-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, YIs897lgVKicVwdoYF17XV6IdPzzSWHEztsgtDH8S+mBqNoDAOhxnfRVP2cMeejz idGP8q7MERnXEuhUmFUeFw== 0000950109-94-001085.txt : 19940701 0000950109-94-001085.hdr.sgml : 19940701 ACCESSION NUMBER: 0000950109-94-001085 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19940629 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FERRELLGAS L P CENTRAL INDEX KEY: 0000922359 STANDARD INDUSTRIAL CLASSIFICATION: 0000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-53379 FILM NUMBER: 94536383 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 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FERRELLGAS FINANCE CORP CENTRAL INDEX KEY: 0000922360 STANDARD INDUSTRIAL CLASSIFICATION: 0000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 033-53379-01 FILM NUMBER: 94536384 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 POS AM 1 POST-EFFECTIVE AMEND. NO. 2 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 29, 1994 REGISTRATION NO. 33-53379 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- POST-EFFECTIVE AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FERRELLGAS, L.P. FERRELLGAS FINANCE CORP. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) DELAWARE 5984 43-1676206 DELAWARE 6799 43-1677595 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) ---------------- ONE LIBERTY PLAZA LIBERTY, MISSOURI 64068 (816) 792-1600 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- DANLEY K. SHELDON ONE LIBERTY PLAZA LIBERTY, MISSOURI 64068 (816) 792-1600 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------- COPIES TO: SMITH, GILL, FISHER & BUTTS, P.C. LATHAM & WATKINS 1200 MAIN STREET 885 THIRD AVENUE KANSAS CITY, MISSOURI 64105 NEW YORK, NEW YORK 10022 (816) 474-7400 (212) 906-1200 ATTENTION: KENDRICK T. WALLACE ATTENTION: PHILIP E. COVIELLO ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. ---------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FERRELLGAS, L.P. CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
FORM S-1 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS -------------------------------- ---------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus.... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus............................. Inside Front and Outside Back Cover Pages 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges.............. Prospectus Summary; Risk Factors; Selected Historical and Pro Forma Consolidated Financial and Operating Data 4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds 5. Determination of Offering Price............ Underwriting 6. Dilution................................... * 7. Selling Security Holders................... * 8. Plan of Distribution....................... Outside Front Cover Page; Underwriting 9. Description of Securities to be Registered. Prospectus Summary; Description of Senior Notes; Certain Federal Income Tax Consequences 10. Interests of Named Experts and Counsel..... * 11. Information with Respect to the Registrant. Outside Front Cover Page; Prospectus Summary; Risk Factors; The Transactions; Capitalization; Selected Historical and Pro Forma Consolidated Financial and Operating Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Cash Distributions to Partners; The Partnership; Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities............................... *
- -------- * Not Applicable PROSPECTUS JUNE 29, 1994 $250,000,000 [LOGO OF FERRELLGAS, L.P. FERRELLGAS, L.P. FERRELLGAS FINANCE CORP. APPEARS HERE] $200,000,000 10% FIXED RATE SENIOR NOTES DUE 2001 $50,000,000 FLOATING RATE SENIOR NOTES DUE 2001 The 10% Fixed Rate Senior Notes due 2001 (the "Fixed Rate Senior Notes") and the Floating Rate Senior Notes due 2001 (the "Floating Rate Senior Notes" and, together with the Fixed Rate Senior Notes, the "Senior Notes") offered hereby (the "Offering") are being issued, jointly and severally, by Ferrellgas, L.P. (the "Partnership") and Ferrellgas Finance Corp., a wholly owned subsidiary of the Partnership ("Finance Corp." and, together with the Partnership, the "Issuers"). The Fixed Rate Senior Notes will bear interest from the date of issuance at the rate of 10% per annum, payable semi-annually in arrears on February 1 and August 1 of each year commencing on February 1, 1995. The Floating Rate Senior Notes will bear interest from the date of issuance at the Applicable LIBOR Rate (as defined herein), payable quarterly in arrears on February 1, May 1, August 1 and November 1 of each year commencing on November 1, 1994. The Fixed Rate Senior Notes are redeemable at the option of the Issuers, in whole or in part, at any time on or after August 1, 1998 at the redemption prices set forth herein, plus accrued and unpaid interest to the redemption date. The Floating Rate Senior Notes are redeemable at the option of the Issuers on any Floating Rate Interest Payment Date (as defined herein) on or after August 1, 1995, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the redemption date. Sinking fund payments of $5.0 million on each of August 1, 1999 and August 1, 2000 are calculated to retire an aggregate of 20% of the Floating Rate Senior Notes prior to maturity. In the event of a Change of Control (as defined herein), holders of the Senior Notes will have the right to require the Issuers to purchase each such holder's Senior Notes, in whole or in part, at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. There can be no assurance that the Issuers would have adequate funds available to repurchase the Senior Notes. The Senior Notes will be general unsecured obligations of the Issuers and will rank on an equal basis in right of payment with all existing and future senior indebtedness of the Issuers and senior to all existing and future subordinated indebtedness of the Issuers. At April 30, 1994, on a pro forma basis after giving effect to the Offering and the other transactions described herein, the Partnership and its subsidiaries would have had outstanding approximately $273.9 million in aggregate principal amount of indebtedness on a consolidated basis (excluding trade payables and other accrued liabilities), all of which would have ranked on an equal basis in right of payment. See "The Transactions." The sale of the Senior Notes offered hereby is subject to, among other things, completion of a public offering of approximately 13,100,000 million Common Units by the sole limited partner of the Partnership, Ferrellgas Partners, L.P., a Delaware limited partnership (the "Master Partnership"). SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SENIOR NOTES OFFERED HEREBY. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS TO THE DISCOUNTS AND TO THE PUBLIC(1) COMMISSIONS(2) ISSUERS(3) - -------------------------------------------------------------------------------- Per Senior Note........................ 100% 2.0% 98.0% Total.................................. $250,000,000 $5,000,000 $245,000,000
- ------------------------------------------------------------------------------- (1) Plus accrued interest, if any, from the date of issuance. (2) See "Underwriting" for indemnification arrangements with the Underwriters. (3) Before deducting estimated expenses of $750,000 payable by the Issuers. The Senior Notes are being offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, subject to various prior conditions, including the right to reject any order in whole or in part. It is expected that delivery of the Senior Notes will be made in New York, New York on or about July 5, 1994, against payment therefor. DONALDSON, LUFKIN & JENRETTE GOLDMAN, SACHS & CO. SECURITIES CORPORATION IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and historical and pro forma financial statements appearing elsewhere in this Prospectus and should be read only in conjunction with the entire Prospectus. For ease of reference, a glossary of certain terms used in this Prospectus is included as Appendix A to this Prospectus. FERRELLGAS, L.P. Ferrellgas, L.P. (the "Partnership") is a Delaware limited partnership recently formed to acquire and operate the propane business and assets of Ferrellgas, Inc. (the "Company" or "Ferrellgas"). Ferrellgas is the general partner (the "General Partner") of the Partnership and a wholly owned subsidiary of Ferrell Companies, Inc. ("Ferrell"). Ferrell was founded in 1939 as a single retail propane outlet in Atchison, Kansas, and has grown principally through the acquisition of retail propane operations throughout the United States. The Company believes that it is the third largest retail marketer of propane in the United States, based on gallons sold, serving more than 600,000 residential, industrial/commercial and agricultural customers in 45 states and the District of Columbia through approximately 416 retail outlets and 226 satellite locations in 36 states (some outlets serve an interstate market). The Company's largest market concentrations are in the Midwest, Great Lakes and Southeast regions of the United States. The Company operates in areas of strong retail market competition, which has required it to develop and implement strict capital expenditure and operating standards in its existing and acquired retail propane operations in order to control operating costs. This effort has resulted in upgrades in the quality of its field managers, the application of strong return on asset benchmarks and improved productivity methodologies. The Company's retail propane sales volumes were approximately 553 million, 496 million and 482 million gallons during the fiscal years ended July 31, 1993, 1992 and 1991, respectively. Earnings before depreciation, amortization, interest and taxes ("EBITDA") were $89.4 million, $87.6 million and $99.2 million for the fiscal years ended July 31, 1993, 1992 and 1991, respectively. EBITDA for the twelve months ended April 30, 1994 was $98.6 million. The Company's net losses for the fiscal years ended July 31, 1993 and 1992 were $0.8 million and $11.7 million, respectively, and its net earnings for the fiscal year ended July 31, 1991 were $2.0 million. Net earnings for the nine month periods ended April 30, 1994 and 1993 were $19.5 million and $12.8 million, respectively. For a discussion of the seasonality of the Company's operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--General." BUSINESS STRATEGY The retail propane industry is a mature one, in which the Company foresees only limited growth in total demand for the product. Based on information available from the Energy Information Administration, the Company believes the overall demand for propane has remained relatively constant over the past several years, with year to year industry volumes being impacted primarily by weather patterns. As a result, growth in this industry is accomplished primarily through acquisitions. Except for a few large competitors, the propane industry is highly fragmented and principally composed of over 3,000 local and regional companies. Historically, the Company has been successful in acquiring independent propane retailers and integrating them into the Company's operations at what it believes to be attractive returns. In July 1984, the Company acquired propane operations with annual retail sales volumes of approximately 33 million gallons at a cost of approximately $13.0 million, and in December 1986, the Company acquired propane operations with annual retail sales volumes of approximately 395 million gallons at a cost of approximately $457.5 million. Since December 1986, and as of April 30, 1994, the Company has acquired 67 smaller independent propane retailers which the Company believes were not individually material. These acquisitions have significantly expanded and diversified the Company's geographic presence. The Partnership plans to continue to expand its business principally through acquisitions in areas in close proximity to the Company's existing operations so that such newly acquired operations can be efficiently combined with existing operations and savings can be achieved through the elimination of certain overlapping functions. An additional goal of these acquisitions will be to improve the operations and profitability of the 3 businesses the Partnership acquires by integrating them into its established propane supply network and by improving customer service. The Partnership also plans to pursue acquisitions which broaden its geographic coverage. The Company has historically increased its existing customer base and retained the customers of acquired operations through marketing efforts that focus on providing quality service to customers. The General Partner believes that there are numerous local retail propane distribution companies that are possible candidates for acquisition by the Partnership and that the Partnership's geographic diversity of operations helps to create many attractive acquisition opportunities for the Partnership. The General Partner is unable to predict the amount or timing of future capital expenditures for acquisitions. Prior to the closing of this Offering, however, the Partnership will enter into a bank credit facility (the "Credit Facility") providing a maximum $185 million commitment for borrowings and letters of credit. Under the terms of the Credit Facility, at least $60 million will be available solely to finance acquisitions and growth capital expenditures. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Pro Forma Financial Condition--Credit Facility." In addition to borrowings under the Credit Facility, the Partnership may fund future acquisitions from internal cash flow or proceeds from the issuance by the Master Partnership of additional partnership interests. Under the Indenture for the Senior Notes, the Partnership is prohibited from making distributions to its partners and other Restricted Payments (as defined in the Indenture) unless certain specified targets for capital expenditures and expenditures for permitted acquisitions have been met. In addition to growth through acquisitions, the General Partner believes that the Partnership may also achieve growth within its existing propane operations. Historically, the Company has experienced modest internal growth in its customer base. As a result of its experience in responding to competition and in implementing more efficient operating standards, the General Partner believes that it has positioned the Partnership to be more successful in direct competition for customers. The Company currently has marketing programs underway which focus specific resources toward this effort. See "Business-- Retail Operations--Business Strategy." GENERAL Propane, a byproduct of natural gas processing and petroleum refining, is a clean-burning energy source recognized for its transportability and ease of use relative to alternative forms of stand alone energy sources. In the residential and commercial markets, propane is primarily used for space heating, water heating and cooking. In the agricultural market propane is primarily used for crop drying, space heating, irrigation and weed control. In addition, propane is used for certain industrial applications, including use as an engine fuel which is burned in internal combustion engines that power vehicles and forklifts and as a heating or energy source in manufacturing and drying processes. Consumption of propane as a heating fuel peaks sharply in winter months. The Company sells propane primarily to four specific markets: residential, industrial/commercial, agricultural and other (principally to other propane retailers and as an engine fuel). During the fiscal year ended July 31, 1993, sales to residential customers accounted for 61% of the Company's retail gross profits, sales to industrial/commercial customers accounted for 26% of the Company's retail gross profits, sales to agricultural customers accounted for 6% of the Company's retail gross profits and sales to other customers accounted for 7% of the Company's retail gross profits. Residential sales have a greater profit margin and a more stable customer base and tend to be less sensitive to price changes than the other markets served by the Company. While the propane distribution business is seasonal in nature and historically sensitive to variations in weather, management believes that the Company's geographical diversity of the Company's areas of operations helps to minimize the Company's exposure to regional weather or economic patterns. Furthermore, long-term historic weather data from the National Climatic Data Center indicate that average annual temperatures have remained relatively constant over the last 30 years, with fluctuations occurring on a year-to-year basis only. Profits in the retail propane industry are primarily based on the cents-per- gallon difference between the purchase price and the sales price of propane. The Company generally purchases propane on a short-term basis; therefore, its supply costs generally fluctuate with market price fluctuations. Should the wholesale cost 4 of propane decline in the future, the Company believes that the Partnership's margins on its retail propane distribution business should increase in the short-term because retail prices tend to change less rapidly than wholesale prices. Should the wholesale cost of propane increase, for similar reasons retail margins and profitability would likely be reduced at least for the short-term until retail prices can be increased. Historically, the Company has been able to maintain margins on an annual basis following changes in the wholesale cost of propane. The Company's success in maintaining its margins is evidenced by the fact that since fiscal 1989 average annual retail gross margins, measured on a cents-per-gallon basis, have generally varied by a relatively low percentage. The General Partner is unable to predict, however, how and to what extent a substantial increase or decrease in the wholesale cost of propane would affect the Partnership's margins and profitability. Propane competes primarily with natural gas, electricity and fuel oil as an energy source, principally on the basis of price, availability and portability. Propane serves as an alternative to natural gas in rural and suburban areas where natural gas is unavailable or portability of product is required. Propane is generally more expensive than natural gas on an equivalent BTU basis in locations served by natural gas, although propane is sold in such areas as a standby fuel for use during peak demand periods and during interruption in natural gas service. Propane is generally less expensive to use than electricity for space heating, water heating and cooking. Although propane is similar to fuel oil in application, market demand and price, propane and fuel oil have generally developed their own distinct geographic markets, lessening competition between such fuels. The retail propane business of the Company consists principally of transporting propane to its retail distribution outlets and then to tanks located on its customers' premises. Propane supplies are purchased in the contract and spot markets, primarily from natural gas processing plants and major oil companies. In addition, retail propane customers typically lease their stationary storage tanks from their propane distributors. Approximately 70% of the Company's customers lease their tank from the Company. The lease terms and, in most states, certain fire safety regulations, restrict the refilling of a leased tank solely to the propane supplier that owns the tank. The cost and inconvenience of switching tanks minimizes a customer's tendency to switch among suppliers of propane on the basis of minor variations in price. The Company is also engaged in the trading of propane and other natural gas liquids, chemical feedstocks marketing and wholesale propane marketing. In fiscal year 1993, the Company's annual wholesale and trading sales volume was approximately 1.2 billion gallons of propane and other natural gas liquids, approximately 64% of which was propane. Because the Partnership will possess a large distribution system, underground storage capacity and the ability to buy large volumes of propane, the General Partner believes that the Partnership will be in a position to achieve product cost savings and avoid shortages during periods of tight supply to an extent not generally available to other retail propane distributors. PARTNERSHIP STRUCTURE AND MANAGEMENT Concurrently with the closing of this Offering, the sole limited partner of the Partnership, Ferrellgas Partners, L.P., a Delaware limited partnership (the "Master Partnership"), will offer to the public 13,100,000 Common Units representing limited partnership interests in the Master Partnership (the "MLP Offering"). See "The Transactions." The General Partner will serve as general partner of the Partnership and the Master Partnership. Following this Offering, the officers and employees of Ferrellgas who currently manage and operate the propane business and assets to be owned by the Partnership will continue to manage and operate the Partnership's business as officers and employees of the General Partner. See "Management." Unless the context otherwise requires, references herein to the Partnership include the Partnership and the Master Partnership. The General Partner will receive no management fee in connection with its management of the Partnership and will receive no remuneration for its services as General Partner of the Partnership other than reimbursement for all direct and indirect expenses incurred in connection with the Partnership's operations and all other necessary or appropriate expenses allocable to the Partnership or otherwise reasonably incurred by the General Partner in connection with the operation of the Partnership's business. The Partnership Agreement provides that the General Partner shall determine the fees and expenses that are 5 allocable to the Partnership in any reasonable manner determined by the General Partner in its sole discretion. Because of the broad authority granted to the General Partner to determine the fees and expenses allocable to the Partnership, including compensation of the General Partner's officers and other employees, certain conflicts of interest could arise between the General Partner and its affiliates, on the one hand, and the Partnership and its limited partners, on the other, and the limited partners and holders of Senior Notes will have no ability to control the expenses allocated by the General Partner to the Partnership. The principal executive offices of the Partnership are located at One Liberty Plaza, Liberty, Missouri 64068, and its telephone number is (816) 792-1600. TRANSACTIONS AT CLOSING Concurrently with the closing of this Offering, Ferrellgas will contribute all of its propane business and assets to the Partnership in exchange for 1,000,000 Common Units, 16,593,721 Subordinated Units and certain rights to receive incentive distributions (the "Incentive Distribution Rights") if distributions of Available Cash exceed certain target levels, as well as a 2% general partner interest in the Partnership and the Master Partnership on a combined basis (see "The Partnership--Incentive Distribution Rights"). In connection with the contribution of such business and assets by Ferrellgas, the Partnership will assume substantially all of the liabilities, whether known or unknown, associated with such business and assets (other than income tax liabilities). The Partnership intends to maintain insurance and reserves at levels that it believes will be adequate to satisfy such liabilities. In addition, the Partnership will assume the payment obligations of Ferrellgas under its Series A and Series C Floating Rate Notes due 1996 (the "Existing Floating Rate Notes"), the Series B and Series D Fixed Rate Notes due 1996 (the "Existing Fixed Rate Notes" and, together with the Existing Floating Rate Notes, the "Existing Senior Notes") and its 11 5/8% Senior Subordinated Debentures (the "Existing Subordinated Debentures"). All of the Existing Senior Notes and Existing Subordinated Debentures will be retired with the net proceeds from the sale by the Master Partnership of the Common Units in the MLP Offering (estimated to be $255.5 million at an initial offering price of $21 per Common Unit) and the net proceeds from the issuance of $250 million in aggregate principal amount of Senior Notes offered hereby (estimated to be $244.3 million). The book value of the assets being contributed to the Partnership will be approximately $83 million less than the liabilities to be assumed by the Partnership. Immediately prior to the closing of this Offering, the Partnership expects to enter into the $185 million Credit Facility. The Credit Facility will permit borrowings of up to $100 million on a senior unsecured revolving line of credit basis to fund working capital and general partnership requirements (of which $50 million will be available to support letters of credit). In addition, up to $85 million of borrowings will be permitted on a senior unsecured basis, at least $60 million of which will be available solely to finance acquisitions and growth capital expenditures. Ferrellgas will retain and will not contribute to the Partnership approximately $39 million in cash, approximately $17 million in receivables from affiliates of its parent, Ferrell, and Class B redeemable common stock of Ferrell ("the Ferrell Class B Stock") with a book value of approximately $36 million. It is anticipated that following the closing of this Offering, Ferrellgas will loan approximately $25 million to Ferrell and will dividend to Ferrell the remainder of the cash, receivables and Ferrell Class B Stock retained by Ferrellgas, as well as the Common Units, Subordinated Units and Incentive Distribution Rights received by Ferrellgas in exchange for the contribution of its propane business and assets to the Partnership. Concurrently with the closing of this Offering, the Company will consummate a tender offer and consent solicitation with respect to its Existing Subordinated Debentures. The consent solicitation is necessary to modify the indenture related to the Existing Subordinated Debentures in order to permit the Company to consummate the transactions contemplated by this Prospectus. As of the date of this Prospectus, all of the outstanding Existing Subordinated Debentures have been tendered to and will be retired by the Partnership, as described above. Concurrently with the closing of this Offering, the Company will mail to the holders of the Existing Senior Notes a notice of redemption of all outstanding Existing Senior Notes, pursuant to the optional 6 redemption provisions of the indenture governing the Existing Senior Notes (the "Existing Senior Notes Indenture"). The redemption date will be 30 days after the date of mailing of such notice. The Existing Senior Notes Indenture provides for a redemption price equal to 100% of the principal amount plus accrued and unpaid interest, if any, to the redemption date plus a premium which is based on certain yield information for U.S. Treasury securities as of three business days prior to the redemption date. The Partnership will deposit with the trustee on the date of closing of this Offering an amount expected to be more than sufficient to pay the redemption price. As a result of the transactions contemplated hereby, during the 30-day period prior to the redemption date, an event of default will exist under the Existing Senior Notes Indenture. The holders of at least 25% of the principal amount of Existing Senior Notes, therefore, will be entitled, by notice to the Company and the trustee, to declare the unpaid principal of, and accrued and unpaid interest and the applicable premium on, the Existing Senior Notes to be immediately due and payable. The trustee under the Existing Senior Notes Indenture has advised the Company that it intends to notify the holders of the Existing Senior Notes of this right. In the event of such a declaration, the amount already deposited by the Partnership in payment of the redemption price would be applied to pay the amount so declared immediately due and payable. The Partnership will incur an extraordinary loss of approximately $20.4 million related to the retirement of the Existing Senior Notes, approximately $31.2 million relating to the Existing Subordinated Debentures resulting from consent and tender offer fees and approximately $11.2 million relating to the write-off of unamortized financing costs, all in accordance with generally accepted accounting principles ("GAAP"). At the closing of this Offering, it is anticipated that the Partnership will borrow approximately $15.0 million under the Credit Facility which will enable the Partnership to commence operations with an initial cash balance of at least $20.0 million. For a description of the Credit Facility, see "Management's Discussion and Analysis of Financial Condition and Results of Operation--Pro Forma Financial Condition--Credit Facility." The foregoing description assumes that the Underwriters' overallotment option with respect to the MLP Offering is not exercised. If the Underwriters' overallotment option is exercised in full, the Master Partnership will issue 1,965,000 additional Common Units. The Partnership will use the net proceeds from any exercise of the Underwriters' overallotment option to repay any amounts borrowed under the Credit Facility. Any remaining net proceeds from the exercise of such Underwriters' overallotment option will be used by the Master Partnership to repurchase for retirement up to 1,000,000 Common Units held by Ferrell at a price per Unit equal to $21 (the initial public offering price) less the underwriting discounts and commissions. Any net proceeds remaining after such repurchase will be retained by the Partnership for general partnership purposes. Immediately following this Offering, Ferrellgas will own an effective 2% general partner interest in the Master Partnership and the Partnership on a combined basis, and Ferrell will own 1,000,000 Common Units (if the Underwriters' overallotment option with respect to the MLP Offering is exercised in full all of such Common Units will be repurchased and retired by the Master Partnership) and 16,593,721 Subordinated Units representing an effective 56.2% limited partner interest in the Partnership (51.4% if such Underwriters' overallotment option is exercised in full) and the Incentive Distribution Rights. See "The Transactions." FERRELLGAS FINANCE CORP. Ferrellgas Finance Corp., a Delaware corporation ("Finance Corp."), a wholly owned subsidiary of the Partnership which has nominal assets and will not conduct any operations, is acting as co-obligor for the Senior Notes. Certain institutional investors that might otherwise be limited in their ability to invest in securities issued by partnerships by reason of the legal investment laws of their states of organization or their charter documents, may be able to invest in the Senior Notes because Finance Corp. is a co-obligor. 7 The following chart depicts the organization and ownership of the Partnership and the Master Partnership after giving effect to the MLP Offering and related transactions. The percentages reflected below represent the approximate ownership interest in each of the Partnership and the Master Partnership, individually. Except in the following chart, the ownership percentages referred to in this Prospectus reflect the approximate effective ownership interest of the holder in the Partnership and the Master Partnership on a combined basis. 8 SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OPERATING DATA The following tables set forth for the periods and the dates indicated, summary historical financial and operating data for the Company and pro forma financial and operating data for the Partnership after giving effect to the transactions contemplated by this Prospectus. The summary historical financial data for the three years ended July 31, 1993 and the nine-month periods ended April 30, 1993 and 1994, are derived from the audited and unaudited consolidated financial statements contained elsewhere in this Prospectus. The historical financial data for the interim period ended April 30, 1993 and the Partnership's summary pro forma financial data are derived from unaudited financial information. The Partnership's summary pro forma financial data should be read in conjunction with the financial statements and the pro forma consolidated financial information and notes thereto included elsewhere in this Prospectus. In addition, the propane business is seasonal in nature with its peak activity during the winter months. Therefore, the results for the interim periods are not indicative of the results that can be expected for a full year. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations."
PARTNERSHIP HISTORICAL PRO FORMA -------------------------------------------------- ---------- YEAR ENDED JULY 31, YEAR ENDED -------------------------------------------------- JULY 31, 1989 1990 1991 1992 1993 1993 (IN THOUSANDS, EXCEPT RATIOS) INCOME STATEMENT DATA: Total revenues......... $409,953 $467,641 $543,933 $501,129 $541,945 $541,945 Depreciation and amortization.......... 32,528 33,521 36,151 31,196 30,840 30,840 Operating income....... 53,425 54,388 63,045 56,408 58,553 58,053 Interest expense....... 54,572 55,095 60,507 61,219 60,071 29,220 Earnings (loss) from continuing operations. (1,506) (347) 1,979 (1,700)(1) 109 28,578 Ratio of earnings to fixed charges(2)...... -- -- 1.1x -- 1.0x 1.9x BALANCE SHEET DATA (AT END OF PERIOD): Working capital........ $(39,708) $ 50,456 $ 53,403 $ 67,973 $ 74,408 Total assets........... 487,631 554,580 580,260 598,613 573,376 Payable to (receivable from) parent and affiliates............ 13,109 10,743 3,763 2,236 (916) Long-term debt......... 354,626 465,644 466,585 501,614 489,589 Stockholder's equity... 6,616 11,463 21,687 8,808 11,359 OPERATING DATA: Retail propane sales volumes (in gallons).. 498,395 499,042 482,211 495,707 553,413 553,413 Capital expenditures(3): Maintenance............ $ 7,271 $ 5,428 $ 7,958 $ 10,250 $ 10,527 $ 10,527 Growth................. 10,062 10,447 2,478 3,342 2,851 2,851 Acquisition............ 14,668 18,005 25,305 10,112 897 897 -------- -------- -------- -------- -------- -------- Total................. $ 32,001 $ 33,880 $ 35,741 $ 23,704 $ 14,275 $ 14,275 ======== ======== ======== ======== ======== ======== SUPPLEMENTAL DATA: EBITDA(4).............. $ 85,953 $ 87,909 $ 99,196 $ 87,604 $ 89,393 $ 88,893 Fixed charge coverage ratio (5)............. 3.0x
9
PARTNERSHIP HISTORICAL PRO FORMA -------------------- ----------------- NINE MONTHS ENDED NINE MONTHS ENDED APRIL 30, APRIL 30, -------------------- 1994 1993 1994 (IN THOUSANDS, EXCEPT RATIOS) INCOME STATEMENT DATA: Total revenues...................... $468,302 $450,477 $450,477 Depreciation and amortization....... 23,238 21,688 21,688 Operating income.................... 64,708 75,445 75,070 Interest expense.................... 45,056 44,233 21,291 Earnings from continuing operations. 12,785 20,356 53,770 Ratio of earnings to fixed charges(2)......................... 1.4x 1.7x 3.2x BALANCE SHEET DATA (AT END OF PERIOD): Working capital..................... $100,645 $104,164 $ 53,510 Total assets........................ 602,063 600,113 478,460 Payable to (receivable from) parent and affiliates..................... 2,076 (3,909) 91 Long-term debt...................... 500,227 476,471 272,441 Stockholder's equity................ 21,855 30,848 Partners' capital: Limited partner..................... 138,277 General partner..................... 1,410 OPERATING DATA: Retail propane sales volume (in gallons)........................... 483,489 490,254 490,254 Capital Expenditures(3): Maintenance......................... $ 9,232(6) $ 3,377(6) $ 3,377 Growth.............................. 2,597 2,568 2,568 Acquisition......................... 0 2,472 2,472 -------- -------- -------- Total.............................. $ 11,829 $ 8,417 $ 8,417 ======== ======== ======== SUPPLEMENTAL DATA: EBITDA(4)........................... $ 87,946 $ 97,133 $ 96,758 Fixed charge coverage ratio(5)...... 3.3x
- -------------------- (1) In August 1991, the Company revised the estimated useful lives of storage tanks from 20 to 30 years in order to more closely reflect the expected useful lives of these assets. The effect of the change in accounting estimates resulted in a favorable impact on net loss from continuing operations of approximately $3.7 million for the fiscal year ended July 31, 1992. (2) For purposes of determining the ratio of earnings to fixed charges, earnings are defined as earnings (loss) from continuing operations before income taxes, plus fixed charges. Fixed charges consist of interest expense on all indebtedness (including amortization of deferred debt issuance costs) and the portion of operating lease rental expense that is representative of the interest factor. For the fiscal years ended July 31, 1989, 1990 and 1992, earnings were inadequate to cover fixed charges by $2.4 million, $0.1 million and $2.4 million, respectively. Earnings before fixed charges for the periods presented were reduced by certain non-cash expenses, consisting principally of depreciation and amortization. Such non-cash charges totaled $34.7 million, $35.8 million, $38.5 million, $33.5 million and $33.0 million for the fiscal years ended July 31, 1989, 1990, 1991, 1992 and 1993, respectively, and totaled $24.8 million and $23.7 million for the nine months ended April 30, 1993 and 1994, respectively. (3) The Company's capital expenditures fall generally into three categories: (i) maintenance capital expenditures, which include expenditures for repair and replacement of property, plant and equipment; (ii) growth capital expenditures, which include expenditures for purchases of new propane tanks and other equipment to facilitate expansion of the Company's retail customer base; and (iii) acquisition capital expenditures, which include expenditures related to the acquisition of retail propane operations. Acquisition capital expenditures include a portion of the purchase price allocated to intangibles associated with the acquired businesses. (4) EBITDA is calculated as operating income plus depreciation and amortization. EBITDA is not intended to represent cash flow and does not represent the measure of cash available for distribution. EBITDA is a non- GAAP measure, but provides additional information for evaluating the Partnership's ability to make payments in respect of the Senior Notes. EBITDA is not intended as an alternative to earnings from continuing operations or net income. (5) The term fixed charge coverage ratio is defined in the Indenture as the ratio of the Partnership's consolidated cash flow for the immediately preceding four fiscal quarters to fixed charges for such period. Consolidated cash flow is defined in the Indenture as earnings from continuing operations before income taxes, plus interest expenses (including amortization of original issue discount) and depreciation and amortization (excluding amortization of prepaid cash expenses). The term fixed charges is defined in the Indenture as interest expense (including amortization of original issue discount). The Partnership will be prohibited from making any distribution to the Master Partnership if the fixed charge coverage ratio for the preceding four fiscal quarters both before and after giving pro forma effect to such distribution as if it had occurred at the beginning of such four quarter period does not exceed 2.25 to 1. (6) The decrease in maintenance capital expenditures from the nine months ended April 30, 1993 to the nine months ended April 30, 1994 is primarily due to the purchase of the Company's corporate headquarters in Liberty, Missouri for its fair market value of $4.1 million in the first nine months of fiscal 1993. 10 THE OFFERING Securities Offered.......... $200 million aggregate principal amount of 10% Fixed Rate Senior Notes due 2001 (the "Fixed Rate Senior Notes") and $50 million aggregate principal amount of Floating Rate Senior Notes due 2001 (the "Floating Rate Senior Notes" and, together with the Fixed Rate Senior Notes, the "Senior Notes"). Maturity Date............... August 1, 2001. Interest Payment Dates...... The Fixed Rate Senior Notes will bear interest from the date of issuance at the rate of 10% per annum, payable semi-annually in arrears on February 1 and August 1 of each year commencing on February 1, 1995. The Floating Rate Senior Notes will bear interest from the date of issuance at the Applicable LIBOR Rate (as defined herein), payable quarterly in arrears on February 1, May 1, August 1 and November 1 of each year commencing on November 1, 1994. Optional Redemption......... The Fixed Rate Senior Notes will be redeemable, in whole or in part, at the option of the Issuers, at any time on or after August 1, 1998, at the redemption prices set forth herein plus accrued and unpaid interest thereon to the redemption date. The Floating Rate Senior Notes will be redeemable at the option of the Issuers on any Floating Rate Interest Payment Date (as defined herein) on or after August 1, 1995, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the redemption date. Mandatory Redemption........ Sinking fund payments of $5 million on each of August 1, 1999 and August 1, 2000 are calculated to retire an aggregate of 20% of the Floating Rate Senior Notes prior to maturity. Except pursuant to the foregoing and as set forth below under "Change of Control," the Issuers are not required to make mandatory redemption or sinking fund payments with respect to the Senior Notes. Ranking..................... The Senior Notes will be general unsecured joint and several obligations of the Issuers. The Senior Notes will rank on an equal basis in right of payment to all existing and future senior indebtedness of the Issuers, including borrowings under the Credit Facility, and senior in right of payment to all existing and future subordinated indebtedness of the Issuers. At April 30, 1994, after giving effect to the Offering of the Senior Notes and the transactions described herein, see "The Transactions," the Partnership and its subsidiaries would have had outstanding approximately $273.9 million in aggregate principal amount of indebtedness on a consolidated basis (excluding trade payables and other accrued liabilities) which includes, in addition to certain other indebtedness, the Senior Notes in the aggregate principal amount of $250 million and borrowings under the Credit Facility in the aggregate principal amount of $20.0 million, all of which would have ranked on an equal basis in right of payment. Actual borrowings under the Credit Facility at closing are estimated to be approximately $15.0 million, assuming that the Underwriters' overallotment option in the MLP Offering is not exercised. 11 Change of Control........... Upon a Change of Control (as defined herein), each Holder of Senior Notes shall have the right to require the Issuers to repurchase all or any part of such Holder's Senior Notes at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest to the date of purchase. There can be no assurance that the Issuers would have adequate funds available to repurchase the Senior Notes. Asset Sales................. If the aggregate amount of Excess Proceeds (as defined herein) received by the Partnership or any of its Subsidiaries (as defined herein) from Asset Sales (as defined herein) exceeds $15 million, the Issuers shall make an offer to all Holders of Senior Notes to purchase the Senior Notes with such Excess Proceeds at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest thereon to the date of purchase. Certain Covenants........... The Indenture contains covenants restricting or limiting the ability of the Partnership and its Subsidiaries to, among other things, (i) pay distributions or make other restricted payments, (ii) incur additional indebtedness and issue preferred stock, (iii) enter into sale and leaseback transactions, (iv) create liens, (v) incur dividend and other payment restrictions affecting Subsidiaries, (vi) enter into mergers, consolidations or sales of all or substantially all assets, (vii) enter into transactions with affiliates or (viii) engage in other lines of business. Use of Proceeds............. The net proceeds from the Offering of the Senior Notes (estimated to be $244.3 million after deducting the underwriting discounts and commissions and the expenses of this Offering) will be used by the Partnership to repay certain outstanding indebtedness of the Company. See "Use of Proceeds." Events of Default........... The following will constitute Events of Default under the Indenture: the failure after 30 days to pay interest on the Senior Notes, the failure to pay when due principal on the Senior Notes, the failure after applicable grace periods to comply with any other covenants in the Indenture, a payment default or acceleration of all amounts owing under any other indebtedness of the Partnership or any of its Subsidiaries (if the principal amount of such indebtedness, together with the principal amount of all other indebtedness so defaulted or accelerated, aggregates $10 million or more), the failure by the Partnership or any of its Subsidiaries to pay final judgments aggregating in excess of $10 million, the invalidation of any Subsidiary Guarantee (as defined herein), and certain events of bankruptcy with regard to the Partnership or its Subsidiaries. RISK FACTORS Prospective purchasers of the Senior Notes should consider carefully the information set forth in "Risk Factors" and elsewhere in this Prospectus in evaluating an investment in the Senior Notes. 12 RISK FACTORS Prospective purchasers should carefully consider the following investment considerations and risks, as well as the other information set forth in this Prospectus, before making a decision to invest in the Senior Notes. Distributions of Available Cash Pursuant to its governing partnership agreement (the "Partnership Agreement"), the Partnership is required to distribute, on a quarterly basis, 100% of its Available Cash to the Master Partnership and the General Partner. "Available Cash" is generally all of the cash receipts of the Partnership, adjusted for cash disbursements and net changes in reserves. See "Glossary of Terms," attached hereto as Appendix A. The Master Partnership in turn will distribute 100% of its Available Cash to its partners. Distributions by the Partnership will be subject to the covenant in the Indenture limiting restricted payments. Such covenant provides that no such distributions may be made unless, among other things, no default or event of default shall exist, the Partnership's pro forma fixed charge coverage ratio for the preceding four fiscal quarters shall be at least 2.25 to 1 and certain minimum targets for capital expenditures and expenditures for permitted acquisitions have been met. The fixed charge coverage ratio is defined as the ratio of earnings from continuing operations before income taxes, plus interest expense (including amortization of original issue discount) and depreciation and amortization (excluding amortization of prepaid cash expenses) to fixed charges. As of April 30, 1994, the Partnership's fixed charge coverage ratio would have been 3.3 to 1 on a pro forma basis after giving effect to the Transactions. See "Description of Senior Notes--Certain Covenants--Restricted Payments." The timing and amount of distributions by the Partnership could significantly reduce the cash available to the Partnership to meet its business needs and to pay principal, premium (if any) and interest on the Senior Notes. The General Partner will determine the amount and timing of such distributions and has broad discretion to establish and make additions to reserves of the Partnership for any proper purpose, including but not limited to reserves for the purpose of (i) complying with the terms of any agreement or obligation of the Partnership (including the establishment of reserves to fund the payment of interest and principal in the future), (ii) to provide for level distributions of cash notwithstanding the seasonality of the Partnership's business, and (iii) providing for future capital expenditures and other payments deemed by the General Partner to be necessary or advisable. Leverage Upon the consummation of the transactions contemplated by this Prospectus, the Partnership will be significantly leveraged and will have indebtedness that is substantial in relation to its equity. As of April 30, 1994, after giving pro forma effect to such transactions, the Partnership would have had an aggregate of $272.4 million of long-term indebtedness (excluding current maturities) and $139.7 million in equity, resulting in a debt to equity ratio of 1.9 to 1. See "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." The Partnership's leverage could have important consequences to investors in the Senior Notes. The Partnership's ability to make scheduled payments, to refinance its obligations with respect to its indebtedness or its ability to obtain additional financing in the future will depend on its financial and operating performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond its control. The Partnership believes that it will have sufficient cash flow from operations and available borrowings under the Credit Facility to service its indebtedness, although the principal amount of the Senior Notes will likely need to be refinanced at maturity in whole or in part. However, a significant downturn in the propane industry or other development adversely affecting the Partnership's cash flow could materially impair the Partnership's ability to service its indebtedness. If the Partnership's cash flow and capital resources are insufficient to fund its debt service obligations, the Partnership may be forced to refinance all or a portion of its debt or sell assets. There can be no assurance that the Partnership would be able to refinance its existing indebtedness or sell assets on terms that are commercially reasonable. At April 30, 1994 on a pro forma basis, the Issuers would have had outstanding approximately $70.0 million of Indebtedness bearing interest at floating rates. In addition, pursuant to the Credit Facility, the 13 Partnership would have had available an additional $165.0 million of borrowings, all of which would have borne interest at floating rates. Accordingly, following the Offering, the Partnership will be affected by increases in interest rates which, if material, could adversely impact the Partnership's ability to make payments in respect of the Senior Notes. In order to mitigate the risk of such interest rate increases, the General Partner intends, if possible, to cause the Partnership to enter into appropriate interest rate protection arrangements with respect to all or a portion of the Senior Notes bearing interest at a floating rate. There can be no assurance, however, as to whether the Partnership will be able to enter into such arrangements or whether such arrangements will be on terms satisfactory to the Partnership. Limitations Imposed by Certain Indebtedness The credit agreement relating to the Credit Facility (the "Credit Agreement") and the Indenture are expected to contain a number of restrictive covenants limiting the Partnership from incurring other indebtedness, making certain restricted payments, entering into sale and leaseback transactions, incurring liens and engaging in transactions with affiliates. A failure by the Partnership to comply with the restrictions contained in the Credit Agreement, the Indenture or other agreements relating to the Partnership's indebtedness could result in a default thereunder, which in turn could cause such indebtedness (and, by reason of cross-default provisions, other indebtedness) to become immediately due and payable. There can be no assurance that such restrictions will not adversely affect the Partnership's ability to conduct its operations or finance its capital needs or impair the Partnership's ability to pursue attractive business and investment opportunities if such opportunities arise. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Description of Senior Notes." Fraudulent Conveyance Considerations The incurrence by the Issuers of indebtedness such as the Senior Notes for the purposes described herein may be subject to review under relevant federal and state fraudulent conveyance laws if a bankruptcy case or a lawsuit (including in circumstances where bankruptcy is not involved) is commenced by or on behalf of unpaid creditors of the Issuers. Under these laws, if a court were to find that, at the time the Senior Notes were issued, (a) the Issuers either incurred indebtedness represented by the Senior Notes with the intent of hindering, delaying or defrauding creditors or received less than reasonably equivalent value or fair consideration for incurring such indebtedness and (b) the Issuers (i) were insolvent or were rendered insolvent by reason of such transaction, (ii) were engaged in a business or transaction for which the assets remaining with them constituted unreasonably small capital or (iii) intended to incur, or believed that they would incur, debts beyond their ability to pay such debts as they matured, such court may subordinate the Senior Notes to presently existing and future indebtedness of such entities, void the issuance of the Senior Notes and direct the repayment of any amounts paid thereunder to the Issuers or to a fund for the benefit of the Issuers' creditors or take other action detrimental to the Holders of the Senior Notes. The measure of insolvency for purposes of the foregoing will vary depending upon the law of the relevant jurisdiction. Generally, however, an entity would be considered insolvent for purposes of the foregoing if the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all of its assets at a fair valuation, or if the present fair saleable value of its assets were less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and matured. The Issuers believe they will receive equivalent value at the time the indebtedness represented by the Senior Notes is incurred. In addition, neither of the Issuers believes that it, as a result of the issuance of the Senior Notes, (i) will be insolvent or rendered insolvent under the foregoing standards, (ii) will be engaged in a business or transaction for which its remaining assets constitute unreasonably small capital or (iii) intends to incur or believes that it will incur, debts beyond its ability to pay such debts as they mature. These beliefs are based on the Company's operating history, the Issuers' net worth and management's analysis of internal cash flow projections and estimated values of assets and liabilities of the Issuers at the time of this Offering. There can be no assurance, however, that a court passing on these issues would make the same determination. 14 Lack of Previous Public Market The Senior Notes will constitute a new issue of securities with no established trading market. The Issuers do not intend to list the Senior Notes on any national securities exchange or to seek the admission of the Senior Notes for quotation and trading in the Nasdaq National Market. The Underwriters have advised the Issuers that the Underwriters currently intend to make a market in the Senior Notes, but they are not obligated to do so and may discontinue any such market-making activities at any time without notice at their sole discretion. Accordingly, there can be no assurance that an active public market will develop or be sustained upon completion of the Offering or as to the liquidity of any such trading market. If such a market does not develop or is not maintained, the prices at which the Senior Notes trade, as well as the liquidity of the trading market for the Senior Notes, could be adversely affected. If such a market were to develop, the Senior Notes may trade at prices that are higher or lower than the initial offering price depending upon many factors, including, among others, prevailing interest rates, the Partnership's operating results, the market for similar securities and general economic and political conditions. Weather Conditions Affect the Demand For Propane National weather conditions can have a substantial impact on the demand for propane and, therefore, the results of operations of the Partnership. In particular, the demand for propane by residential customers is affected by weather, with peak sales typically occurring during the winter months. Average winter temperatures as measured by degree days across the Company's operating areas in fiscal 1991, 1992 and 1993 were warmer than historical standards, thus lowering demand for propane. Average winter temperatures as measured by degree days across the Company's operating areas in fiscal 1994 to date have been slightly colder than historical averages. There can be no assurance that average temperatures in future years will be close to the historical average. Agricultural demand is also affected by weather. Wet weather during harvest season causes an increase in propane used for crop drying and dry weather during the growing season causes an increase in propane used for irrigation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Retail Propane Industry is a Mature One The retail propane industry is a mature one, with only limited growth in total demand for the product foreseen (the exception being in the case of motor fuel applications, which is being driven by recent environmental legislation, but for which the opportunity cannot be estimated). Based on information available from the Energy Information Administration, the Company believes the overall demand for propane has remained relatively constant over the past several years, with year to year industry volumes being impacted primarily by weather patterns. Therefore, the Partnership's ability to grow within the industry is dependent on the success of its marketing efforts to acquire new customers and on the ability to acquire other retail distributors. The Partnership Will Be Subject To Pricing and Inventory Risk An important element of the Company's high retention of retail customers has been its ability to deliver propane during periods of extreme demand. To help insure this capability, the Partnership intends to continue engaging in the brokerage and trading of propane and other natural gas liquids historically performed by the Company. If the Partnership sustains material losses from its trading activities, payments in respect of the Senior Notes and the other indebtedness of the Partnership could be jeopardized. The Company has sought to minimize its trading risks through the enforcement of trading policies, which include total inventory limits and loss limits. The Partnership intends to continue these policies. Personnel responsible for trading activities have an average of over 10 years of trading experience with the General Partner. See "Business--Other Operations." In addition, depending on inventory and price outlooks, the Partnership may purchase and store propane or other natural gas liquids. This activity may subject the Partnership to losses if the prices of propane or such other natural gas liquids decline prior to their sale by the Partnership. The Partnership may be unable to pass rapid increases in the wholesale cost of propane on to its retail customers, reducing margins 15 on retail sales. In the long term, however, margins generally have not been materially impacted by rapid increases in the wholesale cost of propane, as the Company has generally been able to eventually pass on increases to its retail customers. There can be no assurance as to whether the Partnership will be able to pass on such costs in the future. The Retail Propane Business Experiences Competition From Other Energy Sources and Within the Industry The Partnership will compete for customers against suppliers of natural gas, electricity and fuel oil. Because of the significant cost advantage of natural gas over propane, propane is generally not competitive with natural gas in those areas where natural gas is readily available. The expansion of the nation's natural gas distribution systems has resulted in the availability of natural gas in many areas that previously depended upon propane. Propane is generally less expensive to use than electricity for space heating, water heating and cooking and competes effectively with electricity in those parts of the country where propane is cheaper than electricity on an equivalent BTU basis. Although propane is similar to fuel oil in application, market demand and price, propane and fuel oil have generally developed their own distinct geographic markets. In addition, given the cost of conversion from fuel oil to propane, potential customers of propane generally will only switch from fuel oil if there is a significant price advantage with propane. Long-standing customer relationships are also typical to the retail propane industry. Retail propane customers generally lease their storage tanks from their suppliers. The lease terms and, in most states, certain fire safety regulations, restrict the refilling of a leased tank solely to the propane supplier that owns the tank. The cost and inconvenience of switching tanks minimizes a customers tendency to switch among suppliers of propane on the basis of minor variations in price. As a result, the Partnership may experience difficulty in acquiring new retail customers in areas where there are existing relationships between potential customers and other propane distributors. Partnership Operations are Subject to Operating Risks The Partnership's operations will be subject to all operating hazards and risks normally incidental to handling, storing, transporting and otherwise providing for use by consumers of combustible liquids such as propane. As a result, the Company is, and the Partnership will be, a defendant in various legal proceedings and litigation arising in the ordinary course of business. The Partnership will maintain insurance policies with insurers in such amounts and with such coverages and deductibles as the General Partner believes are reasonable and prudent. However, there can be no assurance that such insurance will be adequate to protect the Partnership from all material expenses related to potential future claims for personal and property damage or that such levels of insurance will be available in the future at economical prices. After taking into account the pending and threatened matters against the Company that will be assumed by the Partnership and the insurance coverage and reserves to be maintained by the Partnership, the General Partner is of the opinion that there are no known contingent claims or uninsured claims that are likely to have a material adverse effect on the results of operations or financial condition of the Partnership. See "Business--Litigation." The General Partner will neither guarantee nor indemnify the Partnership against any claims, whether known or unknown, or contingent liabilities. The occurrence of an event not fully covered by insurance, or the occurrence of a large number of claims that are self-insured, may have a material adverse effect on the results of operations or financial position of the Partnership. The Partnership May Not Be Successful in Making Acquisitions The Company has historically expanded its business through acquisitions. The Partnership intends to consider and evaluate opportunities for growth through acquisitions in its industry, although it currently has no material acquisitions under consideration. There can be no assurance that the Partnership will find attractive acquisition candidates in the future, or that the Partnership will be able to acquire such candidates on economically acceptable terms. 16 Energy Efficiency and Technology Trends May Affect Demand For Propane Retail customers primarily use propane as a heating fuel. Increased technological advances in energy efficiency, including the development of more efficient heating devices, has slowed the growth of demand for propane by retail gas customers. The Partnership is unable to predict the effect that any technological advances in energy efficiency, conservation, energy generation or other devices might have on the Partnership's operations. The Partnership Will Be Dependent Upon Key Personnel of the General Partner The Company believes its success has been, and the Partnership's success will be, dependent to a significant extent upon the efforts and abilities of its senior management team, in particular James E. Ferrell, President and Chairman of the Board of the Company. The failure of the General Partner to retain Mr. Ferrell and other executive officers could adversely affect the Partnership's operations. Mr. Ferrell, who has been associated with the Company for nearly 30 years and who will indirectly own approximately 58.2% of the Partnership, has indicated to the Company that he intends to continue as chief executive officer of the General Partner. The General Partner and Its Affiliates May Have Conflicts of Interest with the Partnership Conflicts of interest may arise between the Partnership, on the one hand, and Ferrellgas and its affiliates, on the other hand. The directors and officers of Ferrellgas have fiduciary duties to manage Ferrellgas in a manner beneficial to the sole shareholder of Ferrellgas, Ferrell. At the same time, Ferrellgas, as general partner, has fiduciary duties to manage the Partnership in a manner beneficial to the Partnership. The duties of Ferrellgas, as general partner, to the Partnership therefore may conflict with the duties of the directors and officers of Ferrellgas to its sole shareholder. Such conflicts of interest might arise in the following situations, among others: (i) the Partnership will rely solely on employees of the General Partner and its affiliates, (ii) the Partnership will reimburse the General Partner and its affiliates for costs incurred in the Partnership's operations, (iii) the General Partner intends to limit, whenever possible, its liability under contractual arrangements of the Partnership, (iv) the contractual arrangements between the Partnership, on the one hand, and the General Partner and its affiliates, on the other hand, may not be the result of arms'-length negotiations (although the Indenture requires that all transactions between the Partnership and its affiliates must be on terms at least as favorable to the Partnership as those which could have been obtained on an arms'-length basis), (v) the General Partner may redeem the Common Units as provided in the Partnership Agreement provided that the Partnership meets certain financial tests and conditions set forth in the Indenture and (vi) the Partnership Agreement does not restrict the General Partner and its affiliates from engaging in activities that may be in competition with the Partnership, except that the General Partner and its affiliates may not engage in the retail sale of propane to end users in the continental United States. See "Description of Senior Notes--Certain Covenants--Affiliate Transactions" and "--Restricted Payments." The General Partner will have an audit committee consisting of independent members of its Board of Directors which will be able, at the General Partner's discretion or as required by the Indenture, to review matters involving potential conflicts of interest. The General Partner Will Manage and Operate the Partnership The General Partner will manage and operate the Partnership. The control exercised by the General Partner may make it more difficult for others to gain control or influence the activities of the Partnership. 17 THE TRANSACTIONS Concurrently with the closing of this Offering, Ferrellgas will contribute all of its propane business and assets to the Partnership in exchange for 1,000,000 Common Units, 16,593,721 Subordinated Units and the Incentive Distribution Rights, as well as a 2% general partner interest in the Master Partnership and the Partnership, on a combined basis (see "The Partnership-- Incentive Distribution Rights"). In connection with the contribution of such business and assets by Ferrellgas, the Partnership will assume substantially all of the liabilities, whether known or unknown, associated with such business and assets (other than income tax liabilities). The Partnership intends to maintain insurance and reserves at levels that it believes will be adequate to satisfy such liabilities. In addition, the Partnership will assume the payment obligations of Ferrellgas under (i) $50 million of Existing Floating Rate Notes bearing interest at 5.5% per annum at April 30, 1994, (ii) $177.6 million of Existing Fixed Rate Notes bearing interest at 12% per annum and (iii) $246.4 million of Existing Subordinated Debentures bearing interest at 11 5/8% per annum. All of the Existing Senior Notes and the Existing Subordinated Debentures will be retired with the net proceeds from the sale by the Master Partnership of the Common Units in the MLP Offering (estimated to be $255.5 million at an initial public offering price of $21 per Common Unit) and the net proceeds from the issuance of approximately $250 million in aggregate principal amount of the Senior Notes offered hereby (estimated to be $244.3 million). The book value of the assets being contributed to the Partnership will be approximately $83 million less than the liabilities to be assumed by the Partnership. Immediately prior to the closing of this Offering, the Partnership expects to enter into the $185 million Credit Facility. The Credit Facility will permit borrowings of up to $100 million on a senior unsecured revolving line of credit basis to fund working capital and general partnership requirements (of which $50 million will be available to support letters of credit). In addition, up to $85 million of borrowings will be permitted on a senior unsecured basis, at least $60 million of which will be available solely to finance acquisitions and growth capital expenditures. Ferrellgas will retain and will not contribute to the Partnership approximately $39 million in cash, approximately $17 million in receivables from affiliates of Ferrell and Ferrell Class B Stock with a book value of approximately $36 million. It is anticipated that following the closing of this Offering, Ferrellgas will loan approximately $25 million to Ferrell and will dividend to Ferrell the remainder of the cash, receivables and Ferrell Class B Stock, as well as the Common Units, Subordinated Units and Incentive Distribution Rights received by Ferrellgas in exchange for the contribution of its propane business and assets to the Partnership. Concurrently with the closing of this Offering, the Company will consummate a tender offer and consent solicitation with respect to its Existing Subordinated Debentures. The consent solicitation is necessary to modify the indenture related to the Existing Subordinated Debentures in order to permit the Company to consummate the transactions contemplated by this Prospectus. As of the date of this Prospectus, all of the outstanding Existing Subordinated Debentures have been tendered to and will be retired by the Partnership, as described above. Concurrently with the closing of this Offering, the Company will mail to the holders of the Existing Senior Notes a notice of redemption of all outstanding Existing Senior Notes, pursuant to the optional redemption provisions of the Existing Senior Notes Indenture. The redemption date will be 30 days after the date of mailing of such notice. The Existing Senior Notes Indenture provides for a redemption price equal to 100% of the principal amount plus accrued and unpaid interest, if any, to the redemption date plus in the case of the Existing Fixed Rate Notes, a premium which is based on certain yield information for U.S. Treasury securities as of three business days prior to the redemption date. The Partnership will deposit with the trustee on the date of closing of this Offering an amount expected to be more than sufficient to pay the redemption price. As a result of the transactions contemplated hereby, during the 30-day period prior to the redemption date, an event of default will exist under the Existing Senior Notes Indenture. The holders of at least 25% of the principal amount of Existing Senior Notes, therefore, will be entitled, by notice to the Company and the trustee, to declare the unpaid principal of, and accrued and unpaid interest and the applicable premium on, the Existing Senior Notes to be immediately due and payable. The trustee under the Existing Senior Notes Indenture has advised the Company that it intends to notify the holders of the Existing Senior Notes of this right. In the event of such a declaration, the amount already deposited by the Partnership in payment of the redemption price would be applied to pay the amount so declared immediately due and 18 payable. The Partnership will incur an extraordinary loss of approximately $20.4 million related to the retirement of the Existing Senior Notes, approximately $31.2 million relating to the Existing Subordinated Debentures resulting from consent and tender offer fees and approximately $11.2 million relating to the write-off of unamortized financing costs in accordance with GAAP. At the closing of this Offering, it is anticipated that the Partnership will borrow approximately $15.0 million under the Credit Facility which will enable the Partnership to commence operations with an initial cash balance of at least $20.0 million. For a description of the Credit Facility, see "Management's Discussion and Analysis of Financial Condition and Results of Operation--Pro Forma Financial Condition--Credit Facility." The foregoing description assumes that the Underwriters' overallotment option with respect to the MLP Offering is not exercised. If the Underwriters' overallotment option is exercised in full, the Master Partnership will issue 1,965,000 additional Common Units. The Partnership will use the net proceeds from any exercise of such Underwriters' overallotment option first to repay any amounts borrowed under the Credit Facility. Any remaining net proceeds from the exercise of such Underwriters' overallotment option will be used by the Master Partnership to repurchase for retirement up to 1,000,000 Common Units held by Ferrell at a price per Unit equal to $21 (the initial public offering price) less the underwriting discounts and commissions. Any net proceeds remaining after such repurchase, will be retained by the Partnership for general partnership purposes. Immediately following this Offering, Ferrellgas will own an effective 2% general partner interest in the Master Partnership and the Partnership on a combined basis, and Ferrell will own 1,000,000 Common Units (if the Underwriters' overallotment option with respect to the MLP Offering is exercised in full all of such Common Units will be repurchased and retired by the Master Partnership) and 16,593,721 Subordinated Units representing an effective 56.2% limited partner interest in the Partnership (51.4% if the Underwriters' overallotment option is exercised in full) and the Incentive Distribution Rights. USE OF PROCEEDS The net proceeds to the Partnership from the sale of the Senior Notes offered hereby are estimated to be $244.3 million after deducting the underwriting discount and the expenses of this Offering. The net proceeds of this Offering, together with the net proceeds from the issuance of the Common Units in the MLP Offering (estimated to be $255.5 million), will be used by the Partnership to repay indebtedness of Ferrellgas. The indebtedness to be repaid consists of $50 million of Existing Floating Rate Notes, which have a floating rate of interest (5.5% per annum at April 30, 1994) and mature in August 1996, $177.6 million of Existing Fixed Rate Notes, which have an interest rate of 12% per annum and mature in August 1996, and up to $246.4 million of Existing Subordinated Debentures, which have an interest rate of 11 5/8% per annum and mature in December 2003. See "Capitalization." If the Underwriters' overallotment option with respect to the MLP Offering is exercised in full, the estimated additional net proceeds to the Partnership will be approximately $38.6 million. The Partnership will use the net proceeds from any exercise of such Underwriters' option first to repay any amounts borrowed under the Credit Facility (anticipated to be approximately $15.0 million) to enable the Partnership to commence operations with an initial cash balance of at least $20.0 million. See "The Transactions." Any remaining net proceeds from the exercise of the Underwriters' overallotment option will be used by the Partnership to repurchase for retirement up to 1,000,000 Common Units held by Ferrell at a price per Unit equal to $21 (the initial public offering price) less the underwriting discounts and commissions. Any net proceeds remaining after such repurchase will be retained by the Partnership for general partnership purposes. 19 CAPITALIZATION The following table sets forth: (i) the consolidated capitalization of Ferrellgas at April 30, 1994, (ii) the pro forma adjustments required to reflect the transactions to be consummated at the closing of this Offering, including the issuance of Common Units pursuant to the MLP Offering at an offering price of $21 per Common Unit and (iii) the pro forma capitalization of the Partnership at such date after giving effect thereto. The table should be read in conjunction with the historical and pro forma consolidated financial statements and notes thereto included elsewhere in this Prospectus.
APRIL 30, 1994 -------------------------------------- FERRELLGAS PRO FORMA PARTNERSHIP HISTORICAL ADJUSTMENTS(1) PRO FORMA (IN THOUSANDS) Short-term debt, including current portion of long-term debt............... $ 1,486 $ -- $ 1,486 ======== ========= ======== Long-term debt: Fixed Rate Senior Notes, interest at 10%, due 2001 ........................ -- $ 200,000 $200,000 Floating Rate Senior Notes, interest at Applicable LIBOR Rate plus 3.125%, due 2001.................................. -- 50,000 50,000 Existing Floating Rate Notes, interest at applicable LIBOR Rate plus 2.25% (5.5% at April 30, 1994), due in August 1996........................... 50,000 (50,000) -- Existing Fixed Rate Notes, interest at 12%, due in August 1996............... 177,600 (177,600) -- Existing Subordinated Debentures, interest at 11 5/8%, due in December 2003.................................. 246,430 (246,430) -- Other long-term debt................... 2,441 20,000(2) 22,441 -------- --------- -------- Total long-term debt................. 476,471 (204,030) 272,441 -------- --------- -------- Stockholder's equity..................... 30,848 (30,848) -- Partners' capital: Limited partner(3)..................... -- 138,277 138,277 General partner........................ -- 1,410 1,410 -------- --------- -------- Total stockholder's equity/partners' capital............................. 30,848 108,839 139,687 -------- --------- -------- Total capitalization................. $507,319 $ (95,191) $412,128 ======== ========= ========
- --------------------- (1) Reflects the conveyance of the assets of Ferrellgas to the Partnership in return for the assumption of liabilities and the issuance of a 1.0101% general partner interest. In addition, the Partnership will issue a 98.9899% limited partner interest to the Master Partnership in return for the net proceeds of the MLP Offering estimated to be $255.5 million. (2) Represents borrowings at April 30, 1994 under the Credit Facility to enable the Partnership to commence operations with an initial cash balance of $20 million. The Partnership anticipates it will borrow approximately $15.0 million under the Credit Facility. Actual borrowings under the Credit Facility at the closing of this Offering will depend upon the Partnership's cash balances at such time. (3) Includes limited partnership capital resulting from the issuance of 13,100,000 Common Units offered by the Master Partnership in the MLP Offering. Such limited partnership capital is less than the net proceeds of the MLP Offering of $255.5 million due to the assets and liabilities contributed by Ferrellgas to the Partnership being recorded at historical cost by the Partnership, rather than fair value, in accordance with GAAP. Total capital of the Partnership is allocated to the limited partners based on their relative limited partner unit ownership percentage. It is anticipated that the Partnership will also enter into the Credit Facility in the amount of $185 million. For a discussion of the Credit Facility and other capital resources and liquidity of the Partnership, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Pro Forma Financial Condition." 20 SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OPERATING DATA The following tables set forth for the periods and the dates indicated, selected historical financial and operating data for the Company and selected pro forma financial and operating data for the Partnership after giving effect to the transactions contemplated by this Prospectus. The selected historical income statement and balance sheet data of the Company for the five years ended July 31, 1993, and for the nine months ended April 30, 1994 is derived from financial statements which have been audited by Deloitte & Touche, independent auditors, certain of which appear elsewhere in this Prospectus. The historical financial data for the nine-month period ended April 30, 1993, has been derived from the unaudited financial statements appearing herein, and, in the opinion of management of the Company, contain all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the Company's results of operation and financial condition. The Partnership's selected pro forma financial data should be read in conjunction with such consolidated financial statements and the pro forma financial information and notes thereto included elsewhere in this Prospectus. The propane industry is seasonal in nature with its peak activity during the winter months. Therefore, the results for the interim period are not indicative of the results that can be expected for a full fiscal year. The following should be read in conjunction with the Financial Statements and Notes to Financial Statements contained elsewhere in this Prospectus.
