Rata, until there has been distributed in respect of each Common Unit (other than any FCI Common Unit) then Outstanding an amount equal to the excess of the Ceiling Quarterly Distribution or the Second Target Distribution (whichever is less) over the First Target Distribution; provided, that if the Ceiling Quarterly Distribution is used in this calculation, clauses (v) and (vi) of this Section 5.4(a) shall not be operative and the distribution shall proceed to Section 5.4(a)(vii); (v) Fifth, to the Limited Partners holding Common Units (other than the holders of the FCI Common Units), Pro Rata, in an amount equal to 76.7653%% less the Percentage Interest of the General Partner Interest, to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, and 23.2347% to the Special Limited Partners, Pro Rata, until there has been distributed in respect of each Common Unit (other than any FCI Common Unit) then Outstanding an amount equal to the excess of the Ceiling Quarterly Distribution or the Third Target Distribution (whichever is less) over the Second Target Distribution; provided, that if the Ceiling Quarterly Distribution is used in this calculation, clause (vi) of this Section 5.4(a) shall not be operative and the distribution shall proceed to Section 5.4(a)(vii); (vi) Sixth, to the Limited Partners holding Common Units (other than the holders of the FCI Common Units), Pro Rata, in an amount equal to 51.5102%% less the Percentage Interest of the General Partner Interest, to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, and 48.4898% to the Special Limited Partners, Pro Rata, until there has been distributed in respect of each Common Unit (other than any FCI Common Unit) then Outstanding an amount equal to the excess of the Ceiling Quarterly Distribution over the Third Target Distribution; and (vii) Thereafter, to the holders of the FCI Common Units, the holder of the General Partner Units and the Special Limited Partners in the same order and until the aggregate distributions on a per FCI Common Unit basis are the same amounts as the distributions made on a per Common Unit basis pursuant to Section 5.4(a)(ii) through 5.4(a)(vi) but with any distribution made to the Common Units made to the FCI Common Units; provided, however, that for this clause (a) at the point (the "Section 5.4(a) Threshold Point") in the application of clauses (ii) through (vii) above that the Cumulative FCI Common Unit Arrearage equals $36 million, the distribution shall continue pursuant to Section 5.4(c)(ii) (and beginning with the specific clause of Section 5.4(a)(ii) through (vi) applicable to the Section 5.4(a) Threshold Point) and Section 5.4(c)(iii) with respect to all Unitholders and the Special Limited Partners, as applicable, so that the FCI Common Units thereafter receive the distribution they otherwise would have received under that Section 5.4(c)(ii) (and the applicable clauses of Section 5.4(a)(ii) through (vi)) with any remainder distributed pursuant to Section 5.4(c)(iii); 47 (b) if during the Arrearage Period and if the Cumulative FCI Common Unit Arrearage immediately prior to making such distribution is greater than zero but less than $36 million: (i) First, to the Limited Partners holding Senior Units, Pro Rata, in an amount equal to 100% less the Percentage Interest of the General Partner Interest, and to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, until there has been distributed in respect of each Senior Unit then Outstanding an amount equal to the Senior Unit Distribution and any accumulated and unpaid Senior Unit Distributions through the last day of the preceding Quarter; (ii) Second, to the Unitholders (other than the holders of the FCI Common Units) and the Special Limited Partners, until there has been distributed in respect of each Common Unit (other than any FCI Common Unit) then Outstanding an amount equal to the Ceiling Quarterly Distribution in the order specified in Section 5.4(a)(ii) through 5.4(a)(vi); (iii) Third, to the Unitholders and the Special Limited Partners, in the same order and until the aggregate distributions on a per FCI Common Unit basis are the same amounts as the distributions made on a per Common Unit basis pursuant to Section 5.4(b)(ii) but with any distribution made to the Common Units made to the FCI Common Units; and (iv) Thereafter, to the holders of the FCI Common Units, the General Partner and the Special Limited Partners, until there has been distributed an amount equal to each Arrearage beginning with the Arrearage applicable to the oldest Quarter applied in the same manner and to the same holders of Units and Special Limited Partners as each such Arrearage was accrued pursuant to Sections 5.4(a) or 5.4(b); provided, however, that for this clause (b) at the point (the "Section 5.4(b) Threshold Point") in the application of clauses (ii) and (iii) above that the Cumulative FCI Common Unit Arrearage equals $36 million, the distribution shall continue pursuant to Section 5.4(c)(ii) (and beginning with the specific clause of Section 5.4(a)(ii) through (vi) applicable to the Section 5.4(b) Threshold Point) and Section 5.4(c)(iii) with respect to all Unitholders and the Special Limited Partners, as applicable, so that the FCI Common Units thereafter receive the distribution they otherwise would have received under that Section 5.4(c)(ii) (and the applicable clauses of Section 5.4(a)(ii) through (vi)) with any remainder distributed pursuant to Section 5.4(c)(iii); (c) if during the Arrearage Period and the Cumulative FCI Common Unit Arrearage equals $36 million or if after the Arrearage Period and if the Cumulative FCI Common Unit Arrearage is greater than zero: 48 (i) First, to the Limited Partners holding Senior Units, Pro Rata, in an amount equal to 100% less the Percentage Interest of the General Partner Interest, and to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, until there has been distributed in respect of each Senior Unit then Outstanding an amount equal to the Senior Unit Distribution and any accumulated and unpaid Senior Unit Distributions through the last day of the preceding Quarter; (ii) Second, to the Unitholders (including the holders of the FCI Common Units) and the Special Limited Partners, until there has been distributed in respect of each Common Unit (including any FCI Common Unit) then Outstanding an amount equal to the Ceiling Quarterly Distribution as if such distribution was made pursuant to Section 5.4(a)(ii) through 5.4(a)(vi) without the use of the phrases "(other than the holders of the FCI Common Units)" and "(other than any FCI Common Unit)"; and (iii) Thereafter, to the holders of the FCI Common Units, the General Partner and the Special Limited Partners, until there has been distributed an amount equal to each Arrearage beginning with the Arrearage applicable to the oldest Quarter applied in the same manner and to the same holders of Units and Special Limited Partners as each such Arrearage was accrued pursuant to Sections 5.4(a) or 5.4(b); or (d) if after the Arrearage Period and if the Cumulative FCI Common Unit Arrearage is zero: (i) First, to the Limited Partners holding Senior Units, Pro Rata, in an amount equal to 100% less the Percentage Interest of the General Partner Interest, and to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, until there has been distributed in respect of each Senior Unit then Outstanding an amount equal to the Senior Unit Distribution and any accumulated and unpaid Senior Unit Distributions through the last day of the preceding Quarter; (ii) Second, to the Unitholders, Pro Rata, until there has been distributed in respect of each Common Unit then Outstanding an amount equal to the Minimum Quarterly Distribution; (iii) Third, to the Unitholders, Pro Rata, until there has been distributed in respect of each Common Unit then Outstanding an amount equal to the excess of the First Target Distribution over the Minimum Quarterly Distribution; (iv) Fourth, to the Limited Partners holding Common Units (including holders of the FCI Common Units), Pro Rata, in an amount equal to 86.8673% less the Percentage Interest of the General Partner Interest, to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, and 13.1327% to the Special Limited Partners, Pro Rata, until there has been distributed in respect of each Common Unit then Outstanding an amount equal to the excess of the Second Target Distribution over the First Target Distribution; 49 (v) Fifth, to the Limited Partners holding Common Units (including holders of the FCI Common Units), Pro Rata, in an amount equal to 76.7653% less the Percentage Interest of the General Partner Interest, to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, and 23.2347% to the Special Limited Partners, Pro Rata, until there has been distributed in respect of each Common Unit then Outstanding an amount equal to the excess of the Third Target Distribution over the Second Target Distribution; and (vi) Thereafter, to the Limited Partners holding Common Units (including holders of the FCI Common Units), Pro Rata, in an amount equal to 51.5102% less the Percentage Interest of the General Partner Interest, to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, and 48.4898% to the Special Limited Partners, Pro Rata; provided, however, that for Sections 5.4(a), (b), (c) and (d): (1) notwithstanding the amount of Available Cash that is deemed to be Cash from Operations with respect to such Quarter, Senior Unit Distributions accruing prior to February 1, 2001, shall be paid by the issuance of additional Senior Units having an aggregate Senior Unit Liquidation Preference equal to the amount of such Senior Unit Distributions ("Additional Senior Units"), which may include fractional Senior Units or the cash equivalent thereof based on the Senior Unit Liquidation Preference; (2) if (A) the Senior Unit Distribution has been reduced to zero pursuant to the second sentence of Section 5.6(a), (B) all of the Senior Units have been converted pursuant to Section 5.7(b) or (C) all of the Senior Units have been redeemed pursuant to Section 17.2, then clause (i) of each of subsections (a), (b), (c) and (d) of this Section 5.4 shall terminate and have no further force or effect; and, (3) if the Minimum Quarterly Distribution, the First Target Distribution, the Second Target Distribution and the Third Target Distribution have been reduced to zero pursuant to the second sentence of Section 5.6(b), then subsections (a)(ii) through (a)(v), b(ii) and b(iii) as they relate to (a)(ii) through a(v), c(ii) as it relates to (a)(ii) through (a)(v) and d(ii) through (d)(v) of this Section 5.4 shall terminate and have no further force or effect. Section 5.5 Distributions of Cash from Interim Capital Transactions. Subject to Section 17-607 of the Delaware Act, Available Cash that constitutes Cash from Interim Capital Transactions shall be distributed, unless the provisions of Section 5.3 require otherwise, as follows: (a) First, to the Limited Partners holding Senior Units, Pro Rata, in an amount equal to 100% less the Percentage Interest of the General Partner Interest, and to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, until there has been distributed in respect of each Senior Unit then Outstanding an amount equal to any accumulated and unpaid Senior Unit Distribution through such date; 50 (b) Second, to the Limited Partners holding Senior Units, Pro Rata, in an amount equal to 100% less the Percentage Interest of the General Partner Interest, and to the General Partner in an amount equal to the Percentage Interest of its General Partner Interest, until a hypothetical holder of a Senior Unit acquired on the WNGL Closing Date has received with respect to such Senior Unit, during the period since the WNGL Closing Date through such date, distributions of Available Cash that are deemed to be Cash from Interim Capital Transactions in an aggregate amount equal to the Senior Unit Liquidation Preference; (c) Third, to the Unitholders, Pro Rata, until a hypothetical holder of a Common Unit acquired on the Initial Closing Date has received with respect to such Common Unit, during the period since the Initial Closing Date through such date, distributions of Available Cash that are deemed to be Cash from Interim Capital Transactions in an aggregate amount equal to the Initial Unit Price; and (d) Thereafter, all Available Cash shall be distributed as if it were Cash from Operations and shall be distributed in accordance with Section 5.4. Section 5.6 Adjustment of Senior Unit Liquidation Preference, Senior Unit Distribution, Minimum Quarterly Distribution and Target Distribution Levels. (a) The Senior Unit Liquidation Preference and the Senior Unit Distribution shall be proportionately adjusted in the event of any distribution, combination or subdivision (whether effected by a distribution payable in Senior Units or otherwise) of Senior Units in accordance with Section 4.10. In the event of a distribution of Available Cash to the Limited Partners holding Senior Units pursuant to Section 5.5(b), the Senior Unit Liquidation Preference shall be reduced by the amount of that distribution to the Limited Partners holding Senior Units, Pro Rata. In the event of a distribution of Available Cash to the Limited Partners holding Senior Units pursuant to Section 5.5(b), the Senior Unit Distribution shall be adjusted proportionately downward to equal the product obtained by multiplying the otherwise applicable Senior Unit Distribution by a fraction of which the numerator is the Senior Unit Liquidation Preference immediately after giving effect to such distribution and of which the denominator is the Senior Unit Liquidation Preference immediately prior to giving effect to such distribution. (b) The Minimum Quarterly Distribution, First Target Distribution, Second Target Distribution and Third Target Distribution shall be proportionately adjusted in the event of any distribution, combination or subdivision (whether effected by a distribution payable in Units or otherwise) of Units or other Partnership Securities in accordance with Section 4.10. If a distribution of Available Cash is made that is deemed to be Cash from Interim Capital Transactions, the Minimum Quarterly Distribution, First Target Distribution, Second Target Distribution and Third Target Distribution shall be adjusted proportionately downward to equal the product obtained by multiplying the otherwise applicable Minimum Quarterly Distribution, First Target Distribution, Second Target Distribution and Third Target Distribution, as the case may be, by a fraction of which the numerator is the Unrecovered Initial Unit Price of the Common Units immediately after giving effect to such distribution and of which the denominator is the Unrecovered Initial Unit Price of the Common Units immediately prior to giving effect to such distribution. 51 (c) The Minimum Quarterly Distribution, First Target Distribution, Second Target Distribution and Third Target Distribution shall also be subject to adjustment pursuant to Section 9.6. Section 5.7 Special Provisions Relating to the Senior Units. (a) Immediately upon the conversion of Senior Units into Common Units as provided in Section 5.7(b), the holder of a Senior Unit so converted shall possess all of the rights and obligations of a Limited Partner holding Common Units hereunder, including, without limitation, the right to vote as a Limited Partner holding Common Units, the right to participate in allocations of income, gain, loss and deduction and distributions of cash made with respect to Common Units pursuant to this Article V. (b) Each holder of Senior Units shall have the right, at its option, subject to the terms of this Section 5.7, to convert any or all of such holders' Senior Units into Common Units at any time during the time period commencing upon the earlier to occur of: (i) December 31, 2005, upon not less than 90 days prior written notice to the Partnership (which notice may be given prior to December 31, 2005) in accordance with Section 5.7(d), or (ii) a Material Event, upon not less than 10 days prior written notice to the Partnership in accordance with Section 5.7(d); provided, however, that prior to the expiration of such 10-day period, the holders of the Senior Units may revoke their election to convert Senior Units into Common Units at any time during the pendency of a Material Event by written notice to the Partnership; and ending on the date upon which the holders of the Senior Units give the Partnership notice of their election to exercise their registration rights with respect to the Senior Units pursuant to the WNGL Registration Rights Agreement. (c) If the holders of the Senior Units elect to convert any or all of their Senior Units into Common Units, such number of Senior Units shall be converted into a number of fully paid and nonassessable (subject to Section 17-607 of the Delaware Act) Common Units as is equal, subject to Section 5.7(g), to the number of Senior Units being so converted, multiplied by the sum of (A) the Senior Unit Liquidation Preference plus (B) any accumulated and unpaid Senior Unit Distributions to and including the date of conversion, with the product then divided by the Current Market Price of the Common Units as of the date of conversion. (d) The holders of the Senior Units shall exercise the right to convert by the delivery of written notice, at the Partnership's principal place of business, during the applicable time period specified in (b) above, that the holder elects to convert all or a portion of the Senior Units represented by such Certificates and, subject to Section 5.7(i), specifying the name or names (with address) in which Certificates representing Common Units are to be issued. Upon the expiration of the applicable time period specified in (b) above, each converting holder of Senior Units shall be deemed to be the holder of record of the number of Common Units issuable upon conversion in accordance with (c) above, notwithstanding that the Certificates representing such Common Units shall not then actually be delivered to such Person. Upon notice from the Partnership, each holder of Senior Units so converted shall promptly surrender to the Partnership or the Transfer Agent, Certificates representing the Senior Units so converted, in proper transfer form. On the date of conversion, all rights with respect to the Senior Units so converted will terminate except for the right of holders to receive Certificates for the number of Common Units into which such Senior Units have been converted. If the date for the conversion of Senior Units into Common Units shall not be a Business Day, then such conversion shall occur on the next Business Day. Each Senior Unit shall be canceled by the General Partner upon its conversion. 52 (e) During the period beginning on the first of the twenty (20) Trading Days immediately prior to the date of conversion through and including the date of conversion, the Partnership shall not take any action that will affect the Common Units, including, without limitation, the following: (i) (A) make a redemption payment or make a distribution payable in Common Units on any class of Partnership Interest (which, for purposes of this Section 5.7(e) shall include, without limitation, any distributions in the form of options, warrants or other rights to acquire Partnership Interests) of the Partnership (other than the issuance of Common Units in connection with the payment in redemption for, of distributions on or the conversion of Senior Units); (B) subdivide the outstanding Common Units into a larger number of Common Units; (C) combine the outstanding Common Units into a smaller number of Common Units; (D) issue any of its Partnership Securities in a reclassification of the Common Units; or (E) set a Record Date with respect to any of the events described in (A) through (D); (ii) issue to all holders of its Common Units rights, options or warrants entitling the holders thereof to subscribe for or purchase Common Units (or securities convertible into or exchangeable for Common Units) other than issuances of such rights, options or warrants if the holder of Senior Units would be entitled to receive such rights, options or warrants upon conversion at any time of Senior Units; (iii) (A) other than distributions consistent with past practice, make a Pro Rata distribution to all holders of Common Units consisting exclusively of cash (excluding any cash distributed upon a merger or consolidation to which paragraph (g) below applies), or (B) make a distribution to all holders of its Common Units consisting of evidences of indebtedness, its Partnership Interests other than Common Units or assets (including securities, but excluding those rights, options, warrants and distributions referred to in paragraphs (e)(i) or (e)(ii) above); or (iv) issue or sell Common Units or securities convertible into or exchangeable for Common Units, or any options, warrants or other rights to acquire Common Units. (f) No fractional Common Units shall be issued upon the conversion of any Senior Units. If more than one Senior Unit shall be surrendered for conversion at one time by the same holder, the number of full Common Units issuable upon conversion thereof shall be computed on the basis of the aggregate Senior Unit Liquidation Preference of the Senior Units so surrendered. If the conversion of any Senior Units results in a fraction, an amount equal to such fraction multiplied by the Current Market Price of the Common Units as of the date of conversion shall be paid to such holder in cash by the Partnership. 53 (g) In the event of any (i) capital reorganization or reclassification or other change of outstanding Common Units, (ii) consolidation or merger of the Partnership with or into another Person in accordance with Section 16.1(b) (other than a consolidation or merger in which the Partnership is the Surviving Business Entity and which does not result in any reclassification or change of outstanding Common Units) or (iii) sale or other disposition to another Person of all or substantially all of the assets of the Partnership, computed on a consolidated basis in accordance with Section 16.1(b) (any of the foregoing, a "Transaction"), lawful provision shall be made such that the Senior Units will be convertible only into the kind and amount of stock or other securities (of the Partnership or another issuer) or property or cash receivable upon such Transaction by a holder of the number of Common Units into which such Senior Units could have been converted immediately prior to such Transaction. The provisions of this Section 5.7(g) and any equivalent thereof in any governing document of the Surviving Business Entity similarly shall apply to successive Transactions. (h) The Partnership shall not enter into any agreement that would prohibit the issuance of the number of Common Units as will from time to time be sufficient to permit the conversion of all outstanding Senior Units. (i) The issuance or delivery of certificates for Common Units upon the conversion of Senior Units shall be made without charge to the converting holder of Senior Units for such certificates or for any tax in respect of the issuance or delivery of such certificates or the securities represented thereby, and such certificates shall be issued or delivered in the respective names of, or in such names as may be directed by, the holders of the Senior Units converted; provided, however, that the Partnership shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificate in a name other than that of the holder of the Senior Units converted, and the Partnership shall not be required to issue or deliver such certificate unless or until the Person or Persons requesting the issuance or delivery thereof shall have paid to the Partnership the amount of such tax or shall have established to the reasonable satisfaction of the Partnership that such tax has been paid. (j) The Partnership covenants that all Common Units which may be delivered upon conversion of Senior Units will be newly issued Common Units, will have been duly authorized and validly issued and will be fully paid and non-assessable (except as such non-assessability may be affected by Section 17-607 of the Delaware Act). (k) The Common Units issued by the Partnership upon conversion of the Senior Units shall have, as a substantive manner in the hands of a subsequent holder, like intrinsic economic and federal income tax characteristics in all material respects, to the intrinsic economic and federal income tax characteristics of a Common Unit then Outstanding. Section 5.8 Special Provisions Relating to the Special Limited Partners. Notwithstanding anything to the contrary set forth in this Agreement, the Special Limited Partners (a) shall (i) possess the rights and obligations provided in this Agreement with respect to a Limited Partner pursuant to Articles VI and VII and (ii) have a Capital Account as a Partner pursuant to Section 4.5 and all other provisions related thereto and (b) shall not (i) be entitled to vote on any matters requiring the approval or vote of the holders of Outstanding Units, (ii) be entitled to any distributions other than to Partners as specified pursuant to Sections 5.4, 14.3 and 14.4 or (iii) be allocated items of income, gain, loss or deduction other than as specified in this Article V. 54 Section 5.9 Special Provision Relating to FCI Common Units. Without the prior written consent of FCI and notwithstanding any other provision of this Agreement, neither the General Partner nor the Partnership shall declare a distribution on a Common Unit for any Quarter in an amount in excess of the Ceiling Quarterly Distribution if the Cumulative FCI Common Unit Arrearage is or will be, based on that Quarter's distribution, greater than zero. ARTICLE VI MANAGEMENT AND OPERATION OF BUSINESS Section 6.1 Management. (a) The General Partner shall conduct, direct and manage all activities of the Partnership. Except as otherwise expressly provided in this Agreement, all management powers over the business and affairs of the Partnership shall be exclusively vested in the General Partner, and no Limited Partner or Assignee shall have any management power over the business and affairs of the Partnership. In addition to the powers now or hereafter granted a general partner of a limited partnership under applicable law or which are granted to the General Partner under any other provision of this Agreement, the General Partner, subject to Section 6.3, shall have full power and authority to do all things and on such terms as it, in its sole discretion, may deem necessary or appropriate to conduct the business of the Partnership, to exercise all powers set forth in Section 3.2 and to effectuate the purposes set forth in Section 3.1, including, without limitation, (i) the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness and the incurring of any other obligations; (ii) the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Partnership; (iii) the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any or all of the assets of the Partnership or the merger or other combination of the Partnership with or into another Person (the matters described in this clause (iii) being subject, however, to any prior approval that may be required by Section 6.3); (iv) the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement, including, without limitation, the financing of the conduct of the operations of the Partnership or the Operating Partnership, the lending of funds to other Persons (including, without limitation, the Operating Partnership, the General Partner and Affiliates of the General Partner) and the repayment of obligations of the Partnership and the Operating Partnership and the making of capital contributions to the Operating Partnership; (v) the negotiation, execution and performance of any contracts, conveyances or other instruments (including, without limitation, instruments that limit the liability of the Partnership under contractual arrangements to all or particular assets of the Partnership, with the other party to the contract to have no recourse against the General Partner or its assets other than its interest in the Partnership, even if same 55 results in the terms of the transaction being less favorable to the Partnership than would otherwise be the case); (vi) the distribution of Partnership cash; (vii) the selection and dismissal of employees and agents (including, without limitation, employees having titles such as "president," "vice president," "secretary" and "treasurer") and agents, outside attorneys, accountants, consultants and contractors and the determination of their compensation and other terms of employment or hiring; (viii) the maintenance of such insurance for the benefit of the Partnership, the Operating Partnership and the Partners (including, without limitation, the assets of the Operating Partnership and the Partnership) as it deems necessary or appropriate; (ix) the formation of, or acquisition of an interest in, and the contribution of property and the making of loans to, any further limited or general partnerships, joint ventures, corporations or other relationships (including, without limitation, the acquisition of interests in, and the contributions of property to, the Operating Partnership from time to time); (x) the control of any matters affecting the rights and obligations of the Partnership, including, without limitation, the bringing and defending of actions at law or in equity and otherwise engaging in the conduct of litigation and the incurring of legal expense and the settlement of claims and litigation; (xi) the indemnification of any Person against liabilities and contingencies to the extent permitted by law; (xii) the entering into of listing agreements with The New York Stock Exchange, Inc. and any other securities exchange and the delisting of some or all of the Units from, or requesting that trading be suspended on, any such exchange (subject to any prior approval that may be required under Section 1.6); (xiii) the purchase, sale or other acquisition or disposition of Units; and (xiv) the undertaking of any action in connection with the Partnership's participation in the Operating Partnership as the limited partner (including, without limitation, contributions or loans of funds by the Partnership to the Operating Partnership). (b) Notwithstanding any other provision of this Agreement, the Operating Partnership Agreement, the Delaware Act or any applicable law, rule or regulation, each of the Partners and Assignees and each other Person who may acquire an interest in Units hereby (i) approves, ratifies and confirms the execution, delivery and performance by the parties thereto of the Operating Partnership Agreement, the Underwriting Agreement, the Contribution Agreement, the agreements and other documents filed as exhibits to the Registration Statement, and the other agreements described in or filed as a part of the Registration Statement, and the engaging by any Affiliate of the General Partner in business and activities (other than Restricted Activities) that are in direct competition with the business and activities of the Partnership and the Operating Partnership; (ii) agrees that the General Partner (on its own or through any officer of the Partnership) is authorized to execute, deliver and perform the agreements referred to in clause (i) of this sentence and the other agreements, acts, transactions and matters described in or contemplated by the Registration Statement on behalf of the Partnership without any further act, approval or vote of the Partners or the Assignees or the other Persons who may acquire an interest in Units; and (iii) agrees that the execution, delivery or performance by the General Partner, the Partnership, the Operating Partnership or any Affiliate of any of them, of this Agreement or any agreement authorized or permitted under this Agreement (including, without limitation, the exercise by the General Partner or any Affiliate of the General Partner of the rights accorded pursuant to Article XVII), or the engaging by any Affiliate of the General Partner in any business and activities (other than Restricted Activities) that are in direct competition with the business and activities of the Partnership and the Operating Partnership, shall not constitute a breach by the General Partner of any duty that the General Partner may owe the Partnership or the Limited Partners or the Assignees or any other Persons under this Agreement (or any other agreements) or of any duty stated or implied by law or equity. The term "Affiliate" when used in this Section 6.1(b) with respect to the General Partner shall not include the Partnership or any Subsidiary of the Partnership. 