PARTNERSHIP HISTORICAL PRO FORMA -------------------------------------------------- ---------- YEAR ENDED JULY 31, YEAR ENDED -------------------------------------------------- JULY 31, 1989 1990 1991 1992 1993 1993 (IN THOUSANDS, EXCEPT RATIOS) INCOME STATEMENT DATA: Total revenues........... $409,953 $467,641 $543,933 $501,129 $541,945 $541,945 Depreciation and amortization............ 32,528 33,521 36,151 31,196 30,840 30,840 Operating income......... 53,425 54,388 63,045 56,408 58,553 58,053 Interest expense......... 54,572 55,095 60,507 61,219 60,071 29,220 Earnings (loss) from continuing operations... (1,506) (347) 1,979 (1,700)(1) 109 28,578 Ratio of earnings to fixed charges(2)........ -- -- 1.1x -- 1.0x 1.9x BALANCE SHEET DATA (AT END OF PERIOD): Working capital.......... $(39,708) $ 50,456 $ 53,403 $ 67,973 $ 74,408 Total assets............. 487,631 554,580 580,260 598,613 573,376 Payable to (receivable from) parent and affiliates.............. 13,109 10,743 3,763 2,236 (916) Long-term debt........... 354,626 465,644 466,585 501,614 489,589 Stockholder's equity..... 6,616 11,463 21,687 8,808 11,359 OPERATING DATA: Retail propane sales volume (in gallons)..... 498,395 499,042 482,211 495,707 553,413 553,413 Capital expenditures(3): Maintenance.............. $ 7,271 $ 5,428 $ 7,958 $ 10,250 $ 10,527 $ 10,527 Growth................... 10,062 10,447 2,478 3,342 2,851 2,851 Acquisition.............. 14,668 18,005 25,305 10,112 897 897 -------- -------- -------- -------- -------- -------- Total................... $ 32,001 $ 33,880 $ 35,741 $ 23,704 $ 14,275 $ 14,275 ======== ======== ======== ======== ======== ======== SUPPLEMENTAL DATA: EBITDA(4)................ $ 85,953 $ 87,909 $ 99,196 $ 87,604 $ 89,393 $ 88,893 Fixed charge coverage ratio(5)................ 3.0x
21
PARTNERSHIP HISTORICAL PRO FORMA -------------------- ----------------- NINE MONTHS ENDED NINE MONTHS ENDED APRIL 30, APRIL 30, -------------------- 1994 1993 1994 (IN THOUSANDS, EXCEPT RATIOS) INCOME STATEMENT DATA: Total revenues...................... $468,302 $450,477 $450,477 Depreciation and amortization....... 23,238 21,688 21,688 Operating income.................... 64,708 75,445 75,070 Interest expense.................... 45,056 44,233 21,291 Earnings from continuing operations. 12,785 20,356 53,770 Ratio of earnings to fixed charges(2)......................... 1.4x 1.7x 3.2x BALANCE SHEET DATA (AT END OF PERIOD): Working capital..................... $100,645 $104,164 $ 53,510 Total assets........................ 602,063 600,113 478,460 Payable to (receivable from) parent and affiliates..................... 2,076 (3,909) 91 Long-term debt...................... 500,227 476,471 272,441 Stockholder's equity................ 21,855 27,348 Partners' capital: Limited Partner..................... 138,277 General partner..................... 1,410 OPERATING DATA: Retail Propane sales volumes (in gallons)........................... 483,489 490,254 490,254 Capital expenditures(3): Maintenance......................... $ 9,260(6) $ 3,377(6) $ 3,377 Growth.............................. 2,597 2,568 2,568 Acquisition......................... 2,472 2,472 -------- -------- -------- Total.............................. $ 11,829 $ 8,417 $ 8,417 ======== ======== ======== SUPPLEMENTAL DATA: EBITDA(4)........................... $ 87,946 $ 97,133 $ 96,758 Fixed charge coverage ratio(5)...... 3.3x
- --------------------- (1) In August 1991, the Company revised the estimated useful lives of storage tanks from 20 to 30 years in order to more closely reflect expected useful lives of the assets. The effect of the change in accounting estimates resulted in a favorable impact on net loss from continuing operations of approximately $3.7 million for the fiscal year ended July 31, 1992. (2) For purposes of determining the ratio of earnings to fixed charges, earnings are defined as earnings (loss) from continuing operations before income taxes, plus fixed charges. Fixed charges consist of interest expense on all indebtedness (including amortization of deferred debt issuance costs) and the portion of operating lease rental expense that is representative of the interest factor. For the fiscal years ended July 31, 1989, 1990 and 1992, earnings were inadequate to cover fixed charges by $2.4 million, $0.1 million and $2.4 million, respectively. Earnings before fixed charges for the periods presented were reduced by certain non-cash expenses, consisting principally of depreciation and amortization. Such non-cash charges totaled $34.7 million, $35.8 million, $38.5 million, $33.5 million and $33.0 million for the fiscal years ended July 31, 1989, 1990, 1991, 1992 and 1993, respectively, and totaled $24.8 million and $23.7 million for the nine months ended April 30, 1993 and 1994, respectively. (3) The Company's capital expenditures fall generally into three categories: (1) maintenance capital expenditures, which include expenditures for major repair and replacement of property, plant and equipment; (ii) growth capital expenditures, which include expenditures for purchases of new propane tanks and other equipment to facilitate expansion of the Company's retail customer base; and (iii) acquisition capital expenditures, which include expenditures related to the acquisition of retail propane operations. Acquisition capital expenditures include a portion of the purchase price allocated to intangibles associated with the acquired businesses. (4) EBITDA is calculated as operating income plus depreciation and amortization. EBITDA is not intended to represent cash flow and does not represent the measure of cash available for distribution. EBITDA is a non- GAAP measure, but provides additional information for evaluating the Partnership's ability to make the payments in respect of the Senior Notes. EBITDA is not intended as an alternative to earnings from continuing operations and net income. (5) The term fixed charge coverage ratio is defined in the Indenture as the ratio of the Partnership's consolidated cash flow for the preceding four fiscal quarters to fixed charges for such period. Consolidated cash flow is defined in the Indenture as earnings from continuing operations before income taxes, plus interest expenses (including amortization of original issue discount) and depreciation and amortization (excluding amortization of prepaid cash expenses). The term fixed charges is defined in the Indenture as interest expense (including amortization of original issue discount). The Partnership will be prohibited from making any distribution to the Master Partnership if the fixed charge coverage ratio for the preceding four fiscal quarters both before and after giving pro forma effect to such distribution as if it had occurred at the beginning of such four quarter period does not exceed 2.25 to 1. (6) The decrease in maintenance capital expenditures for the nine months ended April 30, 1993 to the nine months ended April 30, 1994 is primarily due to the purchase of the Company's corporate headquarters in Liberty, Missouri for its fair market value of $4.1 million in the first nine months of fiscal 1993. 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of the historical and pro forma financial condition and results of operations of the Company and the Partnership. The discussion should be read in conjunction with the historical and pro forma consolidated financial statements and the notes thereto included elsewhere in this Prospectus. GENERAL The Partnership was recently formed to acquire and operate the business and assets of the Company. The Company is engaged in the sale, distribution, marketing and trading of propane and other natural gas liquids. The Company's revenue is derived primarily from the retail propane marketing business. The Company believes it is the third largest retail marketer of propane in the United States, based on gallons sold, serving more than 600,000 residential, industrial/commercial and agricultural customers in 45 states and the District of Columbia through approximately 416 retail outlets and 226 satellite locations. The Company's annual retail propane sales volume was approximately 553 million, 496 million and 482 million gallons during the fiscal years ended July 31, 1993, 1992 and 1991, respectively. The retail propane business of the Company consists principally of transporting propane purchased in the contract and spot markets, primarily from major oil companies, to its retail distribution outlets and then to tanks located on the customers' premises as well as to portable propane cylinders. In the residential and commercial markets, propane is primarily used for space heating, water heating and cooking. In the agricultural market propane is primarily used for crop drying, space heating, irrigation and weed control. In addition, propane is used for certain industrial applications, including use as an engine fuel which is burned in internal combustion engines that power vehicles and forklifts and as a heating or energy source in manufacturing and drying processes. The retail market for propane is seasonal because of its primary use for heating in residential and commercial buildings. In addition, sales volumes have traditionally been affected by various factors, including competitive conditions, demand for product, variations in weather and fluctuations in propane prices. The Company's results for its first fiscal quarter (August, September and October) and fourth fiscal quarter (May, June and July) are typically lower than the second and the third fiscal quarters, primarily as a result of warmer weather in its first and fourth fiscal quarters. The following tables set forth historical unaudited revenues and operating income for the Company for the period from August 1, 1991 to July 31, 1993, for each quarter in fiscal years 1992 and 1993: QUARTERLY REVENUES
FISCAL YEAR FISCAL YEAR 1992 % 1993 % ----------- ----- ----------- ----- (DOLLARS IN THOUSANDS) Quarter ended: October 31.......................... $114,263 22.8 $116,497 21.5 January 31.......................... 193,652 38.6 191,499 35.3 April 30............................ 122,658 24.5 160,306 29.6 July 31............................. 70,556 14.1 73,643 13.6 -------- ----- -------- ----- Total............................. $501,129 100.0 $541,945 100.0 ======== ===== ======== =====
23 QUARTERLY OPERATING INCOME
FISCAL YEAR FISCAL YEAR 1992 % 1993 % ----------- ----- ----------- ----- (DOLLARS IN THOUSANDS) Quarter ended: October 31........................ $ 5,488 9.7 $ 3,823 6.5 January 31........................ 39,194 69.5 39,186 66.9 April 30.......................... 16,777 29.7 21,699 37.1 July 31........................... (5,051) (8.9) (6,155) (10.5) ------- ----- ------- ----- Total........................... $56,408 100.0 $58,553 100.0 ======= ===== ======= =====
The Company is also engaged in the trading of propane and other natural gas liquids, chemical feedstocks marketing and wholesale propane marketing. Through its natural gas liquids trading operations and wholesale marketing, the Company has become one of the largest independent traders of propane and natural gas liquids in the United States. In fiscal year 1993, the Company's annual wholesale and trading sales volume was approximately 1.2 billion gallons of propane and other natural gas liquids, approximately 64% of which was propane. This volume, when combined with the Company's retail volume, makes the Company one of the largest purchasers of propane, which the General Partner believes will help assure the Partnership favorable prices and supply of propane during times of increased demand. For the fiscal years ended July 31, 1993, 1992 and 1991, the Company had net revenues of $6.7 million, $4.9 million and $9.9 million, respectively, from its trading activities. RESULTS OF OPERATIONS NINE MONTHS ENDED APRIL 30, 1994 VERSUS APRIL 30, 1993 Total Revenues. Total revenues decreased 3.8% to $450,477,000 as compared with $468,302,000 for the prior year period. The overall decrease was attributable to revenues from other operations (net trading operations, wholesale propane marketing and chemical feedstocks marketing) decreasing 23.1% to $56,237,000, and revenues from retail operations decreasing 0.2% to $394,240,000. The decrease in revenues from other operations was primarily due to higher sales of chemical feedstocks in the prior period resulting from sales of chemical feedstocks that were designated for storage but were sold due to storage limitations. Additional decreases were the result of lower product costs for chemical feedstocks and wholesale propane marketing and decreased net trading results due to reduced market volatility relative to the prior period. The decrease in revenues from retail operations was primarily due to a decrease in selling price partially offset by an increase in sales volume due to cooler temperatures than those which existed in the prior period. The volume of gallons sold, excluding acquisitions, increased revenues by $3,339,000. Fiscal year 1994 and 1993 acquisitions increased revenues in the nine months ended April 30, 1994 by $1,659,000. These increases were offset by a $6,775,000 decrease in selling prices due to lower product costs. Gross Profit. Gross profit increased 4.5% to $221,151,000 as compared with $211,566,000 for the prior period, primarily due to an increase in retail operations gross profits. Retail operations results improved due to increased sales volume as discussed previously and to margin increases as a result of favorable changes in the competitive pressures of the industry and to normal fluctuations in the Company's product mix. These increases were offset by a decrease in net trading results due to reduced market volatility relative to the prior period. Operating Expenses. Operating expenses increased 0.1% to $112,687,000 as compared with $112,553,000, for the prior period, primarily due to (i) an increase in incentive compensation expense and (ii) 24 an increase in overtime, variable labor and vehicle expenses due to increased sales volume. These increases were primarily offset by a decrease in general liability and workers compensation expense due to improved claims administration and decreased sales and use tax audit assessments. General and Administrative Expenses. General and administrative expenses increased 10.1% to $8,128,000 as compared with $7,385,000 for the prior period due to increased incentive compensation expense. This increase was partially offset by a reduction in facilities rent expense in the second and third quarters of fiscal year 1993 due to the purchase of the Liberty, Missouri, corporate offices. Depreciation and Amortization. Depreciation expense decreased 6.7% to $21,688,000 as compared with $23,238,000 for the prior period due primarily to extending the use of the Company's vehicles beyond the depreciable life and to the reduction in the number of Company owned vehicles. Net Interest Expense. Net interest expense decreased 3.0% to $41,442,000 as compared with $42,723,000 for the prior period due to the reacquisition of $11,900,000 and $10,500,000 of senior notes in the third quarter of fiscal year 1994 and in the fourth quarter of fiscal 1993, respectively, offset by increased non-cash amortization of financing costs. Net Earnings. Net earnings increased 52.4% to $19,489,000 as compared with $12,785,000 for the prior period primarily due to the increase in retail operations sales volume and margins offset by increased operating, and general and administrative expenses and the fiscal 1994 extraordinary loss from early extinguishment of debt. FISCAL YEAR ENDED JULY 31, 1993 VERSUS JULY 31, 1992 Total Revenues. Total revenues increased 8.1% to $541,945,000 as compared with $501,129,000 for the prior year. This increase was attributable to an increase in revenues from retail operations of 10.6% to $451,966,000 partially offset by a decrease in revenues from other operations (net trading operations, chemical feedstocks marketing and wholesale propane marketing) of 2.6% to $89,979,000. The increase in revenues attributable to retail operations resulted from increased sales volume. The sales volume increase was mainly due to a surge in agricultural business from crop drying in farm belt states and cooler temperatures than those which existed in the prior year. The volume of gallons sold, excluding the effects of acquisitions, increased revenues by $42,648,000. This increase was offset by a decrease in selling prices which reduced revenues by $3,326,000. Acquisitions completed in fiscal 1993 and 1992 increased revenues by $3,172,000. Total revenues attributable to other operations decreased 2.6% to $89,979,000. Wholesale propane marketing revenues decreased as a result of a change in focus and marketing strategy. This decrease was offset by an increase in net trading operations as a result of increased market volatility relative to the prior year. Gross Profit. Gross profit increased 4.3% to $243,912,000 as compared with $233,850,000 for the prior year. The increase was primarily due to an increase in retail operations' sales volume and an increase in net trading and wholesale marketing operating results. These increases were offset by a decrease in retail operations' margins due to competitive pricing pressures in the industry. Operating Expenses. Operating expenses increased 4.1% to $139,617,000 as compared with $134,165,000 for the prior year, due to (i) an increase in personnel costs from increased sales volume and accrued incentive compensation expense, (ii) an increase in vehicle expenses from increased sales volume, (iii) an increase in other expenses from sales and use tax assessments on prior year purchases and leases, and (iv) general increases in the cost of doing business. These increases were partially offset by a decrease in general liability expense due to improved claims administration and to a decrease in bad debt expense due to improved credit and collections administration. 25 Depreciation and Amortization. Depreciation and amortization expense decreased 1.1% to $30,840,000 as compared with $31,196,000 for the prior year due to retirements and fully depreciated assets. General and Administrative Expenses. General and administrative expenses increased 33.3% to $10,079,000 as compared with $7,561,000 for the prior year period due to an increase in compensation expense related to the long-term incentive plan and an increase in non-capitalized software maintenance costs. Net Interest Expense. Net interest expense of $56,805,000 remained essentially unchanged as compared with $56,818,000 for the prior year. Decreases in interest expense due to lower effective interest rates were offset by a decrease in interest income as a result of lower interest rates on short- term investments. Extraordinary Loss. The extraordinary loss of $886,000, net of $543,000 income tax benefit, was due to the early extinguishment of $10,500,000 of the senior notes as discussed in the notes to the consolidated financial statements. Net Loss. Net loss decreased to $777,000 as compared with a loss of $11,679,000 for the prior year due to a $9,093,000 decrease in the extraordinary loss from the early extinguishment of debt and to an increase in net operating results. FISCAL YEAR ENDED JULY 31, 1992 VERSUS JULY 31, 1991 Total Revenues. Total revenues decreased 7.9% to $501,129,000 as compared with $543,933,000 for the prior year. This decrease was attributable to a decrease in revenues from retail operations of 8.1% to $408,781,000 and a decrease in revenues from other operations (net trading operations, chemical feedstocks marketing and wholesale propane marketing) of 6.8% to $92,348,000. The decrease in revenues attributable to retail operations resulted mainly from a decrease in selling prices related to the end of the Persian Gulf crisis and to competitive pressures within the industry. In fiscal 1991, selling prices were increased in response to product cost increases brought about by the Persian Gulf crisis. The volume of gallons sold, excluding the effects of acquisitions, decreased due to temperatures being warmer than normal and warmer than the prior year in the primary heating months, along with competitive pressures within the industry. The decrease in selling prices and volumes reduced total revenues by $45,080,000 and $1,727,000, respectively. Acquisitions in fiscal 1991 and 1992 increased fiscal 1992 revenues by $10,120,000. The decrease in revenues attributable to other operations resulted from declines in net trading operations and wholesale propane marketing revenues offset by an increase in revenues from chemical feedstocks marketing. Net trading operations decreased due to a less volatile market than that which existed in fiscal 1991 during the Persian Gulf crisis. Wholesale propane marketing revenues decreased as a result of changes in marketing strategy and focus of the business and a decrease in selling price and volumes for the reasons noted above for retail operations. Chemical feedstocks marketing revenues increased due to additional emphasis on butane sales. Gross Profit. Gross profit decreased 4.9% to $233,850,000 as compared with $245,965,000 for the prior year. Approximately half of the decrease was attributable to retail operations as a result of competitive pressures in the industry and warmer than normal and warmer than prior year temperatures in the primary heating months. The remaining decrease was attributable to net trading operations and wholesale propane marketing. Operating Expenses. Operating expenses increased 3.5% to $134,165,000 as compared with $129,684,000 for the prior year. This increase was primarily due to an increase in payroll expenses, general liability and workers' compensation insurance and an increase in expenses due to acquisitions in fiscal 1992 and 1991. These increases were partially offset by a reduction in incentive compensation expense. 26 Depreciation and Amortization. Depreciation and amortization expense decreased 13.7% to $31,196,000 as compared with $36,151,000 for the prior year due primarily to a change in the useful lives of certain assets as discussed in the notes to the consolidated financial statements. The change was based on the expected useful lives of the assets and industry practice. General and Administrative Expenses. General and administrative expenses decreased 41.6% to $7,561,000 as compared with $12,953,000 for the prior year due primarily to a reversal of expense previously provided related to the long- term incentive plan and the elimination of certain management positions. Net Interest Expense. Net interest expense increased 0.3% to $56,818,000 as compared with $56,666,000 for the prior year. In connection with the refinancing of the subordinated debt, the Company borrowed an additional $40,000,000. The impact of this additional borrowing on interest expense was offset by a lower effective interest rate on the new subordinated debt and the investment of the excess cash proceeds from the refinancing. Extraordinary Loss. The extraordinary loss of $9,979,000, net of income tax benefit, was due to the refinancing of the subordinated debt as discussed in the notes to the consolidated financial statements. Net Earnings (Loss). Net earnings decreased to a net loss of $11,679,000 as compared with net earnings of $1,979,000 for the prior year due primarily to the decrease in gross profit and the extraordinary loss on the refinancing of subordinated debt. FISCAL YEAR ENDED JULY 31, 1991 VERSUS JULY 31, 1990 Total Revenues. Total revenues increased 16.3% to $543,933,000 as compared with $467,641,000 for the prior year. This increase was attributable to (i) an increase in revenues from retail operations of 12.6% to $444,886,000 and (ii) an increase in revenues from other operations (wholesale propane marketing, chemical feedstocks marketing and net trading operations) of 36.3% to $99,047,000. The increase in revenues from retail operations resulted primarily from an increase in selling prices in response to an increase in product costs brought about by the Persian Gulf crisis. Selling prices were increased in order to maintain normal operating margins. Increased retail selling prices resulted in a $62,505,000 revenue variance. The acquisitions of retail propane businesses increased revenues by approximately $18,484,000. A reduction in residential, motor fuel applications and reseller sales volumes decreased revenues approximately $30,236,000. Retail operations volumes decreased 3.4% compared to the prior year due to temperatures being warmer than the prior year and warmer than normal in addition to customers requesting smaller volume deliveries while propane selling prices remained high. The increase in revenues from other operations resulted from increases in all areas of other operations. Wholesale propane and chemical feedstocks marketing revenues increased due primarily to an increase in selling prices in response to increased product costs as noted above. Net trading operations revenues increased due to increased volatility in the market generating a larger volume of trades. Other operations volumes increased 35.2% compared to the prior year. Gross Profit. Gross profit increased 10.4% to $245,965,000 as compared with $222,834,000 for the prior year. This increase was attributed to the acquisitions of retail propane businesses in fiscal year 1991 and 1990 and an increase in retail operations margins. Retail margins from existing business increased to cover the increased costs of product delivery resulting from smaller volume deliveries and increased carrying costs involved with higher inventory and receivables balance. Also, gross profit for fiscal year 1990 was adversely impacted by high product costs from inventory purchased in January 1990. Gross profit from other operations also increased primarily due to increased wholesale propane marketing margins resulting from focusing marketing efforts on higher margin sales and increased net trading operations volume and margins resulting from the volatile propane market. 27 Operating Expenses. Operating expenses increased 13.1% to $129,684,000 as compared with $114,639,000 for the prior period primarily due to (i) an increase in full time payroll, incentive compensation expense and the related payroll taxes as a result of increased retail operations margins and other operations, (ii) an increase in vehicle expenses and in plant and office expenses primarily from increases in vehicle fuel costs and customers requesting more frequent, smaller volume deliveries and (iii) acquisitions of retail propane businesses during fiscal year 1991 and 1990. General and Administrative Expenses. General and administrative expenses decreased 19.6% to $12,953,000 as compared with $16,113,000 for the prior period. A cost reduction program which was implemented March 1990 included reductions of staff in non-critical areas and cuts in non-essential projects. The results of this program and a reversal of expense previously provided related to the long-term incentive plan contributed to the general and administrative expense decrease. Net Interest Expense. Net interest expense increased 6.0% to $56,666,000 as compared with $53,463,000 due to the issuance of senior notes in July of 1990. The excess cash proceeds from the issuance of the senior notes were invested to offset interest expense incurred. Net Earnings (Loss). Net earnings increased to $1,979,000 as compared with a net loss of $3,814,000 for the prior period due to the increase in gross profit which was offset partially by an increase in operating expenses and net interest expense. Also in 1990, earnings were unfavorably impacted by an extraordinary loss from refinancing of debt. LIQUIDITY AND CAPITAL RESOURCES For the nine months ended April 30, 1994 and the twelve months ended July 31, 1993, the Company's operating cash flow provided from operations (as measured by operating income before depreciation and amortization, interest and taxes) was sufficient to (i) make interest payments and required reductions to existing debt and (ii) make purchases of property, plant and equipment. Cash Flows from Operating Activities. Cash provided by operating activities increased to $58,246,000 for the nine months ended April 30, 1994, as compared with $47,081,000 for the prior period. This increase was primarily attributable to an increase in net earnings and accounts payable, which were offset by increases in inventory and accounts and notes receivable. Cash provided by operating activities increased to $36,961,000 for the twelve months ended July 31, 1993, as compared with $22,965,000 for the prior period. This increase was primarily attributable to an increase in earnings and a decrease in inventory purchases in anticipation of future propane requirements, offset by a decrease in accounts payable. Cash Flows From Investing Activities. During the nine months ended April 30, 1994, the Company made aggregate expenditures for intangible assets and property, plant and equipment of $8,417,000. During the twelve months ended July 31, 1993, the Company made aggregate expenditures for intangible assets and property, plant and equipment of $14,275,000. Total capital expenditures are essentially governed by the cash interest coverage ratio covenants contained in the various debt agreements. These covenants limited capital expenditures depending upon the amount of cash flow and cash interest expense of the Company. The Company maintains its vehicle and transportation equipment fleet by leasing light and medium duty trucks and tractors. The Company believes vehicle leasing is a cost effective method for financing transportation equipment. Capital requirements for repair and maintenance of property, plant and equipment are relatively low since technological change is limited and the useful lives of propane tanks and cylinders, the Company's principal physical assets, are generally long. The Company invested in U.S. Treasury Bills and U.S. government obligations with remaining maturities, as of April 30, 1994, ranging from four to ten months. These investments are presented as short-term investments in the Company's consolidated financial statements. 28 Cash Flows From Financing Activities. The Company currently has a $50 million bank credit facility which terminates July 31, 1995. The facility provides for a working capital facility and a letter of credit facility. At April 30, 1994, there were no borrowings outstanding under the working capital facility and letters of credit outstanding under the letter of credit facility, which are used primarily to secure obligations under certain insurance and leasing arrangements, totaled $32,778,000, resulting in an available bank credit facility of $17,222,000. The Company does not have any significant commitments for fixed asset acquisitions, unusual working capital commitments or contingent liabilities which might materially affect short-term liquidity. Effects of Inflation. In the past the Company has been able to adjust its sales price of product in response to market demand, cost of product, competitive factors and other industry trends. Consequently, changing prices as a result of inflationary pressures have not had a material adverse effect on profitability although revenues may be affected. Inflation has not materially impacted the results of operations and the Company does not believe normal inflationary pressures will have a material adverse effect on the profitability of the Partnership in the future. Adoption of New Accounting Standards. The Company provides postretirement medical benefits to a closed group of approximately 400 retired employees and their spouses. The plan requires the Company to provide primary medical benefits to the participants until age 65, at which time the Company will only pay a fixed amount of $55 per month per participant for medical benefits. Effective August 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106--Employers' Accounting for Postretirement Benefits Other Than Pensions which requires accrual of postretirement benefits (such as health care benefits) during the years an employee provides services. The Company elected to amortize the postretirement benefit obligation over a period not to exceed the average remaining life expectancy of the plan participants (since all of the plan participants are retired). The cumulative effect as of August 1, 1993, and impact for the nine months ended April 30, 1994, of adopting this statement was not material to the financial statements of the Company. The Company has provided additional disclosure of the postretirement benefit obligation. See Note L to the consolidated financial statements. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 112--Employers' Accounting For Postemployment Benefits which is effective for fiscal years beginning after December 15, 1993. This statement requires that employers recognize over the service lives of employees the costs of postemployment benefits if certain conditions are met. The General Partner does not believe that adoption of the statement will have a material impact on the results of operations or financial condition of the Partnership. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 115--Accounting for Certain Investments in Debt and Equity Securities, which is effective for fiscal years beginning after December 15, 1993. The statement addresses the accounting and reporting for certain investments in debt and equity securities and expands the use of fair value accounting for those securities but retains the use of the amortized cost method for investments that the Company has the positive intent and ability to hold to maturity. The General Partner does not believe that the adoption of this statement will have a material effect on the results of operations or financial condition of the Partnership. PRO FORMA FINANCIAL CONDITION The ability of the Partnership to satisfy its obligations will be dependent upon future performance, which will be subject to prevailing economic conditions and to financial, business and weather conditions and other factors, many of which are beyond its control. For the fiscal year ending July 31, 1995, the General Partner believes that the Partnership will generate sufficient income to make all required payments in respect of the Senior Notes. Future capital needs of the Partnership are expected to be provided by future operations, existing cash balances and the working capital facility. The Partnership may incur additional indebtedness in order to fund possible future acquisitions. 29 Concurrent with the closing of the sale of the Senior Notes offered hereby, the Master Partnership will sell in a registered public offering 13,100,000 Common Units for aggregate net proceeds of approximately $255.5 million, which proceeds, along with the estimated $244.3 million net proceeds of the offering of Senior Notes, will be used to retire substantially all of the approximately $481.5 million of indebtedness of the Company to be assumed by the Partnership. The sale of the Senior Notes offered hereby is subject to, among other things, the sale of the Common Units. Upon the consummation of the transactions contemplated by this Prospectus, the Partnership expects to have total indebtedness of approximately $268.9 million. See "The Transactions." Credit Facility. Immediately prior to the closing of this Offering, the Partnership expects to enter into a $185 million Credit Facility with Bank of America National Trust and Savings Association ("BofA"), a portion of which will be syndicated to a group of financial institutions (together with BofA, the "Banks"). The form of the loan agreement which will govern the Credit Facility is filed as an exhibit to the Registration Statement of which this Prospectus is a part. The Credit Facility will permit borrowings of up to $100 million on a senior unsecured revolving line of credit basis (the "Working Capital Facility") and up to $85 million on a senior unsecured basis (the "Expansion Facility"). The Credit Facility will be committed for up to a three-year period, at which time the Working Capital Facility will expire. The Expansion Facility may be converted, at the option of the Partnership, to a three year term loan at the end of the initial three-year period. Under the Working Capital Facility, up to $100 million will be available to fund working capital and general partnership requirements (of which up to $50 million will be available to support letters of credit). Under the Expansion Facility, up to $25 million will be available to retire existing indebtedness of the General Partner, the payment obligation of which will be assumed by the Partnership, and up to $60 million (plus any unused amount from the retirement of the existing assumed indebtedness and any amount repaid with the proceeds from the exercise of the Underwriters' overallotment option) will be available solely to finance acquisitions and growth capital expenditures. At the Partnership's option, borrowings under the Credit Facility may bear interest either at the Base Rate (i.e., the higher of the Federal funds rate plus 1/2% per annum or BofA's reference rate) or the London Interbank Offered Rate, in each case plus the applicable margin. The applicable margin will vary from 62.5 basis points to 125 basis points for LIBOR and between zero basis points and 25 basis points for the Base Rate, depending upon the Partnership's "Leverage Ratio," which is defined generally as the ratio of all debt for borrowed money to EBITDA. At the time of the closing of the Credit Facility, the Partnership anticipates that, based upon the then applicable Leverage Ratio, its applicable LIBOR margin will be 112.5 basis points and its applicable Base Rate margin will be 12.5 basis points. There can be no guarantee that the Partnership will be able to continue to maintain the Leverage Ratio which it anticipates will exist at closing. The loan agreement for the Credit Facility will contain restrictive covenants substantially similar to those for the Senior Notes including restrictions on the Partnership's ability to make cash distributions and the requirement that the Partnership repay all outstanding amounts under the Credit Facility within 30 days after the occurrence of a change of control thereunder. In the case of the Credit Facility, however, there is an additional limitation in that the occurrence of any transaction which results in James E. Ferrell and his affiliates beneficially owning less than 20% of the equity interests of the Partnership will constitute a "Change of Control," requiring repayment of the Credit Facility. The Credit Facility also includes certain additional covenants and restrictions relating to the activities of the Partnership which are customary for similar credit facilities and are not expected to affect materially and adversely the conduct of the Partnership's business as described in this Prospectus. The Partnership anticipates it will borrow approximately $15.0 million under the Credit Facility at the closing of this Offering. Actual borrowings under the Credit Facility at the closing of this Offering will depend upon the Partnership's cash balances at such time. If the Underwriters' overallotment option is exercised 30 subsequent to the closing, the Partnership will use the net proceeds therefrom first to repay any amounts borrowed under the Expansion Facility and next to repurchase for retirement up to 1,000,000 Common Units held by Ferrell. The closing of the Credit Facility is conditioned upon, among other things, the successful public offering of the Common Units and the Senior Notes, the cancellation of Ferrellgas' current $50 million revolving credit facility and there having been no material adverse change in the financial markets in general or the financial condition of the General Partner or the Partnership prior to the closing of the Credit Facility. TAX AUDIT The IRS has examined Ferrell's consolidated income tax returns for the years ended July 31, 1987 and 1986, and has proposed to disallow $90 million of deductions for amortization of customer relationships taken or to be taken on Ferrell's consolidated income tax returns. On April 20, 1993, the United States Supreme Court held in Newark Morning Ledger v. United States that a taxpayer may amortize customer-based intangibles if that taxpayer can prove such intangibles are capable of being valued and the value diminishes over time. The Company contends it has met this burden of proof and feels this recent Supreme Court decision supports the positions taken during the Company's allocation of purchase price to customer relationships. The Company was originally made aware of the audit based on a letter received from the IRS dated April 24, 1989. The Company received a closing conference letter of the proposed adjustments on December 6, 1990, and finally, a 60-day letter to act dated August 5, 1991. The 60-day letter has been extended through December 31, 1994. The Company intends to vigorously defend against these proposed adjustments and is in the process of protesting these adjustments through the appeals process of the IRS. At this time, it is not possible to determine the ultimate resolution of this matter. In connection with the formation of the Partnership, the Company will contribute the customer relationships that are the subject of the IRS audit together with additional customer relationships to the Partnership. The General Partner intends to treat such customer relationships as amortizable assets of the Partnership for federal income tax purposes. It is possible that the IRS will challenge that treatment. If the IRS were to successfully challenge the amortization of customer relationships by the Partnership, the ability of the Partnership to make payments in respect of the Senior Notes and the other indebtedness of the Partnership could be adversely affected, although the Partnership does not believe the impact of such effect will be material. 31 BUSINESS GENERAL The Partnership will be engaged in the sale, distribution, marketing and trading of propane and other natural gas liquids. The discussion that follows focuses on the Company's retail operations and its other operations, which consist of propane and natural gas liquids trading operations, chemical feedstocks marketing and wholesale propane marketing, all of which will be conveyed to the Partnership. The Company believes it is the third largest retail marketer of propane in the United States (as measured by gallons sold), serving approximately 600,000 residential, commercial, agricultural and industrial customers in 45 states and the District of Columbia through approximately 416 retail outlets with 226 satellite locations in 36 states (some outlets serve interstate markets). For the fiscal years ended July 31, 1993, 1992 and 1991, the Company's annual retail propane sales volumes were approximately 553 million, 496 million and 482 million gallons, respectively. EBITDA was $89.4 million, $87.6 million and $99.2 million for the fiscal years ended July 31, 1993, 1992 and 1991, respectively. EBITDA for the twelve months ended April 30, 1994 was $98.6 million. The Company's net losses for the fiscal years ended July 31, 1993 and 1992 were $0.8 million and $11.7 million, respectively, and its net earnings for the fiscal year ended July 31, 1991 were $2.0 million. Net earnings for the nine month periods ended April 30, 1994 and 1993 were $19.5 million and $12.8 million, respectively. The retail propane business of the Company consists principally of transporting propane purchased through various suppliers to its retail distribution outlets, then to tanks located on its customers' premises, as well as to portable propane cylinders. The Company also believes it is a leading natural gas liquids trading company. The Company's annual propane and natural gas liquids trading, chemical feedstocks and wholesale propane sales volumes were approximately 1.2 billion, 1.3 billion and 1.1 billion gallons during the fiscal years ended July 31, 1993, 1992 and 1991, respectively. RETAIL OPERATIONS FORMATION Ferrell, the parent of the Company, was founded in 1939 as a single retail propane outlet in Atchison, Kansas and was incorporated in 1954. In 1984, a subsidiary was formed under the name Ferrellgas, Inc. to operate the retail propane business previously conducted by Ferrell. Ferrell is owned by James E. Ferrell and his family. The Company's initial growth was largely the result of small acquisitions in the rural areas of eastern Kansas, northern and central Missouri, Iowa, Western Illinois, Southern Minnesota, South Dakota and Texas. In July 1984, the Company acquired propane operations with annual retail sales volumes of approximately 33 million gallons at a cost of approximately $13.0 million, and in December 1986, the Company acquired propane operations with annual retail sales volumes of approximately 395 million gallons at a cost of approximately $457.5 million. These major acquisitions and many other smaller acquisitions have significantly expanded and diversified the Company's geographic coverage. BUSINESS STRATEGY The Partnership's business strategy will be to continue the Company's historical focus on residential and commercial retail propane operations and to expand its operations through strategic acquisitions of smaller retail propane operations located throughout the United States and through increased competitiveness and efforts to acquire new customers. The propane industry is relatively fragmented, with the ten largest retail distributors possessing less than 35% of the total retail propane market and much of the industry consisting of over 3,000 local or regional companies. The Company's retail operations account for approximately 6% of the retail propane purchased in the United States, as measured by gallons sold. Since 1986, and as of April 30, 1994, the Company has acquired 67 smaller independent propane retailers which the Company believes were not individually material. For the fiscal years ended July 31, 1989 to 1993 the Company spent approximately $14.7 million, $18.0 million, $25.3 million, $10.1 million and $0.9 million, respectively, for acquisitions of operations with annual retail sales of approximately 7.3 million, 11.3 million, 18.0 million, 8.6 million and 0.7 million gallons of propane, respectively. The General Partner believes that approximately $7.5 million of capital expenditures will be required on an annual basis to maintain the current business to be 32 acquired by the Partnership and that approximately $2.5 million in additional capital expenditures will be required on an annual basis to sustain the modest level of growth historically experienced generated by the business to be acquired. The Partnership intends to initially concentrate its acquisition activities in geographical areas in close proximity to the Company's existing operations to acquire propane retailers that can be efficiently combined with such operations to provide an attractive return on the Partnership's investment after taking into account the efficiencies which may result from such combination. The Partnership will, however, also pursue acquisitions which broaden its geographic coverage. The Partnership's goal in any acquisition will be to improve the operations and profitability of these smaller companies by integrating them into the Partnership's established supply network and by improving customer service. The Company regularly evaluates a number of propane distribution companies which may be candidates for acquisition. The General Partner believes that there are numerous local retail propane distribution companies that are possible candidates for acquisition by the Partnership and that the Partnership's geographic diversity of operations helps to create many attractive acquisition opportunities for the Partnership. The Partnership intends to fund acquisitions through internal cash flow, external borrowings or the issuance of additional Partnership interests. The Partnership's ability to accomplish these goals will be subject to the continued availability of acquisition candidates at prices attractive to the Partnership. There is no assurance the Partnership will be successful in increasing the level of acquisitions or that any acquisitions that are made will prove beneficial to the Partnership. In addition to growth through acquisitions, the Company believes that it can be successful in competing for new customers. Since 1989, the Company has experienced modest internal growth in its customer base. During that same period of time the quality of field management has been improved and improvements in operating efficiencies have been implemented. The residential and commercial retail propane distribution business has been characterized by a relatively stable customer base, primarily due to the expense of switching to alternative fuels, as well as the quality of service and personal relations. In addition, since safety regulations adopted in most states in which the Company operates prohibit propane retailers from filling tanks owned by other retailers, customers that lease tanks generally develop long-term relationships with their suppliers. The cost and inconvenience of switching tanks minimizes a customer's tendency to switch among suppliers of propane and among alternative fuels on the basis of minor variations in price. Based on its market surveys, the Company believes that within the retail propane industry, approximately 12% of all residential propane users switch suppliers annually. The Partnership's aim will be to minimize losses of existing customers while attracting as many new customers as possible. To achieve this objective extensive market research was conducted by the Company to determine the critical factors that cause customers to value their propane supplier. Based upon the results of such surveys, the Company has designed and implemented a monthly process of assessing customer satisfaction in each of its local retail markets. The Company believes that these surveys give it an advantage over its competitors, none of whom it is believed conduct comparable surveys. By highlighting specific areas of customer satisfaction, the Company believes that it can move quickly to both retain existing customers who are at risk, and gain new customers. Specific measures have been and are continuing to be designed to take advantage of the information gained regarding customer satisfaction. The Company has also begun the process of upgrading computer equipment and software in order to improve customer service and achieve efficiencies that enable local market personnel to direct more efforts towards sales activities. Approximately 70% of the Company's customers lease their tanks from the Company, as compared to approximately 60% of all propane customers nationwide. The Company believes there is a significant growth opportunity in marketing to the 40% of propane users that own their own tank. As a result, the Company has directly sought to identify locations where it can achieve rapid growth by marketing more effectively to these potential customers. The Company believes that since the commencement of this effort in August 1992, it has added thousands of new customers that own their own tank. For both customers who lease their tank, and customers that own their tank, the Partnership's continued ability to deliver propane to customers when 33 needed and during periods of extreme demand, especially in remote areas and during inclement weather, will be critical to maintaining margins, maintaining the loyalty of its retail customers and expanding its customer base. MARKETING Natural gas liquids are derived from petroleum products and sold in compressed or liquefied form. Propane, the predominant type of natural gas liquid, is typically extracted from natural gas or separated during crude oil refining. Although propane is gaseous at normal pressures, it is compressed into liquid form at relatively low pressures for storage and transportation. Propane is a clean-burning energy source, recognized for its transportability and ease of use relative to alternative forms of stand alone energy sources. The retail propane marketing business generally involves large numbers of small volume deliveries averaging approximately 200 gallons each. The market areas are generally rural but also include suburban areas where natural gas service is not available. In the residential and commercial markets, propane is primarily used for space heating, water heating and cooking. In the agricultural market propane is primarily used for crop drying, space heating, irrigation and weed control. In addition, propane is used for certain industrial applications, including use as engine fuel, which is burned in internal combustion engines that power vehicles and forklifts and as a heating or energy source in manufacturing and drying processes. Profits in the retail propane business are primarily based on the cents-per- gallon difference between the purchase price and the sales price of propane. The Company generally purchases propane on a short-term basis; therefore, its supply costs fluctuate with market price fluctuations. Should wholesale propane prices decline in the future, the Company believes that the Partnership's margins on its retail propane distribution business should increase in the short-term because retail prices tend to change less rapidly than wholesale prices. Should the wholesale cost of propane increase, for similar reasons retail margins and profitability would likely be reduced at least for the short-term until retail prices can be increased. The Company historically has been able to maintain margins on an annual basis despite propane supply cost changes. The General Partner is unable to predict, however, how and to what extent a substantial increase or decrease in the wholesale cost of propane would affect the Partnership's margins and profitability. The Company has a network of approximately 416 retail outlets and 226 satellite locations marketing propane under the "Ferrellgas" trade name to approximately 600,000 customers located in 45 states and the District of Columbia. The Company's largest market concentrations are in the Midwest, Great Lakes and Southeast regions of the United States. The Company operates in areas of strong retail market competition, which has required it to develop and implement strict capital expenditure and operating standards in its existing and acquired retail propane operations in order to control operating costs. The Company utilizes marketing programs targeting both new and existing customers. The Company emphasizes its superior ability to deliver propane to customers as well as its training and safety programs. During the fiscal year ended July 31, 1993, sales to residential customers accounted for 44% of the Company's retail propane sales volume, sales to industrial and other commercial customers accounted for 33% of the Company's retail propane sales volume, sales to agricultural customers accounted for 13% of the Company's retail propane sales volume and sales to other customers accounted for 10% of the Company's retail propane sales volume. Residential sales have a greater profit margin, more stable customer base and tend to be less sensitive to price changes than the other markets served by the Company. No single customer of Ferrellgas accounts for 10% or more of the Company's consolidated revenues. The retail market for propane is seasonal because it is used primarily for heating in residential and commercial buildings. Consequently, sales and operating profits are concentrated in the second and third fiscal quarters (November through April). Cash inflows from these quarters will be realized in the third and fourth quarters. In addition, sales volume traditionally fluctuates from year to year in response to variations in weather, prices and other factors, although the Company believes that the broad geographic distribution 34 of the Company's operations helps to minimize the Company's exposure to regional weather or economic patterns. Long-term, historic weather data from the National Climatic Data Center indicate that the average annual temperatures have remained relatively constant over the last 30 years with fluctuations occurring on a year-to-year basis only. During times of colder-than-normal winter weather, such as the conditions experienced by certain regions served by the Company in the second and third quarters of fiscal year 1994, the Company has been able to take advantage of its larger and more efficient distribution network to help avoid supply disruptions such as those experienced by some of its competitors, thereby broadening its long-term customer base. The following chart illustrates the impact of annual variations in weather on the Company's sales volumes. Set forth are (i) the average national degree days (population weighted) (a measure of the relative warmth of a particular year in which a larger number indicates a colder year), (ii) degree days as a percentage of the average normal degree days as of 1993 (100.0% represents a normal year with larger percentages representing colder-than-normal years and smaller percentages representing warmer-than-normal years), (iii) the annual retail propane sales volumes of the Company, and (iv) a retail gross margin index for the Company (demonstrating changes in retail gross margins from a base year of 100.0% in 1989) for the five fiscal years ended July 31, 1989 to 1993 and the nine months ended April 30, 1993 and 1994. The average degree days in regions served by the Company have historically varied on an annual basis by a greater amount than the average national degree days.
NINE MONTHS ENDED FOR THE YEAR ENDED JULY 31, APRIL 30, --------------------------------- ------------ 1989 1990 1991 1992 1993 1993 1994 National Degree Days.......... 4,673 4,549 4,211 4,303 4,663 4,444 4,526 Degree Days as % of 1993 Nor- mal Degree Days(1)............... 99.7% 97.0% 89.8% 91.8% 99.4% 99.3% 101.1% Sales Volumes (in millions of gallons)(2).................. 498 499 482 496 553 483 490 Retail gross margin index(3).. 100.0% 98.4% 114.5% 109.7% 101.1% 102.1% 105.8%
- --------------------- (1) The normal average national degree days as of the fiscal year ended July 31, 1993 were 4,689 and the normal average national degree days as of the nine months ended April 30, 1994 were 4,477. (2) From 1989 through 1993, 49 acquisitions were completed at a total cost of approximately $69.0 million. The aggregate annual sales volumes attributable to these acquisitions (measured with respect to each acquisition on the date of the acquisition) were estimated to be 7.3 million gallons, 11.3 million gallons, 18.0 million gallons, 8.6 million gallons and 0.7 million gallons for the fiscal years ended July 31, 1989 through 1993, respectively. (3) The Company's average retail gross margins, on a cents per gallon basis, are measured as a percentage of fiscal 1989 retail gross margins. Average retail gross margins in fiscal 1991 were affected by the Persian Gulf crisis. SUPPLY AND DISTRIBUTION The Company purchases propane primarily from major domestic oil companies. Supplies of propane from these sources have traditionally been readily available, although no assurance can be given that supplies of propane will be readily available in the future. As a result of (i) the Company's ability to buy large volumes of propane and (ii) the Company's large distribution system and underground storage capacity, the Company believes that it is in a position to achieve product cost savings and avoid shortages during periods of tight supply to an extent not generally available to other retail propane distributors. The Company is not dependent upon any single supplier or group of suppliers, the loss of which would have a material adverse effect on the Company. For the year ended July 31, 1993, no supplier at any single delivery point provided more than 10% of the Company's total domestic propane supply. A portion of the Company's propane inventory is purchased under supply contracts which typically have a one year term and a fluctuating price relating to spot market prices. Certain of the Company's contracts specify certain minimum and maximum amounts of 35 propane to be purchased thereunder. The Company may purchase and store inventories of propane in order to help insure uninterrupted deliverability during periods of extreme demand. The Company owns three underground storage facilities with an aggregate capacity of approximately 168 million gallons. Currently, approximately 80 million gallons of this capacity is leased to third parties, and approximately 6 million gallons of capacity is exchanged with another company for approximately 6 million gallons of storage capacity at Bumstead, Arizona. The remaining space is available for the Company's own use. Propane is generally transported from natural gas processing plants and refineries, pipeline terminals and storage facilities to retail distribution outlets and wholesale customers by railroad tank cars leased by the Company and highway transport trucks owned or leased by the Company. The Company operates a fleet of 62 transport trucks to transport propane from refineries, natural gas processing plants or pipeline terminals to the Company's retail distribution outlets. Common carrier transport trucks may be used during the peak delivery season in the winter months or to provide service in areas where economic considerations favor common carrier use. Propane is then transported from the Company's retail distribution outlets to customers by the Company's fleet of 1,059 bulk delivery trucks, which are fitted generally with 2,000 to 3,000 gallon propane tanks. Propane storage tanks located on the customers' premises are then filled from the delivery truck. Propane is also delivered to customers in portable cylinders. INDUSTRY AND COMPETITION INDUSTRY Based upon information contained in the Energy Information Administration's Annual Energy Review 1993 magazine, propane accounts for approximately 3.0% of household energy consumption in the United States, an average level which has remained relatively constant for the past 10 years. It competes primarily with natural gas, electricity and fuel oil as an energy source principally on the basis of price, availability and portability. Propane serves as an alternative to natural gas in rural and suburban areas where natural gas is unavailable or portability of product is required. Propane is generally more expensive than natural gas on an equivalent BTU basis in locations served by natural gas, although propane is often sold in such areas as a standby fuel for use during peak demands and during interruption in natural gas service. The expansion of natural gas into traditional propane markets has historically been inhibited by the capital costs required to expand distribution and pipeline systems. Although the extension of natural gas pipelines tends to displace propane distribution in the neighborhoods affected, the Company believes that new opportunities for propane sales arise as more geographically remote neighborhoods are developed. Propane is generally less expensive to use than electricity for space heating, water heating and cooking and competes effectively with electricity in those parts of the country where propane is cheaper than electricity on an equivalent BTU basis. Although propane is similar to fuel oil in application, market demand and price, propane and fuel oil have generally developed their own distinct geographic markets. Because residential furnaces and appliances that burn propane will not operate on fuel oil, a conversion from one fuel to the other requires the installation of new equipment. The Partnership's residential retail propane customers, therefore, will have an incentive to switch to fuel oil only if fuel oil becomes significantly less expensive than propane. Likewise, the Partnership may be unable to expand its customer base in areas where fuel oil is widely used, particularly the Northeast, unless propane becomes significantly less expensive than fuel oil. Alternatively, many industrial customers who use propane as a heating fuel have the capacity to switch to other fuels, such as fuel oil, on the basis of availability or minor variations in price. Propane generally is becoming increasingly favored over fuel oil and other alternative sources of fuel as an environmentally preferred energy source. COMPETITION In addition to competing with marketers of other fuels, the Company competes with other companies engaged in the retail propane distribution business. Competition within the propane distribution industry stems from two types of participants: the larger multi-state marketers, and the smaller, local independent marketers. Based upon information contained in the National Propane Gas Association's LP-Gas Market 36 Facts and the June 1993 issue of LP Gas magazine, the Company believes that the ten largest multi-state retail marketers of propane, including the Company, account for less than 35% of the total retail sales of propane in the United States. Based upon information contained in industry publications, the Company also believes no single marketer has a greater than 10% share of the total market in the United States and that the Company is the third largest retail marketer of propane in the United States, with a market share of approximately 6.0% as measured by volume of national retail propane sales. Most of the Company's retail distribution outlets compete with three or more marketers or distributors. The principal factors influencing competition among propane marketers are price and service. The Company competes with other retail marketers primarily on the basis of reliability of service and responsiveness to customer needs, safety and price. Each retail distribution outlet operates in its own competitive environment because retail marketers locate in close proximity to customers to lower the cost of providing service. The typical retail distribution outlet has an effective marketing radius of approximately 25 miles. OTHER OPERATIONS The other operations of the Company consist of: (1) trading, (2) chemical feedstocks marketing, and (3) wholesale propane marketing. The Company, through its natural gas liquids trading operations and wholesale marketing, has become one of the largest independent traders of propane and natural gas liquids in the United States. The Company owns no properties that are material to these operations, but leases 371 railroad tank cars for use in its chemical feedstocks marketing operations. TRADING The Company's traders are engaged in trading propane and other natural gas liquids for the Company's account and for supplying the Company's retail and wholesale propane operations. The Company primarily trades products purchased from its over 200 suppliers, however, it also conducts transactions on the New York Mercantile Exchange. Trading activity is conducted primarily to generate a profit independent of the retail and wholesale operations, but is also conducted to insure the availability of propane during periods of short supply. Propane represents over 65% of the Company's total trading volume, with the remainder consisting of various other natural gas liquids. The Company attempts to minimize trading risk through the enforcement of its trading policies, which include total inventory limits and loss limits, and attempts to minimize credit risk through credit checks and application of its credit policies. However, there can be no assurance that historical experience or the existence of such policies will prevent trading losses in the future. For the fiscal years ended July 31, 1993, 1992 and 1991, the Company had net revenues of $6.7 million, $4.9 million and $9.9 million, respectively, from its trading activities. CHEMICAL FEEDSTOCKS MARKETING The Company is also involved in the marketing of refinery and petrochemical feedstocks. Petroleum by-products are purchased from refineries and petrochemical plants and sold to end users of such by-products. The Company had revenues of $54.0 million, $50.6 million and $31.8 million from such activities for the fiscal years ended July 31, 1993, 1992 and 1991, respectively. WHOLESALE MARKETING The Company engages in the wholesale distribution of propane to other retail propane distributors. During the fiscal years ended July 31, 1993, 1992 and 1991 the Company sold 73 million, 95 million and 129 million gallons, respectively, of propane to wholesale customers and had revenues attributable to such sales of $29.3 million, $37.7 million and $57.4 million, respectively. 37 EMPLOYEES At April 30, 1994, the Company had 2,342 full-time employees and 990 temporary and part-time employees. The number of temporary and part-time employees is generally higher by approximately 500 people during the winter heating season. At April 30, 1994, the Company's full-time employees were employed in the following areas: Retail Market Locations............................................. 1,979 Transportation and Storage.......................................... 115 Field Services...................................................... 56 Corporate Offices (Liberty & Houston)............................... 192 ----- Total............................................................. 2,342 =====
Approximately two percent of the Company's employees are represented by nine local labor unions, which are all affiliated with the International Brotherhood of Teamsters. The Company has not experienced any significant work stoppages or other labor problems. The Company's supply, trading, chemical feedstocks marketing, distribution scheduling and product accounting functions are operated out of the Company's offices located in Houston, Texas, by a total full time corporate staff of 60 people (which includes four traders as well as necessary support staff). GOVERNMENTAL REGULATION; ENVIRONMENTAL AND SAFETY MATTERS From August 1971 until January 1981, the United States Department of Energy regulated the price and allocation of propane. The Company is no longer subject to any similar regulation. Propane is not a hazardous substance within the meaning of federal and state environmental laws. In connection with all acquisitions of retail propane businesses that involve the purchase of real estate, the Company conducts a due diligence investigation to attempt to determine whether any substance other than propane has been sold from or stored on any such real estate prior to its purchase. Such due diligence includes questioning the sellers, obtaining representations and warranties concerning the sellers' compliance with environmental laws and visual inspections of the properties, whereby Company employees look for evidence of hazardous substances or the existence of underground storage tanks. With respect to the transportation of propane by truck, the Company is subject to regulations promulgated under the Federal Motor Carrier Safety Act. These regulations cover the transportation of hazardous materials and are administered by the United States Department of Transportation. National Fire Protection Association Pamphlet No.58, which establishes a set of rules and procedures governing the safe handling of propane, or comparable regulations, have been adopted as the industry standard in a majority of the states in which the Company operates. There are no material environmental claims pending and the Company complies in all material respects with all material governmental regulations and industry standards applicable to environmental and safety matters. SERVICE MARKS AND TRADEMARKS The Company markets retail propane under the "Ferrellgas" tradename and uses the tradename "Ferrell North America" for its other operations. In addition, the Company has a trademark on the name "Ferrellmeter," its patented gas leak detection device. The Company will contribute all of its right, title and interest to such tradenames and trademark in the continental United States to the Partnership. The Company will have an option to purchase such tradenames and trademark from the Partnership for a nominal value if the Company is removed as general partner of the Partnership other than for cause. If the Company ceases to serve as the general partner of the Partnership for any other reason, it will have the option to purchase such tradenames and trademark from the Partnership for fair market value. 38 MANAGEMENT INFORMATION AND CONTROL SYSTEMS The Company has, in each of its retail outlets, a computer-based information and control system. This system provides for remote billing of, and collections from, customers and is designed to enhance the local outlets' responsiveness to customers. Each outlet can be monitored by headquarters to determine volume of sales, selling price and gross margin. PROPERTIES At April 30, 1994, the Company owned or leased the following transportation equipment which was utilized primarily in retail operations, except for railroad tank cars, which are used primarily by chemical feedstocks operations: The highway transport trailers have an average capacity of approximately 9,000 gallons. The bulk delivery trucks are generally fitted with 2,000 to 3,000 gallon propane tanks. Each railroad tank car has a capacity of approximately 30,000 gallons.
OWNED LEASED TOTAL Truck tractors............................................ 15 47 62 Transport trailers........................................ 69 -- 69 Bulk delivery trucks...................................... 442 617 1,059 Pickup and service trucks................................. 399 574 973 Railroad tank cars........................................ -- 371 371
A typical retail distribution outlet is located on one to three acres of land and includes a small office, a workshop, bulk storage capacity of 18,000 gallons to 60,000 gallons and a small inventory of stationary customer storage tanks and portable propane cylinders that the Company provides to its retail customers for propane storage. The Company owns the land and buildings of about 50% of its retail outlets and leases the remaining facilities on terms customary in the industry and in the applicable local markets. Approximately 500,000 propane tanks are owned by the Company, most of which are located on customer property and leased to those customers. The Company also owns approximately 545,000 portable propane cylinders, most of which are leased to industrial and commercial customers for use in manufacturing and processing needs, including forklift operations, and to residential customers for home heating and cooking, and to local dealers who purchase propane from the Company for resale. Ferrellgas owns underground storage facilities at Hutchinson, Kansas; Adamana, Arizona; and Moab, Utah. At April 30, 1994, the capacity of these facilities approximated 73 million gallons, 88 million gallons and 7 million gallons, respectively (an aggregate of approximately 168 million gallons). Currently, approximately 80 million gallons of this capacity is leased to third parties, and approximately 6 million gallons of capacity is exchanged with another company for approximately 6 million gallons of storage capacity at Bumstead, Arizona. The remaining space is available for the Company's own use. The Company purchased, in fiscal year 1993, the land and two buildings (50,245 square feet of office space) comprising its corporate headquarters in Liberty, Missouri, from Ferrell Leasing Corp. The Company leases the 18,124 square feet of office space in Houston, Texas, where its trading, chemical feedstocks marketing and wholesale marketing operations are located. The Company believes that it has satisfactory title to or valid right to use all of its material properties and, although some of such properties are subject to liabilities and leases and, in certain cases, liens for taxes not yet currently due and payable and immaterial encumbrances, easements and restrictions, the Company does not believe that any such burdens will materially interfere with the continued use of such properties by the Partnership in its business, taken as a whole. In addition, the Company believes that it has, or is in the 39 process of obtaining, all required material approvals, authorizations, orders, licenses, permits, franchises and consents of, and has obtained or made all required material registrations, qualifications and filings with, the various state and local governmental and regulatory authorities which relate to ownership of the Company's properties or the operations of its business. LITIGATION Propane is a flammable, combustible gas. Serious personal and property damage can occur in connection with its transportation, storage or use. The Company, in the ordinary course of business, is threatened with or is named as a defendant in various lawsuits which, among other items, seek actual and punitive damages for products liability, personal injury and property damage. The Company maintains liability insurance policies with insurers in such amounts and with such coverages and deductibles as management of the Company believes is reasonable and prudent. However, there can be no assurance that such insurance will be adequate to protect the Company from material expenses related to such personal injury or property damage or that such levels of insurance will continue to be available in the future at economical prices. It is not possible to determine the ultimate disposition of these matters discussed above; however, after taking into consideration the Company's insurance coverage and existing reserves, management is of the opinion that there are no known uninsured claims or known contingent claims that are likely to have a material adverse effect on the results of operations or financial condition of the Company. When the Partnership assumes all outstanding liabilities relating to the business, it will assume such liabilities, whether or not asserted against or known by the Company at the time of the transfer. TRANSFER OF THE PARTNERSHIP ASSETS The Company will transfer its right, title and interest in its propane business and assets to the Partnership at or shortly before the closing of this offering, subject to the following. The assets include the Company's interests in leases covering several types of assets, including railcars, trucks and retail distribution centers. Many of these leases are transferable to the Partnership only with the consent of the lessor. The Company expects to obtain, prior to the closing of this offering, third party consents which are sufficient to enable the Company to transfer to the Partnership the assets necessary to enable the Partnership to conduct the Company's propane business in all material respects as described in this Prospectus. In the event any such consents are not obtained, the Company will enter into other agreements, including the lease or purchase of other assets, in order to insure that the Partnership has the assets necessary to enable it to conduct the Company's propane business in all material respects as described in this Prospectus. In addition, certain of the Company's licenses, permits and other similar rights relating to the assets to be assigned to the Partnership are not transferable or are transferable only with the consent of third parties. Such transferable rights will not be transferred to the Partnership at the closing of this offering unless applicable consents have been obtained. In the case of non- transferable rights or rights where no consent has been obtained by the closing, the Company will seek to obtain such consents in the normal course of business after the closing or seek to have comparable rights granted to the Partnership prior to the closing. Numerous licenses, permits and rights will be required for the operation of the Partnership's business, and no assurance can be given that the Partnership will obtain all licenses, permits and rights which are required in connection with the ownership and operation of its business. Although failure by the Partnership to obtain such licenses, permits or rights could have a material adverse effect on the Partnership, the Company believes that the Partnership will have the licenses, permits and rights which will enable the Partnership to conduct its propane business in a manner which is similar in all material respects to that which was conducted by the Company prior to the closing of this offering and that any such failure to obtain licenses, permits or rights will not have a material adverse impact on the business of the Partnership as described in this Prospectus. 40 MANAGEMENT PARTNERSHIP MANAGEMENT The General Partner will manage and operate the activities of the Partnership, and the General Partner anticipates that its activities will be limited to such management and operation. Notwithstanding any limitation on obligations or duties, the General Partner will be liable, as the general partner of the Partnership, for all the debts of the Partnership (to the extent not paid by the Partnership), except to the extent that indebtedness incurred by the Partnership is made specifically non-recourse to the General Partner. The General Partner will appoint two persons who are neither officers nor employees of the General Partner or any affiliate of the General Partner to serve on a committee of the Partnership (the "Audit Committee") with the authority to review, at the request of the General Partner, specific matters as to which the General Partner believes there may be a conflict of interest in order to determine if the resolution of such conflict proposed by the General Partner is fair and reasonable to the Partnership. The Audit Committee members will be elected no later than three months after the date of this Prospectus. The Audit Committee will only review matters relating to conflicts of interest at the request of the General Partner, and the General Partner has sole discretion to determine which matters, if any, to submit to the Audit Committee. Any matters approved by the Audit Committee will be conclusively deemed to be fair and reasonable to the Partnership, approved by all partners of the Partnership and not a breach by the General Partner of any duties it may owe the Partnership. The Partnership will not directly employ any of the persons responsible for managing or operating the Partnership. The current management and workforce of Ferrellgas will continue to manage and operate the Partnership's business as officers and employees of the General Partner. At April 30, 1994, 2,342 full- time and 990 temporary and part-time individuals were employed by the General Partner. DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER The following table sets forth certain information with respect to the directors and executive officers of the Company. Each of the persons named below is elected to their respective office or offices annually. The executive officers are not subject to employment agreements with their respective employer or employers. The General Partner intends to promptly add additional members to its Board of Directors, including at least two independent members.
DIRECTOR NAME AGE SINCE POSITION James E. Ferrell........... 54 1984 President, Chairman of the Board and a Director of the Company Bradley A. Cochennet....... 40 -- Executive Vice President and Chief Operating Officer of the Company Danley K. Sheldon.......... 35 -- Vice President and Chief Financial Officer/Treasurer of the Company Rhonda E. Smiley........... 38 -- Vice President of Legal Affairs Vice President of Marketing and Brian M. Smith(1).......... 43 -- Communications
- -------- (1) Mr. Smith has indicated his intention to resign from the Company effective July 31, 1994. James E. Ferrell--Mr. Ferrell has been with Ferrell or its predecessors and its affiliates in various executive capacities since 1965. Bradley A. Cochennet--Mr. Cochennet has been Chief Operating Officer since January, 1993 and has been a Vice President of the Company since 1985. Mr. Cochennet joined the Company in 1980. 41 Danley K. Sheldon--Mr. Sheldon has been Chief Financial Officer of the Company since January 1994 and has served as Treasurer since 1989. He joined the Company in 1986. Rhonda E. Smiley--Ms. Smiley joined the Company in 1991 as Director of Legal Affairs and has been a Vice President of the Company since April 1994. Prior to joining the Company, Ms. Smiley practiced law with Shook, Hardy & Bacon for ten years, the last five years as a partner. Brian M. Smith--Mr. Smith joined the Company in 1991 as Managing Director of Marketing and Communications and has been a Vice President of the Company since April 1994. Prior to joining the Company, Mr. Smith was President and owner of The Smith Group, Inc., a marketing communications firm. COMPENSATION OF THE GENERAL PARTNER The General Partner will receive no management fee or similar compensation in connection with its management of the Partnership and will receive no remuneration other than: (i) distributions in respect of its 2% general partner interest, on a combined basis, in the Partnership and the Master Partnership; and (ii) reimbursement for all direct and indirect costs and expenses incurred on behalf of the Partnership, all selling, general and administrative expenses incurred by the General Partner for or on behalf of the Partnership and all other expenses necessary or appropriate to the conduct of the business of, and allocable to, the Partnership. In addition, Ferrell, the parent of the General Partner, will receive 1,000,000 Common Units, 16,593,721 Subordinated Units and the Incentive Distribution Rights in connection with the transactions described in this Prospectus and will be entitled to distributions thereon, as described under "Cash Distributions Policy" above. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth the annual salary, bonuses and all other compensation awards and payouts to the Chief Executive Officer and to named executive officers of the Company, for the fiscal years ended July 31, 1991, 1992 and 1993.
LONG-TERM COMPENSATION ----------------------------- ANNUAL COMPENSATION AWARDS PAYOUTS ---------------------- ------------------- --------- OTHER ANNUAL RESTRICTED STOCK LONG-TERM ALL OTHER COMPEN- STOCK OPTIONS/ INCENTIVE COMPEN- NAME AND SALARY BONUS SATION AWARDS SARS PAYOUTS SATION POTENTIAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($) James E. Ferrell........ 1993 480,000 -- -- -- -- 1,502,080(1) 25,489(2) Chairman and Chief 1992 480,000 13,000 -- -- -- -- 32,401 Executive Officer 1991 246,000 20,000 -- -- -- -- 18,439 Bradley A. Cochennet.... 1993 150,000 -- -- -- 2,762 -- 9,315(3) Vice President and 1992 150,000 -- -- -- -- -- 12,317 Chief Operating Officer 1991 151,667 -- -- -- -- -- 18,373 Geoffrey H. Ramsden (4). 1993 120,000 -- -- -- 9,566 -- 7,453(3) Vice President and 1992 120,000 -- -- -- -- -- 12,000 Chief Financial Officer 1991 120,000 -- -- -- -- -- 17,550
- --------------------- (1) Early purchase of all the employee's 64,000 Equity Units under Ferrell's Long-Term Incentive Plan at a price per unit of $23.47. (2) Includes (i) Company contributions of $13,787 to the employee's 401(k) and profit sharing plans and (ii) compensation of $11,702 resulting from the Company's payment of split dollar life insurance premiums. (3) Company contributions to the employee's 401(k) and profit sharing plans. (4) Mr. Ramsden resigned in January 1994. 42 STOCK OPTION TABLES The Board of Directors of Ferrell adopted the 1992 Key Employee Stock Option Plan (the "Option Plan") on June 26, 1992. The Option Plan reserves 100,000 shares of Class M Common Stock of Ferrell for the purpose of allowing Ferrell to offer options on the Class M Common Stock to officers and key employees of Ferrell and the Company. The value of each share of Class M Common Stock is determined by the Board of Directors of Ferrell and shall not be less than fair market value of such stock on the date the option is granted. The following table sets forth the option grants for the fiscal year ended July 31, 1993:
INDIVIDUAL GRANT ----------------------------------------------- POTENTIAL REALIZED VALUE AT ASSUMED NUMBER OF ANNUAL RATES OF SECURITIES % OF TOTAL STOCK APPRECIATIONS UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(2) OPTIONS TO EMPLOYEES PRICE EXPIRATION -------------------- NAME GRANTED IN FISCAL YEAR ($/SH) DATE 5% 10% Bradley A. Cochennet.... 2,762 22% $36.20 12/30/02 $29,000 $106,000 Geoffrey H. Ramsden..... 3,836(1) 31% $36.20 12/30/02 $41,000 $147,000 Geoffrey H. Ramsden..... 5,730(1) 47% $89.36 01/08/03 -- --
- --------------------- (1) Options terminated as a result of Mr. Ramsden's resignation in January 1994. (2) These dollar amounts represent the potential realizable value of each grant of options assuming that the market price of the Class M Common Stock appreciates in value from the date of grant at 5% and 10% annual rates and are not intended to forecast possible future appreciation, if any, of the price of the Class M Common Stock. The following table lists information on the named executive officer's exercised/unexercised options for the fiscal year ended July 31, 1993:
VALUE OF NUMBER OF UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS OPTIONS/SARS AT FY-END AT FY-END ------------- ---------------- NUMBER OF SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE REALIZED ($) UNEXERCISABLE UNEXERCISABLE($) Bradley A. Cochennet.... -- -- 2,762/-- $57,357/-- Geoffrey H. Ramsden(1).. -- -- 9,566/-- 79,674/--
- --------------------- (1) Options terminated as a result of Mr. Ramsden's resignation in January 1994. LONG-TERM INCENTIVE PLAN AWARDS The goal of Ferrell's Long-Term Incentive Plan (the "Plan") is to attract and retain officers and key executives needed for the continued growth and success of Ferrell and its affiliates through long-term incentives in the form of units ("Equity Units"). The plan is administered by the Compensation Committee (the "Committee") of the Board of Directors of Ferrell. The Committee members who hold an award under the Plan are ineligible to vote on matters relating to the Plan. The Committee has the authority to determine, within the express provisions of the Plan, the individuals to whom awards will be granted; the amount, size and terms of each such award; the time when awards will be granted; and the objectives and conditions for earning such awards. The Committee has the full and final authority to interpret the provisions of the Plan, to decide all questions of fact arising upon its application and to make all other determinations necessary or advisable for the administration of the plan. The Equity Units awarded under the Plan, which were 100% vested as of July 31, 1993, are subject to purchase by Ferrell at a cash price related to the increased value of Ferrell's common stock from 1986, as determined pursuant to (i) an appraisal conducted by a nationally recognized investment banking firm, (ii) 43 the mean of the closing bid and asked price of a class of Ferrell's common stock if a class of Ferrell's common stock is publicly traded, or (iii) in certain limited circumstances, including if the appraisal referred to in (i) is more than 90 days old or if there is no public market as referred to in (ii), the Committee shall determine the value of the Equity Units. Unless purchased earlier, Ferrell will purchase all of the issued and outstanding Equity Units as of July 31, 1996. The value of the Equity Units as of July 31, 1996 will be the value of Ferrell's common stock as of such date, determined in accordance with the valuation methods described above, less the "deemed" value of Ferrell's common equity as of August 1, 1986. As of July 31, 1993, a total of 60,000 Equity Units, awarded in previous years, were outstanding to the group of executive officers named in the Summary Compensation Table as follows: Geoffrey H. Ramsden--30,000 Equity Units and Bradley A. Cochennet--30,000 Equity Units. When Mr. Ramsden resigned in January 1994, all of his Equity Units were fully vested and were subsequently repurchased by Ferrell. During fiscal 1993, James E. Ferrell had a total of 64,000 Equity Units repurchased by Ferrell. No additional Equity Units were awarded under the Plan in fiscal 1993, therefore, no long-term incentive plan awards table is presented. Compensation expense of $720,000 and $80,000 was recorded for the nine months ended April 30, 1994 and for the fiscal year ended July 31, 1993, respectively, pursuant to the Plan for the benefit of the Equity Unit holders. As of April 30, 1994, a liability totaling approximately $2,145,000 is recorded in the financial statements of Ferrell as a result of the grants under this Plan. PROFIT SHARING PLAN The Ferrell Profit Sharing Plan is a qualified defined contribution plan (the "Profit Sharing Plan"). All full-time employees of Ferrell or any of its direct or indirect wholly owned subsidiaries with at least one year of service are eligible to participate in the Profit Sharing Plan. The Board of Directors of Ferrell determines the amount of the annual contribution to the Profit Sharing Plan, which is purely discretionary. This decision is based on the operating results of Ferrell for the previous fiscal year and anticipated future cash needs of the Company and Ferrell. The contributions are allocated to the Profit Sharing Plan participant's based on each participant's wages or salary as compared to the total of all participants' wages and salaries. Historically, the annual contribution to the Profit Sharing Plan has been 2% to 7% of each participant's annual wage or salary. The Profit Sharing Plan also has a cash-or-deferred, or 401(k), feature allowing plan participants to specify a portion of their pre-tax and/or after-tax compensation to be contributed to the Profit Sharing Plan. COMPENSATION OF DIRECTORS The Company pays no additional remuneration to its employees (or employees of, or legal counsel to, a direct or indirect wholly-owned subsidiary) for serving as directors. Directors who are not employees of the Company, a direct or indirect wholly-owned subsidiary, or counsel to any of the foregoing, receive a fee per meeting of $500, plus reimbursement for out-of-pocket expenses. TERMINATION OF EMPLOYMENT ARRANGEMENT On January 3, 1991, Warren Gfeller resigned as President of the Company and as Director of Ferrell. In connection with such resignation, a severance agreement was executed by and among Mr. Gfeller, the Company and Ferrell, whereby Mr. Gfeller would receive $2.5 million, payable in four equal annual installments commencing on or before January 11, 1991. As consideration for these payments, Mr. Gfeller agreed not to compete with the Company and to the termination and release of his participation in the Ferrell Long-Term Incentive Plan and all bonus or performance plans maintained by the Company and Ferrell. In connection with Geoffrey H. Ramsden's resignation in January 1994, Ferrell and Mr. Ramsden entered into a severance agreement dated March 23, 1994. Pursuant to the terms of the agreement, Mr. 44 Ramsden received approximately $500,000 in exchange for the repurchase of his Class M Stock and Equity Units and the termination of all rights under Ferrell's bonus and performance plans. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company is a wholly owned subsidiary of Ferrell. The following table sets forth the beneficial ownership of the outstanding capital stock of Ferrell by beneficial owners of five percent or more of any class of capital stock of Ferrell, by directors of Ferrell and by all directors and officers of Ferrell as a group as of May 31, 1994.
SHARES TITLE OF BENEFICIALLY PERCENT CLASS NAME OF BENEFICIAL OWNER OWNED(1) OF CLASS Class A Common Stock.... James E. Ferrell(2) 2,562,680(3) 99.6% All Directors and Officers as a Group 2,562,680 99.6% Class M Common Stock(4). James E. Ferrell -- -- Bradley A. Cochennet 2,770 17.9% All Directors and Officers as a Group 4,325 27.9%
- --------------------- (1) Beneficial ownership for the purposes of the foregoing table is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Under that rule a person is generally considered to be the beneficial owner of a security if he has or shares the power to vote or direct the voting thereof ("Voting Power") or to impose or direct the disposition thereof ("Investment Power") or has the right to acquire either of those powers within 60 days. (2) The address for James E. Ferrell is c/o Ferrell Companies, Inc., One Liberty Plaza, Liberty, Missouri 64068. (3) James E. Ferrell has sole Voting and Investment Power with respect to 1,525,817 shares of Class A Common Stock held by Mr. Ferrell as Trustee of the James E. Ferrell Revocable Trust. Mr. Ferrell shares Voting and Investment Power with respect to 1,036,823 shares of Class A Common Stock held by himself and his wife, Elizabeth J. Ferrell, as joint tenants with rights of survivorship. (4) The shares of Class M Common Stock are restricted to eligible employees of Ferrell and the Company and are non-voting and non-transferable. Ferrell will repurchase all of the shares of Class M Common Stock owned by such employees upon their death, disability, retirement, voluntary or involuntary termination of employment or bankruptcy. The purchase price for such shares is based on valuation formulas set forth in the Class M Stock Plan. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Set forth below is a discussion of certain relationships and related transactions among affiliates of the Company. Upon the consummation of the transactions contemplated hereby, the indebtedness set forth below will be repaid and will no longer be outstanding. In the second and third quarter of fiscal year 1993, Ferrell Leasing Corp., a subsidiary of Ferrell Properties, Inc., sold to the Company for the fair market value of $4,100,000, the land and two buildings comprising the Company's corporate headquarters in Liberty, Missouri. The purchase price was based on an independent appraisal. The land and building were acquired by Ferrell Leasing Corp. in December 1989. James E. Ferrell, a director and executive officer of the Company, owns all of the issued and outstanding stock of Ferrell Properties, Inc. Prior to the purchase of the buildings, the Company paid total rent to Ferrell Leasing of $403,000. In fiscal year 1993, the Company received a capital contribution from Ferrell. The contribution consisted of (i) the forgiveness of a $3,015,000 long-term note payable to an affiliate, including interest, and (ii) a $262,000 note receivable from an affiliate. 45 During the three fiscal years ended July 31, 1993, the directors and executive officers of the Company listed below have, or corporations in which such directors or executive officers beneficially own ten percent or more of any class of equity securities have, from time to time, been indebted to the Company, Ferrell and/or their respective subsidiaries or affiliates in an amount in excess of $60,000 as follows:
HIGHEST AMOUNT AMOUNT OUTSTANDING SINCE OUTSTANDING AT NAME RELATIONSHIP APRIL 30, 1990 APRIL 30, 1994 James E. Ferrell(1)......... Executive Officer $8,895,810 $8,895,810 and Director Ferrell Development, Inc.(2).................... Affiliate $1,500,000 $1,500,000 One Liberty Plaza, Inc.(2).. Affiliate $3,000,000 $3,000,000 Ferrell Properties, Inc.(2). Affiliate $1,757,946 $ 262,199
- --------------------- (1) All loans or advances to Mr. Ferrell are cash loans made by the Company for Mr. Ferrell's personal use. The loans or advances did not arise as a result of any transactions with the Company. All loans or advances to Mr. Ferrell are represented by a demand note which bears interest at the prime rate. The interest rate charged on this loan was 6% during fiscal 1993, ranged from 6.0% to 8.5% during fiscal 1992, and ranged from 8.5% to 10.0% during fiscal 1991. (2) Ferrell Development, Inc., and One Liberty Plaza, Inc. are wholly owned subsidiaries of Ferrell Properties, Inc. The indebtedness of Ferrell Development and One Liberty Plaza arose as a result of cash loans made by the Company. The indebtedness of Ferrell Properties, which was contributed to the Company by Ferrell in fiscal 1993, arose as a result of cash loans made by Ferrell. The loans did not arise as a result of any transactions with the Company or Ferrell. The terms of the loans, as fixed by the loan documents, are as favorable as could be obtained from a third party and the loans were approved by a majority of the Company's or Ferrell's independent directors. The interest income generated from the loans, which bear interest at the prime rate plus 1.375%, is not material to the Company or Ferrell. 46 CASH DISTRIBUTIONS A principal objective of the Partnership is to generate cash from Partnership operations and to distribute Available Cash to the General Partner and the Master Partnership for distribution, in turn, to its partners. "Available Cash" is defined in the glossary and generally means, with respect to any fiscal period of the Partnership, the sum of all of the cash received by the Partnership from all sources plus reductions to reserves less all of its cash disbursements and net additions to reserves. The Partnership will make distributions to its partners with respect to each fiscal quarter of the Partnership prior to liquidation in an amount equal to 100% of its Available Cash for such quarter. Distributions will also be made upon liquidation of the Partnership as follows: (i) first to the creditors of the Partnership (including the Holders of the Senior Notes) and to the creation of a reserve for contingent liabilities and (ii) then to the General Partner and the Master Partnership in accordance with the positive balance in their respective capital accounts. THE PARTNERSHIP The following paragraphs are a summary of certain provisions of the Partnership Agreement. The form of the Partnership Agreement for the Partnership is included as an exhibit to the Registration Statement of which this Prospectus constitutes a part. The following discussion is qualified in its entirety by reference to the Partnership Agreement. The General Partner will serve as the general partner of the Partnership and will also serve as the General Partner of the Master Partnership, collectively owning a 2% general partner interest in the business and properties owned by the Partnership and the Master Partnership on a combined basis. The Master Partnership will serve as the sole limited partner of the Partnership, owning a 98.9899% limited partner interest, and the General Partner, owning a 1.0101% general partner interest, will manage and operate the Partnership. The control exercised by the General Partner may make it more difficult for others to gain control over or influence the activities of the Partnership. THE PARTNERSHIP The Partnership and the Master Partnership were recently organized as Delaware limited partnerships. Upon the sale of the Common Units offered concurrently herewith, the General Partner will hold an aggregate 2% interest as general partner, and the Unitholders (including Ferrell as an owner of Common Units, Subordinated Units and Incentive Distribution Rights) will hold a 98% interest as limited partners in the Partnership and the Master Partnership, on a combined basis. The Partnership will dissolve on July 31, 2084, unless sooner dissolved pursuant to the terms of the Partnership Agreement. WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER The General Partner has agreed not to voluntarily withdraw as general partner of the Partnership prior to July 31, 2004, without obtaining the approval of the limited partner, providing at least 90 days' written notice to the limited partner of the Partnership, and furnishing an opinion of counsel that such withdrawal will not result in the loss of limited liability of the limited partner of the Partnership or cause the Partnership to be treated as an association taxable as a corporation or otherwise taxed as an entity for federal income tax purposes (an "Opinion of Counsel"). On or after July 31, 2004, the General Partner may withdraw as general partner of the Partnership by giving at least 90 days' advance written notice to the limited partner, and such withdrawal will not constitute a violation of the Partnership Agreement. 47 Under the terms of both the Partnership Agreement and the Agreement of Limited Partnership of the Master Partnership (the "Master Partnership Agreement"), however, withdrawal of the General Partner as general partner of the Master Partnership shall also constitute the withdrawal as general partner of the Partnership. Under the terms of the Master Partnership Agreement, the General Partner has agreed not to voluntarily withdraw as general partner of the Master Partnership prior to July 31, 2004 (with limited exceptions described below), without obtaining the approval of at least 66 2/3% of the outstanding Units (excluding for purposes of such determination Units held by the General Partner and its affiliates), providing 90 days' written notice to the Master Partnership and its limited partners and furnishing an Opinion of Counsel with respect to the Master Partnership and its limited partners. On or after July 31, 2004, the General Partner may withdraw as general partner of the Master Partnership by giving 90 days' written notice (without first obtaining approval from the Unitholders), and such withdrawal will not constitute a violation of the Master Partnership Agreement. Notwithstanding the foregoing, the General Partner may withdraw as general partner of the Master Partnership without Unitholder approval upon 90 days' notice to the limited partners if more than 50% of the outstanding Units are held or controlled by one person and its affiliates (other than the General Partner and its affiliates). In addition, the Master Partnership Agreement permits the General Partner (in certain limited instances) to sell all of its general partner interest in the Master Partnership and permits the parent corporation of the General Partner to sell all or any portion of the capital stock of the General Partner to a third party without the approval of the Unitholders. The transfer of all or any part of the General Partner's partnership interest in the Master Partnership is subject to such transferee agreeing to assume the rights and duties of the General Partner under the Partnership Agreement and the Master Partnership Agreement and to be bound by the provisions of the Partnership Agreement and the Master Partnership Agreement, the receipt of an Opinion of Counsel and such transferee agreeing to purchase all (or the appropriate portion thereof, if applicable) of the partnership interest of the General Partner as the general partner of the Partnership. Upon the withdrawal of the General Partner under any circumstances (other than as a result of a transfer by the General Partner of all or a part of its general partner interest in the Master Partnership), the holders of a majority of the outstanding Units (excluding for purposes of such determination Units held by the General Partner and its affiliates) may select a successor to such withdrawing General Partner. Pursuant to the Partnership Agreement, the Master Partnership, as the sole limited partner of the Partnership, has agreed that any successor to the general partner of the Master Partnership so elected shall also become the successor general partner of the Partnership. If such a successor is not elected, or is elected but an Opinion of Counsel cannot be obtained, the Master Partnership will be dissolved, wound up and liquidated, unless within 180 days after such withdrawal a majority of the Unitholders agree in writing to continue the business of the Partnership and to the appointment of a successor General Partner. See "--Termination and Dissolution." The General Partner shall only be removed as general partner of the Partnership upon the General Partner's removal as general partner of the Master Partnership. The General Partner may not be removed as general partner of the Master Partnership unless such removal is approved by the vote of the holders of not less than 66 2/3% of the outstanding Units and the Master Partnership receives an Opinion of Counsel. Any such removal is also subject to the approval of a successor general partner by the vote of the holders of not less than a majority of the outstanding Units. Pursuant to the Partnership Agreement, the Master Partnership, as the sole limited partner of the Partnership, has agreed that any successor to the general partner of the Master Partnership so approved shall also become the successor general partner of the Partnership. In the event of withdrawal of the General Partner from the Master Partnership where such withdrawal violates the Master Partnership Agreement or removal of the General Partner by the limited partners of the Master Partnership under circumstances where cause exists, a successor general partner will have the option to purchase the general partner interest of the departing General Partner (the "Departing Partner") in the Partnership and the Master Partnership for a cash payment equal to the fair market value of such interest. Under all other circumstances where the General Partner withdraws or is removed by the limited partners of the Master Partnership, the Departing Partner will have the option to require the successor general partner 48 to purchase such general partner interest of the Departing Partner for such amount. In each case such fair market value will be determined by agreement between the Departing Partner and the successor general partner, or if no agreement is reached, by an independent investment banking firm or other independent experts selected by the Departing Partner and the successor general partner (or if no expert can be agreed upon, by the expert chosen by agreement of the experts selected by each of them). In addition, the Partnership would also be required to reimburse the Departing Partner for all amounts due the Departing Partner, including without limitation, all employee related liabilities, including severance liabilities, incurred in connection with the termination of the employees employed by the Departing Partner for the benefit of the Partnership. If the above-described option is not exercised by either the Departing Partner or the successor general partner, as applicable, the Departing Partner's general partner interest in the Partnership and the Master Partnership will be converted into Common Units equal to the fair market value of such interest as determined by an investment banking firm or other independent expert selected in the manner described in the preceding paragraph. AMENDMENT OF PARTNERSHIP AGREEMENT The General Partner may make amendments to the Partnership Agreement without the consent of the limited partner if such amendments (i) do not adversely affect the limited partner in any material respect, (ii) are necessary or desirable to satisfy any requirements, conditions or guidelines contained in any opinion, directive, ruling or regulation of any federal or state agency or judicial authority or contained in any federal or state statute, (iii) are required to conform the provisions of the Partnership Agreement with the provisions of the Master Partnership Agreement or (iv) are required or contemplated by the Partnership Agreement. In addition, the General Partner may make certain other amendments to the Partnership Agreement without the approval of the limited partner. All other amendments to the Partnership Agreement may be proposed only by or with the consent of the General Partner and require the approval of the Partnership's limited partner. TERMINATION AND DISSOLUTION The Partnership will continue until July 31, 2084, unless sooner terminated pursuant to the Partnership Agreement. The Partnership will be dissolved upon (i) an election by the General Partner to dissolve the Partnership that is approved by the limited partner, (ii) the sale of all or substantially all of the assets and properties of the Partnership, (iii) the entry of a decree of judicial dissolution of the Partnership, (iv) the dissolution of the Master Partnership or (v) withdrawal or removal of the General Partner or any other event that results in its ceasing to be the General Partner (other than by reason of a transfer in accordance with the Partnership Agreement or withdrawal or removal following approval of a successor), provided that the Partnership shall not be dissolved upon an event described in clause (v) if within a specified period after such event the limited partner elects to continue the business of the Partnership on the same terms and conditions set forth in the Partnership Agreement by forming a new limited partnership on terms identical to those set forth in the Partnership Agreement and having as a general partner an entity approved by the limited partner of the Partnership. In addition, if the Partnership is dissolved pursuant to an event described in clause (v) and the Master Partnership is reconstituted pursuant to the Master Partnership Agreement, the reconstituted Master Partnership may, as the limited partner of the Partnership, within 180 days after such event of dissolution, elect to reconstitute the Partnership. If such an election is made and the successor General Partner is not the former General Partner, then the interest of the former General Partner shall be purchased by the successor General Partner or converted into Common Units. Such right to elect a successor general partner and reconstitute the Partnership is subject to receipt by the Partnership of an opinion of counsel that the exercise of such right will not result in the loss of the limited liability of the limited partner or cause the Partnership or the reconstituted limited partnership to be treated as an association taxable as a corporation or otherwise subject to taxation as an entity for federal income tax purposes. 49 LIQUIDATION AND DISTRIBUTION OF PROCEEDS Upon dissolution of the Partnership, unless the Partnership is reconstituted and continued as a new limited partnership, the person authorized to wind up the affairs of the Partnership (the "Liquidator") will, acting with all of the powers of the general partner that such Liquidator deems necessary or desirable in its good faith judgment in connection therewith, liquidate the Partnership's assets and apply the proceeds of the liquidation as follows: (i) first towards the payment of all creditors of the Partnership and the creation of a reserve for contingent liabilities and (ii) then to all partners in accordance with the positive balance in their respective capital accounts. Under certain circumstances and subject to certain limitations, the Liquidator may defer liquidation or distribution of the Partnership's assets for a reasonable period of time or distribute assets to partners in kind if it determines that a sale would be impractical or would cause undue loss to the partners. INCENTIVE DISTRIBUTION RIGHTS All cash distributions from the Partnership will be made 1% to the General Partner and 99% to the Master Partnership as limited partner. As an incentive, if quarterly distributions of Available Cash by the Master Partnership exceed certain specified target levels an affiliate of the General Partner will receive distributions of Available Cash of the Master Partnership as described below. The target levels are based on the amounts of Available Cash distributed by the Master Partnership and incentive distributions will not be made unless the Unitholders have received distributions at specified levels above the minimum quarterly distribution of $.50 per Unit with respect to each quarter, subject to adjustment under certain circumstances (the "Minimum Quarterly Distribution"). The rights to receive incentive distributions are referred to as "Incentive Distribution Rights." For any quarter for which Available Cash is distributed by the Master Partnership in respect of both the Common Units and the Subordinated Units in an amount equal to the Minimum Quarterly Distribution, then any additional Available Cash of the Master Partnership will be distributed among the Unitholders, the General Partner and the holders of the Incentive Distribution Rights in the following manner: first, 99% to all Unitholders, pro rata, and 1% to the General Partner, until the Unitholders have received a total of $0.55 for such quarter in respect of each Unit; second, 86% to all Unitholders, pro rata, 13% to the holders of the Incentive Distribution Rights, pro rata, and 1% to the General Partner, until the Unitholders have received a total of $0.63 for such quarter in respect of each Unit; third, 76% to all Unitholders, pro rata, 23% to the holders of the Incentive Distribution Rights, pro rata, and 1% to the General Partner, until the Unitholders have received a total of $0.82 for such quarter in respect of each Unit; and fourth, 51% to all Unitholders, pro rata, 48% to the holders of the Incentive Distribution Rights, pro rata, and 1% to the General Partner. Because the General Partner also receives 1% from the Partnership, the effective distribution to the General Partner will be 2% under all circumstances and the effective distribution to all Unitholders will be reduced by 1% in each instance. 50 DESCRIPTION OF SENIOR NOTES GENERAL The Senior Notes will be issued pursuant to an Indenture (the "Indenture") between the Issuers and Norwest Bank, Minnesota, National Association, as trustee (the "Trustee"). The terms of the Senior Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Senior Notes are subject to all such terms, and Holders of Senior Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of certain provisions of the Senior Notes and the Indenture does not purport to be complete and is qualified in its entirety by reference to the Senior Notes and the Indenture, including the definitions therein of certain terms used below. A copy of the proposed form of Indenture will be filed as an exhibit to the Registration Statement of which this Prospectus is a part and is available as set forth under "Available Information." The definitions of certain terms used in the following summary are set forth below under "Certain Definitions." The Senior Notes will be unsecured general joint and several obligations of the Issuers and will rank senior in right of payment to all subordinated Indebtedness of the Issuers and on an equal basis in right of payment with all senior Indebtedness of the Issuers, including the Partnership's borrowings under the Credit Facility. The Senior Notes will be recourse to the property and assets of the General Partner in its capacity as general partner of the Partnership. PRINCIPAL, MATURITY AND INTEREST The Senior Notes will be limited in aggregate principal amount to $250 million and will mature on August 1, 2001. The Fixed Rate Senior Notes will be limited in aggregate principal amount to $200,000,000 and the Floating Rate Senior Notes will be limited in aggregate principal amount to $50,000,000. Interest on the Fixed Rate Senior Notes will accrue at the rate of 10% per annum and will be payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 1995, to Holders of record on the immediately preceding January 15 and July 15. Interest on the Fixed Rate Senior Notes will be computed on the basis of a 360-day year comprised of twelve 30- day months. Interest on the Floating Rate Senior Notes will accrue at a rate equal to the Applicable LIBOR Rate and will be payable quarterly in arrears on February 1, May 1, August 1 and November 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day, commencing on November 1, 1994 (each, a "Floating Rate Interest Payment Date") to Holders of record on the immediately preceding January 15, April 15, July 15 and October 15. Interest on the Floating Rate Senior Notes will be calculated on a formula basis by multiplying the principal amount of the Floating Rate Senior Notes then outstanding by the Applicable LIBOR Rate, and multiplying such product by the LIBOR Fraction. The "Applicable LIBOR Rate" means for each Quarterly Period during which any Floating Rate Senior Note is outstanding subsequent to the Initial Quarterly Period, 312.50 basis points over the rate determined by the Partnership (notice of such rate to be sent to the Trustee by the Company on the date of determination thereof) equal to the average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the offered rates for deposits in U.S. dollars for a period of three months, as set forth on the Reuters Screen LIBO Page as of 11:00 a.m., London time, on the Interest Rate Determination Date for such Quarterly Period; provided, however, that if only one such offered rate appears on the Reuters Screen LIBO Page, the Applicable LIBOR Rate for such Quarterly Period will mean such offered rate. If such rate is not available at 11:00 a.m., London time, on the Interest Rate Determination Date for such Quarterly Period, then the Applicable LIBOR Rate for such Quarterly Period will mean the arithmetic mean (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the interest rates per annum at which deposits in amounts equal to $1 million in U.S. dollars are offered by the Reference Banks to leading banks in the London Interbank Market for a period of six months as of 11:00 a.m., London time, on the Interest Rate Determination Date for such Quarterly Period. If on any Interest Rate Determination Date, at least two of the Reference Banks provide such offered quotations, then 51 the Applicable LIBOR Rate for such Quarterly Period will be determined in accordance with the preceding sentence on the basis of the offered quotation of those Reference Banks providing such quotations; provided, however that if fewer than two of the Reference Banks are so quoting such interest rates as mentioned above, the Applicable LIBOR Rate for such Quarterly Period shall be deemed to be the Applicable LIBOR Rate for the next preceding Quarterly Period and in the case of the Quarterly Period next succeeding the Initial Quarterly Period, the Applicable LIBOR Rate shall be 7 7/8%. Notwithstanding the foregoing, the Applicable LIBOR Rate for the Initial Quarterly Period shall be 7 7/8%. "Interest Rate Determination Date" means, with respect to each Quarterly Period, the second Working Day prior to the first day of such Quarterly Period. "LIBOR Fraction" means the actual number of days in the Initial Quarterly Period or Quarterly period, as applicable, divided by 360; provided, however, that the number of days in the Initial Quarterly Period and each Quarterly Period shall be calculated by including the first day of such Initial Quarterly Period or Quarterly Period and excluding the last. "Initial Quarterly Period" means the period from and including July 5, 1994 through and including October 31, 1994. "Quarterly Period" means the period from and including a scheduled Floating Rate Interest Payment Date through the day next preceding the following scheduled Floating Rate Interest Payment Date. "Reference Banks" means each of Barclays Bank PLC, London Branch, the Bank of Tokyo, Ltd, London Branch, Bankers Trust Company, London Branch, and National Westminster Bank PLC, London Branch, and any such replacement bank thereof as listed on the Reuters Screen LIBO Page and their respective successors, and if any of such banks are not at the applicable time providing interest rates as contemplated within the definition of the "Applicable LIBOR Rate," Reference Banks shall mean the remaining bank or banks so providing such rates. In the event that less than two of such banks are providing such rates, the Issuers shall use reasonable efforts to appoint additional Reference Banks so that there are at least two such banks providing such rates; provided, however, that such banks appointed by the Issuers shall be London offices of leading banks engaged in the Eurodollar Market. "Reuters Screen LIBO Page" means the display designated as page "LIBO" on the Reuter Monitor Money Rates Service (or such other page as may replace the LIBO page on that service for the purpose of displaying London Interbank Offered Rates of leading banks). "Working Day" means any day which is not a Saturday, Sunday or a day on which banking institutions in New York, New York or London, England are authorized or obligated by law or executive order to close. Interest on the Senior Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of original issuance. The Senior Notes will be payable both as to principal and interest at the office or agency of the Issuers maintained for such purpose within the City and State of New York or, at the option of the Issuers, payment of interest may be made by check mailed to the Holders of the Senior Notes at their respective addresses set forth in the register of Holders of Senior Notes. Until otherwise designated by the Issuers, the Issuers' office or agency in New York will be the office of the Trustee maintained for such purpose. The Senior Notes will be issued in registered form, without coupons, and in denominations of $1,000 and integral multiples thereof. OPTIONAL REDEMPTION The Fixed Rate Senior Notes are not redeemable at the Issuers' option prior to August 1, 1998. Thereafter, the Fixed Rate Senior Notes will be subject to redemption at the option of the Issuers, in whole 52 or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the 12-month period beginning on August 1 of the years indicated below:
YEAR PERCENTAGE 1998.......................................................... 105.0% 1999.......................................................... 102.5% 2000.......................................................... 100.0%
The Floating Rate Senior Notes will be redeemable at the option of the Issuers on any Floating Rate Interest Payment Date on or after August 1, 1995, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the redemption date. MANDATORY REDEMPTION Sinking fund payments of $5 million on each of August 1, 1999 and August 1, 2000 are calculated to retire an aggregate of 20% of the Floating Rate Senior Notes prior to maturity. The Issuers may reduce the principal amount of Floating Rate Senior Notes to be redeemed pursuant to the foregoing by subtracting 100% of the principal amount of any Floating Rate Senior Notes that the Issuers have delivered to the Trustee for cancellation or that the Issuers have redeemed other than pursuant to the mandatory redemption provisions of the Indenture. Except pursuant to the foregoing and as set forth below under "Repurchase at the Option of Holders," the Issuers are not required to make mandatory redemption or sinking fund payments with respect to the Senior Notes. REPURCHASE AT THE OPTION OF HOLDERS CHANGE OF CONTROL Upon the occurrence of a Change of Control, each Holder of Senior Notes will have the right to require the Issuers to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such Holder's Senior Notes pursuant to the offer described below (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (the "Change of Control Payment"). Within 10 days following any Change of Control, the Issuers will mail a notice to each Holder stating: (1) that the Change of Control Offer is being made pursuant to the covenant entitled "Change of Control" and that all Senior Notes tendered will be accepted for payment; (2) the purchase price and the purchase date, which will be the next succeeding Floating Rate Interest Payment Date which is at least 40 days after the Change of Control (the "Change of Control Payment Date"); (3) that any Senior Note not tendered will continue to accrue interest; (4) that, unless the Issuers default in the payment of the Change of Control Payment, all Senior Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have any Senior Notes purchased pursuant to a Change of Control Offer will be required to surrender the Senior Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Senior Notes completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Senior Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have such Senior Notes purchased; and (7) that Holders whose Senior Notes are being purchased only in part will be issued new Senior Notes equal in principal amount to the unpurchased portion of the Senior Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and 53 regulations to the extent such laws and regulations are applicable in connection with the repurchase of the Senior Notes in connection with a Change of Control. On the Change of Control Payment Date, the Issuers will, to the extent lawful, (1) accept for payment Senior Notes or portions thereof tendered pursuant to the Change of Control Offer, (2) deposit with the paying agent therefor an amount equal to the Change of Control Payment in respect of all Senior Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Senior Notes so accepted together with an officers' certificate stating the aggregate amount of the Senior Notes or portions thereof tendered to the Issuers. The Paying Agent will promptly mail to each Holder of Senior Notes so accepted the Change of Control Payment for such Senior Notes, and the Trustee will promptly authenticate and mail to each Holder a new Senior Note equal in principal amount to any unpurchased portion of the Senior Notes surrendered, if any; provided that each such new Senior Note will be in a principal amount of $1,000 or an integral multiple thereof. The Issuers will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. "Change of Control" means (i) the sale, lease, conveyance or other disposition of all or substantially all of the Partnership's assets to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act) other than James E. Ferrell, the Related Parties and any Person of which James E. Ferrell and the Related Parties beneficially own in the aggregate 51% or more of the voting Capital Interests (or if such Person is a partnership, 51% or more of the general partner interests), (ii) the liquidation or dissolution of the Partnership or the General Partner, (iii) the occurrence of any transaction, the result of which is that James E. Ferrell and the Related Parties beneficially own in the aggregate, directly or indirectly, less than 51% of the total voting power entitled to vote for the election of directors of the General Partner and (iv) the occurrence of any transaction, the result of which is that the General Partner is no longer the sole general partner of the Partnership. "Related Party" means (i) the spouse or any lineal descendant of James E. Ferrell, (ii) any trust for his benefit or for the benefit of his spouse or any such lineal descendants or (iii) any corporation, partnership or other entity in which James E. Ferrell and/or such other Persons referred to in the foregoing clauses (i) and (ii) are the direct record and beneficial owners of all of the voting and nonvoting Equity Interests. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Senior Notes to require that the Issuers repurchase or redeem the Senior Notes in the event of a takeover, recapitalization or similar restructuring. With respect to the sale of assets referred to in the definition of "Change of Control" above, the phrase "all or substantially all" as used in the Indenture varies according to the facts and circumstances of the subject transaction, has no clearly established meaning under New York law (which governs the Indenture) and is subject to judicial interpretation. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of "all or substantially all" of the assets of a person and therefore it may be unclear whether a Change of Control has occurred and whether the Senior Notes are subject to a Change of Control Offer. The agreement governing the Credit Facility will require the Partnership to repay all amounts owing thereunder within 30 days following certain events constituting a change of control thereunder (which are substantially similar to the events constituting a Change of Control under the Indenture). In addition, the exercise by the Holders of Senior Notes of their right to require the Partnership to repurchase the Senior Notes could cause a default under the Credit Facility, even if the occurrence of a Change of Control itself does not, due to the financial effect of such repurchases on the Partnership. Finally, the Partnership's ability to pay cash to the Holders of Senior Notes upon a repurchase may be limited by the Partnership's then existing financial resources. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Pro Forma Financial Condition--Credit Facility." 54 ASSET SALES The Indenture will provide that the Partnership will not, and will not permit any of its Subsidiaries to, (i) sell, lease, convey or otherwise dispose of any assets (including by way of a sale-and-leaseback) other than sales of inventory in the ordinary course of business consistent with past practice (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Partnership shall be governed by the provisions of the Indenture described above under the caption "Change of Control" and/or the provisions described below under the caption "Merger, Consolidation or Sale of Assets" and not by the provisions of this paragraph) or (ii) issue or sell Equity Interests of any of its Subsidiaries, in the case of either clause (i) or (ii) above, whether in a single transaction or a series of related transactions, (a) that have a fair market value in excess of $5 million, or (b) for net proceeds in excess of $5 million (each of the foregoing, an "Asset Sale"), unless (x) the Partnership (or the Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of and (y) at least 80% of the consideration therefor received by the Partnership or such Subsidiary is in the form of cash; provided, however, that the amount of (A) any liabilities (as shown on the Partnership's or such Subsidiary's most recent balance sheet or in the notes thereto) of the Partnership or any Subsidiary (other than liabilities that are by their terms subordinated in right of payment to the Senior Notes) that are assumed by the transferee of any such assets and (B) any notes or other obligations received by the Partnership or any such Subsidiary from such transferee that are immediately converted by the Partnership or such Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision; and provided, further, that the 80% limitation referred to in this clause (y) shall not apply to any Asset Sale in which the cash portion of the consideration received therefrom, determined in accordance with the foregoing proviso, is equal to or greater than what the after-tax proceeds would have been had such Asset Sale complied with the aforementioned 80% limitation. Notwithstanding the foregoing, Asset Sales shall not be deemed to include (1) any transfer of assets by the Partnership or any of its Subsidiaries to a Subsidiary of the Partnership that is a Guarantor, (2) any transfer of assets by the Partnership or any of its Subsidiaries to any Person in exchange for other assets used in a line of business permitted under the "Line of Business" covenant and having a fair market value not less than that of the assets so transferred and (3) any transfer of assets pursuant to a Permitted Investment. Within 270 days after any Asset Sale, the Partnership may apply the Net Proceeds from such Asset Sale to (a) permanently reduce Indebtedness outstanding under the Credit Facility (with a permanent reduction of availability in the case of revolving Indebtedness) or (b) an investment in capital expenditures or other long-term/tangible assets, in each case, in the same line of business as the Partnership was engaged in on the date of the Indenture. Pending the final application of any such Net Proceeds, the Partnership may temporarily reduce borrowings under the Credit Facility or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds from the Asset Sale that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $15 million, the Issuers shall make an offer to all Holders of Senior Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Senior Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations to the extent such laws and regulations are applicable in connection with the repurchase of the Senior Notes in connection with an Asset Sale Offer. To the extent that the aggregate amount of Senior Notes tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Partnership may use such deficiency for general business purposes. If the aggregate principal amount of Senior Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Senior Notes to be purchased between the Floating Rate Senior Notes and the Fixed Rate Senior Notes on a pro rata basis and then among the Holders of Floating Rate Senior Notes and Fixed Rate Senior Notes on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. 55 Selection and Notice If less than all of either series of Notes are to be redeemed pursuant to the optional redemption provisions of the Indenture, the Trustee shall select the Floating Rate Senior Notes or Fixed Rate Senior Notes (as applicable) to be redeemed among the Holders of the same series of Senior Notes on a pro rata basis. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Senior Notes to be redeemed at its registered address. If any Senior Note is to be redeemed in part only, the notice of redemption that relates to such Senior Note shall state the portion of the principal amount thereof to be redeemed. A new Senior Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the Holder thereof upon cancellation of the original Senior Note. On and after the redemption date, interest ceases to accrue on Senior Notes or portions of them called for redemption. SUBSIDIARY GUARANTEES The Indenture will provide that the Partnership may, at any time that it transfers or causes to be transferred to any of its Subsidiaries assets, businesses or properties having a fair market value (as determined in good faith by the Board of Directors of the General Partner, whose determination shall be conclusive and evidenced by a resolution of such Board) of $5 million or more, cause such Subsidiary (each such Subsidiary, a "Guarantor") to unconditionally guarantee (each such guarantee, a "Subsidiary Guarantee"), jointly and severally, the Issuers' payment obligations under the Senior Notes. Each Guarantor shall execute and deliver to the Trustee a supplemental indenture evidencing its Subsidiary Guarantee, together with an opinion of counsel with respect to certain matters set forth in the Indenture. The obligations of each Guarantor under its Subsidiary Guarantee will be limited so as not to constitute a fraudulent conveyance under applicable law. See, however, "Risk Factors--Fraudulent Conveyance Matters." The Indenture will provide that no Guarantor may consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person whether or not affiliated with such Guarantor unless (i) subject to the provisions of the following paragraph, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee, under the Senior Notes and the Indenture; (ii) immediately after giving effect to such transaction, no Default or Event of Default exists; and (iii) such Guarantor, or any Person formed by or surviving any such consolidation or merger, (A) would have Consolidated Net Worth (immediately after giving effect to such transaction), equal to or greater than the Consolidated Net Worth of such Guarantor immediately preceding the transaction and (B) would be permitted by virtue of the Partnership's pro forma Fixed Charge Coverage Ratio to incur, immediately after giving effect to such transaction, to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock." The Indenture will provide that in the event of a sale or other disposition of all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Interests of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the Capital Interests of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all of the assets of such Guarantor) will be released and relieved of any obligations under its Subsidiary Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the Indenture. See "Redemption or Repurchase at Option of Holders--Asset Sales." CERTAIN COVENANTS RESTRICTED PAYMENTS The Indenture will provide that the Partnership will not, and will not permit any of its Subsidiaries to, directly or indirectly: (i) declare or make any distribution or pay any dividend on account of the Partnership's 56 or any Subsidiary's Equity Interests (other than (x) distributions or dividends payable in Equity Interests (other than Disqualified Interests) of the Partnership, (y) distributions or dividends payable to the Partnership or a Wholly Owned Subsidiary of the Partnership that is a Guarantor or (z) distributions or dividends payable pro rata to all holders of Capital Interests of any such Subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Partnership or any Subsidiary or other Affiliate of the Partnership (other than any such Equity Interests owned by the Partnership or a Wholly Owned Subsidiary of the Partnership that is a Guarantor); (iii) purchase, redeem or otherwise acquire or retire for value any Indebtedness that is subordinated to the Senior Notes; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (b) the Fixed Charge Coverage Ratio of the Partnership for the Partnership's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Restricted Payment is made, calculated on a pro forma basis as if such Restricted Payment had been made at the beginning of such four- quarter period, would have been more than 2.25 to 1; (c) such Restricted Payment (the amount of any such payment, if other than cash, to be determined by the Board of Directors of the General Partner, whose determination shall be conclusive and evidenced by a resolution in an Officer's Certificate delivered to the Trustee), together with the aggregate of all other Restricted Payments (other than any Restricted Payments permitted by the provisions of clauses (ii), (iii) or (iv) of the penultimate paragraph of this covenant) made by the Partnership and its Subsidiaries in the fiscal quarter during which such Restricted Payment is made shall not exceed an amount equal to the sum of (i) Available Cash of the Partnership for the immediately preceding fiscal quarter (or, with respect to the first fiscal quarter during which Restricted Payments are made, the amount of Available Cash of the Partnership for the period commencing on the date of the Indenture and ending on the last day of the immediately preceding fiscal quarter) plus (ii) the lesser of (x) the amount of Available Cash of the Partnership for the first 45 days of the fiscal quarter during which such Restricted Payment is made and (y) the amount of working capital Indebtedness that the Partnership could have incurred on the last day of the immediately preceding fiscal quarter under the terms of the agreements and instruments governing its outstanding Indebtedness on such date; and (d) the Partnership and its Subsidiaries and Non-Recourse Subsidiaries shall have in the aggregate (i) acquired, improved or repaired property, plant or equipment which is accounted for as a capital expenditure in accordance with GAAP or (ii) acquired, through merger or otherwise, all or substantially all of the outstanding Capital Interests, or all or substantially all of the assets, of any entity engaged in the business in which the Partnership is engaged on the date of the Indenture (each of the transactions referred to in clauses (i) and (ii) above, a "Capital Investment") for Aggregate Consideration since the date of the Indenture which, when added to all cash reserves then funded and maintained by the Partnership (the proceeds of which shall be used solely for Capital Investments) is no less than the amounts set forth in the table below, if such Restricted Payment is made in the 12-month period beginning August 1 of the years indicated:
YEAR AMOUNT ---- ------------ 1994...................................... $0 1995...................................... $15 million 1996...................................... $30 million 1997...................................... $45 million 1998...................................... $70 million 1999...................................... $95 million 2000...................................... $120 million
57 For purposes of the foregoing, "Aggregate Consideration" at any date shall mean all cash paid in connection with the all Capital Investments consummated on or prior to such date, the fair market value of all Capital Interests of the Master Partnership or the Partnership (determined by the General Partner in good faith with reference to, among other things, the trading price of such Capital Interests, if then traded on any national securities exchange or automated quotation system) constituting all or a portion of the purchase price of all Capital Investments consummated on or prior to such date, and the aggregate principal amount of all Indebtedness incurred or assumed by the Partnership in connection with all Capital Investments consummated on or prior to such date. The foregoing provisions will not prohibit (i) the payment of any distribution within 60 days after the date on which the Partnership becomes committed to make such distribution, if at said date of commitment such payment would have complied with the provisions of the Indenture; (ii) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Partnership in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Partnership) of other Equity Interests of the Partnership (other than any Disqualified Interests); (iii) the defeasance, redemption or repurchase of subordinated Indebtedness with the proceeds of Permitted Refinancing Indebtedness; and (iv) the defeasance, redemption or repurchase of any Existing Subordinated Debentures of the Company and the payment of all costs and expenses in connection therewith. Not later than the date of making any Restricted Payment, the General Partner shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the covenant "Restricted Payments" were computed, which calculations may be based upon the Partnership's latest available financial statements. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED INTERESTS The Indenture will provide that the Partnership will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Partnership will not issue any Disqualified Interests and will not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Partnership may incur Indebtedness and any Subsidiary of the Partnership may incur Acquired Debt if: (a) the Fixed Charge Coverage Ratio for the Partnership's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred would have been at least 2.75 to 1 if such date is on or prior to August 1, 1996 and 3.00 to 1 if such date is after August 1, 1996, in each case, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred at the beginning of such four-quarter period; and (b) either (x) such Indebtedness shall be subordinated in right of payment to the Senior Notes and shall have a Weighted Average Life to Maturity greater than the remaining Weighted Average Life to Maturity of the Senior Notes or (y) such Indebtedness shall be Permitted Senior Debt and the Senior Debt Ratio Test shall have been met at the time of incurrence thereof. The foregoing limitations will not apply to: (i) the Indebtedness represented by the Senior Notes and any Subsidiary Guarantees; (ii) the incurrence by the Partnership of Indebtedness pursuant to the Credit Facility in an aggregate principal amount at any time outstanding not to exceed $185.0 million; (iii) revolving Indebtedness incurred solely for working capital purposes in an aggregate outstanding principal amount not to exceed $20.0 million at any time on or prior to August 1, 1996 and $40.0 million thereafter, provided, in each case, that the outstanding principal balance of such revolving Indebtedness (or, if such revolving Indebtedness is incurred as an addition or extension to the Credit Facility, the outstanding principal balance under the Credit Facility in excess of the limits set forth in clause (ii) above) shall be reduced to zero for a 58 period of 30 consecutive days during each fiscal year; (iv) the incurrence by the Partnership of Indebtedness in respect of Capitalized Lease Obligations in an aggregate principal amount not to exceed $15 million; (v) the Existing Indebtedness; (vi) the incurrence by the Partnership or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the proceeds of which are used to extend, refinance, renew, replace, defease or refund any then outstanding Indebtedness of the Partnership or such Subsidiary not incurred in violation of the Indenture; (vii) Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of the Indenture to be outstanding; (viii) Indebtedness of any Subsidiary of the Partnership to the Partnership or any of its Wholly Owned Subsidiaries; (ix) the incurrence by the Partnership or the Insurance Company Subsidiary of Indebtedness owing directly to its insurance carriers (without duplication) in connection with the Partnership's, its Subsidiaries' or its Affiliates' self-insurance programs or other similar forms of retained insurable risks for their respective retail propane businesses, consisting of reinsurance agreements and indemnification agreements (and guarantees of the foregoing) secured by letters of credit, provided that the Indebtedness evidence by such reinsurance agreements, indemnification agreements, guarantees and letters of credit shall be counted (without duplication) for purposes of all calculations pursuant to the Fixed Charge Coverage Ratio test above; (x) 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; (xi) the incurrence by the Partnership (or any Subsidiary of the Partnership that is a Guarantor) of Indebtedness in connection with acquisitions of retail propane businesses in favor of the sellers of such businesses in a principal amount not to exceed $15 million in any fiscal year or $45 million in the aggregate outstanding at any one time, provided that the principal amount of such Indebtedness incurred in connection with any such acquisition shall not exceed the fair market value of the assets so acquired; and (xii) in addition to the Indebtedness permitted under the foregoing clauses (i) through (xi), the incurrence by the Partnership of Indebtedness in an aggregate principal amount outstanding not to exceed $15 million at any time, provided that any Indebtedness incurred pursuant to this clause (xii) shall be subordinated in right of payment to the Senior Notes and shall have a Weighted Average Life to Maturity greater than the remaining Weighted Average Life to Maturity of the Senior Notes. The "Senior Debt Ratio Test" will be met with respect to the incurrence of any Indebtedness by the Partnership or any Subsidiary of the Partnership if the ratio of (1) the aggregate outstanding principal amount of Senior Debt on the date of and after giving effect to the incurrence of such Indebtedness (the "Incurrence Date") to (2) the Consolidated Cash Flow for the Partnership's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the Incurrence Date would have been 2.50 to 1 or less. For purposes of the computation in clause (1) of the foregoing sentence, the outstanding principal amount of Indebtedness under the Credit Facility shall be deemed to equal the principal amount of such Indebtedness actually outstanding plus the maximum additional principal amount of such Indebtedness available thereunder, and letters of credit shall be deemed to have a principal amount equal to the maximum potential liability of the Partnership or any of its Subsidiaries thereunder. The foregoing calculation of Consolidated Cash Flow shall give pro forma effect to acquisitions (including all mergers and consolidations), dispositions and discontinuance of operations that have been made by the Partnership or any of its Subsidiaries during the four-quarter reference period or subsequent to such reference period and on or prior to the Incurrence Date assuming that all such acquisitions, dispositions and discontinuance of operations had occurred on the first day of the four-quarter reference period in the same manner as described under the definition of "Fixed Charge Coverage Ratio." For purposes of the foregoing, any revolving Indebtedness (under the Credit Facility or otherwise) shall be deemed to have been incurred only at such time at which the agreements and instruments (or any amendments thereto that increase the amount, reduce the Weighted Average Life to Maturity, change any subordination provisions or create any additional obligor of such revolving Indebtedness) are executed, in an amount equal to the maximum amount of such revolving Indebtedness permitted to be borrowed thereunder, and the Partnership's ability to borrow or reborrow such revolving Indebtedness up to such maximum 59 permitted amount shall not thereafter be limited by the foregoing (other than the proviso set forth in clause (iii) of the second paragraph of the description of such covenant contained herein). LIMITATION ON SALE AND LEASEBACK TRANSACTIONS The Indenture will provide that the Partnership will not, and will not permit any of its Subsidiaries to, enter into any arrangement with any Person providing for the leasing by the Partnership or such Subsidiary of any property that has been or is to be sold or transferred by the Partnership or such Subsidiary to such Person in contemplation of such leasing, unless (a) the Partnership or such Subsidiary would be permitted under the Indenture to incur Indebtedness secured by a Lien on such property in an amount equal to the Attributable Debt with respect to such sale and leaseback transaction or (b) the lease in such sale and leaseback transaction is for a term not in excess of the lesser of (i) three years and (ii) 60% of the useful remaining life of such property. LIENS The Indenture will provide that the Partnership will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES The Indenture will provide that the Partnership will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (a) pay dividends or make any other distributions to the Partnership or any of its Subsidiaries (1) on its Capital Interests or (2) with respect to any other interest or participation in, or measured by, its profits, (b) pay any indebtedness owed to the Partnership or any of its Subsidiaries, (c) make loans or advances to the Partnership or any of its Subsidiaries or (d) transfer any of its properties or assets to the Partnership or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) Existing Indebtedness as in effect on the date of the Indenture, (ii) the Credit Facility, as in effect on the date of the Indenture, the Indenture, the Notes and the Subsidiary Guarantees, (iii) applicable law, (iv) any instrument governing Indebtedness or Capital Interests of a Person acquired by the Partnership or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that the Consolidated Cash Flow of such Person to the extent that dividends, distributions, loans, advances or transfers thereof is limited by such encumbrance or restriction on the date of acquisition is not taken into account in determining whether such acquisition was permitted by the terms of the Indenture, (v) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (vi) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (d) above on the property so acquired, (vii) Permitted Refinancing Indebtedness of any Existing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced or (viii) agreements governing any Indebtedness that is permitted to be incurred pursuant to the Indenture and that is incurred to extend, refinance, renew, replace, defease or refund Indebtedness outstanding pursuant to the Credit Facility, provided that the restrictions contained in the agreements governing such refinancing Indebtedness are no more restrictive than those contained in the Credit Facility, as in effect on the date of the Indenture. MERGER, CONSOLIDATION, OR SALE OF ASSETS The Indenture will provide that the Partnership may not consolidate or merge with or into (whether or not the Partnership is the surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all 60 or substantially all of its properties or assets in one or more related transactions, to another Person unless (i) the Partnership is the surviving Person, or the Person formed by or surviving any such consolidation or merger (if other than the Partnership) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation or partnership organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the Person formed by or surviving any such consolidation or merger (if other than the Partnership) or the Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Partnership, pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, under the Senior Notes and the Indenture; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) the Partnership or such other Person formed by or surviving any such consolidation or merger, or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) will have Consolidated Net Worth (immediately after the transaction but prior to any purchase accounting adjustments resulting from the transaction) equal to or greater than the Consolidated Net Worth of the Partnership immediately preceding the transaction and (B) will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the covenant entitled "Incurrence of Indebtedness and Issuance of Preferred Stock." The Indenture will also provide that Finance Corp. may not consolidate or merge with or into (whether or not Finance Corp. is the surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person unless (i) Finance Corp. is the surviving Person, or the Person formed by or surviving any such consolidation or merger (if other than Finance Corp.) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia and a Wholly Owned Subsidiary of the Partnership; (ii) the Person formed by or surviving any such consolidation or merger (if other than Finance Corp.) or the Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of Finance Corp., pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, under the Senior Notes and the Indenture; and (iii) immediately after such transaction no Default or Event of Default exists. TRANSACTIONS WITH AFFILIATES The Indenture will provide that the Partnership will not, and will not permit any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate, including any Non-Recourse Subsidiary (each of the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate Transaction is on terms that are no less favorable to the Partnership or the relevant Subsidiary than those that would have been obtained in a comparable transaction by the Partnership or such Subsidiary with an unrelated Person and (b) with respect to (i) any Affiliate Transaction with an aggregate value in excess of $500,000, a majority of the directors of the General Partner having no direct or indirect economic interest in such Affiliate Transaction determines by resolution that such Affiliate Transaction complies with clause (a) above and approves such Affiliate Transaction and (ii) any Affiliate Transaction involving the purchase or other acquisition or sale, lease, transfer or other disposition of properties or assets other than in the ordinary course of business, in each case, having a fair market value or for net proceeds in excess of $15 million, the Partnership delivers to the Trustee an opinion as to the fairness to the Partnership or such Subsidiary from a financial point of view issued by an investment banking firm of national standing; provided, however, that (A) any employment agreement or stock option agreement entered into by the Partnership (or the General Partner) in the ordinary course of business and consistent with the past practice of the Partnership or such Subsidiary, (B) transactions permitted by the provisions of the Indenture described above under the covenant "Restricted Payments," and (C) transaction entered into by the Partnership or the Insurance Company Subsidiary in the ordinary course of business in connection with 61 reinsuring the self-insurance programs or other similar forms of retained insurable risks of the retail propane businesses operated by the Partnership, its Subsidiaries and its Affiliates, in each case, shall not be deemed Affiliate Transactions. RESTRICTIONS ON NATURE OF INDEBTEDNESS AND ACTIVITIES OF FINANCE CORP. In addition to the restrictions set forth under the "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant above, the Indenture will provide that Finance Corp. may not incur any Indebtedness unless (a) the Partnership is a co-obligor or guarantor of such Indebtedness or (b) the net proceeds of such Indebtedness are lent to the Partnership, used to acquire outstanding debt securities issued by the Partnership or used directly or indirectly to refinance or discharge Indebtedness permitted under the limitations of this paragraph. The Indenture will also provide that Finance Corp. may not engage in any business not related directly or indirectly to obtaining money or arranging financing for the Partnership. LINE OF BUSINESS The Indenture will provide that for so long as any Senior Notes are outstanding, the Partnership and its Subsidiaries will not materially or substantially engage in any business other than that in which the Partnership and its Subsidiaries were engaged on the date of the Indenture. REPORTS Whether or not required by the rules and regulations of the Securities and Exchange Commission (the "Commission"), so long as any Senior Notes are outstanding, the Issuers will furnish to the Holders of Senior Notes (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Issuers were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Issuers' certified independent accountants and (ii) all reports that would be required to be filed with the Commission on Form 8-K if the Issuers were required to file such reports. To the extent permitted under the rules and regulations of the Commission, such information and reports with respect to the Master Partnership may be filed in lieu of such information and reports with respect to the Partnership. In addition, whether or not required by the rules and regulations of the Commission, the Issuers will file a copy of all such information with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to investors who request it in writing. EVENTS OF DEFAULT AND REMEDIES The Indenture will provide that each of the following constitutes an Event of Default: (i) default for 30 days in the payment when due of interest on the Senior Notes; (ii) default in payment when due of the principal of or premium, if any, on the Senior Notes; (iii) failure by the Issuers for 20 days to comply with the provisions described under the covenants "Change of Control," "Asset Sales," "Restricted Payments," "Incurrence of Indebtedness and Issuance of Preferred Stock" or "Merger, Consolidation, or Sale of Assets"; (iv) failure by the Issuers or any Guarantor for 60 days after notice to comply with any of its other agreements in the Indenture or the Senior Notes; (v) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Partnership or any of its Subsidiaries (or the payment of which is guaranteed by the Partnership or any of its Subsidiaries), whether such Indebtedness or guarantee now exists or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such 62 Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10 million or more, excluding any acceleration of maturity of the Indebtedness represented by the Company's Existing Floating Rate Notes and Existing Fixed Rate Notes to the extent that such Indebtedness shall be redeemed on or prior to the 40th day after the date of the Indenture; (vi) failure by the Partnership or any of its Subsidiaries to pay final judgments aggregating in excess of $10 million, which judgments are not paid, discharged or stayed within 60 days; (vii) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acing on behalf of any Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (viii) certain events of bankruptcy or insolvency with respect to the Partnership or any of its Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Senior Notes may declare all the Senior Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to either Issuer, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Senior Notes will become due and payable immediately without further action or notice. Holders of the Senior Notes may not enforce the Indenture or the Senior Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Senior Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Senior Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Issuers with the intention of avoiding payment of the premium that the Issuers would have had to pay if the Issuers then had elected to redeem the Senior Notes pursuant to the optional redemption provisions of the Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Senior Notes. If an Event of Default occurs prior to August 1, 1998, by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Issuers with the intention of avoiding the prohibition on redemption of the Senior Notes prior to such date, then the premium specified in the Indenture shall also become immediately due and payable to the extent permitted by law upon the acceleration of the Senior Notes. The Holders of a majority in aggregate principal amount of the Senior Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Senior Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, premium, if any, or interest on the Senior Notes. The Issuers are required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuers are required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. NO PERSONAL LIABILITY OF LIMITED PARTNERS, DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS No limited partner of the Partnership or director, officer, employee, incorporator or stockholder of the General Partner or Finance Corp., as such, shall have any liability for any obligations of the Issuers or any Guarantor under the Senior Notes, the Subsidiary Guarantees, the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Senior Notes by accepting a Senior Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Senior Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the Commission that such a waiver is against public policy. 63 LEGAL DEFEASANCE AND COVENANT DEFEASANCE The Issuers may, at their option and at any time, elect to have all of their obligations discharged with respect to the outstanding Senior Notes ("Legal Defeasance") except for (i) the rights of Holders of outstanding Senior Notes to receive payments in respect of the principal of, premium, if any, and interest on such Senior Notes when such payments are due, (ii) the Issuers' obligations with respect to the Senior Notes concerning issuing temporary Senior Notes, registration of Senior Notes, mutilated, destroyed, lost or stolen Senior Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and the Issuers' obligations in connection therewith and (iv) the Legal Defeasance provisions of the Indenture. In addition, the Issuers may, at their option and at any time, elect to have the obligations of the Issuers released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with such obligations shall not constitute a Default or Event of Default with respect to the Senior Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Senior Notes. In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the Issuers must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Senior Notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Senior Notes on the stated maturity or on the applicable redemption date, as the case may be, of such principal or installment of principal of, premium, if any, or interest on the outstanding Senior Notes; (ii) in the case of Legal Defeasance, the Issuers shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Issuers shall have received from, or there shall have been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there shall have been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the Holders of the outstanding Senior Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the Issuers shall have delivered to the Trustee an opinion of counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Senior Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (iv) no Event of Default shall have occurred and be continuing on the date of such deposit or insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the Indenture) to which the Issuers or any of their Subsidiaries is a party or by which the Issuers or any of their Subsidiaries is bound; (vi) the Issuers shall have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (vii) the Issuers shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Issuers with the intent of preferring the Holders of Senior Notes over the other creditors of the Issuers with the intent of defeating, hindering, delaying or defrauding creditors of the Issuers or others; and (viii) the Issuers shall have delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to the Legal Defeasance or the Covenant Defeasance have been complied with. TRANSFER AND EXCHANGE A Holder may transfer or exchange Senior Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer 64 documents and the Issuers may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Issuers are not required to transfer or exchange any Senior Note selected for redemption. Also, the Issuers are not required to transfer or exchange any Senior Note for a period of 15 days before a selection of Senior Notes to be redeemed. The registered Holder of a Senior Note will be treated as its owner for all purposes. AMENDMENT, SUPPLEMENT AND WAIVER Except as provided in the next succeeding paragraphs, the Indenture or the Senior Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Senior Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for Senior Notes), and any existing default or compliance with any provision of the Indenture or the Senior Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Senior Notes (including consents obtained in connection with a tender offer or exchange offer for Senior Notes). Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Senior Notes held by a non-consenting Holder): (i) reduce the principal amount of Senior Notes whose Holders must consent to an amendment, supplement or waiver, (ii) reduce the principal of or change the fixed maturity of any Senior Note or alter the provisions with respect to the redemption of the Senior Notes (other than provisions relating to the covenants described above under the caption "Repurchase at the Option of Holders"), (iii) reduce the rate of or change the time for payment of interest on any Senior Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Senior Notes (except a rescission of acceleration of the Senior Notes by the Holders of at least a majority in aggregate principal amount of the Senior Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Senior Note payable in money other than that stated in the Senior Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Senior Notes to receive payments of principal of, premium, if any, or interest on the Senior Notes, (vii) waive a redemption payment with respect to any Senior Note (other than provisions relating to the covenants described above under the caption "Repurchase at the Option of Holders"), (viii) except as otherwise permitted in the Indenture, release any Guarantor from its obligations under its Subsidiary Guarantee or change any Subsidiary Guarantee in any manner that would adversely affect the rights of Holders of Senior Notes or (ix) make any change in the foregoing amendment and waiver provisions. Notwithstanding the foregoing, without the consent of any Holder of Senior Notes, the Issuers and the Trustee may amend or supplement the Indenture or the Senior Notes to cure any ambiguity, defect or inconsistency, to provide for uncertificated Senior Notes in addition to or in place of certificated Senior Notes, to provide for the assumption of the Issuers' obligations to Holders of the Senior Notes in the case of a merger or consolidation, to make any change that would provide any additional rights or benefits to the Holders of the Senior Notes (including the creation of any Subsidiary Guarantees) or that does not adversely affect the legal rights under the Indenture of any such Holder, or to comply with requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Issuers, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign. 65 The Holders of a majority in principal amount of the then outstanding Senior Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Senior Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Senior Note Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person merged with or into or became a Subsidiary of such specified Person, including Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person and (ii) Indebtedness encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Attributable Debt" means, in respect of a sale and leaseback arrangement of any property, as at the time of determination, the present value (calculated using a discount rate equal to the interest rate of the Senior Notes and annual compounding) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such arrangement (including any period for which such lease has been extended). "Available Cash" has the meaning given to such term in the Partnership Agreement, as amended to the date of the Indenture. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be so required to be capitalized on the balance sheet in accordance with GAAP. "Capital Interests" means any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, including, without limitation, with respect to partnerships, partnership interests (whether general or limited) and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than eighteen months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any lender party to the Credit Facility or with any domestic commercial bank having capital and surplus in excess of $500 million 66 and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within nine months after the date of acquisition and (vi) investments in money market funds all of whose assets consist of securities of the types described in the foregoing clauses (i) through (v). "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus (a) an amount equal to any extraordinary loss plus any net loss realized in connection with an asset sale (to the extent such losses were deducted in computing Consolidated Net Income), plus (b) provision for taxes based on income or profits of such Person for such period, to the extent such provision for taxes was deducted in computing Consolidated Net Income, plus (c) consolidated interest expense of such Person for such period, whether paid or accrued (including amortization of original issue discount, non-cash interest payments and the interest component of any payments associated with Capital Lease Obligations and net payments (if any) pursuant to Hedging Obligations), to the extent such expense was deducted in computing Consolidated Net Income, plus (d) depreciation and amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) of such Person for such period to the extent such depreciation and amortization were deducted in computing Consolidated Net Income, in each case, for such period without duplication on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided, that (i) the Net Income of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid to the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any Person that is a Subsidiary (other than a Wholly Owned Subsidiary) shall be included only to the extent of the amount of dividends or distributions paid to the referent Person or a Wholly Owned Subsidiary thereof, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded (except to the extent otherwise includable under clause (i) above) and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the partners or common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Interests) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of the Indenture in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Credit Facility" means the credit facility under that certain Credit Agreement, dated as of July 5, 1994, by and among the Partnership, the Insurance Company Subsidiary, the General Partner and Bank of America National Trust and Savings Association, as Agent for the financial institutions listed therein, providing for up to $185 million of credit borrowings and letters of credit, including any related notes, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. 67 "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Disqualified Interests" means any Capital Interests which, by their terms (or by the terms of any security into which they are convertible or for which they are exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to August 1, 2001. "Equity Interests" means Capital Interests and all warrants, options or other rights to acquire Capital Interests (but excluding any debt security that is convertible into, or exchangeable for Capital Interests). "Existing Indebtedness" means up to $5.0 million in aggregate principal amount of Indebtedness of the Partnership and its Subsidiaries (other than under the Credit Facility) in existence on the date of the Indenture, until such amounts are repaid. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the reference Person or any of its Subsidiaries incurs, assumes, guarantees, redeems or repays any Indebtedness (other than revolving credit borrowings) subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date of the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee, redemption or repayment of Indebtedness as if the same had occurred at the beginning of the applicable reference period. The foregoing calculation of the Fixed Charge Coverage Ratio shall also give pro forma effect to acquisitions (including all mergers and consolidations), dispositions and discontinuance of businesses or assets that have been made by the reference Person or any of its Subsidiaries during the reference period or subsequent to such reference period and on or prior to the Calculation Date assuming that all such acquisitions, dispositions and discontinuance of businesses or assets had occurred on the first day of the reference period; provided, however, that (a) Fixed Charges shall be reduced by amounts attributable to businesses or assets that are so disposed of or discontinued only to the extent that the obligations giving rise to such Fixed Charges would no longer be obligations contributing to the Partnership's Fixed Charges subsequent to the Calculation Date and (b) Consolidated Cash Flow generated by an acquired business or asset shall be determined by the actual gross profit (revenues minus cost of goods sold) of such acquired business or asset during the immediately preceding number of full fiscal quarters as in the reference period minus the pro forma expenses that would have been incurred by the Partnership in the operation of such acquired business or asset during such period computed on the basis of (i) personnel expenses for employees retained by the Partnership in the operation of the acquired business or asset and (ii) non-personnel costs and expenses incurred by the Partnership on a per gallon basis in the operation of the Partnership's business at similarly situated Partnership facilities. If the applicable reference period for any calculation of the Fixed Charge Coverage Ratio with respect to the Partnership shall include a portion prior to the date of the Indenture, then such Fixed Charge Coverage Ratio shall be calculated based upon the Consolidated Cash Flow and the Fixed Charges of the General Partner for such portion of the reference period prior to the date of the Indenture and the Consolidated Cash Flow and the Fixed Charges of the Partnership for the remaining portion of the reference period on and after the date of the Indenture, giving pro forma effect, as described in the two foregoing sentences, to all applicable transactions occurring on the date of the Indenture or otherwise. "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (a) consolidated interest expense of such Person for such period, whether paid or accrued, to the extent such expense was deducted in computing Consolidated Net Income (including amortization of original issue discount, non-cash interest payments, the interest component of all payments associated with Capital Lease Obligations and net payments (if any) pursuant to Hedging Obligations), (b) commissions, discounts and other fees and charges incurred with respect to letters of credit and bankers' acceptances financing, (c) any 68 interest expense on Indebtedness of another Person that is Guaranteed by such Person or secured by a Lien on assets of such Person and (d) the product of (i) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Subsidiary) on any series of preferred stock of such Person, times (ii) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect in the United States of America on the date of the Indenture. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person. "Insurance Company Subsidiary" means Stratton Insurance Company, a Vermont corporation, a wholly owned subsidiary of the Partnership. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any asset sale (including, without limitation, dispositions pursuant to sale and leaseback 69 transactions), or (b) the disposition of any securities or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries, and (ii) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss), provided, however, that all costs and expenses with respect to the retirement of the Existing Senior Notes and the Existing Subordinated Debentures, including, without limitation, cash premiums, tender offer premiums, consent payments and all fees and expenses in connection therewith, shall be added back to the Net Income of the Company, the Partnership or their Subsidiaries to the extent that the same were deducted from such Net Income in accordance with GAAP. "Net Proceeds" means the aggregate cash proceeds received by the Partnership or any of its Subsidiaries in respect of any Asset Sale, net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets. "Non-Recourse Subsidiary" means (1) the Insurance Company Subsidiary and (2) any other Person that would otherwise be a Subsidiary of the Partnership but is designated as a Non-Recourse Subsidiary in a resolution of the Board of Directors of the General Partner, so long as (a) no portion of the Indebtedness or any other obligation (contingent or otherwise) of such Person (i) is guaranteed by the Partnership or any of its Subsidiaries, (ii) is recourse or obligates the Partnership or any of its Subsidiaries in any way or (iii) subjects any property or asset of the Partnership or any of its Subsidiaries, directly or indirectly, contingently or otherwise, to satisfaction thereof, (b) neither the Partnership nor any of its Subsidiaries has any contract, agreement, arrangement or understanding or is subject to an obligation of any kind, written or oral, with such Person other than on terms no less favorable to the Partnership and its Subsidiaries than those that might be obtained at the time from persons who are not Affiliates of the Partnership, (c) neither the Partnership nor any of its Subsidiaries has any obligation with respect to such Person (i) to subscribe for additional shares of Capital Stock or other Equity Interests therein or (ii) maintain or preserve such Person's financial condition or to cause such Person to achieve certain levels of operating or other financial results, and (d) such Person has no more than $1,000 of assets at the time of such designation. "Obligations" means any principal, premiums, interest, penalties, fees, in- demnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Permitted Investments" means (a) any Investments in Cash Equivalents; (b) any Investments in the Partnership or in a Wholly Owned Subsidiary of the Partnership that is a Guarantor; (c) Investments by the Partnership or any Subsidiary of the Partnership in a Person, if as a result of such Investment (i) such Person becomes a Wholly Owned Subsidiary of the Partnership and a Guarantor or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Partnership or a Wholly Owned Subsidiary of the Partnership that is a Guarantor; and (d) other Investments in Non-Recourse Subsidiaries of the Partnership that do not exceed $30 million at any time outstanding. "Permitted Liens" means (a) Liens existing on the date of the Indenture; (b) Liens in favor of the Issuers or Liens to secure Indebtedness of a Subsidiary of the Partnership to the Partnership or a Wholly Owned Subsidiary of the Partnership; (c) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Partnership or any Subsidiary of the Partnership; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Partnership; (d) Liens on property existing at the time of acquisition thereof by the Partnership or any Subsidiary of the Partnership; provided that such Liens were in existence prior to the contemplation of such acquisition; (e) Liens on any property or asset acquired by the Partnership or any of its Subsidiaries in favor of the seller of such property or asset and 70 construction mortgages on property, in each case, created within six months after the date of acquisition, construction or improvement of such property or asset by the Partnership or such Subsidiary to secure the purchase price or other obligation of the Partnership or such Subsidiary to the seller of such property or asset or the construction or improvement cost of such property in an amount up to 80% of the total cost of the acquisition, construction or improvement of such property or asset; provided that in each case, such Lien does not extend to any other property or asset of the Partnership and its Subsidiaries; (f) Liens incurred or pledges and deposits made in connection with worker's compensation, unemployment insurance and other social security benefits and Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature, in each case, incurred in the ordinary course of business; (g) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (h) Liens imposed by law, such as mechanics', carriers', warehousemen's, materialmen's, and vendors' Liens, incurred in good faith in the ordinary course of business; (i) zoning restrictions, easements, licenses, covenants, reservations, restrictions on the use of real property or minor irregularities of title incident thereto that do not, in the aggregate, materially detract from the value of the property or the assets of the Partnership or any of its Subsidiaries or impair the use of such property in the operation of the business of the Partnership or any of its Subsidiaries; (j) Liens of landlords or mortgagees of landlords, arising solely by operation of law, on fixtures and movable property located on premises leased by the Partnership or any of its Subsidiaries in the ordinary course of business; (k) financing statements granted with respect to personal property leased by the Partnership and its Subsidiaries in the ordinary course of business to the owners of such personal property, provided that such financing statements are granted solely in connection with such leases and not the borrowing of money or the obtaining of advances or credit; (l) judgment Liens to the extent that such judgments do not cause or constitute a Default or an Event of Default; (m) Liens incurred in the ordinary course of business of the Partnership or any Subsidiary of the Partnership with respect to obligations that do not exceed $5 million in the aggregate at any one time outstanding and that (i) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (ii) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Partnership or such Subsidiary; (n) Liens securing Indebtedness incurred to refinance Indebtedness that has been secured by a Lien permitted under the Indenture, provided that (i) any such Lien shall not extend to or cover any assets or property not securing the Indebtedness so refinanced and (ii) the refinancing Indebtedness secured by such Lien shall have been permitted to be incurred under the "Incurrence of Indebtedness and Issuance of Preferred Stock" covenant and shall not have a principal amount in excess of the Indebtedness so refinanced; and (o) any extension or renewal, or successive extensions or renewals, in whole or in part, of Liens permitted pursuant to the foregoing clauses (a) through (m); provided that no such extension or renewal Lien shall (i) secure more than the amount of Indebtedness or other obligations secured by the Lien being so extended or renewed or (ii) extend to any property or assets not subject to the Lien being so extended or renewed. "Permitted Refinancing Indebtedness" means any Indebtedness of the Partnership or any Subsidiary of the Partnership issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Partnership or any of its Subsidiaries (other than Indebtedness under the Credit Facility) or the Indebtedness represented by the then outstanding existing Subordinated Debentures of the Company; provided that (a) the principal amount of such Indebtedness does not exceed the principal amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (b) such Indebtedness has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (c) such Indebtedness is subordinated in right of payment to the Senior Notes on terms at least as favorable to the Holders of Senior Notes as those, if any, contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (d) such Indebtedness (other than indebtedness incurred to 71 extend, refinance, renew, replace, defease or refund the Existing Subordinated Debentures) is incurred by the Partnership or the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Permitted Senior Debt" means, with respect to any Person, (i) any Acquired Debt of such Person, (ii) any Indebtedness incurred by such Person, the proceeds of which are applied solely to finance capital expenditures made to improve or enhance the existing capital assets of such Person or to acquire or construct new capital assets (but excluding capital expenditures necessary to maintain the existing capital assets of such Person) and (iii) any Indebtedness incurred by such Person, the proceeds of which are used solely for working capital purposes. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Restricted Investment" means an Investment other than a Permitted Investment. "Senior Debt" means, without duplication, (i) the Senior Notes, (ii) all other Indebtedness of the Partnership or Finance Corp., unless the instrument under which such Indebtedness is incurred expressly provides that it is subordinated in right of payment to the Notes and (iii) all Indebtedness of Subsidiaries of the Partnership, other than Finance Corp. "Significant Subsidiary" means any Subsidiary of the Partnership that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Interests entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof or, in the case of a partnership, more than 50% of the partners' Capital Interests (considering all partners' Capital Interests as a single class), is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person or a combination thereof. Notwithstanding the foregoing, any Subsidiary of the Partnership that is designated a Non-Recourse Subsidiary pursuant to the definition thereof shall not thereafter be deemed a Subsidiary of the Partnership. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount of such Indebtedness; provided, however, that with respect to any revolving Indebtedness, the foregoing calculation of Weighted Average Life to Maturity shall be determined based upon the total available commitments and the required reductions of commitments in lieu of the outstanding principal amount and the required payments of principal, respectively. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Interests or other ownership interests or, in the case of a limited partnership, all of the partners' Capital Interests (other than up to a 1% general partner interest), of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such Person. 72 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following summary describes the principal federal income tax consequences of ownership and disposition of the Senior Notes to Holders who are initial holders and who purchase the Senior Notes at the "issue price" (as defined below) and certain federal income tax issues affecting the Partnership. This summary represents the opinion of Smith, Gill, Fisher & Butts, P.C., counsel to the General Partner and the Issuers, insofar as it relates to matters of law and legal conclusions. This summary is based on the Internal Revenue Code of 1986, as amended to the date hereof (the "Code"), administrative pronouncements, judicial decisions and existing and proposed Treasury Regulations, changes to any of which subsequent to the date of this Prospectus may affect the tax consequences described herein. This summary discusses only Senior Notes that are held as capital assets within the meaning of Section 1221 of the Code. It does not discuss all of the tax consequences that may be relevant to a Holder in light of its particular circumstances or to Holders subject to special rules, such as certain financial institutions, insurance companies, dealers in securities and foreign persons. This summary also does not discuss any aspects of state, local or foreign tax laws. PERSONS CONSIDERING THE PURCHASE OF SENIOR NOTES SHOULD CONSULT THEIR TAX ADVISORS WITH REGARD TO THE APPLICATION OF THE FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION. CLASSIFICATION OF PARTNERSHIP Concurrently with the closing of this Offering, the Partnership will receive an opinion of counsel that, based on certain representations by the General Partner, under current law the Partnership will be classified as a partnership for federal income tax purposes. No ruling has been requested from the Internal Revenue Service ("IRS") with respect to the classification of the Partnership as a partnership for federal income tax purposes and there can be no assurance that the IRS will not challenge this position or that a court would not sustain such a challenge. In addition, the continued applicability of counsel's opinion is conditioned upon continued compliance by the Partnership with certain representations by the General Partner. If the Partnership were treated as an association or otherwise taxable as a corporation in any taxable year, its items of income, gain, loss, deduction and credit would be reflected only on its tax return rather than being passed through to the Unitholders, and the Partnership would be taxable on its net income at corporate rates. PAYMENTS OF INTEREST Interest paid on a Senior Note will generally be taxable to a Holder as ordinary interest income at the time it accrues or is received in accordance with the Holder's method of accounting for federal income tax purposes. AMORTIZABLE BOND PREMIUM If a Holder purchases a Senior Note for an amount that is greater than its principal amount, such Holder will be considered to have purchased such Senior Note with "amortizable bond premium" equal in amount to such excess, and may elect (in accordance with applicable Code provisions) to amortize such premium, using a constant-yield method, over the term of the Senior Note. Because the Senior Notes are redeemable prior to maturity, the amount of amortizable bond premium will be determined with reference to the amount payable on the earlier redemption date if such determination results in a smaller premium attributable to the period ending on the earlier redemption date. A Holder who elects to amortize bond premium must reduce its tax basis in the Senior Note by the amount of the premium amortizable in any year. Amortizable bond premium is treated as an offset to interest received on the obligation rather than as an interest deduction, except as provided in the Treasury Regulations. An election to amortize bond premium applies to all taxable debt obligations then owned and thereafter acquired by the taxpayer and may be revoked only with the consent of the IRS. 73 SALE, RETIREMENT OR OTHER TAXABLE DISPOSITION OF THE SENIOR NOTES Upon the sale, retirement or other taxable disposition of a Senior Note, a Holder will recognize taxable gain or loss equal to the difference between (a) the amount of cash and the fair market value of property received (not including any amount attributable to accrued interest not previously included in income) in exchange therefor and (b) such Holder's adjusted tax basis in the Senior Note. A Holder's adjusted tax basis in a Senior Note will equal the cost of the Senior Note to such Holder reduced by any amortized premium and any principal payments previously received by the Holder. Any gain or loss recognized on the sale, retirement or other taxable disposition of a Senior Note will be capital gain or loss and will be long-term capital gain or loss if at the time of such sale, retirement or other taxable disposition the Senior Note has been held for more than one year. SUBSEQUENT PURCHASERS The foregoing does not discuss special rules which may affect the treatment of purchasers that acquire Senior Notes other than at the time of original issuance at the issue price, including those provisions of the Code relating to the treatment of "market discount" and "acquisition premium." For example, the market discount provisions of the Code may require a subsequent purchaser of a Senior Note at a market discount to treat all or a portion of any gain recognized upon sale or other disposition of the Senior Note as ordinary income and to defer a portion of any interest expense that would otherwise be deductible on any indebtedness incurred or maintained to purchase or carry such Senior Note until the holder disposes of the Senior Note in a taxable transaction. BACKUP WITHHOLDING AND INFORMATION REPORTING Certain noncorporate Holders may be subject to backup withholding at a rate of 31% on payments of principal, premium and interest on, and the proceeds of disposition of, a Senior Note. Backup withholding will apply only if the Holder (i) fails to furnish its Taxpayer Identification Number ("TIN") which, for an individual, would be his Social Security number, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that such Holder has failed to properly report payments of interest and dividends or (iv) under certain circumstances, fails to certify, under penalty of perjury, that it has furnished a correct TIN and has not been notified by the IRS that such Holder is subject to backup withholding for failure to report interest and dividend payments. Holders should consult their tax advisers regarding their qualification for exemption from backup withholding and the procedure for obtaining such an exemption if applicable. The amount of any backup withholding from a payment to a Holder will be allowed as a credit against such Holder's federal income tax liability and may entitle such Holder to a refund, provided that the required information is furnished to the IRS. THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF THE SENIOR NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS. 74 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement (the "Underwriting Agreement") between the Issuers, and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and Goldman, Sachs & Co. as underwriters (collectively, the "Underwriters"), the Issuers have agreed to issue and sell to the Underwriters, and each Underwriter has severally agreed to purchase from the Issuers, the respective principal amounts of Senior Notes set forth opposite its name below:
PRINCIPAL UNDERWRITERS AMOUNT Donaldson, Lufkin & Jenrette Securities Corporation......... $150,000,000 Goldman, Sachs & Co......................................... 100,000,000 ------------ Total..................................................... $250,000,000 ============
The Underwriting Agreement provides that the obligations of the several Underwriters are subject to the approval of certain legal matters by counsel and to certain other conditions. If any of the Senior Notes are purchased by the Underwriters pursuant to the Underwriting Agreement, all such Senior Notes must be so purchased. The Underwriters have advised the Issuers that the Underwriters propose to offer the Senior Notes to the public initially at the price set forth on the cover page of this Prospectus. After the initial public offering, the public offering price and such concessions may be changed at any time without notice. The Underwriters do not intend to confirm sales of Senior Notes offered hereby to any account over which they exercise discretionary authority. The Senior Notes will constitute a new class of securities with no established trading market. The Issuers do not intend to list the Senior Notes on any national securities exchange or to seek the admission of the Senior Notes for quotation and trading in the Nasdaq National Market. The Issuers have been advised by the Underwriters that following the completion of the Offering, the Underwriters currently intend to make a market in the Senior Notes. However, the Underwriters are not obligated to do so and any market-making activities with respect to the Senior Notes may be discontinued at any time without notice at the Underwriters' sole discretion. In addition, such market making activity will be subject to the limits imposed by the Securities Act and the Exchange Act. Accordingly, no assurance can be given as to the liquidity of or the trading market for the Senior Notes. The Issuers have agreed to indemnify the Underwriters against certain liabilities in connection with the offer and sale of the Senior Notes, including liabilities under the Securities Act, and to contribute to payments that the Underwriters may be required to make in respect thereof. Each of the Underwriters is acting as an underwriter in connection with the concurrent offering of Common Units by the Master Partnership and will receive underwriting discounts and commissions in connection therewith. See "The Transactions." In addition, the Company has retained DLJ as Dealer/Manager for the Tender Offer. 75 LEGAL MATTERS Certain legal matters relating to the Senior Notes being offered hereby are being passed upon for the Issuers by Smith, Gill, Fisher & Butts, P.C., Kansas City, Missouri. The validity of the Senior Notes is being passed upon for the Underwriters by Latham & Watkins, New York, New York. EXPERTS The consolidated financial statements of Ferrellgas, Inc. as of April 30, 1994 and July 31, 1993 and 1992 and for the nine months ended April 30, 1994 and for each of the three years in the period ended July 31, 1993 included in this Prospectus and the related financial statement schedules included elsewhere in the Registration Statement have been audited by Deloitte & Touche, independent auditors, as stated in their reports appearing herein and elsewhere in the Registration Statement (which reports expressed an unqualified opinion and included an explanatory paragraph concerning an uncertainty involving an income tax matter), and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. The consolidated balance sheet of Ferrellgas, L.P. as of May 20, 1994, included in this Prospectus has been audited by Deloitte & Touche, independent auditors, as stated in their report appearing herein, and has been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The consolidated balance sheet of Ferrellgas Finance Corp. as of May 20, 1994, included in this Prospectus has been audited by Deloitte & Touche, independent auditors, as stated in their report appearing herein, and has been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The pro forma financial information of Ferrellgas, L.P. included in this Prospectus has been examined by Deloitte & Touche, independent accountants, as stated in their report appearing herein, and has been so included in reliance upon the report of such firm given upon their authority as experts in accounting. ADDITIONAL INFORMATION The Issuers have filed with the Securities and Exchange Commission (the "Commission") a Registration Statement (which term shall encompass all amendments, exhibits and schedules thereto) on Form S-1 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Senior Notes being offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, certain items of which are omitted in accordance with the rules and regulations of the Commission, and to which reference is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to herein are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by this reference. Immediately following this Offering, the Issuers will be subject to the informational requirements of the Securities Act of 1934, as amended (the "Exchange Act"), and in accordance therewith will be required to file reports and other information with the Commission. In addition, the Issuers have agreed, whether or not required by the rules and regulations of the Commission, for so long as the Senior Notes are outstanding to file with the Commission (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if the Issuers were required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of 76 Operations" and, with respect to the annual information only, a report thereon by the Issuer's certified independent accountants and (ii) all reports that would be required to be filed with the Commission on Form 8-K if the Issuers were required to file such reports. To the extent permitted under the rules and regulations of the Commission, such information and reports with respect to the Master Partnership may be filed in lieu of such information and reports with respect to the Partnership. The Registration Statement and the exhibits and schedules thereto, as well as such reports and other information filed with the Commission, can be inspected and copies at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and the following regional offices of the Commission, 7 World Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such information can also be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Issuers have agreed to furnish to the holders of the Senior Notes all such reports and information required to be filed with the Commission pursuant to the preceding paragraph. 77 FERRELLGAS, L.P. INDEX TO FINANCIAL STATEMENTS
PAGE Ferrellgas L.P. Pro Forma Consolidated Financial Statements: Independent Accountants' Report......................................... F-2 Pro Forma Consolidated Balance Sheet--April 30, 1994.................... F-3 Pro Forma Consolidated Statement of Earnings--Nine Months Ended April 30, 1994 and Year Ended July 31, 1993.................................. F-4 Notes to Pro Forma Consolidated Financial Statements.................... F-5 Ferrellgas, L.P. Historical Consolidated Financial Statements: Independent Auditors' Report............................................ F-7 Consolidated Balance Sheet--May 20, 1994................................ F-8 Note to Consolidated Balance Sheet...................................... F-9 Ferrellgas Finance Corp. Historical Financial Statements: Independent Auditors' Report............................................ F-10 Balance Sheet--May 20, 1994............................................. F-11 Note to Balance Sheet................................................... F-12 Ferrellgas, Inc. Historical Consolidated Financial Statements: Independent Auditors' Report............................................ F-13 Consolidated Balance Sheet--April 30, 1994 and July 31, 1993 and 1992... F-14 Consolidated Statement of Operations--Nine Months Ended April 30, 1994 and 1993 (unaudited), and Years Ended July 31, 1993, 1992 and 1991..... F-15 Consolidated Statement of Stockholder's Equity--Nine months Ended April 30, 1994 and Years Ended July 31, 1993, 1992 and 1991.................. F-16 Consolidated Statement of Cash Flows--Nine Months Ended April 30, 1994 and 1993 (unaudited), and Years Ended July 31, 1993, 1992 and 1991..... F-17 Notes to Consolidated Financial Statements.............................. F-18
F-1 INDEPENDENT ACCOUNTANTS' REPORT Board of Directors Ferrellgas, L.P. Liberty, Missouri We have examined the pro forma adjustments reflecting the proposed transactions described in the Notes to Pro Forma Consolidated Financial Statements and the application of those adjustments to the historical amounts in the accompanying pro forma consolidated balance sheet of Ferrellgas, L.P. as of April 30, 1994, and the related pro forma consolidated statements of earnings for the nine- month period ended April 30, 1994, and the year ended July 31, 1993. The historical financial statements are derived from the historical financial statements of Ferrellgas, Inc. and subsidiaries, which were audited by us (on which we have issued our report dated June 3, 1994, which expressed an unqualified opinion and included an explanatory paragraph concerning an uncertainty involving an income tax matter) that appears elsewhere herein. Such pro forma adjustments are based upon management's assumptions described in the Notes to Pro Forma Consolidated Financial Statements. Our examination was made in accordance with standards established by the American Institute of Certified Public Accountants and, accordingly, included such procedures as we considered necessary in the circumstances. The objective of this pro forma financial information is to show what the significant effects on the historical financial information might have been had the proposed transactions occurred at an earlier date. However, the pro forma consolidated financial statements are not necessarily indicative of the results of operations or related effects on financial position that would have been attained had the above-mentioned proposed transactions actually occurred earlier. In our opinion, management's assumptions provide a reasonable basis for presenting the significant effects directly attributable to the above-mentioned proposed transactions described in the Notes to Pro Forma Consolidated Financial Statements, the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma column reflects the proper application of those adjustments to the historical financial statement amounts in the pro forma consolidated balance sheet of Ferrellgas, L.P. as of April 30, 1994, and the related pro forma consolidated statements of earnings for the nine-month period ended April 30, 1994, and the year ended July 31, 1993. DELOITTE & TOUCHE Kansas City, Missouri June 3, 1994 F-2 FERRELLGAS, L.P. PRO FORMA CONSOLIDATED BALANCE SHEET APRIL 30, 1994 (IN THOUSANDS)
COMPANY PARTNERSHIP HISTORICAL ADJUSTMENTS PRO FORMA ASSETS CURRENT ASSETS: Cash and short-term invest- ments......................... $ 88,151 $ 255,520 (A) $ 20,886 (254,001)(B) (29,679)(C) (39,105)(D) Accounts and notes receivable.. 55,869 (500)(D) 55,369 Inventories.................... 29,781 -- 29,781 Prepaid expenses and other cur- rent assets................... 3,272 -- 3,272 -------- --------- -------- TOTAL CURRENT ASSETS......... 177,073 (67,765) 109,308 Property, plant and equipment.. 295,423 -- 295,423 Intangible assets.............. 65,569 -- 65,569 Investment in Class B redeem- able common stock of parent... 36,031 (36,031)(D) -- Other assets................... 22,017 (13,857)(B),(C),(D) 8,160 Note receivable from parent.... 4,000 (4,000)(D) -- -------- --------- -------- TOTAL ASSETS................. $600,113 $(121,653) $478,460 ======== ========= ======== LIABILITIES AND SPONSOR EQUITY/PARTNERS' CAPITAL CURRENT LIABILITIES: Accounts payable............... $ 34,266 $ -- $ 34,266 Current portion of long-term debt.......................... 1,486 -- 1,486 Accrued interest expense....... 17,237 (17,111)(B),(C) 126 Other current liabilities...... 19,829 -- 19,829 Payable to parent.............. 91 -- 91 -------- --------- -------- TOTAL CURRENT LIABILITIES.... 72,909 (17,111) 55,798 Long-term debt................. 476,471 (204,030)(B),(C) 272,441 Other liabilities.............. 10,534 -- 10,534 Deferred income taxes.......... 9,351 (9,351)(D) -- SPONSOR EQUITY/PARTNERS' CAPITAL: Equity of sponsor.............. 30,848 255,520 (A) -- (24,641)(B) (38,597)(C) (83,443)(D) (139,687)(E) PARTNERS' CAPITAL: Limited partner................ -- 138,277 (E) 138,277 General partner................ -- 1,410 (E) 1,410 -------- --------- -------- TOTAL SPONSOR EQUITY/PARTNERS' CAPITAL.... 30,848 108,839 139,687 -------- --------- -------- TOTAL LIABILITIES AND SPONSOR EQUITY/PARTNERS' CAPITAL.... $600,113 $(121,653) $478,460 ======== ========= ========
See notes to pro forma consolidated financial statements. F-3 FERRELLGAS, L.P. PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS (IN THOUSANDS, EXCEPT RATIO)
YEAR ENDED JULY 31, 1993 NINE MONTHS ENDED APRIL 30, 1994 ------------------------------------ ------------------------------------ COMPANY PARTNERSHIP COMPANY PARTNERSHIP HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA REVENUES: Gas liquids and related product sales................ $516,891 $ -- $516,891 $430,401 $ -- $430,401 Other................. 25,054 -- 25,054 20,076 -- 20,076 -------- ------- -------- -------- ------- -------- Total revenues...... 541,945 -- 541,945 450,477 -- 450,477 COSTS AND EXPENSES: Cost of product sold.. 298,033 -- 298,033 229,326 -- 229,326 Operating............. 139,617 -- 139,617 112,687 -- 112,687 Depreciation and amortization......... 30,840 -- 30,840 21,688 -- 21,688 General and administrative....... 10,079 500 (F) 10,579 8,128 375 (F) 8,503 Vehicle leases........ 4,823 -- 4,823 3,203 -- 3,203 -------- ------- -------- -------- ------- -------- Total costs and expenses........... 483,392 500 483,892 375,032 375 375,407 -------- ------- -------- -------- ------- -------- OPERATING INCOME........ 58,553 (500) 58,053 75,445 (375) 75,070 Loss on disposal of assets............... (1,153) -- (1,153) (888) -- (888) Interest income....... 3,266 (2,368)(G) 898 2,791 (1,912)(G) 879 Interest expense...... (60,071) 30,851 (H) (29,220) (44,233) 22,942 (H) (21,291) -------- ------- -------- -------- ------- -------- EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM................... 595 27,983 28,578 33,115 20,655 53,770 Income tax expense...... 486 (486)(I) -- 12,759 (12,759)(I) -- -------- ------- -------- -------- ------- -------- EARNINGS FROM CONTINUING OPERATIONS (BEFORE EXTRAORDINARY ITEM).... $ 109 $28,469 28,578 $ 20,356 $33,414 53,770 ======== ======= ======== ======= GENERAL PARTNER'S INTEREST IN EARNINGS FROM CONTINUING OPERATIONS............. 289 544 -------- -------- LIMITED PARTNERS' INTEREST IN NET EARNINGS FROM CONTINUING OPERATIONS.. $ 28,289 $ 53,226 ======== ======== RATIO OF EARNINGS TO FIXED CHARGES.......... 1.0x 1.9x 1.7x 3.2x ======== ======== ======== ========
See notes to pro forma consolidated financial statements. F-4 FERRELLGAS, L.P. NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED APRIL 30, 1994 AND YEAR ENDED JULY 30, 1993 The pro forma financial statements are based upon the historical financial position and results of operations of Ferrellgas, Inc. and its subsidiaries ("Ferrellgas"). The propane business of Ferrellgas will be owned and operated by a newly formed limited partnership (the "Partnership"). Ferrellgas will convey substantially all of its assets to the Partnership (excluding cash, receivables from parent and affiliates and an investment in the Class B Stock of parent) and the Partnership will assume all of the liabilities, whether known or unknown, associated with the business that are reflected or should be reflected on the balance sheet of the Company prepared in accordance with generally accepted accounting principles (excluding income tax liabilities). In connection with the acquisition of the propane business, the Master Partnership will issue Common Units, Subordinated Units and Incentive Distribution Rights to Ferrellgas, as well as general partner interests in the Partnership and the Partnership. Ferrellgas will make a dividend of the Common Units, Subordinated Units and Incentive Distribution Rights to its parent, Ferrell Companies, Inc. The Partnership has also agreed with Ferrellgas to be primarily responsible for all obligations of Ferrellgas under the approximately $477,957,000 of Ferrellgas long-term debt outstanding as of April 30, 1994. Substantially all of this long-term debt will be retired with the net proceeds from the sale by the Master Partnership of the Common Units (estimated to be approximately $255,520,000) and the net proceeds from the issuance of $200,000,000 aggregate principal amount of 10% Fixed Rate Senior Notes (the "Fixed Rate Senior Notes") and $50,000,000 aggregate principal amount of Floating Rate Senior Notes (the "Floating Rate Senior Notes" and, together with the Fixed Rate Senior Notes, the "Senior Notes") (estimated to be $244,250,000) to be issued by the Partnership. The following pro forma adjustments have been prepared as if the transactions to be effected at the closing of the offering of Senior Notes and the offering of Common Units (assuming that the Underwriters' overallotment option is not exercised) had taken place on April 30, 1994, in the case of the pro forma consolidated balance sheet, or as of August 1, 1992, in the case of the pro forma consolidated statement of income for the year ended July 31, 1993, or as of August 1, 1993 in the case of the pro forma consolidated statement of income for the nine months ended April 30, 1994. The adjustments are based upon currently available information and certain estimates and assumptions, and therefore the actual adjustments may differ from the pro forma adjustments. However, management believes that the assumptions provide a reasonable basis for presenting the significant effects of the transactions as contemplated and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the pro forma financial information. (A) Reflects the net proceeds to the Master Partnership of approximately $255,520,000 from the issuance and sale of 13,100,000 Common Units at an offering price of $21.0 per Common Unit, net of the Underwriters' discount ($17,881,500) and offering expenses (estimated to be $1,700,000), and a concurrent transfer of such net proceeds to the Partnership in return for an additional limited partnership interest in the Partnership to the Master Partnership. (B) Reflects the retirement of $227,600,000 in aggregate principal amount of Existing Senior Notes and the payment of related accrued interest of $6,051,000 and defeasance interest of $814,000 from the net proceeds from the sale by the Partnership of the Common Units and existing cash balances of the Partnership. The early extinguishment of the Existing Senior Notes results in an extraordinary loss of approximately $24,641,000, resulting from prepayment premiums of $19,536,000, the write-off of unamortized financing costs of $4,291,000, and defeasance interest of $814,000. (C) Reflects the net proceeds to the Partnership of approximately $244,250,000 from the issuance of $250,000,000 of Senior Notes, net of the Underwriters' discount ($5,000,000) and offering expenses (estimated F-5 FERRELLGAS, L.P. NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED APRIL 30, 1994 AND YEAR ENDED JULY 31, 1993 to be $750,000), and the proceeds from term loan borrowings on the Partnership's Credit Facility of approximately $20,000,000 (anticipated to be approximately $15,000,000 at closing). The net proceeds from the issuance of the Senior Notes and existing cash balances of the Partnership are used to retire the $250,000,000 face amount (carrying amount of $246,430,000) Existing Subordinated Debentures, and the payment of related accrued interest of $11,060,000. The early extinguishment of the Existing Subordinated Debentures results in an extraordinary loss of approximately $38,597,000, resulting from subordinated bondholder consent solicitation and tender offer fees of $31,250,000, write-off of unamortized note discount of $3,570,000, and write- off of unamortized financing costs of $3,777,000. The Operating Partnership will incur estimated additional financing costs of approximately $6,369,000 in connection with the issuance of the Senior Notes and entrance into the Credit Facility, each of which will be deferred and amortized over the term of the indebtedness. (D) Reflects elimination of the assets, liabilities and equity of the Company that will not be conveyed to the Partnership, including approximately $39,105,000 of cash, receivables from parent and affiliates of $17,658,000, investment in Class B stock of Ferrell of $36,031,000, income tax liabilities of $9,351,000 and equity of the Company of $83,443,000. (E) Reflects the allocation of Partnership equity resulting from the completion of the transactions associated with the closing of this offering, using the following relative partnership interests: (1) general partner interest in the Partnership equal to 1.0101% of total partners' capital; and (2) limited partner interest in the Partnership equal to 98.9899%. (F) Reflects estimated incremental general and administrative costs (e.g. costs of tax return preparation and annual and quarterly reports to Unitholders, investor relations and registrar and transfer agent fees) associated with the Partnership at an annual rate of $500,000. (G) Reflects the reduction of interest income to the Partnership as a result of the reduction in cash balances available for short-term investment opportunity. (H) Reflects the adjustment to interest expense resulting from the transactions described in (B) and (C) above, reconciled as follows (in thousands):
NINE YEAR MONTHS ENDED ENDED JULY 31, APRIL 30, 1993 1994 Historical interest expense attributable to retired debt: Interest expense on senior notes....................... $ 26,741 $ 18,923 Interest expense on subordinated debentures............ 29,063 21,797 Amortization of note discount and financing costs...... 2,577 2,157 --------- --------- 58,381 42,877 --------- --------- Pro forma interest expense applicable to the Partnership: Weighted average interest rate of 9.56% per annum on the Senior Notes...................................... (23,906) (17,921) Amortization of note discount and financing costs on all indebtedness...................................... (1,056) (792) Interest expense attributable to Credit Facility....... (2,568) (1,222) --------- --------- (27,530) (19,935) --------- --------- Pro forma interest expense reductions.................. $ 30,851 $ 22,942 ========= =========
(I) Reflects the elimination of the provision for current and deferred income taxes as income taxes will be borne by the partners and not the Partnership. F-6 INDEPENDENT AUDITORS' REPORT Board of Directors Ferrellgas, L.P. Liberty, Missouri We have audited the accompanying consolidated balance sheet of Ferrellgas, L.P. and subsidiary as of May 20, 1994. This financial statement is the responsibility of the Partnership's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated balance sheet presents fairly, in all material respects, the financial position of Ferrellgas, L.P. and subsidiary as of May 20, 1994, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE Kansas City, Missouri June 3, 1994 F-7 FERRELLGAS, L.P., AND SUBSIDIARY CONSOLIDATED BALANCE SHEET MAY 20, 1994 ASSETS Cash.................................................................. $1,000 ------ Total Assets........................................................ $1,000 ====== PARTNERS' CAPITAL General Partner....................................................... $ 10 Limited Partner....................................................... 990 ------ Total Partners' Capital............................................. $1,000 ======
See note to consolidated balance sheet. F-8 FERRELLGAS, L.P., AND SUBSIDIARY NOTE TO CONSOLIDATED BALANCE SHEET MAY 20, 1994 Ferrellgas, L.P. (the "Partnership") was formed April 22, 1994 as a Delaware limited partnership. The Partnership was formed to acquire, own and operate substantially all of the assets of Ferrellgas, Inc. ("Ferrellgas"). Ferrellgas will convey substantially all of its assets to the Partnership (excluding cash, receivables from parent and affiliates and an investment in the Class B Stock of Parent) and all of the liabilities, whether known or unknown, associated with such assets (other than income tax liabilities). The Partnership has agreed with Ferrellgas to assume the payment obligations of Ferrellgas under its Series A and Series C Floating Rate Notes (due 1996), the Series B and Series D Fixed Rate Notes and its 11 5/8% Senior Subordinated Debentures. The Partnership has not commenced operations. The sole limited partner of the Partnership, Ferrellgas Partners, L.P. (the "Master Partnership") intends to offer Common Units, representing limited partner interests in the Master Partnership, to third parties and to concurrently issue Common Units, Subordinated Units and Incentive Distribution Rights, representing additional limited partner interest in the Master Partnership, to the general partner of the Master Partnership, Ferrellgas. The Partnership intends to offer $250,000,000 aggregate principal amount of Senior Notes. Such proceeds and the net proceeds of the Master Partnership's offering of Common Units are intended to be utilized to retire substantially all of the existing Senior Notes and existing Subordinated Debentures that the Partnership will assume the related payment obligations from Ferrellgas. Ferrellgas, as general partner, contributed $10 and the Master Partnership, as limited partner contributed $990 to the Partnership on May 20, 1994. There have been no other transactions involving the Partnership as of May 20, 1994. The consolidated balance sheet includes the accounts of the Partnership and its wholly-owned subsidiary Ferrellgas Finance Corp. All material intercompany balances have been eliminated. F-9 INDEPENDENT AUDITORS' REPORT Board of Directors Ferrellgas Finance Corp. Liberty, Missouri We have audited the accompanying balance sheet of Ferrellgas Finance Corp. (a wholly-owned subsidiary of Ferrellgas, L.P.), as of May 20, 1994. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such balance sheet presents fairly, in all material respects, the financial position of Ferrellgas Finance Corp. as of May 20, 1994 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE Kansas City, Missouri June 3, 1994 F-10 FERRELLGAS FINANCE CORP. (A WHOLLY-OWNED SUBSIDIARY OF FERRELLGAS, L.P.) BALANCE SHEET MAY 20, 1994 ASSETS Cash................................................................... $1,000 ------ Total Assets......................................................... $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 ======
See note to balance sheet. F-11 FERRELLGAS FINANCE CORP. (A WHOLLY-OWNED SUBSIDIARY OF FERRELLGAS, L.P.) NOTE TO BALANCE SHEET MAY 20, 1994 Ferrellgas Finance Corp. (the "Company"), a Delaware corporation, was formed on April 28, 1994 and is a wholly-owned subsidiary of Ferrellgas, L.P. (the "Partnership"). Ferrellgas, L.P. was formed April 19, 1994 as a Delaware limited partnership. The Partnership was formed to acquire, own and operate substantially all of the assets of Ferrellgas, Inc. ("Ferrellgas"). Ferrellgas will convey substantially all of its assets to the Partnership (excluding cash, receivables from parent and affiliates and an investment in the Class B Stock of Parent) and all of the liabilities, whether known or unknown, associated with such assets (other than income tax liabilities). The Partnership has agreed with Ferrellgas to assume the payment obligations of Ferrellgas under its existing floating rate notes, fixed rate notes and senior subordinated debentures. The Partnership intends to offer $250,000,000 aggregate principal amount of Senior Notes. The Company will serve as a co-obligor for the new Senior Notes to be offered. The Partnership contributed $1,000 to the Company on May 20, 1994. There have been no other transactions involving the Company as of May 20, 1994. F-12 INDEPENDENT AUDITORS' REPORT Board of Directors Ferrellgas, Inc. Liberty, Missouri We have audited the accompanying consolidated balance sheet of Ferrellgas, Inc. (a wholly owned subsidiary of Ferrell Companies, Inc.) and subsidiaries as of April 30, 1994 and July 31, 1993 and 1992, and the related consolidated statements of operations, stockholder's equity and cash flows for the nine months ended April 30, 1994 and for each of the three years in the period ended July 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Ferrellgas, Inc. and subsidiaries as of April 30, 1994 and July 31, 1993 and 1992, and the results of their operations and their cash flows for the nine months ended April 30, 1994 and for each of the three years in the period ended July 31, 1993, in conformity with generally accepted accounting principles. As discussed in Note J to the consolidated financial statements, the Internal Revenue Service has proposed certain adjustments to the Company's consolidated income tax returns for the years ended July 31, 1987 and 1986. The ultimate outcome of this matter cannot presently be determined. Accordingly, no provision for any loss that may result upon resolution of this matter has been made in the accompanying consolidated financial statements. DELOITTE & TOUCHE Kansas City, Missouri June 3, 1994 F-13 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE DATA)
JULY 31 APRIL 30, ------------------ ASSETS 1994 1993 1992 ------ --------- -------- -------- CURRENT ASSETS: Cash and cash equivalents...................... $ 58,806 $ 32,706 $ 27,959 Short-term investments......................... 29,345 25,040 23,165 Accounts and notes receivable including related party (1994--$500; 1993--$500; 1992--$1,000), less allowance for doubtful accounts (1994--$884; 1993--$607; 1992--$837)....................... 55,869 52,190 53,802 Inventories.................................... 29,781 23,652 33,881 Prepaid expenses and other current assets...... 3,272 1,898 3,020 Receivable from parent and affiliate........... -- 916 26 -------- -------- -------- TOTAL CURRENT ASSETS......................... 177,073 136,402 141,853 Property, plant and equipment.................... 295,423 303,816 313,126 Intangible assets................................ 65,569 72,537 82,448 Other assets, including notes receivable from related parties (1994--$13,158; 1993--$10,909; 1992--$10,088)... 22,017 21,833 23,137 Investment in Class B redeemable common stock of parent.......................................... 36,031 36,031 32,813 Deferred income taxes............................ -- 2,757 2,094 Note receivable from parent...................... 4,000 -- 3,142 -------- -------- -------- TOTAL ASSETS................................. $600,113 $573,376 $598,613 ======== ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts payable............................... $ 34,266 $ 32,946 $ 44,864 Other current liabilities...................... 38,552 29,048 29,016 Payable to parent.............................. 91 -- -- -------- -------- -------- TOTAL CURRENT LIABILITIES.................... 72,909 61,994 73,880 Long-term debt................................... 476,471 489,589 501,614 Other liabilities................................ 10,534 10,434 8,907 Payable to parent................................ -- -- 2,542 Note and accrued interest payable to parent and affiliate....................................... -- -- 2,862 Deferred income taxes............................ 9,351 -- -- STOCKHOLDER'S EQUITY: Common stock, one dollar par value; 10,000 shares authorized; 990 shares issued.......... 1 1 1 Additional paid-in capital..................... 32,863 32,863 29,535 Accumulated deficit............................ (2,016) (21,505) (20,728) -------- -------- -------- TOTAL STOCKHOLDER'S EQUITY................... 30,848 11,359 8,808 -------- -------- -------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY... $600,113 $573,376 $598,613 ======== ======== ========
See notes to consolidated financial statements. F-14 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS)
FOR THE NINE MONTHS FOR THE YEAR ENDED JULY ENDED 31, ---------------------- ---------------------------- APRIL 30, APRIL 30, 1994 1993 1993 1992 1991 --------- ----------- -------- -------- -------- (UNAUDITED) REVENUES: Gas liquids and related products.............. $430,401 $448,269 $516,891 $480,088 $515,507 Other.................. 20,076 20,033 25,054 21,041 28,426 -------- -------- -------- -------- -------- Total revenues....... 450,477 468,302 541,945 501,129 543,933 -------- -------- -------- -------- -------- COSTS AND EXPENSES: Cost of products sold.. 229,326 256,736 298,033 267,279 297,968 Operating.............. 112,687 112,553 139,617 134,165 129,684 Depreciation and amor- tization.............. 21,688 23,238 30,840 31,196 36,151 General and administra- tive.................. 8,128 7,385 10,079 7,561 12,953 Vehicle leases......... 3,203 3,682 4,823 4,520 4,132 -------- -------- -------- -------- -------- Total costs and ex- penses.............. 375,032 403,594 483,392 444,721 480,888 -------- -------- -------- -------- -------- OPERATING INCOME......... 75,445 64,708 58,553 56,408 63,045 Loss on disposal of as- sets.................... (888) (947) (1,153) (1,959) (2,842) Interest income, includ- ing related parties ($787 and $539 at April 30, 1994 and 1993, re- spectively; $725, $890, and $696 at July 31, 1993, 1992 and 1991, re- spectively)............. 2,791 2,333 3,266 4,401 3,841 Interest expense, includ- ing parent and affiliate ($114 at April 30, 1993; $153, $180 and $238 at July 31, 1993, 1992, and 1991, respectively)..... (44,233) (45,056) (60,071) (61,219) (60,507) -------- -------- -------- -------- -------- Earnings (loss) before income taxes and ex- traordinary loss........ 33,115 21,038 595 (2,369) 3,537 Income tax expense (bene- fit).................... 12,759 8,253 486 (669) 1,558 -------- -------- -------- -------- -------- Earnings (loss) before extraordinary loss...... 20,356 12,785 109 (1,700) 1,979 Extraordinary loss on early extinguishment of debt, net of income taxes ($531 at April 30, 1994; $543 and $6,116 at July 31, 1993 and 1992, respectively)........... 867 -- 886 9,979 -- -------- -------- -------- -------- -------- NET EARNINGS (LOSS)...... $ 19,489 $ 12,785 $ (777) $(11,679) $ 1,979 ======== ======== ======== ======== ========
See notes to consolidated financial statements. F-15 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
NUMBER OF ADDITIONAL TOTAL COMMON COMMON PAID-IN ACCUMULATED STOCKHOLDER'S SHARES STOCK CAPITAL DEFICIT EQUITY --------- ------ ---------- ----------- ------------- BALANCE AUGUST 1, 1990... 990 $ 1 $22,490 $(11,028) $ 11,463 Capital contribution from parent................... -- -- 6,687 -- 6,687 Capital transaction-- Ferrell Companies, Inc. Long-Term Incentive Plan.................... -- -- 1,558 -- 1,558 Net earnings............. -- -- -- 1,979 1,979 --- ------ ------- -------- -------- BALANCE JULY 31, 1991.... 990 1 30,735 (9,049) 21,687 Capital transaction-- Ferrell Companies, Inc. Long-Term Incentive Plan.................... -- -- (1,200) -- (1,200) Net loss................. -- -- -- (11,679) (11,679) --- ------ ------- -------- -------- BALANCE JULY 31, 1992.... 990 1 29,535 (20,728) 8,808 Capital contribution from parent.................. -- -- 3,277 -- 3,277 Capital transaction -- Ferrell Companies, Inc. Long-Term Incentive Plan.................... -- -- 51 -- 51 Net loss................. -- -- -- (777) (777) --- ------ ------- -------- -------- BALANCE JULY 31, 1993.... 990 1 32,863 (21,505) 11,359 Net earnings............. -- -- -- 19,489 19,489 --- ------ ------- -------- -------- BALANCE APRIL 30, 1994... 990 $ 1 $32,863 $ (2,016) $ 30,848 === ====== ======= ======== ========