56 Section 6.2 Certificate of Limited Partnership. The General Partner has caused the Certificate of Limited Partnership to be filed with the Secretary of State of the State of Delaware as required by the Delaware Act and shall use all reasonable efforts to cause to be filed such other certificates or documents as may be determined by the General Partner in its sole discretion to be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited partnership (or a partnership in which the limited partners have limited liability) in the State of Delaware or any other state in which the Partnership may elect to do business or own property. To the extent that such action is determined by the General Partner in its sole discretion to be reasonable and necessary or appropriate, the General Partner shall file amendments to and restatements of the Certificate of Limited Partnership and do all things to maintain the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) under the laws of the State of Delaware or of any other state in which the Partnership may elect to do business or own property. Subject to the terms of Section 7.5(a), the General Partner shall not be required, before or after filing, to deliver or mail a copy of the Certificate of Limited Partnership, any qualification document or any amendment thereto to any Limited Partner or Assignee. Section 6.3 Restrictions on General Partner's Authority. (a) The General Partner may not, without written approval of the specific act by all of the Outstanding Common Units or by other written instrument executed and delivered by all of the Outstanding Common Units subsequent to the date of this Agreement, take any action in contravention of this Agreement, including, without limitation, (i) any act that would make it impossible to carry on the ordinary business of the Partnership, except as otherwise provided in this Agreement; (ii) possess Partnership property, or assign any rights in specific Partnership property, for other than a Partnership purpose; (iii) admit a Person as a Partner, except as otherwise provided in this Agreement; (iv) amend this Agreement in any manner, except as otherwise provided in this Agreement; or (v) transfer its interest as general partner of the Partnership, except as otherwise provided in this Agreement. (b) Except as provided in Articles XIV and XVI, the General Partner may not sell, exchange or otherwise dispose of all or substantially all of the Partnership's assets in a single transaction or a series of related transactions or approve on behalf of the Partnership the sale, exchange or other disposition of all or substantially all of the assets of the Operating Partnership, without the approval of the holders of at least a majority of the Outstanding Common Units; provided, however, that this provision shall not preclude or limit the General Partner's ability to mortgage, pledge, hypothecate or grant a security interest in all or substantially all of the Partnership's assets and shall not apply to any forced sale of any or all of the Partnership's assets pursuant to the foreclosure of, or other realization upon, any such encumbrance. Without the approval of the holders of at least two-thirds of the Outstanding Common Units, the General Partner shall not, on behalf of the Partnership, (i) consent to any amendment to the Operating Partnership Agreement or, except as expressly permitted by Section 6.9(d), take any action permitted to be taken by a partner of the Operating Partnership, in either case, that would have a material adverse effect on the Partnership as a partner of the Operating Partnership or (ii) except as permitted under Sections 11.2, 13.1 and 13.2 elect or cause the Partnership to elect a successor general partner of the Operating Partnership. 57 (c) Unless approved by the affirmative vote of the holders of at least two-thirds of the Outstanding Common Units (excluding for purposes of such determination Common Units owned by the General Partner and its Affiliates), the General Partner shall not take any action or refuse to take any reasonable action the effect of which, if taken or not taken, as the case may be, would be to cause the Partnership or the Operating Partnership to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes; provided that this Section 6.3(c) shall not be construed to apply to amendments to this Agreement (which are governed by Article XV) or mergers or consolidations of the Partnership with any Person (which are governed by Article XVI). Section 6.4 Reimbursement of the General Partner. (a) Except as provided in this Section 6.4 and elsewhere in this Agreement or in the Operating Partnership Agreement, the General Partner shall not be compensated for its services as general partner of the Partnership or the Operating Partnership. (b) The General Partner shall be reimbursed on a monthly basis, or such other basis as the General Partner may determine in its sole discretion, for (i) all direct and indirect expenses it incurs or payments it makes on behalf of the Partnership (including, without limitation, salary, bonus, incentive compensation and other amounts paid to any Person to perform services for the Partnership or for the General Partner in the discharge of its duties to the Partnership), and (ii) all other necessary or appropriate expenses allocable to the Partnership or otherwise reasonably incurred by the General Partner in connection with operating the Partnership's business (including, without limitation, expenses allocated to the General Partner by its Affiliates). The General Partner shall determine the fees and expenses that are allocable to the Partnership in any reasonable manner determined by the General Partner in its sole discretion. Reimbursements pursuant to this Section 6.4 shall be in addition to any reimbursement to the General Partner as a result of indemnification pursuant to Section 6.7. (c) Subject to Section 4.3(c), the General Partner in its sole discretion and without the approval of the Limited Partners (who shall have no right to vote in respect thereof) may propose and adopt on behalf of the Partnership, employee benefit and incentive plans (including, without limitation, plans involving the issuance of Units), or issue Partnership Securities pursuant to any employee benefit or incentive plan maintained or sponsored by the General Partner or one of its Affiliates, in each case for the benefit of employees of the General Partner, the Partnership, the Operating Partnership or any Affiliate of any of them in respect of services performed, directly or indirectly, for the benefit of the Partnership or the Operating Partnership. The Partnership agrees to issue and sell to the General Partner any Units or other Partnership Securities that the General Partner is obligated to provide to any employees pursuant to any such benefit or incentive plans. Expenses incurred by the General Partner in connection with any such plans (including the net cost to the General Partner of Units purchased by the General Partner from the Partnership to fulfill options or awards under such plans) shall be reimbursed in accordance with Section 6.4(b). Any and all obligations of the General Partner under any employee benefit or incentive plans adopted by the General Partner as permitted by this Section 6.4(c) shall constitute obligations of the General Partner hereunder and shall be assumed by any successor General Partner approved pursuant to Section 13.1 or 13.2 or the transferee of or successor to all of the General Partner Interest pursuant to Section 11.2. 58 Section 6.5 Outside Activities. (a) After the Initial Closing Date, the General Partner, for so long as it is the general partner of the Partnership, (i) agrees that its sole business will be to act as a general partner of the Partnership, the Operating Partnership and any other partnership of which the Partnership or the Operating Partnership is, directly or indirectly, a partner and to undertake activities that are ancillary or related thereto (including being a limited partner in the Partnership), (ii) shall not enter into or conduct any business or incur any debts or liabilities except in connection with or incidental to (A) its performance of the activities required or authorized by this Agreement or the Operating Partnership Agreement or described in or contemplated by the Registration Statement and (B) the acquisition, ownership or disposition of Partnership Interests in the Partnership or partnership interests in the Operating Partnership or any other partnership of which the Partnership or the Operating Partnership is, directly or indirectly, a partner, except that, notwithstanding the foregoing, employees of the General Partner may perform services for FCI and its Affiliates, and (iii) shall not and shall cause its Affiliates not to engage in any Restricted Activity. (b) Except as described in Section 6.5(a), no Indemnitee shall be expressly or implicitly restricted or proscribed pursuant to this Agreement, the Operating Partnership Agreement or the partnership relationship established hereby or thereby from engaging in other activities for profit, whether in the businesses engaged in by the Partnership or the Operating Partnership or anticipated to be engaged in by the Partnership, the Operating Partnership or otherwise, including, without limitation, in the case of any Affiliates of the General Partner those businesses and activities (other than Restricted Activities) in direct competition with the business and activities of the Partnership or the Operating Partnership or otherwise described in or contemplated by the Registration Statement. Without limitation of and subject to the foregoing each Indemnitee (other than the General Partner) shall have the right to engage in businesses of every type and description and to engage in and possess an interest in other business ventures of any and every type or description, independently or with others, including, without limitation, in the case of any Affiliates of the General Partner business interests and activities (other than Restricted Activities) in direct competition with the business and activities of the Partnership or the Operating Partnership, and none of the same shall constitute a breach of this Agreement or any duty to the Partnership, the Operating Partnership or any Partner or Assignee. Neither the Partnership, the Operating Partnership, any Limited Partner nor any other Person shall have any rights by virtue of this Agreement, the Operating Partnership Agreement or the partnership relationship established hereby or thereby in any business ventures of any Indemnitee (subject, in the case of the General Partner, to compliance with Section 6.5(c)) and such Indemnitees shall have no obligation to offer any interest in any such business ventures to the Partnership, the Operating Partnership, any Limited Partner or any other Person. The General Partner and any other Persons affiliated with the General Partner may acquire Units or other Partnership Securities in addition to those acquired by any of such Persons on the Initial Closing Date, and, except as otherwise provided in this Agreement, shall be entitled to exercise all rights of an Assignee or Limited Partner, as applicable, relating to such Units or Partnership Securities, as the case may be. 59 (c) Subject to the terms of Sections 6.5(a) and (b) but otherwise notwithstanding anything to the contrary in this Agreement, (i) the competitive activities of any Indemnitees (other than the General Partner) are hereby approved by the Partnership and all Partners and (ii) it shall be deemed not to be a breach of the General Partner's fiduciary duty or any other obligation of any type whatsoever of the General Partner for the General Partner to permit an Affiliate of the General Partner to engage, or for any such Affiliate to engage, in business interests and activities (other than Restricted Activities) in preference to or to the exclusion of the Partnership. (d) The term "Affiliates" when used in this Section 6.5 with respect to the General Partner shall not include the Partnership or any Subsidiary of the Partnership. Section 6.6 Loans to and from the General Partner; Contracts with Affiliates. (a) The General Partner or any Affiliate thereof may lend to the Partnership or the Operating Partnership, and the Partnership and the Operating Partnership may borrow, funds needed or desired by the Partnership and the Operating Partnership for such periods of time as the General Partner may determine and (ii) the General Partner or any Affiliate thereof may borrow from the Partnership or the Operating Partnership, and the Partnership and the Operating Partnership may lend to the General Partner or such Affiliate, excess funds of the Partnership and the Operating Partnership for such periods of time and in such amounts as the General Partner may determine; provided, however, that in either such case the lending party may not charge the borrowing party interest at a rate greater than the rate that would be charged the borrowing party (without reference to the lending party's financial abilities or guarantees), by unrelated lenders on comparable loans. The borrowing party shall reimburse the lending party for any costs (other than any additional interest costs) incurred by the lending party in connection with the borrowing of such funds. For purposes of this Section 6.6(a) and Section 6.6(b), the term "Partnership" shall include any Affiliate of the Partnership that is controlled by the Partnership and the term "Operating Partnership" shall include any Affiliate of the Operating Partnership that is controlled by the Operating Partnership. (b) The Partnership may lend or contribute to the Operating Partnership, and the Operating Partnership may borrow, funds on terms and conditions established in the sole discretion of the General Partner; provided, however, that the Partnership may not charge the Operating Partnership interest at a rate greater than the rate that would be charged to the Operating Partnership (without reference to the General Partner's financial abilities or guarantees), by unrelated lenders on comparable loans. The foregoing authority shall be exercised by the General Partner in its sole discretion and shall not create any right or benefit in favor of the Operating Partnership or any other Person. 60 (c) The General Partner may itself, or may enter into an agreement with any of its Affiliates to, render services to the Partnership or to the General Partner in the discharge of its duties as general partner of the Partnership. Any services rendered to the Partnership by the General Partner or any of its Affiliates shall be on terms that are fair and reasonable to the Partnership; provided, however, that the requirements of this Section 6.6(c) shall be deemed satisfied as to (i) any transaction approved by Special Approval, (ii) any transaction, the terms of which are no less favorable to the Partnership than those generally being provided to or available from unrelated third parties or (iii) any transaction that, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Partnership), is equitable to the Partnership. The provisions of Section 6.4 shall apply to the rendering of services described in this Section 6.6(c). (d) The Partnership may transfer assets to joint ventures, other partnerships, corporations, limited liability companies or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions as are consistent with this Agreement and applicable law. (e) Neither the General Partner nor any of its Affiliates shall sell, transfer or convey any property to, or purchase any property from, the Partnership, directly or indirectly, except pursuant to transactions that are fair and reasonable to the Partnership; provided, however, that the requirements of this Section 6.6(e) shall be deemed to be satisfied as to (i) the transactions effected pursuant to Sections 4.1, 4.2 and 4.3, the Contribution Agreement and any other transactions described in or contemplated by the Registration Statement, (ii) any transaction approved by Special Approval, (iii) any transaction, the terms of which are no less favorable to the Partnership than those generally being provided to or available from unrelated third parties, or (iv) any transaction that, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Partnership), is equitable to the Partnership. (f) The General Partner and its Affiliates will have no obligation to permit the Partnership or the Operating Partnership to use any facilities or assets of the General Partner and its Affiliates, except as may be provided in contracts entered into from time to time specifically dealing with such use, nor shall there be any obligation on the part of the General Partner or its Affiliates to enter into such contracts. (g) Without limitation of Sections 6.6(a) through 6.6(f), and notwithstanding anything to the contrary in this Agreement, the existence of the conflicts of interest described in the Registration Statement are hereby approved by all Partners. Section 6.7 Indemnification. (a) To the fullest extent permitted by law but subject to the limitations expressly provided in this Agreement, the General Partner, any Departing Partner and any Person who is or was an officer or director of the General Partner or any Departing Partner and all other Indemnitees shall be indemnified and held harmless by the Partnership from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, legal fees and expenses), judgments, fines, penalties, interest, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, by reason of its status as (i) the General Partner, a Departing Partner or any of their Affiliates, (ii) an officer, director, employee, partner, agent or trustee of the Partnership, the General Partner, any Departing Partner or any of their Affiliates or (iii) a Person serving at the request of the Partnership in another entity in a similar capacity, provided, that in each case the Indemnitee acted in good faith and in a manner which such Indemnitee reasonably believed to be in, or not opposed to, the best interests of the Partnership and, with respect to any criminal proceeding, had no reasonable cause to believe its conduct was unlawful; provided, further, no indemnification pursuant to this Section 6.7 shall be available to the General Partner with respect to its obligations incurred pursuant to the Underwriting Agreement or the Contribution Agreement (other than obligations incurred by the General Partner on behalf of the Partnership or the Operating Partnership). The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that the Indemnitee acted in a manner contrary to that specified above. Any indemnification pursuant to this Section 6.7 shall be made only out of the assets of the Partnership, it being agreed that the General Partner shall not be personally liable for such indemnification and shall have no obligation to contribute or loan any monies or property to the Partnership to enable it to effectuate such indemnification. 61 (b) To the fullest extent permitted by law, expenses (including, without limitation, legal fees and expenses) incurred by an Indemnitee who is indemnified pursuant to Section 6.7(a) in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Partnership prior to the final disposition of such claim, demand, action, suit or proceeding upon receipt by the Partnership of an undertaking by or on behalf of the Indemnitee to repay such amount if it shall be determined that the Indemnitee is not entitled to be indemnified as authorized in this Section 6.7. (c) The indemnification provided by this Section 6.7 shall be in addition to any other rights to which an Indemnitee may be entitled under any agreement, pursuant to any vote of the holders of Outstanding Units, as a matter of law or otherwise, both as to actions in the Indemnitee's capacity as (i) the General Partner, a Departing Partner or an Affiliate thereof, (ii) an officer, director, employee, partner, agent or trustee of the Partnership, the General Partner, any Departing Partner or an Affiliate thereof or (iii) a Person serving at the request of the Partnership in another entity in a similar capacity, and as to actions in any other capacity (including, without limitation, any capacity under the Underwriting Agreement), and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee. (d) The Partnership may purchase and maintain (or reimburse the General Partner or its Affiliates for the cost of) insurance, on behalf of the General Partner and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expense that may be incurred by such Person in connection with the Partnership's activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement. (e) For purposes of this Section 6.7, the Partnership shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Partnership also imposes duties on, or otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute "fines" within the meaning of Section 6.7(a); and action taken or omitted by it with respect to an employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is in, or not opposed to, the best interests of the Partnership. 62 (f) In no event may an Indemnitee subject the Limited Partners to personal liability by reason of the indemnification provisions set forth in this Agreement. (g) An Indemnitee shall not be denied indemnification in whole or in part under this Section 6.7 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement. (h) The provisions of this Section 6.7 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. (i) No amendment, modification or repeal of this Section 6.7 or any provision hereof shall in any manner terminate, reduce or impair the right of any past, present or future Indemnitee to be indemnified by the Partnership, nor the obligation of the Partnership to indemnify any such Indemnitee under and in accordance with the provisions of this Section 6.7 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted. Section 6.8 Liability of Indemnitees. (a) Notwithstanding anything to the contrary set forth in this Agreement, no Indemnitee shall be liable for monetary damages to the Partnership, the Limited Partners, the Assignees or any other Persons who have acquired interests in the Units, for losses sustained or liabilities incurred as a result of any act or omission if such Indemnitee acted in good faith. (b) Subject to its obligations and duties as General Partner set forth in Section 6.1(a), the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its agents, and the General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by the General Partner in good faith. (c) Any amendment, modification or repeal of this Section 6.8 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the liability to the Partnership and the Limited Partners of the General Partner, its directors, officers and employees under this Section 6.8 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted. 63 Section 6.9 Resolution of Conflicts of Interest. (a) Unless otherwise expressly provided in this Agreement or the Operating Partnership Agreement, whenever a potential conflict of interest exists or arises between the General Partner or any of its Affiliates, on the one hand, and the Partnership, the Operating Partnership, any Partner or any Assignee, on the other, any resolution or course of action in respect of such conflict of interest shall be permitted and deemed approved by all Partners, and shall not constitute a breach of this Agreement, of the Operating Partnership Agreement, of any agreement contemplated herein or therein, or of any duty stated or implied by law or equity, if the resolution or course of action is, or by operation of this Agreement is deemed to be, fair and reasonable to the Partnership. The General Partner shall be authorized but not required in connection with its resolution of such conflict of interest to seek Special Approval of a resolution of such conflict or course of action. Any conflict of interest and any resolution of such conflict of interest shall be conclusively deemed fair and reasonable to the Partnership if such conflict of interest or resolution is (i) approved by Special Approval, (ii) on terms no less favorable to the Partnership than those generally being provided to or available from unrelated third parties or (iii) fair to the Partnership, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Partnership). The General Partner may also adopt a resolution or course of action that has not received Special Approval. The General Partner (including the Audit Committee in connection with Special Approval) shall be authorized in connection with its determination of what is "fair and reasonable" to the Partnership and in connection with its resolution of any conflict of interest to consider (A) the relative interests of any party to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interest; (B) any customary or accepted industry practices and any customary or historical dealings with a particular Person; (C) any applicable generally accepted accounting practices or principles; and (D) such additional factors as the General Partner (including such Audit Committee) determines in its sole discretion to be relevant, reasonable or appropriate under the circumstances. Nothing contained in this Agreement, however, is intended to nor shall it be construed to require the General Partner (including such Audit Committee) to consider the interests of any Person other than the Partnership. In the absence of bad faith by the General Partner, the resolution, action or terms so made, taken or provided by the General Partner with respect to such matter shall not constitute a breach of this Agreement or any other agreement contemplated herein or a breach of any standard of care or duty imposed herein or therein or under the Delaware Act or any other law, rule or regulation. (b) Whenever this Agreement or any other agreement contemplated hereby provides that the General Partner or any of its Affiliates is permitted or required to make a decision (i) in its "sole discretion" or "discretion," that it deems "necessary or appropriate" or under a grant of similar authority or latitude, the General Partner or such Affiliate shall be entitled to consider only such interests and factors as it desires and shall have no duty or obligation to give any consideration to any interest of, or factors affecting, the Partnership, the Operating Partnership, any Limited Partner or any Assignee, (ii) it may make such decision in its sole discretion (regardless of whether there is a reference to "sole discretion" or "discretion") unless another express standard is provided for, or (iii) in "good faith" or under another express standard, the 64 General Partner or such Affiliate shall act under such express standard and shall not be subject to any other or different standards imposed by this Agreement, the Operating Partnership Agreement, any other agreement contemplated hereby or under the Delaware Act or any other law, rule or regulation. In addition, any actions taken by the General Partner or such Affiliate consistent with the standards of "reasonable discretion" set forth in the definitions of Available Cash or Cash from Operations shall not constitute a breach of any duty of the General Partner to the Partnership or the Limited Partners. The General Partner shall have no duty, express or implied, to sell or otherwise dispose of any asset of the Operating Partnership or of the Partnership, other than in the ordinary course of business. No borrowing by the Partnership or the Operating Partnership or the approval thereof by the General Partner shall be deemed to constitute a breach of any duty of the General Partner to the Partnership or the Limited Partners by reason of the fact that the purpose or effect of such borrowing is directly or indirectly to enable Incentive Distributions or to hasten the expiration of the Arrearage Period. (c) Whenever a particular transaction, arrangement or resolution of a conflict of interest is required under this Agreement to be "fair and reasonable" to any Person, the fair and reasonable nature of such transaction, arrangement or resolution shall be considered in the context of all similar or related transactions. (d) The Limited Partners hereby authorize the General Partner, on behalf of the Partnership as a partner of the Operating Partnership, to approve of actions by the general partner of the Operating Partnership similar to those actions permitted to be taken by the General Partner pursuant to this Section 6.9. Section 6.10 Other Matters Concerning the General Partner. (a) The General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. (b) The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the opinion (including, without limitation, an Opinion of Counsel) of such Persons as to matters that such General Partner reasonably believes to be within such Person's professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion. (c) The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers, a duly appointed attorney or attorneys-in-fact or the duly authorized officers of the Partnership. Each such attorney shall, to the extent provided by the General Partner in the power of attorney, have full power and authority to do and perform each and every act and duty that is permitted or required to be done by the General Partner hereunder. (d) Any standard of care and duty imposed by this Agreement or under the Delaware Act or any applicable law, rule or regulation shall be modified, waived or limited as required to permit the General Partner to act under this Agreement or any other agreement contemplated by this Agreement and to make any decision pursuant to the authority prescribed in this Agreement so long as such action is reasonably believed by the General Partner to be in, or not inconsistent with, the best interests of the Partnership. 65 Section 6.11 Title to Partnership Assets. Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner or Assignee, individually or collectively, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner, one or more of its Affiliates or one or more nominees, as the General Partner may determine. The General Partner hereby declares and warrants that any Partnership assets for which record title is held in the name of the General Partner or one or more of its Affiliates or one or more nominees shall be held by the General Partner or such Affiliate or nominee for the use and benefit of the Partnership in accordance with the provisions of this Agreement; provided, however, that the General Partner shall use its reasonable efforts to cause record title to such assets (other than those assets in respect of which the General Partner determines that the expense and difficulty of conveyancing makes transfer of record title to the Partnership impracticable) to be vested in the Partnership as soon as reasonably practicable; provided that, prior to the withdrawal or removal of the General Partner or as soon thereafter as practicable, the General Partner shall use reasonable efforts to effect the transfer of record title to the Partnership and, prior to any such transfer, will provide for the use of such assets in a manner satisfactory to the Partnership. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which record title to such Partnership assets is held. Section 6.12 Purchase or Sale of Units. The General Partner may cause the Partnership to purchase or otherwise acquire Units; provided that, except (a) as permitted pursuant to Section 11.6 and (b) in exchange for other Units or Partnership Securities that are junior in right of distribution and liquidation to the Senior Units, the General Partner may not cause the Partnership or any Subsidiary to directly or indirectly purchase or otherwise acquire Common Units or any other Units or Partnership Securities that are junior in right of distribution or liquidation to the Senior Units at any time during which any of the Senior Units are Outstanding. As long as Units are held by the Partnership or the Operating Partnership, such Units shall not be considered Outstanding for any purpose, except as otherwise provided herein. The General Partner or any Affiliate of the General Partner may also purchase or otherwise acquire and sell or otherwise dispose of Units for its own account, subject to the provisions of Articles XI and XII. 66 Section 6.13 Registration Rights of Ferrellgas and its Affiliates. (a) If (i) Ferrellgas or any Affiliate of Ferrellgas (including, without limitation, for purposes of this Section 6.13, any Person that is an Affiliate of Ferrellgas at the date hereof notwithstanding that it may later cease to be an Affiliate of Ferrellgas) holds Units or other Partnership Securities that it desires to sell and (ii) Rule 144 of the Securities Act (or any successor rule or regulation to Rule 144) or another exemption from registration is not available to enable such holder of Units (the "Holder") to dispose of the number of Units or other securities it desires to sell at the time it desires to do so without registration under the Securities Act, then upon the request of Ferrellgas or any of its Affiliates, the Partnership shall file with the Commission as promptly as practicable after receiving such request, and use all reasonable efforts to cause to become effective and remain effective for a period of not more than six months following its effective date, a registration statement under the Securities Act registering the offering and sale of the number of Units or other securities specified by the Holder; provided, however, that the Partnership shall not be required to effect more than three registrations pursuant to this Section 6.13(a); and provided further, that if the General Partner or, if at the time a request pursuant to this Section 6.13 is submitted to the Partnership, Ferrellgas or its Affiliate requesting registration is an Affiliate of the General Partner, the Audit Committee in connection with Special Approval determines in its good faith judgment that a postponement of the requested registration for up to six months would be in the best interests of the Partnership and its Partners due to a pending transaction, investigation or other event, the filing of such registration statement or the effectiveness thereof may be deferred for up to six months, but not thereafter. In connection with any registration pursuant to the immediately preceding sentence, the Partnership shall promptly prepare and file (x) such documents as may be necessary to register or qualify the securities subject to such registration under the securities laws of such states as the Holder shall reasonably request; provided, however, that no such qualification shall be required in any jurisdiction where, as a result thereof, the Partnership would become subject to general service of process or to taxation or qualification to do business as a foreign corporation or partnership doing business in such jurisdiction, and (y) such documents as may be necessary to apply for listing or to list the securities subject to such registration on such National Securities Exchange as the Holder shall reasonably request, and do any and all other acts and things that may reasonably be necessary or advisable to enable the Holder to consummate a public sale of such Units in such states. Except as set forth in Section 6.13(c), all costs and expenses of any such registration and offering (other than the underwriting discounts and commissions) shall be paid by the Partnership, without reimbursement by the Holder. (b) If the Partnership shall at any time propose to file a registration statement under the Securities Act for an offering of equity securities of the Partnership for cash (other than an offering relating solely to an employee benefit plan), the Partnership shall use all reasonable efforts to include such number or amount of securities held by the Holder in such registration statement as the Holder shall request. If the proposed offering pursuant to this Section 6.13(b) shall be an underwritten offering, then, in the event that the managing underwriter of such offering advises the Partnership and the Holder in writing that in its opinion the inclusion of all or some of the Holder's securities would adversely and materially affect the success of the offering, the Partnership shall include in such offering only that number or amount, if any, of securities held by the Holder which, in the opinion of the managing underwriter, will not so adversely and materially affect the offering. Except as set forth in Section 6.13(c), all costs and expenses of any such registration and offering (other than the underwriting discounts and commissions) shall be paid by the Partnership, without reimbursement by the Holder. 67 (c) If underwriters are engaged in connection with any registration referred to in this Section 6.13, the Partnership shall provide indemnification, representations, covenants, opinions and other assurance to the underwriters in form and substance reasonably satisfactory to such underwriters. Further, in addition to and not in limitation of the Partnership's obligation under Section 6.7, the Partnership shall, to the fullest extent permitted by law, indemnify and hold harmless the Holder, its officers, directors and each Person who controls the Holder (within the meaning of the Securities Act) and any agent thereof (collectively, "Indemnified Persons") against any losses, claims, demands, actions, causes of action, assessments, damages, liabilities (joint or several), costs and expenses (including, without limitation, interest, penalties and reasonable attorneys' fees and disbursements), resulting to, imposed upon, or incurred by the Indemnified Persons, directly or indirectly, under the Securities Act or otherwise (hereinafter referred to in this Section 6.13(c) as a "claim" and in the plural as "claims"), based upon, arising out of, or resulting from any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which any Units were registered under the Securities Act or any state securities or Blue Sky laws, in any preliminary prospectus (if used prior to the effective date of such registration statement), or in any summary or final prospectus or in any amendment or supplement thereto (if used during the period the Partnership is required to keep the registration statement current), or arising out of, based upon or resulting from the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements made therein not misleading; provided, however, that the Partnership shall not be liable to any Indemnified Person to the extent that any such claim arises out of, is based upon or results from an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, such preliminary, summary or final prospectus or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Partnership by or on behalf of such Indemnified Person specifically for use in the preparation thereof. (d) The provisions of Sections 6.13(a) and 6.13(b) shall continue to be applicable with respect to Ferrellgas (and any of Ferrellgas' Affiliates) after it ceases to be a Partner of the Partnership, during a period of two years subsequent to the effective date of such cessation and for so long thereafter as is required for the Holder to sell all of the Units or other securities of the Partnership with respect to which it has requested during such two year period that a registration statement be filed; provided, however, that the Partnership shall not be required to file successive registration statements covering the same securities for which registration was demanded during such two-year period. The provisions of Section 6.13(c) shall continue in effect thereafter. (e) Any request to register Partnership Securities pursuant to this Section 6.13 shall (i) specify the Partnership Securities intended to be offered and sold by the Person making the request, (ii) express such Person's present intent to offer such shares for distribution, (iii) describe the nature or method of the proposed offer and sale of Partnership Securities, and (iv) contain the undertaking of such Person to provide all such information and materials and take all action as may be required in order to permit the Partnership to comply with all applicable requirements in connection with the registration of such Partnership Securities. Section 6.14 Reliance by Third Parties. Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner and any officer of the Partnership authorized by the General Partner to act on behalf and in the name of the Partnership has full power and authority to encumber, sell or otherwise use in any manner any and all assets of the Partnership and to enter into any contracts on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner or any such officer as if it were the Partnership's sole party in interest, both legally and beneficially. Each Limited Partner hereby waives any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of the General Partner or any such officer in connection with any such dealing. In no event shall any Person dealing with the General Partner or any such officer or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expedience of any act or action of the General Partner or any such officer. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner or any such officer shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (a) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (b) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership and (c) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership. 68 ARTICLE VII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS Section 7.1 Limitation of Liability. The Limited Partners and the Assignees shall have no liability under this Agreement except as expressly provided in this Agreement or the Delaware Act. Section 7.2 Management of Business. No Limited Partner or Assignee (other than the General Partner, any of its Affiliates or any officer, director, employee, partner, agent or trustee of the General Partner or any of its Affiliates, in its capacity as such, if such Person shall also be a Limited Partner or Assignee) shall participate in the operation, management or control (within the meaning of the Delaware Act) of the Partnership's business, transact any business in the Partnership's name or have the power to sign documents for or otherwise bind the Partnership. The transaction of any such business by the General Partner, any of its Affiliates or any member, officer, director, employee, partner, agent or trustee of the General Partner or any of its Affiliates, in its capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Limited Partners or Assignees under this Agreement. Section 7.3 Outside Activities. Subject to the provisions of Section 6.5, which shall continue to be applicable to the Persons referred to therein, regardless of whether such Persons shall also be Limited Partners or Assignees, any Limited Partner or Assignee shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including, without limitation, business interests and activities in direct competition with the Partnership or the Operating Partnership. Neither the Partnership nor any of the other Partners or Assignees shall have any rights by virtue of this Agreement in any business ventures of any Limited Partner or Assignee. Section 7.4 Return of Capital. No Limited Partner or Assignee shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent, if any, that distributions made pursuant to this Agreement or upon termination of the Partnership may be considered as such by law and then only to the extent provided for in this Agreement. Except to the extent provided by Article V or as otherwise expressly provided in this Agreement, no Limited Partner or Assignee shall have priority over any other Limited Partner or Assignee either as to the return of Capital Contributions or as to profits, losses or distributions. Any such return shall be a compromise to which all Partners and Assignees agree within the meaning of ss. 17-502(b) of the Delaware Act. 69 Section 7.5 Rights of Limited Partners Relating to the Partnership. (a) In addition to other rights provided by this Agreement or by applicable law, and except as limited by Section 7.5(b), each Limited Partner shall have the right, for a purpose reasonably related to such Limited Partner's interest as a limited partner in the Partnership, upon reasonable demand and at such Limited Partner's own expense: (i) to obtain true and full information regarding the status of the business and financial condition of the Partnership; (ii) promptly after becoming available, to obtain a copy of the Partnership's federal, state and local tax returns for each year; (iii) to have furnished to him, upon notification to the General Partner, a current list of the name and last known business, residence or mailing address of each Partner; (iv) to have furnished to him, upon notification to the General Partner, a copy of this Agreement and the Certificate of Limited Partnership and all amendments thereto, together with a copy of the executed copies of all powers of attorney pursuant to which this Agreement, the Certificate of Limited Partnership and all amendments thereto have been executed; (v) to obtain true and full information regarding the amount of cash and a description and statement of the Agreed Value of any other Capital Contribution by each Partner and which each Partner has agreed to contribute in the future, and the date on which each became a Partner; and (vi) to obtain such other information regarding the affairs of the Partnership as is just and reasonable. (b) Notwithstanding any other provision of this Agreement, the General Partner may keep confidential from the Limited Partners and Assignees, for such period of time as the General Partner deems reasonable, any information that the General Partner reasonably believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or the Operating Partnership or could damage the Partnership or the Operating Partnership or that the Partnership or the Operating Partnership are required by law or by agreements with third parties to keep confidential (other than agreements with Affiliates the primary purpose of which is to circumvent the obligations set forth in this Section 7.5). 70 ARTICLE VIII BOOKS, RECORDS, ACCOUNTING AND REPORTS Section 8.1 Records and Accounting. The General Partner shall keep or cause to be kept at the principal office of the Partnership appropriate books and records with respect to the Partnership's business, including, without limitation, all books and records necessary to provide to the Limited Partners any information, lists and copies of documents required to be provided pursuant to Section 7.5(a). Any books and records maintained by or on behalf of the Partnership in the regular course of its business, including, without limitation, the record of the Record Holders and Assignees of Units or other Partnership Securities, books of account and records of Partnership proceedings, may be kept on, or be in the form of, computer disks, hard drives, punch cards, magnetic tape, photographs, micrographics or any other information storage device, provided, that the books and records so maintained are convertible into clearly legible written form within a reasonable period of time. The books of the Partnership shall be maintained, for both tax and financial reporting purposes, on an accrual basis in accordance with generally accepted accounting principles. Section 8.2 Fiscal Year. The fiscal year of the Partnership shall be August 1 to July 31. Section 8.3 Reports. (a) As soon as practicable, but in no event later than 120 days after the close of each fiscal year of the Partnership, the General Partner shall cause to be mailed to each Record Holder of a Unit as of a date selected by the General Partner in its sole discretion, an annual report containing financial statements of the Partnership for such fiscal year of the Partnership, presented in accordance with generally accepted accounting principles, including a balance sheet and statements of operations, Partners' equity and cash flows, such statements to be audited by a firm of independent public accountants selected by the General Partner. (b) As soon as practicable, but in no event later than 90 days after the close of each Quarter except the last Quarter of each year, the General Partner shall cause to be mailed to each Record Holder of a Unit, as of a date selected by the General Partner in its sole discretion, a report containing unaudited financial statements of the Partnership and such other information as may be required by applicable law, regulation or rule of any National Securities Exchange on which the Units are listed for trading, or as the General Partner determines to be necessary or appropriate. ARTICLE IX TAX MATTERS Section 9.1 Preparation of Tax Returns. The General Partner shall arrange for the preparation and timely filing of all returns of Partnership income, gains, deductions, losses and other items required of the Partnership for federal and state income tax purposes and shall use all reasonable efforts to furnish, within 90 days of the close of each calendar year, the tax information reasonably required by holders of Outstanding Units for federal and state income tax reporting purposes. The classification, realization and recognition of income, gain, losses and deductions and other items shall be on the accrual method of accounting for federal income tax purposes. The taxable year of the Partnership shall be August 1 to July 31. 71 Section 9.2 Tax Elections. Except as otherwise provided herein, the General Partner shall, in its sole discretion, determine whether to make any available election pursuant to the Code; provided, however, that the General Partner shall make the election under Section 754 of the Code in accordance with applicable regulations thereunder. The General Partner shall have the right to seek to revoke any such election (including, without limitation, the election under Section 754 of the Code) upon the General Partner's determination in its sole discretion that such revocation is in the best interests of the Limited Partners and Assignees. For purposes of computing the adjustments under Section 743(b) of the Code, the General Partner shall be authorized (but not required) to adopt a convention whereby the price paid by a transferee of Units will be deemed to be the lowest quoted closing price of the Units on any National Securities Exchange on which such Units are traded during the calendar month in which such transfer is deemed to occur pursuant to Section 5.2(g) without regard to the actual price paid by such transferee. Section 9.3 Tax Controversies. Subject to the provisions hereof, the General Partner is designated the Tax Matters Partner (as defined in Section 6231 of the Code), and is authorized and required to represent the Partnership (at the Partnership's expense) in connection with all examinations of the Partnership's affairs by tax authorities, including, without limitation, resulting administrative and judicial proceedings, and to expend Partnership funds for professional services and costs associated therewith. Each Partner and Assignee agrees to cooperate with the General Partner and to do or refrain from doing any or all things reasonably required by the General Partner to conduct such proceedings. Section 9.4 Organizational Expenses. The Partnership shall elect to deduct expenses, if any, incurred by it in organizing the Partnership ratably over a 60-month period as provided in Section 709 of the Code. Section 9.5 Withholding. Notwithstanding any other provision of this Agreement, the General Partner is authorized to take any action that it determines in its sole discretion to be necessary or appropriate to cause the Partnership and the Operating Partnership to comply with any withholding requirements established under the Code or any other federal, state or local law including, without limitation, pursuant to Sections 1441, 1442, 1445 and 1446 of the Code. To the extent that the Partnership is required to withhold and pay over to any taxing authority any amount resulting from the allocation or distribution of income to any Partner or Assignee (including, without limitation, by reason of Section 1446 of the Code), the amount withheld shall be treated as a distribution of cash pursuant to Section 5.3 in the amount of such withholding from such Partner. 72 Section 9.6 Entity-Level Taxation. If legislation is enacted or the interpretation of existing language is modified which causes the Partnership or the Operating Partnership to be treated as an association taxable as a corporation or otherwise subjects the Partnership or the Operating Partnership to entity-level taxation for federal income tax purposes, the Minimum Quarterly Distribution, First Target Distribution, Second Target Distribution or Third Target Distribution, as the case may be, shall be equal to the product obtained by multiplying (a) the amount thereof by (b) 1 minus the sum of (i) the highest marginal federal corporate (or other entity, as applicable) income tax rate of the Partnership for the taxable year of the Partnership in which such Quarter occurs (expressed as a percentage) plus (ii) the effective overall state and local income tax rate (expressed as a percentage) applicable to the Partnership for the calendar year next preceding the calendar year in which such Quarter occurs (after taking into account the benefit of any deduction allowable for federal income tax purposes with respect to the payment of state and local income taxes), but only to the extent of the increase in such rates resulting from such legislation or interpretation. Such effective overall state and local income tax rate shall be determined for the taxable year next preceding the first taxable year during which the Partnership or the Operating Partnership is taxable for federal income tax purposes as an association taxable as a corporation or is otherwise subject to entity-level taxation by determining such rate as if the Partnership or the Operating Partnership had been subject to such state and local taxes during such preceding taxable year. Section 9.7 Entity-Level Arrearage Collections. If the Partnership is required by applicable law to pay any federal, state or local income tax on behalf of, or withhold such amount with respect to, any Partner or Assignee or any former Partner or Assignee in respect of Common Units held by such Person (a) the General Partner shall cause the Partnership to pay such tax on behalf of such Partner or Assignee or former Partner or Assignee from the funds of the Partnership; (b) any amount so paid on behalf of, or withheld with respect to, any such Partner or Assignee shall constitute a distribution out of Available Cash to such Partner or Assignee pursuant to Section 5.3; provided, however, in the discretion of the General Partner, such taxes (if pertaining to all such Partners) may be considered to be cash disbursements of the Partnership which reduce Available Cash, but the payment or withholding thereof shall not be deemed to be a distribution of Available Cash to such Partners; and (c) to the extent any such Partner or Assignee (but not a former Partner or Assignee) is not then entitled to such distribution under this Agreement, the General Partner shall be authorized, without the approval of any Partner or Assignee, to amend this Agreement insofar as is necessary to maintain the uniformity of intrinsic tax characteristics as to all Common Units and to make subsequent adjustments to distributions in a manner which, in the reasonable judgment of the General Partner, will make as little alteration as practicable in the priority and amount of distributions otherwise applicable under this Agreement, and will not otherwise alter the distributions to which Partners and Assignees are entitled under this Agreement. If the Partnership is permitted (but not required) by applicable law to pay any such tax on behalf of, or withhold such amount with respect to, any Partner or Assignee or former Partner or Assignee with respect to Common Units held by such Person, the General Partner shall be authorized (but not required) upon the affirmative vote of the holders of at least a majority of the Outstanding Senior Units, if any, to cause the Partnership to pay such tax from the funds of the Partnership and to take any action consistent with this Section 9.7. The General Partner shall be authorized (but not required) to take all necessary or appropriate actions to collect all or any portion of a deficiency in the payment of any such tax that relates to prior periods and that is attributable to Persons who were Limited Partners or Assignees with respect to Common Units held by such Person when such deficiencies arose, from such Persons. The payment of taxes by the Partnership on behalf of Limited Partners holding Senior Units will not satisfy the obligation of the Partnership to pay the Senior Unit Distribution. 73 Section 9.8 Opinions of Counsel. Notwithstanding any other provision of this Agreement, if the Partnership or the Operating Partnership is treated as an association taxable as a corporation at any time or is otherwise taxable for federal income tax purposes as an entity at any time and, pursuant to the provisions of this Agreement, an Opinion of Counsel would otherwise be required to the effect that an action will not cause the Partnership or the Operating Partnership to become so treated as an association taxable as a corporation or otherwise taxable as an entity for federal income tax purposes, such requirement for an Opinion of Counsel shall be deemed automatically waived. ARTICLE X CERTIFICATES Section 10.1 Certificates. Upon the Partnership's issuance of Common Units or Senior Units to any Person, the Partnership shall issue one or more Certificates in the name of such Person evidencing the number of such Units being so issued. Certificates shall be executed on behalf of the Partnership by the General Partner. No Common Unit Certificate shall be valid for any purpose until it has been countersigned by the Transfer Agent; provided, however, that if the General Partner elects to issue Units in global or book-entry form, the Certificates shall be valid upon receipt of a certificate from the Transfer Agent certifying that such Units have been duly registered in accordance with the directions of the Partnership. The Partners holding Certificates evidencing Senior Units may exchange such Certificates for Certificates evidencing Common Units on or after the date on which such Senior Units are converted into Common Units pursuant to the terms of Section 5.7(d). The General Partner Units need not be certificated, but upon request of the General Partner, may be represented by Certificates in the same manner as the Common Units or Senior Units. Section 10.2 Registration, Registration of Transfer and Exchange. (a) The General Partner shall cause to be kept on behalf of the Partnership a register in which, subject to such reasonable regulations as it may prescribe and subject to the provisions of Section 10.2(b), the General Partner will provide for the registration and transfer of Units. The Transfer Agent is hereby appointed registrar and transfer agent for the purpose of registering Common Units and transfers of such Common Units as herein provided. The Partnership shall not recognize transfers of Certificates representing Units unless same are effected in the manner described in this Section 10.2. Upon surrender for registration of transfer of any Units evidenced by a Certificate, and subject to the provisions of Section 10.2(b), the General Partner on behalf of the Partnership shall execute, and in the case of Common Units, the Transfer Agent shall countersign, and deliver (or, in the case of Units issued in global or book-entry form, register in accordance with the rules and regulations of the Depositary), in the name of the holder or the designated transferee or transferees, as required pursuant to the holder's instructions, one or more new Certificates evidencing the same aggregate number of Units as was evidenced by the Certificate so surrendered. 74 (b) Except as otherwise provided in Section 11.5, the Partnership shall not recognize any transfer of Units until the Certificates evidencing such Units are surrendered for registration of transfer and such Certificates are accompanied by a Transfer Application duly executed by the transferee (or the transferee's attorney-in-fact duly authorized in writing). No charge shall be imposed by the Partnership for such transfer, provided, that as a condition to the issuance of any new Certificate under this Section 10.2, the General Partner may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed with respect thereto. Section 10.3 Mutilated, Destroyed, Lost or Stolen Certificates. (a) If any mutilated Certificate is surrendered to the Transfer Agent, the General Partner on behalf of the Partnership shall execute, and upon its request the Transfer Agent shall countersign and deliver in exchange therefor, a new Certificate evidencing the same number of Units as the Certificate so surrendered. (b) The General Partner on behalf of the Partnership shall execute, and upon its request, in the case of Common Units, the Transfer Agent shall countersign and deliver (or, in the case of Units issued in global or book-entry form, register in accordance with the rules and regulations of the Depositary) a new Certificate in place of any Certificate previously issued if the Record Holder of the Certificate: (i) makes proof by affidavit, in form and substance satisfactory to the General Partner, that a previously issued Certificate has been lost, destroyed or stolen; (ii) requests the issuance of a new Certificate before the Partnership has notice that the Certificate has been acquired by a purchaser for value in good faith and without notice of an adverse claim; (iii) if requested by the General Partner, delivers to the Partnership a bond, in form and substance satisfactory to the General Partner, with surety or sureties and with fixed or open penalty as the General Partner may reasonably direct, in its sole discretion, to indemnify the Partnership, the General Partner and the Transfer Agent against any claim that may be made on account of the alleged loss, destruction or theft of the Certificate; and (iv) satisfies any other reasonable requirements imposed by the General Partner. If a Limited Partner or Assignee fails to notify the Partnership within a reasonable time after he has notice of the loss, destruction or theft of a Certificate, and a transfer of the Units represented by the Certificate is registered before the Partnership, the General Partner or the Transfer Agent receives such notification, the Limited Partner or Assignee shall be precluded from making any claim against the Partnership, the General Partner or the Transfer Agent for such transfer or for a new Certificate. 75 (c) As a condition to the issuance of any new Certificate under this Section 10.3, the General Partner may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including, without limitation, the fees and expenses of the Transfer Agent) reasonably connected therewith. Section 10.4 Record Holder. In accordance with Section 10.2(b), the Partnership shall be entitled to recognize the Record Holder as the Limited Partner or Assignee with respect to any Units and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Units on the part of any other Person, whether or not the Partnership shall have actual or other notice thereof, except as otherwise provided by law or any applicable rule, regulation, guideline or requirement of any National Securities Exchange on which the Units are listed for trading. Without limiting the foregoing, when a Person (such as a broker, dealer, bank, trust company or clearing corporation or an agent of any of the foregoing) is acting as nominee, agent or in some other representative capacity for another Person in acquiring and/or holding Units, as between the Partnership on the one hand, and such other Persons, on the other, such representative Person (a) shall be the Limited Partner or Assignee (as the case may be) of record and beneficially, (b) must execute and deliver a Transfer Application and (c) shall be bound by this Agreement and shall have the rights and obligations of a Limited Partner or Assignee (as the case may be) hereunder and as provided for herein. ARTICLE XI TRANSFER OF INTERESTS Section 11.1 Transfer. (a) The term "transfer," when used in this Article XI with respect to a Partnership Interest, shall be deemed to refer to a transaction by which the General Partner assigns its General Partner Interest to another Person, by which the holder of a Unit assigns such Unit to another Person who is or becomes an Assignee or by which a Special Limited Partner holding an IDR assigns such IDR to another Person, and includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage, exchange or any other disposition by law or otherwise. (b) No Partnership Interest shall be transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article XI. Any transfer or purported transfer of a Partnership Interest not made in accordance with this Article XI shall be null and void. (c) Nothing contained in this Article XI shall be construed to prevent a disposition by the parent entity of the General Partner of any or all of the issued and outstanding capital stock of the General Partner. (d) Nothing contained in this Article XI, or elsewhere in this Partnership Agreement, shall preclude the settlement of any transactions involving Common Units entered into through the facilities of the New York Stock Exchange. 