See notes to consolidated financial statements. F-16 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED JULY 31, --------------------- ----------------------------- APRIL 30, APRIL 30, 1994 1993 1993 1992 1991 --------- ----------- -------- --------- -------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Earnings (loss) before extraordinary loss..... $20,356 $12,785 $ 109 $ (1,700) $ 1,979 Reconciliation of earnings (loss) to net cash provided by operating activities: Depreciation and amortization......... 21,688 23,238 30,840 31,196 36,151 Other................. 4,127 4,664 5,236 7,007 8,141 Decrease (increase) in assets: Accounts and notes receivable......... (4,610) (4,023) (252) (1,475) (10,001) Inventories......... (6,129) 13,730 10,229 (12,447) (4,620) Prepaid expenses and other current assets............. (1,374) 206 977 (801) (218) Increase (decrease) in liabilities: Accounts payable.... 1,320 (23,323) (11,918) 3,742 7,851 Other current liabilities........ 10,278 11,959 1,729 (1,912) 9,780 Other liabilities... (49) 151 131 325 871 Deferred income taxes.............. 12,639 7,694 (120) (970) 1,006 ------- ------- -------- --------- -------- Net cash provided by operating activities..... 58,246 47,081 36,961 22,965 50,940 ------- ------- -------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures.... (8,330) (11,816) (14,188) (20,392) (25,942) Net short-term investment activity.... (4,305) (25,894) (1,875) (23,165) -- Proceeds from asset sales.................. 643 1,670 1,983 3,040 1,315 Net additions to intangible assets...... (62) (1) (82) (3,175) (9,619) Net reductions (additions) to other assets................. (271) (2) 1 (520) (14) ------- ------- -------- --------- -------- Net cash used in investing activities............... (12,325) (36,043) (14,161) (44,212) (34,260) ------- ------- -------- --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Additions to long-term debt................... -- -- 81 246,804 3,202 Reductions of long-term debt................... (13,336) (1,863) (12,796) (212,637) (2,964) Additional payments to retire debt............ (1,190) -- (1,195) (11,983) -- Additions to financing costs.................. (53) (24) (627) (4,918) (644) Investment in Class B redeemable common stock of parent.............. -- (3,218) (3,218) (9,092) (7,249) Net advances to related party.................. (2,249) 585 (59) (3,832) (2,756) Net advances from (to) parent and affiliates.. (2,993) (274) (239) (2,907) 718 ------- ------- -------- --------- -------- Net cash provided by (used in) financing activities. (19,821) (4,794) (18,053) 1,435 (9,693) ------- ------- -------- --------- -------- Increase (decrease) in cash and cash equivalents.............. 26,100 6,244 4,747 (19,812) 6,987 Cash and cash equivalents--beginning of year..................... 32,706 27,959 27,959 47,771 40,784 ------- ------- -------- --------- -------- CASH AND CASH EQUIVALENTS--END OF PERIOD................... $58,806 $34,203 $ 32,706 $ 27,959 $ 47,771 ======= ======= ======== ========= ========
See notes to consolidated financial statements. F-17 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED) AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991 A. BASIS OF PRESENTATION: The accompanying consolidated financial statements and related notes present the consolidated financial position, results of operations and cash flows of Ferrellgas, Inc. (the "Company") and its subsidiaries. The Company is a wholly- owned subsidiary of Ferrell Companies, Inc. ("Ferrell" or "Parent"). These consolidated financial statements are prepared in connection with the proposed public offering of limited partner interests in Ferrellgas Partners, L.P. (the "Master Partnership"), as described in Note B. B. INITIAL PUBLIC OFFERING OF COMMON UNITS AND OTHER TRANSACTIONS The Master Partnership was formed April 19, 1994, as a Delaware limited partnership. The Master Partnership was formed to acquire, own and operate the propane business and substantially all of the assets of the Company. In order to simplify the Master Partnership's obligations under the laws of several jurisdictions in which the Master Partnership will conduct business, the Master Partnership's activities will be conducted through a subsidiary operating partnership, Ferrellgas, L.P. (the "Partnership"). The Company will convey substantially all of the assets to the Partnership (excluding cash, payables to or receivables from Parent and affiliates and an investment in Class B Stock of Parent) and all of the liabilities, whether known or unknown, associated with such assets (other than income tax liabilities). The Master Partnership intends to offer 13,100,000 Common Units, representing limited partner interests in the Master Partnership, to third parties and to concurrently issue Common Units, Subordinated Units and Incentive Distribution Rights, representing additional limited partner interests in the Partnership, to the Company, as well as a 2% general partner interest in the Master Partnership and the Partnership, on a combined basis. The Company will make a dividend of such Common Units, Subordinated Units and Incentive Distribution Rights to its parent, Ferrell. The Partnership will assume the payment obligations of the Company under its Series A and Series C Floating Rate Senior Notes due 1996 (the "Existing Floating Rate Notes"), its Series B and Series D Fixed Rate Senior Notes (the "Existing Fixed Rate Notes" and together with the Existing Floating Rate Notes the "Existing Senior Notes") and its 11 5/8% Senior Subordinated Debentures (the "Existing Subordinated Debentures"). All of this long-term debt will be retired with the net proceeds from the sale by the Master Partnership of the Common Units and the net proceeds from the issuance of approximately $250,000,000 in aggregate principal amount of Senior Notes due 2001 to be issued by the Partnership. Concurrent with the closing of the offering of Senior Notes, the Company will consummate a tender offer and consent solicitation with respect to the Existing Subordinated Debentures. The consent solicitation is necessary to modify the indenture related to the Existing Subordinated Debentures in order to permit the Company to consummate the transactions contemplated by this Prospectus. As of June 3, 1994, all outstanding Existing Subordinated Debentures have been tendered and will be retired by the Partnership, as described above. Concurrent with the closing of this offering, the Company will mail to the holders of the Existing Senior Notes a notice of redemption of all outstanding Existing Senior Notes, pursuant to the optional redemption provisions of the indenture governing the Existing Senior Notes (the "Existing Senior Notes F-18 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED) AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991 Indenture"). The redemption date will be 30 days after the date of mailing of such notice. The Existing Senior Notes Indenture provides for a redemption price equal to 100% of the principal amount plus accrued and unpaid interest, if any, to the redemption date plus, in the case of the Existing Fixed Rate Notes, a premium which is based on certain yield information for U.S. Treasury securities as of three business days prior to the redemption date. The Partnership will deposit with the trustee on the date of closing of this offering an amount expected to be more than sufficient to pay the redemption price. As a result of the transactions contemplated hereby, during the 30-day period prior to the redemption date, an event of default will exist under the Existing Senior Notes Indenture. The holders of at least 25% of the principal amount of Existing Senior Notes, therefore, will be entitled, by notice to the Company and the trustee, to declare the unpaid principal of, and accrued and unpaid interest and the applicable premium on, the Existing Senior Notes to be immediately due and payable. In the event of such a declaration, the amount already deposited by the Partnership in payment of the redemption price would be applied to pay the amount so declared immediately due and payable. C. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (1) PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany profits, transactions and balances have been eliminated. The interim financial data for the nine months ended April 30, 1994 is audited. The interim financial data for the nine months ended April 30, 1993 is unaudited; however, in the opinion of management, the 1993 interim data reflects all adjustments, consisting only of normal, recurring adjustments, necessary for a fair statement of the results of the interim period presented. The propane industry is seasonal in nature with peak activity during the winter months. Therefore, the results of operations for the nine months ended April 30, 1994 and 1993 are not indicative of the results to be expected for a full fiscal year. (2) RECLASSIFICATIONS: Certain reclassifications have been made to the 1992 consolidated balance sheet and the 1993, 1992 and 1991 consolidated statement of cash flows in order to conform with the 1994 and 1993 presentation. (3) SHORT-TERM INVESTMENTS: Short-term investments consist of U.S. Treasury Bills and U.S. government obligations with remaining maturities as of April 30, 1994, ranging from approximately four to ten months. Short-term investments are carried at cost which approximates market value. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 115--Accounting for Certain Investments in Debt and Equity Securities, which is effective for fiscal years beginning after December 15, 1993. The statement addresses the accounting and reporting for certain investments in debt and equity securities and expands the use of fair value accounting for those securities but retains the use of the amortized cost method for investments that the Company has the positive intent and ability to hold to maturity. The Company does not believe that the adoption of this statement will have a material effect on the results of operations or financial condition of the Company. F-19 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED) AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991 (4) INVENTORIES: Inventories are stated at the lower of cost or market using average cost and actual cost methods. The Company enters into forward purchase/sale agreements and options involving propane and related products which are for trading purposes. To the extent such contracts are entered into at fixed prices and thereby subject the Company to market risk, the contracts are accounted for on a mark-to-market basis. (5) PROPERTY, PLANT AND EQUIPMENT AND OTHER NONCURRENT ASSETS: Property, plant and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed by the straight- line method over the estimated useful lives of the assets ranging from two to thirty years. Expenditures for maintenance and routine repairs are expensed as incurred. On August 1, 1991, the Company revised the estimated useful lives of storage tanks from twenty to thirty years in order to more closely reflect expected useful lives of the assets. The effect of this change in accounting estimate resulted in a favorable impact on loss before extraordinary loss of $3,763,000 for the year ended July 31, 1992. Intangible assets, consisting primarily of customer location values and goodwill, are stated at cost, net of amortization computed on the straight-line method over fifteen years for customer location values and forty years for goodwill. The Company evaluates its intangible assets for impairment by calculating the anticipated cash flow attributable to each acquisition over its expected remaining life. Such expected cash flows, on an undiscounted basis, are compared to the carrying value of the tangible and intangible assets, and if impairment is indicated, the carrying value of the intangible assets are adjusted. Accumulated amortization of intangible assets totaled $66,211,000 as of April 30, 1994, and $59,181,000 and $49,188,000 as of July 31, 1993 and 1992, respectively. Other assets consist primarily of non-current notes receivable and deferred financing costs. The deferred financing costs are amortized using the effective interest method over the terms of the respective debt agreements. Accumulated amortization of other assets totaled $9,401,000 as of April 30, 1994 and $7,592,000 and $5,286,000 as of July 31, 1993 and 1992, respectively. (6) INCOME TAXES: The Company files a consolidated Federal income tax return with its parent and affiliates. Income taxes are computed as though each company filed its own income tax return in accordance with the Company's tax sharing agreement. Deferred income taxes are provided as a result of temporary differences between financial and tax reporting as described in NOTE I. Effective August 1, 1992, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109--Accounting for Income Taxes. The adoption of this statement changed the Company's method of F-20 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED) AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991 accounting for income taxes from the deferred method, under APB 11, to the asset/liability method. Under SFAS No. 109, deferred income taxes are recognized for the tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The statement was adopted on a prospective basis and prior year amounts are not restated. The fiscal year 1993 and cumulative effects of adopting the statement as of August 1, 1992, did not have a material impact on earnings or cash flow and is therefore not disclosed separately. (7) CONSOLIDATED STATEMENT OF CASH FLOWS: For purposes of the consolidated statement of cash flows, the Company considers all highly liquid, debt instruments purchased with a maturity of three months or less to be cash equivalents. Interest paid totaled $35,062,000 and $35,853,000 for the nine months ended April 30, 1994 and 1993, respectively, and $57,563,000, $59,054,000, and $51,518,000 for the three fiscal years ended July 31, 1993, 1992 and 1991, respectively. In 1993 and 1991, the Company received capital contributions, as described in NOTE M, from its parent. In connection with the early extinguishment of certain senior notes in 1994 and 1993 and the refinancing of subordinated debentures in 1992, as described in NOTE H, the Company recorded noncash extraordinary losses from the write-off of financing costs, net of income tax benefits, of $129,000, $145,000 and $2,550,000, respectively. D. INVENTORIES:
JULY 31, APRIL ----------------- 30, 1994 1993 1992 -------- -------- -------- (IN THOUSANDS) Liquified propane gas and related products........... $25,055 $ 19,378 $ 29,658 Appliances, parts and supplies....................... 4,726 4,274 4,223 -------- -------- -------- $29,781 $ 23,652 $ 33,881 ======== ======== ======== In addition to inventories on hand, the Company enters into contracts to buy product for supply purposes. All such contracts have terms of less than one year and call for payment based on market prices of less than one year and call for payment based on market prices at date of delivery. E. PROPERTY, PLANT AND EQUIPMENT: JULY 31, APRIL ----------------- 30, 1994 1993 1992 -------- -------- -------- (IN THOUSANDS) Land and improvements................................ $ 18,517 $ 18,459 $ 17,150 Buildings and improvements........................... 22,860 23,001 20,339 Vehicles............................................. 37,229 37,564 39,205 Furniture and fixtures............................... 17,368 16,402 14,194 Bulk equipment and market facilities................. 33,276 33,612 32,051 Tanks and customer equipment......................... 316,801 314,127 313,634 Other................................................ 2,846 1,456 99 -------- -------- -------- 448,897 444,621 436,672 Less accumulated depreciation and amortization....... 153,474 140,805 123,546 -------- -------- -------- $295,423 $303,816 $313,126 ======== ======== ========
F-21 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED) AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991 F. INVESTMENT IN CLASS B REDEEMABLE COMMON STOCK OF PARENT: The investment in Class B redeemable common stock of parent represents all of the authorized and issued shares of the parent's Class B redeemable common stock. All shares were purchased from unrelated parties and are recorded at historical cost. It is the intent of the parent to repay the Company the full amount of its investment in Class B redeemable common stock with funds from sources other than the Company. Upon redemption by the parent, the difference, if any, between the Company's cost and the redemption amount received from the parent will be recorded as a capital contribution from or dividend to the parent. G. OTHER CURRENT LIABILITIES:
APRIL JULY 31, 30, --------------- 1994 1993 1992 ------- ------- ------- (IN THOUSANDS) Current portion of long-term debt...................... $ 1,486 $ 1,766 $ 1,912 Accrued insurance...................................... 7,996 8,846 10,515 Accrued interest....................................... 17,237 10,374 10,759 Accrued payroll........................................ 7,924 3,273 2,122 Other.................................................. 3,909 4,789 3,708 ------- ------- ------- $38,552 $29,048 $29,016 ======= ======= =======
H. LONG-TERM DEBT:
APRIL JULY 31, 30, ----------------- 1994 1993 1992 -------- -------- -------- (IN THOUSANDS) Fixed rate senior notes, interest at 12%, due in August 1996........................................ $177,600 $189,500 $200,000 Floating rate senior notes, interest at applicable LIBOR rate plus 2.25% (5.5% at April 30, 1994), due in August 1996....... 50,000 50,000 50,000 Senior subordinated debentures, interest at 11 5/8%, $250,000,000 face amount, due in December 2003..... 246,430 246,293 246,293 Notes payable, including approximately $2,329,000, $2,975,000 and $3,848,000 secured by property and equipment, interest rates ranging from noninterest- bearing to 12%, due on various dates through 2001.. 3,927 5,562 7,233 -------- -------- -------- 477,957 491,355 503,526 Less current portion................................ 1,486 1,766 1,912 -------- -------- -------- $476,471 $489,589 $501,614 ======== ======== ========
For the nine months ended April 30, 1994, the Company reacquired $11,900,000 of its fixed rate senior notes, at an approximate price of 110.00% of face value together with accrued interest. The early extinguishment of senior notes resulted in an extraordinary loss from debt premium and write-off of financing costs of approximately $867,000, net of income tax benefit of $531,000. F-22 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED) AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991 In fiscal year 1993, the Company reacquired $10,500,000 of its fixed rate senior notes, at an approximate aggregate price of 111.35% of face value, together with accrued interest. The early extinguishment of senior notes resulted in an extraordinary loss from debt premium and write-off of financing costs of approximately $886,000, net of income tax benefit of $543,000. In December 1991, the Company issued, at 98.418% of face value, $250,000,000 of 11 5/8% senior subordinated debentures due 2003. A portion of the proceeds was used to acquire the Company's existing subordinated debt, together with a prepayment premium, leaving the remainder available to finance future acquisitions and for additional working capital purposes. The refinancing of the subordinated debt resulted in an extraordinary loss from prepayment premium and write-off of financing costs of approximately $9,979,000, net of income tax benefit of $6,116,000. The Company currently has a $50,000,000 bank credit facility which terminates July 31, 1995. The facility provides for a working capital facility and a letter of credit facility. At April 30, 1994, there were no borrowings outstanding under the working capital facility and letters of credit outstanding under the letter of credit facility, which are used primarily to secure obligations under certain insurance and leasing arrangements, totaled $32,778,000. Such letters of credit reduce the amount otherwise available for borrowings under the facility. The various agreements for the senior notes and bank credit facility have similar requirements for maintaining certain working capital and net worth amounts and meeting interest coverage tests. These loan agreements and the senior subordinated debentures also place various limitations on the Company, the most restrictive relating to additional indebtedness and guarantees, sale and disposition of assets, intercompany transactions, common stock issuance, and essentially prohibit the payment of dividends. The Company is in compliance with all requirements, tests, limitations and covenants related to the senior notes and bank credit facility. The senior notes and bank credit agreement are collateralized by the stock of the Company. Annual principal payments on long-term debt for each of the next five fiscal years are $1,486,000 in 1995, $1,022,000 in 1996, $227,884,000 in 1997, $125,000 in 1998 and $94,000 in 1999. I. INCOME TAXES: Income tax expense (benefit) consists of (in thousands):
NINE MONTHS ENDED FOR THE YEAR ENDED APRIL 30, JULY 31, --------------- ---------------------- 1994 1993 1993 1992 1991 ------- ------ ----- ------- ------ Current.................................. $ 120 $ 559 $ 606 $ 301 $ 552 Deferred................................. 12,108 7,694 (663) (7,086) 1,006 ------- ------ ----- ------- ------ $12,228 $8,253 $ (57) $(6,785) $1,558 ======= ====== ===== ======= ====== Allocated to: Operating activities................... $12,759 $8,253 $ 486 $ (669) $1,558 Extraordinary loss..................... (531) -- (543) (6,116) -- ------- ------ ----- ------- ------ $12,228 $8,253 $ (57) $(6,785) $1,558 ======= ====== ===== ======= ======
F-23 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED) AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991 Deferred taxes result from temporary differences in the recognition of income and expense for tax and financial statement purposes. The significant temporary differences and related deferred tax provision (benefit) are as follows (in thousands):
NINE MONTHS ENDED FOR THE YEAR ENDED JULY APRIL 30, 31, --------------- -------------------------- 1994 1993 1993 1992 1991 ------- ------ ------- ------- -------- Depreciation expense.............. $ (49) $1,175 $ 1,568 $ 7,010 $ 19,555 Net operating loss................ 12,584 6,712 (1,975) (9,055) (15,539) Net cash, accrual and other differences...................... (794) (564) (752) (5,427) (3,260) Amortization...................... 367 371 496 386 250 ------- ------ ------- ------- -------- $12,108 $7,694 $ (663) $(7,086) $ 1,006 ======= ====== ======= ======= ========
For Federal income tax purposes, the Company has net operating loss carryforwards of approximately $187,000,000 at April 30, 1994, available to offset future taxable income. These net operating loss carryforwards expire at various dates through 2009. A reconciliation between the effective tax rate and the statutory Federal rate follows (amounts in thousands):
NINE MONTHS ENDED APRIL 30, FOR THE YEAR ENDED JULY 31, -------------------------- ------------------------------------------ 1994 1993 1993 1992 1991 ------------- ----------- ------------- -------------- ----------- AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT % ------- ---- ------ ---- ------ ----- ------- ----- ------ ---- Income tax expense (ben- efit) at statutory rate................... $11,100 35.0 $7,153 34.0 $(284) (34.0) $(6,278) (34.0) $1,202 34.0 Statutory surtax........ (317) (1.0) -- -- -- -- -- -- -- -- State income taxes, net of Federal benefit..... 1,402 4.4 970 4.6 182 21.8 (518) (2.7) 310 8.7 Nondeductible meal and entertainment expense.. 30 .1 27 .1 36 4.3 42 .2 41 1.2 Other................... 13 -- 103 .5 9 1.1 (31) (.2) 5 .1 ------- ---- ------ ---- ----- ----- ------- ----- ------ ---- $12,228 38.5 $8,253 39.2 $ (57) (6.8) $(6,785) (36.7) $1,558 44.0 ======= ==== ====== ==== ===== ===== ======= ===== ====== ====
F-24 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED) AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991 The significant components of the net deferred tax asset (liability) included in the Consolidated Balance Sheet are as follows (in thousands):
APRIL 30, JULY 31, 1994 1993 -------- -------- DEFERRED TAX LIABILITIES: Differences between book and tax basis of property and intangible assets....................................... $(98,788) $(86,533) Other.................................................... -- (3,267) -------- -------- Total deferred tax liabilities......................... (98,788) (89,800) DEFERRED TAX ASSETS: Operating loss carryforwards............................. 72,871 85,790 Reserves not currently deductible........................ 14,764 6,767 Other.................................................... 1,802 -- -------- -------- Total deferred tax assets.............................. 89,437 92,557 -------- -------- NET DEFERRED TAX ASSET (LIABILITY)......................... $ (9,351) $ 2,757 ======== ========
J. CONTINGENCIES AND COMMITMENTS: The Company is threatened with or named as a defendant in various lawsuits which, among other items, claim damages for product liability. It is not possible to determine the ultimate disposition of these matters; however, after taking into consideration the Company's insurance coverage and its existing reserves, management is of the opinion that there are no known uninsured claims or known contingent claims that are likely to have a material adverse effect on the results of operations or financial condition of the Company. The Internal Revenue Service ("IRS") has examined the Company's consolidated income tax returns for the years ended July 31, 1987 and 1986, and has proposed certain adjustments which relate principally to the purchase price allocations for an acquisition made during 1987. The IRS has proposed to disallow $61 million of deductions taken or to be taken for depreciation of customer tanks for which the Company asserts the methods and principles used during the valuation of the customer tanks are defensible. Also, the IRS has proposed to disallow $90 million of deductions for amortization of customer relationships taken or to be taken in the Company's consolidated income tax returns. On April 20, 1993, the United States Supreme Court held in Newark Morning Ledger v. United States that a taxpayer may amortize customer based intangibles if that taxpayer can prove such intangibles are capable of being valued and the value diminishes over time. The Company contends it has met this burden of proof and feels this recent Supreme Court decision supports the positions taken during the Company's allocation of purchase price to customer relationships. The Company intends to vigorously defend against these proposed adjustments and is in the process of protesting these adjustments through the appeals process of the IRS. At this time, it is not possible to determine the ultimate resolution of this matter. Certain property and equipment is leased under noncancellable operating leases which require fixed monthly rental payments and which expire at various dates through 2016. Rental expense under these leases totalled $7,822,000 and $8,379,000 for the nine months ended April 30, 1994 and 1993, respectively, and F-25 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED) AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991 $10,903,000, $10,317,000, and $9,334,000 for the three fiscal years ended July 31, 1993, 1992 and 1991. Future minimum lease commitments for such leases are $7,939,000 in 1995, $5,703,000 in 1996, $3,694,000 in 1997, $1,707,000 in 1998, and $441,000 in 1999. K. EMPLOYEE BENEFITS: The Company and its parent have a defined contribution profit-sharing plan which covers substantially all employees with more than one year of service. Contributions are made to the plan at the discretion of the parent's Board of Directors. This plan also provides for matching contributions under a cash or deferred arrangement (401(k) plan) based upon participant salaries and employee contributions to the plan. Company contributions under the profit sharing provision of the plan were $1,200,000 and $1,000,000 for the nine months ended April 30, 1994 and 1993, respectively, and were $1,000,000, $2,711,000 and $2,200,000 for the three fiscal years ended July 31, 1993, 1992 and 1991, respectively. Company matching contributions to the plan under the 401(k) provision of the plan were $1,153,000 and $1,175,000 for the nine months ended April 30, 1994 and 1993, respectively, and were $1,541,000, $1,420,000 and $1,398,000 for the three fiscal years ended July 31, 1993, 1992 and 1991, respectively. The Company has a defined benefit plan that provides participants who were covered under a previously terminated plan with a guaranteed retirement benefit at least equal to the benefit they would have received under the terminated plan. Benefits under the terminated plan are determined by years of credited service and salary levels. The Company's funding policy for this plan is to contribute amounts deductible for Federal income tax purposes. Plan assets consist primarily of corporate stocks and bonds, U.S. Treasury bonds and short- term cash investments. The following table sets forth the plan's projected funded status for the respective periods based on the most recent actuarial valuations: ACTUARIALLY COMPUTED PENSION EXPENSE INCLUDES THE FOLLOWING COMPONENTS:
NINE MONTHS FOR THE YEAR ENDED APRIL ENDED 30, JULY 31, ------------ ------------------- 1994 1993 1993 1992 1991 ----- ----- ----- ----- ----- (IN THOUSANDS) Service cost................................. $ 184 $ 213 $ 285 $ 318 $ 361 Interest on obligations...................... 277 284 378 407 407 Actual return on plan assets................. 109 (500) (448) (320) 92 Amortization and deferral of: Prior service cost......................... (23) (23) (31) 1 1 Gain....................................... (139) (74) (98) (98) (83) Deferred asset (gain)/loss................. (347) 282 157 108 (310) ----- ----- ----- ----- ----- ACTUARIALLY COMPUTED PENSION EXPENSE......... $ 61 $ 182 $ 243 $ 416 $ 468 ===== ===== ===== ===== =====
F-26 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED) AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991
JULY 31, APRIL 30, ---------------- 1994 1993 1992 --------- ------- ------- (IN THOUSANDS) ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS: Vested benefit obligation........................ $ 2,917 $ 2,215 $ 1,840 ======= ======= ======= Accumulated benefit obligation................... $ 3,520 $ 2,747 $ 2,378 ======= ======= ======= Projected benefit obligation..................... $ 5,556 $ 4,917 $ 4,981 Less: plan assets at fair value.................. (3,142) (3,605) (2,727) ------- ------- ------- Benefit obligation in excess of plan assets...... 2,414 1,312 2,254 Unrecognized prior service cost.................. 306 329 (12) Unrecognized gain................................ 1,454 2,573 2,054 ------- ------- ------- ACCRUED BENEFIT OBLIGATION......................... $ 4,174 $ 4,214 $ 4,296 ======= ======= =======
The actuarial computations assumed a discount rate, annual salary increase and expected long-term rate of return on plan assets of 7.5%, 5% and 9.5%, respectively, for the nine months ended April 30, 1994, 8%, 5% and 9.5%, respectively, for fiscal year 1993 and 1992 and 8.5%, 5.5% and 9.5%, respectively, for fiscal year 1991. In fiscal 1987, Ferrell Companies, Inc. (Ferrell) established the Ferrell Companies, Inc. Long-Term Incentive Plan (the Plan). The Plan provides long- term incentives to officers and executives of Ferrell and its subsidiaries in the form of units (Equity Units). The Plan provides for the redemption of the Equity Units after July 31, 1996, based upon the excess of an appraised value as of July 31, 1996, over a minimum value established at Plan inception. Earned awards are 100% vested by the participants at July 31, 1993. Because the participants are primarily employees of Ferrellgas, compensation expense charges (credits) representing increases (decreases) in the estimated value of the vested Equity Units are recorded by the Company. Compensation expense charged (credited) to income was $720,000 and $0 for the nine months ended April 30, 1994 and 1993, respectively, and was $80,000, $(1,934,000) and $2,508,000, respectively, for the three fiscal years ended July 31, 1993, 1992 and 1991. L. EMPLOYEE BENEFITS OTHER THAN PENSIONS: The Company provides postretirement medical benefits to a closed group of approximately 400 retired employees and their spouses. The plan requires the Company to provide primary medical benefits to the participants until age 65, at which time the company only pays a fixed amount of $55 per month participant for medical benefits. Effective August 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106--Employers' Accounting for Postretirement Benefits Other Than Pensions which requires accrual of postretirement benefits (such as health care benefits) during the years an employee provides services. The Company elected to amortize the postretirement benefit obligation over a period not to exceed the average remaining life expectancy of the plan participants (since all of the plan participants are retired). The cumulative effect as of August 1, 1993, and impact for the nine months ended April 10, 1994, of adopting this statement was not material to the financial statements of the Company. F-27 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED) AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991 The Company has expensed $560,000, $471,000 and $532,000 for the years ended July 31, 1993, 1992 and 1991, respectively, on a pay-as-you-go-basis relative to this postretirement benefit obligation. The actuarial liabilities for these postretirement benefits, none of which have been funded, are as follows at April 30, 1994: Accumulated Postretirement Benefit Obligation--Retirees....... $2,270,000 Fair Value of Assets.......................................... 0 ---------- Accrued Liability............................................. $2,270,000 ==========
Net periodic postretirement benefit cost for the nine months ended April 30, 1994, included the following components: Interest Cost on Obligation..................................... $145,647 Amortization of Transition Obligation........................... 171,320 -------- Net Periodic Postretirement Benefit Cost........................ $316,967 ========
The accumulated postretirement benefit obligation was determined using a discount rate of 7.75% and a health care cost trend rate of 10% in fiscal year 1994, 8% in fiscal years 1995 through 1997 and 5% thereafter for any individuals who have not attained the age of 65 by such cut-off dates. Benefits relate to a closed group of retirees whose benefits convert to a fixed monthly supplement at age 65. Because of the nature of this group, a 1% change in the assumed health care cost trend rates does not have a significant impact on net periodic postretirement benefit cost or the accumulated postretirement benefit obligation. F-28 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED) AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991 The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 112--Employers' Accounting For Postemployment Benefits which is effective for fiscal years beginning after December 15, 1993. This statement requires that employers recognize over the service lives of employees the costs of postemployment benefits if certain conditions are met. The Company does not believe that adoption of the statement will have a material impact on results of operations or financial condition of the Company. M. TRANSACTIONS WITH RELATED PARTIES: All notes receivable from related parties bear interest at the prime rate plus 1.375% (8.125% at April 30, 1994) except for one note totaling $8,896,000 which bears interest at the prime rate (6.75% at April 30, 1994). In 1993 and 1991, the Company received capital contributions from its parent. In 1993, the contribution consisted of (i) the forgiveness of a $3,015,000 long-term note payable to affiliate, including interest, and (ii) a $262,000 note receivable from affiliate. In 1991, the contribution consisted of forgiveness of $6,687,000 long-term note payable to Parent, including interest. In the second and third quarter of fiscal year 1993, Ferrell Leasing Corporation, a subsidiary of Ferrell Properties, Inc., sold to the Company for the fair market value of $4,100,000, the land and two buildings comprising the Company's corporate headquarters in Liberty, Missouri. James E. Ferrell, a director and executive officer in the Company, owns all of the issued and outstanding stock of Ferrell Properties, Inc. Prior to the purchase of the buildings, the Company paid rent to Ferrell Leasing of $403,000, $692,000 and $661,000 in fiscal years 1993, 1992 and 1991, respectively. A. Andrew Levison, a director of the parent, is a Managing Director of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). DLJ acted as placement agent with regard to the senior subordinated notes issued in December 1991 and was paid fees of $3,545,000. The law firm of Smith, Gill, Fisher & Butts, a Professional Corporation, is general counsel to the Company, the parent and their respective subsidiaries and affiliates. David S. Mouber, a director of the Parent, is a member of such law firm. The Company, the Parent and their respective subsidiaries paid such firm fees of $987,000 and $899,000 for the nine months ended April 30, 1994 and 1993, respectively, and paid fees of $1,381,000, $2,189,000 and $2,776,000 during the three fiscal years ended July 31, 1993, 1992 and 1991, respectively. N. DISCLOSURES ABOUT OFF BALANCE SHEET RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS: In fiscal year 1993, the Company adopted Statement of Financial Accounting Standards No. 107--Disclosures about Fair Value of Financial Instruments which requires disclosing the fair value of financial instruments which can be reasonably determined. F-29 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED) AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991 The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Current Assets. The carrying amount of cash and cash equivalents and short-term investments approximates fair value because of the short maturity of those instruments. Long-term Debt. The estimated fair value of the Company's long-term debt was $505,597,000 and $539,651,000 as of April 30, 1994 and July 31, 1993, respectively. The fair value is estimated based on quoted market prices and discounted cash flows. The Company is a party to certain option and forward contracts in connection with its trading activities involving various liquified petroleum products. Contracts are executed with private counterparties and to a lesser extent on national mercantile exchanges. Open contract positions are summarized as follows: AS OF APRIL 30, 1994 (IN THOUSANDS EXCEPT PRICE PER GALLON DATA)
MARKET VOLUME PRICE MATURITY CONTRACT VALUE OF UNREALIZED (IN GALLONS) (PER GALLON) DATES AMOUNTS CONTRACTS GAIN/(LOSS) ------------ ------------ ------------------- -------- --------- ----------- Exchange Traded Option Contracts to Buy................. 2,730 $ 0.26 June - July 1994 $ 723 $ 820 $ 97 Forward Contracts to Buy.................... 61,893 $.19 to $.34 May - December 1994 15,717 16,093 376 Forward Contracts to (Sell)................. (30,142) $.29 to $.37 May - December 1994 (10,180) (9,588) 592 ------- ------- ------ ------ Total.................. 34,481 $ 6,260 $7,325 $1,065 ======= ======= ====== ======
Risks related to these contracts arise from the possible inability of counterparties to meet the terms of their contracts and changes in underlying product prices. The Company attempts to minimize market risk through the enforcement of its trading policies, which include total inventory limits and loss limits, and attempts to minimize credit risk through application of its credit policies. In connection with its trading activities, at July 31, 1993, the Company had open forward and option contracts to buy $10,394 and sell ($11,347) of various liquified petroleum products expressed in dollars based on contract prices. At July 31, 1992, similar contracts to buy were $7,582 and to sell ($4,986). Net unrealized gains/(losses) on those open positions were $281 and $0, respectively, at July 31, 1993 and 1992. F-30 FERRELLGAS, INC. (A WHOLLY-OWNED SUBSIDIARY OF FERRELL COMPANIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FOR THE NINE MONTHS ENDED APRIL 30, 1994 AND 1993 (UNAUDITED) AND FOR THE YEARS ENDED JULY 31, 1993, 1992 AND 1991 O. SUMMARIZED FINANCIAL DATA--FERRELL COMPANIES, INC. AND SUBSIDIARIES: The Company is the sole operating subsidiary of Ferrell Companies, Inc. Summarized consolidated financial information for Ferrell Companies, Inc. and subsidiaries is presented below (in thousands):
NINE MONTHS ENDED FOR THE YEARS ENDED JULY APRIL 30, 31, -------------------- ---------------------------- 1994 1993 1993 1992 1991 ----------- -------- -------- -------- -------- (UNAUDITED)) SUMMARY OF OPERATIONS: Operating revenues......... $450,482 $468,308 $542,116 $501,297 $544,021 Operating expenses......... 375,332 403,840 483,782 445,048 481,246 Earnings (loss) before ex- traordinary loss.......... 20,142 12,784 174 (1,653) 2,102 Extraordinary loss......... (867) -- (886) (9,979) -- Net earnings (loss)........ 19,275 12,784 (712) (11,632) 2,102 JULY 31, APRIL 30, ------------------ 1994 1993 1992 ----------- -------- -------- (UNAUDITED) SUMMARY OF FINANCIAL POSITION: Current assets............. $180,648 $136,373 $142,161 Non-current assets......... 384,095 401,702 423,906 Current liabilities........ 72,924 62,804 74,517 Non-current liabilities and equity.................... 491,819 475,271 491,550
F-31 APPENDIX A GLOSSARY OF TERMS AVAILABLE CASH: Generally, for any period, all of the cash receipts of the Partnership during such period (other than cash receipts that are attributable to the liquidation of the Partnership) plus net reductions to reserves less all of its cash disbursements and net additions to reserves during such period, including, for the period from the closing of this offering through October 31, 1994, the cash balance of the Partnership on the date the Partnership commences operations. The full definition of Available Cash is set forth in the Partnership Agreement, a form of which is included as an exhibit to the Registration Statement of which this Prospectus is a part. The definition of Available Cash permits the General Partner to maintain reserves for distributions with respect to any of the next four succeeding quarters in order to reduce quarter-to-quarter variations in distributions. The General Partner has broad discretion in establishing reserves for other purposes, and its decisions regarding reserves could have a significant impact on the amount of Available Cash available for distribution. COMMON UNITS: The 13,100,000 Common Units (15,065,000 if the Underwriters' overallotment option is exercised in full) of the Master Partnership offered concurrently herewith and to be issued at the closing of this offering together with the 1,000,000 Common Units (if the Underwriters' overallotment option is exercised in full, all of such Common Units will be repurchased by the Partnership) to be held by Ferrell at the closing of this offering. Each Common Unit represents a fractional part of the partnership interests of all limited partners and assignees and has the rights and obligations specified with respect to Common Units in the Partnership Agreement. COMPANY: Ferrellgas, Inc., a Delaware corporation and a wholly owned subsidiary of Ferrell. Also referred to in this Prospectus as "Ferrellgas" and the "General Partner." CREDIT FACILITY: The credit facility to be entered into by the Partnership and Bank of America National Trust and Savings Association, as Agent, which will permit borrowings by the Partnership of up to $100 million on a senior unsecured revolving line of credit basis and up to $85 million on a senior unsecured basis. EBITDA: Earnings before interest, income taxes and depreciation and amortization, calculated as operating income plus depreciation and amortization excluding interest. FERRELL: Ferrell Companies, Inc., a Kansas corporation. FERRELLGAS: Ferrellgas, Inc., a Delaware corporation and a wholly owned subsidiary of Ferrell. Also referred to in this Prospectus as the "Company" and the "General Partner." GENERAL PARTNER: Ferrellgas, a wholly owned subsidiary of Ferrell, and its successors as general partner of the Partnership. INCENTIVE DISTRIBUTION RIGHTS: The right to receive specified incentive distributions of Available Cash constituting Cash from Operations if quarterly distributions of Available Cash constituting Cash from Operations exceed certain specified target levels, issued to Ferrellgas in connection with the transfer of its assets to the Partnership. MASTER PARTNERSHIP: Ferrellgas Partners, L.P., a Delaware limited partnership. PARTNERSHIP: Ferrellgas, L.P., a Delaware limited partnership of which the Master Partnership will own a 99% limited partner interest and Ferrellgas will own a 1% general partner interest. The Partnership will conduct the Master Partnership's business and has been established to simplify the Partnership's obligations under the laws of certain jurisdictions in which it will conduct business. A-1 PARTNERSHIP AGREEMENT: The partnership agreement for the Partnership (the form of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part), and unless the context requires otherwise, references to the Partnership Agreement constitute references to the Partnership Agreements of the Partnership and of the Master Partnership, collectively. SUBORDINATED UNITS: The subordinated limited partner interests to be issued to Ferrellgas in connection with the transfer of its assets to the Partnership. UNITHOLDERS: Holders of the Common Units and the Subordinated Units. UNITS: The Common Units and the Subordinated Units, collectively. A-2 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN- FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE ISSUERS OR ANY UNDERWRIT- ER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RE- LATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHO- RIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALI- FIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HERE- UNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ----------- TABLE OF CONTENTS
PAGE Prospectus Summary........................................................ 3 Risk Factors.............................................................. 13 The Transactions.......................................................... 18 Use of Proceeds........................................................... 19 Capitalization............................................................ 20 Selected Historical and Pro Forma Consolidated Financial and Operating Data..................................................................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 23 Business.................................................................. 32 Management................................................................ 41 Cash Distributions........................................................ 47 The Partnership........................................................... 47 Description of Senior Notes............................................... 51 Certain Federal Income Tax Consequences................................... 73 Underwriting.............................................................. 75 Legal Matters............................................................. 76 Experts................................................................... 76 Additional Information.................................................... 76 Index to Financial Statements............................................. F-1 Glossary of Terms......................................................... A-1
----------- UNTIL SEPTEMBER 27, 1994, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGIS- TERED SECURITIES WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE RE- QUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEAL- ERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- [LOGO OF FERRELLGAS, L.P. APPEARS HERE] $250,000,000 FERRELLGAS, L.P. FERRELLGAS FINANCE CORP. $200,000,000 10% FIXED RATE SENIOR NOTES DUE 2001 $50,000,000 FLOATING RATE SENIOR NOTES DUE 2001 --------------- PROSPECTUS --------------- DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. JUNE 29, 1994 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Set forth below are the expenses (other than underwriting discounts and commissions) expected to be incurred in connection with the issuance and distribution of the securities registered hereby. With the exception of the Securities and Exchange Commission registration fee and the NASD filing fee, the amounts set forth below are estimates. Securities and Exchange Commission registration fee............. $ 86,207 NASD filing fee................................................. 25,500 Rating agency fees.............................................. 30,000 Printing and engraving expenses................................. 100,000 Legal fees and expenses......................................... 155,000 Accounting fees and expenses.................................... 68,750 Blue Sky fees and expenses...................................... 15,675 Trustee fees and expenses....................................... 12,000 Funding fee for Floating Rate Senior Notes...................... 250,000 Miscellaneous................................................... 5,000 -------- Total......................................................... $748,132 ========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Section of the Prospectus entitled "The Partnership Agreement-- Indemnification" is incorporated herein by reference. Article VII of the Company's bylaws provides, with respect to indemnification, as follows: "Section 7.01. Indemnification of Authorized Representatives in Third Party Proceedings. The Corporation shall indemnify any person who was or is an "authorized representative" of the Corporation (which shall mean for purposes of this Article a Director or officer of the Corporation, or a person serving at the request of the Corporation as a director, officer, or trustee, of another corporation, partnership, joint venture, trust or other enterprise) and who was or is a "party" (which shall include for purposes of this Article the giving of testimony or similar involvement) or is threatened to be made a party to any "third party proceeding" (which shall mean for purposes of this Article any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the Corporation) by reason of the fact that such person was or is an authorized representative of the Corporation, against expenses (which shall include for purposes of this Article attorneys' fees), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such third party proceeding if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of the Corporation and, with respect to any criminal third party proceeding (which could or does lead to a criminal third party proceeding) had no reasonable cause to believe such conduct was unlawful. The termination of any third party proceeding by judgment, order, settlement, indictment, conviction or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that the authorized representative did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal third party proceeding, had reasonable cause to believe that such conduct was unlawful. II-1 Section 7.02. Indemnification of Authorized Representatives in Corporate Proceedings. The Corporation shall indemnify any person who was or is an authorized representative of the Corporation and who was or is a party or is threatened to be made a party to any "corporation proceeding" (which shall mean for purposes of this Article any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor or investigative proceeding by the Corporation) by reason of the fact that such person was or is an authorized representative of the Corporation, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such corporate action if such person acted in good faith and in a manner reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of such person's duty to the Corporation unless and only to the extent that the Court of Chancery or the court in which such corporate proceeding was pending shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such authorized representative is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. Section 7.03. Mandatory Indemnification of Authorized Representatives. To the extent that an authorized representative of the Corporation has been successful on the merits or otherwise in defense of any third party or corporate proceeding or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses actually and reasonably incurred by such person in connection therewith. Section 7.04. Determination of Entitlement to Indemnification. Any indemnification under Section 7.01, 7.02 or 7.03 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the authorized representative is proper in the circumstances because such person has either met the applicable standards of conduct set forth in Section 7.01 or 7.02 or has been successful on the merits or otherwise as set forth in Section 7.03 and that the amount requested has been actually and reasonably incurred. Such determination shall be made: (1) By the Board of Directors by a majority of a quorum consisting of Directors who were not parties to such third party or corporate proceeding, or (2) If such a quorum is not obtainable, or, even if obtainable, a majority vote of such a quorum so directs, by independent legal counsel in a written opinion, or (3) By the stockholders. Section 7.05. Advancing Expenses. Expenses actually and reasonably incurred in defending a third party or corporate proceeding shall be paid on behalf of an authorized representative by the Corporation in advance of the final disposition of such third party or corporate proceeding as authorized in the manner provided in Section 7.04 of this Article upon receipt of an undertaking by or on behalf of the authorized representative to repay such amount unless it shall ultimately be determined that such person is entitled to be indemnified by the Corporation as authorized in this Article. The financial ability of such authorized representative to make such repayment shall not be a prerequisite to the making of an advance. Section 7.06. Employee Benefit Plans. For purposes of this Article, the Corporation shall be deemed to have requested an authorized representative to serve an employee benefit plan where the performance by such person of duties to the Corporation also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan; excise taxes assessed on an authorized representative with respect to an employee benefit plan pursuant to applicable law shall be deemed "fines"; and action taken or omitted by such person with respect to an employee benefit plan in the performance of duties for a purpose reasonably believed to be in the interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interests of the Corporation. II-2 Section 7.07. Scope of Article. The indemnification of authorized representatives, as authorized by this Article, shall (1) not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any statute, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in an official capacity and as to action in another capacity, (2) continue as to a person who has ceased to be an authorized representative and (3) inure to the benefit of the heirs, executors and administrators of such a person. Section 7.08. Reliance on Provisions. Each person who shall act as an authorized representative of the Corporation shall be deemed to be doing so in reliance upon rights of indemnification provided by this Article." Article EIGHTH of Ferrell's Articles of Incorporation provides, with respect to indemnification, as follows: "Article EIGHTH. No Director shall be personally liable to this Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director provided that nothing in this Article EIGHTH shall be construed so as to eliminate or limit the liability of a director (A) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (B) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (C) under the provisions of K.S.A. 17-6424 and amendments thereto, (D) for any transaction from which the director derived an improper personal benefit or (E) for any act or omission occurring prior to the effective date of this Article EIGHTH. No amendment to or repeal of this Article EIGHTH shall adversely affect any right, benefit or protection of a director of the Corporation existing at the time of such amendment or repeal with respect to any acts or omissions occurring prior to such amendment or repeal." In addition, paragraph 22 of Ferrell's bylaws provides as follows: "22. Indemnification of Directors and Officers. (a) Subject to subparagraph (c) below, the corporation shall indemnify every director and officer who is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation, as a director or officer, of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) Subject to subparagraph (c) below, the corporation shall indemnify every person who is a party or is threatened to be made a party, to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against expenses, including attorneys' fees, and amounts paid in settlement actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court in which the action or suit was brought determines upon application that, despite the adjudication of liability and in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expense which the court shall deem proper. II-3 (c) Any indemnification under the subparagraphs (a) or (b) above, unless ordered by a court, shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct set forth in this Section 22. The determination shall be made by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding, or if such a quorum is not obtainable, or even if obtainable a quorum of disinterested directors so directs, by independent counsel in a written opinion, or by the stockholders. (d) It is the intent of this Section 22 that the corporation shall be obligated to indemnify every officer and director of this corporation to the fullest extent permitted by law provided that the officer and director has met the standard of conduct applicable by law which entitles such director and officer to such indemnification. To such end: (i) The indemnification and advancement of expenses provided by this Section 22 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person; and (ii) In the event the matter with respect to which indemnification is sought under this Section 22 is required by law to be authorized in accordance with subparagraph (c) above, then the exercise of discretion in granting any such authorization shall be on the basis of the utmost good faith consistent with the intent of this Section 22 to indemnify every officer and director of this corporation to the fullest extent permitted by law. (e) Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of the action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amounts if it is ultimately determined that the director or officer is not entitled to be indemnified by the corporation as authorized in this Section 22. (f) Absent a vote by a majority of the Board of Directors or a determination by independent legal counsel appointed by a majority of the Board of Directors upon the facts of a specific case, indemnification described in this Section 22 will be limited to defensive application. (g) The corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Section 22. (h) For purposes of this Section, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consideration or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers so that any person who is or was a director or officer of such constituent corporation, or is or was serving at the request of such constituent corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Section with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. (i) For purposes of this Section, reference to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the corporation" shall include any service as director or II-4 officer of the corporation which imposes duties on, or involves services by, such director or officer, with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Section." Section 145 of the General Corporation Law of the State of Delaware authorizes the indemnification of directors and officers of a corporation against liability incurred by reason of being a director or officer and against expenses (including attorneys' fees) in connection with defending any action seeking to establish such liability, in the case of third party claims, if the director or officer acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and in the case of action by or in the right of the corporation, if the director or officer acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and if such director or officer shall not have been adjudged liable to the corporation, unless a court otherwise determines. Indemnification is also authorized with respect to any criminal action or proceeding where the director or officer had no reasonable cause to believe his conduct was unlawful. Reference is made to Section 6 of the Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement. Subject to any terms, conditions or restrictions set forth in the Partnership Agreements, Section 17-108 of the Delaware Revised Limited Partnership Act empowers a Delaware limited partnership to indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. Under insurance policies maintained by Ferrell, directors and officers of Ferrell and its subsidiaries may be indemnified against losses arising from certain claims, including claims under the Securities Act of 1933, as amended, which may be made against such persons by reason of their being directors or officers. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES There has been no sale of securities of the Partnership within the past three years. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) EXHIBITS *1.1 --Form of Underwriting Agreement **3.1 --Form of Agreement of Limited Partnership of Ferrellgas, L.P. **5.1 --Opinion of Smith, Gill, Fisher & Butts, P.C. as to the legality of the securities being registered **8.1 --Opinion of Smith, Gill, Fisher & Butts, P.C. relating to tax matters **10.1 --Form of Credit Agreement dated as of July 5, 1994 among Ferrellgas, L.P., Stratton Insurance Company, Ferrellgas, Inc., Bank of America National Trust and Savings Association, as Agent, and the other financial institutions party thereto in the amount of $185,000,000 *10.2 --Form of Indenture among Ferrellgas, L.P., and Norwest Bank Minnesota, National Association, as Trustee, relating to Senior Notes due 2001 **10.3 --$250,000,000 11 5/8% Senior Subordinated Debenture Indenture due 2003, dated as of December 1, 1991, between the Company and Norwest Bank Minnesota, National Association, as Trustee
II-5 **10.4 --Assignment and Agreement dated as of January 1, 1989 between BP Oil Company and Ferrell Petroleum, Inc. **10.5 --Ferrell Long-Term Incentive Plan, dated June 23, 1987, between Ferrell and the participants in the Plan **10.6 --Ferrell 1992 Key Employee Stock Option Plan **10.7 --Form of Contribution, Conveyance and Assumption Agreement between Ferrellgas, the Partnership and the Master Partnership **10.8 --First Supplemental Indenture dated June 2, 1994 relating to $250,000,000 11 5/8% Senior Subordinated Debentures **12.1 --Computation of Ratio of Earnings to Fixed Charges **21.1 --List of subsidiaries *23.1 --Consent of Deloitte & Touche **23.2 --Consent of Smith, Gill, Fisher & Butts, P.C. (included in Exhibit 5.1) **23.3 --Consent of Smith, Gill, Fisher & Butts, P.C. (included in Exhibit 8.1) **24.1 --Powers of Attorney (included on signature page) **25.1 --Statement of Eligibility of Trustee
- -------- * Filed herewith **Previously filed Index of Financial Statement Schedules..................................... S-1 Independent Auditors' Report............................................... S-2 Schedule I--Marketable Securities--Other Investments ...................... S-3 Schedule II--Amounts Receivable From Related Parties and Employees......... S-4 Schedule V--Property, Plant and Equipment.................................. S-5 Schedule VI--Accumulated Depreciation and Amortization of Property, Plant and Equipment ............................................................ S-6 Schedule VIII--Valuation and Qualifying Accounts........................... S-7 Schedule IX--Short-Term Borrowings......................................... S-8 Schedule X--Supplementary Income Statement Information..................... S-9
All other financial statement schedules are omitted because the information is not required, is not material or is otherwise included in the financial statements or related notes thereto. ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act") may be permitted to directors, officers or controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-6 The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be a part of this Registration Statement as of the time it was declared effective. (2) For the purposes of determining any liability under the Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-7 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LIBERTY, STATE OF MISSOURI, ON THE 29TH DAY OF JUNE, 1994. Ferrellgas Finance Corp. By: * --------------------------------- JAMES E. FERRELL CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS POST-EFFECTIVE AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE --------- ----- ---- * Director, Chairman June 29, 1994 - ------------------------------------- of the Board and JAMES E. FERRELL Chief Executive Officer (Principal Executive Officer) /s/ Danley K. Sheldon Chief Financial June 29, 1994 - ------------------------------------- Officer/Treasurer DANLEY K. SHELDON (Principal Financial and Accounting Officer) *By: /s/ Danley K. Sheldon -------------------------------- DANLEY K. SHELDON ATTORNEY-IN-FACT II-8 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LIBERTY, STATE OF MISSOURI, ON THE 29TH DAY OF JUNE, 1994. Ferrellgas, L.P. By: Ferrellgas, Inc., as General Partner By: * --------------------------------- JAMES E. FERRELL CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS POST-EFFECTIVE AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE --------- ----- ---- * Director, Chairman June 29, 1994 - ------------------------------------- of the Board and JAMES E. FERRELL Chief Executive Officer (Principal Executive Officer) /s/ Danley K. Sheldon Chief Financial June 29, 1994 - ------------------------------------- Officer/Treasurer DANLEY K. SHELDON (Principal Financial and Accounting Officer) *By: /s/ Danley K. Sheldon -------------------------------- DANLEY K. SHELDON ATTORNEY-IN-FACT II-9 INDEX OF FINANCIAL STATEMENTS SCHEDULES Independent Auditors' Report............................................... S-2 Schedule I--Marketable Securities--Other Investments ...................... S-3 Schedule II--Amounts Receivable From Related Parties and Employees......... S-4 Schedule V--Property, Plant and Equipment.................................. S-5 Schedule VI--Accumulated Depreciation and Amortization of Property, Plant and Equipment ............................................................ S-6 Schedule VIII--Valuation and Qualifying Accounts........................... S-7 Schedule IX--Short-Term Borrowings......................................... S-8 Schedule X--Supplementary Income Statement Information..................... S-9
S-1 INDEPENDENT AUDITORS' REPORT Board of Directors Ferrellgas, Inc. Liberty, Missouri We have audited the consolidated financial statements of Ferrellgas, Inc. and subsidiaries as of April 30, 1994 and July 31, 1993 and 1992, and for the nine months ended April 30, 1994 and for each of the three years in the period ended July 31, 1993, and have issued our report thereon dated June 3, 1994, which expressed an unqualified opinion and included an explanatory paragraph concerning an uncertainty involving an income tax matter. Our audits also included the financial statement schedules listed at Item 16(b). These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information therein set forth. DELOITTE & TOUCHE Kansas City, Missouri June 3, 1994 S-2 SCHEDULE I FERRELLGAS, INC. AND SUBSIDIARIES MARKETABLE SECURITIES--OTHER INVESTMENTS (IN THOUSANDS)
SHARES/ MARKET BALANCE ISSUANCE/ISSUER PAR VALUE COST VALUE SHEET VALUE Year ended July 31, 1993 United States Treasury Bills United States Government....... $15,000 $14,497 $14,703 $14,497(1) United States Treasury Notes United States Government....... $ 5,000 $ 5,116 $ 5,171 $ 5,116(1) Corporate Commercial Paper Beta Finance, Inc.............. $ 2,500 $ 2,474 $ 2,474 $ 2,474(1) General Electric Capital Corp.. $ 3,000 $ 2,953 $ 2,977 $ 2,953(1) Class B Redeemable Common Stock Ferrell Companies, Inc......... 643(4) $36,031 $36,031(2) $36,031(3) Year ended July 31, 1992 United States Treasury Bills United States Government....... $24,000 $23,165 $23,600 $23,165(1) Class B Redeemable Common Stock Ferrell Companies, Inc......... 576 $32,813 $32,813(2) $32,813(3) Year ended July 31, 1991 Class B Redeemable Common Stock Ferrell Companies, Inc. ....... 394 $23,721 $23,721(2) $23,721(3)
- --------------------- (1) Short-term investments on Consolidated Balance Sheet. (2) Class B redeemable common stock is not publicly traded. Therefore, market value was considered the same as cost for this schedule. (3) Investment in Class B redeemable common stock of parent (eliminated in consolidation) on Balance Sheet. (4) Total authorized and issued shares of Ferrell's Class B redeemable common stock. S-3 SCHEDULE II FERRELLGAS, INC. AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM RELATED PARTIES AND EMPLOYEES (IN THOUSANDS)
BALANCE AT END BALANCE OF PERIOD AT --------------- BEGINNING AMOUNTS NOT NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED CURRENT CURRENT Year ended July 31, 1993 One Liberty Plaza, Inc. (1).................... $3,000 $ -- $ -- $ -- $3,000 ====== ====== ====== ====== ====== Ferrell Development, Inc. (1)............... $1,500 $ -- $ -- $ -- $1,500 ====== ====== ====== ====== ====== Ferrell Properties, Inc. (1).................... $ -- $ 262(3) $ -- $ -- $ 262 ====== ====== ====== ====== ====== James E. Ferrell (2).... $6,588 $4,400 $4,341 $ 500 $6,147 ====== ====== ====== ====== ====== Year ended July 31, 1992 One Liberty Plaza, Inc. (1).................... $3,000 $ -- $ -- $ -- $3,000 ====== ====== ====== ====== ====== Ferrell Development, Inc. (1)............... $1,500 $ -- $ -- $ -- $1,500 ====== ====== ====== ====== ====== James E. Ferrell (2).... $2,756 $5,480 $1,648 $1,000 $5,588 ====== ====== ====== ====== ====== Year ended July 31, 1991 One Liberty Plaza, Inc. (1).................... $3,000 $ -- $ -- $ -- $3,000 ====== ====== ====== ====== ====== Ferrell Development, Inc. (1)............... $1,500 $ -- $ -- $ -- $1,500 ====== ====== ====== ====== ====== James E. Ferrell (2).... $ -- $6,216 $3,460 $2,756 $ -- ====== ====== ====== ====== ======
- --------------------- (1) Notes are due December 31, 1997, and bear interest at the prime rate plus 1.375%. (2) Note is due on demand and bears interest at the prime rate. (3) Contributed by Ferrell in fiscal year 1993. S-4 SCHEDULE V FERRELLGAS, INC. AND SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT (IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED JULY 31, 1993 JULY 31, 1992 JULY 31, 1991 Land and improvements... $ 18,459 $ 17,150 $ 16,974 Buildings and improve- ments.................. 23,001 20,339 18,560 Vehicles................ 37,564 39,205 40,662 Furniture and fixtures.. 16,402 14,194 11,182 Bulk equipment and mar- ket facilities......... 33,612 32,051 30,462 Tanks and customer equipment.............. 314,127 313,634 307,210 Other................... 1,456 99 1,790 -------- -------- -------- $444,621 $436,672 $426,840 ======== ======== ======== Additions, at cost...... $ 14,187 $ 20,392 $ 25,942 ======== ======== ======== Retirements............. $ 6,238 $ 10,560 $ 9,854 ======== ======== ========
- --------------------- Note: See Notes to financial statements for a description of the methods and estimated useful lives used in computing depreciation and amortization. Detail of additions and retirements by major classification is not provided as the totals for such additions and retirements are less than 10% of the total property, plant and equipment for each year. S-5 SCHEDULE VI FERRELLGAS, INC. AND SUBSIDIARIES ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT (IN THOUSANDS)
ADDITIONS CHARGED TO BEGINNING COSTS AND END OF OF YEAR EXPENSES RETIREMENTS YEAR Year ended July 31, 1993 Land and improvements.............. $ 1,293 $ 263 $ 5 $ 1,551 Buildings and improvements......... 5,831 996 124 6,703 Vehicles........................... 21,804 4,466 2,260 24,010 Furniture and fixtures............. 8,162 2,433 92 10,503 Bulk equipment and market facili- ties.............................. 9,186 1,712 92 10,806 Tanks and customer equipment....... 77,270 10,579 617 87,232 -------- ------- ------ -------- $123,546 $20,449 $3,190 $140,805 ======== ======= ====== ======== Year ended July 31, 1992 Land and improvements.............. $ 1,049 $ 248 $ 4 $ 1,293 Buildings and improvements......... 5,033 979 181 5,831 Vehicles........................... 20,403 5,107 3,706 21,804 Furniture and fixtures............. 6,742 2,072 652 8,162 Bulk equipment and market facili- ties.............................. 7,955 1,507 276 9,186 Tanks and customer equipment....... 67,455 10,573 758 77,270 -------- ------- ------ -------- $108,637 $20,486 $5,577 $123,546 ======== ======= ====== ======== Year ended July 31, 1991 Land and improvements.............. $ 826 $ 234 $ 11 $ 1,049 Buildings and improvements......... 5,095 1,057 1,119 5,033 Vehicles........................... 17,323 5,115 2,035 20,403 Furniture and fixtures............. 5,301 1,978 537 6,742 Bulk equipment and market facili- ties.............................. 6,263 1,826 134 7,955 Tanks and customer equipment....... 52,521 15,775 841 67,455 -------- ------- ------ -------- $ 87,329 $25,985 $4,677 $108,637 ======== ======= ====== ========
S-6 SCHEDULE VIII FERRELLGAS, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
BALANCE AT CHARGED DEDUCTIONS BALANCE BEGINNING TO COST/ (AMOUNTS AT END DESCRIPTION OF PERIOD EXPENSES CHARGED-OFF) OF PERIOD Year ended July 31, 1993 Allowance for uncollectible re- ceivables........................ $ 837 $ 1,343 $1,573 $ 607 ======= ======= ====== ======= Accumulated amortization of intan- gible assets..................... $49,188 $ 9,993 $ -- $59,181 ======= ======= ====== ======= Accumulated amortization of other assets........................... $ 5,286 $ 2,538 $ 232 $ 7,592 ======= ======= ====== ======= Year ended July 31, 1992 Allowance for uncollectible re- ceivables........................ $ 1,005 $ 2,071 $2,239 $ 837 ======= ======= ====== ======= Accumulated amortization of intan- gible assets..................... $38,901 $10,306 $ 19 $49,188 ======= ======= ====== ======= Accumulated amortization of other assets........................... $ 6,895 $ 2,654 $4,263 $ 5,286 ======= ======= ====== ======= Year ended July 31, 1991 Allowance for uncollectible re- ceivables........................ $ 1,005 $ 2,423 $2,423 $ 1,005 ======= ======= ====== ======= Accumulated amortization of intan- gible assets..................... $29,116 $ 9,785 $ -- $38,901 ======= ======= ====== ======= Accumulated amortization of other assets........................... $ 4,309 $ 2,586 $ -- $ 6,895 ======= ======= ====== =======
S-7 SCHEDULE IX FERRELLGAS, INC. AND SUBSIDIARIES SHORT-TERM BORROWINGS (IN THOUSANDS)
MAXIMUM WEIGHTED WEIGHTED AMOUNT AVERAGE AVERAGE BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST AT END INTEREST DURING DURING RATE DURING CATEGORY OF YEAR RATE THE YEAR THE YEAR THE YEAR* Year ended July 31, 1993 (There were no short-term borrowings during the fiscal year ended July 31, 1993). Year ended July 31, 1992 Working capital loan.... $ -- -- $1,000 $ 453 7.82% ==== ==== ====== ====== ==== Revolving loan.......... $ -- -- $4,275 $2,640 7.53% ==== ==== ====== ====== ==== Year ended July 31, 1991 (There were no short-term borrowings during the fiscal year ended July 31, 1991).