76 Section 11.2 Transfer of the General Partner Interest. Except for a transfer by the General Partner of all, but not less than all, of its General Partner Interest to (a) an Affiliate of the General Partner or (b) another Person in connection with the merger or consolidation of the General Partner with or into another Person or the transfer by the General Partner of all or substantially all of its assets to another Person, the transfer by the General Partner of all or any part of its General Partner Interest to a Person prior to July 31, 2004 shall be subject to the prior approval of at least a majority of the Outstanding Common Units (excluding for purposes of such determination Units owned by the General Partner and its Affiliates). Notwithstanding anything herein to the contrary, no transfer by the General Partner of all or any part of its General Partner Interest to another Person shall be permitted unless (i) the transferee agrees to assume the rights and duties of the General Partner under this Agreement and the Operating Partnership Agreement and to be bound by the provisions of this Agreement and the Operating Partnership Agreement, (ii) the Partnership receives an Opinion of Counsel that such transfer would not result in the loss of limited liability of any Limited Partner or of any limited partner of the Operating Partnership or cause the Partnership or any of the Operating Partnership to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes and (iii) such transferee also agrees to purchase all (or the appropriate portion thereof, if applicable) of the partnership interest of the General Partner as the general partner of the Operating Partnership. In the case of a transfer pursuant to and in compliance with this Section 11.2, the transferee or successor (as the case may be) shall, subject to compliance with the terms of Section 12.3, be admitted to the Partnership as a General Partner immediately prior to the transfer of the General Partner Interest, and the business of the Partnership shall continue without dissolution. Section 11.3 Transfer of Units (other than General Partner Units). (a) Units (other than General Partner Units) may be transferred only in the manner described in Section 10.2. The transfer of any Units (other than General Partner Units) and the admission of any new Partner shall not constitute an amendment to this Agreement. (b) Until admitted as a Substituted Limited Partner pursuant to Article XII, the Record Holder of a Unit shall be an Assignee in respect of such Unit. Limited Partners may include custodians, nominees, or any other individual or entity in its own or any representative capacity. (c) Each distribution in respect of Units shall be paid by the Partnership, directly or through the Transfer Agent or through any other Person or agent, only to the Record Holders thereof as of the Record Date set for the distribution. Such payment shall constitute full payment and satisfaction of the Partnership's liability in respect of such payment, regardless of any claim of any Person who may have an interest in such payment by reason of an assignment or otherwise. (d) A transferee who has completed and delivered a Transfer Application shall be deemed to have (i) requested admission as a Substituted Limited Partner, (ii) agreed to comply with and be bound by and to have executed this Agreement, (iii) represented and warranted that such transferee has the right, power and authority and, if an individual, the capacity to enter into this Agreement, (iv) granted the powers of attorney set forth in this Agreement and (v) given the consents and approvals and made the waivers contained in this Agreement. 77 Section 11.4 Restrictions on Transfers. Notwithstanding the other provisions of this Article XI, no transfer of any Unit or interest therein of any Limited Partner, Special Limited Partner or Assignee shall be made if such transfer would (a) violate the then applicable federal or state securities laws or rules and regulations of the Securities and Exchange Commission, any state securities commission or any other governmental authorities with jurisdiction over such transfer, (b) result in the taxation of the Partnership or the Operating Partnership as an association taxable as a corporation or otherwise subject the Partnership or the Operating Partnership to entity-level taxation for federal income tax purposes or (c) affect the Partnership's or the Operating Partnership's existence or qualification as a limited partnership under the Delaware Act. Section 11.5 Citizenship Certificates; Non-citizen Assignees. (a) If the Partnership or the Operating Partnership is or becomes subject to any federal, state or local law or regulation that, in the reasonable determination of the General Partner, creates a substantial risk of cancellation or forfeiture of any property in which the Partnership or the Operating Partnership has an interest based on the nationality, citizenship or other related status of a Limited Partner or Assignee, the General Partner may request any Limited Partner or Assignee to furnish to the General Partner, within 30 days after receipt of such request, an executed Citizenship Certification or such other information concerning his nationality, citizenship or other related status (or, if the Limited Partner or Assignee is a nominee holding for the account of another Person, the nationality, citizenship or other related status of such Person) as the General Partner may request. If a Limited Partner or Assignee fails to furnish to the General Partner within the aforementioned 30-day period such Citizenship Certification or other requested information or if upon receipt of such Citizenship Certification or other requested information the General Partner determines, with the advice of counsel, that a Limited Partner or Assignee is not an Eligible Citizen, the Units owned by such Limited Partner or Assignee shall be subject to redemption in accordance with the provisions of Section 11.6. In addition, the General Partner may require that the status of any such Limited Partner or Assignee be changed to that of a Non-citizen Assignee, and, thereupon, the General Partner shall be substituted for such Non-citizen Assignee as the Limited Partner in respect of his Units. (b) The General Partner shall, in exercising voting rights in respect of Units held by it on behalf of Non-citizen Assignees, distribute the votes in the same ratios as the votes of Limited Partners in respect of Units other than those of Non-citizen Assignees are cast, either for, against or abstaining as to the matter. (c) Upon dissolution of the Partnership, a Non-citizen Assignee shall have no right to receive a distribution in kind pursuant to Section 14.4 but shall be entitled to the cash equivalent thereof, and the General Partner shall provide cash in exchange for an assignment of the Non-citizen Assignee's share of the distribution in kind. Such payment and assignment shall be treated for Partnership purposes as a purchase by the General Partner from the Non-citizen Assignee of his Partnership Interest (representing his right to receive his share of such distribution in kind). 78 (d) At any time after he can and does certify that he has become an Eligible Citizen, a Non-citizen Assignee may, upon application to the General Partner, request admission as a Substituted Limited Partner with respect to any Units of such Non-citizen Assignee not redeemed pursuant to Section 11.6, and upon his admission pursuant to Section 12.2 the General Partner shall cease to be deemed to be the Limited Partner in respect of the Non-citizen Assignee's Units. Section 11.6 Redemption of Interests. (a) If at any time a Limited Partner or Assignee fails to furnish a Citizenship Certification or other information requested within the 30-day period specified in Section 11.5(a), or if upon receipt of such Citizenship Certification or other information the General Partner determines, with the advice of counsel, that a Limited Partner or Assignee is not an Eligible Citizen, the Partnership may, unless the Limited Partner or Assignee establishes to the satisfaction of the General Partner that such Limited Partner or Assignee is an Eligible Citizen or has transferred his Units to a Person who furnishes a Citizenship Certification to the General Partner prior to the date fixed for redemption as provided below, redeem the Partnership Interest of such Limited Partner or Assignee as follows: (i) The General Partner shall, not later than the 30th day before the date fixed for redemption, give notice of redemption to the Limited Partner or Assignee, at his last address designated on the records of the Partnership or the Transfer Agent, by registered or certified mail, postage prepaid. The notice shall be deemed to have been given when so mailed. The notice shall specify the Redeemable Units, the date fixed for redemption, the place of payment, that payment of the redemption price will be made upon surrender of the Certificate evidencing the Redeemable Units and that on and after the date fixed for redemption no further allocations or distributions to which the Limited Partner or Assignee would otherwise be entitled in respect of the Redeemable Units will accrue or be made. (ii) The aggregate redemption price for Redeemable Units shall be an amount equal to the Current Market Price (the date of determination of which shall be the date fixed for redemption) of Units of the class to be so redeemed multiplied by the number of Units of each such class included among the Redeemable Units. The redemption price shall be paid, in the sole discretion of the General Partner, in cash or by delivery of a promissory note of the Partnership in the principal amount of the redemption price, bearing interest at the rate of 10% annually and payable in three equal annual installments of principal together with accrued interest, commencing one year after the redemption date. (iii) Upon surrender by or on behalf of the Limited Partner or Assignee, at the place specified in the notice of redemption, of the Certificate evidencing the Redeemable Units, duly endorsed in blank or accompanied by an assignment duly executed in blank, the Limited Partner or Assignee or his duly authorized representative shall be entitled to receive the payment therefor. 79 (iv) After the redemption date, Redeemable Units shall no longer constitute issued and Outstanding Units. (b) The provisions of this Section 11.6 shall also be applicable to Units held by a Limited Partner or Assignee as nominee of a Person determined to be other than an Eligible Citizen. (c) Nothing in this Section 11.6 shall prevent the recipient of a notice of redemption from transferring his Units before the redemption date if such transfer is otherwise permitted under this Agreement. Upon receipt of notice of such a transfer, the General Partner shall withdraw the notice of redemption, provided, the transferee of such Units certifies in the Transfer Application that he is an Eligible Citizen. If the transferee fails to make such certification, such redemption shall be effected from the transferee on the original redemption date. Section 11.7 Transfer of IDRs. A Special Limited Partner holding IDRs may transfer any or all of the IDRs held by such Special Limited Partner. The General Partner shall have the authority (but shall not be required) to adopt such reasonable restrictions on the transfer of IDRs, consistent with the restrictions on transfer of Units provided for in this Agreement, and requirements for registering the transfer of IDRs as the General Partner, in its sole discretion, shall determine are necessary or appropriate including, without limitation, if the General Partner shall so determine, in its sole discretion, the right of the Partnership to redeem IDRs upon terms and conditions similar to those applicable to Units. ARTICLE XII ADMISSION OF PARTNERS Section 12.1 Admission of Initial Limited Partners. On the Initial Closing Date, the General Partner was admitted to the Partnership as a Limited Partner in respect of the Common Units and Subordinated Units issued to it and as a Special Limited Partner in respect of the IDRs issued to it, and the Underwriters were admitted to the Partnership as Initial Limited Partners. Section 12.2 Admission of Substituted Limited Partners. By transfer of a Unit (other than a General Partner Unit) in accordance with Article XI, the transferor shall be deemed to have given the transferee the right to seek admission as a Substituted Limited Partner subject to the conditions of, and in the manner permitted under, this Agreement. A transferor of a Certificate (other than a Certificate representing a General Partner Unit) shall, however, only have the authority to convey to a purchaser or other transferee who does not execute and deliver a Transfer Application (a) the right to negotiate such Certificate to a purchaser or other transferee and (b) the right to transfer the right to request admission as a Substituted Limited Partner to such purchaser or other transferee in respect of the transferred Units. Each transferee of a Unit (other than a General Partner Unit) (including, without limitation, any nominee holder or an agent acquiring such Unit for the account of another Person) who executes and delivers a Transfer Application shall, by virtue of such execution and delivery, be an Assignee and be deemed to have applied to become a Substituted Limited Partner with respect to the Units so transferred to such Person. Such Assignee shall become a Substituted Limited Partner (x) at such time as the General Partner consents thereto, which consent may be given or withheld in the General Partner's sole discretion, and (y) when any such admission is shown on the books and records of the Partnership. If such consent is withheld, such transferee shall be an Assignee. An Assignee shall have an interest in the Partnership equivalent to that of a Limited Partner with respect to allocations and distributions, including, without limitation, liquidating distributions, of the Partnership. With respect to voting rights attributable to Units that are held by Assignees, the General Partner shall be deemed to be the Limited Partner with respect thereto and shall, in exercising the voting rights in respect of such Units on any matter, vote such Units at the written direction of the Assignee who is the Record Holder of such Units. If no such written direction is received, such Units will not be voted. An Assignee shall have no other rights of a Limited Partner. 80 Section 12.3 Admission of Successor General Partner. A successor General Partner approved pursuant to Section 13.1 or 13.2 or the transferee of or successor to all of the General Partner Interest pursuant to Section 11.2 who is proposed to be admitted as a successor General Partner shall be admitted to the Partnership as the General Partner, effective immediately prior to the withdrawal or removal of the General Partner pursuant to Section 13.1 or 13.2 or the transfer of the General Partner Interest pursuant to Section 11.2; provided, however, that no such successor shall be admitted to the Partnership until compliance with the terms of Section 11.2 has occurred and such successor has executed and delivered such other documents or instruments as may be required to effect such admission. Any such successor shall, subject to the terms hereof, carry on the business of the Partnership and Operating Partnership without dissolution. Section 12.4 Admission of Additional Limited Partners. (a) A Person (other than the General Partner, an Initial Limited Partner or a Substituted Limited Partner) who makes a Capital Contribution to the Partnership in accordance with this Agreement shall be admitted to the Partnership as an Additional Limited Partner only upon furnishing to the General Partner (i) evidence of acceptance in form satisfactory to the General Partner of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 1.4, and (ii) such other documents or instruments as may be required in the discretion of the General Partner to effect such Person's admission as an Additional Limited Partner. (b) Notwithstanding anything to the contrary in this Section 12.4, no Person shall be admitted as an Additional Limited Partner without the consent of the General Partner, which consent may be given or withheld in the General Partner's sole discretion. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded as such in the books and records of the Partnership, following the consent of the General Partner to such admission. 81 (c) Upon the issuance by the Partnership of Senior Units to WNGL pursuant to the WNGL Purchase Agreement and the execution and delivery in writing evidencing WNGL's acceptance of all of the terms and conditions of this Agreement, including, without limitation, the power of attorney granted in Section 1.4, the General Partner shall admit WNGL to the Partnership as an Additional Limited Partner on the WNGL Closing Date. Section 12.5 Amendment of Agreement and Certificate of Limited Partnership. To effect the admission to the Partnership of any Partner, the General Partner shall take all steps necessary and appropriate under the Delaware Act to amend the records of the Partnership to reflect such admission and, if necessary, to prepare as soon as practical an amendment of this Agreement and, if required by law, to prepare and file an amendment to the Certificate of Limited Partnership and may for this purpose, among others, exercise the power of attorney granted pursuant to Section 1.4. ARTICLE XIII WITHDRAWAL OR REMOVAL OF PARTNERS Section 13.1 Withdrawal of the General Partner. (a) The General Partner shall be deemed to have withdrawn from the Partnership upon the occurrence of any one of the following events (each such event herein referred to as an "Event of Withdrawal"); (i) the General Partner voluntarily withdraws from the Partnership by giving written notice to the other Partners (and it shall be deemed that the General Partner has withdrawn pursuant to this Section 13.1(a)(i) if the General Partner voluntarily withdraws as general partner of the Operating Partnership); (ii) the General Partner transfers all of its General Partner Interest pursuant to Section 11.2; (iii) the General Partner is removed pursuant to Section 13.2; (iv) the General Partner (A) makes a general assignment for the benefit of creditors; (B) files a voluntary bankruptcy petition; (C) files a petition or answer seeking for itself a reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any law; (D) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the General Partner in a proceeding of the type described in clauses (A)-(C) of this Section 13.1(a)(iv); or (E) seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator of the General Partner or of all or any substantial part of its properties; (v) a final and non-appealable judgment is entered by a court with appropriate jurisdiction ruling that the General Partner is bankrupt or insolvent, or a final and non-appealable order for relief is entered by a court with appropriate jurisdiction against the General Partner, in each case under any federal or state bankruptcy or insolvency laws as now or hereafter in effect; or 82 (vi) a certificate of dissolution or its equivalent is filed for the General Partner, or 90 days expire after the date of notice to the General Partner of revocation of its charter without a reinstatement of its charter, under the laws of its state of incorporation. If an Event of Withdrawal specified in Section 13.1(a)(iv), (v) or (vi) occurs, the withdrawing General Partner shall give notice to the Limited Partners within 30 days after such occurrence. The Partners hereby agree that only the Events of Withdrawal described in this Section 13.1 shall result in the withdrawal of the General Partner from the Partnership. (b) Withdrawal of the General Partner from the Partnership upon the occurrence of an Event of Withdrawal shall not constitute a breach of this Agreement under the following circumstances: (i) at any time during the period beginning on the Initial Closing Date and ending at 12:00 midnight, Central Standard Time, on July 31, 2004, the General Partner voluntarily withdraws by giving at least 90 days' advance notice of its intention to withdraw to the Limited Partners, provided, that prior to the effective date of such withdrawal the withdrawal is approved by the holders of at least two-thirds of the Outstanding Common Units (excluding for purposes of such determination Common Units owned by the General Partner and its Affiliates) and the General Partner delivers to the Partnership an Opinion of Counsel ("Withdrawal Opinion of Counsel") that such withdrawal (following the selection of the successor General Partner) would not result in the loss of the limited liability of any Limited Partner or of the limited partner of the Operating Partnership or cause the Partnership or the Operating Partnership to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for federal income tax purposes; (ii) at any time after 12:00 midnight, Central Standard Time, on July 31, 2004, the General Partner voluntarily withdraws by giving at least 90 days' advance notice to the Limited Partners, such withdrawal to take effect on the date specified in such notice; (iii) at any time that the General Partner ceases to be a General Partner pursuant to Section 13.1(a)(ii) or is removed pursuant to Section 13.2; or (iv) notwithstanding clause (i) of this sentence, at any time that the General Partner voluntarily withdraws by giving at least 90 days' advance notice of its intention to withdraw to the Limited Partners, such withdrawal to take effect on the date specified in the notice, if at the time such notice is given one Person and its Affiliates (other than the General Partner and its Affiliates) own beneficially or of record or control at least 50% of the Outstanding Common Units. The withdrawal of the General Partner from the Partnership upon the occurrence of an Event of Withdrawal shall also constitute the withdrawal of the General Partner as general partner of the Operating Partnership. If the General Partner gives a notice of withdrawal pursuant to Section 13.1(a)(i), holders of at least a majority of the Outstanding Common Units (excluding for purposes of such determination Common Units owned by the General Partner and its Affiliates) may, prior to the effective date of such withdrawal, elect a successor General Partner. If, prior to the effective date of the General Partner's withdrawal, a successor is selected by the Limited Partners as provided herein, the Partnership, as the limited partner of the Operating Partnership, shall cause such Person to become the successor general partner of the Operating Partnership, as provided in the Operating Partnership Agreement. If, prior to the effective date of the General Partner's withdrawal, a successor is not selected by the Limited Partners as provided herein or the Partnership does not receive a Withdrawal Opinion of Counsel, the Partnership shall be dissolved in accordance with Section 14.1. Any successor General Partner elected in accordance with the terms of this Section 13.1 shall be subject to the provisions of Section 12.3. 83 Section 13.2 Removal of the General Partner. The General Partner may be removed if such removal is approved by Limited Partners holding at least two-thirds of the Outstanding Common Units. Any such action by such Limited Partners for removal of the General Partner must also provide for the election of a successor General Partner by Limited Partners holding at least a majority of the Outstanding Common Units. Such removal shall be effective immediately following the admission of a successor General Partner pursuant to Article XII. The removal of the General Partner shall also automatically constitute the removal of the General Partner as general partner of the Operating Partnership, as provided in the Operating Partnership Agreement. If a Person is elected as a successor General Partner in accordance with the terms of this Section 13.2, the Partnership, as the limited partner of the Operating Partnership, shall cause such Person to become the successor general partner of the Operating Partnership, as provided in the Operating Partnership Agreement. The right of the Limited Partners holding Outstanding Common Units to remove the General Partner shall not exist or be exercised unless the Partnership has received an opinion opining as to the matters covered by a Withdrawal Opinion of Counsel. Any successor General Partner elected in accordance with the terms of this Section 13.2 shall be subject to the provisions of Section 12.3. Section 13.3 Interest of Departing Partner and Successor General Partner. (a) In the event of (i) withdrawal of the General Partner under circumstances where such withdrawal does not violate this Agreement or (ii) removal of the General Partner by the holders of Common Units under circumstances where Cause does not exist, if a successor General Partner is elected in accordance with the terms of Section 13.1 or 13.2, the Departing Partner shall have the option exercisable prior to the effective date of the departure of such Departing Partner to require its successor to purchase its General Partner Interest and its partnership interest as the general partner in the Operating Partnership (collectively, the "Combined Interest") in exchange for an amount in cash equal to the fair market value of such Combined Interest, such amount to be determined and payable as of the effective date of its departure. If the General Partner is removed by the Limited Partners under circumstances where Cause exists or if the General Partner withdraws under circumstances where such withdrawal violates this Agreement or the Operating Partnership Agreement, and if a successor General Partner is elected in accordance with the terms of Section 13.1 or 13.2, such successor shall have the option, exercisable prior to the effective date of the departure of such Departing Partner, to purchase the Combined Interest of the Departing Partner for such fair market value of such Combined Interest. In either event, the Departing Partner shall be entitled to receive all reimbursements due such Departing Partner pursuant to Section 6.4, including, without limitation, any employee-related liabilities (including, without limitation, severance liabilities), incurred in connection with the termination of any employees employed by the General Partner for the benefit of the Partnership or the Operating Partnership. Subject to Section 13.3(b), the Departing Partner shall, as of the effective date of its departure, cease to share in any allocations or distributions with respect to its General Partner Interest and Partnership income, gain, loss, deduction and credit will be prorated and allocated as set forth in Section 5.2(g). 84 For purposes of this Section 13.3(a), the fair market value of the Departing Partner's Combined Interest shall be determined by agreement between the Departing Partner and its successor or, failing agreement within 30 days after the effective date of such Departing Partner's departure, by an independent investment banking firm or other independent expert selected by the Departing Partner and its successor, which, in turn, may rely on other experts and the determination of which shall be conclusive as to such matter. If such parties cannot agree upon one independent investment banking firm or other independent expert within 45 days after the effective date of such departure, then the Departing Partner shall designate an independent investment banking firm or other independent expert, the Departing Partner's successor shall designate an independent investment banking firm or other independent expert, and such firms or experts shall mutually select a third independent investment banking firm or independent expert, which shall determine the fair market value of the Combined Interest. In making its determination, such independent investment banking firm or other independent expert shall consider the then current trading price of Units on any National Securities Exchange on which Units are then listed, the value of the Partnership's assets, the rights and obligations of the General Partner and other factors it may deem relevant. (b) If the Combined Interest is not purchased in the manner set forth in Section 13.3(a), the Departing Partner shall become a Limited Partner and the Combined Interest shall be converted into Common Units pursuant to a valuation made by an investment banking firm or other independent expert selected pursuant to Section 13.3(a), without reduction in such Partnership Interest (but subject to proportionate dilution by reason of the admission of its successor). Any successor General Partner shall indemnify the Departing Partner as to all debts and liabilities of the Partnership arising on or after the date on which the Departing Partner becomes a Limited Partner. For purposes of this Agreement, conversion of the General Partner's Combined Interest to Common Units will be characterized as if the General Partner contributed its Combined Interest to the Partnership in exchange for the newly issued Common Units. (c) If a successor General Partner is elected in accordance with the terms of Section 13.1 or 13.2 and the option described in Section 13.3(a) is not exercised by the party entitled to do so, the successor General Partner shall, at the effective date of its admission to the Partnership, contribute to the capital of the Partnership cash in an amount such that its Capital Account, after giving effect to such contribution and any adjustments made to the Capital Accounts of all Partners pursuant to Section 4.5(d)(i), shall be equal to that percentage of the Capital Accounts of all Partners that is equal to its Percentage Interest as the General Partner. In such event, such successor General Partner shall, subject to the following sentence, be entitled to such Percentage Interest of all Partnership allocations and distributions and any other allocations and distributions to which the Departing Partner was entitled. Section 13.4 Withdrawal of Limited Partners. No Limited Partner shall have any right to withdraw from the Partnership; provided, however, that when a transferee of a Limited Partner's Units becomes a Record Holder, such transferring Limited Partner shall cease to be a Limited Partner with respect to the Units so transferred. 85 ARTICLE XIV DISSOLUTION AND LIQUIDATION Section 14.1 Dissolution. The Partnership shall not be dissolved by the admission of Substituted Limited Partners or Additional Limited Partners or by the admission of a successor General Partner in accordance with the terms of this Agreement. Upon the removal or withdrawal of the General Partner, if a successor General Partner is elected pursuant to Section 13.1 or 13.2, the Partnership shall not be dissolved and such successor General Partner shall continue the business of the Partnership. The Partnership shall dissolve, and (subject to Section 14.2) its affairs should be wound up, upon: (a) the expiration of its term as provided in Section 1.5; (b) an Event of Withdrawal of the General Partner as provided in Section 13.1(a) (other than Section 13.1(a)(ii)), unless a successor is elected and an Opinion of Counsel is received as provided in Section 13.1(b) or 13.2 and such successor is admitted to the Partnership pursuant to Section 12.3; (c) an election to dissolve the Partnership by the General Partner that is approved by (i) the holders of at least a majority of the Outstanding Units other than the Senior Units and (ii) the holders of at least a majority of the Outstanding Senior Units (and all holders of Units hereby expressly consent that such approval may be effected upon written consent of said applicable percentage of the Outstanding Units); (d) entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Delaware Act; or (e) the sale of all or substantially all of the assets and properties of the Partnership and the Operating Partnership taken as a whole. Section 14.2 Continuation of the Business of the Partnership after Dissolution. Upon (a) dissolution of the Partnership following an Event of Withdrawal caused by the withdrawal or removal of the General Partner as provided in Section 13.1(a)(i) or (iii) and the failure of the Partners to select a successor to such Departing Partner pursuant to Section 13.1 or 13.2, then within 90 days thereafter or (b) dissolution of the Partnership upon an event constituting an Event of Withdrawal as defined in Section 13.1(a)(iv), (v) or (vi), then within 180 days thereafter, a majority of the Outstanding Common Units may elect to reconstitute the Partnership and continue its business on the same terms and conditions set forth in this Agreement by forming a new limited partnership on terms identical to those set forth in this Agreement and having as the successor general partner a Person approved by a majority of the Outstanding Common Units. Upon any such election by a majority of the Outstanding Common Units, all Partners shall be bound thereby and shall be deemed to have approved thereof. Unless such an election is made within the applicable time period as set forth above, the Partnership shall conduct only activities necessary to wind up its affairs. If such an election is so made, then: 86 (i) the reconstituted Partnership shall continue until the end of the term set forth in Section 1.5 unless earlier dissolved in accordance with this Article XIV; (ii) if the successor General Partner is not the former General Partner, then the interest of the former General Partner shall be treated thenceforth as the interest of a Limited Partner and converted into Common Units in the manner provided in Section 13.3(b); and (iii) all necessary steps shall be taken to cancel this Agreement and the Certificate of Limited Partnership and to enter into and, as necessary, to file a new partnership agreement and certificate of limited partnership, and the successor general partner may for this purpose exercise the powers of attorney granted the General Partner pursuant to Section 1.4; provided, that the right of a majority of Outstanding Common Units to approve a successor General Partner and to reconstitute and to continue the business of the Partnership shall not exist and may not be exercised unless the Partnership has received an Opinion of Counsel that (x) the exercise of the right would not result in the loss of limited liability of any Limited Partner and (y) neither the Partnership, the reconstituted limited partnership nor the Operating Partnership would be treated as an association taxable as a corporation or otherwise be taxable as an entity for federal income tax purposes upon the exercise of such right to continue. Section 14.3 Liquidation. Upon dissolution of the Partnership, unless the Partnership is continued under an election to reconstitute and continue the Partnership pursuant to Section 14.2, the General Partner, or in the event the General Partner has been dissolved or removed, become bankrupt as set forth in Section 13.1 or withdrawn from the Partnership, a liquidator or liquidating committee approved by the holders of at least a majority of the Outstanding Common Units, shall be the Liquidator. The Liquidator (if other than the General Partner) shall be entitled to receive such compensation for its services as may be approved by the holders of at least a majority of the Outstanding Common Units. The Liquidator shall agree not to resign at any time without 15 days' prior notice and (if other than the General Partner) may be removed at any time, with or without cause, by notice of removal approved by a majority of the Outstanding Units. Upon dissolution, removal or resignation of the Liquidator, a successor and substitute Liquidator (who shall have and succeed to all rights, powers and duties of the original Liquidator) shall within 30 days thereafter be approved by the holders of at least a majority of the Outstanding Common Units. The right to approve a successor or substitute Liquidator in the manner provided herein shall be deemed to refer also to any such successor or substitute Liquidator approved in the manner herein provided. Except as expressly provided in this Article XIV, the Liquidator approved in the manner provided herein shall have and may exercise, without further authorization or consent of any of the parties hereto, all of the powers conferred upon the General Partner under the terms of this Agreement (but subject to all of the applicable limitations, contractual and otherwise, upon the exercise of such powers, other than the limitation on sale set forth in Section 6.3(b)) to the extent necessary or desirable in the good faith judgment of the Liquidator to carry out the duties and functions of the Liquidator hereunder for and during such period of time as shall be reasonably required in the good faith judgment of the Liquidator to complete the winding up and liquidation of the Partnership as provided for herein. The Liquidator shall liquidate the assets of the Partnership, and apply and distribute the proceeds of such liquidation in the following order of priority, unless otherwise required by mandatory provisions of applicable law: 87 (a) the payment to creditors of the Partnership, including, without limitation, Partners who are creditors, in the order of priority provided by law; and the creation of a reserve of cash or other assets of the Partnership for contingent liabilities in an amount, if any, determined by the Liquidator to be appropriate for such purposes; and (b) to all Partners in accordance with, and to the extent of, the positive balances in their respective Capital Accounts, as determined after taking into account all Capital Account adjustments (other than those made by reason of this clause) for the taxable year of the Partnership during which the liquidation of the Partnership occurs (with the date of such occurrence being determined pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(g)); and such distribution shall be made by the end of such taxable year (or, if later, within 90 days after said date of such occurrence). Section 14.4 Distributions in Kind. Notwithstanding the provisions of Section 14.3, which require the liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Partnership the Liquidator determines that an immediate sale of part or all of the Partnership's assets would be impractical or would cause undue loss to the Partners, the Liquidator may, in its absolute discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Partnership (including, without limitation, those to Partners as creditors) and or distribute to the Partners or to specific classes of Partners, in lieu of cash, as tenants in common and in accordance with the provisions of Section 14.3, undivided interests in such Partnership assets as the Liquidator deems not suitable for liquidation. Any such distributions in kind shall be made only if, in the good faith judgment of the Liquidator, such distributions in kind are in the best interest of the Limited Partners, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt. Section 14.5 Cancellation of Certificate of Limited Partnership. Upon the completion of the distribution of Partnership cash and property as provided in Sections 14.3 and 14.4 in connection with the liquidation of the Partnership, the Partnership shall be terminated and the Certificate of Limited Partnership and all qualifications of the Partnership as a foreign limited partnership in jurisdictions other than the State of Delaware shall be cancelled and such other actions as may be necessary to terminate the Partnership shall be taken. Section 14.6 Reasonable Time for Winding Up. A reasonable time shall be allowed for the orderly winding up of business and affairs of the Partnership and the liquidation of its assets pursuant to Section 14.3 in order to minimize any losses otherwise attendant upon such winding up, and the provisions of this Agreement shall remain in effect between the Partners during the period of liquidation. 88 Section 14.7 Return of Capital Contributions. The General Partner shall not be personally liable for, and shall have no obligation to contribute or loan any monies or property to the Partnership to enable it to effectuate, the return of the Capital Contributions of the Limited Partners, or any portion thereof, it being expressly understood that any such return shall be made solely from Partnership assets. Section 14.8 Capital Account Restoration. No Limited Partner shall have any obligation to restore any negative balance in its Capital Account upon liquidation of the Partnership. The General Partner shall be obligated to restore any negative balance in its Capital Account upon liquidation of its interest in the Partnership by the end of the taxable year of the Partnership during which such liquidation occurs, or, if later, within 90 days after the date of such liquidation. Section 14.9 Waiver of Partition. To the maximum extent permitted by law, each Partner hereby waives any right to partition of the Partnership property. ARTICLE XV AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE Section 15.1 Amendment to be Adopted Solely by General Partner. Each Limited Partner agrees that the General Partner (pursuant to its powers of attorney from the Limited Partners, Special Limited Partners and Assignees), without the approval of any Limited Partner or Assignee, may amend any provision of this Agreement, and execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection therewith, to reflect: (a) a change in the name of the Partnership, the location of the principal place of business of the Partnership, the registered agent of the Partnership or the registered office of the Partnership; (b) admission, substitution, withdrawal or removal of Partners in accordance with this Agreement; (c) a change that, in the sole discretion of the General Partner, is necessary or appropriate to qualify or continue the qualification of the Partnership as a limited partnership or a partnership in which the limited partners have limited liability under the laws of any state or that is necessary or advisable in the opinion of the General Partner to ensure that neither the Partnership nor the Operating Partnership will be treated as an association taxable as a corporation or otherwise taxed as an entity for federal income tax purposes; 89 (d) a change (i) that, in the sole discretion of the General Partner, does not adversely affect the Limited Partners in any material respect, (ii) that is necessary or desirable to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in any federal or state statute (including, without limitation, the Delaware Act) or that is necessary or desirable to facilitate the trading of the Units (including, without limitation, the division of Outstanding Units into different classes to facilitate uniformity of tax consequences within such classes of Units) or comply with any rule, regulation, guideline or requirement of any National Securities Exchange on which the Units are or will be listed for trading, compliance with any of which the General Partner determines in its sole discretion to be in the best interests of the Partnership and the Limited Partners, (iii) that is necessary or desirable to implement certain tax-related provisions of the Partnership Agreement, or (iv) that is required to effect the intent of the provisions of this Agreement or is otherwise contemplated by this Agreement; (e) a change in the fiscal year or taxable year of the Partnership and any changes that, in the sole discretion of the General Partner, are necessary or appropriate as a result of a change in the fiscal year or taxable year of the Partnership including, without limitation, if the General Partner shall so determine, a change in the definition of "Quarter" and the dates on which distributions are to be made by the Partnership; (f) an amendment that is necessary, in the Opinion of Counsel, to prevent the Partnership or the General Partner or its directors or officers from in any manner being subjected to the provisions of the Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940, as amended, or "plan asset" regulations adopted under the Employee Retirement Income Security Act of 1974, as amended, whether or not substantially similar to plan asset regulations currently applied or proposed by the United States Department of Labor; (g) subject to the terms of Section 4.3, an amendment that, in the sole discretion of the General Partner, is necessary or desirable in connection with the authorization for issuance of any class or series of Partnership Securities pursuant to Section 4.3; (h) any amendment expressly permitted in this Agreement to be made by the General Partner acting alone; (i) an amendment effected, necessitated or contemplated by a Merger Agreement approved in accordance with Section 16.3; (j) an amendment that, in the sole discretion of the General Partner, is necessary or desirable to reflect, account for and deal with appropriately the formation by the Partnership of, or investment by the Partnership in, any corporation, partnership, joint venture, limited liability company or other entity other than the Operating Partnership, in connection with the conduct by the Partnership of activities permitted by the terms of Section 3.1; (k) any amendment to clause (a) of the definition of "Arrearage Period" that results in the extension of the Arrearage Period; or (l) any other amendments substantially similar to the foregoing. Section 15.2 Amendment Procedures. Except as provided in Sections 15.1, 15.3 and 15.13, all amendments to this Agreement shall be made in accordance with the following requirements. Amendments to this Agreement may be proposed only by or with the consent of the General Partner. A proposed amendment shall be effective upon its approval by the holders of at least a majority of the Outstanding Common Units, unless a greater or different percentage is required under this Agreement. Each proposed amendment that requires the approval of the holders of a specified percentage of Outstanding Common Units shall be set forth in a writing that contains the text of the proposed amendment. If such an amendment is proposed, the General Partner shall seek the written approval of the requisite percentage of Outstanding Common Units or call a meeting of the holders of Common Units to consider and vote on such proposed amendment. The General Partner shall notify all Record Holders upon final adoption of any such proposed amendments. 90 Section 15.3 Amendment Requirements. (a) Notwithstanding the provisions of Sections 15.1 and 15.2, no provision of this Agreement that establishes a percentage of Outstanding Units required to take any action shall be amended, altered, changed, repealed or rescinded in any respect that would have the effect of reducing such voting requirement unless such amendment is approved by the written consent or the affirmative vote of holders of Outstanding Units whose aggregate Outstanding Units constitute not less than the voting requirement sought to be reduced. (b) Notwithstanding the provisions of Sections 15.1 and 15.2, no amendment to this Agreement may (i) enlarge the obligations of any Limited Partner without its consent, (ii) enlarge the obligations of the General Partner without its consent, which may be given or withheld in its sole discretion, (iii) modify the amounts distributable, reimbursable or otherwise payable to the General Partner by the Partnership or the Operating Partnership, (iv) change Section 14.1(a) or (c), (v) restrict in any way any action by or rights of the General Partner as set forth in this Agreement or (vi) change the term of the Partnership or, except as set forth in Section 14.1(c), give any Person the right to dissolve the Partnership. (c) Except as otherwise provided, and without limitation of the General Partner's authority to adopt amendments to this Agreement as contemplated in Section 15.1, any amendment that would have a material adverse effect on the rights or preferences of any class of Outstanding Units in relation to other classes of Units must be approved by the holders of not less than a majority of the Outstanding Units of the class affected (excluding for purposes of such determination Units owned by the General Partner and its Affiliates). (d) Notwithstanding any other provision of this Agreement, except for amendments pursuant to Section 6.3 or 15.1 and except as otherwise provided by Section 16.3(b), no amendments shall become effective without the approval of the holders of at least 95% of the Outstanding Common Units unless the Partnership obtains an Opinion of Counsel to the effect that (a) such amendment will not cause the Partnership or the Operating Partnership to be treated as an association taxable as a corporation or otherwise taxable as an entity for federal income tax purposes and (b) such amendment will not affect the limited liability of any Limited Partner or any limited partner of the Operating Partnership under applicable law. (e) This Section 15.3 shall only be amended with the approval of the holders of not less than 95% of the Outstanding Common Units. 91 Section 15.4 Meetings. All acts of Limited Partners to be taken pursuant to this Agreement shall be taken in the manner provided in this Article XV. Meetings of the Limited Partners may be called by the General Partner or by Limited Partners owning 20% or more of the Outstanding Units of the class or classes for which a meeting is proposed. Limited Partners shall call a meeting by delivering to the General Partner one or more requests in writing stating that the signing Limited Partners wish to call a meeting and indicating the general or specific purposes for which the meeting is to be called. Within 60 days after receipt of such a call from Limited Partners or within such greater time as may be reasonably necessary for the Partnership to comply with any statutes, rules, regulations, listing agreements or similar requirements governing the holding of a meeting or the solicitation of proxies for use at such a meeting, the General Partner shall send a notice of the meeting to the Limited Partners either directly or indirectly through the Transfer Agent. A meeting shall be held at a time and place determined by the General Partner on a date not more than 60 days after the mailing of notice of the meeting. Limited Partners shall not vote on matters that would cause the Limited Partners to be deemed to be taking part in the management and control of the business and affairs of the Partnership so as to jeopardize the Limited Partners' limited liability under the Delaware Act or the law of any other state in which the Partnership is qualified to do business. Section 15.5 Notice of a Meeting. Notice of a meeting called pursuant to Section 15.4 shall be given to the Record Holders in writing by mail or other means of written communication in accordance with Section 18.1. The notice shall be deemed to have been given at the time when deposited in the mail or sent by other means of written communication. Section 15.6 Record Date. For purposes of determining the Limited Partners entitled to notice of or to vote at a meeting of the Limited Partners or to give approvals without a meeting as provided in Section 15.11, the General Partner may set a Record Date, which shall not be less than 10 nor more than 60 days before (a) the date of the meeting (unless such requirement conflicts with any rule, regulation, guideline or requirement of any National Securities Exchange on which the Units are listed for trading, in which case the rule, regulation, guideline or requirement of such exchange shall govern) or (b) in the event that approvals are sought without a meeting, the date by which Limited Partners are requested in writing by the General Partner to give such approvals. Section 15.7 Adjournment. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting and a new Record Date need not be fixed, if the time and place thereof are announced at the meeting at which the adjournment is taken, unless such adjournment shall be for more than 45 days. At the adjourned meeting, the Partnership may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if a new Record Date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given in accordance with this Article XV. 92 Section 15.8 Waiver of Notice; Approval of Meeting; Approval of Minutes. The transactions of any meeting of Limited Partners, however called and noticed, and whenever held, shall be as valid as if had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, Limited Partners representing such quorum who were present in person or by proxy and entitled to vote, sign a written waiver of notice or an approval of the holding of the meeting or an approval of the minutes thereof. All waivers and approvals shall be filed with the Partnership records or made a part of the minutes of the meeting. Attendance of a Limited Partner at a meeting shall constitute a waiver of notice of the meeting, except when the Limited Partner does not approve, at the beginning of the meeting, of the transaction of any business because the meeting is not lawfully called or convened; and except that attendance at a meeting is not a waiver of any right to disapprove the consideration of matters required to be included in the notice of the meeting, but not so included, if the disapproval is expressly made at the meeting. Section 15.9 Quorum. The holders of two-thirds of the Outstanding Units of the class or classes for which a meeting has been called represented in person or by proxy shall constitute a quorum at a meeting of Limited Partners of such class or classes unless any such action by the Limited Partners requires approval by holders of a majority in interest of such Units, in which case the quorum shall be a majority (excluding, in either case, if such are to be excluded from the vote, Outstanding Units owned by the General Partner and its Affiliates). At any meeting of the Limited Partners duly called and held in accordance with this Agreement at which a quorum is present, the act of Limited Partners holding Outstanding Units that in the aggregate represent a majority of the Outstanding Units entitled to vote and be present in person or by proxy at such meeting shall be deemed to constitute the act of all Limited Partners, unless a greater or different percentage is required with respect to such action under the provisions of this Agreement, in which case the act of the Limited Partners holding Outstanding Units that in the aggregate represent at least such greater or different percentage shall be required. The Limited Partners present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough Limited Partners to leave less than a quorum, if any action taken (other than adjournment) is approved by the required percentage of Outstanding Units specified in this Agreement. In the absence of a quorum, any meeting of Limited Partners may be adjourned from time to time by the affirmative vote of a majority of the Outstanding Units of the class or classes for which the meeting was called represented either in person or by proxy, but no other business may be transacted, except as provided in Section 15.7. Section 15.10 Conduct of Meeting. The General Partner shall have full power and authority concerning the manner of conducting any meeting of the Limited Partners or solicitation of approvals in writing, including, without limitation, the determination of Persons entitled to vote, the existence of a quorum, the satisfaction of the requirements of Section 15.4, the conduct of voting, the validity and effect of any proxies and the determination of any controversies, votes or challenges arising in connection with or during the meeting or voting. The General Partner shall designate a Person to serve as chairman of any meeting and shall further designate a Person to take the minutes of any meeting. All minutes shall be kept with the records of the Partnership maintained by the General Partner. The General Partner may make such other regulations consistent with applicable law and this Agreement as it may deem advisable concerning the conduct of any meeting of the Limited Partners or solicitation of approvals in writing, including, without limitation, regulations in regard to the appointment of proxies, the appointment and duties of inspectors of votes and approvals, the submission and examination of proxies and other evidence of the right to vote, and the revocation of approvals in writing. 93 Section 15.11 Action Without a Meeting. Any action that may be taken at a meeting of the Limited Partners may be taken without a meeting if an approval in writing setting forth the action so taken is signed by Limited Partners owning not less than the minimum percentage of the Outstanding Units that would be necessary to authorize or take such action at a meeting at which all the Limited Partners entitled to vote thereon were present and voted. Prompt notice of the taking of action without a meeting shall be given to the Limited Partners who have not approved in writing. The General Partner may specify that any written ballot submitted to Limited Partners for the purpose of taking any action without a meeting shall be returned to the Partnership within the time period, which shall be not less than 20 days, specified by the General Partner. If a ballot returned to the Partnership does not vote all of the Units held by the Limited Partner, the Partnership shall be deemed to have failed to receive a ballot for the Units that were not voted. If approval of the taking of any action by the Limited Partners is solicited by any Person other than by or on behalf of the General Partner, the written approvals shall have no force and effect unless and until (a) they are deposited with the Partnership in care of the General Partner, (b) approvals sufficient to take the action proposed are dated as of a date not more than 90 days prior to the date sufficient approvals are deposited with the Partnership and (c) an Opinion of Counsel is delivered to the General Partner to the effect that the exercise of such right and the action proposed to be taken with respect to any particular matter (i) will not cause the Limited Partners to be deemed to be taking part in the management and control of the business and affairs of the Partnership so as to jeopardize the Limited Partners' limited liability, (ii) will not jeopardize the status of the Partnership as a partnership under applicable tax laws and regulations and (iii) is otherwise permissible under the state statutes then governing the rights, duties and liabilities of the Partnership and the Partners. Section 15.12 Voting and Other Rights. (a) Only those Record Holders of Units on the Record Date set pursuant to Section 15.6 (and also subject to the limitations contained in the definition of "Outstanding") shall be entitled to notice of, and to vote at, a meeting of Limited Partners or to act with respect to matters as to which the holders of the Outstanding Units have the right to vote or to act. All references in this Agreement to votes of, or other acts that may be taken by, the Outstanding Units shall be deemed to be references to the votes or acts of the Record Holders of such Outstanding Units. (b) With respect to Units that are held for a Person's account by another Person (such as a broker, dealer, bank, trust company or clearing corporation, or an agent of any of the foregoing), in whose name such Units are registered, such broker, dealer or other agent shall, in exercising the voting rights in respect of such Units on any matter, and unless the arrangement between such Persons provides otherwise, vote such Units in favor of, and at the direction of, the Person who is the beneficial owner, and the Partnership shall be entitled to assume it is so acting without further inquiry. The provisions of this Section 15.12(b) (as well as all other provisions of this Agreement) are subject to the provisions of Section 10.4. 