- --------------------- * Based upon the actual rate in effect and the average daily outstanding balance. S-8 SCHEDULE X FERRELLGAS, INC. AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION (IN THOUSANDS)
CHARGED TO COSTS AND EXPENSES ----------------------- YEAR YEAR YEAR ENDED ENDED ENDED JULY JULY JULY 31, 31, 31, 1993 1992 1991 1. Maintenance and repairs............................. $10,110 $ 9,855 $ 8,819 ======= ======= ======= 2. Depreciation........................................ $20,472 $20,486 $25,985 Amortization of intangibles......................... 9,993 10,306 9,785 Amortization of other assets........................ 2,538 2,654 2,586 ------- ------- ------- $33,003 $33,446 $38,356 ======= ======= =======
- --------------------- Note: Detail for the other items required for this schedule has been omitted since each of the other items is less than 1% of total revenues. S-9 REGISTRATION NO. 33-53379 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- EXHIBITS TO AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 FERRELLGAS, L.P. FERRELLGAS FINANCE CORP. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE NO. NO. *1.1 --Form of Underwriting Agreement **3.1 --Form of Agreement of Limited Partnership of Ferrellgas, L.P. **5.1 --Opinion of Smith, Gill, Fisher & Butts, P.C. as to the legality of the securities being registered **8.1 --Opinion of Smith, Gill, Fisher & Butts, P.C. relating to tax matters **10.1 --Form of Credit Agreement dated as of July 5, 1994 among Ferrellgas, L.P., Stratton Insurance Company, Ferrellgas, Inc., Bank of America National Trust and Savings Association, as Agent, and the other financial institutions party thereto in the amount of $185,000,000 *10.2 --Form of Indenture among Ferrellgas, L.P., and Norwest Bank Minnesota, National Association as Trustee, relating to Senior Notes due 2001 **10.3 --$250,000,000 11 5/8% Senior Subordinated Debenture Indenture due 2003, dated as of December 1, 1991, between the Company and Norwest Bank Minnesota, National Association, as Trustee **10.4 --Assignment and Agreement dated as of January 1, 1989 between BP Oil Company and Ferrell Petroleum, Inc. **10.5 --Ferrell Long-Term Incentive Plan, dated June 23, 1987, between Ferrell and the participants in the Plan **10.6 --Ferrell 1992 Key Employee Stock Option Plan **10.7 --Form of Contribution, Conveyance and Assumption Agreement between Ferrellgas, the Partnership and the Master Partnership **10.8 --First Supplemental Indenture dated June 2, 1994 relating to $250,000,000 11 5/8% Senior Subordinated Debentures **12.1 --Computation of Ratio of Earnings to Fixed Charges **21.1 --List of subsidiaries *23.1 --Consent of Deloitte & Touche **23.2 --Consent of Smith, Gill, Fisher & Butts, P.C. (included in Exhibit 5.1) **23.3 --Consent of Smith, Gill, Fisher & Butts, P.C. (included in Exhibit 8.1) **24.1 --Powers of Attorney (included on signature page) **25.1 --Statement of Eligibility of Trustee
- --------------------- * Filed herewith ** Previously filed EX-1.1 2 UNDERWRITING AGREEMENT EXECUTION COPY -------------- FERRELLGAS, L.P. and FERRELLGAS FINANCE CORP. 10% Fixed Rate Senior Notes Due 2001 Floating Rate Senior Notes Due 2001 UNDERWRITING AGREEMENT June 27, 1994 DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION GOLDMAN, SACHS & CO. c/o Donaldson, Lufkin & Jenrette Securities Corporation 140 Broadway New York, New York 10005 Ladies and Gentlemen: Ferrellgas, L.P., a Delaware limited partnership (the "Partnership"), and Ferrellgas Finance Corp., a wholly owned subsidiary of the Partnership ("Finance Corp." and, together with the Partnership, the "Issuers"), propose to issue and sell to Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and Goldman, Sachs & Co. ("Goldman, Sachs" and, together with DLJ, the "Underwriters") an aggregate of $200,000,000 principal amount of their 10% Fixed Rate Senior Notes due 2001 (the "Fixed Rate Senior Notes") and $50,000,000 principal amount of their Floating Rate Senior Notes due 2001 (the "Floating Rate Senior Notes" and, together with the Fixed Rate Senior Notes, the "Senior Notes"). The Senior Notes are to be issued pursuant to the provisions of an Indenture to be dated as of July 5, 1994 by and among the Issuers and Norwest Bank Minnesota, National Association, as Trustee (the "Indenture"). It is understood by all parties that (i) Ferrellgas Partners L.P, a Delaware limited Partnership (the "Master Partnership"), the Underwriters and certain other underwriters are entering into an underwriting agreement (the "Common Units Underwriting Agreement") providing for the sale by the Master Partnership of 13,100,000 common units (the "Common Units") representing limited partner interests in the Master Partnership and, at the option of such Underwriters, the sale by the Master Partnership of up to 1,965,000 additional Common Units to cover overallotments, if any, and (ii) concurrent with the Closing Date (as defined in Section 3 herein), (a) the closing under the Common Units Underwriting Agreement will occur, (b) Ferrellgas, Inc., a Delaware corporation (the "General Partner") will accept for purchase all of its 11 5/8% Senior Subordinated Debentures due December 15, 2003 (the "Senior Subordinated Debentures") validly tendered and not withdrawn pursuant to its Offer to Purchase the Senior Subordinated Debentures (the "Offer to Purchase"), thereby giving effect to the supplemental indenture deleting or amending certain restrictive covenants and events of default relating to the Senior Subordinated Debentures, (c) the General Partner will call for redemption its Series A and Series C Floating Rate Senior Notes due 1996 and Series B and Series D Fixed Rate Senior Notes due 1996 (collectively, the "Existing Senior Notes") and the Partnership will deposit with the trustee under the Indenture, dated as of July 1, 1990 (the "Existing Indenture"), relating to the Existing Senior Notes an amount of funds reasonably anticipated to be sufficient to redeem such Existing Senior Notes on their redemption date and (d) the Partnership will enter into a working capital credit facility for up to $185 million (the "Credit Facility") with a group of commercial banks. The closing of the issuance and sale of Senior Notes pursuant hereto is conditional on the closing with respect to the transactions described in the preceding sentence. 1. Registration Statement and Prospectus. The Issuers have prepared and ------------------------------------- filed with the Securities and Exchange Commission (the "Commission"), in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-1 (No. 33-53379), including a preliminary prospectus, subject to completion, relating to the Senior Notes. Any preliminary prospectus included in such registration statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Act, is hereinafter referred to as the "Preliminary Prospectus"; the registration statement, as amended at the time it becomes effective or, if a post-effective amendment is filed with respect thereto, as amended by such post-effective amendment at the time of its effectiveness, including, in each case, all documents incorporated by reference therein, all financial statements and exhibits thereto, and the information (if any) contained in a prospectus subsequently filed with the Commission pursuant to Rule 424(b) under the Act and deemed to be a part of the registration statement at the time of its effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as the "Registration Statement"; and the prospectus in the form first used to confirm sales of the Senior Notes, whether or not filed with the Commission pursuant to Rule 424(b) under the Act, including all documents incorporated by reference therein, is hereinafter referred to as the "Prospectus." 2. Agreements to Sell and Purchase. The Issuers agree to issue and sell ------------------------------- to the Underwriters, and on the basis of the representations and warranties contained in this Agreement, and subject to its terms and conditions, the Underwriters agree, severally and not jointly, to purchase from the Issuers, Senior Notes in the respective principal amounts set forth opposite their names on Schedule A hereto at a purchase price equal to 2% of the principal amount thereof (the "Purchase Price"). 3. Delivery and Payment. Delivery to you of and payment for the Senior -------------------- Notes shall be made at 10:00 A.M., New York City time, on the fifth business day (such time and date being referred to as the "Closing Date") following the date of the initial public offering of the Senior Notes as advised by you to the Partnership, at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York. The Closing Date and the location of delivery of the Senior Notes may be varied by agreement among you and the Partnership. The Senior Notes in definitive form shall be registered in such names and issued in such denominations as you shall request in writing not later than two full business days prior to the Closing Date, and shall be made available to you at the offices of DLJ (or at such other place as shall be acceptable to you) for inspection not later than 9:30 A.M., New York City time, on the business day next preceding the Closing Date. The Senior Notes shall be delivered to you on the Closing Date with any transfer taxes payable upon initial issuance thereof duly paid by the Partnership, for your respective accounts against payment of the Purchase Price therefor. Payment shall be made to the Partnership by, at the option of the Partnership, (i) certified or official bank check or checks drawn in New York 2 Clearing House funds or similar next day funds payable to the order of the Partnership or (ii) certified or official bank check or checks drawn in, or a wire transfer to an account designated in writing by the Partnership to the Underwriters of, immediately available funds; provided that if the payment shall be made in such immediately available funds, the amount of net payment shall be reduced by one day's interest on the amount of gross payment at the Underwriters' cost of borrowing such funds plus any other expenses associated with such payment of immediately available funds. 4. Agreements of the Parties. Each of the Partnership, Finance Corp. and ------------------------- the General Partner agrees with each of the Underwriters: (a) To prepare the Prospectus in a form approved by you and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to comply fully and in a timely manner with all other applicable provisions of Rule 424 and Rule 430A under the Act; (b) If necessary, to file an amendment to the Registration Statement including, if necessary pursuant to Rule 430A under the Act, a post-effective amendment to the Registration Statement, in each case as soon as practicable after the execution and delivery of this Agreement, and to use its best efforts to cause the Registration Statement or such post-effective amendment to become effective at the earliest possible time; (c) To advise you promptly and, if requested by any of you, to confirm such advice in writing, (i) when the Registration Statement has become effective, if and when the Prospectus is sent for filing pursuant to Rule 424 under the Act and when any post-effective amendment to the Registration Statement becomes effective, (ii) of the receipt of any comments from the Commission or any state securities commission or regulatory authority that relate to the Registration Statement or requests by the Commission or any state securities commission or regulatory authority for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement, or of the suspension of qualification of the Senior Notes for offering or sale in any jurisdiction, or the initiation of any proceeding for such purpose by the Commission or any state securities commission or other regulatory authority, and (iv) of the happening of any event during such period as in your reasonable judgment you are required to deliver a prospectus in connection with sales of the Senior Notes which makes any statement of a material fact made in the Registration Statement untrue or which requires the making of any additions to or changes in the Registration Statement (as amended or supplemented from time to time) in order to make the statements therein not misleading or that makes any statement of a material fact made in the Prospectus (as amended or supplemented from time to time) untrue or which requires the making of any additions to or changes in the Prospectus (as amended or supplemented from time to time) in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; to use its best efforts to prevent the issuance of any stop order or order suspending the qualification or exemption of the Senior Notes under any state securities or Blue Sky laws, and, if at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption of the Senior Notes under any state securities or Blue Sky laws, to use every reasonable effort to obtain the withdrawal or lifting of such order at the earliest possible time; 3 (d) To furnish to each of you without charge one signed copy (plus one additional signed copy to your legal counsel) of the Registration Statement as first filed with the Commission and of each amendment thereto, including all exhibits filed therewith, and to furnish to you such number of conformed copies of the Registration Statement as so filed and of each amendment thereto, without exhibits, as you may reasonably request; (e) Not to file any amendment or supplement to the Registration Statement, whether before or after the time when it becomes effective, or make any amendment or supplement to the Prospectus, of which you shall not previously have been advised and provided a copy within two business days prior to the filing thereof (or such reasonable amount of time as is necessitated by the exigency of such amendment or supplement) or to which you shall reasonably object; and to prepare and file with the Commission, promptly upon your reasonable request, any amendment to the Registration Statement or supplement to the Prospectus which may be necessary or advisable in connection with the distribution of the Senior Notes by you, and to use its best efforts to cause the same to become effective as promptly as possible; (f) Promptly from time to time to take such action as you may reasonably request to qualify the Senior Notes for offering and sale under the state securities or Blue Sky laws of such jurisdictions as you may reasonably request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Senior Notes, provided that in connection therewith neither Issuer shall be required to qualify as a foreign partnership or corporation or to file a general consent to service of process in any jurisdiction in which it is not so qualified or has not so filed; (g) Promptly after the Registration Statement becomes effective, and from time to time thereafter prior to the expiration of nine months after the time of issue of the Prospectus if the delivery of a prospectus is required in connection with the offering or sale of the Senior Notes, to furnish to each Underwriter and dealer without charge as many copies of the Prospectus (and of any amendment or supplement to the Prospectus) as such Underwriters and dealers may reasonably request; if in your reasonable judgment a prospectus is required to be delivered any time prior to the expiration of such nine- month period any event shall have occurred 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 in order to make the statements therein, in the light of the circumstances under which they were made when such Prospectus was delivered, not misleading, or, if for any other reason it shall be necessary during such period to amend or supplement the Prospectus in order to comply with any law, to promptly notify you and upon your request to promptly prepare, file with the Commission and furnish without charge to each Underwriter and to any dealer in securities as many copies as such Underwriter may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance; and in case any Underwriter is required to deliver a prospectus in connection with sales of any of the Senior Notes at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriter, to prepare and deliver to such Underwriter as many copies as you may request of an amended or supplemental Prospectus complying with Section 10(a)(3) of the Act; (h) To mail and make generally available to security holders of each of the Issuers as soon as reasonably practicable, but in any event not later than 18 months after the "effective date" (as defined in Rule 158 under the Act) of the Registration Statement a consolidated earning statement of each of the Issuers covering a period of at least twelve months beginning after such effective date 4 (but in no event commencing later than 90 days after such effective date) which shall satisfy the provisions of Section 11(a) of the Act and Rule 158 thereunder, and to advise you in writing when such statement has been so made available; (i) To timely complete all required filings and otherwise fully comply in a timely manner with all provisions of the Securities Exchange Act of 1934, as amended, including the rules and regulations thereunder (collectively, the "Exchange Act"), in connection with the registration, if any, of the Senior Notes thereunder; (j) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement becomes effective or is terminated, to pay all costs, expenses, fees and taxes incident to and in connection with; (i) the fees, disbursements and expenses of the Partnership's counsel and accountants in connection with the registration of the Senior Notes under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing any Agreement among Underwriters, this Agreement, the Blue Sky Memorandum and any other documents in connection with the offering, purchase, sale and delivery of the Senior Notes; (iii) all expenses in connection with the qualification of the Senior Notes for offering and sale under state securities laws as provided in paragraph (f) above, including the reasonable fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky Memorandum; (iv) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Senior Notes; (v) the cost of preparing certificates representing the Senior Notes; (vi) the cost and charges of any transfer agent or registrar; (vii) the rating of the Senior Notes by rating agencies; (viii) all fees and expenses of listing the Senior Notes on a stock exchange or automated quotation system; and (ix) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section; (k) To furnish to the holders of Senior Notes within 120 days after the end of each fiscal year an annual report (including a balance sheet and statements of income, security holders' equity and cash flow of such Issuer and the entities consolidated therewith certified by independent public accountants) and, within 90 days after the end of each of the first three quarters of each fiscal year, consolidated summary financial information of each of the Issuers for such quarter in reasonable detail; (l) During a period of five years from the effective date of the Registration Statement, to furnish to you copies of all reports or other communications (financial or other) furnished to security holders of each of the Issuers, and deliver to you (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which any class of securities of any Issuer is listed; and (ii) such additional information concerning the business and financial condition of each of the Issuers as you may from time to time reasonably request (such financial statements to be on a consolidated basis to the extent the accounts of any Issuer and the entities consolidated therewith are consolidated in reports furnished to its security holders generally or to the Commission); (m) To use the net proceeds from the sale of the Senior Notes pursuant to this Agreement in the manner specified in the Prospectus under the caption "Use of Proceeds"; 5 (n) Not to voluntarily claim, and to actively resist any attempts to claim, the benefit of any usuary laws against the holders of Senior Notes; (o) To file with the Commission such reports on Form SR as may be required by Rule 463 under the Act; and (p) To use their best efforts to do and perform all things required to be done and performed under this Agreement by them prior to or after the Closing Date and to satisfy all conditions precedent on their part to the delivery of the Senior Notes. 5. Representations and Warranties. Each of the Partnership, Finance Corp. ------------------------------ and the General Partner represents and warrants to, and agrees with, each of the Underwriters that: (a) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit 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; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Partnership by an Underwriter through you expressly for use therein; (b) When the Registration Statement becomes effective, including at the date of any post-effective amendment, at the date of the Prospectus (if different) and at the Closing Date, the Registration Statement will comply in all material respects with the provisions of the Act and will not contain 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; the Prospectus and any supplements or amendments thereto will not at the date of the Prospectus, at the date of any such supplements or amendments and at the Closing Date contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties contained in this paragraph (b) shall not apply to statements in or omissions from the Registration Statement or the Prospectus (or any supplement or amendment to them) made in reliance upon and in conformity with information relating to you furnished to the Issuers in writing by you expressly for use therein. When the Registration Statement becomes effective, including at the date of any post-effective amendment, at the date of the Prospectus and any amendment or supplement thereto (if different) and at the Closing Date, the Indenture will have been qualified under and will conform in all material respects to the requirements of the Trust Indenture Act of 1939, as amended, and the rules and regulations thereunder (collectively, the "TIA"). No contract or document of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement is not described or filed as required; (c) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus and up to each Closing Date, (i) none of the Partnership, Finance Corp., the General Partner or any of their respective subsidiaries (collectively, the "Subsidiaries") has incurred (A) any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor 6 dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus or (B) any liabilities or obligations, direct or contingent, which are material to the Partnership, Finance Corp., the General Partner and the Subsidiaries, taken as a whole, or entered into any material transaction not in the ordinary course of business, and (ii) there has not been any change in the capitalization or long-term debt or increase in short-term debt of the Partnership, Finance Corp. or the General Partner or, singly or in the aggregate, any material adverse change, or any development which may reasonably be expected to involve a material adverse change, in the properties, business, general affairs, management, condition (financial or otherwise), financial position, results of operations or prospects of the Partnership, Finance Corp., the General Partner and the Subsidiaries, taken as a whole, otherwise than as set forth or contemplated in the Prospectus; (d) The firm of accountants that has certified or shall certify the applicable consolidated financial statements and supporting schedules of the General Partner and its Subsidiaries filed or to be filed with the Commission as part of the Registration Statement and the Prospectus are independent public accountants with respect to the General Partner and its Subsidiaries, as required by the Act. The consolidated historical and pro forma financial statements, together with related schedules and notes, set forth in the Prospectus and the Registration Statement comply as to form in all material respects with the requirements of the Act; at April 30, 1994, the Partnership would have had, on the pro forma basis indicated in the Prospectus, a duly authorized and outstanding capitalization as set forth therein. The audited balance sheet of the Partnership included in the Prospectus presents fairly the financial position of the Partnership as of the date indicated. The audited and unaudited historical consolidated financial statements of the General Partner included in the Prospectus present fairly the consolidated financial position of the General Partner and the Subsidiaries as of the dates indicated and their results of operations and cash flows for the periods specified. The supplemental schedules included in the Registration Statement, when considered in relation to the audited and unaudited historical consolidated financial statements of the General Partner, present fairly in all material respects the information shown therein. Such audited and unaudited historical consolidated financial statements and supplemental schedules included in the Registration Statement and the Prospectus have been prepared in conformity with generally accepted accounting principles applied on a substantially consistent basis, except to the extent disclosed therein; the historical information set forth in the Prospectus under the caption "Selected Historical and Pro Forma Financial and Operating Data" is fairly stated in all material respects in relation to the audited and unaudited historical consolidated financial statements from which it has been derived. The pro forma financial information set forth in the Prospectus under the caption "Selected Historical and Pro Forma Financial and Operating Data" is fairly stated in all material respects in relation to the pro forma financial statements from which it has been derived. The pro forma financial statements of the Partnership included in the Registration Statement and the Prospectus have been prepared on a basis consistent with such historical statements, except for the pro forma adjustments specified therein, and in accordance with the applicable published rules and regulations of the Commission, the assumptions used in the preparation of such pro forma financial statements are reasonable, and the pro forma entries reflected in such pro forma financial statements have been properly applied in such pro forma financial statements. The other financial and statistical information and data included in the Prospectus and in the Registration Statement, historical and pro forma, are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Partnership and the General Partner; 7 (e) Each of the Partnership and the Master Partnership has been duly formed and is validly existing as a limited partnership under the Delaware Revised Limited Uniform Partnership Act (the "Delaware Act"), with partnership power and authority to own or lease the properties it will own or lease at the Closing Date and conduct the business it will conduct at the Closing Date, in each case as described in the Prospectus, and has been duly qualified or registered as a foreign limited partnership for the transaction of business under the laws of each jurisdiction in which the failure to so qualify or register would have a material adverse effect upon the Partnership or the Master Partnership or subject the Partnership or the Master Partnership to any material liability or disability; (f) The General Partner is and, upon consummation of the transactions described under the caption "The Transactions" in the Prospectus and contemplated by the Operative Agreements (as defined in (m) below) (the "Transactions"), will be the sole general partner of the Partnership with a general partner interest in the Partnership of 1.0101%. Such general partner interest is duly authorized by the Agreement of Limited Partnership of the Partnership (as it may be amended or restated at or prior to the Closing Date, the "Partnership Agreement"), and will be validly issued to the General Partner and will be fully paid (to the extent required at such time). At the Closing Date the General Partner will own such general partner interest free and clear of all liens, encumbrances, charges or claims; (g) Upon consummation of the Transactions, the Master Partnership will be the sole limited partner of the Partnership, with a limited partner interest of 98.9899%. At the Closing Date, such limited partner interest will be duly authorized by the Partnership Agreement, will have been validly issued and will be fully paid and non-assessable (except as such non-assessability may be affected by matters described in the prospectus relating to the Common Units under the caption "The Partnership Agreement -- Limited Liability"). Upon consummation of the Transactions, the Master Partnership will own such limited partner interest in the Partnership free and clear of all liens, encumbrances, charges or claims; (h) Each of the General Partner and Finance Corp. has been duly incorporated and is validly existing as a corporation in good standing under the laws of the state of its incorporation, with power and authority (corporate and other) to own or lease its properties, to conduct its business and (in the case of the General Partner) to act as general partner of the Partnership, in each case as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which the failure to so qualify or register would have a material adverse effect upon the General Partner, the Partnership or Finance Corp. or subject the General Partner, the Partnership or Finance Corp. to any material liability or disability; (i) All of the issued shares of capital stock of the General Partner have been duly authorized and validly issued and are fully paid and non- assessable; and all of the issued shares of capital stock of the General Partner are owned by Ferrell Companies, Inc., a Kansas corporation ("Ferrell"), free and clear of all liens, security interests, mortgages, pledges, encumbrances, equities or claims (each a "Lien") except as set forth in the Prospectus and except for such Liens created pursuant to the pledge agreement entered into in connection with (A) that certain Amended and Restated Loan Agreement, dated as of May 10, 1993, among Ferrellgas, Inc., Stratton Insurance Company, Inc., Ferrell Companies, Inc., One Liberty Oil Company, Ferrellgas International (F.L.) Establishment, Vaduz and Wells Fargo Bank, National Association, as agent and the other lenders party thereto (the "Wells Fargo Agreement") and 8 (B) the Existing Indenture (such pledge agreement is referred to herein as the "Existing Pledge Agreement"). (j) All of the issued and outstanding shares of capital stock of, or other ownership interests in, each Subsidiary of the Partnership, Finance Corp. and the General Partner have been duly and validly authorized and issued, and all of the shares of capital stock of, or other ownership interests in, each such Subsidiary are owned, directly or through other Subsidiaries, by the Partnership, Finance Corp. or the General Partner, as the case may be. All such shares of capital stock are fully paid and nonassessable, and are owned free and clear of any Liens, except as set forth in the Prospectus and except for such Liens created pursuant to the Existing Pledge Agreement. There are no outstanding subscriptions, rights, warrants, options, calls, convertible securities, commitments of sale or Liens related to or entitling any person to purchase or otherwise to acquire any shares of the capital stock of, or other ownership interest in, any such Subsidiary; (k) The General Partner has the corporate power and authority to convey the Properties (as defined in paragraph (s) below) to the Partnership pursuant to the Closing Agreement (as defined in paragraph (m) below). The General Partner has, and, upon execution, delivery and performance of the Closing Agreement, the Partnership will have, good and indefeasible title to the Properties, free and clear of all liens, encumbrances, security interests, equities, charges, claims or defects except such as are described in the Prospectus or such as do not materially interfere with the ownership or benefits of ownership or materially increase the cost of ownership of the Properties, taken as a whole. The Properties then owned by the General Partner are accurately reflected in the General Partner's consolidated financial statements at and for the period ended April 30, 1994. All real property, buildings and equipment held under lease by the General Partner are held by the General Partner under valid, subsisting and enforceable leases and, following the execution, delivery and performance of the Closing Agreement, the Partnership will have the right to use all such real property, buildings and equipment in a manner consistent with the past business practices of the General Partner, in each case, except as described in the Prospectus and except as are not material and do not interfere with the use made and proposed to be made of such real property, buildings and equipment by the General Partner and the Partnership; (l) Each of the Partnership, Finance Corp., the General Partner and the Master Partnership has full power and authority to execute, deliver and perform this Agreement and the Operative Agreements, as applicable, and each of the Partnership and Finance Corp. has full power and authority to authorize, issue, sell and deliver the Senior Notes as contemplated by this Agreement; (m) This Agreement has been duly authorized, executed and delivered by each of the Partnership, Finance Corp. and the General Partner and (assuming the due execution and delivery by you) is a valid and legally binding agreement of each of the Partnership, Finance Corp. and the General Partner, enforceable against each of them in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. At or before the Closing Date, the Partnership Agreement will have been duly authorized, executed and delivered by the General Partner and the Master Partnership and will be a valid and legally binding agreement of the General Partner and the Master Partnership, enforceable against the General Partner and the Master Partnership in accordance with its terms, 9 subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles and except as set forth in the Registration Statement. At or before the Closing Date, the Contribution, Conveyance and Assumption Agreement among the Partnership, the Master Partnership and the General Partner (the "Closing Agreement") will have been duly authorized, executed and delivered by the Partnership, the Master Partnership and the General Partner and will be a valid and legally binding agreement of the Partnership, the Master Partnership and the General Partner enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; the Partnership Agreement, the Closing Agreement, the Credit Facility and the Indenture are herein collectively referred to as the "Operative Agreements"; (n) The Senior Notes have been duly authorized by each Issuer and, at the Closing Date, will have been duly executed by each Issuer and will conform in all material respects to the description thereof in the Prospectus. When the Senior Notes are issued, authenticated and delivered in accordance with the Indenture and paid for in accordance with the terms of this Agreement, they will constitute valid and legally binding obligations of each Issuer, enforceable against each Issuer in accordance with their terms and entitled to the benefits of the Indenture, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; (o) The Indenture has been duly authorized by each Issuer and, at the Closing Date, will have been duly executed by each Issuer and will conform in all material respects to the description thereof in the Prospectus. When the Indenture has been duly executed and delivered, the Indenture will be a valid and legally binding agreement of each Issuer, enforceable against each Issuer in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; (p) The capitalization of the Partnership is in all material respects as described in the Prospectus under the caption "Capitalization"; (q) The execution and delivery of this Agreement and the Indenture by the Issuers, the issuance and sale of the Senior Notes by the Issuers, the execution, delivery and performance by the Partnership, Finance Corp., the General Partner and the Master Partnership, as the case may be, of the Operative Agreements and the consummation by the Partnership, Finance Corp., the General Partner, the Master Partnership and Ferrell, as the case may be, of the Transactions will not conflict with or result in a breach or violation of any of the terms provisions of, or constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) a Lien with respect to, any material bond, note, debenture or other evidence of indebtedness or any material indenture, mortgage, deed of trust, loan agreement, contract, lease, or other agreement or instrument to which the Partnership, Finance Corp., the General Partner, the Master Partnership or any of the Subsidiaries is a party or by which the Partnership, Finance Corp., the General Partner, the Master Partnership or any of the Subsidiaries is bound or to which any of their properties or assets is subject (other than any default or event of default arising as a result of the Transactions under the Existing Indenture) nor will such action result in any breach or violation of the 10 provisions of the Partnership Agreement or of the charter or bylaws of the General Partner, Finance Corp. or any of the Subsidiaries or contravene any order of any court or governmental agency or body having jurisdiction over the Partnership, Finance Corp., the General Partner, the Master Partnership or any of the Subsidiaries or any of their respective properties, or violate or conflict with any statute, rule or regulation or administrative or court decree applicable to the Partnership, Finance Corp., the General Partner, the Master Partnership or any of the Subsidiaries or any of their respective properties, and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issuance and sale of the Senior Notes by the Partnership and Finance Corp. or the consummation by the Partnership, Finance Corp., the General Partner or the Master Partnership, as the case may be, of the Transactions, except (i) the registration under the Act of the Senior Notes and under the Trust Indenture Act of 1939, as amended, of the Indenture or (ii) such consents, approvals, authorizations, orders, registrations or qualifications (A) as have been, or prior to the Closing Date will be, obtained or (B) as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Senior Notes; (r) No action has been taken and no statute, rule or regulation or order has been enacted, adopted or issued by any governmental agency or body which prevents the issuance of the Senior Notes, suspends the effectiveness of the Registration Statement, prevents or suspends the use of any preliminary prospectus or suspends the sale of the Senior Notes in any jurisdiction referred to in Section 4(f) hereof; no injunction, restraining order or order of any nature by a federal or state court of competent jurisdiction has been issued with respect to the Partnership, Finance Corp., the General Partner or any of the Subsidiaries which would prevent or suspend the issuance or sale of the Senior Notes, the effectiveness of the Registration Statement, or the use of any preliminary prospectus in any jurisdiction referred to in Section 4(f) hereof; no action, suit or proceeding is pending against or, to the best knowledge of the Partnership, Finance Corp. or the General Partner, threatened against or affecting the Partnership, Finance Corp., the General Partner or any of the Subsidiaries before any court or arbitrator or any governmental body, agency or official, domestic or foreign, which, if adversely determined, would materially interfere with or adversely affect the issuance of the Senior Notes or in any manner draw into question the validity of this Agreement, the Indenture or the Senior Notes; and every request of the Commission or any securities authority or agency of any jurisdiction for additional information (to be included in the Registration Statement or the Prospectus or otherwise) has been complied with in all material respects; (s) No consent, approval, authorization, order, registration or qualification of or with any court or governmental agency or body will be required for the conveyance of the real and personal property to be conveyed pursuant to the Closing Agreement (the "Properties"), except such consents, approvals, authorizations, orders, registrations or qualifications (i) as have been, or prior to the Closing Date will be, obtained, or (ii) which, if not obtained, would not, individually or in the aggregate, have a material adverse effect upon the ability of the Partnership to conduct its business substantially in accordance with the past practice of the General Partner; (t) The Partnership has, or at or before the Closing Date will have, all necessary consents, approvals, authorizations, orders, registrations and qualifications (or the equivalent thereof in all material respects) of or with any court or governmental agency or body having jurisdiction over it or any of its properties or of or with any other person to permit the Partnership to conduct its business substantially in accordance with the past practice of the 11 General Partner, except such consents, approvals, authorizations, orders, registrations or qualifications which, if not obtained, would not, individually or in the aggregate, have a material adverse effect upon the properties, business, general affairs, management, condition (financial or otherwise), financial position, results of operations, or prospects of the Partnership, Finance Corp., the General Partner and the Subsidiaries taken as a whole, or upon the holders of Senior Notes; (u) Except as set forth or contemplated in the Prospectus or as contemplated by this Agreement, neither the Partnership nor Finance Corp. has incurred any material liabilities or obligations, direct or contingent, or entered into any material agreement or engaged in any material business other than in connection with its formation; (v) Other than as set forth in the Prospectus, there is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, pending against the Partnership, Finance Corp., the General Partner or any of the Subsidiaries, or any of their respective properties, which is required to be disclosed in the Prospectus and is not so disclosed, which, if determined adversely to such person, would individually or in the aggregate have a material adverse effect upon the properties, business, general affairs, management, condition (financial or otherwise), financial position, results of operations or prospects of the Partnership, Finance Corp., the General Partner and the Subsidiaries, taken as a whole, or which could reasonably be expected to materially and adversely affect the consummation of this Agreement, the Operative Agreements or the Transactions; and to the best of the knowledge of the Partnership, Finance Corp. and the General Partner, no such actions, suits or proceedings are threatened or contemplated by governmental authorities or threatened by others; (w) The statements made in the Prospectus under the caption "Description of Senior Notes", insofar as they purport to constitute summaries of the terms of the Senior Notes and the Indenture, under the caption "The Partnership", under the caption "Tax Considerations" and under the caption "Underwriting", insofar as they describe the provisions of the documents therein, are accurate, complete and fair summaries; (x) None of the Partnership, Finance Corp., the General Partner or any Subsidiary is in: (i) breach or violation of its agreement of limited partnership or of its charter or bylaws, as the case may be; or (ii) default (and no event has occurred which, with notice or lapse of time or both, would constitute such a default) in the due performance or observance of any term, covenant or condition contained in any bond, note, debenture or other evidence of indebtedness or any indenture, mortgage, deed of trust, loan agreement, contract, lease or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject (other than any default or event of default arising as a result of the Transactions under the Existing Indenture); or (iii) violation of any statute, rule or regulation or administrative or court decree applicable to it or any of its properties, which default or violation described in clause (ii) or (iii), individually or in the aggregate, could have a material adverse effect upon the holders of Senior Notes or the properties, business, general affairs, management, prospects, condition (financial or otherwise), financial position or results of operations of any of the Partnership, Finance Corp., the General Partner and the Subsidiaries taken as a whole; (y) Except as described in the Prospectus, (i) each of the Partnership, Finance Corp., the General Partner and the Subsidiaries has all certificates, consents, exemptions, orders, permits, 12 licenses, authorizations, or other approvals (each, an "Authorization") of and from, and has made all declarations and filings with, all federal, state, local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, necessary or required to own, lease, license and use its properties and assets and to conduct its business in the manner described in the Prospectus, except to the extent that the failure to obtain or file would not, singly or in the aggregate, have a material adverse effect upon the ability of the Partnership, Finance Corp., the General Partner or the Subsidiaries to conduct their businesses in all material respects as currently conducted and as contemplated by the Prospectus to be conducted; (ii) all such Authorizations are valid and in full force and effect; (iii) the Partnership, Finance Corp., the General Partner and the Subsidiaries are in compliance in all material respects with the terms and conditions of all such Authorizations and with the rules and regulations of the regulatory authorities and governing bodies having jurisdiction with respect thereto; and, (iv) except as described in the Prospectus, none of the Partnership, Finance Corp., the General Partner or the Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Authorization which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or filing, would be expected to have a material adverse effect upon the ability of the Partnership, Finance Corp., the General Partner and the Subsidiaries to conduct their businesses in all material respects as currently conducted and as contemplated by the Prospectus to be conducted; (z) None of the Partnership, Finance Corp., the General Partner nor any of the Subsidiaries has violated any environmental safety or similar law or regulation applicable to its business relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), lacks any permits, licenses or other approvals required of them under applicable Environmental Laws to own, lease and operate their respective properties and to conduct their business in the manner described in the Prospectus, is violating any terms and conditions of any such permit, license or approval or has permitted to occur any event that allows, or after notice or lapse of time would allow, revocation or termination of any such permit, license or approval or results in any other impairment of their rights thereunder, which in each case might result, singly or in the aggregate, in a material adverse effect on the Partnership, Finance Corp., the General Partner and the Subsidiaries, taken as a whole (a "Material Adverse Effect"). None of the Partnership, Finance Corp., the General Partner nor any of the Subsidiaries violated any federal, state or local law relating to discrimination in the hiring, promotion or pay of employees prior to any applicable wage or hour laws, nor any provisions of the Employee Retirement Income Security Act of 1974 ("ERISA") or the rules and regulations promulgated thereunder, nor has the Partnership, Finance Corp., the General Partner or any of the Subsidiaries engaged in any unfair labor practice, which in each case might result, singly or in the aggregate, in a Material Adverse Effect. There is (i) no significant unfair labor practice complaint pending against the Partnership, Finance Corp., the General Partner or any of the Subsidiaries or, to the best knowledge of the Partnership, Finance Corp. or the General Partner, threatened against any of them before the National Labor Relations Board or any state or local labor relations board, and no significant grievance or significant arbitration proceeding arising out of or under any collective bargaining agreement is so pending against the Partnership, Finance Corp., the General Partner or any of the Subsidiaries or, to the best knowledge of the Partnership, Finance Corp. or the General Partner, threatened against any of them, (ii) no significant strike, labor dispute, slowdown or stoppage pending against the Partnership, Finance Corp., the General Partner or any of the Subsidiaries or, to the best knowledge of the Partnership, Finance Corp. or the General Partner, threatened against the Partnership, Finance Corp., the General Partner 13 or any of the Subsidiaries and (iii) to the best knowledge of the Partnership, Finance Corp. or the General Partner, no union representation question existing with respect to the employees of the Partnership, Finance Corp., the General Partner or any of the Subsidiaries and, to the best knowledge of the Partnership, Finance Corp. or the General Partner, no union organizing activities are taking place, except (with respect to any matter specified in clause (i), (ii) or (iii) above, singly or in the aggregate) such as could not have a Material Adverse Effect; (aa) All tax returns required to be filed by the Partnership, Finance Corp., the General Partner or any of the Subsidiaries in any jurisdiction have been filed, other than those filings being contested in good faith, and all material taxes, including withholding taxes, penalties and interest, assessments, fees and other charges due or claimed to be due from such entities have been paid, other than those being contested in good faith and for which adequate reserves have been provided or those currently payable without penalty or interest; (bb) Except pursuant to this Agreement, none of the Partnership, Finance Corp., the General Partner or the Subsidiaries has (i) taken, directly or indirectly, any action designed to cause or to result in, or that has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of any Issuer to facilitate the sale or resale of the Senior Notes or (ii) since the initial filing of the Registration Statement (A) sold, bid for, purchased, or paid anyone any compensation for soliciting purchases of, the Senior Notes or (B) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Partnership or Finance Corp.; (cc) None of the Partnership, Finance Corp., the General Partner nor any of the Subsidiaries is (i) an "investment company" or a company "controlled" by an investment company within the meaning of the Investment Company Act of 1940, as amended, or (ii) a "holding company" or a "subsidiary company" of a holding company, or an "affiliate" thereof within the meaning of the Public Utility Holding Company Act of 1935, as amended; (dd) Except as disclosed in the Prospectus, no holder of any security of the Partnership or Finance Corp. has or will have any right to require the registration of such security by virtue of any transaction contemplated by this Agreement; (ee) None of the Partnership, Finance Corp., the General Partner or the Subsidiaries does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075 of Florida Statutes (Chapter 92-198, Laws of Florida); (ff) At the Closing Date, the General Partner will have (excluding its interests in the Partnership and the Master Partnership and any notes receivable from or payable to the Partnership or the Master Partnership) a net worth of at least $25,000,000; (gg) Each of the Partnership, Finance Corp., the General Partner and their respective Subsidiaries maintains insurance which is adequate in accordance with customary industry practice; none of the Partnership, the Finance Corp., the General Partner and their respective Subsidiaries has received notice from any insurer or agent of such insurer that substantial capital improvements or other expenditures will have to be made in order to continue such insurance; all such insurance is outstanding and duly in force on the date hereof and will be outstanding and duly in force at the Closing Date; and 14 (hh) Each certificate signed by any officer of an Issuer and delivered to the Underwriters or counsel for the Underwriters shall be deemed to be a joint and several representation and warranty by the Issuers to each Underwriter as to the matters covered thereby. 6. Indemnification. --------------- (a) The Issuers, jointly and severally, agree to indemnify and hold harmless (i) each of the Underwriters, (ii) each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) any of the Underwriters (any of the persons referred to in this clause (ii) being hereinafter referred to as a "controlling person"), and (iii) the respective officers, directors, partners, employees, representatives and agents of any of the Underwriters or any controlling person (any person referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an "Indemnified Person") to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, judgments, actions and expenses (including without limitation and as incurred, reimbursement of all reasonable costs of investigating, preparing, pursuing or defending any claim or action, or any investigation or proceeding by any governmental agency or body, commenced or threatened, including the reasonable fees and expenses of counsel to any Indemnified Person) directly or indirectly caused by, related to, based upon, arising out of or in connection with any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto) or the Prospectus (including any amendment or supplement thereto) or any preliminary prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in the light of the circumstances under which they were made) not misleading, except (i) insofar as such losses, claims, damages, liabilities or expenses are caused by an untrue statement or omission or alleged untrue statement or omission that is made in reliance upon and in conformity with information relating to any of the Underwriters furnished in writing to the Issuers by any of the Underwriters expressly for use in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto) or any preliminary prospectus and (ii) insofar as any such losses, claims, damages, liabilities or expenses are caused by an untrue statement or omission or alleged untrue statement or omission contained in any preliminary prospectus, the foregoing indemnity shall not inure to the benefit of any Underwriter which sold Senior Notes to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus or of the Prospectus as then amended or supplemented, whichever is most recent, if the Partnership has previously furnished copies thereof to such Underwriter, and if such Prospectus or Prospectus as amended or supplemented, as the case may be, completely corrected the untrue statement or alleged untrue statement or omission or alleged omission giving rise to such losses, claims, damages, liabilities or expenses. The Issuers shall notify you promptly of the institution, threat or assertion of any claim, proceeding (including any governmental investigation) or litigation in connection with the matters addressed by this Agreement which involves an Issuer or an Indemnified Person. (b) In case any action or proceeding (including any governmental investigation) shall be brought or asserted against any of the Indemnified Persons with respect to which indemnity may be sought against the Issuers, such Underwriter (or the Underwriter controlled by such controlling person) shall promptly notify the Partnership in writing (provided, that the failure to give such notice shall not relieve the Issuers of their obligations pursuant to this Agreement). Such Indemnified Person shall have the right to employ its own counsel in any such action and 15 the reasonable fees and expenses of such counsel shall be paid, as incurred, by the Issuers (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to Indemnification hereunder). The Issuers shall not, in connection with any one such action or proceeding or separate but substantially similar or related actions or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) at any time for such Indemnified Persons, which firm shall be designated by the Underwriters. The Issuers shall be liable for any settlement of any such action or proceeding effected with any Issuer's prior written consent, which consent will not be unreasonably withheld, and the Issuers agree to indemnify and hold harmless any Indemnified Person from and against any loss, claim, damage, liability or expense by reason of any settlement of any action effected with the written consent of any Issuer. The Issuers shall not, without the prior written consent of each Indemnified Person, settle or compromise or consent to the entry of Judgment in or otherwise seek to terminate any pending or threatened action, claim or litigation proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not any Indemnified Person is a party thereto), unless such settlement, compromise, consent or termination includes an unconditional release of each Indemnified Person from all liability arising out of such action, claim, litigation or proceeding. (c) Each of the Underwriters agrees, severally and not jointly, to indemnify and hold harmless the Issuers, their directors, their officers who sign the Registration Statement, any person controlling (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Partnership, and the officers, directors, partners, employees, representatives and agents of each such person, to the same extent as the foregoing indemnity from the Issuers to each of the Indemnified Persons, but only with respect to claims and actions based on information relating to such Underwriter furnished in writing by such Underwriter expressly for use in the Registration Statement or the Prospectus. (d) If the indemnification provided for in this Section 6 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other hand from the offering of the Senior Notes 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 the indemnifying parties and the indemnified party, as well as any other relevant equitable considerations. The relative benefits received by the Issuers, on the one hand, and any of the Underwriters, on the other hand, shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Issuers bear to the total underwriting discounts and commissions received by such underwriter, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Issuers and the Underwriters 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 related to information supplied by the Issuers or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The indemnity and contribution obligations 16 of the Issuers set forth herein shall be in addition to any liability or obligation the Issuers may otherwise have to any Indemnified Person. The Issuers and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or expenses referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6, none of the Underwriters (and its related Indemnified Persons) shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total underwriting discount applicable to the Senior Notes purchased by such Underwriter 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 to contribute pursuant to this Section 6(d) are several in proportion to the respective principal amount of Senior Notes purchased by each of the Underwriters hereunder and not joint. 7. Conditions of Underwriters' Obligations. The obligations of the --------------------------------------- Underwriters hereunder shall be subject, in their discretion, to the condition that all representations and warranties and other statements on the part of the Partnership, Finance Corp. and the General Partner herein are, at and as of the Closing Date, true and correct with the same force and effect as if made at and as of the Closing Date, the condition that each of the Partnership, Finance Corp. and the General Partner shall have performed all of its obligations and agreements hereunder theretofore to be performed, and the following additional conditions: (a) The Registration Statement shall have become effective (or, if a post-effective amendment is required to be filed pursuant to Rule 430A promulgated under the Act, such post-effective amendment shall have become effective) not later than 10:00 A.M., New York City time, on the date of this Agreement or at such later date and time as you may approve in writing; the Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 4(a) hereof; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or threatened by the Commission; all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction; no stop order suspending the sale of the Senior Notes in any jurisdiction referred to in Section 4(f) shall have been issued and no proceeding for that purpose shall have been commenced or shall be pending or threatened; (b) No action shall have been taken and no statute, rule, regulation or order shall have been enacted, adopted or issued, by any governmental agency which would, as of the Closing Date, prevent the issuance of the Senior Notes; and no injunction, restraining order or order 17 of any nature by a federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance of the Senior Notes; (c) Andrews and Kurth L.L.P., special counsel for the Partnership, Finance Corp. and the General Partner, shall have furnished to you their written opinion, dated the Closing Date, in form and substance satisfactory to you, to the effect that: (i) Each of the Partnership and the Master Partnership has been duly formed and is validly existing as a limited partnership under the Delaware Act, with partnership power and authority to own or lease its properties and conduct its business as described in the Prospectus. (ii) The General Partner is and, upon consummation of the Transactions, will be the sole general partner of the Partnership with a general partner interest in the Partnership of 1.0101%; such general partner interest is duly authorized by the Partnership Agreement, is validly issued and fully paid, and is owned by the General Partner free and clear of all liens, encumbrances, charges or claims of record (A) in respect of which a financing statement under the Uniform Commercial Code of the State of Delaware naming the General Partner as debtor is on file in the office of the Secretary of State of the State of Delaware or (B) otherwise known (based solely upon its participation as special counsel in matters relating to the Transactions, and without having conducted an independent investigation) to such counsel, other than those created by or arising under the Delaware Act. (iii) The Master Partnership is, and upon consummation of the Transactions will be, the sole limited partner of the Partnership, with a limited partner interest of 98.9899%; such limited partner interest is duly authorized by the Partnership Agreement and is validly issued, fully paid and non-assessable (except as such non-assessability may be affected by matters described in the Prospectus relating to the Common Units under the caption "The Partnership Agreement--Limited Liability"); and, the Master Partnership will own such limited partner interest in the Partnership free and clear of all liens, encumbrances, charges or claims of record (A) in respect of which a financing statement under the Uniform Commercial Code of the State of Delaware naming the Partnership as debtor is on file in the office of the Secretary of State of the State of Delaware or (B) otherwise known (based solely upon its participation as special counsel in matters relating to the Transactions, and without having conducted an independent investigation) to such counsel, other than those created by or arising under the Delaware Act. (iv) The Partnership Agreement has been duly authorized, executed and delivered by the parties thereto and the Partnership Agreement constitutes a valid and legally binding agreement of the parties thereto, enforceable against each of them in accordance with its terms, subject to (A) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles (B) 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 and (C) the effect of general principles of equity, whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought. (v) The issuance and sale of the Senior Notes by the Issuers and the execution, delivery and performance by the Partnership, Finance Corp. and the Master Partnership, as the case may be, of this Agreement and the Operative Agreements and the consummation by the Partnership, Finance Corp. and the Master Partnership, as the case may be, of the Transactions will not 18 conflict with or result in a breach or violation of any of the provisions of the Partnership Agreement; (vi) None of the Partnership, Finance Corp. or the General Partner is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (vii) None of the Partnership, Finance Corp. or the General Partner is a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. In addition, such counsel shall also state that it has participated in the preparation of the Registration Statement and Prospectus and, although such counsel is not passing upon, and does not assume responsibility for the accuracy, completeness or fairness of, any portion of the Registration Statement and the Prospectus, as amended or supplemented, subject to customary qualifications and assumptions and relying as to materiality to a large extent upon the statements of officers and other representatives of the Partnership, nothing has come to the attention of such counsel that causes such counsel to believe that, as of its effective date, the Registration Statement, or any further amendment thereto made by the Issuers prior to such Closing Date (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) 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, as of its date, the Prospectus or any further amendment or supplement thereto made by the Issuers prior to such Closing Date (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or that, as of such Closing Date, the Prospectus or any further amendment or supplement thereto made by the Issuers prior to such Closing Date (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may (A) rely in respect of matters of fact upon certificates of the Partnership and the Master Partnership and of officers and employees of the General Partner and Finance Corp. and upon information obtained from public officials and upon opinions of other counsel issued in connection with the Transactions, and may assume that the signatures on all documents examined by such counsel are genuine, (B) state that their opinion is limited to federal laws, the Delaware Act and the Delaware General Corporation Law and the laws of the State of Texas, (C) state that they express no opinion with respect to the title of any of the General Partner, the Partnership or the Master Partnership to any real or personal property transferred by or to them and that they express no opinion regarding the accuracy of the description or references to any real or personal property, (D) state that they express no opinion with respect to state or local taxes or tax statutes to which any of the General Partner, the Partnership, the Master Partnership or the limited partners of the Master Partnership may be subject, and (E) state that their opinion is furnished as special counsel for the Partnership, the Master Partnership and the General Partner to you, as representatives of the several Underwriters, and is solely for the benefit of the several Underwriters; (d) Smith, Gill, Fisher & Butts, counsel to the General Partner and Ferrell, shall have furnished to you their written opinion, dated such Closing Date in form and substance satisfactory to you, to the effect that: 19 (i) Finance Corp. has been duly incorporated and is validly existing as a corporation in good standing under the laws of the state of its incorporation, with power and authority (corporate and otherwise) to own or lease its properties, to conduct its businesses as described in the Prospectus. (ii) The General Partner has been duly incorporated and is validly existing as a corporation in good standing under the laws of the state of its incorporation, with power and authority (corporate and otherwise) to own or lease its properties, to conduct its businesses and to act as general partner of the Partnership and of the Master Partnership, in each case as described in the Prospectus. (iii) Based solely on opinions of local counsel (copies of which shall have been provided to you pursuant to paragraph (e) of this Section 7), the Partnership has been duly qualified or registered as a foreign partnership to transact business in, and is in good standing under the laws of, each of the jurisdictions set forth on Schedule B hereto; based solely upon certificates of foreign qualification provided by the Secretary of State of such jurisdiction (each of which shall be dated as of a date not more than ten business days prior to the Closing Date) and oral or written confirmation of the continuance of such foreign qualification as of a date which is not more than one business day prior to the Closing Date (which shall be provided by the Secretary of State of such jurisdiction), the Partnership has been duly qualified or registered as a foreign limited partnership to transact business in, and is in good standing under the laws of, each of the jurisdictions set forth on Schedule C hereto; and, to the knowledge of such counsel, such jurisdictions and the State of Missouri are the only jurisdictions in which the Partnership owns or leases property, or conducts any business, so as to require qualification or registration to conduct business as a foreign limited partnership, except where the failure to so qualify or register would not (i) have a material adverse effect upon the Partnership or the General Partner or (ii) subject the holders of Senior Notes to any material liability or disability. (iv) Based solely on opinions of local counsel (copies of which shall have been provided to you pursuant to paragraph (e) of this Section 7), the General Partner has been duly qualified or registered as a foreign corporation and is in good standing under the laws of each of the jurisdictions set forth on Schedule B hereto; based solely upon certificates of foreign qualification provided by the Secretary of State of such jurisdiction (each of which shall be dated as of a date not more than ten business days prior to the Closing Date) and oral or written confirmation of the continuance of such foreign qualification as of a date which is not more than one business day prior to the Closing Date (which shall be provided by the Secretary of State of such jurisdiction), the General Partner has been duly qualified or registered as a foreign corporation and is in good standing under the laws of each of the jurisdictions set forth on Schedule C hereto; and to the knowledge of such counsel, such jurisdictions and the State of Missouri are the only jurisdictions in which the General Partner owns or leases property, or conducts any business, so as to require qualification or registration to conduct business as a foreign corporation, and in which the failure so to qualify or register would be likely in the judgment of such counsel to subject the General Partner to any liability or disability which is material to the General Partner, the Partnership or Finance Corp. or would be likely in the judgment of such counsel to subject the holders of Senior Notes to any material liability or disability; all of the issued shares of capital stock of the General Partner have been duly authorized and validly issued and are fully paid and nonassessable; and, to the knowledge of such counsel, all of the issued shares of capital stock of the General Partner are owned, directly or indirectly, by Ferrell, free and clear of all Liens (A) in respect of which a financing 20 statement under the Uniform Commercial Code of the State of Delaware naming the General Partner or Ferrell, as the case may be, as debtor is on file in the office of the Secretary of State of the State of Delaware or (B) otherwise known, without investigation, to such counsel, except for such Liens created pursuant to the Existing Pledge Agreement. (v) All of the issued and outstanding shares of capital stock of, or other ownership interests in, each Subsidiary of the Partnership, Finance Corp., the General Partner and the Master Partnership have been duly and validly authorized and issued, and all of the shares of capital stock of, or other ownership interests in, each such Subsidiary are owned, directly or through other Subsidiaries, by the Partnership, Finance Corp., the General Partner and the Master Partnership; all such shares of capital stock are fully paid and nonassessable, and are owned free and clear of any Liens, except as set forth in the Prospectus and except for such Liens created pursuant to the Existing Pledge Agreement; there are no outstanding subscriptions, rights, warrants, options, calls, convertible securities, commitments of sale or Liens related to or entitling any person to purchase or otherwise to acquire any shares of the capital stock of, or other ownership interest in, any such Subsidiary. (vi) Each of the Closing Agreement, the Credit Facility and the Indenture (collectively, the "Other Operative Agreements") and this Agreement has been duly authorized, executed and delivered by the Partnership, the Master Partnership, the General Partner and Finance Corp., as the case may be, and each of the Other Operative Agreements and this Agreement constitutes a valid and legally binding agreement of the Partnership, the Master Partnership, the General Partner and Finance Corp., as the case may be, enforceable against the Partnership, the Master Partnership, the General Partner and Finance Corp., as the case may be, in accordance with their respective terms, subject to (A) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles and (B) 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. (vii) When authenticated in accordance with the terms of the Indenture and delivered to and paid for by you in accordance with the terms of this Agreement, the Senior Notes will constitute valid and legally binding obligations of each Issuer, enforceable against each Issuer in accordance with their terms and entitled to the benefits of the Indenture, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (viii) The Indenture, assuming due authorization, execution and delivery thereof by the Trustee, constitutes a valid and legally binding agreement of each Issuer, enforceable against each Issuer in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). (ix) None of the Partnership, Finance Corp., the General Partner or the Master Partnership is in violation of its partnership agreement or charter, as the case may be, or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other 21 instrument to which it is a party or by which it or any of them or their properties may be bound. (x) The statements made in the Prospectus under the caption "Description of Senior Notes", insofar as they purport to constitute summaries of the terms of the Senior Notes and the Indenture, under the caption "The Partnership", under the caption "Tax Considerations" and under the caption "Underwriting", insofar as they describe the provisions of the documents therein described, are accurate, complete and fair summaries. (xi) The issuance and sale of the Senior Notes by the Issuers and the execution, delivery and performance by the Partnership, Finance Corp., the General Partner and the Master Partnership, as the case may be, of this Agreement and the Operative Agreements and the consummation by the Partnership, Finance Corp., the General Partner and the Master Partnership, as the case may be, of the Transactions will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default or cause an acceleration of any obligation under, or result in the imposition or creation of (or the obligation to create or impose) a Lien with respect to, any material bond, note, debenture or other evidence of indebtedness or any material indenture, mortgage, deed of trust, loan agreement, contract, lease, or other material instrument to which the Partnership, Finance Corp., the General Partner, the Master Partnership or any of their Subsidiaries is a party or by which the Partnership, Finance Corp., the General Partner, the Master Partnership or any of their Subsidiaries is bound or to which any of their properties or assets is subject (other than any default or event of default under the Existing Indenture arising as a result of the Transactions) nor will such action result in any breach or violation of the charter or bylaws of Finance Corp. or the General Partner, or any of the Subsidiaries of the Partnership, Finance Corp., the General Partner or the Master Partnership or contravene any order of any court or governmental agency or body having jurisdiction over the Partnership, Finance Corp., the General Partner or the Master Partnership or any of their Subsidiaries or any of their respective properties, or violate or conflict with any statute, rule or regulation or administrative or court decree applicable to the Partnership, Finance Corp., the General Partner, the Master Partnership or any of their Subsidiaries or any of their respective properties, excluding in each case any violations which, individually or in the aggregate, would not have a material adverse effect upon the holders of Senior Notes or on the Partnership, Finance Corp., the General Partner or any of their Subsidiaries; provided, however, that, for the purposes of this paragraph (xi), no opinion is expressed with respect to federal or state securities laws, other antifraud laws and fraudulent transfer laws; and, provided, further, that performance by the Partnership, Finance Corp., the General Partner and the Master Partnership of their respective obligations under the Operative Agreements are subject to (A) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles and (B) 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. (xii) No consent, approval, authorization, order, registration or qualification of or with any court or governmental agency or body of the United States or the State of Missouri having jurisdiction over the Partnership, Finance Corp., the General Partner, the Master Partnership, any of their Subsidiaries or any of their properties is required for the issuance and sale of the Senior Notes by the Issuers or for the consummation by the Partnership, Finance Corp., the General Partnership or the Master Partnership of the Transactions or this Agreement, except 22 in each case (A) such consents, approvals, authorizations, orders, registrations or qualifications (1) as have been obtained, (2) as may be required under state securities or Blue Sky laws, (3) as are of a routine or administrative nature and are either (i) not customarily obtained or made prior to the consummation of transactions such as the Transactions or (ii) expected in the judgment of such counsel to be obtained in the ordinary course of business subsequent to the consummation of the Transactions, (4) which, if not obtained, would not, individually or in the aggregate, have a material adverse effect upon the holders of Senior Notes or upon the properties, business, general affairs, management, prospects, condition (financial or otherwise), financial position, securityholder's equity or results of operations of, the Partnership, Finance Corp., the General Partner or any of their Subsidiaries. (xiii) The descriptions in the Registration Statement and the Prospectus of statutes, legal and governmental proceedings and contracts and other documents are accurate in all material respects and fairly present the information required to be shown; and such counsel does not know of any legal or governmental proceedings required to be described in the Registration Statement or Prospectus which are not described as required or of any contracts or documents of a character required to be described in the Registration Statement or Prospectus or to be filed as exhibits to the Registration Statement which are not described and filed as required. (xiv) The Registration Statement has become effective under the Act; and to the knowledge of such counsel no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been initiated or threatened by the Commission. (xv) The Registration Statement and the Prospectus and any further amendments and supplements thereto made by the Issuers prior to such Closing Date (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the rules and regulations thereunder. (xvi) The Indenture has been duly qualified under the TIA. In addition, such counsel shall also state that it has participated in the preparation of the Registration Statement and Prospectus and, although such counsel is not passing upon, and does not assume responsibility for the accuracy, completeness or fairness of, any portion of the Registration Statement and the Prospectus, as amended or supplemented, nothing has come to the attention of such counsel that causes such counsel to believe that, as of its effective date, the Registration Statement, or any further amendment thereto made by the Issuers prior to such Closing Date (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) 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, as of its date, the Prospectus or any further amendment or supplement thereto made by the Issuers prior to such Closing Date (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or that, as of such Closing Date, either the Registration Statement or the Prospectus or any further amendment or supplement thereto made by the Issuers prior to such Closing Date (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) contains an untrue statement of a material fact or omits 23 to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and they do not know of any contracts or other documents of a character required to be filed as an exhibit to the Registration Statement or required to be described in the Registration Statement or the Prospectus which are not filed or described as required. In rendering such opinion, such counsel may (A) rely in respect of matters of fact upon certificates of officers and employees of the General Partner and Ferrell and upon information obtained from public officials and upon opinions of other counsel issued in connection with the Transactions, and may assume that the signatures on all documents examined by such counsel are genuine and (B) state that their opinion is limited to federal laws, the laws of the State of Missouri and the Delaware General Corporation Law. (e) Each of Smith, Gill, Fisher & Butts, P.C., with respect to the State of Missouri, Andrews and Kurth L.L.P., with respect to the State of Texas, Arnall, Golden & Gregory, with respect to the State of Georgia, Miller, Canfield, Paddock & Stone, with respect to the State of Michigan and Taft, Stettinius & Hollister, with respect to the States of Ohio and Kentucky, each of which is special counsel for the Partnership, Finance Corp., the General Partner and the Master Partnership, shall have furnished to you their written opinion or opinions, dated such Closing Date in form and substance satisfactory to you, to the effect that: (i) The Partnership has been duly qualified or registered as a foreign limited partnership for the transaction of business under the laws of such state. (ii) The General Partner has been duly qualified or registered as a foreign corporation and is in good standing under the laws of such state; (iii) The Partnership has all requisite partnership power and authority as a limited partnership under the laws of such state to own or lease the Properties and to conduct its business in such state. (iv) The execution, delivery and performance of the Closing Agreement relating to the transfer of property in such state in accordance with the terms thereof will not violate any statute of such state or, to the knowledge of such counsel, based solely upon such counsel's participation as special local counsel with respect to matters relating to the Transactions and without having conducted an independent investigation, any order, rule or regulation of any agency of such state having jurisdiction over any of the Partnership, the General Partner, the Master Partnership or any of their respective properties, except for (A) any such violations which, individually or in the aggregate, would not have a material adverse effect upon the holders of Senior Notes or upon the General Partner or the Partnership, and (B) as to performance by the parties thereto of the Closing Agreement, any violations which may arise by reason of the business activities of the Partnership or the Master Partnership, the nature of the assets of either of them or the manner in which such assets were constructed or are operated; provided, that such counsel need express no opinion with respect to the securities or Blue Sky laws of such state, other antifraud laws or fraudulent transfer laws or the extent to which indemnity and contribution provisions of such documents may be limited by the laws of such state; and provided, further, that as to performance by the parties to the Closing Agreement of their respective obligations thereunder, such counsel need express no opinion as to bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and similar laws of 24 general applicability relating to or affecting creditors' rights, or as to the effect of general equity principles. (v) The Closing Agreement, assuming the due authorization, execution and delivery thereof by the parties thereto, to the extent it is a valid and legally binding agreement under the applicable law as stated therein and that such law applies thereto, is a valid and legally binding agreement of the parties thereto under the laws of such state, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting the rights of contracting parties and to general equity principles; each of the Closing Agreement and the form of deeds and assignments is in a form legally sufficient as between the parties thereto to convey to the transferee thereunder all of the General Partner's right, title and interest in and to the Properties located in such state, as described in the Closing Agreement or the form of deeds and assignments, as the case may be, subject to the conditions, reservations and limitations contained in the Closing Agreement or the form of deeds and assignments, as the case may be, except motor vehicles or other property requiring conveyance of certificated title as to which the Closing Agreement is legally sufficient to compel delivery of such certificated title. No opinion is expressed as to whether the Closing Agreement complies with applicable recording, filing and registration laws and regulations. (vi) No consent, approval, authorization, order, registration or qualification of or with any governmental agency or body of such state governing (A) changes in ownership or control of industrial or other facilities generally, (B) retail propane sales generally or (C) the issuance of securities by entities owning retail propane sales facilities, or, to such counsel's knowledge, based solely upon such counsel's participation as special local counsel with respect to matters relating to the Transactions and without having conducted an independent investigation, any other governmental agency or body of such state having jurisdiction over the Partnership, Finance Corp., the General Partner or the Master Partnership, as the case may be, or any of their respective properties is required for the issue and sale of the Senior Notes by the Issuers or for the conveyance of the Properties located in such state purported to be conveyed to the Partnership pursuant to the Closing Agreement, except such consents, approvals, authorizations, orders, registrations or qualifications (1) as have been obtained, (2) as may be required under the Act or state securities or Blue Sky laws, (3) as are of a routine or administrative nature and either are (i) not customarily obtained or made prior to the consummation of transactions such as the Transactions, or (ii) expected in the reasonable judgment of such counsel to be obtained in the ordinary course of business subsequent to the consummation of the Transaction, (4) which, if not obtained, would not, individually or in the aggregate, have a material adverse effect upon the ability of the Partnership to conduct its business substantially in accordance with the past practice of the General Partner, (5) that relate to zoning or subdivision mapping, or (6) as set forth or contemplated in the Prospectus. In rendering such opinion, such counsel may (A) rely in respect of matters of fact upon certificates of the Partnership, the Master Partnership and of officers and employees of the General Partner and Finance Corp., and upon information obtained from public officials, and upon opinions of other counsel issued in connection with the Transactions, and may assume that the signatures on all documents examined by such counsel are genuine, (B) state that their opinion is limited to the laws of their state of practice, excepting therefrom municipal and local ordinances and regulations, (C) state that they express no opinion with respect to state or local taxes or tax statutes and (D) state that they express no opinion with respect to the title of any of the General Partner, the Partnership or the Master Partnership to any 25 real or personal property purported to be transferred by or to them, that they have not made any review of specific property or facilities or title files relating to any such properties, that they express no opinion regarding the accuracy of the description or references to any real or personal property, that they have assumed that references in exhibits or schedules to other instruments already of record are correct and that such instruments contain legally sufficient property descriptions. The opinions described in subsections (c), (d) and (e) of this Section 7 shall be rendered to you by each respective counsel at the request of the Partnership and shall so state therein. (f) You shall have received an opinion, dated the Closing Date, of Latham & Watkins, counsel for the Underwriters, in form and substance reasonably satisfactory to you; (g) On the effective date of the Registration Statement and the most recently filed post-effective amendment to the Registration Statement and also on the Closing Date, Deloitte & Touche shall have furnished to you a letter or letters, dated the respective date of delivery thereof, in form and substance satisfactory to you; (h) (i) Since the date hereof or since the dates as of which information is given in the Registration Statement and the Prospectus, there shall not have been, singly or in the aggregate, any change, or any development which may reasonably be expected to involve a change, in the properties, business, general affairs, management, condition (financial or otherwise), financial position, or prospects of the Partnership, Finance Corp., the General Partner and the Subsidiaries taken as a whole, otherwise than as set forth or contemplated in the Prospectus, (ii) since the respective dates as of which information is given in the Registration Statement and Prospectus, there shall not have been any change in the capital stock or long-term debt, or increase in short-term debt, of the Partnership, Finance Corp., the General Partner or any of the Subsidiaries, and (iii) each of the Partnership, Finance Corp., the General Partner, and the Subsidiaries shall not have incurred (A) since the date of the latest audited financial statements included in the Registration Statement and the Prospectus, any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus or (B) any liability or obligation, direct or contingent, that is required to be disclosed on a balance sheet in accordance with generally accepted accounting principles and is not disclosed on the latest balance sheet included in the Registration Statement and the Prospectus, the effect of which, in any such case described in clause (i), (ii) or (iii), is in your judgment so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Senior Notes being delivered at the Closing Date on the terms and in the manner contemplated in the Prospectus; (i) The closing under the Common Units Underwriting Agreement shall have occurred and the proceeds therefrom shall have been transferred to the Partnership in immediately available funds pursuant to the terms and conditions of the Partnership Agreement; (j) The General Partner shall have accepted for purchase all of the Senior Subordinated Debentures validly tendered and not withdrawn pursuant to the Offer to Purchase; (k) The Existing Senior Notes shall have been called for redemption and an amount of funds reasonably anticipated to be sufficient to redeem such Existing Senior Notes shall have been deposited with the trustee therefor; 26 (l) The closing of the Credit Facility shall have occurred; (m) All indebtedness and other obligations outstanding pursuant to the Wells Fargo Agreement shall have been repaid in full and the lenders thereunder shall have released all Liens on collateral securing obligations of the borrowers thereunder; and (n) There shall have been furnished to you on the Closing Date certificates reasonably satisfactory to you, signed on behalf of the General Partner and Finance Corp. by a President or Vice President thereof and on behalf of the Partnership by the General Partner by an authorized officer thereof to the effect that: (i) In the case of the Partnership and Finance Corp. (A) the representations and warranties of the Partnership and Finance Corp. contained in this Agreement are true and correct at and as of the Closing Date as though made at and as of the Closing Date; (B) each of the Partnership and Finance Corp. has duly performed all obligations required to be performed by it pursuant to the terms of this Agreement at or prior to the Closing Date; (C) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been initiated or, to the knowledge of the Partnership or Finance Corp., threatened by the Commission, and all requests for additional information on the part of the Commission have been complied with or otherwise satisfied; and (D) no event contemplated by subsection (h) of this Section 7 in respect of the Partnership or Finance Corp. shall have occurred. (ii) In the case of the General Partner (A) the representations and warranties of the General Partner contained in this Agreement are true and correct at and as of the Closing Date as though made at and as of the Closing Date; (B) the General Partner has duly performed all obligations required to be performed by it pursuant to the terms of this Agreement at or prior to the Closing Date; and (C) no event contemplated by subsection (h) of this Section 7 in respect of the General Partner shall have occurred. 8. Defaults. If at the Closing Date, any of the Underwriters shall fail -------- or refuse to purchase Senior Notes which it has agreed to purchase hereunder on such date, and the aggregate principal amount of such Senior Notes that such defaulting Underwriter(s) agreed but failed or refused to purchase does not exceed 10% of the total principal amount of such Senior Notes that all of the Underwriters are obligated to purchase at such Closing Date, each non-defaulting Underwriter shall be obligated to purchase the amount of the Senior Notes that such defaulting Underwriter(s) agreed but failed or refused to purchase on such date. If, at the Closing Date, any of the Underwriters shall fail or refuse to purchase Senior Notes in an aggregate principal amount that exceeds 10% of such total principal amount of the Senior Notes and arrangements satisfactory to the other Underwriter(s) and the Issuers for the purchase of such Senior Notes are not made within 48 hours after such default, this Agreement shall terminate without liability on the part of the non-defaulting Underwriter(s) or the Issuers, except as otherwise provided in Section 9. In any such case that does not result in termination of this Agreement, the Underwriters or the Issuers may postpone the Closing Date for not longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve a defaulting underwriter from liability in respect of any default by any such Underwriter under this Agreement. 27 9. Effective Date of Agreement and Termination. ------------------------------------------- (a) This Agreement shall become effective upon the later of (i) the execution and delivery of this Agreement by the parties hereto, (ii) the effectiveness of the Registration Statement and (iii) if a post-effective amendment is required to be filed pursuant to Rule 430A under the Act, the effectiveness of such post-effective amendment; (b) This Agreement may be terminated at any time on or prior to the Closing Date by you by notice to the Partnership if any of the following has occurred: (i) subsequent to the date the Registration Statement is declared effective or the date of this Agreement, singly or in the aggregate, any material adverse change, or any development which may be expected to involve a material adverse change, in the properties, business, general affairs, management, condition (financial or otherwise), financial position or prospects of the Partnership, Finance Corp., the General Partner and the Subsidiaries taken as a whole, which in your judgment materially impairs the investment quality of the Senior Notes; (ii) any suspension or limitation of trading generally in securities on the New York Stock Exchange or in the over-the-counter markets or any setting of minimum prices for trading on such exchange or markets; (iii) any suspension or material limitation in trading of the securities of the Partnership, Finance Corp., the General Partner or any of the Subsidiaries on the New York Stock Exchange or in the over-the-counter markets; (iv) a general moratorium on commercial banking activities in New York declared by either Federal or New York State authorities; (v) any outbreak or escalation of hostilities involving the United States, the declaration by the United States of a national emergency or war, or any other national or international calamity or crisis or material adverse change in the financial markets of the United States or elsewhere, or any other substantial national or international calamity or emergency if the effect of any such event in your judgment makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Senior Notes being delivered at the Closing Date on the terms and in the manner contemplated by the Prospectus; (vi) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs that in your judgment has a material adverse effect on the financial markets in the United States and would, in your judgment, make it impracticable or inadvisable to proceed with the public offering or the delivery of the Senior Notes being delivered at the Closing Date on the terms and in the manner contemplated by the Prospectus; (vii) the enactment, publication, decree, or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which, in your judgment, materially and adversely affect the business or operations of the Partnership, Finance Corp., the General Partner or any Subsidiary; or (viii) any downgrading in the rating accorded the securities of the Partnership, Finance Corp., the General Partner or any Subsidiary by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)-(2) under the Act, or any such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of such securities; (c) The indemnities and contribution provisions and other agreements, representations and warranties of the Issuers, their officers and directors and of the Underwriters set forth in or made pursuant to this Agreement shall remain operative and in full force and effect, and will survive delivery of and payment for the Securities, regardless of (i) any investigation, or statement as to the results thereof, made by or on behalf of any of the Underwriters or by or on behalf of the Issuers, the officers or directors of any Issuer or any controlling person of any Issuer, (ii) acceptance of the Securities and payment for them hereunder and (iii) termination of this Agreement; 28 (d) If this Agreement shall be terminated by the Underwriters pursuant to clauses (i) or (viii) of paragraph (b) of this Section 9 or because of the failure or refusal on the part of the Issuers to comply with the terms or to fulfill any of the conditions of this Agreement, the Issuers agree, jointly and severally, to reimburse you for all out-of-pocket expenses (including the fees and disbursements of counsel) incurred by you. Notwithstanding any termination of this Agreement, the Issuers shall be liable, jointly and severally, for all expenses which it has agreed to pay pursuant to Section 4(j) hereof; (e) Except as otherwise provided, this Agreement has been and is made solely for the benefit of and shall be binding upon the Issuers, the Underwriters, any Indemnified Person referred to herein and their respective successors and assigns, all as and to the extent provided in this Agreement, and no other person shall acquire or have any right under or by virtue of this Agreement. The terms "successors and assigns" shall not include a purchaser of any of the Securities from any of the Underwriters merely because of such purchase. 10. Notices. Notices given pursuant to any provision of this Agreement ------- shall be addressed as follows: (a) if to the Partnership or Finance Corp., to Ferrellgas, L.P., One Liberty Plaza, Liberty, MO 64068, Attention: Danley K. Sheldon, with a copy to Smith, Gill, Fisher & Butts, P.C., One Kansas City Place, 1200 Main Street, Kansas City, MO 64105, Attention: Kendrick T. Wallace, Esq., and (b) if to any Underwriter, to it c/o Donaldson, Lufkin & Jenrette Securities Corporation, 140 Broadway, New York, New York 10005, Attention: Syndicate Department, with a copy to Latham & Watkins, 885 Third Avenue, New York, New York 10022, Attention: Philip E. Coviello, Esq., or in any case to such other address as the person to be notified may have requested in writing. 11. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ------------- ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK AS APPLIED TO CONTRACTS MADE AND PERFORMED ENTIRELY WITHIN THE STATE OF NEW YORK. 12. Successors. This Agreement will inure to the benefit of and be ---------- binding upon the parties hereto and their respective successors and the officers and directors and other persons referred to in Section 7, and no other person will have any right or obligation hereunder. 29 This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. Please confirm that the foregoing correctly sets forth the agreement among the Issuers and you. Very truly yours, FERRELLGAS, L.P. By: FERRELLGAS, INC., as General Partner By: ----------------------------------------- Name: Danley K. Sheldon Title: Vice President and Chief Financial Officer/Treasurer FERRELLGAS FINANCE CORP. By: ----------------------------------------- Name: Danley K. Sheldon Title: Vice President and Chief Financial Officer/Treasurer FERRELLGAS, INC. By: ----------------------------------------- Name: Danley K. Sheldon Title: Vice President and Chief Financial Officer/Treasurer The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: ---------------------------- Name: Title: GOLDMAN, SACHS & CO. By: ---------------------------- 30 SCHEDULE A