94 (c) With respect to any vote or act that may be taken by the Record Holders of the Outstanding Common Units as specified in this Agreement, each Outstanding Common Unit shall be entitled to one (1) vote per that Outstanding Common Unit. The Record Holders of the Outstanding Common Units shall always vote together as a class upon any matter which they have the right to vote or act pursuant to this Agreement. Section 15.13 Voting Rights of Senior Units. Except as provided in Sections 4.3(c)(i), 9.7, 14.1, 15.3(c), 16.1(b), 17.1, this Section 15.13 or otherwise as required by law, the Senior Units shall have no voting rights. So long as any Senior Units remain outstanding, unless a greater percentage shall then be required by law, the Partnership shall not, without the approval of the holders of at least a majority of the Outstanding Senior Units voting separately as a class, (i) amend the Partnership Agreement so as to affect adversely the specified rights, preferences or privileges of the Senior Units, including any amendment made in order to issue additional Senior Units other than as provided for in this Agreement as in effect on the WNGL Closing Date, (ii) except as permitted pursuant to Section 6.12 and Section 11.6, purchase, redeem or otherwise acquire for value any Common Units or (iii) permit any of its Subsidiaries to issue equity interests to any Person (other than the Partnership and its Subsidiaries and an interest not to exceed a percentage equal to one percent divided by ninety-nine percent to the General Partner). The holders of at least a majority of the Outstanding Senior Units, voting separately as one class, may waive compliance with any provision of this Agreement. In exercising any voting rights provided for in this Agreement, each Outstanding Senior Unit shall be entitled to one vote. Section 15.14 Amendment of Arrearage Requirements. Without limitation of the General Partner's authority to adopt amendments to this Agreement as contemplated in Section 15.1 with respect to the interests of the Common Units: (a) any amendment to the provisions of this Agreement related to the Arrearage Period or the Arrearage that would reasonably be expected to have a material adverse effect on the rights or preferences of the Outstanding Common Units (other than the FCI Common Units) must be approved by the holders of not less than a majority of the Outstanding Common Units (excluding for purposes of such determination the FCI Common Units); and (b) any amendment to the provisions of this Agreement related to the Arrearage Period or the Arrearage that would reasonably be expected to have a material adverse effect on the rights or preferences of the Outstanding FCI Common Units must be approved by FCI or the holder of the last FCI Common Unit as specified in Section 4.5(c). ARTICLE XVI MERGER Section 16.1 Authority. (a) Subject to (b) below, the Partnership may merge or consolidate with one or more corporations, business trusts or associations, real estate investment trusts, common law trusts or unincorporated businesses, including, without limitation, a general partnership or limited partnership, formed under the laws of the State of Delaware or any other state of the United States of America, pursuant to a written agreement of merger or consolidation ("Merger Agreement") in accordance with this Article XVI; 95 (b) Without the approval of the holders of at least the majority of the Outstanding Senior Units, the Partnership shall not, in a single transaction or series of related transactions, consolidate with or merge with or into, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its or the Operating Partnership's (which includes the sale by the Partnership of its limited partnership interests in the Operating Partnership) assets to, another Person unless: (A) either (1) the Partnership is the Surviving Business Entity or (2) the Person (if other than the Partnership) formed by such consolidation or into which the Partnership is merged or to which the properties and assets of the Partnership or Operating Partnership are sold, assigned, transferred, leased, conveyed or otherwise disposed of shall be an entity organized under the laws of the United States or any State thereof or the District of Columbia and shall expressly assume all of the obligations of the Partnership under this Agreement, the WNGL Purchase Agreement and the WNGL Registration Rights Agreement with respect to the Senior Units; and (B) if the Partnership is not the Surviving Business Entity, the Senior Units shall be converted into or exchanged for and shall become equity interests of such Surviving Business entity, having in respect of such Surviving Business Entity the same powers, preferences and relative, participating, optional or other special rights and the qualifications, limitations or restrictions thereon, that the Senior Units had immediately prior to such transactions. Section 16.2 Procedure for Merger or Consolidation. Merger or consolidation of the Partnership pursuant to this Article XVI requires the prior approval of the General Partner. If the General Partner shall determine, in the exercise of its sole discretion, to consent to the merger or consolidation, the General Partner shall approve the Merger Agreement, which shall set forth: (a) The names and jurisdictions of formation or organization of each of the business entities proposing to merge or consolidate; (b) The name and jurisdictions of formation or organization of the business entity that is to survive the proposed merger or consolidation (the "Surviving Business Entity"); (c) The terms and conditions of the proposed merger or consolidation; (d) The manner and basis of exchanging or converting the equity securities of each constituent business entity for, or into, cash, property or general or limited partnership interests, rights, securities or obligations of the Surviving Business Entity; and (i) if any general or limited partnership interests, securities or rights of any constituent business entity are not to be exchanged or converted solely for, or into, cash, property or general or limited partnership interests, rights, securities or obligations of the Surviving Business Entity, the cash, property or general or limited partnership interests, rights, securities or obligations of any limited partnership, corporation, trust or other entity (other than the Surviving Business Entity) which the holders of such general or limited partnership interests, securities or rights are to receive in exchange for, or upon conversion of, their general or limited partnership interests, securities or rights, and (ii) in the case of securities represented by certificates, upon the surrender of such certificates, which cash, property or general or limited partnership interests, rights, securities or obligations of the Surviving Business Entity or any general or limited partnership, corporation, trust or other entity (other than the Surviving Business Entity), or evidences thereof, are to be delivered; 96 (e) A statement of any changes in the constituent documents or the adoption of new constituent documents (the articles or certificate of incorporation, articles of trust, declaration of trust, certificate or agreement of limited partnership or other similar charter or governing document) of the Surviving Business Entity to be effected by such merger or consolidation; (f) The effective time of the merger, which may be the date of the filing of the certificate of merger pursuant to Section 16.4 or a later date specified in or determinable in accordance with the Merger Agreement (provided, that if the effective time of the merger is to be later than the date of the filing of the certificate of merger, the effective time shall be fixed no later than the time of the filing of the certificate of merger and stated therein); and (g) Such other provisions with respect to the proposed merger or consolidation as are deemed necessary or appropriate by the General Partner. Section 16.3 Approval by Holders of Common Units of Merger or Consolidation. (a) The General Partner of the Partnership, upon its approval of the Merger Agreement, shall direct that the Merger Agreement be submitted to a vote of the Limited Partners holding Common Units whether at a meeting or by written consent, in either case in accordance with the requirements of Article XV. A copy or a summary of the Merger Agreement shall be included in or enclosed with the notice of a meeting or the written consent. (b) The Merger Agreement shall be approved upon receiving the affirmative vote or consent of the holders of at least a majority of the Outstanding Common Units unless the Merger Agreement contains any provision which, if contained in an amendment to this Agreement, the provisions of this Agreement or the Delaware Act would require the vote or consent of a greater percentage of the Outstanding Common Units or of any class of Limited Partners, in which case such greater percentage vote or consent shall be required for approval of the Merger Agreement; provided that, in the case of a merger or consolidation in which the surviving entity is a corporation or other entity intended to be treated as an association taxable as a corporation or otherwise taxable as an entity for federal income tax purposes, if in the opinion of the General Partner it is necessary to effect, in contemplation of such merger or consolidation, an amendment that would otherwise require a vote pursuant to Section 15.3(d), no such vote pursuant to Section 15.3(d) shall be required unless such amendment by its terms will be applicable to the Partnership in the event the merger or consolidation is abandoned or unless such amendment will be applicable to the Partnership during a period in excess of ten days prior to the merger or consolidation. (c) After such approval by vote or consent of the holders of the Common Units, and at any time prior to the filing of the certificate of merger pursuant to Section 16.4, the merger or consolidation may be abandoned pursuant to provisions therefor, if any, set forth in the Merger Agreement. 97 Section 16.4 Certificate of Merger. Upon the required approval by the General Partner and the Limited Partners of a Merger Agreement, a certificate of merger shall be executed and filed with the Secretary of State of the State of Delaware in conformity with the requirements of the Delaware Act. Section 16.5 Effect of Merger. (a) At the effective time of the certificate of merger: (i) all of the rights, privileges and powers of each of the business entities that has merged or consolidated, and all property, real, personal and mixed, and all debts due to any of those business entities and all other things and causes of action belonging to each of those business entities shall be vested in the Surviving Business Entity and after the merger or consolidation shall be the property of the Surviving Business Entity to the extent they were of each constituent business entity; (ii) the title to any real property vested by deed or otherwise in any of those constituent business entities shall not revert and is not in any way impaired because of the merger or consolidation; (iii) all rights of creditors and all liens on or security interests in property of any of those constituent business entities shall be preserved unimpaired; and (iv) all debts, liabilities and duties of those constituent business entities shall attach to the Surviving Business Entity, and may be enforced against it to the same extent as if the debts, liabilities and duties had been incurred or contracted by it. (b) A merger or consolidation effected pursuant to this Article shall not be deemed to result in a transfer or assignment of assets or liabilities from one entity to another having occurred. ARTICLE XVII RIGHT TO ACQUIRE UNITS Section 17.1 Right to Acquire Units. (a) Notwithstanding any other provision of this Agreement, if at any time not more than 20% of the total Units of any class then Outstanding are held by Persons other than the General Partner and its Affiliates, the General Partner shall, upon the approval of the holders of at least a majority of the Outstanding Senior Units, have the right, which right it may assign and transfer to the Partnership or any Affiliate of the General Partner, exercisable in its sole discretion, to purchase all, but not less than all, of the Units of such class then Outstanding held by Persons other than the General Partner and its Affiliates, at the greater of (x) the Current Market Price as of the date three days prior to the date that the notice described in Section 17.1(b) is mailed, and (y) the highest cash price paid by the General Partner or any of its Affiliates for any such Unit purchased during the 90-day period preceding the date that the notice described in Section 17.1(b) is mailed. 98 (b) If the General Partner, any Affiliate of the General Partner or the Partnership elects to exercise the right to purchase Units granted pursuant to Section 17.1(a), the General Partner shall deliver to the Transfer Agent notice of such election to purchase (the "Notice of Election to Purchase") and shall cause the Transfer Agent to mail a copy of such Notice of Election to Purchase to the Record Holders of Units (as of a Record Date selected by the General Partner) at least 10, but not more than 60, days prior to the Purchase Date. Such Notice of Election to Purchase shall also be published for a period of at least three consecutive days in at least two daily newspapers of general circulation printed in the English language and published in the Borough of Manhattan, New York. The Notice of Election to Purchase shall specify the Purchase Date and the price (determined in accordance with Section 17.1(a)) at which Units will be purchased and state that the General Partner, its Affiliate or the Partnership, as the case may be, elects to purchase such Units, upon surrender of Certificates representing such Units in exchange for payment, at such office or offices of the Transfer Agent as the Transfer Agent may specify, or as may be required by any National Securities Exchange on which the Units are listed or admitted to trading. Any such Notice of Election to Purchase mailed to a Record Holder of Units at his address as reflected in the records of the Transfer Agent shall be conclusively presumed to have been given whether or not the owner receives such notice. On or prior to the Purchase Date, the General Partner, its Affiliate or the Partnership, as the case may be, shall deposit with the Transfer Agent cash in an amount sufficient to pay the aggregate purchase price of all of the Units to be purchased in accordance with this Section 17.1. If the Notice of Election to Purchase shall have been duly given as aforesaid at least 10 days prior to the Purchase Date, and if on or prior to the Purchase Date the deposit described in the preceding sentence has been made for the benefit of the holders of Units subject to purchase as provided herein, then from and after the Purchase Date, notwithstanding that any Certificate shall not have been surrendered for purchase, all rights of the holders of such Units (including, without limitation, any rights pursuant to Articles IV, V and XIV) shall thereupon cease, except the right to receive the purchase price (determined in accordance with Section 17.1(a)) for Units therefor, without interest, upon surrender to the Transfer Agent of the Certificates representing such Units, and such Units shall thereupon be deemed to be transferred to the General Partner, its Affiliate or the Partnership, as the case may be, on the record books of the Transfer Agent and the Partnership, and the General Partner or any Affiliate of the General Partner, or the Partnership, as the case may be, shall be deemed to be the owner of all such Units from and after the Purchase Date and shall have all rights as the owner of such Units (including, without limitation, all rights as owner of such Units pursuant to Articles IV, V and XIV). (c) At any time from and after the Purchase Date, a holder of an Outstanding Unit subject to purchase as provided in this Section 17.1 may surrender his Certificate, as the case may be, evidencing such Unit to the Transfer Agent in exchange for payment of the amount described in Section 17.1(a), therefor, without interest thereon. 99 Section 17.2 Right to Acquire Senior Units. (a) Notwithstanding any other provision of this Agreement, the Partnership shall have the right, which it may assign to any of its Affiliates, exercisable in its sole discretion, to purchase for cash, in whole or in part, at any time or from time to time, Senior Units at the Senior Unit Redemption Price. The right of the Partnership and its permitted assigns to purchase Outstanding Senior Units at the Senior Unit Redemption Price shall not apply to Common Units issued upon conversion of the Senior Units in accordance with Section 5.7; provided, however, that the Partnership and its permitted assigns shall have the right to exercise such right at any time prior to the date of conversion. (b) If the Partnership or its permitted assigns exercises the right to purchase Senior Units granted pursuant to Section 17.2(a), the Partnership shall deliver or cause to be delivered to the holder or holders of Senior Units, a Senior Unit Redemption Notice at least three, but not more than thirty (30) Business Days prior to the Senior Unit Redemption Date. (c) On or prior to the Senior Unit Redemption Date, the General Partner, its Affiliate or the Partnership, as the case may be, shall deposit with the Transfer Agent (or if all of the Outstanding Senior Units are held by one Holder (including Affiliates of such Holder), pay to such Holder and its Affiliates) cash in an amount sufficient to pay the aggregate Senior Unit Redemption Price of all of the Senior Units acquired pursuant to this Section 17.2. On the Senior Unit Redemption Date, each holder of Senior Units shall surrender the Certificates representing the number of Senior Units set forth in the Senior Unit Redemption Notice, in proper transfer form, in the manner and place designated in such notice. On the Senior Unit Redemption Date, the Senior Unit Redemption Price shall be payable in cash to the person whose name appears on such Certificates as the owner thereof, and, if purchased by the Partnership and not any of its Affiliates, each surrendered Certificate shall be canceled and retired. In the event that less than all of the Senior Units represented by any such Certificates are being acquired by the Partnership or any of its Affiliates, new Certificates shall be issued representing the number of Senior Units to remain Outstanding. (d) On and after the Senior Unit Redemption Date, unless the Partnership or any of its Affiliates defaults in the payment in full of the Senior Unit Redemption Price, all distributions on the Senior Units to be purchased shall cease, and all rights associated with the Senior Units to be purchased shall terminate other than the right to receive the Senior Unit Redemption Price. 100 ARTICLE XVIII GENERAL PROVISIONS Section 18.1 Addresses and Notices. Any notice, demand, request, report or proxy materials required or permitted to be given or made to a Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication to the Partner or Assignee at the address described below. Any notice, payment or report to be given or made to a Partner or Assignee hereunder shall be deemed conclusively to have been given or made, and the obligation to give such notice or report or to make such payment shall be deemed conclusively to have been fully satisfied, upon sending of such notice, payment or report to the Record Holder of such Unit at his address as shown on the records of the Transfer Agent or as otherwise shown on the records of the Partnership, regardless of any claim of any Person who may have an interest in such Unit or the Partnership Interest of a General Partner by reason of any assignment or otherwise. An affidavit or certificate of making of any notice, payment or report in accordance with the provisions of this Section 18.1 executed by the General Partner, the Transfer Agent or the mailing organization shall be prima facie evidence of the giving or making of such notice, payment or report. If any notice, payment or report addressed to a Record Holder at the address of such Record Holder appearing on the books and records of the Transfer Agent or the Partnership is returned by the United States Post Office marked to indicate that the United States Postal Service is unable to deliver it, such notice, payment or report and any subsequent notices, payments and reports shall be deemed to have been duly given or made without further mailing (until such time as such Record Holder or another Person notifies the Transfer Agent or the Partnership of a change in his address) if they are available for the Partner or Assignee at the principal office of the Partnership for a period of one year from the date of the giving or making of such notice, payment or report to the other Partners and Assignees. Any notice to the Partnership shall be deemed given if received by the General Partner at the principal office of the Partnership designated pursuant to Section 1.3. The General Partner may rely and shall be protected in relying on any notice or other document from a Partner, Assignee or other Person if believed by it to be genuine. Section 18.2 References. Except as specifically provided otherwise, references to "Articles" and "Sections" are to Articles and Sections of this Agreement. Section 18.3 Pronouns and Plurals. Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. Section 18.4 Further Action. The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement. Section 18.5 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns. Section 18.6 Integration. This Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto. Section 18.7 Creditors. None of the provisions of this Agreement shall be for the benefit of, or shall be enforceable by, any creditor of the Partnership. 101 Section 18.8 Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition. Section 18.9 Counterparts. This Agreement may be executed in counterparts, all of which together shall constitute an agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto or, in the case of a Person acquiring a Unit, upon accepting the certificate evidencing such Unit or executing and delivering a Transfer Application as herein described, independently of the signature of any other party. Section 18.10 Applicable Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law. Section 18.11 Invalidity of Provisions. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. 102 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. GENERAL PARTNER: FERRELLGAS, INC. By: /s/ Kevin T. Kelly ------------------------------------------ Name: Kevin T. Kelly Title: Senior Vice President and CFO LIMITED PARTNERS: All Limited Partners now and hereafter admitted as limited partners of the Partnership, pursuant to Powers of Attorney now and hereafter executed in favor of, and granted and delivered to, the General Partner. By: FERRELLGAS, INC. General Partner, as attorney-in-fact for all Limited Partners pursuant to the Powers of Attorney granted pursuant to Section 1.4. By: /s/ Kevin T. Kelly ---------------------------------------- Name: Kevin T. Kelly Title: Senior Vice President and CFO EXHIBIT A to the Fourth Amended and Restated Agreement of Limited Partnership of FERRELLGAS PARTNERS, L.P. Certificate Evidencing Common Units Representing Limited Partner Interests FERRELLGAS PARTNERS, L.P. No. _______ Common Units FERRELLGAS, INC., a Delaware corporation, as the General Partner of FERRELLGAS PARTNERS, L.P., a Delaware limited partnership (the "Partnership"), hereby certifies that _____________________ (the "Holder") is the registered owner of _____________ Common Units representing limited partner interests in the Partnership (the "Common Units") transferable on the books of the Partnership, in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed and accompanied by a properly executed application for transfer of the Common Units represented by this Certificate. The rights, preferences and limitations of the Common Units are set forth in, and this Certificate and the Common Units represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Fourth Amended and Restated Agreement of Limited Partnership of FERRELLGAS PARTNERS, L.P., as amended, supplemented or restated from time to time (the "Partnership Agreement"). Copies of the Partnership Agreement are on file at, and will be furnished without charge on delivery of written request to the Partnership at, the principal office of the Partnership located at One Liberty Plaza, Liberty, Missouri 64068. Capitalized terms used herein but not defined shall have the meaning given them in the Partnership Agreement. The Holder, by accepting this Certificate, is deemed to have (i) requested admission as, and agreed to become, a Limited Partner and to have agreed to comply with and be bound by and to have executed the Partnership Agreement, (ii) represented and warranted that the Holder has all right, power and authority and, if an individual, the capacity necessary to enter into the Partnership Agreement, (iii) granted the powers of attorney provided for in the Partnership Agreement and (iv) made the waivers and given the consents and approvals contained in the Partnership Agreement. Page 1 of Exhibit A This Certificate shall not be valid for any purpose unless it has been countersigned and registered by the Transfer Agent and Registrar. Dated: -------------------------- Countersigned and Registered by: FERRELLGAS, INC., as General Partner By: - -------------------------------- -------------------------------- Transfer Agent and Registrar President By: - -------------------------------- -------------------------------- Authorized Signature Secretary Page 2 of Exhibit A [Reverse of Certificate] ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as follows according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT- TEN ENT - as tenants by the entireties . . . Custodian . . . JT TEN - as joint tenants with right (Cust) (Minor) of survivorship and not as under Uinform Gifts to Minors in common Act . . . . . . . . . . . . . . State Additional abbreviations, though not in the above list, may also be used. ASSIGNMENT OF COMMON UNITS in FERRELLGAS PARTNERS, L.P. IMPORTANT NOTICE REGARDING INVESTOR RESPONSIBILITIES DUE TO TAX SHELTER STATUS OF FERRELLGAS PARTNERS, L.P. You have acquired an interest in Ferrellgas Partners, L.P., One Liberty Plaza, Liberty, Missouri 64068, whose taxpayer identification number is 43-1698480. The Internal Revenue Service has issued Ferrellgas Partners, L.P. the following tax shelter registration number 94201000010: YOU MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE SERVICE IF YOU CLAIM ANY DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT OR REPORT ANY INCOME BY REASON OF YOUR INVESTMENT IN FERRELLGAS PARTNERS, L.P. You must report the registration number as well as the name and taxpayer identification number of Ferrellgas Partners, L.P. on Form 8271. FORM 8271 MUST BE ATTACHED TO THE RETURN ON WHICH YOU CLAIM THE DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT OR REPORT ANY INCOME BY REASON OF YOUR INVESTMENT IN FERRELLGAS PARTNERS, L.P. Page 3 of Exhibit A If you transfer your interest in Ferrellgas Partners, L.P. to another person, you are required by the Internal Revenue Service to keep a list containing (a) that person's name, address and taxpayer identification number, (b) the date on which you transferred the interest and (c) the name, address and tax shelter registration number of Ferrellgas Partners, L.P. If you do not want to keep such a list, you must (1) send the information specified above to the Partnership, which will keep the list for this tax shelter, and (2) give a copy of this notice to the person to whom you transfer your interest. Your failure to comply with any of the above-described responsibilities could result in the imposition of a penalty under Section 6707(b) or 6708(a) of the Internal Revenue Code of 1986, as amended, unless such failure is shown to be due to reasonable cause. ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED, OR APPROVED BY THE INTERNAL REVENUE SERVICE. Page 4 of Exhibit A FOR VALUE RECEIVED, ________________ hereby assigns, conveys, sells and transfers unto ________________________________________________________________ - ------------------------------------- ------------------------------------- (Please print or typewrite (Please insert Social Security or name and address of Assignee) other identifying number of Assignee) Common Units representing limited partner interests evidenced by this Certificate, subject to the Partnership Agreement, and does hereby irrevocably constitute and appoint ________________ as its attorney-in-fact with full power of substitution to transfer the same on the books of Ferrellgas Partners, L.P. Date: NOTE: The signature to any endorsement hereon must ---------------- correspond with the name as written upon the face of this Certificate in every particular, without alteration, enlargement or change. SIGNATURE(S) MUST BE GUARANTEED BY A MEMBER FIRM OF THE NATIONAL ------------------------------------ ASSOCIATION OF SECURITIES (Signature) DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST COMPANY ------------------------------------ (Signature) SIGNATURE(S) GUARANTEED No transfer of the Common Units evidenced hereby will be registered on the books of the Partnership, unless the Certificate evidencing the Common Units to be transferred is surrendered for registration or transfer and an Application for Transfer of Common Units has been executed by a transferee either (a) on the form set forth below or (b) on a separate application that the Partnership will furnish on request without charge. A transferor of the Common Units shall have no duty to the transferee with respect to execution of the transfer application in order for such transferee to obtain registration of the transfer of the Common Units. ------------------------------------------------------------------- Page 5 of Exhibit A APPLICATION FOR TRANSFER OF COMMON UNITS The undersigned ("Assignee") hereby applies for transfer to the name of the Assignee of the Common Units evidenced hereby. The Assignee (a) requests admission as a Substituted Limited Partner and agrees to comply with and be bound by, and hereby executes, the Fourth Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P. (the "Partnership"), as amended, supplemented or restated to the date hereof (the "Partnership Agreement"), (b) represents and warrants that the Assignee has all right, power and authority and, if an individual, the capacity necessary to enter into the Partnership Agreement, (c) grants the powers of attorney provided for in the Partnership Agreement and (d) makes the waivers and gives the consents and approvals contained in the Partnership Agreement. Capitalized terms not defined herein have the meanings assigned to such terms in the Partnership Agreement. Date: ----------------------------- ----------------------------------- Signature of Assignee - ------------------------------------ ----------------------------------- Social Security or other Name and Address of Assignee identifying number of Assignee - ------------------------------------ Purchase Price including commissions, if any Type of Entity (check one) _____ Individual _____ Partnership _____ Corporation _____ Trust _____ Other (specify) _________________ Nationality (Check One): _____ U.S. Citizen, Resident or Domestic Entity _____ Foreign Corporation, or _____ Non-resident alien If the U.S. Citizen, Resident or Domestic Entity box is checked, the following certification must be completed. Page 6 of Exhibit A Under Section 1445(e) of the Internal Revenue Code of 1986, as amended (the "Code"), the Partnership must withhold tax with respect to certain transfers of property if a holder of an interest in the Partnership is a foreign person. To inform the Partnership that no withholding is required with respect to the undersigned interest holder's interest in it, the undersigned hereby certifies the following (or, if applicable, certifies the following on behalf of the interest holder). Complete Either A or B: A. Individual Interest Holder 1. I am not a non-resident alien for purposes of U.S. income taxation. 2. My U.S. taxpayer identifying number (Social Security Number) is _______________________________________________________________. 3. My home address is _______________________________________________________________. B. Partnership, Corporate or Other Interest-Holder 1. ______________________________________ is not a (Name of Interest-Holder) foreign corporation, foreign partnership, foreign trust or foreign estate (as those terms are defined in the Code and Treasury Regulations). 2. The interest-holder's U.S. employer identification number is _______________________________________________________________. 3. The interest-holder's office address and place of incorporation (if applicable) is . _______________________________________________________________. The interest-holder agrees to notify the Partnership within 60 days of the date the interest-holder becomes a foreign person. The interest-holder understands that this certificate may be disclosed to the Internal Revenue Service by the Partnership and that any false statement contained herein could be punishable by fine, imprisonment or both. Page 7 of Exhibit A Under penalties of perjury, I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct and complete and, if applicable, I further declare that I have authority to sign this document on behalf of _______________________________________________________________ (Name of Interest-Holder) _______________________________________________________________ Signature and Date _______________________________________________________________ Title (if applicable) Note: If the Assignee is a broker, dealer, bank, trust company, clearing corporation, other nominee holder or an agent of any of the foregoing, and is holding for the account of any other person, this application should be completed by an officer thereof or, in the case of a broker or dealer, by a registered representative who is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc., or, in the case of any other nominee holder, a person performing a similar function. If the Assignee is a broker, dealer, bank trust company, clearing corporation, other nominee owner or an agent of any of the foregoing, the above certification as to any person for whom the Assignee will hold the Common Units shall be made to the best of the Assignee's knowledge. Page 8 of Exhibit A EXHIBIT B to the Agreement of Limited Partnership of FERRELLGAS PARTNERS, L.P. Certificate Evidencing Senior Units Representing Limited Partner Interests FERRELLGAS PARTNERS, L.P. No.________ Senior Units FERRELLGAS, INC., a Delaware corporation, as the General Partner of FERRELLGAS PARTNERS, L.P., a Delaware limited partnership (the "Partnership"), hereby certifies that ____________________ (the "Holder") is the registered owner of _____ Senior Units representing limited partner interests in the Partnership (the "Senior Units") transferable on the books of the Partnership, in person or by duly authorized attorney, upon surrender of this Certificate properly endorsed and accompanied by a properly executed application for transfer of the Senior Units represented by this Certificate. The rights, preferences and limitations of the Senior Units are set forth in, and this Certificate and the Senior Units represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Fourth Amended and Restated Agreement of Limited Partnership of FERRELLGAS PARTNERS, L.P., as amended, supplemented or restated from time to time (the "Partnership Agreement"). Copies of the Partnership Agreement are on file at, and will be furnished without charge on delivery of written request to the Partnership at, the principal office of the Partnership located at One Liberty Plaza, Liberty, Missouri 64068. Capitalized terms used herein but not defined shall have the meaning given them in the Partnership Agreement. The Holder, by accepting this Certificate, is deemed to have (i) requested admission as, and agreed to become, a Limited Partner and to have agreed to comply with and be bound by and to have executed the Partnership Agreement, (ii) represented and warranted that the Holder has all right, power and authority and, if an individual, the capacity necessary to enter into the Partnership Agreement, (iii) granted the powers of attorney provided for in the Partnership Agreement and (iv) made the waivers and given the consents and approvals contained in the Partnership Agreement. Dated: ---------------------------- FERRELLGAS, INC., as General Partner By: ------------------------------------------------ President By: ------------------------------------------------ Secretary Page 1 of Exhibit B [Reverse of Certificate] ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as follows according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT- TEN ENT - as tenants by the entireties . . . Custodian . . . JT TEN - as joint tenants with right (Cust) (Minor) of survivorship and not as under Uinform Gifts to Minors in common Act . . . . . . . . . . . . . . State Additional abbreviations, though not in the above list, may also be used. ASSIGNMENT OF SENIOR UNITS in FERRELLGAS PARTNERS, L.P. IMPORTANT NOTICE REGARDING INVESTOR RESPONSIBILITIES DUE TO TAX SHELTER STATUS OF FERRELLGAS PARTNERS, L.P. You have acquired an interest in Ferrellgas Partners, L.P., One Liberty Plaza, Liberty, Missouri 64068, whose taxpayer identification number is 43-1698480. The Internal Revenue Service has issued Ferrellgas Partners, L.P. the following tax shelter registration number 94201000010: YOU MUST REPORT THIS REGISTRATION NUMBER TO THE INTERNAL REVENUE SERVICE IF YOU CLAIM ANY DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT OR REPORT ANY INCOME BY REASON OF YOUR INVESTMENT IN FERRELLGAS PARTNERS, L.P. You must report the registration number as well as the name and taxpayer identification number of Ferrellgas Partners, L.P. on Form 8271. FORM 8271 MUST BE ATTACHED TO THE RETURN ON WHICH YOU CLAIM THE DEDUCTION, LOSS, CREDIT, OR OTHER TAX BENEFIT OR REPORT ANY INCOME BY REASON OF YOUR INVESTMENT IN FERRELLGAS PARTNERS, L.P. If you transfer your interest in Ferrellgas Partners, L.P. to another person, you are required by the Internal Revenue Service to keep a list containing (a) that person's name, address and taxpayer identification number, (b) the date on which you transferred the interest and (c) the name, address and tax shelter registration number of Ferrellgas Partners, L.P. If you do not want Page 2 of Exhibit B to keep such a list, you must (1) send the information specified above to the Partnership, which will keep the list for this tax shelter, and (2) give a copy of this notice to the person to whom you transfer your interest. Your failure to comply with any of the above-described responsibilities could result in the imposition of a penalty under Section 6707(b) or 6708(a) of the Internal Revenue Code of 1986, as amended, unless such failure is shown to be due to reasonable cause. ISSUANCE OF A REGISTRATION NUMBER DOES NOT INDICATE THAT THIS INVESTMENT OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED, OR APPROVED BY THE INTERNAL REVENUE SERVICE. Page 3 of Exhibit B FOR VALUE RECEIVED, ________________ hereby assigns, conveys, sells and transfers unto _________________________________________________________________ __________________________________ ________________________________________ (Please print or typewrite (Please insert Social Security name and address of Assignee) or other identifying number of Assignee) ____________________________________ Senior Units representing limited partner interests evidenced by this Certificate, subject to the Partnership Agreement, and does hereby irrevocably constitute and appoint ____________ as its attorney-in-fact with full power of substitution to transfer the same on the books of Ferrellgas Partners, L.P. Date: NOTE: The signature to any endorsement hereon - ------------------------------ must correspond with the name as written upon the face of this Certificate in every particular, without alteration, enlargement or change. ---------------------------------------------- (Signature) No transfer of the Senior Units evidenced hereby will be registered on the books of the Partnership, unless the Certificate evidencing the Senior Units to be transferred is surrendered for registration or transfer and an Application for Transfer of Senior Units has been executed by a transferee either (a) on the form set forth below or (b) on a separate application that the Partnership will furnish on request without charge. A transferor of the Senior Units shall have no duty to the transferee with respect to execution of the transfer application in order for such transferee to obtain registration of the transfer of the Senior Units. Page 4 of Exhibit B APPLICATION FOR TRANSFER OF SENIOR UNITS The undersigned ("Assignee") hereby applies for transfer to the name of the Assignee of the Senior Units evidenced hereby. The Assignee (a) requests admission as a Substituted Limited Partner and agrees to comply with and be bound by, and hereby executes, the Fourth Amended and Restated Agreement of Limited Partnership of Ferrellgas Partners, L.P. (the "Partnership"), as amended, supplemented or restated to the date hereof (the "Partnership Agreement"), (b) represents and warrants that the Assignee has all right, power and authority and, if an individual, the capacity necessary to enter into the Partnership Agreement, (c) grants the powers of attorney provided for in the Partnership Agreement and (d) makes the waivers and gives the consents and approvals contained in the Partnership Agreement. Capitalized terms not defined herein have the meanings assigned to such terms in the Partnership Agreement. Date: ------------------ ------------------------------------ Signature of Assignee - --------------------------------------- ------------------------------------ Social Security or other identifying Name and Address of Assignee number of Assignee - --------------------------------------- Purchase Price including commissions, if any Type of Entity (check one) _____ Individual _____ Partnership _____ Corporation _____ Trust _____ Other (specify) _______________ Nationality (Check One): _____ U.S. Citizen, Resident or Domestic Entity _____ Foreign Corporation, or _____ Non-resident alien Page 5 of Exhibit B If the U.S. Citizen, Resident or Domestic Entity box is checked, the following certification must be completed. Under Section 1445(e) of the Internal Revenue Code of 1986, as amended (the "Code"), the Partnership must withhold tax with respect to certain transfers of property if a holder of an interest in the Partnership is a foreign person. To inform the Partnership that no withholding is required with respect to the undersigned interest holder's interest in it, the undersigned hereby certifies the following (or, if applicable, certifies the following on behalf of the interest holder). Complete Either A or B: A. Individual Interest Holder 1. I am not a non-resident alien for purposes of U.S. income taxation. 2. My U.S. taxpayer identifying number (Social Security Number) is _______________________________________________________________. 3. My home address is _______________________________________________________________. B. Partnership, Corporate or Other Interest-Holder 1. ____________________________________________________ is not a (Name of Interest-Holder) foreign corporation, foreign partnership, foreign trust or foreign estate (as those terms are defined in the Code and Treasury Regulations). 2. The interest-holder's U.S. employer identification number is _______________________________________________________________. 3. The interest-holder's office address and place of incorporation (if applicable) is _______________________________________________________________. The interest-holder agrees to notify the Partnership within 60 days of the date the interest-holder becomes a foreign person. The interest-holder understands that this certificate may be disclosed to the Internal Revenue Service by the Partnership and that any false statement contained herein could be punishable by fine, imprisonment or both. Page 6 of Exhibit B Under penalties of perjury, I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct and complete and, if applicable, I further declare that I have authority to sign this document on behalf of _______________________________________________________________ (Name of Interest-Holder) _______________________________________________________________ Signature and Date _______________________________________________________________ Title (if applicable) Note: If the Assignee is a broker, dealer, bank, trust company, clearing corporation, other nominee holder or an agent of any of the foregoing, and is holding for the account of any other person, this application should be completed by an officer thereof or, in the case of a broker or dealer, by a registered representative who is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc., or, in the case of any other nominee holder, a person performing a similar function. If the Assignee is a broker, dealer, bank trust company, clearing corporation, other nominee owner or an agent of any of the foregoing, the above certification as to any person for whom the Assignee will hold the Senior Units shall be made to the best of the Assignee's knowledge. Page 7 of Exhibit B Form of Election to Convert To Ferrellgas Partners, L.P. The undersigned owner of the Senior Units evidenced by this Certificate hereby exercises the option to convert all such Senior Units, or the number of Senior Units below designated, into Common Units of Ferrellgas Partners, L.P. in accordance with the terms of the Partnership Agreement referred to in this Certificate, and directs that the Common Units issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned registered Holder hereof, unless a different name has been indicated in the assignment below. If Common Units are to be issued in the name of person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any amount required to be paid by the undersigned on account of accumulated and undistributed distributions accompanies this Certificate. Dated: Number of Senior Units to be converted: - ---------------------- ------------------------------------ Signature (for conversion only) If Common Units are to be issued and registered otherwise than to the registered Holder named above, please print or typewrite name and address, including zip code, and social security or other taxpayer identification number. ------------------------------------ Page 8 of Exhinit B Table of Contents Page ARTICLE I ORGANIZATIONAL MATTERS.................................3 Section 1.1 Formation and Continuation..........................3 Section 1.2 Name................................................3 Section 1.3 Registered Office; Principal Office.................3 Section 1.4 Power of Attorney...................................4 Section 1.5 Term................................................5 Section 1.6 Possible Restrictions on Transfer...................5 ARTICLE II DEFINITIONS............................................6 ARTICLE III PURPOSE................................................27 Section 3.1 Purpose and Business................................27 Section 3.2 Powers..............................................28 ARTICLE IV CAPITAL CONTRIBUTIONS..................................28 Section 4.1 Initial Contributions...............................28 Section 4.2 Contributions by the General Partner and the Initial Limited Partners; Contributions on the WNGL Closing Date and issuance of General Partner Units..........28 Section 4.3 Issuances of Additional Units and Other Securities..29 Section 4.4 Limited Preemptive Rights...........................31 Section 4.5 Capital Accounts....................................31 Section 4.6 Interest............................................34 Section 4.7 No Withdrawal.......................................34 Section 4.8 Loans from Partners.................................34 Section 4.9 No Fractional Units.................................34 Section 4.10 Splits and Combinations.............................34 ARTICLE V ALLOCATIONS AND DISTRIBUTIONS..........................35 Section 5.1 Allocations for Capital Account Purposes............35 Section 5.2 Allocations for Tax Purposes........................44 Section 5.3 Requirement and Characterization of Distributions...46 Section 5.4 Distributions of Cash from Operations and Additional Senior Units........................................46 Section 5.5 Distributions of Cash from Interim Capital Transactions........................................51 i Section 5.6 Adjustment of Senior Unit Liquidation Preference, Senior Unit Distribution, Minimum Quarterly Distribution and Target Distribution Levels.........51 Section 5.7 Special Provisions Relating to the Senior Units.....52 Section 5.8 Special Provisions Relating to the Special Limited Partners............................................55 Section 5.9 Special Provision Relating to FCI Common Units......55 ARTICLE VI MANAGEMENT AND OPERATION OF BUSINESS...................55 Section 6.1 Management..........................................55 Section 6.2 Certificate of Limited Partnership..................57 Section 6.3 Restrictions on General Partner's Authority.........58 Section 6.4 Reimbursement of the General Partner................58 Section 6.5 Outside Activities..................................59 Section 6.6 Loans to and from the General Partner; Contracts with Affiliates.....................................61 Section 6.7 Indemnification.....................................62 Section 6.8 Liability of Indemnitees............................64 Section 6.9 Resolution of Conflicts of Interest.................64 Section 6.10 Other Matters Concerning the General Partner........66 Section 6.11 Title to Partnership Assets.........................66 Section 6.12 Purchase or Sale of Units...........................67 Section 6.13 Registration Rights of Ferrellgas and its Affiliates..........................................67 Section 6.14 Reliance by Third Parties...........................69 ARTICLE VII RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.............70 Section 7.1 Limitation of Liability.............................70 Section 7.2 Management of Business..............................70 Section 7.3 Outside Activities..................................70 Section 7.4 Return of Capital...................................70 Section 7.5 Rights of Limited Partners Relating to the Partnership.........................................71 ARTICLE VIII BOOKS, RECORDS, ACCOUNTING AND REPORTS.................72 Section 8.1 Records and Accounting..............................72 Section 8.2 Fiscal Year.........................................72 Section 8.3 Reports.............................................72 ii ARTICLE IX TAX MATTERS............................................72 Section 9.1 Preparation of Tax Returns..........................72 Section 9.2 Tax Elections.......................................73 Section 9.3 Tax Controversies...................................73 Section 9.4 Organizational Expenses.............................73 Section 9.5 Withholding.........................................73 Section 9.6 Entity-Level Taxation...............................74 Section 9.7 Entity-Level Arrearage Collections..................74 Section 9.8 Opinions of Counsel.................................75 ARTICLE X CERTIFICATES...........................................75 Section 10.1 Certificates........................................75 Section 10.2 Registration, Registration of Transfer and Exchange............................................75 Section 10.3 Mutilated, Destroyed, Lost or Stolen Certificates...76 Section 10.4 Record Holder.......................................77 ARTICLE XI TRANSFER OF INTERESTS..................................77 Section 11.1 Transfer............................................77 Section 11.2 Transfer of the General Partner Interest............78 Section 11.3 Transfer of Units (other than General Partner Units)......................................78 Section 11.4 Restrictions on Transfers...........................79 Section 11.5 Citizenship Certificates; Non-citizen Assignees.....79 Section 11.6 Redemption of Interests.............................80 Section 11.7 Transfer of IDRs....................................81 ARTICLE XII ADMISSION OF PARTNERS..................................81 Section 12.1 Admission of Initial Limited Partners...............81 Section 12.2 Admission of Substituted Limited Partners...........81 Section 12.3 Admission of Successor General Partner..............82 Section 12.4 Admission of Additional Limited Partners............82 Section 12.5 Amendment of Agreement and Certificate of Limited Partnership.........................................83 iii ARTICLE XIII WITHDRAWAL OR REMOVAL OF PARTNERS......................83 Section 13.1 Withdrawal of the General Partner...................83 Section 13.2 Removal of the General Partner......................85 Section 13.3 Interest of Departing Partner and Successor General Partner.....................................85 Section 13.4 Withdrawal of Limited Partners......................87 ARTICLE XIV DISSOLUTION AND LIQUIDATION............................87 Section 14.1 Dissolution.........................................87 Section 14.2 Continuation of the Business of the Partnership after Dissolution...................................87 Section 14.3 Liquidation.........................................88 Section 14.4 Distributions in Kind...............................89 Section 14.5 Cancellation of Certificate of Limited Partnership..89 Section 14.6 Reasonable Time for Winding Up......................90 Section 14.7 Return of Capital Contributions.....................90 Section 14.8 Capital Account Restoration.........................90 Section 14.9 Waiver of Partition.................................90 ARTICLE XV AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS; RECORD DATE............................................90 Section 15.1 Amendment to be Adopted Solely by General Partner...90 Section 15.2 Amendment Procedures................................92 Section 15.3 Amendment Requirements..............................92 Section 15.4 Meetings............................................93 Section 15.5 Notice of a Meeting.................................93 Section 15.6 Record Date.........................................93 Section 15.7 Adjournment.........................................94 Section 15.8 Waiver of Notice; Approval of Meeting; Approval of Minutes..........................................94 Section 15.9 Quorum..............................................94 Section 15.10 Conduct of Meeting..................................95 Section 15.11 Action Without a Meeting............................95 Section 15.12 Voting and Other Rights.............................95 Section 15.13 Voting Rights of Senior Units.......................96 Section 15.14 Amendment of Arrearage Requirements.................96 iv ARTICLE XVI MERGER.................................................97 Section 16.1 Authority...........................................97 Section 16.2 Procedure for Merger or Consolidation...............97 Section 16.3 Approval by Holders of Common Units of Merger or Consolidation....................................98 Section 16.4 Certificate of Merger...............................99 Section 16.5 Effect of Merger....................................99 ARTICLE XVII RIGHT TO ACQUIRE UNITS.................................100 Section 17.1 Right to Acquire Units..............................100 Section 17.2 Right to Acquire Senior Units.......................101 ARTICLE XVIII GENERAL PROVISIONS.....................................102 Section 18.1 Addresses and Notices...............................102 Section 18.2 References..........................................102 Section 18.3 Pronouns and Plurals................................102 Section 18.4 Further Action......................................103 Section 18.5 Binding Effect......................................103 Section 18.6 Integration.........................................103 Section 18.7 Creditors...........................................103 Section 18.8 Waiver..............................................103 Section 18.9 Counterparts........................................103 Section 18.10 Applicable Law......................................103 Section 18.11 Invalidity of Provisions............................103 EXHIBIT A - Certificate Evidencing Common Units EXHIBIT B - Certificate Evidencing Senior Units v EX-4 18 supsavingsplan.txt EXHIBIT 4 TO FORM 8K 2-18-03 Exhibit 99.12 Exhibit 4 FERRELL COMPANIES, INC. SUPPLEMENTAL SAVINGS PLAN Restated January 1, 2000 FERRELL COMPANIES, INC. SUPPLEMENTAL SAVINGS PLAN Table of Contents Page - ----------------- ------ INTRODUCTION .............................................................. 1 ARTICLE I - GENERAL Section 1.1 Effective Date ................................................ 2 Section 1.2 Purpose ....................................................... 2 Section 1.3 Intent ........................................................ 2 ARTICLE II - DEFINITIONS AND USAGE Section 2.1 Definitions ................................................... 3 Section 2.2 Usage ......................................................... 5 ARTICLE III - ELIGIBILITY AND PARTICIPATION Section 3.1 Eligibility ................................................... 6 Section 3.2 Participation ................................................. 6 Section 3.3 Agreement Procedures .......................................... 6 ARTICLE IV - PARTICIPANT ACCOUNTS Section 4.1 Accounts ...................................................... 7 Section 4.2 Participant Deferrals ......................................... 7 Section 4.3 [RESERVED] .................................................... 7 Section 4.4 Company Contributions ......................................... 7 Section 4.5 Discretionary Contributions ................................... 7 Section 4.6 Investment Procedure .......................................... 7 Section 4.7 Valuation of Accounts ......................................... 7 ARTICLE V - PAYMENT OF BENEFITS Section 5.1 Entitlement to Benefit Payments ............................... 9 Section 5.2 Commencement of Benefit Payments .............................. 9 Section 5.3 Hardship Withdrawals .......................................... 9 ARTICLE VI - PAYMENT OF BENEFIT ON OR AFTER DEATH Section 6.1 Commencement of Savings Payments .............................. 10 Section 6.2 Designation of Beneficiary .................................... 10 ARTICLE VII - ADMINISTRATION Section 7.1 General ....................................................... 11 Section 7.2 Administrative Rules .......................................... 11 Section 7.3 Duties ........................................................ 11 Section 7.4 Fees .......................................................... 11 ARTICLE VIII - CLAIMS PROCEDURE Section 8.1 General ....................................................... 12 Section 8.2 Denials ....................................................... 12 Section 8.3 Notice ........................................................ 12 Section 8.4 Appeals Procedure ............................................. 12 Section 8.5 Review ........................................................ 12 ARTICLE IX - MISCELLANEOUS PROVISIONS Section 9.1 Amendment ..................................................... 13 Section 9.2 Termination ................................................... 13 Section 9.3 No Assignment ................................................. 13 Section 9.4 Incapacity .................................................... 13 Section 9.5 Successors and Assigns ........................................ 13 Section 9.6 Governing Law ................................................. 13 Section 9.7 No Guarantee of Employment .................................... 13 Section 9.8 Severability .................................................. 14 Section 9.9 Notification of Addresses ..................................... 14 Section 9.10 Bonding ...................................................... 14 FERRELL COMPANIES, INC. SUPPLEMENTAL SAVINGS PLAN INTRODUCTION WHEREAS, Ferrell Companies, Inc. (the "Company"), has heretofore established the Ferrell Companies, Inc. 401(k) Investment Plan (the "Savings Plan") for its eligible employees; and WHEREAS, the Company has also heretofore established this Ferrell Companies, Inc. Supplemental Savings Plan (the "Supplemental Plan") to provide a select group of management or highly compensated employees with supplemental retirement income; and WHEREAS, the Company now wishes to modify the relationship between the Supplemental Plan and the Savings Plan; NOW, THEREFORE, the Company hereby amends and restates the Supplemental Plan as hereinafter provided. 1 ARTICLE I GENERAL I. 1.1 Effective Date. The provisions of this restatement of the Supplemental Plan shall be effective as of January 1, 2000. The rights, if any, of any person whose status as an employee of the Company and its subsidiaries and affiliates, if any, has terminated shall be determined pursuant to the Supplemental Plan as in effect on the date such employee terminated, unless a subsequently adopted provision of the Supplemental Plan is made specifically applicable to such person. 1.2 Purpose. The purpose of the Supplemental Plan is to provide Participants with the opportunity to defer income to their retirement in amounts greater than those that may be contributed to the Savings Plan due to application of (i) the actual deferral percentage test under Code Section 401(k)(3), (ii) the actual contribution percentage test under Code Section 401(m)(2), (iii) the limit on the amount of compensation that may be considered under Code Section 401(a)(17), and (iv) the dollar limitation (but not the percentage-of-compensation limitation) on annual additions to a defined contribution plan under Code Section 415. 1.3 Intent. The Supplemental Plan is intended to be (and shall be construed and administered as) an "employee pension benefit plan" under the Employee Retirement Income Security Act of 1974 ("ERISA"), which is unfunded and maintained by the Company solely to provide retirement income to a select group of management or highly compensated employees, as such group is described in Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA. The Supplemental Plan is not intended to be a plan described in Section 401(a) of the Code. The obligation of the Company to make payments under the Supplemental Plan constitutes nothing more than an unsecured promise to make such payments, and any property of the Company that may be set aside for the payment of benefits under the Supplemental Plan shall, in the event of the Company's bankruptcy or insolvency, remain subject to the claims of the Company's general creditors until such benefits are distributed in accordance with Article V herein. 2 ARTICLE II DEFINITIONS AND USAGE 2.1 Definitions. Wherever used in the Supplemental Plan, the following words and phrases shall have the meaning set forth below, unless the context plainly requires a different meaning: (a)"Account" means the account established on behalf of the Participant, as described in Section 4.1. (b)"Administrator" means the person or persons described in Article VII. (c) "Allocation Limitation" means the dollar limitation (but not the percentage-of-compensation limitation) on annual additions to a defined contribution plan under Code Section 415. (d)"Board" means the governing body of the Company. (e) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (f) "Committee" means the executive compensation committee of the Board, if any, otherwise, the Board or its designee. (g)"Company" means Ferrell Companies, Inc., and any successor thereto. (h) "Compensation" means compensation as defined under the Savings Plan for purposes of determining allocations to a Participant's account, without regard to any limitation on compensation under Code Section 401(a)(17). In no event may Compensation for a Savings Plan Year or a Plan Year exceed the amount set by the Board for such Year. (i) "Compensation Limitation" means, with respect to a Savings Plan Year, the limitation on compensation determined under Code Section 401(a)(17) and Treasury Regulations promulgated thereunder. (j) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. (k) "Excess Deferrals" means the elective contributions a Participant would have made to the Savings Plan, based on his or her elections under that Plan, were it not for the application of the actual deferral percentage test under Code Section 401(k)(3). (l) "Excess Match" means the matching contributions that would have been made on a Participant's behalf to the Savings Plan, based on his or her elections under that Plan, were it not for the application of the actual contribution percentage test of Code Section 401(m)(2). (m) "Participant" means an eligible employee of the Company who is participating in the Supplemental Plan in accordance with Article III. 3 (n)"Plan Year" means the calendar year. (o) "Salary Reduction Agreement" or "Agreement" means an agreement between a Participant and the Company pursuant to which the Participant agrees to a reduction in his or her Compensation before such Compensation is earned by the Participant, in exchange for the Company's promise to credit an equal amount to the Participant's Account under the Supplemental Plan. (p)"Savings Plan" means the Ferrell Companies, Inc. 401(k) Investment Plan. (q)"Savings Plan Year" means the plan year under the Savings Plan. (r)"Supplemental Plan" means the Ferrell Companies, Inc. Supplemental Savings Plan, as set forth herein. (s)"Unforeseeable Emergency" means severe financial hardship to a Participant resulting from: (i)A sudden and unexpected illness of the Participant or his or her dependent (as defined in Section 152(a) of the Code); (ii)Loss of the Participant's property due to casualty; or (iii) Other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. Neither the need to send a Participant's child to college nor the desire to purchase a home shall constitute an Unforeseeable Emergency. (t) "Valuation Date" means the last business day of each calendar quarter and such other dates as determined from time to time by the Administrator. (u) "Vested Account Balance" means that portion, if any, of a Participant's Account that is vested, determined as follows: (i) the portion of a Participant's Account attributable to deferrals credited pursuant to Section 4.2 of the Supplemental Plan shall at all times be 100% vested, (ii) the portion of a participant's Account attributable to contributions credited pursuant to Section 4.4 of the Supplemental Plan shall be vested as if such contributions had been made under the applicable provisions of the Savings Plan, and (iii) the portion of a Participant's Account attributable to contributions credited pursuant to Section 4.5 of the Supplemental Plan shall be vested as determined by the Committee and communicated to the Participant under procedures established by the Administrator. 4 2.2 Usage. Except where otherwise indicated by the context, any masculine terminology used herein shall also include the feminine and vice versa, and the definition of any term herein in the singular shall also include the plural and vice versa. 5 ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 Eligibility. The Committee shall designate from time to time those employees of the Company who shall participate in the Supplemental Plan; provided, however, that such employees must be eligible to defer into the Savings Plan for the Plan Year and must be members of a select group of management or highly compensated employees, as such group is described in Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA. 3.2 Participation. An employee of the Company shall commence participation in the Supplemental Plan as of the first day of the Plan Year designated by the Committee. The participation of any Participant may be suspended or terminated by the Committee at any time, but no such suspension or termination shall operate to reduce the balance in the Account of the Participant as of the Valuation Date that precedes or coincides with the date of such suspension or termination without such Participant's consent. An employee shall cease to be a Participant when he or she terminates employment with the Company and the balance in his or her Account has been distributed under the terms of the Plan. 3.3 Agreement Procedures. (a) Each Participant and the Company may execute one or more Salary Reduction Agreements for the portion of the Participant's Compensation that shall be credited to his Account in accordance with Section 4.2. Such Agreement shall be effective only with respect to Compensation earned after the Agreement becomes effective. No more than one Salary Reduction Agreement may be entered into with respect to a Plan Year. (b) Any Agreement shall be properly completed, executed and delivered to the Administrator prior to the first day of the Plan Year for which the Agreement is to be effective. No Agreements will be accepted after January 1 of any Plan Year. (c) An Agreement shall be effective no earlier than the date on which it is delivered to the Administrator and shall continue in effect for all succeeding Plan Years unless modified or revoked. 