Principal Principal Amount Amount Fixed Rate Floating Rate Senior Notes Senior Notes ------------ ------------- Donaldson, Lufkin & Jenrette Securities Corporation $120,000,000 $30,000,000 Goldman, Sachs & Co. $ 80,000,000 $20,000,000 Total: $200,000,000 $50,000,000 ============ =============
31 SCHEDULE B Georgia Kentucky Michigan Ohio Texas SCHEDULE C Alabama Nebraska Arizona Nevada Arkansas New Jersey California New Mexico Colorado New York Connecticut North Carolina District of Columbia North Dakota Florida Oklahoma Idaho Oregon Illinois Pennsylvania Indiana Rhode Island Iowa South Carolina Kansas South Dakota Louisiana Tennessee Maine Utah Maryland Vermont Massachussetts Virginia Minnesota Washington Mississippi West Virginia Wisconsin Wyoming EX-10.2 3 INDENTURE L&W DRAFT 06/27/94 ================================================================================ FERRELLGAS, L.P. FERRELLGAS FINANCE CORP. $250,000,000 $200,000,000 10% SERIES A FIXED RATE SENIOR NOTES $50,000,000 SERIES B FLOATING RATE SENIOR NOTES _________________ INDENTURE Dated as of July 5, 1994 _________________ NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION Trustee ================================================================================ 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).................................................. 7.06 (c).................................................. 7.06;11.02 (d).................................................. 7.06 314 (a).................................................. 4.03;11.05 (b).................................................. 10.02 (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 this Indenture. TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions....................................... 1 Section 1.02. Other Definitions................................. 11 Section 1.03. Incorporation by Reference of Trust Indenture Act............................................... 12 Section 1.04. Rules of Construction............................. 12 ARTICLE 2 THE NOTES Section 2.01. Form and Dating................................... 13 Section 2.02. Execution and Authentication...................... 13 Section 2.03. Registrar and Paying Agent........................ 14 Section 2.04. Paying Agent to Hold Money in Trust............... 14 Section 2.05. Lists of Holders of the Notes..................... 14 Section 2.06. Transfer and Exchange............................. 15 Section 2.07. Replacement Notes................................. 15 Section 2.08. Outstanding Notes................................. 16 Section 2.09. Treasury Notes.................................... 16 Section 2.10. Temporary Notes................................... 16 Section 2.11. Cancellation...................................... 16 Section 2.12. Defaulted Interest................................ 17 Section 2.13. Record Date....................................... 17 Section 2.14. CUSIP Number...................................... 17 ARTICLE 3 REDEMPTION AND OFFERS TO PURCHASE Section 3.01. Notices to Trustee................................ 17 Section 3.02. Selection of Notes to Be Purchased or Redeemed.... 18 Section 3.03. Notice of Redemption.............................. 18 Section 3.04. Effect of Notice of Redemption.................... 19 Section 3.05. Deposit of Redemption Price....................... 19 Section 3.06. Notes Redeemed in Part............................ 20 Section 3.07. Optional Redemption............................... 20 Section 3.08. Mandatory Redemption.............................. 20 Section 3.09. Asset Sale Offers................................. 20 ARTICLE 4 COVENANTS Section 4.01. Payment of Notes.................................. 22 Section 4.02. Maintenance of Office or Agency................... 22 Section 4.03. Reports........................................... 22 Section 4.04. Compliance Certificate............................ 23 Section 4.05. Taxes............................................. 24 Section 4.06. Stay, Extension and Usury Laws.................... 24 Section 4.07. Restricted Payments............................... 24 i Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries............................ 26 Section 4.09. Incurrence of Indebtedness and Issuance of Disqualified Interests............................ 26 Section 4.10. Asset Sales....................................... 28 Section 4.11. Transactions with Affiliates...................... 29 Section 4.12. Liens............................................. 30 Section 4.13. Subsidiary Note Guarantees........................ 30 Section 4.14. Offer to Purchase Upon Change of Control.......... 30 Section 4.15. Partnership or Corporate Existence................ 31 Section 4.16. Line of Business.................................. 32 Section 4.17. Limitation on Sale and Leaseback Transactions..... 32 Section 4.18. Restrictions on Nature of Indebtedness and Activities of Finance Corp........................ 32 ARTICLE 5 SUCCESSORS Section 5.01. Merger, Consolidation, or Sale of Assets.......... 32 Section 5.02. Successor Person Substituted...................... 33 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default................................. 34 Section 6.02. Acceleration...................................... 36 Section 6.03. Other Remedies.................................... 36 Section 6.04. Waiver of Past Defaults........................... 36 Section 6.05. Control by Majority............................... 37 Section 6.06. Limitation on Suits............................... 37 Section 6.07. Rights of Holders of Notes to Receive Payment..... 37 Section 6.08. Collection Suit by Trustee........................ 37 Section 6.09. Trustee May File Proofs of Claim.................. 38 Section 6.10. Priorities........................................ 38 Section 6.11. Undertaking for Costs............................. 38 ARTICLE 7 TRUSTEE Section 7.01. Duties of Trustee................................. 39 Section 7.02. Rights of Trustee................................. 40 Section 7.03. Individual Rights of Trustee...................... 40 Section 7.04. Trustee's Disclaimer.............................. 40 Section 7.05. Notice of Defaults................................ 41 Section 7.06. Reports by Trustee to Holders of the Notes........ 41 Section 7.07. Compensation and Indemnity........................ 41 Section 7.08. Replacement of Trustee............................ 42 Section 7.09. Successor Trustee by Merger, etc.................. 43 Section 7.10. Eligibility; Disqualification..................... 43 Section 7.11. Preferential Collection of Claims Against Issuers........................................... 43 ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE ii Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance........................................ 43 Section 8.02. Legal Defeasance and Discharge.................... 43 Section 8.03. Covenant Defeasance............................... 44 Section 8.04. Conditions to Legal or Covenant Defeasance........ 44 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions......46 Section 8.06. Repayment to Issuers.............................. 46 Section 8.07. Reinstatement..................................... 47 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01. Without Consent of Holders of Notes............... 47 Section 9.02. With Consent of Holders of Notes.................. 48 Section 9.03. Compliance with Trust Indenture Act............... 49 Section 9.04. Revocation and Effect of Consents................. 49 Section 9.05. Notation on or Exchange of Notes.................. 49 Section 9.06. Trustee to Sign Amendments, etc................... 50 ARTICLE 10 NOTE GUARANTEES Section 10.01. Note Guarantee.................................... 50 Section 10.02. Limitation of Guarantor's Liability............... 51 Section 10.03. Guarantors May Consolidate, etc., on Certain Terms............................................. 52 Section 10.04. Releases Following Sale of Assets................. 52 ARTICLE 11 MISCELLANEOUS Section 11.01. Trust Indenture Act Controls...................... 52 Section 11.02. Notices........................................... 53 Section 11.03. Communication by Holders of Notes with Other Holders of Notes.................................. 54 Section 11.04. Certificate and Opinion as to Conditions Precedent......................................... 54 Section 11.05. Statements Required in Certificate or Opinion..... 54 Section 11.06. Rules by Trustee and Agents....................... 54 Section 11.07. No Personal Liability of Directors, Officers, Employees and Stockholders........................ 55 Section 11.08. Governing Law..................................... 55 Section 11.09. No Adverse Interpretation of Other Agreements..... 55 Section 11.10. Successors........................................ 55 Section 11.11. Severability...................................... 55 Section 11.12. Counterpart Originals............................. 55 Section 11.13. Table of Contents, Headings, etc.................. 55 iii EXHIBITS Exhibit A FORM OF SERIES A FIXED RATE SENIOR NOTE Exhibit B FORM OF SERIES B FLOATING RATE SENIOR NOTE Exhibit C FORM OF SUPPLEMENTAL INDENTURE Exhibit D FORM OF NOTATION ON SENIOR NOTE RELATING TO NOTE GUARANTEE iv INDENTURE dated as of July 5, 1994 between Ferrellgas, L.P., a Delaware limited partnership (the "Partnership"), Ferrellgas Finance Corp., a Delaware corporation ("Finance Corp." and, together with the Partnership, the "Issuers"), and Norwest Bank Minnesota, National Association, as trustee (the "Trustee"). The Partnership, Finance Corp. and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the Notes (as defined below): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person merged with or into or became a Subsidiary of such specified Person, including Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person and (ii) Indebtedness encumbering any asset acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Attributable Debt" means, in respect of a sale and leaseback arrangement of any property, as at the time of determination, the present value (calculated using a discount rate equal to the interest rate of the Notes and annual compounding) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such arrangement (including any period for which such lease has been extended). "Available Cash" has the meaning given to such term in the Partnership Agreement, as amended to the date of the Indenture. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the General Partner, or any authorized committee of the Board of Directors. "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 the balance sheet in accordance with GAAP. "Capital Interests" means any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, including, without limitation, with respect to partnerships, partnership interests (whether general or limited) and any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, such partnership. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than eighteen months from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case with any lender party to the Credit Facility or with any domestic commercial bank having capital and surplus in excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) entered into with any financial institution meeting the qualifications specified in clause (iii) above and (v) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within nine months after the date of acquisition and (vi) investments in money market funds all of whose assets consist of securities of the types described in the foregoing clauses (i) through (v). "Change of Control" means (i) the sale, lease, conveyance or other disposition of all or substantially all of the Partnership's assets to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act) other than James E. Ferrell, the Related Parties and any Person of which James E. Ferrell and the Related Parties beneficially own in the aggregate 51% or more of the voting Capital Interests (or if such Person is a partnership, 51% or more of the general partner interests), (ii) the liquidation or dissolution of the Partnership or the General Partner, (iii) the occurrence of any transaction, the result of which is that James E. Ferrell and the Related Parties beneficially own in the aggregate, directly or indirectly, less than 51% of the total voting power entitled to vote for the election of directors of the General Partner and (iv) the occurrence of any transaction, the result of which is that the General Partner is no longer the sole general partner of the Partnership. "Common Units" means the common units, representing limited partner interests, being offered by the Master Partnership contemporaneously with the sale of the Notes. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period, plus (a) an amount equal to any extraordinary loss plus any net loss realized in connection with an asset sale, to the extent such losses were deducted in computing Consolidated Net Income, plus (b) provision for taxes based on income or profits of such Person for such period, to the extent such provision for taxes was deducted in computing Consolidated Net Income, plus (c) Consolidated Interest Expense of such Person for such period, whether paid or accrued (including amortization of original issue discount, non-cash interest payments and the interest component of any payments associated with Capital Lease Obligations and net payments (if any) pursuant to Hedging Obligations), to the extent such expense was deducted in computing Consolidated Net Income, plus (d) depreciation and amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) of such Person for such period, 2 to the extent such depreciation and amortization were deducted in computing Consolidated Net Income, in each case, for such period without duplication on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided, that (i) the Net Income of any Person that is not a Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid to the referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any Person that is a Subsidiary (other than a Wholly Owned Subsidiary) shall be included only to the extent of the amount of dividends or distributions paid to the referent Person or a Wholly Owned Subsidiary thereof, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded (except to the extent otherwise includable under clause (i) above) and (iv) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of (i) the consolidated equity of the common stockholders of such Person and its consolidated Subsidiaries as of such date plus (ii) the respective amounts reported on such Person's balance sheet as of such date with respect to any series of preferred stock (other than Disqualified Interests) that by its terms is not entitled to the payment of dividends unless such dividends may be declared and paid only out of net earnings in respect of the year of such declaration and payment, but only to the extent of any cash received by such Person upon issuance of such preferred stock, less (x) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible assets of a going concern business made within 12 months after the acquisition of such business) subsequent to the date of this Indenture in the book value of any asset owned by such Person or a consolidated Subsidiary of such Person, (y) all investments as of such date in unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in each case, Permitted Investments), and (z) all unamortized debt discount and expense and unamortized deferred charges as of such date, all of the foregoing determined in accordance with GAAP. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Partnership. "Credit Facility" means the credit facility under that certain Credit Agreement, dated as of , 1994, by and among the Partnership, the Insurance Company Subsidiary, the General Partner and Bank of America National Trust and Savings Association, as agent for the financial institutions listed therein, providing for up to $185 million of credit borrowings and letters of credit, including any related notes, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time. "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. "Default" means any event that is or with the passage of time or the giving of notice or both would be an Event of Default. "Disqualified Interests" means any Capital Interests which, by their terms (or by the terms of any security into which they are convertible or for which they are exchangeable), or upon the happening 3 of any event, mature or are mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to August 1, 2001. "Distribution" means, for purposes of Article 10, a distribution consisting of cash, securities or other property, by set off or otherwise. "Equity Interests" means Capital Interests and all warrants, options or other rights to acquire Capital Interests (but excluding any debt security that is convertible into, or exchangeable for, Capital Interests). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Fixed Rate Notes" means the Series B and D Fixed Rate Senior Notes due 1996 of the General Partner. "Existing Floating Rate Notes" means the Series A and C Floating Rate Senior Notes due 1996 of the General Partner. "Existing Indebtedness" means up to $5.0 million in aggregate principal amount of Indebtedness of the Partnership and its Subsidiaries (other than under the Credit Facility) in existence on the date of this Indenture, until such amounts are repaid. "Existing Senior Notes" means the Existing Fixed Rate Notes and the Existing Floating Rate Notes. "Existing Subordinated Debentures" means the General Partner's 11 5/8% Senior Subordinated Debentures due December 15, 2003. "Finance Corp." means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means the successor. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the reference Person or any of its Subsidiaries incurs, assumes, guarantees, redeems or repays any Indebtedness (other than revolving credit borrowings) subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date of the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee, redemption or repayment of Indebtedness, as if the same had occurred at the beginning of the applicable reference period. The foregoing calculation of the Fixed Charge Coverage Ratio shall also give pro forma effect to acquisitions (including all mergers and consolidations), dispositions and discontinuance of businesses or assets that have been made by the reference Person or any of its Subsidiaries during the reference period or subsequent to such reference period and on or prior to the Calculation Date assuming that all such acquisitions, dispositions and discontinuance of businesses or assets had occurred on the first day of the reference period; provided, however, that (a) Fixed Charges shall be reduced by amounts attributable to businesses or assets that are so disposed of or discontinued only to the extent that the obligations giving rise to such Fixed Charges would no longer be obligations contributing to the Partnership's Fixed Charges subsequent to the Calculation Date and (b) Consolidated Cash Flow generated by an acquired business or asset shall be 4 determined by the actual gross profit (revenues minus cost of goods sold) of such acquired business or asset during the immediately preceding number of full fiscal quarters as in the reference period minus the pro forma expenses that would have been incurred by the Partnership in the operation of such acquired business or asset during such period computed on the basis of (i) personnel expenses for employees retained by the Partnership in the operation of the acquired business or asset and (ii) non-personnel costs and expenses incurred by the Partnership on a per gallon basis in the operation of the Partnership's business at similarly situated Partnership facilities. If the applicable reference period for any calculation of the Fixed Charge Coverage Ratio with respect to the Partnership shall include a portion prior to the date of this Indenture, then such Fixed Charge Coverage Ratio shall be calculated based upon the Consolidated Cash Flow and the Fixed Charges of the General Partner for such portion of the reference period prior to the date of this Indenture and the Consolidated Cash Flow and the Fixed Charges of the Partnership for the remaining portion of the reference period on and after the date of the Indenture, giving pro forma effect, as described in the two foregoing sentences, to all applicable transactions occurring on the date of the Indenture or otherwise. "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (a) consolidated interest expense of such person for such period, whether paid or accrued, to the extent such expense was deducted in computing Consolidated Net Income (including amortization of original issue discount, non-cash interest payments, the interest component of all payments associated with Capital Lease Obligations and net payments (if any) pursuant to Hedging Obligations), (b) commissions, discounts and other fees and charges incurred with respect to letters of credit and bankers' acceptances financing, (c) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or secured by a Lien on assets of such Person, and (d) the product of (i) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Subsidiary) on any series of preferred stock of such Person, times (ii) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, determined, in each case, on a consolidated basis and in accordance with GAAP. "Fixed Rate Senior Notes" means the 10% Series A Fixed Rate Senior Notes, in the form attached hereto as Exhibit A and as amended or supplemented from --------- time to time pursuant to the terms hereof, issued by the Issuers pursuant to this Indenture. "Floating Rate Senior Notes" means the Series B Floating Rate Senior Notes, in the form attached hereto as Exhibit B and as amended or supplemented --------- from time to time pursuant to the terms hereof, issued by the Issuers pursuant to this Indenture. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect in the United States on the date of this Indenture. "General Partner" means Ferrellgas, Inc., a Delaware corporation and the sole general partner of the Partnership. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States of America is pledged. 5 "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantors" means any Subsidiary of the Partnership that executes a Note Guarantee in accordance with the provisions of Section 4.13 hereof, and their respective successors and assigns. "Hedging Obligations" means, with respect to any Person, the obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Holder" means a Person in whose name a Note is registered. "Indebtedness" means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any Indebtedness of any other Person. "Indenture" means this Indenture, as amended or supplemented from time to time. "Insurance Company Subsidiary" means Stratton Insurance Company, a Vermont corporation, a wholly owned subsidiary of the Partnership. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "Issuers" means the parties named as such in this Indenture until a successor replaces any such Issuer pursuant to this Indenture and thereafter means the remaining Issuer and the successor. "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 for the intervening period. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease 6 in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Master Partnership" means Ferrellgas Partners, L.P., a Delaware limited partnership and the sole limited partner of the Partnership. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (a) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (i) any asset sale (including, without limitation, dispositions pursuant to sale and leaseback transactions), or (ii) the disposition of any securities or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries, and (b) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss), provided, however, that all costs and expenses with respect to the retirement of the Existing Senior Notes and the Existing Subordinated Debentures, including, without limitation, cash premiums, tender offer premiums, consent payments and all fees and expenses in connection therewith, shall be added back to the Net Income of the General Partner, the Partnership or their Subsidiaries to the extent that the same were deducted from such Net Income in accordance with GAAP. "Net Proceeds" means the aggregate cash proceeds received by the Partnership or any of its Subsidiaries in respect of any Asset Sale, net of the direct costs relating to such Asset Sale (including, without limitation, legal, accounting and investment banking fees, and sales commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets. "Non-Recourse Subsidiary" means (1) the Insurance Company Subsidiary and (2) any other Person that would otherwise be a Subsidiary of the Partnership but is designated as a Non-Recourse Subsidiary in a resolution of the Board of Directors of the General Partner, so long as (a) no portion of the Indebtedness or any other obligation (contingent or otherwise) of such Person (i) is guaranteed by the Partnership or any of its Subsidiaries, (ii) is recourse or obligates the Partnership or any of its Subsidiaries in any way or (iii) subjects any property or asset of the Partnership or any of its Subsidiaries, directly or indirectly, contingently or otherwise, to satisfaction thereof, (b) neither the Partnership nor any of its Subsidiaries has any contract, agreement, arrangement or understanding or is subject to an obligation of any kind, written or oral, with such Person other than on terms no less favorable to the Partnership and its Subsidiaries than those that might be obtained at the time from persons who are not Affiliates of the Partnership, (c) neither the Partnership nor any of its Subsidiaries has any obligation with respect to such Person (i) to subscribe for additional shares of capital stock, Capital Interests or other Equity Interests therein or (ii) maintain or preserve such Person's financial condition or to cause such Person to achieve certain levels of operating or other financial results, and (d) such Person has no more than $1,000 of assets at the time of such designation. "Notes" means the Fixed Rate Senior Notes and the Floating Rate Senior Notes. "Note Guarantee" means each guarantee of the Notes by a Guarantor pursuant to Article 10 hereof. 7 "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "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; provided, however, that any reference to an Officer with respect to the Partnership shall mean the respective Officer of the General Partner. "Officers' Certificate" means a certificate signed on behalf of (i) the General Partner (acting on behalf of the Partnership) by two Officers of the General Partner, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the General Partner, or (ii) Finance Corp. by two Officers of Finance Corp., one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of Finance Corp., in either case that meets the requirements of Section 12.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to the Partnership, the General Partner, Finance Corp., any of their respective Subsidiaries or the Trustee. "Partnership Agreement" means the Agreement of Limited Partnership of Ferrellgas, L.P., dated as of July 5, 1994, between Ferrellgas, Inc. and Ferrellgas Partners, L.P. "Partnership" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means the successor. "Permitted Investments" means (a) any Investments in Cash Equivalents; (b) any Investments in the Partnership or in a Wholly Owned Subsidiary of the Partnership that is a Guarantor; (c) Investments by the Partnership or any Subsidiary of the Partnership in a Person, if as a result of such Investment (i) such Person becomes a Wholly Owned Subsidiary of the Partnership and a Guarantor or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Partnership or a Wholly Owned Subsidiary of the Partnership that is a Guarantor; and (d) other Investments in Non-Recourse Subsidiaries of the Partnership that do not exceed $30 million at any time outstanding. "Permitted Liens" means (a) Liens existing on the date of the Indenture; (b) Liens in favor of the Issuers or Liens to secure Indebtedness of a Subsidiary of the Partnership to the Partnership or a Wholly Owned Subsidiary of the Partnership; (c) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Partnership or any Subsidiary of the Partnership, provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Partnership; (d) Liens on property existing at the time of acquisition thereof by the Partnership or any Subsidiary of the Partnership, provided that such Liens were in existence prior to the contemplation of such acquisition; (e) Liens on any property or asset acquired by the Partnership or any of its Subsidiaries in favor of the seller of such property or asset and construction mortgages on property, in each case, created within six months after the date of acquisition, construction or improvement of such property or asset by the Partnership or such Subsidiary to secure the purchase price or other obligation of the Partnership or such Subsidiary to the seller of such property or asset or the construction or improvement cost of such property 8 in an amount up to 80% of the total cost of the acquisition, construction or improvement of such property or asset; provided that in each case, such Lien does not extend to any other property or asset of the Partnership and its Subsidiaries; (f) Liens incurred or pledges and deposits made in connection with worker's compensation, unemployment insurance and other social security benefits and Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature, in each case, incurred in the ordinary course of business; (g) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (h) Liens imposed by law, such as mechanics', carriers', warehousemen's, materialmen's, and vendors' Liens, incurred in good faith in the ordinary course of business with respect to amounts not yet delinquent or being contested in good faith by appropriate proceedings if a reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made therefor; (i) zoning restrictions, easements, licenses, covenants, reservations, restrictions on the use of real property or minor irregularities of title incident thereto that do not, in the aggregate, materially detract from the value of the property or the assets of the Partnership or impair the use of such property in the operation of the business of the Partnership or any of its Subsidiaries; (j) Liens of landlords or mortgages of landlords, arising solely by operation of law, on fixtures and movable property located on premises leased by the Partnership or any of its Subsidiaries in the ordinary course of business; (k) financing statements granted with respect to personal property leased by the Partnership and its Subsidiaries in the ordinary course of business to the owners of such personal property, provided that such financing statements are granted solely in connection with such leases and not the borrowing of money or the obtaining of advances or credit; (l) judgment Liens to the extent that such judgments do not cause or constitute a Default or an Event of Default; (m) Liens incurred in the ordinary course of business of the Partnership or any Subsidiary of the Partnership with respect to obligations that do not exceed $5 million in the aggregate in any one time outstanding and that (i) are not incurred in connection with the borrowing of money or the obtaining of advances or credit (other than trade credit in the ordinary course of business) and (ii) do not in the aggregate materially detract from the value of the property or materially impair the use thereof in the operation of business by the Partnership or such Subsidiary; (n) Liens securing Indebtedness incurred to refinance Indebtedness that has been secured by a Lien permitted under the Indenture, provided that (i) any such Lien shall not extend to or cover any assets or property not securing the Indebtedness so refinanced and (ii) the refinancing Indebtedness secured by such Lien shall have been permitted to be incurred under Section 4.09 hereof and shall not have a principal amount in excess of the Indebtedness so refinanced; and (o) any extension or renewal, or successive extensions or renewals, in whole or in part, of Liens permitted pursuant to the foregoing clauses (a) through (n); provided that no such extension or renewal Lien shall (i) secure more than the amount of Indebtedness or other obligations secured by the Lien being so extended or renewed or (ii) extend to any property or assets not subject to the Lien being so extended or renewed. "Permitted Refinancing Indebtedness" means any Indebtedness of the Partnership or any Subsidiary of the Partnership issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Partnership or any of its Subsidiaries (other than Indebtedness under the Credit Facility) or the Indebtedness represented by the then outstanding Existing Subordinated Debentures of the General Partner; provided that (a) the principal amount of such Indebtedness does not exceed the principal amount of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (b) such Indebtedness has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (c) such Indebtedness is subordinated in right of payment to 9 the Notes on terms at least as favorable to the Holders of Notes as those, if any, contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (d) such Indebtedness (other than indebtedness incurred to extend, refinance, renew, replace, defease or refund the Existing Subordinated Debentures) is incurred by the Partnership or the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. "Permitted Senior Debt" means, with respect to any Person, (i) any Acquired Debt of such Person, (ii) any Indebtedness incurred by such Person, the proceeds of which are applied solely to finance capital expenditures made to improve or enhance the existing capital assets of such Person or to acquire or construct new capital assets (but excluding capital expenditures necessary to maintain the existing capital assets of such Person) and (iii) any Indebtedness incurred by such Person, the proceeds of which are used solely for working capital purposes. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof. "Related Party" means (i) the spouse or any lineal descendant of James E. Ferrell, (ii) any trust for his benefit or for the benefit of his spouse or any such lineal descendants or (iii) any corporation, partnership or other entity in which James E. Ferrell and/or such other Persons referred to in the foregoing clauses (i) and (ii) are the direct record and beneficial owners of all of the voting and nonvoting Equity Interests. "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 Investment" means an Investment other than a Permitted Investment. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Debt" means, without duplication, (i) the Notes, (ii) all other Indebtedness of the Partnership or Finance Corp., unless the instrument under which such Indebtedness is incurred expressly provides that it is subordinated in right of payment to the Notes and (iii) all Indebtedness of Subsidiaries of the Partnership, other than Finance Corp. "Significant Subsidiary" means any Subsidiary of the Partnership that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof. "Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Interests entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof or, in the case of a partnership, more than 50% of the partners' Capital Interests (considering all partners' Capital Interests as a single class), is at the time owned or controlled, directly or indirectly, by 10 such Person or one or more of the other Subsidiaries of that Person or a combination thereof. Notwithstanding the foregoing, any Subsidiary of the Partnership that is designated a Non-Recourse Subsidiary pursuant to the definition thereof shall not thereafter be deemed a Subsidiary of the Partnership. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa- 77bbbb) as in effect on the date on which this Indenture is qualified under the TIA. "Trustee" means the party named as such above until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the sum of the products obtained by multiplying (x) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (y) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (b) the then outstanding principal amount of such Indebtedness; provided, however, that with respect to any revolving Indebtedness, the foregoing calculation of Weighted Average Life to Maturity shall be determined based upon the total available commitments and the required reductions of commitments in lieu of the outstanding principal amount and the required payments of principal, respectively. "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of the outstanding Capital Interests or other ownership interests or, in the case of a limited partnership, all of the partners' Capital Interests (other than up to a 1% general partner interest), of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such Person. Section 1.02. Other Definitions.
Defined in Term Section "Affiliate Transaction"........... 4.11 "Aggregate Consideration"......... 4.07 "Asset Sale"...................... 4.10 "Asset Sale Offer"................ 3.09 "Benefitted Party"................ 10.01 "Capital Investment".............. 4.07 "Change of Control Offer"......... 4.14 "Change of Control Payment"....... 4.14 "Change of Control Payment Date".. 4.14 "Covenant Defeasance"............. 8.03 "Commencement Date"............... 3.09 "Event of Default"................ 6.01 "Excess Proceeds"................. 4.10 "incur"........................... 4.09 "Incurrence Date"................. 4.09 "Legal Defeasance"................ 8.02 "Offer Amount".................... 3.09 "Offer Period".................... 3.09
11 "Paying Agent".................... 2.03 "Payment Default"................. 6.01 "Purchase Date"................... 3.09 "Registrar"....................... 2.03 "Restricted Payments"............. 4.07 "Senior Debt Ratio Test".......... 4.09
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, other than those provisions of the TIA that may be excluded herein, which provision shall be excluded to the extent specifically excluded in this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes and the Note Guarantees, if any; "indenture security holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; "obligor" on the Notes means the Issuers, the Guarantors, if any, and any successor obligor upon the Notes or any Note Guarantee, as the case may be. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by a rule or regulation promulgated by the SEC 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; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) references to sections of or rules under the Securities Act or the Exchange Act shall be 12 deemed to include substitute, replacement or successor sections or rules adopted by the SEC from time to time. ARTICLE 2 THE NOTES Section 2.01. Form and Dating. The Fixed Rate Senior Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A which is part --------- of this Indenture and shall be in a principal amount of no greater than $200,000,000. The Floating Rate Senior Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit B which is a --------- part of this Indenture and shall be in a principal amount of no greater than $50,000,000. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage which will be provided by the Company. Each Note shall be dated the date of its authentication. The terms and provisions contained in the Notes annexed hereto as Exhibit A and Exhibit B, and the Guarantees annexed hereto as Exhibit C shall - ----------------------- --------- constitute, and are hereby expressly made, a part of this Indenture. To the extent applicable, the Company, each Guarantor and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Section 2.02. Execution and Authentication. Two Officers of each of the General Partner (in the case of the Partnership) and Finance Corp. shall sign the Notes for the Issuers by manual or facsimile signature. The seal of each Issuer shall be reproduced on the Notes and may be in facsimile form. If an Officer of the General Partner or Finance Corp. whose signature is on a Note no longer holds that office at the time the Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature of the Trustee shall be conclusive evidence that the Note has been authenticated under this Indenture. The form of Trustee's certificate of authentication to be borne by the Notes shall be substantially as set forth in Exhibit A hereto. The Trustee shall, upon a written order of the Issuers signed by two Officers of the General Partner and Finance Corp., authenticate Notes for original issue up to an aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time shall not exceed the amount set forth herein except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Issuers to authenticate Notes. Unless limited by the terms of such appointment, 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 the Partnership or Finance Corp. or an Affiliate of the Partnership or Finance Corp. 13 Section 2.03. Registrar and Paying Agent. The Issuers shall maintain (i) an office or agency where Notes may be presented for registration of transfer or for exchange (including any co- registrar, the "Registrar") and (ii) an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall 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 "Paying Agent" includes any additional paying agent. The Issuers may change any Paying Agent, Registrar or co-registrar without prior notice to any Holder of a Note. The Issuers shall notify the Trustee and the Trustee shall notify the Holders of the Notes of the name and address of any Agent not a party to this Indenture. The Partnership, Finance Corp. or any Guarantor may act as Paying Agent, Registrar or co-registrar. The Issuers shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall be subject to any obligations imposed by the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Issuers shall notify the Trustee of the name and address of any such Agent. If the Issuers fail to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such, and shall be entitled to appropriate compensation in accordance with Section 7.07 hereof. The Issuers initially appoint the Trustee as Registrar, Paying Agent and agent for service of notices and demands in connection with the Notes. Section 2.04. Paying Agent to Hold Money in Trust. The Issuers shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of the Holders of the Notes or the Trustee all money held by the Paying Agent for the payment of principal of, premium, if any, and interest on the Notes, and shall notify the Trustee of any Default by the Issuers or any Guarantors 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 Partnership, Finance Corp. or a Guarantor) shall have no further liability for the money delivered to the Trustee. If the Partnership, Finance Corp. or any Guarantor acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders of the Notes all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceeding relating to the Partnership, Finance Corp. or any Guarantor, the Trustee shall serve as Paying Agent for the Notes. Section 2.05. Lists of Holders of the Notes. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders of the Notes and shall otherwise comply with TIA (S) 312(a). If the Trustee is not the Registrar, the Issuers and/or any Guarantors shall furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Holders of the Notes, including the aggregate principal amount of the Notes held by each thereof, and the Issuers and each Guarantor, if any, shall otherwise comply with TIA (S) 312(a). 14 Section 2.06. Transfer and Exchange. When Notes are presented to the Registrar with a request to register the transfer or to exchange them for an equal principal amount of Notes of other denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met; provided, however, that any Note presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar and the Trustee duly executed by the Holder thereof or by his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Issuers shall issue and the Trustee shall authenticate Notes at the Registrar's request, subject to such rules as the Trustee may reasonably require. Neither the Issuers nor the Registrar shall be required to (i) issue, register the transfer of or exchange Notes during a period beginning at the opening of business on a Business Day 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof or (ii) register the transfer of or exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. No service charge shall be made to any Holder of a Note for any registration of transfer or exchange (except as otherwise expressly permitted herein), 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 such transfer tax or similar governmental charge payable upon exchanges pursuant to Sections 2.10, 3.06 or 9.05 hereof, which shall be paid by the Issuers). Prior to due presentment to the Trustee for registration of the transfer of any Note, the Trustee, any Agent, the Issuers and each Guarantor, if any, 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, premium, if any, and interest on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of the Trustee, any Agent, the Issuers or any Guarantor shall be affected by notice to the contrary. Section 2.07. Replacement Notes. If any mutilated Note is surrendered to the Trustee, or the Issuers and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, the Issuers shall issue and the Trustee, upon the written order of the Issuers signed by (i) two Officers of the General Partner and (ii) two Officers of Finance Corp., shall authenticate a replacement Note if the Trustee's requirements for replacements of Notes are met. If required by the Trustee, the Issuers or the Guarantors, if any, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee, the Issuers and the Guarantors to protect the Issuers, the Guarantors, the Trustee, any Agent or any authenticating agent from any loss which any of them may suffer if a Note is replaced. Each of the Partnership, Finance Corp, each Guarantor and the Trustee may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Issuers and the Guarantors, if any, and shall be entitled to all of the benefits of this Indenture equally and ratably with all other Notes duly issued hereunder. 15 Section 2.08. Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation and those described in this Section 2.08 as not outstanding. 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 bona fide 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. Subject to Section 2.09 hereof, a Note does not cease to be outstanding because the Partnership, Finance Corp., any Guarantor, a Subsidiary of the Partnership, Finance Corp. or any Guarantor or an Affiliate of the Partnership, Finance Corp. or any Guarantor holds the Note. 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 Partnership, Finance Corp., any Guarantor, any of their respective Subsidiaries or any Affiliate of the Partnership, Finance Corp. or any Guarantor shall be considered as though not outstanding, except that for purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes which a Responsible Officer knows to be so owned shall be so considered. Notwithstanding the foregoing, Notes that are to be acquired by the Partnership, Finance Corp., any Guarantor, any Subsidiary of the Partnership, Finance Corp. or any Guarantor or an Affiliate of the Partnership, Finance Corp. or any Guarantor pursuant to an exchange offer, tender offer or other agreement shall not be deemed to be owned by the Partnership, Finance Corp., such Guarantor, a Subsidiary of the Partnership, Finance Corp. or such Guarantor or an Affiliate of the Partnership, Finance Corp. or such Guarantor until legal title to such Notes passes to the Partnership, Finance Corp., such Guarantor, Subsidiary of the Partnership, Finance Corp. or such Guarantor or Affiliate of the Partnership, Finance Corp. or such Guarantor, as the case may be. Section 2.10. Temporary Notes. Until definitive Notes are ready for delivery, the Issuers may prepare and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Issuers and the Trustee consider appropriate for temporary Notes. Without unreasonable delay, the Issuers shall prepare and the Trustee, upon receipt of the written order of the Issuers signed by (i) two Officers of the General Partner and (ii) two Officers of Finance Corp., shall authenticate definitive Notes in exchange for temporary Notes. Until such exchange, temporary Notes shall be entitled to the same rights, benefits and privileges as definitive Notes. Section 2.11. Cancellation. The Issuers at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirement of the Exchange Act), unless the Issuers direct cancelled Notes to be returned to them. The Issuers may not issue new Notes to replace Notes that they have redeemed or paid or that have been delivered to the Trustee for cancellation. All cancelled Notes held by the Trustee shall be destroyed and certification of their destruction delivered to the Issuers, unless by a written order, signed 16 by (i) two Officers of the General Partner and (ii) two Officers of Finance Corp., the Issuers shall direct that cancelled Notes be returned to them. Section 2.12. Defaulted Interest. If the Issuers or any Guarantor defaults in a payment of interest on the Notes, the Issuers or such Guarantor (to the extent of its obligations under its Note Guarantees) shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders of the Notes on a subsequent special record date, which date shall be at the earliest practicable date but in all events at least five Business Days prior to the payment date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Issuers shall fix or cause to be fixed each such special record date and payment date, and shall, promptly thereafter, notify the Trustee of any such date. At least 15 days before the special record date, the Issuers (or the Trustee, in the name of and at the expense of the Issuers) shall mail to Holders of the Notes a notice that states the special record date, the related payment date and the amount of such interest to be paid. Section 2.13. Record Date. The record date for purposes of determining the identity of Holders of the Notes entitled to vote or consent to any action by vote or consent authorized or permitted under this Indenture shall be determined as provided for in TIA (S) 316(c). Section 2.14. CUSIP Number. The Issuers in issuing the Notes may use a "CUSIP" number and, if they do so, the Trustee shall use the CUSIP number in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes and that reliance may be placed only on the other identification numbers printed on the Notes. The Issuers will promptly notify the Trustee of any change in the CUSIP number. ARTICLE 3 REDEMPTION AND OFFERS TO PURCHASE 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 shall furnish to the Trustee, at least 30 days but not more than 75 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. If the Issuers elect to reduce the principal amount of Floating Rate Senior Notes to be redeemed pursuant to the mandatory redemption provisions of paragraph 6 of the Floating Rate Senior Notes, it shall notify the Trustee of the amount of the reduction and the basis for it at least 50 days prior to the applicable mandatory redemption date. If the Issuers elect to credit against any such redemption Floating Rate Senior Notes they have not previously delivered to the Trustee for cancellation, the Issuers shall deliver such Floating Rate Senior Notes with the notice to the Trustee. 17 If the Issuers are required to make an offer to purchase Notes pursuant to the provisions of Sections 4.10 or 4.14 hereof, they shall furnish to the Trustee, at least 30 days before the scheduled Purchase Date, an Officers' Certificate setting forth (i) the Section of this Indenture pursuant to which the offer to purchase shall occur, (ii) the terms of the offer, (iii) the purchase price, (iv) the principal amount of the Notes to be purchased, and (v) further setting forth a statement to the effect that (a) the Partnership or one of its Subsidiaries has made an Asset Sale and there are Excess Proceeds aggregating more than $15 million and the amount of such Excess Proceeds or (b) a Change of Control has occurred, as applicable. Section 3.02. Selection of Notes to Be Purchased or Redeemed. If the Issuers elect to redeem less than all of either series of Notes pursuant to the optional redemption provisions of Section 3.07 hereof and paragraph 5 of the applicable series of Notes, the Trustee shall select the Notes to be redeemed as follows: The Trustee shall select the Floating Rate Senior Notes or Fixed Rate Senior Notes (as applicable) to be redeemed among the Holders of the same series of Notes on a pro rata basis. If less than all of the Notes properly tendered in an Asset Sale Offer pursuant to Sections 3.09 and 4.10 hereof are to be purchased, the Trustee shall select the Floating Rate Senior Notes and Fixed Rate Senior Notes to be purchased as follows: The Trustee shall select the Notes to be purchased between the Floating Rate Senior Notes and the Fixed Rate Senior Notes on a pro rata basis and then among the Holders of Floating Rate Senior Notes and Fixed Rate Senior Notes on a pro rata basis. The Trustee shall promptly notify the Issuers in writing of the Notes selected for redemption and, in the case of any Note selected for partial purchase or redemption, the principal amount thereof to be purchased or redeemed. Notes and portions of Notes selected shall 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 purchased or redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be purchased or redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. In the event the Issuers are required to make an Asset Sale Offer pursuant to Section 4.10 hereof and the amount of Excess Proceeds to be applied to such purchase would result in the purchase of a principal amount of Notes which is not evenly divisible by $1,000, the Trustee shall promptly refund to the Issuers the portion of such Excess Proceeds that is not necessary to purchase the immediately lesser principal amount of Notes that is so divisible. Section 3.03. Notice of Redemption. At least 30 days but not more than 60 days before a redemption date, the Issuers shall 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. The notice shall identify the Notes to be redeemed and shall state: 18 (a) the redemption date; (b) the redemption price; (c) 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 shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) 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; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) 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 shall give the notice of redemption in the Issuers' name and at their expense; provided, however, that the Issuers shall 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 (which request may be revoked by so notifying the Trustee in writing on or before the Business Day immediately preceding the date requested for the mailing of such notice). 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. Section 3.05. Deposit of Redemption Price. One Business Day prior to the redemption date, the Issuers shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall 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 price of, and accrued interest on, all Notes to be redeemed. If the Issuers comply with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed 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 19 shall not be so paid upon surrender for redemption because of the failure of the Issuers to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. Section 3.06. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Issuers shall issue and, upon the Issuers' written request, the Trustee shall authenticate for the Holder at the expense of the Issuers a new Note equal in principal amount to the unredeemed portion of the Note surrendered. Section 3.07. Optional Redemption. The Issuers may redeem all or any portion of either series of Notes, upon the terms and at the redemption prices set forth in paragraph 5 of the applicable series of Notes. Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. Section 3.08. Mandatory Redemption. The Company shall redeem $5,000,000 principal amount of the Floating Rate Senior Notes on each of August 1, 1999 and August 1, 2000, upon the terms and subject to the conditions set forth in paragraph 6 of the Floating Rate Senior Notes. Except pursuant to the preceding sentence and as set forth below under Section 4.10 and Section 4.14 hereof, the Issuers shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. Section 3.09. Asset Sale Offers. (a) In the event that, pursuant to Section 4.10 hereof, the Issuers shall be required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified in this Section 3.09. (b) The Asset Sale Offer shall commence on the date (the "Commencement Date") specified in Section 4.10 hereof and shall remain open for a period specified by the Issuers, which shall be in accordance with Section 4.10 hereof (the "Offer Period"). No later than five Business Days after the termination of the Offer Period and, in any event, on a Floating Rate Interest Payment Date (as defined in the Floating Rate Senior Notes) (the "Purchase Date"), the Issuers shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to such Asset Sale Offer. Payment for any Notes so purchased shall 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, if any, shall 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 shall be payable to Holders who tender Notes pursuant to such Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Issuers shall send, by first class mail, a notice to the Trustee and each of the Holders. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to such Asset Sale Offer. The Asset Sale 20 Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to Section 4.10 hereof, the Offer Period, and the expiration date of the Offer Period; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered and accepted for payment shall continue to accrue interest; (d) that, unless the Issuers default in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Issuers, a depositary, if appointed by the Issuers, or a Paying Agent at the address specified in the notice prior to the close of the Offer Period; (g) that Holders shall 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 close 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; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Notes to be purchased shall be selected pursuant to the terms of Section 3.02 hereof, and that Holders whose Notes were purchased only in part shall be issued new Notes (accompanied by a notation of the Note Guarantees duly endorsed by each Guarantor) equal in principal amount to the unpurchased portion of the Notes surrendered; and (i) the circumstances and material facts regarding the Asset Sale or Asset Sales giving rise to such Asset Sale Offer, including but not limited to, information with respect to pro forma and historical financial information if material operations of the Partnership or any Subsidiary were divested in such Asset Sale or Asset Sales. On or before the Purchase Date, the Issuers shall, to the extent lawful, accept for payment, pursuant to the terms of Section 3.02 hereof, 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 shall 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, shall 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 shall promptly issue a new Note, and the Trustee, upon written request from the Issuers shall 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 shall publicly announce the results of such Asset Sale Offer on the Purchase Date. 21 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 to the extent applicable. ARTICLE 4 COVENANTS Section 4.01. Payment of Notes. The Issuers shall 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 shall be considered paid on the date due if the Paying Agent, if other than the Issuers or any Guarantor, 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. The Issuers shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall 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 shall 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 or any Guarantor in respect of the Notes and this Indenture may be served. The Issuers shall 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 shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The 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 shall 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 shall 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. 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 (i) 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 22 the Issuers were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Issuers' certified independent accountants and (ii) all reports that would be required to be filed with the 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 such information with the SEC for public availability (unless the SEC will not accept such a filing) and make such information available to investors who request it in writing. To the extent permissible under the rules and regulations of the SEC (assuming at all times that the Issuers were required to file reports with the SEC), such information and reports with respect to the Master Partnership may be filed and provided in lieu of such information and reports with respect to the Partnership. Section 4.04. Compliance Certificate. (a) Each Issuer 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 Partnership and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether each Issuer, each Guarantor, if any, and each obligor on the Notes and this Indenture has kept, observed, performed and fulfilled its obligations under this Indenture (including with respect to any Restricted Payments made during such year, the basis upon which the calculations required by Section 4.07 hereof were computed, which calculations may be based on the Partnership's latest available financial statements), and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge, each Issuer, each Guarantor, if any, and each such obligor has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action each Issuer, each Guarantor, if any, or each such obligor, as the case may be, is taking or proposes 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 each Issuer, each Guarantor, if any, or each such obligor, as the case may be, is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.03 hereof shall be accompanied by a written statement of the Partnership's 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 Four or Article Five 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) Each Issuer shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer of such Issuer (or of the General Partner, in the case of the Partnership) becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action such Issuer is taking or proposes to take with respect thereto. 23 Section 4.05. Taxes. The Issuers shall pay, and shall 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. Each of the Issuers and each of the Guarantors, if any, covenants (to the extent that it may lawfully do so) that it shall 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 each of the Issuers and each of the Guarantors, if any, (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. Section 4.07. Restricted Payments. The Partnership shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any distribution on account of the Partnership's or any Subsidiary's Equity Interests (other than (x) dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Partnership, (y) dividends or distributions payable to the Partnership or a Wholly Owned Subsidiary of the Partnership that is a Guarantor or (z) distributions or dividends payable pro rata to all holders of Capital Interests of any such Subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Partnership or any Subsidiary or other Affiliate of the Partnership (other than any such Equity Interests owned by the Partnership or a Wholly Owned Subsidiary of the Partnership that is a Guarantor); (iii) purchase, redeem or otherwise acquire or retire for value any Indebtedness that is subordinated to the Notes; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (b) the Fixed Charge Coverage Ratio of the Partnership for the Partnership's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such Restricted Payment is made, calculated on a pro forma basis as if such Restricted Payment had been made at the beginning of such four-quarter period, would have been more than 2.25 to 1; (c) such Restricted Payment (the amount of any such payment, if other than cash, to be determined by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution in an Officers' Certificate delivered to the Trustee), together with the aggregate of all other Restricted Payments (other than any Restricted Payments permitted by the provisions of clauses (ii), (iii) or (iv) of the penultimate paragraph of this Section 4.07) made by the Partnership and its Subsidiaries in the fiscal quarter during which such Restricted Payment is made, shall not exceed an amount equal to the sum of (i) Available Cash of the Partnership for the immediately preceding 24 fiscal quarter (or, with respect to the first fiscal quarter during which Restricted Payments are made, the amount of Available Cash of the Partnership for the period commencing on the date of this Indenture and ending on the last day of the immediately preceding fiscal quarter) plus (ii) the lesser of (x) the amount of Available Cash of the Partnership for the first 45 days of the fiscal quarter during which such Restricted Payment is made and (y) the amount of working capital Indebtedness that the Partnership could have incurred on the last day of the immediately preceding fiscal quarter under the terms of the agreements and instruments governing its outstanding Indebtedness on such date; and (d) the Partnership and its Subsidiaries and Non-Recourse Subsidiaries shall have, in the aggregate (i) acquired, improved or repaired property, plant or equipment which is accounted for as a capital expenditure in accordance with GAAP or (ii) acquired, through merger or otherwise, all or substantially all of the outstanding Capital Interests, or all or substantially all of the assets, of any entity engaged in the business in which the Partnership is engaged on the date of this Indenture (each of the transactions referred to in clauses (i) and (ii) above, a "Capital Investment") for Aggregate Consideration since the date of the Indenture which, when added to all cash reserves then funded and maintained by the Partnership (the proceeds of which shall be used solely for Capital Investments) is no less than the amounts set forth in the table below, if such Restricted Payment is made in the 12-month period beginning August 1 of the years indicated:
Year Amount ---- ---------- 1994 $0 1995 $15 million 1996 $30 million 1997 $45 million 1998 $70 million 1999 $95 million 2000 $120 million