6 ARTICLE IV PARTICIPANT ACCOUNTS 4.1 Accounts. The Administrator shall establish and maintain one or more Accounts for each Participant, consisting of amounts credited to such Account pursuant to Sections 4.2, 4.4 and 4.5, below. All amounts credited to a Participant's Account shall be credited solely for purposes of accounting and computation, and they shall remain assets of the Company subject to the claims of the Company's general creditors. A Participant shall have no interest in or right to such Account at any time. 4.2 Participant Deferrals. The Administrator shall credit to a Participant's Account for a Plan Year such amount as the Participant elects under a Salary Reduction Agreement (if any) for that Plan Year. A Participant may elect to defer up to: (a)25% of the Compensation earned during the Plan Year; plus (b) An additional amount of such Compensation equal to the sum of the Excess Deferrals and Excess Match (including any income thereon) distributed to the Participant from the Savings Plan during that Plan Year. 4.[RESERVED] 4.4 Company Contributions. Each Savings Plan Year, a Participant's Account shall be credited with an amount equal to the employer contributions (matching and non-elective) which otherwise would have been allocated to the Participant's account under the Savings Plan for such Year, if not for the Allocation Limitation and the Compensation Limitation. 4.5 Discretionary Contributions. The Company, in its sole discretion, may cause the Administrator to credit an additional amount to a Participant's Account for any Plan Year. 4.6 Investment Procedure. All amounts in a Participant's Account shall be deemed invested in a fund determined by the Committee. The Committee shall retain overriding discretion over the selection of investment vehicles, and the Committee may change, alter or modify its investment policy as it deems appropriate from time to time. Any such change, alteration or modification shall be communicated to the Participants under procedures adopted by the Committee. 7 4.7 Valuation of Accounts. The value of a Participant's Account shall be determined from time to time by the Administrator in the following manner: (a) The income and expense, gains, and losses, both realized and unrealized, from such deemed investments as are required under Section 4.6 shall be determined by the Administrator. The amount so determined shall be allocated proportionately to the Accounts of Participants, in accordance with procedures established by the Administrator. (b) All Company contributions for a Participant shall be credited to the Account of the Participant in accordance with Sections 4.2, 4.4 and 4.5, as applicable. (c) Each Participant's Account shall be valued as of the Valuation Date, or more frequently as determined in the sole discretion of the Administrator, and shall again be valued as of the date that a Participant receives a payment under the Supplemental Plan, in accordance with the procedures established by the Administrator. (d) A Participant's Account shall be reduced by the amount of any benefits distributed to or on behalf of the Participant pursuant to Article V. (e) All allocations to and deductions from a Participant's Account under this Section 4.7 shall be deemed to have been made on the applicable Valuation Date, in the order of priority set forth in this Section 4.7, even though actually determined at a later date. 8 ARTICLE V PAYMENT OF BENEFITS 5.1 Entitlement to Benefit Payments. Upon a Participant's separation from service with the Company, the Participant shall be entitled to his or her Vested Account Balance, payable by the Company in the form set forth in Section 5.2. Notwithstanding the foregoing, if a Participant's separation from service is the result of termination "for cause," no benefits shall be payable to the Participant under the Supplemental Plan and his or her Vested Account Balance shall be zero. Any amounts forfeited under the Supplemental Plan due to a termination "for cause" will be released from the accounts of the Supplemental Plan and transferred to the general asset account of the Company. A Participant shall be deemed to have been terminated "for cause" if his or her employment is terminated as a result of the Participant's fraud, misappropriation or embezzlement of Company funds or property. The Committee shall determine whether a Participant's separation from service is "for cause." 5.2 Commencement of Benefit Payments. Unless otherwise determined by the Committee, the Participant's Vested Account Balance shall be paid to him or her in the same form as, and shall commence and cease being paid coincident with, the benefit payable to the Participant under the Savings Plan. 5.3 Hardship Withdrawals. In the event of a Participant's Unforeseeable Emergency, the Committee may, in its sole discretion, pay out all or part of such Participant's Vested Account Balance, to the extent reasonably necessary to relieve such Unforeseeable Emergency. No payment shall be made under this Section to the extent a Participant's Unforeseeable Emergency may be relieved: (a)Through reimbursement or compensation by insurance or otherwise; (b) By liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship; or (c)By cessation of the Participant's deferrals under the Supplemental Plan. 9 ARTICLE VI PAYMENT OF BENEFITS ON OR AFTER DEATH 6.1 Commencement of Savings Payments. If a Participant dies before receiving his or her entire Vested Account Balance, the remainder of the Account otherwise payable with respect to the Participant shall be paid to the Participant's beneficiary or beneficiaries as a single lump-sum amount within sixty (60) days of the Valuation Date following the date on which the Administrator is notified of the Participant's death. 6.2 Designation of Beneficiary. Unless a Participant files a designation of beneficiary form with the Administrator pursuant to this Section 6.2, any designation of a beneficiary under the Savings Plan shall also be effective under this Plan. A Participant may, by written instrument delivered to the Administrator during the Participant's lifetime, designate one or more primary and contingent beneficiaries to receive the Participant's Vested Account Balance following the Participant's death, and may designate the proportions in which such beneficiaries are to receive such payments. A Participant may change such designations from time to time, and the last written designation filed with the Administrator prior to the Participant's death shall control. If a Participant fails to specifically designate a beneficiary, or if no designated beneficiary survives the Participant, payment shall be made by the Administrator in the following order of priority: (a)To the Participant's surviving spouse; or if none, (b)To the Participant's children, per stirpes; or if none, (c)To the Participant's estate. 10 ARTICLE VII ADMINISTRATION 7.1 General. The Administrator shall be the Committee, or such other person or persons as designated by the Board. Except as otherwise specifically provided in the Supplemental Plan, the Administrator shall be responsible for the administration of the Supplemental Plan. The Administrator shall be the "named fiduciary," within the meaning of Section 402(c)(2) of ERISA. 7.2 Administrative Rules. The Administrator may adopt such rules of procedure as it deems desirable for the conduct of its affairs, except to the extent that such rules conflict with the provisions of the Supplemental Plan. 7.3 Duties. The Administrator shall have the following rights, powers and duties: (a) The decision of the Administrator in matters within its jurisdiction shall be final, binding and conclusive upon each Participant and upon any other person affected by such decision, subject to the claims procedure hereinafter set forth. (b) The Administrator shall have the duty and authority to interpret and construe the provisions of the Supplemental Plan; to decide any question which may arise regarding the rights of employees, Participants and beneficiaries, and the amounts of their respective interests; to adopt such rules and to exercise such powers as the Administrator may deem necessary for the administration of the Supplemental Plan; and to exercise any other rights, powers or privileges granted to the Administrator by the terms of the Supplemental Plan. (c) The Administrator shall maintain full and complete records of its decisions. Its records shall contain all relevant data pertaining to the Participants and their rights and duties under the Supplemental Plan. The Administrator shall have the duty to maintain Account records of all Participants. (d) The Administrator shall cause the principal provisions of the Supplemental Plan to be communicated to the Participants, and a copy of the Supplemental Plan and other documents shall be available at the principal office of the Company for inspection by the Participants at reasonable times determined by the Administrator. (e) The Administrator shall periodically report to the Committee with respect to the status of the Supplemental Plan. 7.4 Fees. No fee or compensation shall be paid to any person for services as the Administrator. 11 ARTICLE VIII CLAIMS PROCEDURE 8.1 General. Any claim for benefits under the Supplemental Plan shall be filed with the Administrator by a Participant or beneficiary (a "claimant") on the form prescribed for such purpose by the Administrator. 8.2 Denials. If a claim for benefits under the Supplemental Plan is wholly or partially denied, notice of the decision shall be furnished to the claimant by the Administrator within a reasonable period of time after receipt of the claim by the Administrator. 8.3 Notice. Any claimant who is denied a claim for benefits shall be furnished written notice setting forth: (a)The specific reason or reasons for the denial; (b)Specific reference to the pertinent provision of the Supplemental Plan upon which the denial is based; (c)A description of any additional material or information necessary for the claimant to perfect the claim; and (d)An explanation of the claim review procedure under the Supplemental Plan. 8.4 Appeals Procedure. In order that a claimant may appeal a denial of a claim, the claimant or the claimant's duly authorized representative may: (a) Request a review by written application to the Administrator, or its designee, no later than sixty (60) days after receipt by the claimant of written notification of denial of a claim; (b)Review pertinent documents; and (c)Submit issues and comments in writing. 8.5 Review. A decision on review of a denied claim shall be made not later than sixty (60) days after receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered within a reasonable period of time, but not later than one hundred and twenty (120) days after receipt of a request for review. The decision on review shall be in writing and shall include the specific reasons for the decision and specific references to the pertinent provisions of the Supplemental Plan on which the decision is based. 12 ARTICLE IX MISCELLANEOUS PROVISIONS 9.1 Amendment. The Company reserves the right to amend the Supplemental Plan, in any manner that it deems advisable, by a resolution of the Board. No amendment shall, without a Participant's consent, affect the amount of that Participant's Vested Account Balance at the time the amendment becomes effective or the right of that Participant to receive a distribution of his or her Vested Account Balance. 9.2 Termination. The Company reserves the right to terminate the Supplemental Plan at any time. No termination shall, without a Participant's consent, affect the amount of that Participant's Vested Account Balance prior to the termination or the right of that Participant to receive a distribution of his or her Vested Account Balance. 9.3 No Assignment. No Participant shall have the power to pledge, transfer, assign, anticipate, mortgage or otherwise encumber or dispose of in advance any interest in amounts payable hereunder or any of the payments provided for herein, nor shall any interest in amounts payable hereunder or in any payments be subject to seizure for payment of any Participant's debts, judgments, alimony or separate maintenance, or be reached or transferred by operation of law in the event of any Participant's bankruptcy, insolvency or otherwise. 9.4 Incapacity. If any person to whom a benefit is payable under the Supplemental Plan is an infant, or if the Administrator determines that any person to whom such benefit is payable is incompetent by reason of physical or mental disability, the Administrator may cause the payments becoming due to such person to be made to another for his benefit. Payments made pursuant to this Section shall, as to such payment, operate as a complete discharge of the Supplemental Plan, the Company, the Committee and the Administrator. 9.5 Successors and Assigns. The provisions of the Supplemental Plan are binding upon and inure to the benefit of the Company and its successors and assigns, and to each Participant and his or her beneficiaries, heirs, legal representatives and assigns. 9.6 Governing Law. The Supplemental Plan shall be subject to and construed in accordance with the laws of the State of Missouri, to the extent not pre-empted by the provisions of ERISA. 9.7 No Guarantee of Employment. Nothing contained in the Supplemental Plan shall be construed as a contract of employment nor be deemed to give any Participant the right to be retained in the employ of the Company or any equity or other interest in the assets, business or affairs of the Company. 13 9.8 Severability. If any provision of the Supplemental Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Supplemental Plan, but the Supplemental Plan shall be construed and enforced as if such illegal or invalid provision had never been included herein. 9.9 Notification of Addresses. Each Participant and each beneficiary shall file with the Administrator, from time to time, in writing, the post office address of the Participant, the post office address of each beneficiary, and each change of post office address. Any communication, statement or notice addressed to the last post office address filed with the Administrator (or if no such address was filed with the Administrator, then to the last post office address of the Participant or beneficiary as shown on the Company's records) shall be binding on the Participant and each beneficiary for all purposes of the Supplemental Plan, and neither the Administrator nor the Company shall be obligated to search for or ascertain the whereabouts of any Participant or beneficiary. 9.10 Bonding. The Administrator and all agents and advisors employed by it shall not be required to be bonded, except as otherwise required by ERISA. IN WITNESS WHEREOF, the Company has caused this restatement of the Supplemental Plan to be executed by its duly authorized officers on this ________ of December, 1999. FERRELL COMPANIES, INC. By:__________________________________ By:______________________________ Danley K. Sheldon Kevin T. Kelly President and CEO Vice President and CFO Date:________________________________ Date:_____________________________ EX-99.13 19 form8k021903.txt FORM 8K FEBRUARY 19, 2003 Exhibit 99.13 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Earliest Event Reported: February 19, 2003 Date of Report: February 19, 2003 Ferrellgas Partners, L.P. Ferrellgas Partners Finance Corp. ----------------------------------------------- (Exact name of registrants as specified in their charters) Delaware 1-111331 43-1698480 Delaware 333-06693 43-1742520 -------------- --------------- ---------------- (States or other Commission file (I.R.S. Employer jurisdictions of numbers Identification Nos.) incorporation or organization) One Liberty Plaza, Liberty, Missouri 64068 ------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrants' telephone number, including area code: (816) 792-1600 ITEM 9. REGULATION FD DISCLOSURE On Thursday, February 27, 2003, Ferrellgas Partners, L.P. will report earnings for the second quarter ended January 31, 2003. James E. Ferrell, Chairman, President and Chief Executive Officer, will conduct a live teleconference on the Internet at http://www.firstcallevents.com/service/ajwz375205298gf12.html. - ------------------------------------------------------------- The live webcast of the teleconference will begin at 3:00 p.m. Eastern Time. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FERRELLGAS PARTNERS, L.P. By Ferrellgas, Inc. (General Partner) Date: February 19, 2003 By /s/ Kevin T. Kelly -------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) FERRELLGAS PARTNERS FINANCE CORP. Date: February 19, 2003 By /s/ Kevin T. Kelly -------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) EX-99.14 20 form8k052103.txt FORM 8K MAY 21, 2003 Exhibit 99.14 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Earliest Event Reported: May 21, 2003 Date of Report: May 21, 2003 Ferrellgas Partners, L.P. Ferrellgas Partners Finance Corp. ----------------------------------------------- (Exact name of registrants as specified in their charters) Delaware 1-111331 43-1698480 Delaware 333-06693 43-1742520 - ----------------------- ----------------- ----------------------- (States or other Commission file (I.R.S. Employer jurisdictions of numbers Identification Nos.) incorporation or organization) One Liberty Plaza, Liberty, Missouri 64068 ------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrants' telephone number, including area code: (816) 792-1600 ITEM 9. REGULATION FD DISCLOSURE On Thursday, May 29, 2003, Ferrellgas Partners, L.P. will report earnings for the third quarter ended April 30, 2003. James E. Ferrell, Chairman, President and Chief Executive Officer, will conduct a live teleconference on the Internet at http://www.firstcallevents.com/service/ajwz382097995gf12.html. The live webcast of the teleconference will begin at 3:00 p.m. Eastern Time. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FERRELLGAS PARTNERS, L.P. By Ferrellgas, Inc. (General Partner) Date: May 21, 2003 By /s/ Kevin T. Kelly ------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) FERRELLGAS PARTNERS FINANCE CORP. Date: May 21, 2003 By /s/ Kevin T. Kelly ------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) EX-99.15 21 form8k.txt 3RD QUARTER EARNINGS RELEASE Exhibit 99.15 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): May 29, 2003 Ferrellgas Partners, L.P. Ferrellgas Partners Finance Corp. ----------------------------------------------- (Exact name of registrants as specified in their charters) Delaware 001-111331 43-1698480 Delaware 333-06693 43-1742520 - -------------------- -------------------- -------------------- (States or other Commission file (I.R.S. Employer jurisdictions of numbers Identification Nos.) incorporation or organization) One Liberty Plaza, Liberty, Missouri 64068 (Address of principal executive offices) (Zip Code) Registrants' telephone number, including area code: (816) 792-1600 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS Exhibit Number Description ------ ----------- 99.1 Press release of Ferrellgas Partners, L.P. dated May 29, 2003, reporting its financial results for the third quarter ended April 30, 2003. ITEM 9. REGULATION FD DISCLOSURE The information contained in this Item 9 is being furnished to the SEC pursuant to Item 12 of Form 8-K "Results of Operations and Financial Condition" in accordance with SEC Release Nos. 33-8216 and 34-47583, dated March 27, 2003. On May 29, 2003, Ferrellgas Partners, L.P. issued a press release regarding its financial results for the third quarter ended April 30, 2003. A copy of this earnings press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K. Limitation on Incorporation by Reference and Materiality The information, including the exhibit attached hereto, in this Current Report on Form 8-K is being furnished to the SEC and is not to be deemed "filed" with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of Section 18. In addition, the information in this Current Report is not to be incorporated by reference into any registration statement of Ferrellgas Partners, L.P. or Ferrellgas Partners Finance Corp. or other filing of Ferrellgas Partners, L.P. or Ferrellgas Partners Finance Corp. made pursuant to the Exchange Act or the Securities Act, unless specifically identified as being incorporated therein by reference. The furnishing of the information set forth in this Current Report is not intended to, and does not, constitute a determination or admission by Ferrellgas Partners, L.P. or Ferrellgas Partners Finance Corp. as to the materiality or completeness of such information. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FERRELLGAS PARTNERS, L.P. By Ferrellgas, Inc. (General Partner) Date: May 29, 2003 By /s/ Kevin T. Kelly -------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) FERRELLGAS PARTNERS FINANCE CORP. Date: May 29, 2003 By /s/ Kevin T. Kelly -------------------------------------- Kevin T. Kelly Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) For immediate release Contact: Ryan VanWinkle, Investor Relations, 816-792-7998 Ferrellgas Partners, L.P. Reports Record Third Quarter Earnings Liberty, MO (May 29, 2003)--Ferrellgas Partners, L.P. (NYSE:FGP), the nation's second largest retail marketer of propane, today reported record net earnings of $39.4 million for the third quarter ended April 30, 2003. Third quarter retail propane sales volumes were 251 million gallons, an increase of 4 percent compared to the third quarter of 2002. These strong sales volumes reflect the impact of acquisitions and national temperatures that were 2 percent colder than the same period last year, as reported by the National Oceanic and Atmospheric Administration. Gross profit and operating expense for the quarter were $161.4 million and $79.1 million, respectively, an increase of $8.9 million and $4.4 million, respectively, compared to the same period last year. These increases were primarily attributable to higher retail sales volumes. General and administrative expense for the quarter was $7.2 million, down $0.9 million from the same quarter last year. Third quarter equipment lease expense was $5.0 million, down $0.8 million from the prior year's quarter, partially reflecting the partnership's second quarter refinancing of certain operating tank lease obligations. EBITDA, as adjusted, was a record $70.1 million for the third quarter, an increase of 10 percent as compared to $63.9 million in the prior year's record quarter. Third quarter net earnings were a record $39.4 million, an increase of 8 percent as compared to previous record net earnings of $36.6 million realized in the third quarter of last year. -more- Ferrellgas Page 2 of 2 "Our continued focus on improving our operations and the return of more normal winter weather has had a positive impact on our sales and profitability this year," said James E. Ferrell, Ferrellgas' Chairman and Chief Executive Officer. "We are pleased to once again demonstrate our ability to deliver strong financial results and returns to our investors, despite recent challenges from the economy, weather and other external factors." For the nine months ended April 30, 2003, retail propane sales volumes and gross profit were 783 million gallons and $463.8 million, respectively, and operating and general and administrative expenses were $227.2 million and $21.9 million, respectively. Equipment lease expense for the nine-month period was $16.5 million. As is typically the case, year-to-date results were primarily impacted by the seasonal performance experienced in our second and third fiscal quarters. EBITDA, as adjusted, and net earnings for the nine-month period were $198.2 million and $101.5 million, respectively, compared to $174.7 million and $91.3 million, respectively, for the same period last year. Net earnings for the nine-month period include special charges of $7.1 million related to the early extinguishment of debt and $2.8 million related to a cumulative effect of a change in accounting principle. Ferrellgas Partners, L.P., through its operating partnership, Ferrellgas, L.P., currently serves more than one million customers in 45 states. Ferrellgas employees indirectly own more than 17 million common units of the partnership through an employee stock ownership plan. Ferrellgas trades on the New York Stock Exchange under the ticker symbol FGP. Statements in this release concerning expectations for the future are forward-looking statements. A variety of known and unknown risks, uncertainties and other factors could cause actual results, performance and expectations to differ materially from anticipated results, performance or expectations. These risks, uncertainties and other factors are discussed in the partnership's Form 10-K for the fiscal year ended July 31, 2002, as amended, and other documents filed from time to time with the Securities and Exchange Commission. ### FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except unit data) Unaudited Audited ASSETS April 30, 2003 July 31, 2002 - ----------------------------------------------------------------------------- ------------------- ------------------- Current Assets: Cash and cash equivalents $ 14,104 $ 19,781 Accounts and notes receivable, net 85,015 74,274 Inventories 48,949 48,034 Prepaid expenses and other current assets 7,763 10,724 ------------------- ------------------- Total Current Assets 155,831 152,813 Property, plant and equipment, net 684,126 506,531 Goodwill 124,190 124,190 Intangible assets, net 99,908 98,170 Other assets, net 8,900 3,424 ------------------- ------------------- Total Assets $ 1,072,955 $ 885,128 =================== =================== LIABILITIES AND PARTNERS' CAPITAL - ----------------------------------------------------------------------------- Current Liabilities: Accounts payable $ 50,521 $ 54,316 Other current liabilities (1) 83,367 89,061 ------------------- ------------------- Total Current Liabilities 133,888 143,377 Long-term debt (1) 853,327 703,858 Other liabilities 17,701 14,861 Contingencies and commitments - - Minority interest 3,050 1,871 Partners' Capital: Senior unitholder (2,743,020 and 2,782,211 units outstanding at April 2003 and July 2002, respectively - liquidation preference $109,721 and $111,288 at April 2003 and July 2002, respectively) 109,721 111,288 Common unitholders (36,213,803 and 36,081,203 units outstanding at April 2003 and July 2002, respectively) 16,552 (28,320) General partner unitholder (393,510 and 392,556 units outstanding at April 2003 and July 2002, respectively) (58,664) (59,035) Accumulated other comprehensive loss (2,620) (2,772) ------------------- ------------------- Total Partners' Capital 64,989 21,161 ------------------- ------------------- Total Liabilities and Partners' Capital $ 1,072,955 $ 885,128 =================== =================== (1) The principal difference between the Ferrellgas Partners, L.P. balance sheet and that of Ferrellgas, L.P., is $218 million of 8 3/4% notes and a $10 million short-term note payable, which are liabilities of Ferrellgas Partners, L.P. and not of Ferrellgas, L.P.
FERRELLGAS PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2003 AND 2002 (in thousands, except per unit data) (Unaudited) Three months ended April 30 Nine months ended April 30 --------------------------- --------------------------- 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Revenues: Propane and other gas liquids sales $ 351,338 $ 269,825 $ 985,539 $ 825,239 Other 18,027 17,336 64,606 62,903 ----------- ----------- ----------- ----------- Total revenues 369,365 287,161 1,050,145 888,142 Cost of product sold 207,934 134,640 586,324 461,178 ----------- ----------- ----------- ----------- Gross profit 161,431 152,521 463,821 426,964 Operating expense 79,121 74,686 227,226 212,186 Depreciation and amortization expense 10,563 10,625 30,719 32,844 General and administrative expense 7,202 8,117 21,863 21,574 Equipment lease expense 4,990 5,825 16,510 18,456 Employee stock ownership plan compensation charge 1,619 1,273 4,653 3,856 Loss on disposal of assets and other 1,985 552 3,781 1,830 ----------- ----------- ----------- ----------- Operating income 55,951 51,443 159,069 136,218 Interest expense (16,548) (14,717) (47,328) (45,039) Interest income 424 323 850 1,194 Early extinguishment of debt expense (a) - - (7,052) - ----------- ----------- ----------- ----------- Earnings before minority interest and cumulative effect of change in accounting principle 39,827 37,049 105,539 92,373 Minority interest (b) 454 414 1,276 1,052 ----------- ----------- ----------- ----------- Earnings before cumulative effect of change in accounting principle 39,373 36,635 104,263 91,321 Cumulative effect of change in accounting principle, net of minority interest of $28 (c) - - (2,754) - ----------- ----------- ----------- ----------- Net earnings 39,373 36,635 101,509 91,321 Distribution to senior unitholder 2,775 2,786 8,300 8,390 Net earnings available to general partner 366 338 932 829 ----------- ------------ ----------- ------------ Net earnings available to common unitholders $ 36,232 $ 33,511 $ 92,277 $ 82,102 =========== ============ =========== ============ Basic earnings per common unit: Earnings before cumulative effect of change in accounting principle (d) $ 1.00 $ 0.93 $ 2.62 $ 2.28 Net earnings available to common unitholders $ 1.00 $ 0.93 $ 2.55 $ 2.28 Weighted average common units outstanding 36,197.3 36,072.0 36,142.5 36,003.3
Supplemental Data and Reconciliation of Non-GAAP Item: Three months ended April 30 Nine months ended April 30 --------------------------- --------------------------- 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Retail gallons 250,620 240,385 783,034 720,690 =========== =========== =========== =========== Net earnings $ 39,373 $ 36,635 $ 101,509 $ 91,321 Interest expense 16,548 14,717 47,328 45,039 Depreciation and amortization expense 10,563 10,625 30,719 32,844 Early extinguishment of debt expense (a) - - 7,052 - Employee stock ownership plan compensation charge 1,619 1,273 4,653 3,856 Cumulative effect of change in accounting principle (c) - - 2,754 - Loss on disposal of assets and other 1,985 552 3,781 1,830 Minority interest (b) 454 414 1,276 1,052 Interest income (424) (323) (850) (1,194) ----------- ----------- ----------- ----------- EBITDA, as adjusted (e) $ 70,118 $ 63,893 $ 198,222 $ 174,748 =========== =========== =========== =========== (a) Expenses related to the refinancing of the $160 million Ferrellgas Partners, L.P. senior secured debt in September 2002. (b) Amounts allocated to the general partner for its 1.0101% interest in the operating partnership, Ferrellgas, L.P. (c) Amount related to recognition of liabilities for future retirements of underground storage facilities, as required by the recently issued SFAS No. 143. (d) Amount calculated as 99% of the earnings before cumulative effect of change in accounting principle less distribution to senior unitholder; the result then divided by the weighted average common units outstanding. (e) EBITDA, as adjusted, is calculated as earnings before interest, taxes, depreciation, amortization, early extinguishment of debt expense and non-cash items such as employee stock ownership plan compensation charge, cumulative effect of change in accounting principle, loss on disposal of assets and other and minority interest. EBITDA, as adjusted, is not intended to represent cash flow and does not represent the measure of cash available for distribution and is not intended as an alternative to operating income or net earnings. EBITDA, as adjusted, is a non-GAAP measure, but provides our management with additional information for evaluating our operating performance and is a factor in determining our compliance with debt covenants. Our calculation of EBITDA, as adjusted, may differ from similarly titled items reported by other companies. EBITDA, as adjusted, for the periods described herein is calculated in the same manner as presented by the Partnership in the past, and is intended to allow investors to compare performance with prior periods.
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