For purposes of the foregoing, "Aggregate Consideration" at any date shall mean all cash paid in connection with all Capital Investments consummated on or prior to such date, the fair market value of all Capital Interests of the Master Partnership or the Partnership (determined by the General Partner in good faith with reference to, among other things, the trading price of such Capital Interests, if then traded on any national securities exchange or automated quotation system) constituting all or a portion of the purchase price of all Capital Investments consummated on or prior to such date and the aggregate principal amount of all Indebtedness incurred or assumed by the Partnership in connection with all Capital Investments consummated on or prior to such date. The foregoing provisions will not prohibit (i) the payment of any distribution within 60 days after the date on which the Partnership becomes committed to make such distribution, if at said date of commitment such payment would have complied with the provisions of this Indenture; (ii) the redemption, repurchase, retirement or other acquisition of any Equity Interests of the Partnership in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Partnership) of other Equity Interests of the Partnership (other than any Disqualified Interests); (iii) the defeasance, redemption or repurchase of subordinated Indebtedness with the proceeds of Permitted Refinancing Indebtedness; and (iv) the defeasance, redemption or repurchase of any Existing Subordinated Debentures of the General Partner and the payment of all costs and expenses in connection therewith. 25 Not later than the date of making any Restricted Payment, the General Partner shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.07 were computed, which calculations may be based upon the Partnership's latest available financial statements. Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries. The Partnership shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (a) pay dividends or make any other distributions to the Partnership or any of its Subsidiaries (1) on its Capital Interests or (2) with respect to any other interest or participation in, or interest measured by, its profits, (b) pay any indebtedness owed to the Partnership or any of its Subsidiaries, (c) make loans or advances to the Partnership or any of its Subsidiaries or (d) transfer any of its properties or assets to the Partnership or any of its Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) Existing Indebtedness as in effect on the date of this Indenture, (ii) the Credit Facility, as in effect on the date of this Indenture, this Indenture, the Notes and the Note Guarantees, (iii) applicable law, (iv) any instrument governing Indebtedness or Capital Interests of a Person acquired by the Partnership or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that the Consolidated Cash Flow of such Person to the extent that dividends, distributions, loans, advances or transfers thereof is limited by such encumbrance or restriction on the date of acquisition is not taken into account in determining whether such acquisition was permitted by the terms of the Indenture, (v) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (vi) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (d) above on the property so acquired, (vii) Permitted Refinancing Indebtedness of any Existing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are no more restrictive than those contained in the agreements governing the Indebtedness being refinanced or (viii) agreements governing any Indebtedness that is permitted to be incurred hereunder and that is incurred to extend, refinance, renew, replace, defease or refund Indebtedness outstanding pursuant to the Credit Facility, provided that the restrictions contained in the agreements governing such refinancing Indebtedness are no more restrictive than those contained in the Credit Facility as in effect on the date of this Indenture. Section 4.09. Incurrence of Indebtedness and Issuance of Disqualified Interests. The Partnership shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and the Partnership shall not issue any Disqualified Interests and shall not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Partnership may incur Indebtedness and any Subsidiary of the Partnership may incur Acquired Debt if: (a) the Fixed Charge Coverage Ratio for the Partnership's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred would have been at least 2.75 to 1 if such date is on or prior to August 1, 1996 and 3.00 to 1 if such date is after August 1, 1996, in each case, 26 determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred at the beginning of such four-quarter period; and (b) either (x) such Indebtedness shall be subordinated in right of payment to the Notes and shall have a Weighted Average Life to Maturity greater than the remaining Weighted Average Life to Maturity of the Notes or (y) such Indebtedness shall be Permitted Senior Debt and the Senior Debt Ratio Test shall have been met at the time of incurrence thereof. The foregoing limitations of this Section 4.09 will not apply to: (i) the Indebtedness represented by the Notes and any Note Guarantees; (ii) the incurrence by the Partnership of Indebtedness pursuant to the Credit Facility in an aggregate principal amount at any time outstanding not to exceed $185 million; (iii) revolving Indebtedness incurred solely for working capital purposes in an aggregate outstanding principal amount not to exceed $20 million at any time on or prior to August 1, 1996 and $40 million thereafter, provided, in each case, that the outstanding principal balance of such revolving Indebtedness (or, if such revolving Indebtedness is incurred as an addition or extension to the Credit Facility, the outstanding principal balance under the Credit Facility in excess of the limits set forth in clause (ii) above) shall be reduced to zero for a period of 30 consecutive days during each fiscal year; (iv) the incurrence by the Partnership of Indebtedness in respect of Capitalized Lease Obligations in an aggregate principal amount not to exceed $15 million; (v) the Existing Indebtedness; (vi) the incurrence by the Partnership or any of its Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the proceeds of which are used to extend, refinance, renew, replace, defease or refund any then outstanding Indebtedness of the Partnership or such Subsidiary not incurred in violation of the Indenture; (vii) Hedging Obligations that are incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of the Indenture to be outstanding; (viii) Indebtedness of any Subsidiary of the Partnership to the Partnership or any of its Wholly Owned Subsidiaries; (ix) the incurrence by the Partnership or the Insurance Company Subsidiary of Indebtedness owing directly to its insurance carriers (without duplication) in connection with the Partnership's, its Subsidiaries' or its Affiliates' self-insurance programs or other similar forms of retained insurable rights for their respective retail propane businesses, consisting of reinsurance agreements and indemnification agreements (and guarantees of the foregoing) secured by letters of credit, provided that the Indebtedness evidenced by such reinsurance agreements, indemnification agreements, guarantees and letters of credit shall be counted (without duplication) for purposes of all calculations pursuant to the Fixed Charge Coverage Ratio test above; (x) 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; (xi) the incurrence by the Partnership (or any Subsidiary of the Partnership that is a Guarantor) of Indebtedness in connection with acquisitions of retail propane businesses in favor of the sellers of such businesses in a principal amount not to exceed $15 million in any fiscal year or $45 million in the aggregate outstanding at any one time, provided that the principal amount of such Indebtedness incurred in connection with any such acquisition shall not exceed the fair market value of the assets so acquired; and (xii) in addition to the Indebtedness permitted under the foregoing clauses (i) through (xi), the incurrence by the Partnership of Indebtedness in an aggregate principal amount outstanding not to exceed $15 million at any time, provided that any Indebtedness incurred pursuant to this clause (xii) shall be subordinated in right of payment to the Notes and shall have a Weighted Average Life to Maturity greater than the remaining Weighted Average Life to Maturity of the Notes. The "Senior Debt Ratio Test" will be met with respect to the incurrence of any Indebtedness by the Partnership or any Subsidiary of the Partnership if the ratio of (1) the aggregate outstanding principal amount of Senior Debt on the date of and after giving effect to the incurrence of such 27 Indebtedness (the "Incurrence Date") to (2) the Consolidated Cash Flow for the Partnership's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the Incurrence Date would have been 2.50 to 1 or less. For purposes of the computation in clause (1) of the foregoing sentence, the outstanding principal amount of Indebtedness under the Credit Facility shall be deemed to equal the principal amount of such Indebtedness actually outstanding plus the maximum additional principal amount of such Indebtedness available thereunder, and letters of credit shall be deemed to have a principal amount equal to the maximum potential liability of the Partnership or any of its Subsidiaries thereunder. The foregoing calculation of Consolidated Cash Flow shall give pro forma effect to acquisitions (including all mergers and consolidations), dispositions and discontinuance of operations that have been made by the Partnership or any of its Subsidiaries during the four-quarter reference period or subsequent to such reference period and on or prior to the Incurrence Date assuming that all such acquisitions, dispositions and discontinuance of operations had occurred on the first day of the four- quarter reference period in the same manner as described in the definition of "Fixed Charge Coverage Ratio". For purposes of this Section 4.09, any revolving Indebtedness (under the Credit Facility or otherwise) shall be deemed to have been incurred only at such time at which the agreements and instruments (or any amendments thereto that increase the amount, reduce the Weighted Average Life to Maturity, change any subordination provisions or create any additional obligor of such revolving Indebtedness) are executed, in an amount equal to the maximum amount of such revolving Indebtedness permitted to be borrowed thereunder, and the Partnership's ability to borrow or reborrow such revolving Indebtedness up to such maximum permitted amount shall not thereafter be limited by the provisions of this Section 4.09 (other than the proviso set forth in clause (iii) of the second paragraph of this Section 4.09.) Section 4.10. Asset Sales. The Partnership shall not, and shall not permit any of its Subsidiaries to, (i) sell, lease, convey or otherwise dispose of any assets (including by way of a sale-and-leaseback) other than sales of inventory in the ordinary course of business consistent with past practice (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Partnership shall be governed by the provisions of Sections 4.14 and/or 5.01 hereof and not by the provisions of this Section 4.10), or (ii) issue or sell Equity Interests of any of its Subsidiaries, in the case of either clause (i) or (ii) above, whether in a single transaction or a series of related transactions, (a) that have a fair market value in excess of $5 million, or (b) for net proceeds in excess of $5 million (each of the foregoing, an "Asset Sale"), unless (x) the Partnership (or the Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the fair market value (evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets sold or otherwise disposed of and (y) at least 80% of the consideration therefor received by the Partnership or such Subsidiary is in the form of cash; provided, however, that the amount of (A) any liabilities (as shown on the Partnership's or such Subsidiary's most recent balance sheet or in the notes thereto), of the Partnership or any Subsidiary (other than liabilities that are by their terms subordinated in right of payment to the Notes) that are assumed by the transferee of any such assets and (B) any notes or other obligations received by the Partnership or any such Subsidiary from such transferee that are immediately converted by the Partnership or such Subsidiary into cash (to the extent of the cash received), shall be deemed to be cash for purposes of this provision; and provided, further, that the 80% limitation referred to in this clause (y) shall not apply to any Asset Sale in which the cash portion of the consideration received therefrom, determined in accordance with the foregoing proviso, is equal to or greater than what the after-tax proceeds would have been had such Asset Sale complied with the aforementioned 80% 28 limitation. Notwithstanding the foregoing, Asset Sales shall not be deemed to include (1) any transfer of assets by the Partnership or any of its Subsidiaries to a Subsidiary of the Partnership that is a Guarantor, (2) any transfer of assets by the Partnership or any of its Subsidiaries to any Person in exchange for other assets used in a line of business permitted under Section 4.16 hereof and having a fair market value not less than that of the assets so transferred and (3) any transfer of assets pursuant to a Permitted Investment. Within 270 days after any Asset Sale, the Partnership may apply the Net Proceeds from such Asset Sale to (a) permanently reduce Indebtedness outstanding under the Credit Facility (with a permanent reduction of availability in the case of revolving Indebtedness) or (b) an investment in capital expenditures or other long-term tangible assets, in each case, in the same line of business as the Partnership was engaged in on the date of this Indenture. Pending the final application of any such Net Proceeds, the Partnership may temporarily reduce borrowings under the Credit Facility or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from the Asset Sale that are not applied or invested as provided in the first sentence of this paragraph will be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $15 million, the Issuers shall make an Asset Sale Offer to all Holders of Notes to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase, in accordance with the procedures set forth in Article 3 hereof. The Issuers shall commence an Asset Sale Offer with respect to Excess Proceeds within 10 Business Days after the date that Excess Proceeds exceeds $15 million by mailing the notice required in Section 3.09 hereof to the Holders. The Offer Period shall be not less than 30 days and not more than 40 days, unless a longer period is required by law. The Issuers shall 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 such Asset Sale Offer. To the extent that the aggregate amount of Notes tendered pursuant to such Asset Sale Offer is less than the Excess Proceeds, the Partnership may use such deficiency for general business purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. Section 4.11. Transactions with Affiliates. The Partnership shall not, and shall not permit any of its Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into any contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate, including any Non-Recourse Subsidiary (each of the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate Transaction is on terms that are no less favorable to the Partnership or the relevant Subsidiary than those that would have been obtained in a comparable transaction by the Partnership or such Subsidiary with an unrelated Person and (b) with respect to (i) any Affiliate Transaction with an aggregate value in excess of $500,000, a majority of the directors of the General Partner having no direct or indirect economic interest in such Affiliate Transaction determines by resolution that such Affiliate Transaction complies with clause (a) above and approves such Affiliate Transaction and (ii) any Affiliate Transaction involving the purchase or other acquisition or sale, lease, transfer or other disposition of properties or assets other than in the ordinary course of business, in each case, having a fair market value or for net proceeds in excess of $15 million, the Partnership delivers to the Trustee an opinion as to the fairness to the Partnership or such Subsidiary from a financial point of view issued by an investment banking firm of national standing; provided, however, that (i) any 29 employment agreement or stock option agreement entered into by the Partnership or any of its Subsidiaries in the ordinary course of business and consistent with the past practice of the Partnership (or the General Partner) or such Subsidiary, (ii) Restricted Payments permitted by the provisions of Section 4.07 hereof, and (iii) transactions entered into by the Partnership or the Insurance Company Subsidiary in the ordinary course of business in connection with reinsuring the self-insurance programs or other similar forms of retained insurable risks of the retail propane businesses operated by the Partnership, its Subsidiaries and its Affiliates, in each case, shall not be deemed Affiliate Transactions. Section 4.12. Liens. The Partnership shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien on any asset now owned or hereafter acquired, or any income or profits therefrom or assign or convey any right to receive income therefrom, except Permitted Liens. Section 4.13. Subsidiary Note Guarantees. The Partnership may, at any time that it transfers or causes to be transferred to any of its Subsidiaries assets, businesses or properties having a fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a resolution of such Board) of $5 million or more, cause such Subsidiary to unconditionally guarantee, jointly and severally, the Issuers' payment obligations under the Notes as provided in Article 10 hereof pursuant to a supplemental indenture in the form attached hereto as Exhibit B, together with an Opinion of Counsel to the effect that such supplemental indenture has been duly executed and delivered by such Subsidiary and is in compliance with the terms of this Indenture. Section 4.14. Offer to Purchase Upon Change of Control. Upon the occurrence of a Change of Control, the Issuers shall make an offer (a "Change of Control Offer") to each Holder to purchase all or any part of such Holder's Notes on the next succeeding Floating Rate Interest Payment Date which is at least 40 days after the Change of Control (the "Change of Control Payment Date") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (the "Change of Control Payment"). The Issuers shall 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 such Change of Control Offer. The Issuers shall commence such Change of Control Offer within 10 days following any Change of Control by mailing a notice of such Change of Control to each Holder at its last registered address with a copy to the Trustee and the Paying Agent. The Change of Control Offer shall remain open from the time of mailing until the close of business on the Business Day preceding the Change of Control Payment Date. The notice, which shall govern the terms of the Change of Control Offer, shall state: (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 amount of the Change of Control Payment and the Change of Control Payment Date; 30 (3) that any Notes not tendered will continue to accrue interest in accordance with the terms of the Indenture; (4) that, unless the Issuers default in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have Notes purchased pursuant to the Change of Control Offer will be required to surrender their Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the 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 the Holder delivered for purchase, and a statement that such Holder is withdrawing its election to have such Notes purchased; (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; and (8) the circumstances and relevant facts regarding such Change of Control (including, but not limited to, information with respect to pro forma historical financial information after giving effect to such Change of Control, information regarding the Person or Persons acquiring control and such Person's or Persons' business plans going forward). On the Change of Control Payment Date, the Issuers shall, to the extent lawful, (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof tendered to the Issuers. The Paying Agent shall promptly, but in no event later than three Business Days following the Change of Control Payment Date, mail to each Holder of Notes so accepted payment in an amount equal to the Change of Control Payment for such Notes, and the Issuers shall promptly issue a new Note, and the Trustee shall authenticate and mail or deliver a new Note to such Holder equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided, that each such new Note shall be in a principal amount of $1,000 or an integral multiple thereof. The Issuers shall publicly announce in The Wall Street Journal, or if no longer published, a national newspaper of general circulation the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. Section 4.15. Partnership or Corporate Existence. Subject to Article 5 and Article 10 hereof, as the case may be, each Issuer and each of the Guarantors, if any, shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate or partnership existence, and the corporate or partnership existence of each of their Subsidiaries, in accordance with the respective organizational documents (as the same may be 31 amended from time to time) of each Issuer, any such Guarantor or any such Subsidiary, as the case may be, and (ii) the rights (charter and statutory), licenses and franchises of each Issuer, the Guarantors and their respective Subsidiaries; provided, however, that the Issuers and the Guarantors shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of their respective Subsidiaries, if an officer of the General Partner or Finance Corp., as the case may be, shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Issuers, the Guarantors and their Subsidiaries, taken as a whole and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.16. Line of Business. For so long as any Notes are outstanding, the Partnership and its Subsidiaries will not materially or substantially engage in any business other than that in which the Partnership and its Subsidiaries were engaged on the date of this Indenture. Section 4.17. Limitation on Sale and Leaseback Transactions. The Partnership will not, and will not permit any of its Subsidiaries to, enter into any arrangement with any Person providing for the leasing by the Partnership or such Subsidiary of any property that has been or is to be sold or transferred by the Partnership or such Subsidiary to such Person in contemplation of such leasing; provided, however, that the Partnership or such Subsidiary may enter into such sale and leaseback transaction if (i) the Partnership could have (A) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio Test set forth in paragraph (a) of Section 4.09 and (B) secured a Lien on such Indebtedness pursuant to Section 4.12, or (ii) the lease in such sale and leaseback transaction is for a term not in excess of the lesser of (A) three years and (B) 60% of the remaining useful life of such property. Section 4.18. Restrictions on Nature of Indebtedness and Activities of Finance Corp. Notwithstanding the provisions of Section 4.09 hereof, Finance Corp. shall not incur any Indebtedness unless (a) the Partnership is a co-obligor or guarantor of such Indebtedness or (b) the net proceeds of such Indebtedness are lent to the Partnership, used to acquire outstanding debt securities issued by the Partnership or used directly or indirectly to refinance or discharge Indebtedness permitted under the limitations of this Section 4.18. Finance Corp. shall 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. (a) The Partnership shall not consolidate or merge with or into (whether or not the Partnership is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person unless (i) the Partnership is the surviving Person, or the Person formed by or surviving any such consolidation or merger (if other than the Partnership) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation or partnership organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the Person formed by or 32 surviving any such consolidation or merger (if other than the Partnership) or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Partnership pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, under the Notes and this Indenture; (iii) immediately after such transaction no Default or Event of Default exists; and (iv) the Partnership or any Person formed by or surviving any such consolidation or merger, or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made (A) shall have Consolidated Net Worth (immediately after the transaction but prior to any purchase accounting adjustments resulting from the transaction) equal to or greater than the Consolidated Net Worth of the Partnership immediately preceding the transaction and (B) shall, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four-quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09 hereof. (b) Finance Corp. may not consolidate or merge with or into (whether or not Finance Corp. is the surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to another Person unless (i) Finance Corp. is the surviving Person, or the Person formed by or surviving any such consolidation or merger (if other than Finance Corp.) or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia and a Wholly Owned Subsidiary of the Partnership; (ii) the Person formed by or surviving any such consolidation or merger (if other than Finance Corp.) or the Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of Finance Corp., pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, under the Notes and the Indenture; and (iii) immediately after such transaction no Default or Event of Default exists. (c) The Partnership or Finance Corp., as the case may be, shall deliver to the Trustee prior to the consummation of the proposed transaction pursuant to the foregoing paragraphs (a) and (b) an Officers' Certificate to the foregoing effect and an Opinion of Counsel stating that the proposed transaction and such supplemental indenture comply with this Indenture. The Trustee shall be entitled to conclusively rely upon such Officers' Certificate and Opinion of Counsel. Section 5.02. Successor Person 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 accordance with Section 5.01 hereof, the successor Person formed by such consolidation or into or with which the Partnership or Finance Corp. 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," "Finance Corp.," or the "Issuers," as the case may be shall refer to or include instead the successor Person and not the Partnership or Finance Corp., as the case may be), and may exercise every right and power of the Partnership or Finance Corp., as the case may be under this Indenture with the same effect as if such successor Person had been named as the Partnership or Finance Corp., as the case may be, herein; provided, however, that the predecessor Issuer shall not be relieved from the obligation to pay the principal of, premium, if any, and interest on the Notes except in the case of a sale of all of such Issuer's assets that meets the requirements of Section 5.01 hereof. 33 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default. An "Event of Default" occurs if: (a) the Issuers or the Guarantors default in the payment of interest on the Notes when the same becomes due and payable and such default continues for a period of 30 days; (b) the Issuers or the Guarantors default in the payment of principal of or premium, if any, on the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise; (c) the Issuers fail for a period of 20 days to observe or perform any covenant, condition or agreement on the part of the Issuers to be observed or performed pursuant to Sections 4.07, 4.09, 4.10, 4.14 and 5.01 hereof; (d) the Issuers or any Guarantor fails to comply with any of their other respective agreements or covenants in, or provisions of, the Notes, the Note Guarantees or this Indenture and the Default continues for the period and after the notice specified below; (e) a default occurs under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the 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 shall be created hereafter, which default (i) 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 (ii) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other Indebtedness as to which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10 million or more, excluding any acceleration of maturity of the Indebtedness represented by the General Partner's Existing Floating Rate Notes and Existing Fixed Rate Notes to the extent that such Indebtedness shall be redeemed on or prior to the 40th day after the date of this Indenture; (f) a final judgment or final judgments for the payment of money are entered by a court or courts of competent jurisdiction against the Partnership or any of its Subsidiaries and such judgments are not paid, discharged or stayed for a period of 60 days, provided that the aggregate of all such undischarged judgments exceeds $10 million; (g) except as otherwise permitted hereunder, any Note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor (or its successors or assigns), or any Person acting on behalf of any Guarantor (or its successors or assigns), shall deny or disaffirm its obligations under its Note Guarantee; (h) the Partnership or any of its Subsidiaries pursuant to or within the meaning of any Bankruptcy Law: 34 (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; or (i) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (i) is for relief against the Partnership or any Subsidiary of the Partnership in an involuntary case, (ii) appoints a Custodian of the Partnership or any Subsidiary of the Partnership or for all or substantially all of the property of the Partnership or any Subsidiary of the Partnership, or (iii) orders the liquidation of the Partnership or any Subsidiary of the Partnership, and the order or decree remains unstayed and in effect for 60 consecutive days. A Default under clause (d) is not an Event of Default until the Trustee notifies the Issuers, or the Holders of at least 25% in principal amount of the then outstanding Notes notify the Issuers and the Trustee, of the Default and the Issuers do not cure the Default within 60 days after receipt of the notice. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." In the case of any Event of Default pursuant to the provisions of this Section 6.01 occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Issuers with the intention of avoiding payment of the premium that the Issuers would have had to pay if the Issuers then had elected to redeem the Notes pursuant to Section 3.07 hereof, 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. If an Event of Default occurs prior to August 1, 1998 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Issuers with the intention of avoiding the prohibition on redemption of the Notes prior to August 1, 1998 pursuant to Section 3.07 hereof, then the premium payable for purposes of this paragraph for each of the years beginning on August 1 of the years set forth below shall be as set forth in the following table expressed as a percentage of the amount that would otherwise be due but for the provisions of this sentence, plus accrued interest, if any, to the date of payment: 35
Year Percentage ---- ---------- 1994 ................... 110.00% 1995 ................... 108.75% 1996 ................... 107.50% 1997 ................... 106.25%
Section 6.02. Acceleration. If an Event of Default (other than an Event of Default specified in clauses (h) and (i) of Section 6.01 hereof relating to either Issuer, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary) occurs and is continuing, the Trustee by notice to the Issuers, or the Holders of at least 25% in principal amount of the then outstanding Notes by written notice to the Issuers and the Trustee may declare the unpaid principal of and any accrued interest on all the Notes to be due and payable. Upon such declaration the principal and interest shall be due and payable immediately (together with the premium referred to in Section 6.01 hereof, if applicable). If an Event of Default specified in clause (h) or (i) of Section 6.01 hereof relating to either Issuer, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary occurs, such an amount shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of a majority in principal amount of the then outstanding Notes by written notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal or interest that has become due solely because of the acceleration) have been cured or waived. Section 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of, 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 the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive an 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 (including in connection with an offer to purchase) (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 36 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 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 or that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in 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: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default or the Trustee receives such notice from either Issuer; (b) 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; (c) 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; (d) 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 (e) 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; provided, however, that such provision does not affect the right of a Holder of a Note to sue for enforcement of any overdue payment thereon. 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 of, premium, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an Asset Sale Offer or a Change of Control Offer), 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(a) or (b) hereof 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 37 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, including the Guarantors), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each 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. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article, 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, expenses 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 Partnership 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 38 its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by the Trustee, a suit by a Holder 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 shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (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: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall 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 (iii) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 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. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. 39 (f) The Trustee shall 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 from either Issuer an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall 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. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from either Issuer shall be sufficient if signed by an Officer of the General Partner (in the case of the Partnership) or by an Officer of Finance Corp. (in the case of Finance Corp.) (f) The Trustee shall 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 shall 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 either Issuer, any Guarantor or any Affiliate of either Issuer or any Guarantor 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 shall 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 shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any 40 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 shall 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 (including any failure to make any mandatory redemption payment required hereunder), the Trustee may withhold the notice if and so long as a committee of its Responsible Officers 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. Within 60 days after each November 1 beginning with the November 1 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA (S) 313(a) (but if no event described in TIA (S) 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA (S) 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA (S) 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Issuers and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA (S) 313(d). The Issuers shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.07. Compensation and Indemnity. The Issuers and the Guarantors, if any, shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and its services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Issuers and the Guarantors, if any, shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Issuers and the Guarantors, if any, shall indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Issuers and the Guarantors (including this Section 7.07), and defending itself against any claim (whether asserted by either Issuer, any Guarantor 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 shall notify the Issuers promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Issuers shall not relieve the Issuers and the Guarantors, if any, of their obligations hereunder. The Issuers and the Guarantors, if any, shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Issuers and the Guarantors, if any, shall pay the reasonable fees and expenses of such counsel. The Issuers and the Guarantors, if any, need not pay for any settlement made without their consent, which consent shall not be unreasonably withheld. 41 The obligations of the Issuers and the Guarantors, if any, under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. To secure the Issuers' and the Guarantors' payment obligations in this Section, the Trustee shall have a Lien 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 Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(h) or (i) 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. The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to the extent applicable. Section 7.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Issuers. The Holders of Notes 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: (a) the Trustee fails to comply with Section 7.10 hereof; (b) 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; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Issuers shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Issuers. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Issuers, any Guarantor, or the Holders of Notes 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. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10 hereof, such Holder of a Note may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. 42 A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Issuers. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Issuers' and the Guarantors' obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. Section 7.09. Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10. Eligibility; Disqualification. There shall at all times be a Trustee hereunder 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 $100 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA (S) 310(b). Section 7.11. Preferential Collection of Claims Against Issuers. The Trustee is subject to TIA (S) 311(a), excluding any creditor relationship listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to the extent indicated therein. 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 and the Board of Directors of Finance Corp. evidenced in each case by a resolution set forth in an Officers' Certificate, at any time elect to have either Section 8.02 or 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, each of the Issuers and each of the Guarantors, if any, shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes and Note Guarantees on the date the conditions set forth below are 43 satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Issuers shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall 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 (a) and (b) 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 shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (b) the Issuers' and Guarantors' obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Issuers' and the Guarantors' obligations in connection therewith and (d) 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 its option under Section 8.03 hereof. Section 8.03. Covenant Defeasance. Upon the Issuers' exercise under Section 8.01 hereof of the option applicable to this Section 8.03, each of the Issuers and each of the Guarantors, if any, shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.16, 4.17, 4.18 and 5.01 hereof with respect to the outstanding Notes and Note Guarantees on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall 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 shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall 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 shall 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 shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture, such Notes and the Note Guarantees, if any, shall 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(e) and 6.01(f) hereof shall not constitute Events of Default. Section 8.04. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Issuers shall irrevocably have deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Notes, (i) cash in U.S. Dollars in an amount, or (ii) non-callable Government Securities which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not 44 later than one day before the due date of any payment, cash in U.S. Dollars in an amount, or (iii) a combination thereof, in such amounts, as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge (A) the principal of, premium, if any, and interest on the outstanding Notes on the stated maturity or on the applicable redemption date, as the case may be, of such principal or installment of principal, premium, if any, or interest and (B) any mandatory sinking fund payments or analogous payments applicable to the outstanding Notes on the day on which such payments are due and payable in accordance with the terms of the Indenture and of such Notes; provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such non-callable Government Securities to said payments with respect to the Notes; (b) in the case of an election under Section 8.02 hereof, the Issuers shall have delivered to the Trustee an Opinion of Counsel (which counsel may be an employee of either Issuer or any Subsidiary of either Issuer) reasonably acceptable to the Trustee confirming that (i) the Issuers have received from, or there has been published by, the Internal Revenue Service a ruling or (ii) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding 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; (c) in the case of an election under Section 8.03 hereof, the Issuers shall have delivered to the Trustee an Opinion of Counsel (which counsel may be an employee of either Issuer or any Subsidiary of either Issuer) reasonably acceptable to the Trustee confirming 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; (d) no Event of Default shall have occurred and be continuing on the date of such deposit or, insofar as Sections 6.01(h) or 6.01(i) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit (or greater period of time in which any such deposit of trust funds may remain subject to Bankruptcy Law insofar as those apply to the deposit by the Issuers); (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which either Issuer or any of their Subsidiaries is a party or by which either Issuer or any of their Subsidiaries is bound; (f) the Issuers shall have delivered to the Trustee an opinion of counsel to the effect that after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Issuers shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Issuers with the intent of preferring the Holders over any other 45 creditors of the Issuers or the Guarantors, if any, or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Issuers or others; and (h) the Issuers shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with as contemplated hereby. 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 shall 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 either Issuer 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 and the Guarantors, if any, shall 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. Anything in this Article Eight to the contrary notwithstanding, the Trustee shall 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(a) 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 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, if any, on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest, if any, have become due and payable shall be paid to the Issuers on its request or (if then held by the Issuers) shall be discharged from such trust; and the Holder of such Note shall thereafter, as an unsecured general creditor, 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, shall 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 shall 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. 46 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' and the Guarantors' obligations under this Indenture, the Notes and the Note Guarantees shall 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 and the Guarantors make any payment of principal of, premium, if any, or interest, if any, on any Note following the reinstatement of its obligations, the Issuers and the Guarantors shall 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, the Guarantors, if any, and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes; (c) to provide for the assumption of the Partnership's, Finance Corp.'s or any Guarantor's obligations to the Holders of the Notes in the case of a merger or consolidation pursuant to Article 5 or Article 10 hereof, as the case may be; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes (including providing for Note Guarantees pursuant to Section 4.13 hereof) or that does not adversely affect the legal rights hereunder of any Holder of the Note; or (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Issuers accompanied by a resolution of the Board of Directors of each of the General Partner and Finance Corp. 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 shall join with the Issuers and the Guarantors in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. 47 Section 9.02. With Consent of Holders of Notes. Except as provided below in this Section 9.02, the Issuers, the Guarantors, if any, and the Trustee may amend or supplement this Indenture or the Notes with the written consent of the Holders of at least a majority in principal amount of the Notes then outstanding (including 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 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) or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes). Upon the request of the Issuers accompanied by a resolution of the Board of Directors of each of the General Partner and Finance Corp. 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 shall join with the Issuers and the Guarantors, if any, in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall 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 shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Issuers shall 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, shall 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, the Holders of a majority in aggregate principal amount of the Notes then outstanding may waive compliance in a particular instance by the Issuers or any Guarantor with any provision of this Indenture, the Note or the Note Guarantees. However, without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter any of the provisions with respect to the redemption of the Notes (other than provisions of Section 4.10 and Section 4.15 hereof); (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least 48 a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (e) make any Note payable in money other than that stated in the Notes; (f) make any change in Section 6.04 or 6.07 hereof or in the provisions of this Indenture relating to the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes; (g) waive a redemption payment with respect to any Note (other than a payment required by Section 4.10 or Section 4.14 hereof); (h) make any change to the subordination provisions of Article 10 hereof that adversely affects Holders; (i) except pursuant to Article 8 and Article 10 hereof, release any Guarantor from its obligations under its Note Guarantee, or change any Note Guarantee in any manner that would adversely affect the Holders; or (j) make any change in this sentence of this Section 9.02. Section 9.03. Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes shall 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 authenticate new Notes (accompanied by a notation of the Note Guarantees duly endorsed by the Guarantors) that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. 49 Section 9.06. Trustee to Sign Amendments, etc. The Trustee shall 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 Issuers and the Guarantors may not sign an amendment or supplemental Indenture until the Board of Directors of each of the General Partner and Finance Corp. approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully protected in relying upon, an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. ARTICLE 10 NOTE GUARANTEES Section 10.01. Note Guarantee. Each Subsidiary of the Partnership which in accordance with Section 4.13 hereof has guaranteed the obligations of the Issuers under the Notes, upon execution of a counterpart of this Indenture, hereby jointly and severally unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee irrespective of the validity or enforceability of this Indenture, the Notes or the obligations of the Issuers under this Indenture or the Notes, that: (i) the principal of and interest on the Notes will be paid in full when due, whether at the maturity or interest payment or mandatory redemption date, by acceleration, call for redemption or otherwise, and interest on the overdue principal of and interest, if any, on the Notes and all other obligations of the Issuers to the Holders or the Trustee under this Indenture or the Notes will be promptly paid in full or performed, all in accordance with the terms of this Indenture and the Notes; and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, they will be paid in full when due or performed in accordance with the terms of the extension or renewal, whether at maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed for whatever reason, each Guarantor will be obligated to pay the same whether or not such failure to pay has become an Event of Default which could cause acceleration pursuant to Section 6.02 hereof. Each Guarantor agrees that this is a guarantee of payment not a guarantee of collection. Each Guarantor hereby agrees that its obligations with regard to this Note Guarantee shall be joint and several, unconditional, irrespective of the validity or enforceability of the Notes or the obligations of the Issuers under this Indenture, the absence of any action to enforce the same, the recovery of any judgment against either Issuer or any other obligor with respect to this Indenture, the Notes or the obligations of the Issuers under this Indenture or the Notes, any action to enforce the same or any other circumstances (other than complete performance) which might otherwise constitute a legal or equitable discharge or defense of a Guarantor. Each Guarantor further, to the extent permitted by law, waives and relinquishes all claims, rights and remedies accorded by applicable law to guarantors and agrees not to assert or take advantage of any such claims, rights or remedies, including but not limited to: (a) any right to require the Trustee, the Holders or the Issuers (each, a "Benefitted Party") to proceed against the Issuers or any other Person or to proceed against or exhaust any security held by a Benefitted Party at any time or to pursue any other remedy in any Benefitted Party's power before proceeding against such Guarantor; (b) the defense of the statute of limitations in any action hereunder or in any action for the collection of any Indebtedness or the performance of any obligation hereby guaranteed; (c) any defense that may arise by reason of the incapacity, lack of authority, death or disability of any 50 other Person or the failure of a Benefitted Party to file or enforce a claim against the estate (in administration, bankruptcy or any other proceeding) of any other Person; (d) demand, protest and notice of any kind including but not limited to notice of the existence, creation or incurring of any new or additional Indebtedness or obligation or of any action or non-action on the part of such Guarantor, either Issuer, any Benefitted Party, any creditor of such Guarantor, either Issuer or on the part of any other Person whomsoever in connection with any Indebtedness or obligations hereby guaranteed; (e) any defense based upon an election of remedies by a Benefitted Party, including but not limited to an election to proceed against such Guarantor for reimbursement; (f) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (g) any defense arising because of a Benefitted Party's election, in any proceeding instituted under the Federal Bankruptcy Code, of the application of Section 1111(b)(2) of the Federal Bankruptcy Code; or (h) any defense based on any borrowing or grant of a security interest under Section 364 of the Federal Bankruptcy Code. Each Guarantor hereby covenants that its Note Guarantees will not be discharged except by complete performance of the obligations contained in its Note Guarantees and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to either the Partnership, Finance Corp. or any Guarantor, or any Custodian acting in relation to any of the Partnership, Finance Corp. or such Guarantor, any amount paid by the Partnership, Finance Corp. or such Guarantor to the Trustee or such Holder, the applicable Note Guarantees, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor agrees that it will not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between such Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the obligations guaranteed hereby may be accelerated as provided in Section 6.02 hereof for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration as to the Issuers or any other obligor on the Notes of the obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of those obligations as provided in Section 6.02 hereof, those obligations (whether or not due and payable) will forthwith become due and payable by such Guarantor for the purpose of this Note Guarantee. Section 10.02. Limitation of Guarantor's Liability. Each Guarantor and by its acceptance hereof, each beneficiary hereof, hereby confirm that it is its intention that the Note Guarantees by such Guarantor not constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Note Guarantees. To effectuate the foregoing intention, each such person hereby irrevocably agrees that the obligation of such Guarantor under its Note Guarantees under this Article 10 shall be limited to the maximum amount as will, after giving effect to such maximum amount and all other (contingent or otherwise) liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 10, result in the obligations of such Guarantor in respect of such maximum amount not constituting a fraudulent conveyance. Each beneficiary under the Note Guarantees, by accepting the benefits hereof, confirms its intention that, in the event of a bankruptcy, reorganization or other similar proceeding of either Issuer or any Guarantor in which concurrent claims are made upon such Guarantor hereunder, to the extent such 51 claims will not be fully satisfied, each such claimant with a valid claim against such Issuer shall be entitled to a ratable share of all payments by such Guarantor in respect of such concurrent claims. Section 10.03. Guarantors May Consolidate, etc., on Certain Terms. No Guarantor shall consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another corporation, Person or entity whether or not it is affiliated with such Guarantor unless (i) subject to the provisions of the following paragraph and Section 10.4 hereof, the Person formed by or surviving any such consolidation or merger (if other than such Guarantor) assumes all the obligations of such Guarantor pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, under its Note Guarantee, the Notes and this Indenture, (ii) immediately after giving effect to such transaction, no Default or Event of Default exists, and (iii) such Guarantor, or any Person formed by or surviving any such consolidation or merger, (A) shall have Consolidated Net Worth (immediately after giving effect to such transaction), equal to or greater than the Consolidated Net Worth of such Guarantor immediately preceding the transaction and (B) will be permitted by virtue of the Partnership pro forma Fixed Charge Coverage Ratio to incur, immediately after giving effect to such transaction, at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the Section 4.09 hereof. In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Note Guarantee in this Indenture and the due and punctual performance and observance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor corporation shall succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Notwithstanding the foregoing, (A) a Guarantor may consolidate with or merge with or into the Partnership or Finance Corp. (subject to the provisions of Section 5.01 hereof) and (B) a Guarantor may consolidate with or merge with or into any other Guarantor. Section 10.04. Releases Following Sale of Assets. Upon a sale or other disposition of all or substantially all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the capital stock of any Guarantor, then such Guarantor (in the event of a sale or other disposition, by way of such a merger, consolidation or otherwise, of all of the Capital Interests of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) shall be released and relieved of its obligations under its Note Guarantees; provided that the Net Proceeds of such sale or other disposition are applied in accordance with Section 4.10 hereof. The Trustee will deliver to such Guarantor a signed acknowledgment of such release. ARTICLE 11 MISCELLANEOUS Section 11.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA (S)318(c), the imposed duties shall control. 52 Section 11.02. Notices. Any notice or communication by the Issuers, the Guarantors 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 or any Guarantor: Ferrellgas, L.P. One Liberty Plaza Liberty, Missouri 64068 Telecopier No.: (816) 792-6979 Attention: Danley K. Sheldon With a copy to: Smith, Gill, Fisher, & Butts, P.C. One Kansas City Place 1200 Main Street Kansas City, Missouri 64105 Telecopier No.: (816) 391-7600 Attention: Kendrick T. Wallace If to the Trustee: Norwest Bank Minnesota, National Association 6th Street & Marquette Ave. Minneapolis, MN 55479 Telecopier No.: (612) 677-9875 Attention: Ray Haverstock The Issuers, the Guarantors 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) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall 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 shall also be so mailed to any Person described in TIA (S) 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. 53 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 either Issuer or any Guarantor mails a notice or communication to Holders, it shall 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 (S)312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Issuers, the Guarantors, if any, the Trustee, the Registrar and anyone else shall have the protection of TIA (S)312(c). Section 11.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Issuers or the Guarantors, if any, to the Trustee to take any action under this Indenture, each of the Issuers or the Guarantors, if any, shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall 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 (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall 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 (S)314(a)(4)) shall comply with the provisions of TIA (S) 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) 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; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether such covenant or condition has been satisfied; and (d) a statement as to whether, in the opinion of such Person, such condition or covenant has been satisfied. 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. 54 Section 11.07. No Personal Liability of Directors, Officers, Employees and Stockholders. No past, present or future director, officer, employee, incorporator or stockholder of either Issuer or any Guarantor, as such, shall have any liability for any obligations of the Issuers or any Guarantor under the Notes, the Note Guarantees, this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note and the related Note Guarantees waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Section 11.08. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES. Section 11.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Issuers or their Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 11.10. Successors. All agreements of the Issuers and the Guarantors, if any, in this Indenture and the Notes and the Note Guarantees, as the case may be, shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successors. Section 11.11. Severability. In case any provision in this Indenture, in the Notes or in the Note Guarantees, if any, shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 11.12. Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 11.13. 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 shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 55 SIGNATURES Dated as of July 5, 1994 FERRELLGAS, L.P. By: Ferrellgas, Inc. General Partner By: -------------------------------------- Name: Title: (SEAL) Dated as of July 5, 1994 FERRELLGAS FINANCE CORP. By: ----------------------------------------- Name: Title: (SEAL) Dated as of July 5, 1994 NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By: ----------------------------------------- Name: Title: (SEAL) 56 Exhibit A (Face of Series A Fixed Rate Senior Note) 10% Series A Fixed Rate Senior Note due 2001 No. $__________ FERRELLGAS, L.P. FERRELLGAS FINANCE CORP. promise to pay to or registered assigns, the principal sum of Dollars on August 1, 2001. Interest Payment Dates: February 1 and August 1. Record Dates: January 15 and July 15. Dated: July 5, 1994 FERRELLGAS, L.P. By: Ferrellgas, Inc. General Partner By: ------------------------------- Name: Title: By: ------------------------------- Name: Title: FERRELLGAS FINANCE CORP. By: ------------------------------- Name: Title: By: -------------------------------- Name: Title: A-1 This is one of the Notes referred to in the within-mentioned Indenture: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee By:__________________________________ A-2 (Back of Note) 10% SERIES A FIXED RATE SENIOR NOTE DUE AUGUST 1, 2001 Capitalized terms used herein have the meanings assigned to them in the Indenture (as defined below) unless otherwise indicated. 1. Interest. Ferrellgas L.P., a Delaware limited partnership (the "Partnership"), and Ferrellgas 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 the rate and in the manner specified below. The Issuers shall pay interest in cash on the principal amount of this Note at the rate per annum of 10%. The Issuers will pay interest semi- annually in arrears on February 1 and August 1 of each year, commencing on February 1, 1995, to Holders of record on the immediately preceding January 15 and July 15, or if any such day is not a Business Day (as defined in the Indenture), on the next succeeding Business Day (each a "Fixed Rate Interest Payment Date"). Interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Notes. To the extent lawful, the Issuers shall pay interest on overdue principal at the rate of 1% per annum in excess of the then applicable interest rate on the Notes; it shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. 2. Method of Payment. The Issuers will pay interest on the Notes (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the record date next preceding the Fixed Rate Interest Payment Date, even if such Notes are cancelled after such record date and on or before such Fixed Rate Interest Payment Date. The Holder hereof must surrender this Note to a Paying Agent to collect principal payments. The Issuers will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Issuers, however, may pay principal, premium, if any, and interest by check payable in such money. The Notes will be payable both as to principal and interest at the office or agency of the Issuers maintained for such purpose within the City and State of New York or, at the option of the Issuers, payment of interest may be made by check mailed to the Holders of Notes at their respective addresses set forth in the register of Holders. Unless otherwise designated by the Issuers, the Issuers' office or agency in New York, New York will be the office of the Trustee maintained for such a purpose. 3. Paying Agent and Registrar. Initially, the Trustee will act as Paying Agent and Registrar. The Issuers may change any Paying Agent, Registrar or co-registrar without notice to any Holder. Either Issuer or any Guarantor may act in any such capacity. 4. Indenture. The Issuers issued the Notes under an Indenture dated as of July 5, 1994 (the "Indenture") between Partnership, Finance Corp. 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 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture. The Notes are subject to all such terms, and Holders of the Notes are referred to the Indenture and such act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Notes. The Notes are unsecured general obligations of the Issuers limited to A-3 $250,000,000 in aggregate principal amount. The Fixed Rate Senior Notes are limited to $200,000,000 in aggregate principal amount. 5. Optional Redemption. The Issuers shall not have the option to redeem the Notes pursuant to Section 3.07 of the Indenture prior to August 1, 1998. Thereafter, the Issuers shall 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 the principal amount) set forth below, plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the 12 month period beginning on August 1 of the years indicated below:
Year Percentage 1998 ....................... 105.00% 1999 ....................... 102.50% 2000 ....................... 100.00%
6. Mandatory Redemption. Except as described in paragraph 7 below, the Issuers shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. 7. Redemption or Repurchase at Option of Holder. (a) If there is a Change of Control (as defined in the Indenture), the Issuers shall be required to offer to purchase all Notes at 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. Holders of Notes that are subject to an offer to purchase will receive a notice therefor 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" appearing below. (b) When the aggregate amount of Excess Proceeds from Asset Sales (as defined in the Indenture) exceeds $15 million, the Issuers shall be required to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds at 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date fixed for the closing of such offer. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Notes to be redeemed shall be selected pursuant to the terms of Section 3.02 of the Indenture (with such adjustments as may be deemed appropriate by the Issuers so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased). To the extent that the aggregate amount of Notes tendered by Holders thereof is less than the Excess Proceeds, the Issuers may use such deficiency for general business purposes. Holders of Notes which are the subject of an offer to purchase will receive a notice therefor 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" appearing below. 8. Notice of Redemption. Notice of redemption shall be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notes 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 of them 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 A-4 to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Note or portion of a Note selected for redemption. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed, during the period between a record date and the corresponding Fixed Rate Interest Payment Date. 10. Persons Deemed Owners. Prior to due presentment to the Trustee for registration of the transfer of this Note, the Trustee, any Agent, the Issuers and the Guarantors may deem and treat the Person in whose name this Note is registered as its absolute owner for the purpose of receiving payment of principal of and interest on this Note and for all other purposes whatsoever, whether or not this Note is overdue, and neither the Trustee, any Agent, the Issuers nor any Guarantor shall be affected by notice to the contrary. The registered holder of a Note shall be treated as its owner for all purposes. 11. Amendments and Waivers. Subject to certain exceptions, the Indenture or the Notes may be amended 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 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, the Indenture or the Notes may be amended to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for assumption of the Issuers' or any Guarantor's obligations to Holders in the case of a merger or consolidation or to make any change that would provide any additional rights or benefits to the Holders or that does not adversely affect the rights of any Holder under the Indenture or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder of Notes): (i) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver, (ii) 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 provisions relating to the covenants described above under the caption "Redemption or Repurchase at the Option of Holders"), (iii) reduce the rate of or change the time for payment of interest on any Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Note payable in money other than that stated in the Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes, (vii) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption "Redemption or Repurchase at the Option of Holders"), (viii) except as otherwise permitted in the Indenture, release any Guarantor from its obligations under its Note Guarantee or change any Note Guarantee in any manner that would adversely affect the rights of the Holders of Senior Notes or (ix) make any change in the foregoing amendment and waiver provisions. 12. Defaults and Remedies. Events of Default include: default for 30 days in the payment when due of interest on the Notes; default in payment when due of principal of or premium, if any, on the Notes at maturity, upon redemption or otherwise; failure for 20 days by the Partnership to comply with Sections 4.07, 4.09, 4.14 or 5.01 of the Indenture; failure by the Partnership or the Guarantors for 60 days after notice from the Trustee or the Holder of at least 25% in principal amount of the Notes then outstanding to comply with any of its other agreements in the Indenture or the Notes; default under any mortgage, indenture or instrument under which there may be issued or by which there A-5 may be secured or evidenced any Indebtedness for money borrowed by the Partnership or any of its Subsidiaries (or the payment of which is guaranteed by the Partnership or any of its Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10 million or more, excluding any acceleration of maturity of the Indebtedness represented by the General Partner's Existing Floating Rate Notes and Existing Fixed Rate Notes to the extent that such Indebtedness shall be redeemed on or prior to the 40th day after the date of this Indenture; 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; except as permitted by the Indenture, any Note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Note Guarantees; and certain events of bankruptcy or insolvency with respect to the Partnership or any of its Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately; except that in the case of an Event of Default arising from certain events of bankruptcy or insolvency, relating to the Partnership, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes 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 the then outstanding Notes may direct the Trustee 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 that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding, by notice to the Trustee, may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, premium, if any, and interest on 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 under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Issuers, any Guarantor or their respective Affiliates, and may otherwise deal with the Issuers, any Guarantor or their respective Affiliates, as if it were not Trustee; however, if the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue as Trustee or resign. 14. No Recourse Against Others. No past, present or future director, officer, employee, incorporator or stockholder, as such, of either Issuer or any Guarantor, as such, shall have any liability for any obligations of the Issuers or any Guarantor under the Notes, the Note Guarantees or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note and the related Note Guarantees, if any, waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. A-6 15. Authentication. This Note shall 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 has directed the Trustee to 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. 18. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THE INDENTURE, THE NOTES AND THE NOTE GUARANTEES, IF ANY. The Issuers will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: Ferrellgas, L.P. One Liberty Plaza Liberty, Missouri 64068 Telecopier No.: (816) 792-6979 Attention: Danley K. Sheldon A-7 Assignment Form To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - ------------------------------------------------------------------------------- (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. A-8 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 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 Note) Tax Identification No.: -------------------- Signature Guarantee. A-9 Exhibit B (Face of Floating Rate Senior Note) Floating Rate Senior Note due 2001 No. $__________ FERRELLGAS, L.P. FERRELLGAS FINANCE CORP. promise to pay to or registered assigns, the principal sum of Dollars on August 1, 2001. Interest Payment Dates: February 1, May 1, August 1 and November 1. Record Dates: January 15, April 15, July 15 and October 15. Dated: July 5, 1994 FERRELLGAS, L.P. By: Ferrellgas, Inc. General Partner By: ----------------------------------------- Name: Title: By: ----------------------------------------- Name: Title: B-1 FERRELLGAS FINANCE CORP. By:____________________________________ Name: Title: By:____________________________________ Name: Title: This is one of the Floating Rate Senior Notes referred to in the within-mentioned Indenture: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, Trustee By:__________________________________ B-2 (Back of Note) SERIES B FLOATING RATE SENIOR NOTE DUE AUGUST 1, 2001 Capitalized terms used herein have the meanings assigned to them in the Indenture (as defined below) unless otherwise indicated. 1. Interest. Ferrellgas L.P., a Delaware limited partnership (the "Partnership"), and Ferrellgas 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 a rate equal to the Applicable LIBOR Rate. The Issuers will pay interest quarterly on February 1, May 1, August 1 and November 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, a "Floating Rate Interest Payment Date"), commencing on November 1, 1994, to Holders of record on the immediately preceding January 15, April 15, July 15 and October 15. Interest on this Note will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of this Note. Interest on this Note shall accrue to, but not including, the date of repayment of such principal; provided, however, that if such repayment occurs after 12:00 noon, New York City time, interest shall be deemed to accrue until the following Business Day. To the extent lawful, the Issuers shall pay interest on overdue principal at the rate of 1% per annum in excess of the then applicable interest rate on this Note; they shall pay interest on overdue installments of interest (without regard to any applicable grace periods) at the same rate to the extent lawful. On each Floating Rate Interest Payment Date, interest on this Note will be paid for the Initial Quarterly Period or the immediately preceding Quarterly Period, as applicable. Interest shall be calculated on a formula basis in respect of the Initial Quarterly Period and each Quarterly Period by multiplying the principal amount of this Note by the Applicable LIBOR Rate, and multiplying such product by the LIBOR Fraction. Anything to the contrary in this Note notwithstanding, the interest rate on this Note shall in no event be in excess of the maximum rate permitted by the law of any state of applicable jurisdiction, as the same may be modified by Federal law. The "Applicable LIBOR Rate" means for each Quarterly Period during which any Floating Rate Senior Note is outstanding subsequent to the Initial Quarterly Period, 312.5 basis points over the rate determined by the Partnership (notice of such rate to be sent to the Trustee by the Company on the date of determination thereof) equal to the average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the offered rates for deposits in U.S. dollars for a period of three months, as set forth on the Reuters Screen LIBO Page as of 11:00 a.m., London time, on the Interest Rate Determination Date for such Quarterly Period; provided, however, that if only one such offered rate appears on the Reuters Screen LIBO Page, the Applicable LIBOR Rate for such Quarterly Period shall mean such offered rate. If such rate is not available at 11:00 a.m., London time, on the Interest Rate Determination Date for such Quarterly Period, then the Applicable LIBOR Rate for such Quarterly Period shall mean the arithmetic mean (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the interest rates per annum at which deposits in amounts equal to $1 million in U.S. dollars are offered by the Reference Banks to leading banks in the London Interbank Market for a period of six months as of 11:00 a.m., London time, on the Interest Rate Determination Date for such Quarterly Period. If on any Interest Rate Determination Date, at least two of the Reference Banks provide such offered quotations, then the Applicable LIBOR Rate for such Quarterly Period shall be determined in accordance with the preceding sentence on the basis of the offered quotation of those Reference Banks providing such quotations; provided, however that if fewer than two of the Reference Banks are so quoting such interest rates as mentioned above, the Applicable LIBOR Rate for such Quarterly Period shall be deemed to be the Applicable LIBOR Rate for the next B-3 preceding Quarterly Period and in the case of the Quarterly Period next succeeding the Initial Quarterly Period, the Applicable LIBOR Rate shall be 7 7/8%. Notwithstanding the foregoing, the Applicable LIBOR Rate for the Initial Quarterly Period shall be 7 7/8%. "Interest Rate Determination Date" means, with respect to the Initial Quarterly Period and each Quarterly Period, the second Working Day prior to the first day of such Initial Quarterly Period or Quarterly Period, as applicable. "LIBOR Fraction" means the actual number of days in the Initial Quarterly Period or Quarterly period, as applicable, divided by 360; provided, however, that the number of days in the Initial Quarterly Period and each Quarterly Period shall be calculated by including the first day of such Initial Quarterly Period or Quarterly Period and excluding the last. "Initial Quarterly Period" means the period from and including July 5, 1994 through and including October 31, 1994. "Quarterly Period" means the period from and including a scheduled Floating Rate Interest Payment Date through the day next preceding the following scheduled Floating Rate Interest Payment Date. "Reference Banks" means each of Barclays Bank PLC, London Branch, the Bank of Tokyo, Ltd, London Branch, Bankers Trust Company, London Branch, and National Westminster Bank PLC, London Branch, and any such replacement bank thereof as listed on the Reuters Screen LIBO Page and their respective successors, and if any of such banks are not at the applicable time providing interest rates as contemplated within the definition of the "Applicable LIBOR Rate," Reference Banks shall mean the remaining bank or banks so providing such rates. In the event that less than two of such banks are providing such rates, the Issuers shall use reasonable efforts to appoint additional Reference Banks so that there are at least two such banks providing such rates; provided, however, that such banks appointed by the Issuers shall be London offices of leading banks engaged in the Eurodollar Market. "Reuters Screen LIBO Page" means the display designated as page "LIBO" on the Reuter Monitor Money Rates Service (or such other page as may replace the LIBO page on that service for the purpose of displaying London Interbank Offered Rates of major banks). "Working Day" means any day which is not a Saturday, Sunday or a day on which banking institutions in New York, New York or London, England are authorized or obligated by law or executive order to close. 2. Method of Payment. The Issuers will pay interest on this Note (except defaulted interest) to the Person who is the registered Holder of such Note at the close of business on the record date next preceding the Floating Rate Interest Payment Date, even if such Note is cancelled after such record date and on or before such Floating Rate Interest Payment Date. The Holder hereof must surrender this Note to a Paying Agent to collect principal payments. The Issuers will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Issuers, however, may pay principal, premium, if any, and interest by check payable in such money. The Notes will be payable both as to principal and interest at the office or agency of the Issuers maintained for such purpose within the City and State of New York or, at the option of the Issuers, payment of interest may be made by check mailed to the Holders of Notes at their respective addresses set forth in the register of Holders. Unless otherwise designated by the Issuers, the Issuers' office or agency in New York, New York will be the office of the Trustee maintained for such a purpose. B-4 3. Paying Agent and Registrar. Initially, the Trustee will act as Paying Agent and Registrar. The Issuers may change any Paying Agent, Registrar or co- registrar without notice to any Holder. Either Issuer or any Guarantor may act in any such capacity. 4. Indenture. The Issuers issued the Notes under an Indenture dated as of July 5, 1994 (the "Indenture") between Partnership, Finance Corp. and the Trustee. The terms Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture. The Notes are subject to all such terms, and Holders of the Notes are referred to the Indenture and such act for a statement of such terms. The terms of the Indenture shall govern any inconsistencies between the Indenture and the Notes. The Notes are unsecured general obligations of the Issuers limited to $250,000,000 in aggregate principal amount. The Floating Rate Senior Notes are limited to $50,000,000 in aggregate principal amount. 5. Optional Redemption. The Issuers may redeem all or any portion of the Floating Rate Senior Notes on any Floating Rate Interest Payment Date on or after August 1, 1995, on not less than 30 nor more than 60 days' notice to each Holder, at a redemption price equal to 100% of the outstanding principal amount then redeemed, plus accrued and unpaid interest to the redemption date. 6. Mandatory Redemption. The Issuers shall redeem $5,000,000 principal amount of Floating Rate Senior Notes on each of August 1, 1999 and August 1, 2000 at a redemption price equal to 100% of principal amount thereof, plus accrued and unpaid interest to the redemption date. The Issuers may reduce the principal amount of Floating Rate Senior Notes to be redeemed pursuant to this paragraph 6 by subtracting 100% of the principal amount of any Floating Rate Senior Notes that the Issuers have delivered to the Trustee for cancellation or that the Issuers have redeemed other than pursuant to this paragraph 6. The Issuers may so subtract the principal amount of a Floating Rate Senior Note only once. Except as described in this paragraph 6 and in paragraph 7 below, the Issuers shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. 7. Redemption or Repurchase at Option of Holder. (a) If there is a Change of Control (as defined in the Indenture), the Issuers shall be required to offer to purchase all Notes at 101% of the aggregate principal amount thereof plus accrued and unpaid interest. Holders of Notes that are subject to an offer to purchase will receive a notice therefor 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" appearing below. (b) When the aggregate amount of Excess Proceeds from Asset Sales (as defined in the Indenture) exceeds $15 million, the Issuers shall be required to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds at 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date fixed for the closing of such offer. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Notes to be redeemed shall be selected pursuant to the terms of Section 3.02 of the Indenture (with such adjustments as may be deemed appropriate by the Issuers so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased). To the extent that the aggregate amount of Notes tendered by Holders thereof is less than the Excess Proceeds, the Issuers may use such deficiency for general business purposes. Holders of Notes which are the subject of an offer to purchase will receive a notice therefor 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" appearing below. B-5 8. Notice of Redemption. Notice of redemption shall be mailed at least 30 days but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notes 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 of them 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 to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not exchange or register the transfer of any Note or portion of a Note selected for redemption. Also, it need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed, during the period between a record date and the corresponding Floating Rate Interest Payment Date. 10. Persons Deemed Owners. Prior to due presentment to the Trustee for registration of the transfer of this Note, the Trustee, any Agent, the Issuers and the Guarantors may deem and treat the Person in whose name this Note is registered as its absolute owner for the purpose of receiving payment of principal of and interest on this Note and for all other purposes whatsoever, whether or not this Note is overdue, and neither the Trustee, any Agent, the Issuers nor any Guarantor shall be affected by notice to the contrary. The registered holder of a Note shall be treated as its owner for all purposes. 11. Amendments and Waivers. Subject to certain exceptions, the Indenture or the Notes may be amended 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 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, the Indenture or the Notes may be amended to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for assumption of the Issuers' or any Guarantor's obligations to Holders in the case of a merger or consolidation or to make any change that would provide any additional rights or benefits to the Holders or that does not adversely affect the rights of any Holder under the Indenture or to comply with the requirements of the Commission in order to effect or maintain the qualification of the Indenture under the Trust Indenture Act. Without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder of Notes): (i) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver, (ii) 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 provisions relating to the covenants described above under the caption "Redemption or Repurchase at the Option of Holders"), (iii) reduce the rate of or change the time for payment of interest on any Note, (iv) waive a Default or Event of Default in the payment of principal of or premium, if any, or interest on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration), (v) make any Note payable in money other than that stated in the Notes, (vi) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, if any, or interest on the Notes, (vii) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described above under the caption "Redemption or Repurchase at the Option of Holders"), (viii) except as otherwise permitted in the Indenture, release any Guarantor from its obligations under its B-6 Note Guarantee or change any Note Guarantee in any manner that would adversely affect the rights of the Holders of Senior Notes or (ix) make any change in the foregoing amendment and waiver provisions. 12. Defaults and Remedies. Events of Default include: default for 30 days in the payment when due of interest on the Notes; default in payment when due of principal of or premium, if any, on the Notes at maturity, upon redemption or otherwise; failure for 20 days by the Partnership to comply with Sections 4.07, 4.09, 4.14 or 5.01 of the Indenture; failure by the Partnership or the Guarantors for 60 days after notice from the Trustee or the Holder of at least 25% in principal amount of the Notes then outstanding to comply with any of its other agreements in the Indenture or the Notes; default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Partnership or any of its Subsidiaries (or the payment of which is guaranteed by the Partnership or any of its Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created after the date of the Indenture, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $10 million or more, excluding any acceleration of maturity of the Indebtedness represented by the General Partner's Existing Floating Rate Notes and Existing Fixed Rate Notes to the extent that such Indebtedness shall be redeemed on or prior to the 40th day after the date of this Indenture; 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; except as permitted by the Indenture, any Note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Note Guarantees; and certain events of bankruptcy or insolvency with respect to the Partnership or any of its Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately; except that in the case of an Event of Default arising from certain events of bankruptcy or insolvency, relating to the Partnership, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable without further action or notice. Holders of the Notes 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 the then outstanding Notes may direct the Trustee 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 that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding, by notice to the Trustee, may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal of, premium, if any, and interest on 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 under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Issuers, any Guarantor or their respective Affiliates, and may otherwise deal with the Issuers, any Guarantor or their respective Affiliates, as if it were not Trustee; however, if the Trustee acquires any conflicting interest B-7 it must eliminate such conflict within 90 days, apply to the Commission for permission to continue as Trustee or resign. 14. No Recourse Against Others. No past, present or future director, officer, employee, incorporator or stockholder, as such, of either Issuer or any Guarantor, as such, shall have any liability for any obligations of the Issuers or any Guarantor under the Notes, the Note Guarantees or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Note and the related Note Guarantees, if any, waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. 15. Authentication. This Note shall 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 has directed the Trustee to 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. 18. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THE INDENTURE, THE NOTES AND THE NOTE GUARANTEES, IF ANY. The Issuers will furnish to any Holder upon written request and without charge a copy of the Indenture. Request may be made to: Ferrellgas, L.P. One Liberty Plaza Liberty, Missouri 64068 Telecopier No.: (816) 792-6979 Attention: Danley K. Sheldon B-8 Assignment Form To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to - ------------------------------------------------------------------------------- (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. B-9 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 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 Note) Tax Identification No.: -------------------- Signature Guarantee. B-10 EXHIBIT C Form of Supplemental Indenture to Be Delivered by Future Guarantors Supplemental Indenture (this "Supplemental Indenture"), dated as of ________________, between __________________ (the "Guarantor"), a subsidiary of Ferrellgas, L.P., (or its successor), a Delaware limited partnership (the "Partnership"), and Norwest Bank Minnesota, National Association, a national banking association, as trustee under the Indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Partnership and Ferrellgas Finance Corp., a Delaware corporation ("Finance Corp." and, together with the Partnership, the "Issuers") have heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of July 5, 1994, providing for the issuance of an aggregate principal amount of $200,000,000 of 10% Fixed Rate Senior Notes (the "Fixed Rate Senior Notes") and an aggregate principal amount of $50,000,000 of Floating Rate Senior Notes (the "Floating Rate Senior Notes" and, together with the Fixed Rate Senior Notes, the "Senior Notes"; WHEREAS, Section 4.13 of the Indenture provides that under certain circumstances the Partnership may cause the Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which the Guarantor shall unconditionally guarantee all of the Issuers' obligations under the Notes pursuant to a Note Guarantee on the terms and conditions set forth herein; and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. Agreement to Guarantee. The Guarantor hereby agrees that its obligations to the Holder and the Trustee pursuant to this Note Guarantee shall be as expressly set forth in Article 10 of the Indenture and in such other provisions of the Indenture as are applicable to Guarantors, and reference is made to the Indenture for the precise terms of this Supplemental Indenture. The terms of Article 10 of the Indenture and such other provisions of the Indenture as are applicable to Guarantors are incorporated herein by reference. 3. Execution and Delivery of Note Guarantees. (a) To evidence its Note Guarantee set forth in this Supplemental Indenture, the Guarantor hereby agrees that a notation of such Note Guarantee substantially in the form of Exhibit C to the Indenture shall be endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee after the date hereof. (b) Notwithstanding the foregoing, the Guarantor hereby agrees that its Note Guarantee set forth herein shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee. C-1 (c) If an Officer whose signature is on this Supplemental Indenture or on the Note Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Note Guarantee is endorsed, the Note Guarantee shall be valid nevertheless. (d) The delivery of any Note by the Trustee, after the authentication thereof under the Indenture, shall constitute due delivery of the Note Guarantee set forth in this Supplemental Indenture on behalf of the Guarantor. 6. No Recourse Against Others. No past, present or future director, officer, employee, incorporator or stockholder of the Guarantor, as such, shall have any liability for any obligations of the Issuers or any Guarantor under the Notes, any Note Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the 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. 7. New York Law to Govern. The internal law of the State of New York shall govern and be used to construe this Supplemental Indenture and the Note Guarantee. 8. Counterparts The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 9. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: ____________, ____ [Guarantor] By: ___________________________ Name: Title: Dated: ____________, ____ _________________________________, as Trustee By: ___________________________ Name: Title: C-2 EXHIBIT D FORM OF NOTATION ON SENIOR NOTE RELATING TO NOTE GUARANTEE Each Guarantor set forth below and each Subsidiary of the Partnership which in accordance with Section 4.13 of the Indenture has guaranteed the obligations of the Issuers under the Notes upon execution of a counterpart of the Indenture, has jointly and severally unconditionally guaranteed (i) the due and punctual payment of the principal of and interest on the Notes, whether at the maturity or interest payment or mandatory redemption date, by acceleration, call for redemption or otherwise, and of interest on the overdue principal of and interest, if any, on the Notes and all other obligations of the Issuers to the Holders or the Trustee under the Indenture or the Notes and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at maturity, by acceleration or otherwise. The obligations of each Guarantor to the Holder and to the Trustee pursuant to this Note Guarantee and the Indenture are as expressly set forth in Article 10 of the Indenture and in such other provisions of the Indenture as are applicable to Guarantors, and reference is hereby made to such Indenture for the precise terms of this Note Guarantee. The terms of Article 10 of the Indenture and such other provisions of the Indenture as are applicable to Guarantors are incorporated herein by reference. This is a continuing guarantee and shall remain in full force and effect and shall be binding upon each Guarantor and its successors and assigns until full and final payment of all of the Issuers' obligations under the Notes and the Indenture and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges herein conferred upon that party shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. This is a guarantee of payment and not a guarantee of collection. This Note Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Note upon which this Note Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. By:__________________________________________ Name: Title: D-1 EX-23 4 CONSENT OF INDEPENDENT ACCOUNTANT DELOITTE & TOUCHE EXHIBIT 23.1 INDEPENDENT ACCOUNTANTS' CONSENT We consent to the use in this Post-Effective Amendment No. 2 to Registration Statement No. 33-53379 of $250,000,000 aggregate principal amount of senior notes of Ferrellgas, L.P., and Ferrellgas Finance Corp. of our report dated June 3, 1994, on Ferrellgas Inc. (which expressed an unqualified opinion and included an explanatory paragraph concerning an uncertainty involving an income tax matter), appearing in the Prospectus, which is part of this Registration Statement, and of our report dated June 3, 1994 relating to the financial statement schedules appearing elsewhere in this Registration Statement. We also consent to the use in this Post-Effective Amendment No. 2 to Registration Statement No. 33-53379 of $250,000,000 aggregate principal amount of senior notes of Ferrellgas, L.P., and Ferrellgas Finance Corp. of our report dated June 3, 1994, on Ferrellgas, L.P., appearing in the Prospectus, which is part of this Registration Statement. We also consent to the use in this Post-Effective Amendment No. 2 to Registration Statement No. 33-53379 of $250,000,000 aggregate principal amount of senior notes of Ferrellgas, L.P., and Ferrellgas Finance Corp. of our report dated June 3, 1994, on Ferrellgas Finance Corp., appearing in the Prospectus, which is part of this Registration Statement. We also consent to the use in this Post-Effective Amendment No. 2 to Registration Statement No. 33-53379 of $250,000,000 aggregate principal amount of senior notes of Ferrellgas, L.P., and Ferrellgas Finance Corp. of our report dated June 3, 1994 accompanying the pro forma financial information of Ferrellgas, L.P., appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the headings "Selected Historical and Pro Forma Consolidated Financial and Operating Data" and "Experts" in such Prospectus. DELOITTE & TOUCHE Kansas City, Missouri June 28, 1994 -----END PRIVACY-ENHANCED MESSAGE-----